WillScot Mobile Mini (WSC) - 2022 Q4 - Annual Report

PART I Business WillScot Mobile Mini is a leading North American provider of flexible workspace and portable storage solutions, focusing on modular and storage segments through leasing and Value-Added Products and Services (VAPS) - The company is a leading provider of flexible workspace and portable storage solutions with approximately 240 branch locations across North America[16] - Following divestitures, the company focuses on two core North American segments: Modular Solutions and Storage Solutions[19] - In 2022, 13 smaller entities were acquired for $220.6 million in cash, adding 14,100 storage and 4,400 modular units[20] Fleet Overview as of December 31, 2022 | Metric | Value | | :--- | :--- | | Total Units | > 364,000 | | Modular Space Units | > 154,000 | | Portable Storage Units | ~ 210,000 | | Fleet Net Book Value | $3.1 billion | | Total Relocatable Space | > 128 million sq. ft. | | Modular Units on Rent | 67% (~103,000) | | Storage Units on Rent | 84% (~176,000) | Products and Services The company provides modular space and portable storage solutions, enhanced by Value-Added Products and Services (VAPS) for customization and customer value - Modular space units have an economic life often exceeding 20 years, offering turnkey 'Ready to Work' solutions with VAPS[21][22] - Portable storage containers have an estimated useful life of 30 years and feature patented security systems like the Tri-Cam Locking System®[30][31] - VAPS are a significant advantage, enhancing unit productivity and security, with successful cross-selling into the Storage segment[33][57] Customers and End Markets Serving over 85,000 diverse customers across 15 end markets, the company's revenue is primarily from commercial/industrial and construction sectors Revenue by End Market (FY 2022) | End Market | Revenue Contribution | | :--- | :--- | | Commercial and Industrial | ~47% | | Construction | ~41% | | Retail and Wholesale Trade (sub-segment) | ~13% | - Customer concentration is low, with the top 10 customers accounting for approximately 7% of revenues in FY 2022[44] - The company served over 85,000 unique customers in 2022, ranging from multinational corporations to local businesses[45] Business and Growth Strategies Growth strategies focus on VAPS expansion, rental rate optimization, cross-selling, operational efficiency, and accretive acquisitions, supported by disciplined capital deployment - Key strategies include expanding VAPS, optimizing rental rates, cross-selling between segments, and pursuing accretive acquisitions in a fragmented market[82][83][84][87] - A new, consolidated CRM platform launched in Q1 2023 enhances customer visibility and cross-selling capabilities[62][85] - Approximately 55% of the modular market and 70% of the portable storage market are served by regional competitors, indicating significant acquisition opportunities[87] Human Capital and ESG The company employed approximately 4,500 people in 2022, focusing on human capital and ESG through safety, I&D, and a circular economy model for asset reuse - Employed approximately 4,500 people in North America as of December 31, 2022, with 88% in branch locations[91] - The ESG strategy emphasizes a circular business model, with modular units reused seven times on average over a 20-year life, extendable to 30 years[118] - Safety performance is strong, with a Total Recordable Incident Rate (TRIR) below 1.0 in 2022[125] - Five Inclusiveness Resource Teams (IRTs) were launched to foster an inclusive and diverse workplace[103] Risk Factors The company faces regulatory, integration, economic, operational, and financial risks, including substantial leverage and potential limitations on Net Operating Loss (NOL) utilization - The business is subject to numerous laws and regulations, including antitrust, climate disclosure, cybersecurity, and environmental rules, where noncompliance could materially harm operations[138][139] - Growth through acquisitions presents integration risks, including loss of key employees, undiscovered liabilities, and challenges in implementing uniform standards[153][154][155] - Substantial leverage of $3.1 billion as of December 31, 2022, could hinder debt servicing and operations, with restrictive debt covenants limiting flexibility[208][211] - Significant US federal and state Net Operating Loss (NOL) carryforwards of $1.0 billion and $484.3 million respectively, may be limited by ownership changes under Section 382[197][198] Unresolved Staff Comments The company reports no unresolved staff comments - None[217] Properties The company operates approximately 240 branch locations across North America, with 83% leased, and believes properties are well-maintained and suitable for growth - The company operates approximately 240 branch locations and additional drop lots across the US, Canada, and Mexico[218] - Approximately 83% of branch properties are leased, with the remaining 17% owned[218] Legal Proceedings The company is involved in ordinary course legal proceedings, which management believes will not materially affect its financial position as of December 31, 2022 - The company is involved in various legal proceedings in the ordinary course of business, not expected to materially affect its financial condition as of December 31, 2022[221] Mine Safety Disclosures This item is not applicable to the company - Not applicable[222] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "WSC", with 207.95 million shares outstanding as of December 31, 2022, and an active share repurchase program - The company's common stock is listed on the Nasdaq Capital Market under "WSC", with 207,951,682 shares outstanding as of December 31, 2022[225] - A share repurchase program authorizes up to $1.0 billion, with $630.8 million remaining available as of December 31, 2022[229] Common Stock Repurchases in Q4 2022 | Period | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | 2,471.1 | $41.70 | | Nov 2022 | 1,325.7 | $45.98 | | Dec 2022 | 1,482.5 | $46.15 | | Total Q4 | 5,279.3 | $44.03 | Management's Discussion and Analysis of Financial Condition and Results of Operations FY 2022 saw strong financial performance with total revenues up 28.1% to $2.14 billion and Adjusted EBITDA up 36.1% to $883.9 million, driven by organic growth, acquisitions, and strategic divestitures FY 2022 Key Financial Performance (Continuing Operations) | Metric | FY 2022 | Change vs FY 2021 | | :--- | :--- | :--- | | Total Revenues | $2,142.6M | +28.1% | | Leasing Revenue | $1,621.7M | +29.5% | | Income from Continuing Operations | $276.3M | +140.5% | | Adjusted EBITDA | $883.9M | +36.1% | | Free Cash Flow | $330.3M | +9.0% | - Key drivers for 2022 performance included a 3.5% increase in average modular units on rent and a 24.9% increase in average portable storage units on rent, with rental rates increasing 18.3% for modular and 24.7% for storage[242] - The company completed the sale of its Tank and Pump segment and agreed to sell its UK Storage Solutions segment, focusing on core North American businesses[235][236] - Capital deployed in 2022 included $220.6 million for 13 acquisitions and $756.9 million for common stock and equivalent repurchases[240][248] Consolidated Results of Operations In 2022, total revenues increased 28.1% to $2.14 billion, gross profit grew 34.4% to $1.14 billion, and net income from continuing operations rose to $276.3 million Consolidated Results of Operations (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $2,142,623 | $1,672,980 | | Gross profit | $1,135,482 | $844,703 | | Operating income | $511,482 | $300,377 | | Income from continuing operations | $276,341 | $114,895 | - Revenue increase was driven by a 15.7% increase in total average units on rent and improved pricing, with modular rates up 18.3% and portable storage rates up 24.7% year-over-year[282][283] - SG&A expense increased 22.2% to $567.2 million, driven by higher employee costs, legal/professional fees, and stock compensation, despite decreased integration costs[286] Business Segments In 2022, the Modular segment revenue grew 19.5% to $1.39 billion, and the Storage segment revenue grew 47.6% to $750.8 million, both driven by strong rental rate increases Segment Performance - Year Ended Dec 31, 2022 | Segment | Revenue (in millions) | YoY Change | Adjusted EBITDA (in millions) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Modular | $1,391.8 | +19.5% | $529.1 | +25.1% | | Storage | $750.8 | +47.6% | $354.8 | +56.6% | - Modular segment growth was primarily driven by a $148 increase (+18.3%) in average monthly rental rate to $957[242][319] - Storage segment growth was driven by a 31.6% increase in average units on rent and a 23.9% increase in average monthly rental rate to $192[242][327] Liquidity and Capital Resources The company's liquidity is supported by $744.7 million in net cash from operations and $1.0 billion available under its ABL Facility, with total debt at $3.1 billion Cash Flow Summary (in thousands) | Cash Flow | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $744,658 | $539,902 | | Net cash from investing activities | $(309,333) | $(384,047) | | Net cash from financing activities | $(429,368) | $(167,887) | - As of December 31, 2022, the company had $1.0 billion of available borrowing capacity under its ABL Facility[357] - Material cash requirements include debt service on $3.1 billion of total debt and operating lease obligations of $258.5 million[368][369] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from its $2.0 billion ABL Facility, mitigated by $750 million in interest rate swaps, and foreign currency risk from Canadian and Mexican operations - The company is exposed to interest rate risk from its ABL Facility, with $2.0 billion outstanding at December 31, 2022; a 100 basis point increase would raise annual interest expense by approximately $16.3 million[402] - In January 2023, interest rate swaps on a notional amount of $750.0 million were executed to hedge ABL Facility variable rates, fixing the rate at 3.44% for that portion[403][649] - Foreign currency risk exists from Canadian and Mexican operations, which generated approximately 7% of consolidated net revenues in 2022, without formal hedging arrangements[183][404][405] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY 2022, with an unqualified opinion from Ernst & Young LLP on both financial statements and internal controls Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the financial statements, identifying the allowance for credit losses as a critical audit matter - Ernst & Young LLP issued an unqualified opinion, affirming fair presentation of financial statements in conformity with U.S. GAAP[411] - The 'Allowance for Credit Losses' was identified as a Critical Audit Matter due to subjective judgments in assessing historical write-off experience and economic conditions[415][417] Consolidated Financial Statements As of December 31, 2022, total assets were $5.83 billion and total liabilities $4.26 billion, with FY 2022 revenue at $2.14 billion and net income at $339.5 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,827,651 | $5,773,599 | | Rental equipment, net | $3,077,287 | $2,777,800 | | Goodwill | $1,011,429 | $1,013,601 | | Total Liabilities | $4,262,351 | $3,776,836 | | Long-term debt | $3,063,042 | $2,671,831 | | Total Shareholders' Equity | $1,565,300 | $1,996,763 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenues | $2,142,623 | $1,672,980 | $1,272,991 | | Net income | $339,540 | $160,144 | $74,127 | | Diluted EPS | $1.53 | $0.69 | $0.25 | Notes to the Consolidated Financial Statements Notes detail divestitures, $220.6 million in acquisitions, revenue breakdown, $3.1 billion debt structure, $756.9 million share repurchases, and segment performance - The company completed the sale of its Tank and Pump segment and agreed to sell its UK Storage Solutions segment, both reported as discontinued operations[513][515] - In 2022, 13 smaller entities were acquired for $220.6 million in cash, adding approximately 14,100 storage and 4,400 modular units[511] - As of December 31, 2022, total debt was $3.1 billion, primarily comprising a $2.0 billion ABL Facility, $526.5 million in 6.125% Secured Notes due 2025, and $500 million in 4.625% Secured Notes due 2028[208][551] - During 2022, the company repurchased 19,854,424 shares of common stock and equivalents for $756.9 million under its share repurchase program[581] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[650] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting (ICFR) were effective as of December 31, 2022, with an unqualified auditor opinion - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2022[651] - Management assessed internal control over financial reporting (ICFR) as effective as of December 31, 2022, with Ernst & Young LLP issuing an unqualified opinion[654][655][660] Other Information No other information is reported for this item - None[667] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the registrant's definitive proxy statement for the 2023 annual meeting of stockholders[668] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2023 annual meeting - Required information is incorporated by reference from the registrant's definitive proxy statement for the 2023 annual meeting of stockholders[669] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 3,344,121 securities issuable under equity plans at a $13.60 weighted-average exercise price as of December 31, 2022 Equity Compensation Plan Information as of December 31, 2022 | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 3,344,121 | $13.60 | 3,999,228 | | Not approved by security holders | N/A | N/A | N/A | | Total | 3,344,121 | $13.60 | 3,999,228 | - Securities to be issued include 0.5 million stock options, 0.8 million RSUs, 2.0 million performance-based RSUs, and 0.04 million RSAs[673] Certain Relationships and Related Transactions, and Director Independence Information on director independence and related party transactions is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the registrant's definitive proxy statement for the 2023 annual meeting of stockholders[676] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2023 proxy statement - Required information is incorporated by reference from the registrant's definitive proxy statement for the 2023 annual meeting of stockholders[677] PART IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including consolidated financial statements, notes, and an index of exhibits - This section contains the list of consolidated financial statements filed with the report[680] - All financial statement schedules were omitted as the required information is either not applicable or included elsewhere[681] - A detailed Exhibit Index lists all filed documents, including governance, debt, employment, and certification agreements[683][685]