WillScot Holdings Corp 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand WillScot Mobile Mini Holdings Corp. ("WillScot Mobile Mini") operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, contained in Part I, Item 1 of this report. The discussion of results of operations in this MD&A is presented on a historical basis, as of or for the three months ended March 31, 2024 or prior periods. On January 31, 2023, the Company completed the sale of its former United Kingdom ("UK") Storage Solutions segment. This MD&A presents the historical financial results of the former UK Storage Solutions segment as discontinued operations for all periods presented. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). We use certain non-GAAP financial metrics to supplement the GAAP reported results to highlight key operational metrics that are used by management to evaluate Company performance. Reconciliations of GAAP financial information to the disclosed non-GAAP measures are provided in the Reconciliation of Non-GAAP Financial Measures section of MD&A. Executive Summary We are a leading business services provider specializing in innovative and flexible turnkey temporary space solutions. We service diverse end markets across all sectors of the economy throughout the United States ("US"), Canada, and Mexico. As of March 31, 2024, our branch network included approximately 260 branch locations and additional drop lots to service our over 85,000 customers. We offer our customers an extensive selection of “Ready to Work” temporary space solutions with over 153,000 modular space units and over 210,000 portable storage units in our fleet. We primarily lease, rather than sell, our modular and portable storage units to customers, which results in a highly diversified and predictable recurring revenue stream. Over 90% of new lease orders are on our standard lease agreement, pre-negotiated master lease or national account agreements. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term. Our lease revenue is highly predictable due to its recurring nature and the underlying stability and diversification of our lease portfolio. Furthermore, given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our lease portfolio, excluding seasonal portable storage leases, is approximately 38 months. We complement our core leasing business by selling both new and used units, allowing us to leverage scale, achieve purchasing benefits and redeploy capital employed in our lease fleet. Our customers operate in a diversified set of end markets, including construction, commercial and industrial, retail and wholesale trade, energy and natural resources, education, government and institutions and healthcare. Core to our operating model is the ability to redeploy standardized assets across end markets. We track several market leading indicators to predict demand, including those related to our two largest end markets, the commercial and industrial sector and the construction sector, which collectively accounted for approximately 86% of our revenues for the three months ended March 31, 2024. We remain focused on our core priorities of growing leasing revenues by increasing units on rent, both organically and through our acquisition strategy, delivering “Ready to Work” turnkey solutions to our customers with value added products and services ("VAPS"), and on continually improving the overall customer experience. Significant Developments 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, we expect 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. 22 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 William Scotsman, Inc.'s 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. Reportable Segments In January 2024, we completed the unification of our go-to market structure by integrating our 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 our portfolio of solutions to our entire customer base. In connection with this change in operating model, the Company realigned the composition of our operating and reportable 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 have similar economic and qualitative characteristics. Asset Acquisitions During the three months ended March 31, 2024, we 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. As of the acquisition date, the fair value of rental equipment acquired was $39.7 million. Interest Rate Swap Agreements 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. First Quarter Highlights Three Months Ended March 31, 2024 vs. 2023 Change (in thousands, except for units on rent and monthly rental rate) 1 2024 2023 Revenue $ 587,181 $ 565,468 $ 21,713 Income from continuing operations $ 56,240 $ 76,271 $ (20,031) Adjusted EBITDA from continuing operations $ 248,009 $ 246,842 $ 1,167 Net CAPEX $ 64,776 $ 45,825 $ 18,951 Average modular space units on rent 95,817 99,826 (4,009) Average modular space utilization rate 62.5 % 65.7 % (320) bps Average modular space monthly rental rate $ 1,149 $ 1,031 $ 118 Average portable storage units on rent 131,014 167,403 (36,389) Average portable storage utilization rate 62.1 % 78.7 % (1,660) bps Average portable storage monthly rental rate $ 262 $ 214 $ 48 1 Effective for the three months ended March 31, 2024, we reclassified approximately 2,000 units that were previously reported as modular space units on rent to portable storage units on rent as these units are generally used in a dry storage application. Additionally, based on our segment realignment, we have conformed our VAPS presentation to include all VAPS not specific to portable storage orders as modular space VAPS and recalculated average monthly rental rates. This treatment is consistent with prior treatment in our previous Modular Segment. All historical product operating KPIs have been recast to be presented on a comparable basis for all periods. For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, unless otherwise noted, results and key drivers of our financial performance included: • Total revenues increased $21.7 million, or 3.8%. Leasing revenue increased $20.7 million, or 4.7%, new unit sales revenue increased $2.8 million, or 26.7%, and rental unit sales increased $4.5 million, or 54.5%. These increases were partially offset by a decrease in delivery and installation revenue of $6.3 million, or 5.9%. • Modular product revenue, which represented 75.8% of consolidated revenue for the three months ended March 31, 2024, increased $33.8 million, or 8.2%, to $445.1 million. The increase was driven by our core leasing revenue, which increased $24.1 million, or 7.4%, due to continued growth of pricing and VAPS, as well as increased delivery and installation revenue, which increased $3.4 million, or 4.7%. Rental unit sales increased $3.0 million, or 43.7%, and new unit sales increased $3.4 million, or 37.3%. 23 Modular revenue drivers for the three months ended March 31, 2024 included: • Modular space average monthly rental rate increased $118, or 11.4% year over year to $1,149 representing a continuation of the long-term price optimization and VAPS penetration opportunities across our portfolio. • Average modular space units on rent decreased 4,009, or 4.0%, year over year. • Average modular space monthly utilization decreased 320 basis points ("bps") to 62.5%. • Storage product revenue, which represented 24.2% of consolidated revenue for the three months ended March 31, 2024, decreased $12.1 million, or 7.8%, to $142.1 million. The decrease was driven by delivery and installation revenue, which decreased $9.6 million, or 27.2%, due to decreased activity, as well as a decrease in core leasing revenue of $3.4 million, or 3.0%, driven by reduced portable storage container volumes, partially offset by increased rates on portable storage containers and increased revenue from acquired climate-controlled containers and refrigerated storage units. Rental unit sales increased $1.5 million, or 112.0%, and new unit sales decreased $0.5 million, or 30.7%. Storage revenue drivers for the three months ended March 31, 2024 included: • Portable storage average monthly rental rate increased $48, or 22.4% year over year to $262 as a result of our price management tools, processes and benefits from increased VAPS penetration opportunities, as well as higher rates on the climate-controlled containers and refrigerated storage units acquired in 2023. • Average portable storage units on rent decreased 36,389, or 21.7%, year over year driven by lower demand for the three months ended March 31, 2024. • Average portable storage monthly utilization decreased 16.6% to 62.1% for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. • Income from continuing operations of $56.2 million for the three months ended March 31, 2024 and gross profit margin of 54.0%. Discrete costs in the period totaled $16.0 million, and included $12.4 million of legal and professional fees primarily related to the acquisition of McGrath, $2.9 million of integration costs, and $0.7 million of lease impairment expense and other related charges. • Adjusted EBITDA from continuing operations of $248.0 million for the three months ended March 31, 2024, representing an increase of $1.2 million, or 0.5%, as compared to the same period in 2023. • Adjusted EBITDA margin from continuing operations was 42.2% for the three months ended March 31, 2024 and decreased 150 bps versus prior year. Leasing margins decreased 170 bps versus prior year and delivery and installation margins decreased 60 bps versus prior year. • Net cash provided by operating activities increased $59.9 million to $208.7 million for the three months ended March 31, 2024. Net cash used in investing activities, excluding cash used for acquisitions, proceeds from the sale of discontinued operations of the former UK Storage Solutions segment and the related payment for the settlement of the contingent foreign currency forward contract, increased by $21.7 million. Capital expenditures for rental equipment increased $25.3 million for the three months ended March 31, 2024 as a result of increased refurbishment spending and increased new fleet purchases, including additional investment in climate-controlled containers and refrigerated storage units. This increase in cash used in investing activities was partially offset by a $6.4 million increase in proceeds from the sale of rental equipment for the three months ended March 31, 2024. Net CAPEX increased $19.0 million for the three months ended March 31, 2024. • Free Cash Flow of $143.9 million for the three months ended March 31, 2024, representing an increase of $41.0 million as compared to the same period in 2023. We deployed this Free Cash Flow to acquire a local provider of storage and modular space solutions with a portfolio of approximately 60 storage containers and 800 modular leasing units for $43.4 million. We paused share repurchases in the fourth quarter of 2023 as acquisition discussions advanced with McGrath RentCorp and did not repurchase any shares of our Common Stock during the first quarter of 2024. We began repurchasing shares of our Common Stock again during the second quarter of 2024. • We believe the predictability of our Free Cash Flow allows us to pursue multiple capital allocation priorities opportunistically, including investing in organic opportunities we see in the market, maintaining leverage in our stated range, opportunistically executing accretive acquisitions, and returning capital to shareholders. In addition to using GAAP financial measurements, we use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Gross Profit, Adjusted Gross Profit Margin, Net CAPEX and Free Cash Flow, which are non-GAAP financial measures, to evaluate our operating results. As such, we include in this Form 10-Q reconciliations to their most directly comparable GAAP financial measures. These reconciliations and descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures are included in "Reconciliation of non-GAAP Financial Measures" and "Liquidity and Capital Resources". 24 Consolidated Results of Operations Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023 Our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 are presented below. Three Months Ended March 31, 2024 vs. 2023 $ Change (in thousands) 2024 2023 Revenues: Leasing and services revenue: Leasing $ 460,601 $ 439,951 $ 20,650 Delivery and installation 100,362 106,630 (6,268) Sales revenue: New units 13,499 10,657 2,842 Rental units 12,719 8,230 4,489 Total revenues 587,181 565,468 21,713 Costs: Costs of leasing and services: Leasing 102,394 97,515 4,879 Delivery and installation 77,842 75,007 2,835 Costs of sales: New units 8,273 6,208 2,065 Rental units 6,876 4,454 2,422 Depreciation of rental equipment 74,908 59,156 15,752 Gross profit 316,888 323,128 (6,240) Other operating expenses: Selling, general and administrative 167,568 150,870 16,698 Other depreciation and amortization 17,920 17,173 747 Lease impairment expense and other related charges 746 22 724 Currency losses, net 77 6,775 (6,698) Other expense (income), net 631 (3,359) 3,990 Operating income 129,946 151,647 (21,701) Interest expense, net 56,588 44,866 11,722 Income from continuing operations before income tax 73,358 106,781 (33,423) Income tax expense from continuing operations 17,118 30,510 (13,392) Income from continuing operations 56,240 76,271 (20,031) Discontinued operations: Income from discontinued operations before income tax — 4,003 (4,003) Gain on sale of discontinued operations — 176,078 (176,078) Income tax expense from discontinued operations — 45,468 (45,468) Income from discontinued operations — 134,613 (134,613) Net income $ 56,240 $ 210,884 $ (154,644) 25 Comparison of Three Months Ended March 31, 2024 and 2023 Revenue: Total revenue increased $21.7 million, or 3.8%, to $587.2 million for the three months ended March 31, 2024 from $565.5 million for the three months ended March 31, 2023. Leasing revenue increased $20.7 million, or 4.7%, as compared to the same period in 2023, driven by improved pricing and value added products penetration, partially offset by a decrease of 40,398 average total units on rent, which was primarily driven by portable storage containers. Delivery and installation revenues decreased $6.3 million, or 5.9%, due to decreased deliveries and returns. Rental unit sales increased $4.5 million, or 54.5%, and new unit sales increased $2.8 million, or 26.7%. Total average units on rent for the three months ended March 31, 2024 and 2023 were 226,831 and 267,229, respectively, representing a decrease of 40,398 units, or 15.1%. Portable storage average units on rent decreased by 36,389 units, or 21.7%, for the three months ended March 31, 2024 driven by lower demand in 2024. The average portable storage unit utilization rate during the three months ended March 31, 2024 was 62.1% as compared to 78.7% during the same period in 2023. Modular space average units on rent decreased 4,009 units, or 4.0%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The average modular space unit utilization rate during the three months ended March 31, 2024 was 62.5% as compared to 65.7% during the same period in 2023. Modular space average monthly rental rates increased 11.4% year over year to $1,149 for the three months ended March 31, 2024. Increases were driven by a continuation of the long-term price optimization and VAPS penetration opportunities. Average portable storage monthly rental rates increased 22.4% year over year to $262 for the three months ended March 31, 2024 as a result of our price management tools, processes and benefits from increased VAPS penetration opportunities, as well as higher rates on the climate-controlled containers and refrigerated storage units acquired in 2023. Gross profit: Gross profit decreased $6.2 million, or 1.9%, to $316.9 million for the three months ended March 31, 2024 from $323.1 million for the three months ended March 31, 2023. The decrease in gross profit was a result of decreased delivery and installation gross profit of $9.1 million and increased depreciation expense of $15.8 million, and was partially offset by a $15.8 million increase in leasing gross profit. The increase in leasing gross profits was primarily a result of increased revenues due to favorable average monthly rental rates including VAPS across both portable storage and modular space units, which offset lower unit on rent volumes. Cost of leasing and services increased by $7.7 million, or 4.5%, for the three months ended March 31, 2024 versus the three months ended March 31, 2023, driven by a $12.6 million, or 20.9%, increase in labor costs. These increased costs were partially offset by a decrease in subcontractors costs of $6.2 million, or 10.0%, and a decrease in materials costs of $2.0 million, or 7.5%. Cost of sales increased by $4.5 million, or 42.1%, which is directionally in line with increased sales revenues of 38.8% for the three months ended March 31, 2024. Our resulting gross profit percentage was 54.0% and 57.1% for the three months ended March 31, 2024 and 2023, respectively. Our adjusted gross profit percentage, excluding the effects of depreciation, was 66.7% and 67.6% for the three months ended March 31, 2024 and 2023, respectively. The decreases, as referenced above, were mainly driven by lower utilization rates, specifically on portable storage products, and higher labor costs. SG&A: Selling, general and administrative expense ("SG&A") increased $16.7 million, or 11.1%, to $167.6 million for the three months ended March 31, 2024, compared to $150.9 million for the three months ended March 31, 2023. Other discrete expense for certain one-time projects, primarily legal and professional fees related to the acquisition of McGrath, increased $12.4 million. Real estate and occupancy costs increased $3.8 million, or 18.4%. Employee SG&A excluding stock compensation increased $1.9 million, or 2.8%, primarily as a result of increased salaries and wages. Stock based compensation increased $0.9 million, or 11.7%. Service agreements and professional fees increased $2.0 million, or 12.1%, driven by increased professional fees and licensing subscription costs. These increased costs were partially offset by a $3.7 million decrease in travel and entertainment expenses. Adjusted EBITDA: Adjusted EBITDA increased $1.2 million, or 0.5%, to $248.0 million for the three months ended March 31, 2024 from $246.8 million for the three months ended March 31, 2023. The increase was driven by a $15.8 million increase in leasing gross profit as discussed above, partially offset by decreased delivery and installation gross profit of $9.1 million and increased SG&A, excluding discrete costs, of $4.0 million, or 2.9%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Other depreciation and amortization: Other depreciation and amortization increased $0.7 million to $17.9 million for the three months ended March 31, 2024 compared to $17.2 million for the three months ended March 31, 2023. Lease impairment expense and other related charges: Lease impairment expense and other related charges increased by $0.7 million to $0.7 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. These charges were related to the exit of an office property. Currency losses, net: Currency losses, net decreased by $6.7 million to $0.1 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This change was primarily attributable to a $7.7 million loss in the 2023 period on the settlement of the contingent foreign currency forward contract relating to the sale of the former UK Storage Solutions segment in January 2023. 26 Other expense (income), net: Other expense, net was $0.6 million for the three months ended March 31, 2024 compared to other income, net of $3.4 million for the three months ended March 31, 2023. This change was primarily attributable to insurance recoveries received in 2023 related to Hurricane Ian in the Gulf Coast area of the United States in 2022. Interest expense, net: Interest expense increased $11.7 million, or 26.1%, to $56.6 million for the three months ended March 31, 2024 from $44.9 million for the three months ended March 31, 2023. The increase in interest expense was a result of higher overall weighted average interest rates as a result of increased benchmark rates and higher outstanding debt balances. See Note 9 to the condensed consolidated financial statements for further discussion of our debt. Income tax expense: Income tax expense decreased $13.4 million to $17.1 million for the three months ended March 31, 2024 compared to $30.5 million for the three months ended March 31, 2023. The decrease in expense was primarily driven by a decrease in income from continuing operations before income tax for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Income from discontinued operations: Income from discontinued operations for the three months ended March 31, 2023 was related to the former UK Storage Solutions segment, which was sold January 2023. Net CAPEX: Net CAPEX increased $19.0 million, or 41.4%, to $64.8 million for the three months ended March 31, 2024 from $45.8 million for the three months ended March 31, 2023 driven by a $25.3 million, or 53.7%, increase in refurbishment spending and new fleet purchases, including additional investment in climate-controlled containers and refrigerated storage units. This increase was partially offset by a $6.4 million increase in proceeds from the sale of rental equipment for the three months ended March 31, 2024. Reconciliation of Non-GAAP Financial Measures In addition to using GAAP financial measurements, we use certain non-GAAP financial measures to evaluate our operating results. As such, we include in this Quarterly Report on Form 10-Q reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. Set forth below are definitions and reconciliations to the nearest comparable GAAP measure of certain non-GAAP financial measures used in this Quarterly Report on Form 10-Q along with descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures. Each of these non-GAAP financial measures has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for analysis of, results reported under GAAP. Our measurements of these metrics may not be comparable to similarly titled measures of other companies. Adjusted EBITDA We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. Our adjusted EBITDA ("Adjusted EBITDA") reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect of what we consider transactions or events not related to our core business operations: • Currency (gains) losses, net on monetary assets and liabilities denominated in foreign currencies other than the subsidiaries’ functional currency. • Goodwill and other impairment charges related to non-cash costs associated with impairment charges to goodwill, other intangibles, rental fleet and property, plant and equipment. • Restructuring costs, lease impairment expense, and other related charges associated with restructuring plans designed to streamline operations and reduce costs including employee and lease termination costs. • Transaction costs including legal and professional fees and other transaction specific related costs. • Costs to integrate acquired companies, including outside professional fees, non-capitalized costs associated with system integrations, non-lease branch and fleet relocation expenses, employee training costs, and other costs required to realize cost or revenue synergies. • Non-cash charges for stock compensation plans. • Other expenses, including consulting expenses related to certain one-time projects, financing costs not classified as interest expense, and gains and losses on disposals of property, plant, and equipment. Our Chief Operating Decision Maker ("CODM") evaluates business performance utilizing Adjusted EBITDA as shown in the reconciliation of the Company’s consolidated income from continuing operations to Adjusted EBITDA below. Management believes that evaluating performance excluding such items is meaningful because it provides insight with respect to the intrinsic and ongoing operating results of the Company and captures the business performance inclusive of indirect costs. Adjusted EBITDA has limitations as an analytical tool, and you should not consider the measure in isolation or as a substitute for net income (loss), cash flow from operations or other methods of analyzing WillScot Mobile Mini’s results as reported under GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs; 27 • Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; • Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and • Other companies in our industry may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as discretionary cash available to reinvest in the growth of our business or as a measure of cash that will be available to meet our obligations. The following table provides unaudited reconciliations of Income from continuing operations to Adjusted EBITDA: Three Months Ended March 31, (in thousands) 2024 2023 Income from continuing operations $ 56,240 $ 76,271 Income tax expense from continuing operations 17,118 30,510 Interest expense 56,588 44,866 Depreciation and amortization 92,828 76,329 Currency losses, net 77 6,775 Restructuring costs, lease impairment expense and other related charges 746 22 Integration costs 2,877 3,873 Stock compensation expense 9,099 8,150 Other 12,436 46 Adjusted EBITDA from continuing operations $ 248,009 $ 246,842 Adjusted EBITDA Margin We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. Management believes that the presentation of Adjusted EBITDA Margin provides useful information to investors regarding the performance of our business. The following table provides unaudited reconciliations of Adjusted EBITDA Margin: Three Months Ended March 31, (in thousands) 2024 2023 Adjusted EBITDA from continuing operations (A) $ 248,009 $ 246,842 Revenue (B) $ 587,181 $ 565,468 Adjusted EBITDA Margin from Continuing Operations (A/B) 42.2 % 43.7 % Gross profit (C) $ 316,888 $ 323,128 Gross Profit Margin (C/B) 54.0 % 57.1 % Adjusted Gross Profit and Adjusted Gross Profit Percentage We define Adjusted Gross Profit as gross profit plus depreciation of rental equipment. Adjusted Gross Profit Percentage is defined as Adjusted Gross Profit divided by revenue. Adjusted Gross Profit and Adjusted Gross Profit Percentage are not measurements of our financial performance under GAAP and should not be considered as an alternative to gross profit, gross profit percentage, or other performance measures derived in accordance with GAAP. In addition, our measurement of Adjusted Gross Profit and Adjusted Gross Profit Percentage may not be comparable to similarly titled measures of other companies. Management believes that the presentation of Adjusted Gross Profit and Adjusted Gross Profit Percentage provides useful information to investors regarding our results of operations and assists in analyzing the performance of our business. 28 The following table provides unaudited reconciliations of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage: Three Months Ended March 31, (in thousands) 2024 2023 Revenue (A) $ 587,181 $ 565,468 Gross profit (B) $ 316,888 $ 323,128 Depreciation of rental equipment 74,908 59,156 Adjusted Gross Profit (C) $ 391,796 $ 382,284 Gross Profit Percentage (B/A) 54.0 % 57.1 % Adjusted Gross Profit Percentage (C/A) 66.7 % 67.6 % Net CAPEX We define N et CAPEX as purchases of rental equipment and refurbishments and purchases of property, plant and equipment (collectively, "Total Capital Expenditures"), less proceeds from the sale of rental equipment and proceeds from the sale of property, plant and equipment (collectively, "Total Proceeds"), which are all included in cash flows from investing activities. Management believes that the presentation of Net CAPEX provides useful information regarding the net capital invested in our rental fleet and property, plant and equipment each year to assist in analyzing the performance of our business. As presented below, Net CAPEX includes amounts for the former UK Storage Solutions segment through January 31, 2023. The following table provides unaudited reconciliations of Net CAPEX: Three Months Ended March 31, (in thousands) 2024 2023 Total purchases of rental equipment and refurbishments $ (72,417) $ (47,128) Total proceeds from sale of rental equipment 14,195 7,781 Net CAPEX for Rental Equipment (58,222) (39,347) Purchase of property, plant and equipment (6,554) (6,736) Proceeds from sale of property, plant and equipment — 258 Net CAPEX $ (64,776) $ (45,825) Liquidity and Capital Resources Overview WillScot Mobile Mini is a holding company that derives its operating cash flow from its operating subsidiaries. Our principal sources of liquidity include cash flows generated from operating activities of our subsidiaries, borrowings under our ABL Facility, and sales of debt and equity securities. We have consistently accessed the debt and equity capital markets both opportunistically and as necessary to support the growth of our business, desired leverage levels, and other capital allocation priorities. We believe we have ample liquidity in the ABL Facility and are generating substantial free cash flow, which together support both organic operations and other capital allocation priorities as they arise. We believe that our liquidity sources are sufficient to satisfy our anticipated operating, debt service and capital cash requirements over the next twelve months and thereafter for the foreseeable future. We continue to review available acquisition opportunities with the awareness that any such acquisition may require us to incur additional debt to finance the acquisition and/or to issue shares of our Common Stock or other equity securities as acquisition consideration or as part of an overall financing plan. In addition, we will continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing of any such issuance or repurchase. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. Availability of financing and the associated terms are inherently dependent on the debt and equity capital markets and subject to change. From time to time, we may also seek to streamline our capital structure and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities for cash or other consideration. 29 Our revolving credit facility provides an 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”) and (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”). Borrowing availability under the ABL Facility is equal to the lesser of $3.7 billion an d the applicable borrowing bases. The borrowing bases are a function of, among other things, the value of the assets in the relevant collateral pool, of which our rental equipment represents the largest component. At March 31, 2024, we had $1.3 billion of available borrowing capacity under the ABL Facility. Cash Flow Comparison of the Three Months Ended March 31, 2024 and 2023 The consolidated statements of cash flows include amounts for the former UK Storage Solutions segment through January 31, 2023. See Note 3 to the financial statements for disclosure of significant investing items related to the former UK Storage Solutions segment. The following summarizes our change in cash and cash equivalents for the periods presented: Three Months Ended March 31, (in thousands) 2024 2023 Net cash provided by operating activities $ 208,676 $ 148,765 Net cash (used in) provided by investing activities (110,967) 271,949 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 Flows from Operating Activities Net cash provided by operating activities for the three months ended March 31, 2024 was $208.7 million as compared to $148.8 million for the three months ended March 31, 2023, an increase of $59.9 million. The increase was due to a change of $81.7 million in the net movements of the operating assets and liabilities, partially offset by a decrease of $21.8 million of net income, adjusted for non-cash items. Cash Flows from Investing Activities Net cash used in investing activities for the three months ended March 31, 2024 was $111.0 million as compared to $271.9 million of net cash provided by investing activities for the three months ended March 31, 2023, a $382.9 million increase in net cash used in investing activities. The increase in net cash used in investing activities resulted from $404.0 million in proceeds from the sale of the former UK Storage Solutions in the three months ended March 31, 2023 and a $25.3 million increase in refurbishment spending and new fleet purchases, including additional investment in climate-controlled containers and refrigerated storage units, during the three months ended March 31, 2024. The increase was partially offset by a $35.1 million decrease in cash used in acquisitions, net of cash acquired, a $6.4 million increase in proceeds from the sale of rental equipment and a $7.7 million decrease in cash used for the settlement of a contingent foreign currency forward contract upon the closing of the sale of the former UK Storage Solutions segment in January 2023. Cash Flows from Financing Activities Net cash used in financing activities for the three months ended March 31, 2024 was $95.6 million as compared to $423.1 million for the three months ended March 31, 2023, a decrease of $327.5 million. The decrease was primarily due to a $215.1 million decrease in cash used for the repurchase of common stock in the three months ended March 31, 2024 and a $118.1 million decrease in repayments of borrowings, net of receipts from borrowings. We paused share repurchases in 2023 as acquisition discussions advanced with McGrath RentCorp and did not repurchase shares of our Common Stock during the three months ended March 31, 2024. We resumed repurchasing shares of our Common Stock in April 2024. The decrease was partially offset by a $4.5 million increase in cash used for taxes paid on employee stock awards and a $1.3 million increase in cash used for principal payments on finance lease obligations. Free Cash Flow Free Cash Flow is a non-GAAP measure. We define Free Cash Flow as net cash provided by operating activities, less purchases of, and proceeds from, rental equipment and refurbishments and property, plant and equipment, which are all included in cash flows from investing activities. Management believes that the presentation of Free Cash Flow provides useful additional information concerning cash flow available to fund our capital allocation alternatives. The following table provides a reconciliation of net cash provided by operating activities to Free Cash Flow. 30 Three Months Ended March 31, (in thousands) 2024 2023 Net cash provided by operating activities $ 208,676 $ 148,765 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 Free Cash Flow $ 143,900 $ 102,940 Free Cash Flow for the three months ended March 31, 2024 was $143.9 million as compared to $102.9 million for the three months ended March 31, 2023, an increase of $41.0 million. Free Cash Flow increased principally as a result of the $59.9 million increase in cash provided by operating activities and the $6.4 million increase in proceeds from the sale of rental equipment. The increase was partially offset by the $25.3 million increase in cash used in the purchase of rental equipment and refurbishments. The $208.7 million in cash provided by operating activities for the three months ended March 31, 2024 was reinvested into the business to support the purchase of rental equipment, including VAPS, and refurbishments, acquire a local provider of storage and modular space solutions for $43.4 million, and to fund repayment of borrowings under our ABL Facility. Material cash requirements The Company’s material cash requirements include the following contractual and other obligations: Debt The Company has outstanding debt related to its ABL Facility, 2025 Secured Notes, 2028 Secured Notes, 2031 Secured Notes and finance leases totaling $3.5 billion as of March 31, 2024, $19.2 million of which is obligated to be repaid within the next twelve months. Refer to Note 9 for further information regarding outstanding debt. Operating leases The Company has commitments for future minimum rental payments relating to operating leases, which are primarily for real estate. As of March 31, 2024, the Company had lease obligations of $305.0 million, with $68.3 million payable within the next twelve months. Other In addition to the cash requirements described above, the Company has a share repurchase program authorized by the Board of Directors, which allows the Company to repurchase up to $1.0 billion of outstanding shares of Common Stock. This program does not obligate the Company to repurchase any specific amount of shares. As of March 31, 2024, $498.2 million of the approved share repurchase amount remained available. Critical Accounting Estimates Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances and reevaluate our estimates and judgments as appropriate. The actual results experienced by us may differ materially and adversely from our estimates. For a complete discussion of our significant critical accounting estimates, see the “Critical Accounting Estimates” section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report on Form 10-K"). There were no significant changes to our critical accounting estimates during the three months ended March 31, 2024. Recently Issued Accounting Standards Refer to Part I, Item 1, Note 1 of the notes to our financial statements included in this Quarterly Report on Form 10-Q for our assessment of recently issued and adopted accounting standards. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Act of 1934, as amended. The words “estimates,” “expects,” “anticipates,” “believes,” “forecasts,” “plans,” “intends,” “may,” “will,” “should,” “shall,” “outlook,” “guidance” and 31 variations of these words and similar expressions identify forward-looking statements, which are generally not historical in nature and relate to expectations for future financial performance or business strategies or objectives. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, many of which are outside our control, which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Although WillScot Mobile Mini believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance that any such forward-looking statement will materialize. Important factors that may affect actual results or outcomes include, among others: • impacts of various laws and regulations and recent pronouncements related to laws and regulations governing antitrust, climate-related disclosures, privacy, government contracts, anti-corruption and the environment; • our ability to successfully acquire and integrate new operations; • the effect of global or local economic conditions in the industries and markets in which the Company operates and any changes therein, including financial market conditions and levels of end market demand; • risks associated with cybersecurity threats and IT systems disruptions, including our ability to manage the business in the event a cybersecurity incident or a disaster shuts down or materially impacts our management information systems; • trade policies and changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences; • our ability to effectively compete in the modular space and portable storage industries; • our ability to effectively manage our credit risk, collect on our accounts receivable, or recover our rental equipment; • inflationary pressures and fluctuations in interest rates and commodity prices; • risks associated with labor relations, labor costs and labor disruptions; • changes in the competitive environment of our customer base as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry; • our ability to adequately protect our intellectual property and other proprietary rights that are material to our business; • natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, earthquakes and terrorism; • our ability to establish and maintain the appropriate physical presence in our markets; • property, casualty or other losses not covered by our insurance; • our ability to close our unit sales transactions; • our ability to maintain an effective system of internal controls and accurately report our financial results; • evolving public disclosure, financial reporting and corporate governance expectations; • our ability to achieve our environmental, social and governance goals; • operational, economic, political and regulatory risks; • effective management of our rental equipment; • the effect of changes in state building codes on our ability to remarket our buildings; • foreign currency exchange rate exposure; • significant increases in the costs and restrictions on the availability of raw materials and labor; • fluctuations in fuel costs or a reduction in fuel supplies; • our reliance on third party manufacturers and suppliers; • impairment of our goodwill, intangible assets and indefinite-life intangible assets; • our ability to use our net operating loss carryforwards and other tax attributes; • our ability to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, utilize future tax savings; • unanticipated changes in tax obligations, adoption of a new tax legislation, or exposure to additional income tax liabilities; • our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us; • our ability to service our debt and operate our business; • our ability to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness; • covenants that limit our operating and financial flexibility; • our stock price volatility; 32 • risks associated with the completion of the McGrath Acquisition within the expected timeframe, the completion of the McGrath Acquisition, and the realization of anticipated synergies from the McGrath Acquisition; and • such other risks and uncertainties described in the periodic reports we file with the SEC from time to time (including our 2023 Annual Report on Form 10-K), which are available through the SEC’s EDGAR system at www.sec.gov and on our website. Any forward-looking statement speaks only at the date which it is made, and WillScot Mobile Mini undertakes no obligation, and disclaims any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.