WillScot Holdings Corp 10-Q

ITEM 1. Financial Statements WillScot Mobile Mini Holdings Corp. Condensed Consolidated Balance Sheets (in thousands, except share data) March 31, 2024 (unaudited) December 31, 2023 Assets Cash and cash equivalents $ 13,147 $ 10,958 Trade receivables, net of allowances for credit losses at March 31, 2024 and December 31, 2023 of $ 86,418 and $ 81,656 , respectively 450,572 451,130 Inventories 47,622 47,406 Prepaid expenses and other current assets 61,912 57,492 Assets held for sale – current 2,110 2,110 Total current assets 575,363 569,096 Rental equipment, net 3,399,628 3,381,315 Property, plant and equipment, net 344,187 340,887 Operating lease assets 259,965 245,647 Goodwill 1,175,972 1,176,635 Intangible assets, net 412,264 419,709 Other non-current assets 12,955 4,626 Total long-term assets 5,604,971 5,568,819 Total assets $ 6,180,334 $ 6,137,915 Liabilities and equity Accounts payable $ 100,490 $ 86,123 Accrued expenses 161,625 129,621 Accrued employee benefits 25,889 45,564 Deferred revenue and customer deposits 227,042 224,518 Operating lease liabilities – current 61,569 57,408 Current portion of long-term debt 19,178 18,786 Total current liabilities 595,793 562,020 Long-term debt 3,465,619 3,538,516 Deferred tax liabilities 565,955 554,268 Operating lease liabilities - non-current 198,265 187,837 Other non-current liabilities 34,576 34,024 Long-term liabilities 4,264,415 4,314,645 Total liabilities 4,860,208 4,876,665 Preferred Stock: $ 0.0001 par, 1,000,000 shares authorized and zero shares issued and outstanding at March 31, 2024 and December 31, 2023 — — Common Stock: $ 0.0001 par, 500,000,000 shares authorized and 190,598,309 and 189,967,135 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 20 20 Additional paid-in-capital 2,083,735 2,089,091 Accumulated other comprehensive loss ( 44,776 ) ( 52,768 ) Accumulated deficit ( 718,853 ) ( 775,093 ) Total shareholders' equity 1,320,126 1,261,250 Total liabilities and shareholders' equity $ 6,180,334 $ 6,137,915 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 3 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, (in thousands, except share data) 2024 2023 Revenues: Leasing and services revenue: Leasing $ 460,601 $ 439,951 Delivery and installation 100,362 106,630 Sales revenue: New units 13,499 10,657 Rental units 12,719 8,230 Total revenues 587,181 565,468 Costs: Costs of leasing and services: Leasing 102,394 97,515 Delivery and installation 77,842 75,007 Costs of sales: New units 8,273 6,208 Rental units 6,876 4,454 Depreciation of rental equipment 74,908 59,156 Gross profit 316,888 323,128 Other operating expenses: Selling, general and administrative 167,568 150,870 Other depreciation and amortization 17,920 17,173 Lease impairment expense and other related charges 746 22 Currency losses, net 77 6,775 Other expense (income), net 631 ( 3,359 ) Operating income 129,946 151,647 Interest expense, net 56,588 44,866 Income from continuing operations before income tax 73,358 106,781 Income tax expense from continuing operations 17,118 30,510 Income from continuing operations 56,240 76,271 Discontinued operations: Income from discontinued operations before income tax — 4,003 Gain on sale of discontinued operations — 176,078 Income tax expense from discontinued operations — 45,468 Income from discontinued operations — 134,613 Net income $ 56,240 $ 210,884 Earnings per share from continuing operations: Basic $ 0.30 $ 0.37 Diluted $ 0.29 $ 0.36 Earnings per share from discontinued operations: Basic $ — $ 0.65 Diluted $ — $ 0.64 Earnings per share: Basic $ 0.30 $ 1.02 Diluted $ 0.29 $ 1.00 Weighted average shares: Basic 190,137,533 206,092,169 Diluted 193,065,392 209,663,985 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 4 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Net income $ 56,240 $ 210,884 Other comprehensive income (loss): Foreign currency translation adjustment, net of income tax expense of $ 0 . ( 5,548 ) 7,934 Net gain (loss) on derivatives, net of income tax expense (benefit) of $ 4,515 and $( 222 ) for the three months ended March 31, 2024 and 2023, respectively. 13,540 ( 667 ) Total other comprehensive income 7,992 7,267 Total comprehensive income $ 64,232 $ 218,151 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 5 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Changes in Equity (Unaudited) Three Months Ended March 31, 2024 Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity (in thousands) Shares Amount Balance at December 31, 2023 189,967 $ 20 $ 2,089,091 $ ( 52,768 ) $ ( 775,093 ) $ 1,261,250 Net income — — — — 56,240 56,240 Other comprehensive income — — — 7,992 — 7,992 Withholding taxes on net share settlement of stock-based compensation — — ( 14,524 ) — — ( 14,524 ) Common Stock-based award activity 628 — 9,099 — — 9,099 Issuance of Common Stock from the exercise of options 3 — 69 — — 69 Balance at March 31, 2024 190,598 $ 20 $ 2,083,735 $ ( 44,776 ) $ ( 718,853 ) $ 1,320,126 Three Months Ended March 31, 2023 Common Stock Additional Paid-in-Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shareholders' Equity (in thousands) Shares Amount Balance at December 31, 2022 207,952 $ 21 $ 2,886,951 $ ( 70,122 ) $ ( 1,251,550 ) $ 1,565,300 Net income — — — — 210,884 210,884 Other comprehensive income — — — 7,267 — 7,267 Withholding taxes on net share settlement of stock-based compensation — — ( 10,058 ) — — ( 10,058 ) Common stock-based award activity 355 — 8,150 — — 8,150 Repurchase and cancellation of Common Stock ( 4,589 ) — ( 217,687 ) — — ( 217,687 ) Issuance of Common Stock from the exercise of options 6 — 68 — — 68 Balance at March 31, 2023 203,723 $ 21 $ 2,667,424 $ ( 62,855 ) $ ( 1,040,666 ) $ 1,563,924 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 6 WillScot Mobile Mini Holdings Corp. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Operating activities: Net income $ 56,240 $ 210,884 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 92,828 76,329 Provision for credit losses 11,807 8,803 Gain on sale of discontinued operations — ( 176,078 ) Gain on sale of rental equipment and other property, plant and equipment ( 5,677 ) ( 3,396 ) Amortization of debt discounts and debt issuance costs 2,947 2,743 Stock-based compensation expense 9,099 8,150 Deferred income tax expense 8,811 63,699 Loss on settlement of foreign currency forward contract — 7,715 Unrealized currency losses (gains), net 46 ( 1,042 ) Other 1,030 1,087 Changes in operating assets and liabilities: Trade receivables ( 8,099 ) ( 10,954 ) Inventories ( 366 ) ( 350 ) Prepaid expenses and other assets 1,914 ( 3,049 ) Operating lease assets and liabilities 282 345 Accounts payable and other accrued expenses 30,414 ( 32,694 ) Deferred revenue and customer deposits 7,400 ( 3,427 ) Net cash provided by operating activities 208,676 148,765 Investing activities: Acquisitions, net of cash acquired ( 43,399 ) ( 78,503 ) Purchase of rental equipment and refurbishments ( 72,417 ) ( 47,128 ) Proceeds from sale of rental equipment 14,195 7,781 Purchase of property, plant and equipment ( 6,554 ) ( 6,736 ) Proceeds from the sale of property, plant and equipment — 258 Purchase of investments ( 2,792 ) — Proceeds from sale of discontinued operations — 403,992 Payment for settlement of foreign currency forward contract — ( 7,715 ) Net cash (used in) provided by investing activities ( 110,967 ) 271,949 Financing activities: Receipts from borrowings 123,585 363,800 Repayment of borrowings ( 199,925 ) ( 558,300 ) Principal payments on finance lease obligations ( 4,827 ) ( 3,499 ) Receipts from issuance of Common Stock from the exercise of options 69 68 Repurchase and cancellation of Common Stock — ( 215,098 ) Taxes paid on employee stock awards ( 14,524 ) ( 10,058 ) Net cash used in financing activities ( 95,622 ) ( 423,087 ) Effect of exchange rate changes on cash and cash equivalents 102 517 Net change in cash and cash equivalents 2,189 ( 1,856 ) Cash and cash equivalents at the beginning of the period 10,958 17,774 Cash and cash equivalents at the end of the period $ 13,147 $ 15,918 Supplemental cash flow information: Interest paid, net $ 43,179 $ 39,570 Income taxes paid, net $ 952 $ 5,653 Capital expenditures accrued or payable $ 15,844 $ 17,786 See the accompanying notes which are an integral part of these condensed consolidated financial statements. 7 WillScot Mobile Mini Holdings Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) NOTE 1 - Summary of Significant Accounting Policies Organization and Nature of Operations WillScot Mobile Mini Holdings Corp. (“WillScot Mobile Mini” and, together with its subsidiaries, the “Company”) is a leading business services provider specializing in innovative and flexible turnkey temporary space solutions in the United States (“US”), Canada, and Mexico. The Company leases, sells, delivers and installs modular space solutions and portable storage products through an integrated network of branch locations that spans North America. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by US Generally Accepted Accounting Principles ("GAAP") for complete financial statements. The accompanying unaudited condensed consolidated financial statements comprise the financial statements of WillScot Mobile Mini and its subsidiaries that it controls due to ownership of a majority voting interest and contain all adjustments, which are of a normal and recurring nature, considered necessary by management to present fairly the financial position, results of operations and cash flows for the interim periods presented. Subsidiaries are fully consolidated from the dat e of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany balances and transactions are eliminated. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Segment Reporting In January 2024, the Company completed the unification of its go-to market structure by integrating its modular and storage divisions under a single leadership team organized by geography, achieving local product unification within each metropolitan statistical area and the ability to consistently deliver its portfolio of solutions to its entire customer base. In connection with this change in operating model, the Company realigned the composition of its operating and reportable segments to reflect how its Chief Operating Decision Maker reviews financial information to allocate resources to and assess performance of the segments. As a result, the Company concluded that its two operating segments (US and Other North America) are aggregated into one reportable segment as the operating segments share similar economic characteristics (e.g., comparable gross margins and comparable adjusted earnings before interest, taxes, depreciation and amortization margins) and similar qualitative characteristics as the operating segments offer similar products and services to similar customers, use similar methods to distribute products and are subject to similar competitive risks. Reclassifications Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. Recently Issued Accounting Standards ASU 2023-07. Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 expands the breadth and frequency of segment disclosures, requiring disclosure of (i) significant segment expenses, (ii) other segment items, (iii) the chief operating decision maker's title and position, (iv) how the chief operating decision maker uses the reported measures of a segment's profit or loss and (v) interim disclosure of all segment profit, loss and asset disclosures currently required annually. ASU 2023-07 clarifies that a public entity may report one or more measures of segment profit or loss and requires that single reportable segment entities provide all required segment disclosures. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its segment disclosures. ASU 2023-09. Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued Accounting Standards Update No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. Public business entities ("PBEs") are required to provide this incremental detail in a numerical, tabular format, while all other entities will do so through enhanced qualitative disclosures. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). ASU 2023-09 is 8 effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its income tax disclosures. NOTE 2 - Acquisitions Asset Acquisition During the three months ended March 31, 2024, the Company acquired certain assets and liabilities of one local storage and modular company, which consisted primarily of approximately 60 storage units and 800 modular units, for $ 43.4 million in cash, net of cash acquired. As of the acquisition date, the fair value of rental equipment acquired was $ 39.7 million. Integration Costs The Company recorded $ 2.9 million and $ 3.9 million in integration costs related to business combinations, asset acquisitions, and the merger of WillScot Corporation and Mobile Mini, Inc. within selling, general and administrative expense ("SG&A") during the three months ended March 31, 2024 and 2023, respectively. Entry into an Agreement to Acquire McGrath RentCorp On January 28, 2024, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with McGrath RentCorp ("McGrath"). Upon consummation of the merger, each outstanding share of McGrath common stock shall be converted into the right to receive either (i) $ 123.00 in cash or (ii) 2.8211 shares of the Company’s common stock. Under the terms of the Merger Agreement, the Company expects McGrath’s shareholders will own approximately 12.6 % of the Company following the McGrath acquisition. The McGrath acquisition has been approved by the Company's and McGrath’s respective boards of directors. The McGrath acquisition is subject to the satisfaction or waiver of certain customary closing conditions, including receipt of regulatory approval and approval by McGrath’s shareholders, and is expected to close in 2024. In connection with the Merger Agreement, the Company entered into a commitment letter dated January 28, 2024, which was amended and restated on February 12, 2024 and modified by a Notice of Reduction of Bridge Commitments on February 27, 2024 (the "Commitment Letter"), pursuant to which certain financial institutions have committed to make available, in accordance with the terms of the Commitment Letter, (i) a $ 500 million eight-year senior secured bridge credit facility, (ii) a $ 500 million five-year senior secured bridge credit facility and (iii) an upsize to Williams Scotsman, Inc.'s ("WSI") existing $ 3.7 billion ABL Facility (as defined below) by $ 750 million to $ 4.5 billion to repay McGrath's existing unsecured revolving lines of credit and notes, fund the cash portion of the consideration, and pay the fees, costs and expenses incurred in connection with the McGrath acquisition and the related transactions. NOTE 3 - Discontinued Operations UK Storage Solutions Divestiture On January 31, 2023, the Company sold its former UK Storage Solutions segment for $ 418.1 million. Exiting the UK Storage Solutions segment represented the Company’s strategic shift to concentrate its operations on its core modular and storage businesses in North America. Results for the former UK Storage Solutions segment are reported in income from discontinued operations within the 2023 condensed consolidated statement of operations. 9 The following table presents the results of the former UK Storage Solutions segment as reported in income from discontinued operations within the condensed consolidated statement of operations. (in thousands) Three Months Ended March 31, 2023 Revenues: Leasing and services revenue: Leasing $ 6,389 Delivery and installation 1,802 Sales revenue: New units 54 Rental units 449 Total revenues 8,694 Costs: Costs of leasing and services: Leasing 1,407 Delivery and installation 1,213 Costs of sales: New units 38 Rental units 492 Gross profit 5,544 Expenses: Selling, general and administrative 1,486 Other income, net ( 1 ) Operating income 4,059 Interest expense 56 Income from discontinued operations before income tax 4,003 Gain on sale of discontinued operations 175,708 Income tax expense from discontinued operations 45,468 Income from discontinued operations $ 134,243 In January 2023, a $ 0.4 million adjustment was made to the gain on sale of the former Tank and Pump segment due to the final contractual working capital adjustment. Including this adjustment, the total gain on sale of discontinued operations was $ 176.1 million for the three months ended March 31, 2023 . For the three months ended March 31, 2023 , significant investing items related to the former UK Storage Solutions segment were as follows: Three Months Ended March 31, (in thousands) 2023 Investing activities of discontinued operations: Proceeds from sale of rental equipment $ 514 Purchases of rental equipment and refurbishments $ ( 371 ) Proceeds from sale of property, plant and equipment $ 8 Purchases of property, plant and equipment $ ( 64 ) 10 NOTE 4 - Revenue Revenue Disaggregation Geographic Areas The Company had total revenue in the following geographic areas for the three months ended March 31, 2024 and 2023 as follows: Three Months Ended March 31, (in thousands) 2024 2023 US $ 553,433 $ 533,174 Canada 26,532 26,941 Mexico 7,216 5,353 Total revenues $ 587,181 $ 565,468 Major Product and Service Lines Equipment leasing is the Company's core business and the primary driver of the Company's revenue and cash flows. This includes turnkey temporary modular space and portable storage units along with value-added products and services ("VAPS"), which include furniture, steps, ramps, basic appliances, internet connectivity devices, integral tool racking, heavy duty capacity shelving, workstations, electrical and lighting products and other items used by customers in connection with the Company's products. The Company also offers its lease customers a damage waiver program that protects them in case the leased unit is damaged. Leasing is complemented by new unit sales and sales of rental units. In connection with its leasing and sales activities, the Company provides services including delivery and installation, maintenance and ad hoc services and removal services at the end of lease transactions. The Company’s revenue by major product and service line for the three months ended March 31, 2024 and 2023 was as follows: Three Months Ended March 31, (in thousands) 2024 2023 Modular space leasing revenue $ 252,147 $ 224,470 Portable storage leasing revenue 91,449 97,315 VAPS and third party leasing revenues (a) 96,314 94,126 Other leasing-related revenue (b) 20,691 24,040 Leasing revenue 460,601 439,951 Delivery and installation revenue 100,362 106,630 Total leasing and services revenue 560,963 546,581 New unit sales revenue 13,499 10,657 Rental unit sales revenue 12,719 8,230 Total revenues $ 587,181 $ 565,468 (a) Includes $ 7.5 million and $ 5.6 million of service revenue for the three months ended March 31, 2024 and 2023, respectively. (b) Includes primarily damage billings, delinquent payment charges, and other processing fees. Leasing and Services Revenue The majority of revenue ( 77 % for both the three months ended March 31, 2024 and 2023) was generated by lease income subject to the guidance of Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASC 842"). The remaining revenue was generated by performance obligations in contracts with customers for services or the sale of units subject to the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"). Receivables and Credit Losses The Company manages credit risk associated with its accounts receivable at the customer level. Because the same customers generate the revenues that are accounted for under both ASC 842 and ASC 606, the discussions below on credit risk and the Company's allowance for credit losses address the Company's total revenues. Concentration of credit risk with respect to the Company's receivables is limited because of a large number of geographically diverse customers who operate in a variety of end user markets. The Company manages credit risk through credit approvals, credit limits, and other monitoring procedures. 11 The Company's allowance for credit losses reflects its estimate of the amount of receivables that it will be unable to collect . The estimated losses are calculated using the loss rate method based upon a review of outstanding receivables, related aging, and historical collection experience. The Company's estimates reflect changing circumstances, and the Company may be required to increase or decrease its allowance. Activity in the allowance for credit losses was as follows: Three Months Ended March 31, (in thousands) 2024 2023 Balance at beginning of period $ 81,656 $ 57,048 Provision for credit losses, net of recoveries 11,807 8,803 Write-offs ( 7,055 ) ( 4,537 ) Foreign currency translation and other 10 88 Balance at end of period $ 86,418 $ 61,402 Contract Assets and Liabilities When customers are billed in advance for services, the Company defers recognition of revenue until the related services are performed, which generally occurs at the end of the contract. The balance sheet classification of deferred revenue is determined based on the contractual lease term. For contracts that continue beyond their initial contractual lease term, revenue continues to be deferred until the services are performed. As of March 31, 2024 and December 31, 2023, the Company had approximately $ 125.7 million and $ 124.1 million , respectively, of deferred revenue related to services billed in advance. During the three months ended March 31, 2024, $ 27.6 million of deferred revenue billed in advance was recognized as revenue. The Company does not have material contract assets, and it did not recognize any material impairments for any contract assets. The Company's uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future services revenues that are expected to be recognized within twelve months, the Compa ny has elected to utilize the optional disclosure exemption regarding transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations. The transaction price for performance obligations that will be completed in greater than twelve months is variable based on the market rate in place at the time those services are provided, and therefore, the Company is applying the optional expedient to omit disclosure of such amounts. The primary costs to obtain contracts fo r new and rental unit sales with the Company's customers are commissions. The Company pays its sales force commissions on the sale of new and rental units. For new and rental unit sales, the period benefited by each commission is less than one year. As a result, the Company has applied the practical expedient for incremental costs of obtaining a sales contract and expenses commissions as incurred. NOTE 5 - Leases As of March 31, 2024, the undiscounted future lease payments for operating and finance lease liabilities were as follows: (in thousands) Operating Finance 2024 (remaining) $ 51,089 $ 18,625 2025 68,675 24,492 2026 55,077 24,235 2027 43,761 20,987 2028 32,626 23,479 Thereafter 53,796 24,916 Total lease payments 305,024 136,734 Less: interest ( 45,190 ) ( 18,347 ) Present value of lease liabilities $ 259,834 $ 118,387 Finance lease liabilities are included within long-term debt and current portion of long-term debt on the condensed consolidated balance sheets. 12 The Company’s lease activity during the three months ended March 31, 2024 and 2023 was as follows: (in thousands) Three Months Ended March 31, Financial Statement Line 2024 2023 Finance Lease Expense Amortization of finance lease assets $ 3,267 $ 3,761 Interest on obligations under finance leases 1,441 759 Total finance lease expense $ 4,708 $ 4,520 Operating Lease Expense Fixed lease expense Cost of leasing and services $ 328 $ 420 Selling, general and administrative 19,292 15,717 Short-term lease expense Cost of leasing and services 7,657 6,654 Selling, general and administrative 305 440 Lease impairment expense and other related charges — 22 Variable lease expense Cost of leasing and services 271 1,026 Selling, general and administrative 2,692 2,474 Lease impairment expense and other related charges 746 — Total operating lease expense $ 31,291 $ 26,753 Supplemental cash flow information related to leases for the three months ended March 31, 2024 and 2023 was as follows: (in thousands) Three Months Ended March 31, Supplemental Cash Flow Information 2024 2023 Cash paid for the amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 19,797 $ 16,693 Operating cash outflows from finance leases $ 1,445 $ 728 Financing cash outflows from finance leases $ 4,827 $ 3,446 Right of use assets obtained in exchange for lease obligations $ 32,784 $ 8,741 Assets obtained in exchange for finance leases $ 6,145 $ 8,913 Weighted average remaining operating lease terms and the weighted average discount rates as of March 31, 2024 and December 31, 2023 were as follows: Lease Terms and Discount Rates March 31, 2024 December 31, 2023 Weighted average remaining lease term - operating leases 5.3 years 5.4 years Weighted average discount rate - operating leases 5.9 % 5.9 % Weighted average remaining lease term - finance leases 4.9 years 5.0 years Weighted average discount rate - finance leases 4.9 % 4.8 % 13 NOTE 6 - Inventories Inventories at the respective balance sheet dates consisted of the following: (in thousands) March 31, 2024 December 31, 2023 Raw materials $ 42,183 $ 43,071 Finished units 5,439 4,335 Inventories $ 47,622 $ 47,406 NOTE 7 - Rental Equipment Rental equipment, net at the respective balance sheet dates consisted of the following: (in thousands) March 31, 2024 December 31, 2023 Modular space units $ 3,606,115 $ 3,541,451 Portable storage units 1,011,155 1,009,059 Value added products 203,988 204,933 Total rental equipment 4,821,258 4,755,443 Less: accumulated depreciation ( 1,421,630 ) ( 1,374,128 ) Rental equipment, net $ 3,399,628 $ 3,381,315 NOTE 8 - Goodwill and Intangibles Goodwill Changes in the carrying amount of goodwill were as follows: (in thousands) Balance at December 31, 2022 $ 1,011,429 Additions from acquisitions 164,502 Effects of movements in foreign exchange rates 704 Balance at December 31, 2023 1,176,635 Effects of movements in foreign exchange rates ( 663 ) Balance at March 31, 2024 $ 1,175,972 The Company had no goodwill impairment during the three months ended March 31, 2024 or the year ended December 31, 2023. Intangible Assets Intangible assets other than goodwill at the respective balance sheet dates consisted of the following: March 31, 2024 (in thousands) Weighted average remaining life (in years) Gross carrying amount Accumulated amortization Net book value Intangible assets subject to amortization: Customer relationships 4.3 $ 214,408 $ ( 91,706 ) $ 122,702 Technology 2.3 1,500 ( 938 ) 562 Indefinite-lived intangible assets: Trade name – Mobile Mini 164,000 — 164,000 Trade name – WillScot 125,000 — 125,000 Total intangible assets other than goodwill $ 504,908 $ ( 92,644 ) $ 412,264 14 December 31, 2023 (in thousands) Weighted average remaining life (in years) Gross carrying amount Accumulated amortization Net book value Intangible assets subject to amortization: Customer relationships 4.5 $ 214,408 $ ( 84,324 ) $ 130,084 Technology 2.5 1,500 ( 875 ) 625 Indefinite-lived intangible assets: Trade name – Mobile Mini 164,000 — 164,000 Trade name – WillScot 125,000 — 125,000 Total intangible assets other than goodwill $ 504,908 $ ( 85,199 ) $ 419,709 Amortization expense for intangible assets subject to amortization was $ 7.4 million and $ 5.9 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the expected future amortization expense for intangible assets is as follows for the years ended December 31: (in thousands) 2024 (remaining) $ 21,842 2025 29,122 2026 28,997 2027 28,684 2028 14,619 Total $ 123,264 NOTE 9 - Debt The carrying value of debt outstanding at the respective balance sheet dates consisted of the following: (in thousands, except rates) Interest rate Year of maturity March 31, 2024 December 31, 2023 2025 Secured Notes 6.125 % 2025 $ 523,356 $ 522,735 ABL Facility Varies 2027 1,854,428 1,929,259 2028 Secured Notes 4.625 % 2028 494,766 494,500 2031 Secured Notes 7.375 % 2031 493,860 493,709 Finance Leases Varies Varies 118,387 117,099 Total debt 3,484,797 3,557,302 Less: current portion of long-term debt 19,178 18,786 Total long-term debt $ 3,465,619 $ 3,538,516 Asset Backed Lending Facility On July 1, 2020, certain subsidiaries of the Company, including WSI, entered into an asset-based credit agreement. As amended on June 30, 2022, the agreement provides for revolving credit facilities in the aggregate principal amount of up to $ 3.7 billion, consisting of: (i) a senior secured asset-based US dollar revolving credit facility in the aggregate principal amount of $ 3.3 billion (the “US Facility”), (ii) a $ 400.0 million senior secured asset-based multicurrency revolving credit facility (the "Multicurrency Facility," and together with the US Facility, the "ABL Facility"), available to be drawn in US Dollars, Canadian Dollars, British Pounds Sterling or Euros, and (iii) an accordion feature that permits the Company to increase the lenders' commitments in an aggregate amount not to exceed the greater of $ 750.0 million and the amount of suppressed availability (as defined in the ABL Facility), plus any voluntary prepayments that are accompanied by permanent commitment reductions under the ABL Facility, subject to the satisfaction of customary conditions including lender approval. The ABL Facility is scheduled to mature on June 30, 2027. The applicable margin for Canadian Bankers' Acceptance rate, Term Secured Overnight Financing Rate ("SOFR"), British Pounds Sterling and Euro loans is 1.50 %. The facility includes a credit spread adjustment of 0.10 % in addition to the applicable margin. The applicable margin for base rate and Canadian Prime Rate loans is 0.50 %. The applicable margins are subject to one step down of 0.25 % or one step up of 0.25 % based on the Company's leverage ratio and excess availability from the prior quarter. The ABL Facility requires the payment of a commitment fee on the unused available borrowings of 0.20 % annually. As of March 31, 2024, the weighted average interest rate for borrowings under the ABL Facility, as adjusted 15 for the effects of the interest rate swap agreements, was 5.77 %. Refer to Note 12 for a detailed discussion of interest rate management. On February 26, 2024, WSI entered into an amendment to the ABL Facility (the "Fifth Amendment") to, among other things, change the rate under the ABL Facility for borrowings denominated in Canadian Dollars from a Canadian Dollar Offered Rate ("CDOR")-based rate to a Canadian Overnight Repo Rate Average ("CORRA")-based rate, subject to certain adjustments specified in the ABL Facility, and to update certain other provisions regarding successor interest rates to CDOR. In connection with the Company's pending acquisition of McGrath, on February 27, 2024, WSI and certain other subsidiaries of the Company entered into an amendment to the ABL Facility (the "Sixth Amendment") to, among other things, (i) permit the incurrences of indebtedness by WSI and certain other subsidiaries of the Company to finance the McGrath acquisition; (ii) increase the maximum revolving credit facility amount to $ 4.5 billion; and (iii) modify the borrowing base, certain thresholds, basket sizes and default and notice triggers to account for the increased size of the business and new asset types of WSI and its subsidiaries following the McGrath acquisition. The amendments contemplated by the Sixth Amendment will not become effective until the closing of the McGrath acquisition. Borrowing availability under the US Facility and the Multicurrency Facility is equal to the lesser of (i) the aggregate revolver commitments and (ii) the borrowing base ("Line Cap"). At March 31, 2024, the Line Cap was $ 3.2 billion and the Company had $ 1.3 billion of available borrowing capacity under the ABL Facility, including $ 1.1 billion under the US Facility and $ 192.3 million under the Multicurrency Facility. Borrowing capacity under the ABL Facility is made available for up to $ 220.0 million letters of credit and $ 220.0 million swingline loans. At March 31, 2024, the available capacity was $ 189.0 million of letters of credit and $ 205.2 million of swingline loans. At March 31, 2024, letters of credit and bank guarantees carried fees of 1.625 %. The Company had issued $ 31.0 million of standby letters of credit under the ABL Facility at March 31, 2024. The Company had approximately $ 1.9 billion of outstanding borrowings under the ABL Facility at March 31, 2024. Debt issuance costs of $ 24.8 million and $ 26.8 million were presented as direct reductions of the corresponding liabilities at March 31, 2024 and December 31, 2023, respectively. The ABL Facility and related guarantees are secured by a first priority security interest in substantially all of the assets of WSI and the Company’s other subsidiaries that are borrowers or guarantors under the ABL Facility (collectively the “ABL Loan Parties”), subject to customary exclusions. Finance Leases The Company maintains finance leases primarily related to transportation-related equipment. At March 31, 2024 and December 31, 2023, obligations under finance leases were $ 118.4 million and $ 117.1 million, respectively. Refer to Note 5 for further information. The Company was in compliance with all debt covenants and restrictions associated with its debt instruments as of March 31, 2024. NOTE 10 – Equity Common Stock In connection with the stock compensation vesting and stock option exercises described in Note 14, the Company issued 631,174 shares of Common Stock during the three months ended March 31, 2024 . Stock Repurchase Program In May 2023, the Board of Directors approved a reset of the share repurchase program authorizing the Company to repurchase up to $ 1.0 billion of its outstanding shares of Common Stock. The stock repurchase program does not obligate the Company to purchase any particular number of shares, and the timing and exact amount of any repurchases will depend on various factors, including market pricing, business, legal, accounting, and other considerations. No shares were repurchased during the three months ended March 31, 2024 . As of March 31, 2024, $ 498.2 million of the authorization for future repurchases of the Common Stock remained available. 16 Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive income (loss) ("AOCI"), net of tax, for the three months ended March 31, 2024 and 2023 were as follows: Three Months Ended March 31, 2024 (in thousands) Foreign currency translation Unrealized gains on hedging activities Total Balance at December 31, 2023 $ ( 56,031 ) $ 3,263 $ ( 52,768 ) Other comprehensive (loss) income before reclassifications ( 5,548 ) 18,807 13,259 Reclassifications from AOCI to income — ( 5,267 ) ( 5,267 ) Balance at March 31, 2024 $ ( 61,579 ) $ 16,803 $ ( 44,776 ) Three Months Ended March 31, 2023 (in thousands) Foreign currency translation Unrealized losses on hedging activities Total Balance at December 31, 2022 $ ( 70,122 ) $ — $ ( 70,122 ) Other comprehensive income before reclassifications 7,934 859 8,793 Reclassifications from AOCI to income — ( 1,526 ) ( 1,526 ) Balance at March 31, 2023 $ ( 62,188 ) $ ( 667 ) $ ( 62,855 ) For the three months ended March 31, 2024 and 2023, gains of $ 5.3 million and $ 1.5 million, respectively, were reclassified from AOCI into the condensed consolidated statements of operations within interest expense related to the interest rate swaps discussed in Note 12. Associated with these reclassifications, t he Company recorded tax benefits of $ 1.4 million and $ 0.4 million for the three months ended March 31, 2024 and 2023, respectively. NOTE 11 – Income Taxes The Company recorded $ 17.1 million and $ 30.5 million of income tax expense from continuing operations for the three months ended March 31, 2024 and 2023, respectively. The Company’s effective tax rate for the three months ended March 31, 2024 and 2023 was 23.3 % and 28.6 %, respectively. The effective tax rate for the three months ended March 31, 2024 differed from the US federal statutory rate of 21% primarily due to state and provincial taxes and non-deductible executive compensation, partially offset by a discrete tax benefit related to employee stock vesting. The effective tax rate for the three months ended March 31, 2023 differed from the US federal statutory rate of 21% primarily due to state and provincial taxes and discrete tax expense from state legislative enactments. NOTE 12 - Derivatives In January 2023, the Company entered into two interest rate swap agreements with financial counterparties relating to $ 750.0 million in aggregate notional amount of variable-rate debt under the ABL Facility. Under the terms of the agreements, the Company receives a floating rate equal to one-month term SOFR and makes payments based on a weighted average fixed interest rate of 3.44 % on the notional amount. In January 2024, the Company entered into two interest rate swap agreements with financial counterparties relating to $ 500.0 million in aggregate notional amount of variable-rate debt under the ABL Facility. Under the terms of the agreements, the Company receives a floating rate equal to one-month term SOFR and makes payments based on a weighted average fixed interest rate of 3.70 % on the notional amount. The swap agreements were designated and qualified as hedges of the Company's exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on the ABL Facility. The swap agreements terminate on June 30, 2027. The floating rate that the Company receives under the terms of these swap agreements was 5.33 % at March 31, 2024. 17 The location and the fair value of derivative instruments designated as hedges were as follows: (in thousands) Balance Sheet Location March 31, 2024 December 31, 2023 Cash Flow Hedges: Interest rate swaps Prepaid expenses and other current assets $ 17,214 $ 9,145 Interest rate swaps Other non-current assets $ 5,703 $ — Interest rate swaps Other non-current liabilities $ — $ ( 4,595 ) The fair value of the interest rate swaps was based on dealer quotes of market forward rates, which are Level 2 inputs on the fair value hierarchy (see Note 13), and reflected the amount that the Company would receive or pay as of March 31, 2024 for contracts involving the same attributes and maturity dates. The following table discloses the impact of the interest rate swaps, excluding the impact of income taxes, on other comprehensive income (“OCI”), AOCI and the Company’s condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 : Three Months Ended March 31, (in thousands) 2024 2023 Gain (loss) recognized in OCI $ 23,322 $ ( 641 ) Location of gain (loss) recognized in income Interest expense, net Interest expense, net Gain reclassified from AOCI into income $ ( 5,267 ) $ ( 1,526 ) NOTE 13 - Fair Value Measures The fair value of financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company utilizes the suggested accounting guidance for the three levels of inputs that may be used to measure fair value: Level 1 - Observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2 - Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and Level 3 - Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions The Company has assessed that the fair values of cash and short-term deposits, marketable securities, trade receivables, trade payables, and other current liabilities approximate their carrying amounts. Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair values of finance leases at March 31, 2024 and December 31, 2023 approximate their respective book values. The carrying value of the ABL Facility, excluding debt issuance costs, approximates fair value as the interest rates are variable and reflective of current market rates. The fair values of the 2025 Secured Notes, the 2028 Secured Notes, and the 2031 Secured Notes are based on their last trading price at the end of each period obtained from a third party. The following table shows the carrying amounts and fair values of these financial liabilities measured using Level 2 inputs: March 31, 2024 December 31, 2023 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value 2025 Secured Notes $ 523,356 $ 525,410 $ 522,735 $ 527,021 2028 Secured Notes 494,766 473,175 494,500 474,285 2031 Secured Notes 493,860 519,955 493,709 528,075 Total $ 3,366,410 $ 3,397,772 $ 3,440,203 $ 3,485,392 As of March 31, 2024, the carrying values of the 2025 Secured Notes, the 2028 Secured Notes, and the 2031 Secured Notes included $ 3.1 million, $ 5.2 million , and $ 6.1 million , respectively, of unamortized debt issuance costs, which were presented as a direct reduction of the corresponding liability. As of December 31, 2023, the carrying values of the 2025 Secured Notes, the 2028 Secured Notes, and the 2031 Secured Notes included $ 3.8 million, $ 5.5 million, and $ 6.3 million, respectively, of unamortized debt issuance costs, which were presented as a direct reduction of the corresponding liability. The location and the fair value of derivative assets and liabilities in the condensed consolidated balance sheets are disclosed in Note 12. 18 NOTE 14 - Stock-Based Compensation Stock-based compensation expense includes grants of stock options, time-based restricted stock units ("Time-Based RSUs") and performance-based restricted stock units ("Performance-Based RSUs," together with Time-Based RSUs, the "RSUs"). In addition, stock-based payments to non-executive directors include grants of restricted stock awards ("RSAs"). Time-Based RSUs and RSAs are valued based on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of WillScot Mobile Mini's Common Stock on the grant date. Performance-Based RSUs are valued based on a Monte Carlo simulation model to reflect the impact of the Performance-Based RSU's market condition. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for Performance-Based RSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. Restricted Stock Awards The following table summarizes the Company's RSA activity for the three months ended March 31, 2024 and 2023 : 2024 2023 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 28,946 $ 44.44 35,244 $ 37.17 Outstanding at end of period 28,946 $ 44.44 35,244 $ 37.17 Compensation expense for RSAs recognized in SG&A on the condensed consolidated statements of operations was $ 0.3 million for both the three months ended March 31, 2024 and 2023. At March 31, 2024, unrecognized compensation cost related to RSAs totaled $ 0.2 million and was expected to be recognized over the remaining weighted average vesting period of 0.2 years. Time-Based RSUs The following table summarizes the Company's Time-Based RSU activity for the three months ended March 31, 2024 and 2023 : 2024 2023 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 618,836 $ 36.07 789,779 $ 26.16 Granted 273,524 $ 48.68 213,388 $ 50.74 Forfeited ( 9,795 ) $ 44.92 ( 31,681 ) $ 33.67 Vested ( 223,566 ) $ 33.31 ( 281,153 ) $ 22.40 Outstanding at end of period 658,999 $ 42.11 690,333 $ 34.95 Compensation expense for Time-Based RSUs recognized in SG&A on the condensed consolidated statements of operations was $ 2.3 million and $ 1.8 million for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, unrecognized compensation cost related to Time-Based RSUs totaled $ 24.7 million and was expected to be recognized over the remaining weighted average vesting period of 2.7 years. Performance-Based RSUs The following table summarizes the Company's Performance-Based RSU award activity for the three months ended March 31, 2024 and 2023 : 2024 2023 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at beginning of period 1,939,691 $ 42.95 1,894,250 $ 33.67 Granted 295,833 $ 66.60 376,826 $ 69.32 Forfeited ( 7,150 ) $ 47.70 — $ — Vested ( 353,323 ) $ 39.10 ( 181,319 ) $ 16.82 Outstanding at end of period 1,875,051 $ 47.39 2,089,757 $ 41.56 19 Compensation expense for Performance-Based RSUs recognized in SG&A on the condensed consolidated statements of operations was $ 6.4 million and $ 5.8 million for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, unrecognized compensation cost related to Performance-Based RSUs totaled $ 48.2 million and was expected to be recognized over the remaining weighted average vesting period of 1.8 years. Certain Performance-Based RSUs cliff vest based on achievement of the relative total stockholder return ("TSR") of the Company's Common Stock as compared to the TSR of the constituents in the S&P 400 index at the grant date over the performance period of three years . The target number of RSUs may be adjusted from 0 % to 200 % based on the TSR attainment levels defined by the Company's Compensation Committee. The 100 % target payout is tied to performance at the 50 % percentile, with a payout curve ranging from 0 % (for performance less than the 25 % percentile) to 200 % (for performance above the 85 % percentile). For 555,790 Performance-Based RSUs granted in 2021, the awards cliff vest based on achievement of specified share prices of the Company's Common Stock at annual measurement dates over performance periods of 4.5 years to 4.8 years. The target number of RSUs may be adjusted from 0 to 1,333,334 based on the stock price attainment levels defined by the Company's Compensation Committee. The target payout for the 555,790 Performance-Based RSUs is tied to a stock price of $ 47.50 , with a payout ranging from 0 RSUs (for a stock price less than $ 42.50 ) to 1,333,334 RSUs (for a stock price of $ 60.00 or greater). Stock Options The following table summarizes the Company's stock option activity for the three months ended March 31, 2024 : WillScot Options Weighted-Average Exercise Price per Share Converted Mobile Mini Options Weighted-Average Exercise Price per Share Outstanding at beginning of period 534,188 $ 13.60 829,246 $ 12.86 Exercised — $ — ( 3,504 ) $ 19.68 Outstanding at end of period 534,188 $ 13.60 825,742 $ 12.83 Fully vested and exercisable options, March 31, 2024 534,188 $ 13.60 825,742 $ 12.83 The following table summarizes the Company's stock option activity for the three months ended March 31, 2023: WillScot Options Weighted-Average Exercise Price per Share Converted Mobile Mini Options Weighted-Average Exercise Price per Share Outstanding at beginning of period 534,188 $ 13.60 864,276 $ 12.91 Exercised — $ — ( 5,774 ) $ 11.79 Outstanding at end of period 534,188 $ 13.60 858,502 $ 12.92 Fully vested and exercisable options, March 31, 2023 534,188 $ 13.60 858,502 $ 12.92 NOTE 15 - Commitments and Contingencies The Company is involved in various lawsuits, claims and legal proceedings that arise in the ordinary course of business. The Company assesses these matters on a case-by-case basis as they arise and establishes reserves as required. As of March 31, 2024, with respect to these outstanding matters, the Company believes that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on the consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties. 20 NOTE 16 - Earnings Per Share The following table reconciles the weighted average shares outstanding for the basic earnings per share calculation to the weighted average shares outstanding for the diluted earnings per share calculation: Three Months Ended March 31, (in thousands) 2024 2023 Numerator: Income from continuing operations $ 56,240 $ 76,271 Income from discontinued operations — 134,613 Net income $ 56,240 $ 210,884 Denominator: Weighted average Common Shares outstanding – basic 190,138 206,092 Dilutive effect of shares outstanding RSAs 20 27 Time-based RSUs 255 326 Performance-based RSUs 1,676 2,206 Stock Options 976 1,013 Weighted average Common Shares outstanding – dilutive 193,065 209,664 The following common shares that the Company may be obligated to issue were excluded from the computation of dilutive EPS because their effect would have been anti-dilutive: Three Months Ended March 31, (in thousands) 2024 2023 Time-based RSUs 270 — Performance-based RSUs 661 — Total anti-dilutive shares 931 — 21