WillScot Corporation Class A Aktie

Welcome to the Third Quarter 2026 WillScot Earnings Conference Call. My name is Sherry, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Charlie Wohlhuter. Charlie, you may begin.

All right. Thank you, Sherry, and good afternoon, everyone. We appreciate you joining us for WillScot's Third Quarter 2026 Earnings Call. With me in the room today are Worthing Jackman, our Executive Chairman; Tim Boswell, President and Chief Executive Officer; and Matt Jacobsen, our Chief Financial Officer. A copy of today's presentation material may be found on our Investor Relations website at investors.willscot.com.

Before we begin, please take a moment to review Slide 2 of our posted presentation, which includes our safe harbor statement. During today's remarks and the question-and-answer session, we may make forward-looking statements regarding our business, operating performance, market conditions and financial outlook. These statements are subject to risks and uncertainties, many of which are outside of our control. Actual results may differ materially from those expressed or implied. For additional information regarding these risks and other factors that could impact our results, please refer to the safe harbor statement included in today's presentation as well as our filings with the SEC.

And now it's my pleasure to turn the call over to our President and Chief Executive Officer, Tim Boswell, to begin today's discussion.

Thank you, Charlie, and good afternoon, everyone. We appreciate you joining us today to review our third quarter 2026 results, our outlook for remainder of 2026 as well as some early thoughts on 2027. I'm pleased with our third quarter results and excited about the momentum that is building across our business. For the past year, we have been executing a focused commercial strategy to strengthen our local market presence, expand our enterprise accounts and verticals and grow our value-added solutions.

Sitting here today, our execution has improved, and we're capitalizing on market activity such that we have the strongest organic growth outlook for the business that we've had in years. And with the underlying improvements that we've made to both our operating platform and our team, I am quite confident that WillScot has never been better positioned to compete and win in our markets than we are today.

Starting with our top line trajectory. This is a run rate business with long lease durations. All internal indicators point to a strengthening growth outlook for 2027. In the third quarter, lease revenues grew 4% year-over-year and delivery and installation revenues grew by 23% year-over-year. Delivery and installation revenues have been up double digits every quarter this year, which is a leading indicator for lease revenue growth. Consistent with that, modular activations were up 12% year-over-year in Q3, representing the fourth consecutive quarter of year-over-year activation growth.

As we've said in the past, given our long lease durations, it takes several quarters of year-over-year activation growth to inflect units on rent, and we achieved that year-over-year volume inflection in the third quarter with modular unit on rent growth of 1.2%. Matt will cover the Q4 guidance, though our assumption is that this volume favorability will continue to strengthen as we progress through the fourth quarter.

This is an important milestone. And while storage volumes are still down, the growth in modular means that we expect to enter 2027 with a net revenue tailwind from volume for the first time in 5 years. And our pending order book for modular has grown and is now up over 20% versus prior year. So we've seen no deceleration in activity and have a growing pipeline for the first half of 2027.

Each element of our commercial strategy is contributing to this momentum, though our shift last year to focus on enterprise accounts and new verticals aligned well with the mix of market activity and is delivering clear impact. In the third quarter, enterprise account revenue increased 15% year-over-year and now represents more than 30% of our revenue on a trailing 12-month basis.

Our win rates show a positive correlation with project size and complexity, and our value proposition is clearly differentiated with these customers. In this quarter alone, we began delivering 750 units, representing over 125,000 square feet to support the expansion of a major pharmaceutical campus in the Southern United States. In Florida, we are relocating an entire college and setting up a temporary campus to make room for a large urban redevelopment project. We set up a temporary training facility for the New York Giants, similar to the one that we built for the Los Angeles Rams, both of whom established marketing partnerships with us. We're activating over 250 units for the first phase of a large multiyear expansion of a semiconductor manufacturing facility. And we've seen consistent growth across large-scale data center and power generation projects all over North America, which I'm sure we'll discuss later in the call. These are just some examples to demonstrate that the breadth, scale and complexity of what we're doing in our business today has changed dramatically relative to the project types we were executing even 3 years ago, and there are some important implications.

First, the common theme across all of these examples is that when the most sophisticated customers need space to mobilize their teams, they choose WillScot because of our execution capabilities in the field. That's a validation of our differentiated competitive positioning and operational capability. Second, our revenue quality is improving, favoring our highest value solutions and our highest quality customers. And third, these customers and projects have the most demanding service level requirements, which are challenging us to execute at a higher level and extending our capability lead relative to the competition. We're using these successes and customer feedback to guide both our operational improvement road map as well as our capital allocation.

On the operations side, we're driving improvements where we see the biggest impact to both the customer experience and to margins. It all starts with working safely, which is central to our culture and company values. Our recordable incident rate has dropped to 0.57 over the past year. This is a core feature of the value proposition we are taking to customers when they determine which provider they want to partner with on their job site. Every sophisticated customer in the construction sector is focused on improving the worker experience on site. This starts with safety. And by aligning closely with our customers on standards of execution, we're making one another better and keeping our teams healthy. Second, we went live across the entire network in Q3 with our new field service scheduling and dispatch platform. This has digital self-service features for our customers, real-time communications and optimizes scheduling and route planning. So we expect a host of benefits as we optimize usage of this platform in 2027. Third is our customer service, billing and collections functions, where we are focused on ease of doing business and minimizing revenue leakage. And fourth is our network optimization initiative, where we are tightening the real estate footprint, reducing nonproductive assets and realizing cost savings. All of these continuous improvement initiatives make us more competitive in the market and present margin expansion opportunities on top of the normal operating leverage that we expect as lease revenue builds.

In terms of capital allocation, the commercial momentum and improved operational execution give us a clear view of where we can reinvest organically in the business. The mix of market activity and our improved enterprise account penetration are presenting some of the most attractive organic investment opportunities that I've seen in my 15 years with the company.

As Matt will discuss, our net capital expenditure outlook for the year is up approximately $125 million versus our outlook at the beginning of the year. We have allocated this incremental capital to our most highly utilized and most versatile product lines to projects where we see long lease durations with our best customers and subject to our disciplined return thresholds. Over 90% of the incremental fleet we've acquired is either on rent or assigned to a customer order with contractual minimum durations of over 2 years. So we have clear line of sight to the return on investment, and it is supporting our run rate into 2027. And we're seeing constraints in the market across labor, logistics and fleet, which we expect will support a favorable pricing environment well into 2027.

Importantly, there has been no change in our view of the long-term capital requirements for the business. The ability to flex capital expenditures up and down rapidly in response to changes in demand is a strength of the business. And even with this increased investment, our year-to-date free cash flow margin of 14% remains best-in-class and our ROIC expanded both sequentially and year-over-year in the quarter.

Matt is going to cover the details of Q3 and our Q4 outlook. So if I zoom out, the growing commercial momentum, improved operational execution and investments in organic growth are all fundamental improvements that together support the strongest leasing run rate exiting Q4 that we've seen in the past 5 years. Based on our commercial pipeline and growth investments, we believe that low single-digit organic revenue growth for 2027 is achievable. And with normal operating leverage and our focus on continuous improvement and margin expansion initiatives, this would support mid-single-digit percentage organic EBITDA growth in 2027. We believe this is a balanced initial outlook as we monitor the changes in the political landscape this week and potential risks to the pace of data center construction specifically. And there is also the potential for upside if we continue to drive growth in modular activations or see improvements across our more transactional product lines. It is, of course, early, and we'll follow up with our formal guidance for 2027 on the fourth quarter call. That said, we started 2026 with the goal of delivering an inflection in organic lease revenue growth this year. And I want to thank our team members across the organization for executing that plan, delivering our third quarter results and strengthening our long-term trajectory for the benefit of our shareholders.

With that, Matt, I'll turn the call over to you.

Thank you, Tim, and good afternoon, everyone. I'll focus my prepared remarks on how our commercial momentum translated into the financial metrics for the quarter, how we're balancing growth investments with other capital allocation priorities and provide an update on what we expect for Q4. Total revenue for the quarter was $601 million, up 6% year-over-year and ahead of our outlook of $585 million. Ongoing strength in modular activations drove a 23% increase in delivery and installation revenue and a 7% increase in total leasing and services revenue. Net income in the quarter was $52 million and diluted earnings per share was $0.28, up $0.04 to the prior year quarter. Adjusted net income was $53 million and adjusted diluted earnings per share was $0.29. Adjusted EBITDA for the quarter was $234 million, exceeding our outlook of $232 million with an adjusted EBITDA margin of 38.8%.

Now looking more closely at leasing revenue performance. Total leasing revenue increased 4% year-over-year to $452 million in Q3, up from 1.5% growth in Q2. Modular space leasing revenue increased $6 million or 2% year-over-year, driven by increases in both volume and rental rates. Modular activations increased 12% year-over-year. And in turn, average modular units on rent increased 1.2% year-over-year and were up nearly 1% sequentially in the quarter despite what is typically a flat to down quarter for units on rent. Recent orders placed for modular units over the rolling 13 weeks have also been up 12% year-over-year, further supporting the positive leasing revenue trajectory that we expect entering into 2027. Average monthly rate on modular units was up approximately 2% year-over-year. Keep in mind, the average monthly rate is a lagging indicator and does not reflect the most recent performance of rates on recent orders. Looking forward into Q4, we're encouraged by the pricing opportunity in front of us based on rates of orders booked more recently. Portable storage leasing revenue declined approximately $5.6 million or 7% year-over-year, reflecting continued volume headwinds in transactional projects and local nonresidential construction activity. Enterprise account activations and climate-controlled storage growth partially offset those pressures. VAPS revenue grew 4% year-over-year to $104 million. And lastly, write-offs to leasing revenue declined meaningfully from prior year levels based on elevated write-off activity in the prior year. This was the primary driver for the $13 million increase year-over-year in other leasing revenue.

As we discussed last quarter, the significant increase in modular activation levels compressed margins year-over-year due to the increased variable rental and transfer costs, a high mix of D&I revenue and due to reduced write-off activity, all of which have positive implications for 2027. Margins expanded sequentially by 160 basis points as we discussed and expected in Q2, but were tempered by increased activity levels that have continued into Q4. We expect further sequential expansion in Q4 and activation-related costs begin to taper from Q3 and recent modular activations contribute more significantly to lease revenue.

Turning to cash flow. The business continues to generate predictable cash flows while supporting elevated levels of reinvestment. Operating cash flows were $198 million for the quarter, up about 4% from the prior year. The stability of our operating cash flow over time is a key attribute of this business and gives us confidence as we allocate capital. Based on our order activity and our demand outlook, we invested $123 million of net CapEx. As a result, adjusted free cash flow was $78 million, representing a 13% margin in the quarter. On a last 12-month basis, adjusted free cash flow totaled $342 million.

I would like to take a minute to discuss our incremental fleet investments. We're investing capital where we have clear customer demand and visibility into growth at attractive returns subject to our disciplined return thresholds. This investment supports fleet categories where utilization exceeds 80%, and we have strong demand visibility into 2027. Of the incremental fleet units we've received so far this year, as Tim said, over 90% of them are already on rent or assigned to pending orders within our order book. Of those on rent, average minimum lease durations exceed 2 years with expected durations that are substantially longer. New fleet allocations are primarily going to our largest customers, and we expect the supply and demand environment will continue to put upward pressure on market rates. We've also added a new slide this quarter in our materials detailing our fleet mix and illustrating the shift in our fleet net book value over time to higher-value offerings. This reflects our strategy to increase exposure to larger customers and longer duration projects to drive durable leasing revenue growth and increased return on invested capital.

Moving to liquidity and leverage. After repaying approximately $57 million of debt during the quarter, we ended Q3 with approximately $3.4 billion of net debt and leverage of 3.7x last 12 months adjusted EBITDA. We maintained $1.6 billion of availability in our ABL and our effective weighted average pretax interest rate is approximately 5.6%. We have no debt maturities until August of 2028. We remain focused on debt reduction and have paid down $159 million of debt year-to-date and over $200 million in the last 12 months. Reducing our absolute debt balance will continue to be a priority following investments in the fleet to drive revenue and adjusted EBITDA growth. Through this combination of growth and absolute debt reduction, we expect leverage to be approaching 3x as we exit 2027.

Moving now to our updated outlook. Based on our performance year-to-date and continued strength in modular activations and units on rent, we're raising our full year 2026 outlook for revenue and net CapEx to $2.34 billion and $400 million, respectively, and maintaining adjusted EBITDA at $920 million. Relative to our prior guidance, we now anticipate a higher level of modular activations and delivery and installation revenue in the fourth quarter. We expect to drive leasing revenue growth of approximately 4% year-over-year, and we'll build on the unit on rent growth that we achieved in Q3. With continued strength in the order book, we expect that we will sustain elevated work order volumes, logistics and support costs across our footprint, which will moderate the level of sequential margin expansion generally seen ending the year. So we've maintained our full year EBITDA expectation to account for this. These are short-term investments that will enhance profitability over a much longer period and support greater durability in our business. And finally, for modeling purposes, there haven't been any significant changes in our expectations for interest, depreciation, tax rate or other below EBITDA items since our Q2 update.

In summary, we delivered a strong third quarter with top line revenue and adjusted EBITDA growth -- adjusted EBITDA ahead of our expectations. Leasing revenue growth accelerated, modular units on rent inflected, and we continue to reinvest behind attractive growth opportunities and to deploy excess cash to reduce debt. Though upfront deployment costs continue to create near-term pressure on margins, we're focused on executing our commercial and operational priorities to drive top line growth and margin expansion into 2027 and deleveraging towards 3x as we exit next year.

With that, I'll turn it back to Tim.

Thank you, Matt, and I suspect it's been a long day for our analysts and investors on the line. I'll just reiterate that as a team, we're focused on executing the fundamentals here that are within our control. We're seeing tangible improvements in our results as well as progress against our long-term strategic initiatives. And these are putting us on a solid growth trajectory heading into 2027 with the potential to compound earnings in a meaningful way. Thank you for your attention. Operator, please open the line for questions.

[Operator Instructions] And our first question will come from the line of Angel Castillo with Morgan Stanley.

Just wanted to ask, I guess, could you just help us understand a little bit more of the strategic choice here to effectively move forward with a preliminary '27 outlook, just so much macro and political volatility here. I guess I would have expected a little bit perhaps more caution. But as you noted, you've delivered your first unit on rent growth quarter since 4Q. You have pretty good activations. You talked about the pending orders. So a number of factors clearly showing kind of a positive shift in direction here. So just if you could expand on all that a little bit more, just help us understand the degree of confidence here and just effectively be willing to underwrite that low single digits top line and mid-single digits and just kind of the risk to the upside and downside to that would be helpful.

Yes. Sure, Angel. And it's really based on the reality that the fundamental trajectory going from Q4 into Q1 is as good as we've seen in the past 5 years. When you have a volume tailwind going into a future period, that can give you a lot more confidence around the kind of baseline performance that you can expect out of the business. So we're going to be carrying that type of revenue growth run rate into Q1. And as we look at the order book today, it's only grown through the course of the year. So we're looking at a modular order book that's up over 20% year-over-year with a mix of enterprise accounts in that order book that's up -- I think it was up 70% year-over-year. And that's giving us better visibility into the first half of 2027. So we've got a fair amount of momentum in the lease revenue side of the business, which is difficult to disrupt in the short term.

What we're not doing is taking a definitive position on the second half of next year, but the momentum that we're carrying into the year is undeniable. And when you've got lease revenue growth in the business, it also makes it a lot easier to drive margin expansion. So we've got the opportunity for not only normal operating leverage in the business for a change going into next year, but I detailed four of the other programs that we're executing operationally that give us some other ways to win from a margin standpoint. So that's generally what's underlying our view of this initial outlook.

That's very helpful. And then maybe just to kind of continue down that path. I know it's early, so maybe getting into the quarters is a bit too early for that. But just to your point on not taking a view on the second half, I'm just curious, I guess, is the right way to view this then that mid-single digits implies a stronger first half and then the second half, you just kind of -- you're assuming more flattish? Or should we just think about it more kind of mid-single digits throughout the year? Just trying to understand what that kind of -- not taking a view on the second half ultimately means.

Yes. I would just take the low single-digit top line and mid-single-digit EBITDA and assume that's kind of layered evenly through the course of the year, right? What -- the big variable is what level of modular activations do you get, plus or minus as you go into the second half of the year. and that will have less of an impact on the overall P&L result for 2027. So it's really the strength of the momentum going into Q1 in the first half that I think gives us a comfort level with this kind of baseline outlook.

One moment for our next question, and that will come from the line of Kyle Menges with Citigroup.

Maybe to follow up on some of that commentary on the order book. I'm curious if what is in the order book would it indicate probably longer lease terms than maybe what's typical or the historical average in modular. It sounds like the order book really being driven by the enterprise accounts. So just trying to understand maybe as your mix shifts more heavily to enterprise accounts, at least at a high level, would that tend to suggest longer lease terms than maybe what your historical average has been?

Short answer there, Kyle, is yes. Over half of the order book that we're looking at in modular is driven by the enterprise portfolio. So that is a higher quality mix than we would have had 12 months ago. As I said in the prepared remarks, of the fleet that we've purchased this year above our initial guidance to start the year, not only is over 90% of it on rent or attached to a customer order, the minimum contractual lease duration is in excess of 2 years. So you recall, on average, in our modular business historically, we'd typically see a minimum contractual lease duration of about 12 months and an average effective duration of 3 years.

So what you're seeing with these larger projects with our enterprise customers is minimum contractual durations that are double that historical average. And we certainly expect the effective duration to extend well beyond those contractual minimums. So your point is correct. We are seeing longer duration projects with that part of the business.

That's helpful and makes sense. And then just as a follow-up, how to think about maybe if we're talking about mid-single-digit EBITDA growth, just how that might translate to free cash flow growth as well? Should we expect free cash flow growth to be fairly commensurate with that or maybe better? Or just any color you can provide there would be helpful.

Yes, Kyle, I think starting with the top of the equation there, I'd say that's going to drive increases to operating cash flow growth, but the demand side of this will kind of determine the investment level. So it's probably a little bit too early right now to say exactly what that's going to look like. And if that percentage of increase will be the same or more or less, we'll have to provide an update here in Q2 as we have a little bit more visibility into the year. A little early right now.

One moment for our next question, and that will come from the line of Andrew Wittmann with Baird.

Obviously, having positive units on rent in Modular has been something that I think everybody has been looking for a long time. So what a nice refreshing feeling that is. I'm just curious as I look -- and this is maybe a little myopic, but I just think it will help me understand the moving pieces a little bit. The lack of the EBITDA raise in the fourth quarter, I mean it's not like you guys don't make money on delivery and installation. I know it's lower margin. I kind of feel like if revenue is up, there should be some flow-through. Am I splitting a hair too much here? Or is there an actual offset somewhere else? You guys didn't talk a lot about the storage side of the business in terms of activations and orders. Obviously, it's more challenged, smaller, maybe not as important. But I'm wondering if it's there. Maybe talk about storage, how that affects this or if I'm missing something else on or splitting a hair that's too myopic, but maybe thought you could address that one.

Andy, I'll take this is Matt. I think the -- I'll hit storage first and the punchline there is storage is consistent with last year and consistent with -- I'm talking the seasonal piece and is consistent with our previous expectations. So no change there. And I think in total, that portfolio is performing as we expected in the fourth quarter or will perform as expected in the fourth quarter. I think volume in total will remain down around 7% year-over-year, but that's no different than we had thought.

As you think about the changes in the guide into the fourth quarter, that increase in activations, obviously, is going to have the increase in the variable cost to get those ready. And the other headwind we've had from a margin perspective now for the last couple of quarters is around some of the transfers to move this fleet around. Obviously, these are going out for long durations, but you're incurring both variable cost and that transfer expense on the front end. And so that's really what's driving the lack of that flow-through in the fourth quarter, but it sets us up for a much better exit point for the year going into 2027.

I would just add, Andy, you did see the sequential margin expansion from Q2, which we expected because you've got that lease revenue building in the business. It just wasn't to the degree that we would have thought at the end of Q2 because we significantly increased our modular work order and activation assumptions in Q4. So I think that effectively positions us to start realizing that margin expansion as we move into Q1.

Okay. That makes sense. I guess I just wanted to ask another follow-up here, and maybe this is just recency bias from what the market did today and response to all this data center concern stuff. And I heard some of your comments, Tim, on how you frame the outlook for '27. It sounds like you try to bake in some of this uncertainty here. But like I'm just wondering if from here, after so much increase in your fleet, these complexes in particular, which are going out on the data centers and the larger projects broadly, you mentioned semiconductor, pharmaceutical, all that stuff. Like does the bar need on the return bar for these things need to go even higher? I heard 2 years, longer duration. It sounds like you're getting good rates. That's great. I'm wondering if the bar needs to go even higher to take that another $25 million, $50 million increase in CapEx -- just recognizing that I don't know, maybe we are getting close to peak and you do have a lot of other fleet that's not on rent, the old stuff, the double wides and the other stuff, the trailer offices. I'm just wondering if -- as you're thinking about '27, that becomes a real way to approach the year. Maybe you pass on some deals that maybe this year, you would have taken because the macro is changing. Just wondering if you could maybe talk about that or maybe I'm just -- maybe I'm thinking too much about this.

No, you're thinking about exactly the same things that we're thinking about as a team, and we meet and discuss these major project pipelines weekly as a group and are constantly balancing the attractiveness of that opportunity pipeline with the different alternatives we have to source fleet. And we're looking at a pipeline that has volumes that far exceed what we're actually sourcing in the market. So we feel like there's still tension on the system. We're allocating the fleet that we do have access to, to the best deals. It is forcing market pricing to respond across other aspects of the business.

In my prepared remarks, I suggested we'll be in a constructive pricing environment, I think, well into the first half of next year. And in terms of the fleet types that we're buying, I mentioned these are our most versatile fleet categories in terms of their ability to be reconfigured and then redeployed across geographies. So we are being quite diligent in terms of thinking about subsequent rentability of the assets we're putting out today.

One moment for our next question, and that will come from the line of Scott Schneeberger with Oppenheimer.

Tim, I was hoping to delve in a little bit more on pricing. You said favorable into early next year. I'm just curious, can you kind of break it out modular versus storage? I assume you were speaking to modular, but also just kind of the asset classes, asset categories, your -- what you're putting out on the large projects by maybe some of the small and local. And thank you for the '27 outlook that you shared with us this evening. How much of it is price in the low single digits versus the volume?

So let's start on the pricing side. And as we said in the prepared -- or maybe on the volume side first, we said in the prepared remarks, we do expect that 1.2% year-over-year modular volume favorability to expand as we go into the end of Q4. We fully expect there will be a partly offsetting storage headwind as we go into next year. And the only other probably big data point to think about for 2027 is the World Cup is obviously a nonrecurring event that spanned Q2 and Q3 of 2026. So keep that in mind as you think about the revenue progression through the course of next year.

What you saw in the Q3 result is modular AMR up about 2% year-over-year. What we're seeing across the modular portfolio, especially if you just kind of zoom in on our larger complexes, the units that are typically longer duration and designed to be coupled together, you're seeing rates on new orders that are up double digits year-over-year if we just look at orders that were written in Q3.

So you're starting to see this progression towards stronger spot pricing in the market. And that is definitely -- we're definitely taking that into account as we think about the puts and takes for 2027. It's not across everything, though, like ground level offices, for example, are still pressured. Container rates are still pressured. We're really more focused on volume recovery there. But there's enough momentum in certain segments that we feel pretty good about the overall pricing environment. Matt, anything you want to add to that?

Yes. The only thing I would say, you start to deliver at those higher rates, and that will churn through the portfolio over time and gives you a durable increase over a period. But we're absolutely driving rates on those and kind of a segue back to Andy's question, Scott, is we're seeing that increase in the returns on those large projects given that favorable pricing.

And I guess I'll just use my follow-up on thematically the same thing. VAPS, I think revenue increased 4% year-over-year in the quarter. How is that on this -- you have strong visibility out into the first half of next year. How is VAPS looking being applied to those units?

Yes. There is a different -- there is a bit of a mix in VAPS on kind of where the type of projects, Scott. And my simple example, I always like to use is that with a complex that's 10 units, it's not going to have 10 steps and ramps. But we have been seeing some good performance in VAPS and some of the recent trajectory there with the teams is starting to reaccelerate that. So that's been good. It's early.

The other piece I would say on our perimeter solutions, for example, that's part of that number, and we'll be seeing that double year-over-year here in the fourth quarter. We'll continue to expand that across the various markets and get more scale on that product in the markets that we're already serving. But all those together are things that we're working on to continue that growth. But 4% year-over-year, I mean, that's one of the stronger lines we've seen in the year-over-year leasing. And so we are seeing good momentum there.

One moment for our next question, and that will come from the line of Steven Ramsey with Thompson Research.

I wanted to think at least conceptually about the CapEx profile. I know it's been hinted at in various questions. But this order book strength and with enterprise being 1/3 of revenue CapEx now at $400 million, to meet the demand that is pretty solidified for the first half and assuming it stays good for the rest of the year, CapEx, is it going to come in above the $400 million just directionally given this strength?

I think for the first half of the year, Steven, we've got enough visibility that I'd kind of maintain that run rate as we exit Q4 going into the first half of next year. We have the ability to adjust that if the demand environment changes either way. You also still have a fair amount of transactional fleet in the business that if demand broadens out into local markets, you can reactivate that in a highly capital-efficient way. But if the mega project activity continues as it is, I'd suggest at least in the near term that, that capital spend level is relatively consistent. But we've got a high degree of flexibility around that. So as things change and we rebudget every 90 days through our planning process, we'll reassess it.

Okay. That's great. And if we zoom out and think about the enterprise strength and scale that you're at now and try to connect that to your long-term guidance, does this put you on a pace to reach your long-term guidance even though local markets are not recovering?

In terms of the initial outlook for 2027, we're certainly looking at the embedded growth that we think we have within the enterprise portfolio as one of those levers that's very much within our control, just given the momentum we have with each of the five vertical teams that we're managing. And yes, growing 15% year-over-year does put the enterprise portfolio on track to reach that longer-term objective that we talked about back at the Investor Day. And back then, we were talking about a $500 million portfolio, which is well north of $600 million now.

One moment for our next question, and that will come from the line of Josh Chan with UBS.

I guess you mentioned that you raised your outlook on modular activations and delivery and installation in the quarter. Spot pricing is tightening. So I guess like did something change in the quarter positively? I guess what is the source of this seemingly a little bit more of an acceleration in the underlying demand?

Josh, the demand profile and the order rates that we've been seeing, again, in the modular side of the business have been in the low teens in terms of year-over-year growth all year long. What we are seeing is with the strength of enterprise accounts, those orders are placed earlier. There's a longer sales cycle. So you do have an accumulation of some of those longer-dated projects that are building in the order book such that the overall modular order book is now 20%, up over 20% year-over-year, and that variance has grown through the course of the year. So I wouldn't say anything changed dramatically in Q3. What we're seeing is the accumulation of order growth across the business over the last 12 months. And again, in a business where you've got 3-year lease duration, that's what it takes to inflect the trajectory of volumes, and it's quite welcome.

The fact that we are allocating new capital to these projects does mean that we have to be super disciplined about pricing. And as we see more constraints in the market, whether it's labor or fleet, and we're allocating capital into that market, it's going to put upward pressure on pricing, not just in the product lines that we're purchasing, but I think more broadly. So that's the environment that we're in right now. I'd say it's been building in that direction through the course of the year and wasn't a dramatic change in trajectory in Q3.

Sure. That's really helpful color. And then I think for my follow-up, I think there was a comment earlier about maybe activation costs possibly tapering during the course of Q4 or something like that, if I heard that right. Like could you describe kind of the trajectory of this activation costs going forward?

Yes. This is Matt. Typically, and I'll explain a typical year. I mean, typically, you see especially the northern half of the United States, new project starts typically slow down as you get into the fourth quarter for weather and other seasonal related items. I expect that would still continue from a kind of a local project activity, kind of the other side of the business. Where you don't see as much seasonality though, Josh, is in the large projects. Obviously, we've had strength in the large projects.

So I think that piece of the business continues kind of into the fourth quarter as we've seen the pace here recently. But as the local projects slow down, you will see a reduction in our variable costs and some of the other things that you see sequential margin expansion as you go into the fourth quarter. Now it might be less than we would typically see because of that project strength. But I would expect 150 to 200 basis points of improvement as those activation costs really begin to taper from Q3, and we see a reduction in the variable costs and transfers along with the increased leasing revenue, right, that we've built up.

The only thing I'd add to that as we think about 2027 and the different puts and takes. Obviously, the year-over-year comps for activations get harder because we had a pretty strong first half of the year. That also means that the year-over-year comps for variable cost get -- are not likely to grow as much. And going into the year with a stronger lease revenue trajectory, means that you've got a potential margin tailwind there as you go into next year with a stronger revenue base, right? So that's one of the only other points we were trying to make as we think about levers for 2027.

And Josh, one clarification there. The 150 to 200 basis points, that's kind of that activation-related expansion I would expect from Q3 to Q4. We'll still see 150 to 200 basis points of expansion from the D&I revenue mix as well. So I think for the fourth quarter in total, we would expect 300 to 400 basis points of expansion. I just want to make that clarification.

One moment for our next question, and that will come from the line of Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. I may confirm, please, on data centers, you specifically flagged this week's political changes as a risk. How much of the '27 activity is already contracted, permitted under construction versus still exposed to approvals and therefore, a bigger risk? And is the bigger risk cancellation or moving to the right? And then how much diversification do pharma, semis and power provide if data centers slow?

Ronan, it's Tim. We've been obviously tracking this closely through the course of the year. And the first place I'll go is the book of large and mega projects that are coming into our CRM every quarter, and that's what we're using to kind of deploy our sales resources into the market and pursue those opportunities. So over 75% of the large and mega projects in our system are non-data center. So the vast, vast majority. We have seen an acceleration of data center projects through the course of this year, and they do represent approximately 18% of the pending order book. but the vast majority of that is scheduled to activate like within the next 30 days. So I view the order book as having very low risk related to the activation of the data center projects we've already contracted.

Now you've got the units that are already on rent to data centers. These are active projects. I view it as highly unlikely that we see project cancellations that have already started. I think the much more likely scenario is that these build-outs take longer. And for those projects that have already started, there is the potential for them to get bigger.

The variable then for next year is what new level of project starts can we expect out of the data center vertical. Again, it's a minority of the large and mega project population that we're chasing. But it's too soon to say, right? And we're going to have to follow our customers, and we're going to have to follow the ultimate project owners lead in terms of servicing that activity.

Got it. And then on the local market, I think could a recovery in local markets be served by reactivating the existing transactional fleet in a way that would be more capital efficient versus, say, if it's continued mega project activity, you would need something more close to the current CapEx run rates. Is that...

100% if we got a broader market recovery with our transactional local customers, the storage fleet, the single-wide fleet, the ground level office fleet, it's relatively underutilized. We can reactivate that with normal maintenance and refurbishment costs. That's way more capital efficient than buying new complexes for the mega projects. But we're very highly utilized across that complex fleet and the returns are very, very good. So we're happy to do that based on -- that's where the activity is. Any broadening, yes, could be served in a more capital-efficient manner. And as some of these larger projects reach maturity, I do think there's also the opportunity to cross-sell better as those projects move into more maintenance mode with our more transactional product lines.

Got it. And then that dynamic would be kind of more disproportionately positive for free cash flow and returns even if -- especially in the transactional, the revenue contribution would be relatively modest compared to...

I mean -- this is Matt. On a per unit basis, it's not so different. So it would be still highly accretive to revenue and even more so to cash flow given the capital efficiency that Tim mentioned.

[Operator Instructions] And our next question will come from the line of Tim Mulrooney with William Blair.

So, Tim, you made a comment here on the data centers low risk to projects that you've already started, which I think everyone pretty much agrees with you on that point. You also made a comment that you think there's potential for those projects to get bigger. And I'm not trying to hold you to anything there, but just curious about your line of thinking there. What kind of makes you think that, that's a possibility?

They've already been approved and started. And I think there will be some advantages of scaling around projects that are already in the dirt, right? So that's all I was alluding to. And again, too soon to say, and we probably shouldn't be the ones trying to predict that as we -- as this market evolves given how new some of these changes are over the last week.

Yes. That's what I thought. I just wanted to make sure I was just looking for your insight there. That's helpful. And then your comment about constraints across labor and fleet really caught my ear given the implications on pricing power as you move into 2027. Could you talk about that a little bit more? Like have these constraints really picked up in recent months? Or is this more just a continuation of a trend that you've seen for a while now?

It is a continuation of a trend, and we experienced it in our own business in terms of the inflationary pressures that are going into the materials we use in our fleet, for example. We'd estimate that we've absorbed 6% to 7% material cost inflation for the last several years. Skilled labor and skilled trades are being pulled onto all of these mega projects. And we utilize a lot of that same type of labor across our branch network in our field operations.

So we're feeling it ourselves as a market participant. And when we're bidding larger projects, we know from our customer conversations that securing access to our equipment earlier in the planning cycle is of very high value to these larger general contractors in particular, and that is an indicator of the constraints that exist presently in the market. So these are observable trends that, in our view, have been building through the course of the year.

We're being as nimble as we possibly can to service our customers. Part of that is procuring new fleet. Part of it is handling all of the transportation and setup as much as possible in-house using our teams, and that's a big competitive advantage relative to how others operate in the market. And it's one of the reasons I think our win rates are going up across these enterprise project opportunities.

Thank you. We have now reached the end of today's call. I would now like to turn the call back over to Mr. Tim Boswell for any closing remarks.

Great. Thank you, operator. Thanks again to our team for continuing to drive the business forward. To everyone on the call, we appreciate your interest in WillScot. We look forward to seeing many of you on the road beginning next week. And for those we don't see, we wish you a happy and healthy holiday season, and we look forward to speaking again in February.

Operator, you can now end the call.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.

Welcome to WillScot's Second Quarter 2026 Earnings Conference Call. My name is Chereine, and I will be your operator for today's call. Please note that this conference is being recorded.

I will now turn the call over to Charlie Wohlhuter, Senior Director of Investor Relations. Charlie, you may begin.

All right. Thank you, Chereine. Good afternoon, and welcome to our second quarter 2026 earnings call. With me in the room today are Worthing Jackman, our Executive Chairman; Tim Boswell, President and Chief Executive Officer; and Matt Jacobsen, our Chief Financial Officer. Today's presentation material may be found on our Investor Relations website at investors.willscot.com.

Before we begin, I'd like to direct your attention to Slide 2 of our posted presentation containing our safe harbor statement. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC.

And now it's my pleasure to turn the call over to our President and Chief Executive Officer, Tim Boswell, to begin today's discussion.

Thank you, Charlie, and good afternoon, everyone. We appreciate you joining us on today's call for a discussion of the operating environment, our second quarter 2026 results, strategic priorities and expectations for the remainder of the year.

Our second quarter results reflect steady progress across both our commercial and operational initiatives and highlight the capabilities that continue to position us well to serve our customers and create long-term value for shareholders.

A top priority this year has been returning to organic top line growth, which we achieved in the second quarter and are positioned to sustain through the remainder of the year. Matt will provide additional detail on the quarter's financial results, but the key takeaways are that activation volumes and our order book continue to be quite strong in certain segments. We are increasing variable expenses and fleet investments to support that demand, and the combination makes us more confident in our outlook for the remainder of the year and sustained lease revenue growth.

Total revenue of $612 million was up 4% year-over-year in the quarter, driven by leasing and services revenue growth of 6%. Within that, delivery and installation revenue increased by over 25%, which is extraordinary and builds upon the strong growth we were seeing in Q1. Matt will touch on the impact of the World Cup, but modular activations were up 16% year-over-year in the quarter and modular pending orders are up 13% year-over-year sitting here today.

In a backdrop where overall nonresidential construction square footage is still declining, I'm really encouraged by the opportunities our team is finding across our target verticals as well as our win rates. And there is clear progress supporting these results across each of our commercial priorities to improve local market execution, expand our enterprise accounts and verticals and grow our value-added space solutions.

Staffing is up approximately 5% across our sales organization with initiatives in place to continue improving their productivity. Our enterprise accounts and vertical strategies are still in their early innings from an execution standpoint, though showing great traction with enterprise account revenue up 21% year-over-year in the quarter. And we expect that revenue from our newer offerings such as climate-controlled storage, clearspan industrial tenting and perimeter solutions will exit 2026 on roughly a 20% growth rate, supplementing the strength we are seeing in our modular space offering.

So our commercial strategy is focused, execution is improving. It's driving a higher quality revenue mix long term, and it is allowing us to be highly competitive in the segments of the market where we're seeing the biggest opportunities. And the opportunities we're seeing are diverse across verticals. We continue to support critical infrastructure investments, manufacturing projects, power generation facilities, data centers, large-scale retail operations and special events of all sizes.

We believe our expanded offering of space solutions, our operational capabilities and our scale where we specialize continue to differentiate us in these environments, and that distinction is becoming increasingly clear, particularly at the enterprise account level.

In our field operations, it's been an extremely dynamic year, and I've been very impressed by how our teams have rallied together and are executing across multiple priorities. Our branch network is advancing our fleet readiness initiatives with modular work order and refurbishment activity up 17% year-over-year in the quarter, supporting elevated activation levels. At the same time, our team is on track executing our fleet and real estate disposition plan. And taken together with the planned new fleet investments this year, 2026 will likely represent the most significant upgrade to our modular fleet in company history.

With all of that going on, we moved over 2,000 fleet units in and out of World Cup host cities over the last three months and are redeploying them to new customer opportunities. And our safety performance continues to improve year-over-year with fewer recordable incidents despite increased activity levels. So we are executing in the right way, consistent with our culture and company values. Looking to the second half of the year, our commercial pipeline suggests that these activity levels will continue. We are rolling out our route optimization and dispatch software platform, which will be a benefit heading into 2027. And we're continuing to make improvements in other business processes within our shared services, which again have potential benefit to both margins and the customer experience. Together, all these initiatives improve execution, enhance customer outcomes and further differentiate WillScot's long-term competitive positioning. And I'd like to thank all of our team members who are aligned and executing against these priorities.

Looking over the remainder of the year and how we thought about the guidance, we're still very conscious of the bifurcation in demand levels between large and small projects and recognize that we continue to face headwinds among our more transactional product lines. But we're also seeing a lot of strength across the business, much of which is internally driven. So we're continuing to take a balanced approach with our updated outlook while remaining squarely focused on executing the commercial and operational priorities that are within our control.

We are modestly increasing our previously issued full year 2026 outlook for revenue and adjusted EBITDA. The rationale for the revenue increase I covered in the commentary. Matt will discuss the margin cadence through the remainder of the year, though the margin impacts we see in Q2 and in the outlook are normal in our business and to be expected in periods with sharp changes in activity. So I think we've got different pathways to meet the forecast that would set us up well for 2027 with a solid lease revenue trajectory and margin expansion opportunity.

And lastly, on capital allocation, the business continues to be highly cash generative and capital efficient on a relative basis even in periods of significant investment. Those who have followed us for a while know that our capital investments are entirely demand-driven and that agility is an important attribute of the business. We have few long-term supply commitments or constraints and our ability to ramp up our own work order production volumes rapidly is a significant competitive advantage. We increased our outlook for net CapEx based on the reality that we're seeing a lot of interesting opportunities. Utilization levels are rising in key product categories. The commercial pipeline is stretching into 2027, and we remain very confident in the returns we can generate on organic investment. So this level of investment is higher than we would expect over time in our long-term capital allocation framework, but it's the best possible allocation both for the business and shareholders right now.

Overall, I'm pleased with the start to the year and the continued momentum we are seeing across the business and our internal initiatives. It's been several years since we've seen these activity levels. And based on the improvements to the business over that period, we're extremely well positioned to execute and win in this environment.

The dedication, focus and capability of our team have been humbling, and I'm incredibly proud of what we're building together and excited about our prospects. Every day, we're discovering new commercial opportunities, strengthening our already differentiated capabilities and reinvesting strategically in the business with a focus on long-term value creation. Thank you again to the entire WillScot team for the nice work in the first half of the year.

And I'll now turn the call over to Matt to discuss our financial results and outlook in more detail.

Thanks, Tim. Our second quarter results exceeded our expectations entering the quarter and reflected continued progress against our objective of returning the business to sustainable leasing revenue growth. Large project demand remains strong. The order book continued to grow, and we saw further evidence that the commercial initiatives we've discussed over the past several quarters are translating into improved underlying activity levels.

Total revenue for the quarter was $612 million, up 4% year-over-year and surpassing our expectation of approximately $585 million. Leasing and services revenue increased 6% year-over-year, driven by continued strength in modular activation activity that drove delivery and installation revenue up 25% year-over-year. This was supported in part by activity related to the World Cup event, but even more so by other large project deployments. And lastly, leasing revenue increased 2% year-over-year to approximately $450 million, marking an important milestone as we continue to progress towards broader leasing revenue growth across the portfolio. I'll touch on this a bit more in a moment.

Net income in the quarter was $47 million and diluted earnings per share was $0.26, which was flat to the prior year. Adjusted net income in the quarter was $52 million and adjusted diluted earnings per share was $0.28. Adjusted EBITDA for the quarter was $228 million, exceeding our outlook of $223 million. Adjusted EBITDA margin came in at 37.2%, reflecting continued investment to support elevated activation volumes and large project activity, as Tim mentioned. Margins compressed sequentially from Q1 as we anticipated and communicated in our last call, compressing by about 500 basis points year-over-year. Margins are temporarily pressured primarily because modular activity activation activity accelerated.

We invested approximately $17 million more in cost of leasing and unit transfer costs during the second quarter compared to the same period last year, which helped drive 16% year-over-year growth in modular activations. These upfront costs weighed on margins by about 250 basis points, but support growth in our future leasing revenue. Another 160 basis points of the impact is purely revenue mix driven, resulting from the higher delivery and installation revenues we had in the quarter. Lastly, the remaining 100 basis points of impact was primarily driven by SG&A, higher sales headcount, increased variable compensation in addition to our provisions for credit losses, offset by savings in other SG&A categories as we continue to drive cost opportunities in the business.

As we look forward to Q3 and Q4, we expect to see significant sequential margin expansion as many of these drivers moderate and lease revenues continue to build, potentially resulting in flat to positive year-over-year EBITDA margin comparisons by the fourth quarter.

Circling back now to leasing revenue. We continue to see stabilization in the overall portfolio. Modular activations increased for the third consecutive quarter and combined with our current order book gives us increased confidence in our organic growth outlook. Average modular units on rent in the second quarter were within 450 units of the prior year. The World Cup contributed about 750 units on rent growth in modular year-over-year, where we continue to make significant progress towards volume inflection in modular units on rent.

Activations in portable storage were again slightly positive year-over-year with the World Cup being the driver of those results. While we continue to see year-over-year unit on rent headwinds in our portable storage portfolio, growth in climate-controlled storage continues to partially offset those headwinds and remains one of our strongest performing product categories, supporting both revenue growth and portfolio diversification. Value-added product leasing revenues increased 3% year-over-year to approximately $103 million in the quarter.

While total reported leasing revenue was up 1.5% year-over-year, this includes the shorter-term contribution from the World Cup event. Excluding this event, combined leasing revenue for modular storage and VAPS was essentially flat year-over-year in Q2. Even with the benefit of the World Cup event behind us, we expect continued year-over-year leasing revenue growth throughout the rest of 2026. So our outlook on leasing revenue has continued to improve given the positive activation trends we're seeing over the last three quarters.

Cash flow in the second quarter reflects further reinvestments in our business. Net cash provided by operating activities was $162 million in the quarter. We invested $114 million of net CapEx in Q2, reflecting increased investment in higher-value product lines and differentiated offerings based on our demand outlook. Adjusted free cash flow for the quarter was $55 million, primarily reflecting the increased level of organic reinvestment in the business with very strong unit economics and underlying project activity.

In the past 12 months, we have used just over half of our capital generation to support large project demand by reinvesting in the business, which we believe drives the highest incremental returns. Remaining free cash flow in the quarter was used to fund returns to shareholders through our quarterly dividend program and pay down $27 million of outstanding debt. We ended the quarter with net debt of approximately $3.5 billion and leverage of 3.7x last 12 months adjusted EBITDA and maintained substantial financial flexibility with roughly $1.5 billion of available liquidity under the ABL facility. Our debt structure remains highly favorable with no maturities until August of 2028.

Moving now to our updated outlook. Based on first half performance and continued momentum in commercial demand, we are increasing our full year 2026 outlook, which reflects the year-over-year leasing revenue inflection that we saw in Q2 sustained through the remainder of the year. Importantly, our outlook recognizes the top line momentum we've generated while remaining mindful of the continued economic uncertainty. With our Q2 beat and continuing momentum through year-end, we now expect revenue for 2026 of approximately $2.3 billion or a $50 million increase from our prior outlook, broken down by roughly $25 million of higher leasing revenue and $25 million more of delivery and installation revenue.

We have increased our adjusted EBITDA outlook to approximately $920 million, which reflects the continued upfront investments in cost of leasing and transfer costs to support the opportunities that we're seeing, but limits the upfront flow-through to EBITDA. Remember, this follows the normal sequential progression that we've seen in prior periods of growth where we invest today to drive leasing revenue and free cash flow growth in future periods.

Looking at Q3 specifically, we expect total revenues of approximately $585 million, up about 3% year-over-year, driven primarily by increased leasing and services revenues as a result of continued strong demand and our large project pipeline. Adjusted EBITDA for the quarter is expected to be approximately $232 million or about a 39.7% margin, reflecting the expected sequential margin expansion I discussed earlier. Looking at a few other items for Q3. We expect depreciation and amortization expense in the period to be approximately $100 million, interest expense to be about $54 million and our effective tax rate to remain around 27%.

In support of the large project demand momentum, we are increasing our net CapEx outlook for the year to approximately $375 million with the incremental dollars exclusively for new units and refurbishment of highly utilized fleet to support our large-scale project pipeline of known opportunities into early 2027. And although these large-scale projects may not have significant impact in our 2026 adjusted EBITDA results, it improves the quality of our revenue over time and supports growth.

In summary, we delivered another solid quarter with revenue, adjusted EBITDA and commercial activity levels all outperforming our expectations. Leasing revenues inflected to growth in the quarter. And as we look toward the back half of the year, we remain focused on converting growing activation volumes into sustained leasing revenue growth and positioning the business for continued improvement through 2026 and into 2027.

With that, I'll hand it back to Tim.

Thank you, Matt. We are encouraged by the commercial momentum we're seeing across the business, though we are mindful of the mixed demand environment. We are laser-focused on executing the internal commercial and operational initiatives that are starting to flow through to our results. And we're investing behind attractive opportunities where our differentiated capabilities continue to win in the market, providing us confidence in our outlook. Most importantly, I want to thank our team again for their focus on improving execution, for executing in the right way, consistent with our values and for our shared commitment to create long-term value for our customers and shareholders.

With that, operator, we can open the line for questions.

[Operator Instructions] Due to time restraint, we ask that you please limit yourself to one question and one follow up question. [Operator Instructions] Our first question comes from the line of Kyle Menges with Citigroup.

It sounds like a lot of the momentum being driven by large projects. So just curious, starting to think about 2027, just is there any risk of modular rates turning negative at some point, just maybe from a mix of larger projects driving the growth in 2027?

Kyle, it's Tim, and Matt can follow up with any color commentary. But I think the short answer there is no risk driven by the large project mix. And to the extent there are newer and differentiated fleet products coming into the mix over the next 6 months, they are supportive of higher modular rates. We do still see very strong growth across our panelized and flex fleet, which could present -- is a net mix headwind. But overall, we're really encouraged by the large project activity. You're getting very strong rate, very good VAPS penetration in most cases and better duration as well. So when we're talking about the higher quality revenue and fleet mix, it's all of those things that we see when we look at the opportunity pipeline.

Yes, nothing really to add there. I mean these are good investment opportunities for us to support that growth with high returns, and that's why we're making the investments.

Great. So maybe just to put a finer point on it, thinking about maybe more like-for-like rate on products, is the understanding then that rate that you're getting today on activations is higher than whatever rate you're getting on current units on rent like-for-like?

I mean there's quite a few dynamics there and mix can have some pretty big impacts there, Kyle. But I mean, I think what you saw in the quarter was that the whole blend of that was an increase of 3% in the portfolio. So -- and I think as we look at these projects and these opportunities where we're making incremental investments, I think that those are opportunities where the returns are probably a little bit better than like an average potential unit that we may already have in some of the other categories. So no, I don't see risk there. I think it could be a potential opportunity, but we'll stay measured there.

The other aspect to that, Kyle, is that we wouldn't be making some of these investments unless we were seeing increasing fleet constraints across certain categories. And whenever that's the case, that's also suggesting that you've got a strong rate environment.

One moment for our next question and that will come from the line of Tim Mulrooney from William Blair.

I kind of want to build on that a little bit, looking at your CapEx, it looks like free cash flow was down versus last year in the second quarter due to the step-up in CapEx as your activations ramp. Should we expect a similar dynamic in the second half of the year here with free cash flow being down year-over-year in the second half?

Yes, I think that's right, Tim. I mean we're going to continue to make investments as we get to kind of that guide of $375 million. I mean, you can look at what we spent year-to-date, but we'll see a similar dynamic, I think, into the third quarter. And then obviously, the fourth quarter, we'll continue to monitor things and there's -- we can impact refurbishment and some of the activity there if something were to change. But based on what we're seeing right now, pretty strong activity. So I think you continue to reinvest in the business and really focus on driving that recurring lease revenue.

Yes. Okay. I mean you noted in your slides that, that step-up in CapEx is due to increased investments in these higher-value product categories that you guys have been discussing today. I mean, just stepping back, do these higher-value product categories, do they require more CapEx as a percentage of sales? In other words, how do you think about the IRR on those product categories versus your more traditional offerings?

Yes. It's -- some of these -- I mean these are units, higher differentiated units are also units that we've had in our fleet for a very long time. So think of units that couple together to make the complex, for example. There's no change there, Tim. So, yes, these are still getting very good returns. And I think the focus has been on more of those where there's some capabilities required to help kind of plan and execute on those projects rather than maybe some of the single wides and containers, which are a bit simpler and not as differentiated.

From an ROIC standpoint, though, Tim, we haven't changed any like underwriting thresholds or anything like that. So we're still holding a pretty high bar on these. And really, I think the differentiators are attractive return on capital, long duration and positioning us well for a lot of this more complex project activity that we're seeing in the market. And as you know, market activity has kind of shifted in that direction, which is creating more constraints in those types of areas as well as the services required to install and set up and transport and deliver. And those are all things that are fundamental to our value proposition and are allowing us to see increasing win rates across the commercial organization. So all of this is a net positive from my perspective and really focused on setting up a more attractive trajectory for 2027.

Understood. Okay. So higher CapEx, but good pricing, better pricing, better sell-through, longer duration, good ROI.

One moment for our next question and that will come from the line of Scott Schneeberger with Oppenheimer.

I'd like to ask about -- if you guys could just go over -- I think you said the World Cup units. I thought I heard 2,000 overall and 750 modular. If you did same or open to, could you please clarify that? And then where the question is in that is just how should we think about that maybe with the dismantling of units, the cost pressure? You've given the third quarter guidance so we get the sense, but of what that impact will be. But kind of that impact this year, how are you thinking about the comp next year? Or how should we think about it? I know you're not giving guidance for next year, but it seems pretty meaningful in size. I'm just curious if you guys could just kind of discuss this once every four-year event.

Well, unfortunately, I don't think it will be here in North America every four years. But Scott, this is Matt. Yes, I can give you a little bit more there. So there's about 2,000 units that we put out at the various sites. That's roughly kind of half and half between modular and storage. The revenue in the quarter was kind of around $13 million or so. That's not the entire project. But as we're looking at Q2, what that looked like. And that's split about 40% towards rental and about 60% to D&I. And really, what's left in the third quarter is primarily some of that dismantle that you that you talked about. So roughly $5 million or so maybe of D&I primarily that would be there.

So you will have kind of a little bit of a step down from that project. Obviously, we're still driving a lot of other underlying activity from the large project demand and those activations to drive leasing revenue growth year-over-year still in the third quarter. And that's kind of why we called out what the underlying, excluding that was. We were basically kind of flat in the quarter in leasing revenue, excluding the World Cup, if that's helpful. So that's kind of a run rate to build off of. But I think that probably gives you what you need. For next year, obviously, we don't have that project. I don't know of a project similar to that. But we're focused, obviously, on the large project demand and driving overall unit on rent sequential growth in the future.

That helps just a clarification. I appreciate it. For my follow-up, I want to discuss -- it sounds like you have great momentum with large projects. And I want to ask just about the sustainability of the demand environment. It sounds like the order book is very good. And there was a quote in the release about win rate being strong. So I kind of want to get an idea of the demand environment and sustainability and then also how you all are doing within the demand that's there, just following up on that win rate. How competitive is it out there on those larger projects and with separation of modular versus storage in that discussion?

All right. I'll take that one, Scott. This is Tim. So when you look at the modular activations and order book, they're up double digits across both enterprise customers and non-enterprise. So we're seeing pretty good success there across the modular business. If you look at storage activations, I think for the last 13 weeks, we're up about 2% year-over-year, but there's a big enterprise component there. So our local customers would still be down on the storage business, but still stabilizing.

When you look at the major project activity and the sustainability of it, we don't have a crystal ball, but we do have a large volume of opportunities that we're juggling. It does seem that weekly, one big project pushes to the right, but another one pops up and surprises us in its place. And that's a bit of an unusual environment to be in.

The other thing that's a little different is we are seeing opportunities that stretch into 2027 from a start standpoint. You know our lead times typically correlate positively with size of projects. So that's why we're seeing that extension in lead time.

And then the comment on win rates has been -- it's been an encouraging trend in the business. We started to see some of this changing towards the second half of last year, but it's continued to improve through the course of the first half of 2026. And I think it comes down to operational capability at the end of the day. As without going into too much detail on it, as project complexity goes up, our win rates have gone up. And I think that's a reflection of the service levels that we're able to provide, of course, in the field, but also from our shared services resources. And because of that, we are changing a bit how we deploy our commercial resources. We've been adding to the Enterprise team and also the types of things that we're going to reinvest in the fleet. So we are letting that commercial activity and some of those nuances help us reallocate resources as we look forward.

Thanks. Sounds encouraging for next year.

One moment for our next question and that will come from the line of Angel Castillo with Morgan Stanley.

Just wanted to go back to the discussion around the kind of key end markets and a lot of what you're seeing. I think a lot of positive trends. Just was hoping to get a little bit more color specifically on rates. I think you gave some mentions earlier, but just any discounting activity and just kind of rental rate kind of incremental, I guess, quantification that you could provide across modular and particularly also storage, where I think you're still seeing a little bit of pressure there, but just curious if any impact on margins from any of that and how you're kind of seeing it in the second half?

Yes. I wouldn't see -- I wouldn't say there's been really a change in like the transactional activity or environment there, Angel. We've continued to see pockets of areas where we do arm our teams to be able to look at each opportunity, and we may take a different approach on certain projects than we do on other ones.

But I wouldn't say there's been any market change there. I think the change has probably just been a little bit more, again, on the large projects where some of the fleet is getting a bit more constrained, and we know that it's a bit more constrained kind of across the industry, right? So that's really the only piece I would talk to. There's not much else has moved there.

Got it. That's helpful. And then just I wanted to maybe talk about the visibility aspects of maybe how you're running your business. I think, Tim, you kind of touched on it, but just to the degree that you're now investing given visibility into 2027 due to some of these kind of mega projects. Just curious, one, what gives you confidence, I guess, that there's not going to be pushouts on some of these? And just as you think about the strategy of how you run the business and that degree of visibility perhaps extending, how is that kind of changing ultimately your underlying appetite for CapEx? It sounds like you're clearly moving forward a little bit more with that. But just as we look forward, how do you kind of mitigate risk of projects moving around?

Yes. It's a good question, and we as a team are talking about that definitely weekly, if not daily at this point. And the reality is the project pipeline, probability adjusted supports the CapEx levels that we are deploying this year. It is absolutely the case that it's the norm for major projects to delay, and we are seeing that across the business. But there's enough activity that where one delays, one also starts. And it's that dynamic that has us comfortable with these investment levels.

The second piece I kind of alluded to earlier is kind of the win rates and the probabilities that we're attaching to it. And then third is the investments we're making are in some of the most versatile fleet categories that are available in the industry. And when I look at the type of major project activity, it's continuing to increase as we look at just the opportunities that are kind of coming into our project database. The large and mega projects that we're seeing were up another 14% year-over-year in terms of new opportunities coming into the pipeline. And data centers are only about 1/4 of that project activity. So when I talked about diversity across end markets, it's not like it's all one vertical. We're actually seeing interesting stuff across all the different categories that I mentioned.

The other piece of this is the kind of where we're at with the enterprise account and vertical strategy. I said in my commentary, it's early innings. I think that momentum is still building. And all else equal, we're going to have more larger project activity coming from that team. So it's a combination of these things that we're taking into account that are -- have us quite comfortable with the approach here.

One moment for our next question and that will come from the line of Andrew Wittmann with Baird.

So the questions on kind of the status of the demand environment have been asked a couple of different ways. Obviously, you talked about ex World Cup, revenue was kind of flattish, and that's good. I wanted to look specifically or talk more concretely about orders and activations. So I think this quarter, you said order book was plus 13%. I think last quarter, 14%. So kind of the same number. That metric tells us kind of pretty stable maybe sequentially. The one number that I try to -- I think would be helpful to understand would be the activations this quarter without the World Cup, you gave us some moving pieces there. I don't know if we can totally back into it. I think last quarter, you said it was high single digits-ish. And was it better than that this quarter on the activations?

Yes, we would have been somewhere around 10%, excluding the -- this is for modular. Excluding the World Cup units, it would have been somewhere around 10%, Andy. So the 16% was inclusive of so circa 10%.

Okay. So it seems like kind of sequentially a little bit better than last quarter there then. And so then my other question is like the strength in the mega projects has been in place for some time. And it feels like to get the engine going to the -- even the next year, it's going to need that transactional, that more local business to come around. Is there anything besides like basically the rate cycle coming down to drive more demand there that you guys are looking for? Or what do you think that it's going to take to get that piece of the business to come back based on what you're seeing out there today?

Yes, that's kind of the first prong of the commercial strategy that I alluded to, improving local execution, driving enterprise accounts and then expanding the value-added offering. That's been the mantra here for a few quarters now internally. I mentioned staffing across that team is up. There are certainly opportunities to continue improving productivity there. And as recently as last week, we were having a conversation about pricing and value-added products as other areas of focus in this environment. So we still have work to do on that piece of the puzzle. It's nice to have momentum in two of the other pieces in addition to some of the things that the team is working on operationally behind the scenes here.

Okay. So that's a good sense of kind of what you guys are trying to do to control what you can control. But just from a macro perspective, Tim, what do you think it takes?

It's a good question. And I'm a believer that there probably is some crowding out effect that's going on just given the magnitude of some of what's happening out there in the market. I was with major customer last week, and I mentioned project delays are the norm. Labor and supply chain constraints are very real. We're not -- inflationary pressures are also real. We're not immune to any of that. But I do think given our scale and what we do, we are best positioned to navigate those on behalf of our customers. And I think that's one of the reasons that win rates go up. But if some of the largest contractors in the world are feeling those pressures, I do think it must be creating pressure in other segments of the market.

One moment for our next question and that will come from the line of Philip Ng with Jefferies.

This is Maggie on for Phil. I guess, first, it was really encouraging to see both modular and storage units on rent inflect sequentially this quarter. And I think if I back out the World Cup impact, they were still up quarter-over-quarter. So, I guess, is that -- am I doing the math right there? And then is the expectation embedded in the guide that we continue to see quarter-over-quarter improvement through the back half in both of those segments? Or was there anything else in 2Q that could be throwing that off?

Yes. No, I think you're making a fair point there, Maggie. So of the, call it, roughly 2,000 unit growth in modular sequentially, about half of that was World Cup and will kind of -- will come off rent here. Year-over-year on the average, that was the 750 that I talked about. But if you're just looking sequentially, the entire amount is pretty much embedded there. So we will drop that 1,000 from a modular standpoint. And so as you look forward, we potentially could get to that. I don't think that would be my base assumption that it would be flat sequentially on average, just given that drop of 1,000 as those go off. And then for the back half of the year, if we got to inflection here, I think we would be pretty excited, and it's definitely a potential. I don't think that would be embedded in our base guide just quite yet, but we're absolutely making progress there each quarter. There is a normal seasonality, right, as you get to fourth quarter, especially on the transactional, you do typically shed a little bit of units on rent just from that. So we'd have to fully offset that to stay flat.

On the storage side, we do have some of the business that is a little bit front-loaded in the year separate from the World Cup, so some store remodels and things that typically does wrap up before you get into the fourth quarter, which will come down a little bit. Now much of that is offset by normal fourth quarter seasonality. So I don't think we would assume those will fully stay flat sequentially for the year in our base guide, but definitely opportunity, probably more on the modular side.

Okay. All of that is really helpful. And then I think taking a step back, looking at broader market dynamics and especially in this environment where growth is really being driven by these larger projects and enterprise accounts. I was wondering if you could talk about if there's been any shift in competitive dynamics with potentially more national players active in the space. I think we've seen some of your larger national competitors kind of bulking up in your category. So how are you differentiating in this market environment?

It's all about -- all comes down to operational capabilities and ability to service the customer at the end of the day. We are obviously aware of all kind of changes in the competitive landscape. But at the same time, we're seeing ourselves be disproportionately successful in this environment. And that's the most important thing at the end of the day. So that's when I talk about, hey, our own strategic focus, where we're allocating resources, the efforts we've made to improve both field operations capability as well as our support capabilities.

All of that is geared towards the value proposition that resonates both with the enterprise account level customers, but also our transactional customers. At the end of the day, ease of doing business and customer service are key decision points for really all of our clientele. So encouraged by the mix of market activity is playing to our strengths. And at the end of the day, I just look at our kind of win rates as the evidence of our ability to kind of compete in this environment.

And our next question will come from the line of Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Can you just speak to VAP trends in terms of penetration, pricing, attach rates? And then specifically for attach rates on the large projects today that are driving the demand, are the attach rates materially higher than on traditional modular deployments?

Having a hard time hearing you.

Ronan, you were asking about attach rates on value-added products and whether those are materially different in larger projects versus other parts of the business. And I would say, no, not material. I think VAPS revenue was up 3-ish percent year-over-year for the quarter. So continuing to see growth there. Penetration rates historically have been highest in our single-wide mobile office category, which has been one of the weaker categories from a mix standpoint.

So there is that mix impact that's been a headwind for value-added products penetration, but I wouldn't attribute that to the mix of large versus smaller projects necessarily. But it is an area of focus for the team, right? So it's an area where I look across execution in the business, both commercially and operationally, there are always things we can improve. And we had a lengthy discussion on this particular topic on Tuesday morning with the team about some initiatives to reinvigorate aspects of the value-added products portfolio.

On the other hand, we've got some new product introductions like the Perimeter Solutions offering, which is deploying across the country, growing quite well. And along with climate-controlled storage and industrial tenting, that's becoming a more meaningful contributor to our lease revenue and should have roughly a 20% CAGR going into next year. So whether it's VAP specifically or expansions to the offering more generally, we are making some progress there.

That's very helpful. And if I may, as a follow-up, two-parter, please, on margin. I think of -- there was 250 bps activation impact, 160 bps mix, 100 SG&A. Which of those components reversed most meaningfully into 2H to support that expectation for the guided margin? And then assuming volume trends continue as you expect, how should we think about '27 margin opportunity, if there's activation cost normalization, operating leverage or something else that could potentially be a key driver?

Yes. I think the comments for Q3 and Q4, obviously kind of carry into next year a little bit, too, just depending on the overall demand market. But as we look into Q3, for example, I think the biggest -- we'll see some impact from the D&I revenue mix subsiding a little bit. Our large event had a very high component of logistics as we're moving units in and out over a 3-month period. So you'll see improvement there.

And then I think the outsized kind of increase that we saw in the second quarter in our cost of leasing, I think we'll still be up year-over-year to support higher activity, but it won't be quite as big of a drag in the third quarter as we saw in the second quarter. So that's how you kind of get the probably 200 to 300 basis point of expansion into Q3.

And then in Q4, pretty significant expansion, I think, again, you'll have, again, some more maybe 150 or so roughly of revenue mix improvement as you get to that Q4 kind of lower D&I activity. I think we will get some leverage within SG&A as we continue to build the top line. And then the last piece will be a little bit dependent on how much activity we see in Q4. We've got good visibility into the large projects. If we see the more transactional things kind of stay where they're at or if we see a seasonal decline as you usually see in fourth quarter, that's probably the one that you're going to see a range of outcomes. I think you probably still get 150 or so either way. You could get more if you see the normal kind of Q4 slowdown in that side of it. So pretty significant expansion, 200 to 300 basis points in Q3, and I think 300 basis points to 500 basis points probably again into Q4 to kind of get you to the full year margin guide that we've given.

Looking into next year, obviously, we're not going to give you firm guidance, Ronan, but it's kind of a mix of all the same levers. Obviously, if we enter on a growing lease revenue run rate, there's a positive operating leverage benefit there. If activation activity is still growing, but maybe not at the same rate next year, you get a benefit from work order costs and D&I mix.

I mentioned the route optimization platform that we are rolling out currently. That is one of the objectives there is improving D&I profitability as well as customer communications and the customer experience. I think we've got opportunities in back office and bad debt and sales work productivity is probably the other area where I think we've got some opportunity. So you're not going to get a win out of every one of those, but it's nice to have optionality, and we'll be managing the mix of those options as best we can.

One moment for our next question that will come from the line of Josh Chan with UBS.

I was wondering in past periods of kind of activity elevation, I guess, do you usually see a prolonged period of higher activity such that you will be spending more into a very strong recovery? Or can that be kind of lumpy in terms of how much activation spike you get?

Josh, it's Tim. And no cycle is ever the same, right? So there is the potential for it to be lumpy. There's the potential for it to be sustained and time will tell, right? The point in our business is the flexibility we have around the timing with which we can kind of flex on and flex off those investments. While CapEx is up, a big chunk of it is our own refurbishment activity, which, as you know, we kind of revisit those work order production volumes at least every 90 days. And if we wanted to shut them down, we can shut them down in about two weeks' time. We have no intention of doing that. But in this environment, as we progress through the second half, we're going to watch it really carefully to make sure that we're not overproducing going into next year.

I'd be happy to continue at today's production rates because that will just benefit the long-term lease revenue run rate in the business. So I would focus more on the agility that we have to turn this on and off and control a big chunk of it in-house through the refurbishment process. And we will have that be entirely demand-driven based on the activity we're seeing from the commercial organization.

That's great. And then maybe one follow-up on guidance. I guess, suppose you keep this leasing revenue momentum into Q3 and Q4, why wouldn't the full year revenue be a bit stronger than what you said? Is it just rounding? Or how should we think about kind of the cadence there?

Yes. No, I think we're getting to year-over-year growth in both quarters for leasing revenue. To your point, if activity remains elevated over what we're -- kind of what our base assumption is here, then yes, you could do a little bit better. Some of this may depend on timing of some of these projects starting. And if more pulls pull in, you could be surprised to the positive there. But I think right now, we're being prudent. There's also the transactional activity that you don't know exactly how that's going to play out, right? So we're looking at kind of the different range of outcomes, and we'll be nimble as Tim was talking about.

Just remember, there is going to be a sequential kind of step down from Q2 to Q3 due to the World Cup, right? So that's kind of the new baseline starting point, and we expect that will be up year-over-year and continue to grow sequentially. And really, D&I is the place where depending on new project starts and the volume of those, that can move obviously more quickly than the lease revenue line on the P&L.

[Operator Instructions] Our next question will come from the line of Faiza Alwy with Deutsche Bank.

Tim, you alluded to sort of internal initiatives in your prepared remarks. And I think it's come up a little bit during the course of the call where you've talked about win rates, but it seems like you're attributing that more to your capabilities. So I'm curious if you can talk more about some of -- which of these internal initiatives do you think have been most impactful?

Look, they're across both our kind of commercial organization and then also our field and shared services operations, right? So I'd say in the field, commercial team, staffing, training, productivity. We've got a variety of initiatives kind of focused at that team. And I'd say we're making progress, but we're certainly not done. Within the enterprise category, we did restructure that team and have been building out that team for the last 12 months. I mean we really just started that at the end of Q2 last year and going into Q3. So there, we're building momentum and I think engaging with customers more effectively and being more successful. So that's good. And then as you know, we have been kind of gradually building out new product lines around cold storage and industrial tenting, which is starting to gain some traction and then our perimeter solutions. So across our go-to-market and commercial strategy, those are the things that we're working on.

Across our field organization, I mentioned field operations rather, the route optimization platform, the real estate and fleet disposition plan, both have kind of margin benefits as we look into 2027, we think. And then in shared services, there's a fair amount of business process improvement work going on behind the scenes. So it's multipronged and -- but all for a reason, right, in terms of driving sustainable growth in the business and doing that in a really scalable way that pleases our customers. And if we do all those things well, we'll be on a positive trajectory for a long time, I think.

Great. And then just a follow-up on some of the fleet constraints that you're talking about. Is there -- how should we think about like where we are from an industry utilization perspective? Because if I think back to '22, even '23, that was a big help in terms of rate increases, pricing, all of that because we were constrained post COVID. I guess how -- and I know that there's a lot of demand generally for modular units, certainly with respect to what you're talking about, but then also in other areas where you're not participating in, like residential areas for data center remote -- residential units for data center remote workers and things like that. So just want to get your perspective on like where in the supply constrained cycle we are? And are you seeing higher costs for units overall?

It's definitely -- the market is definitely tightening in segments, right? It's not across the board. And based on the type of project activity that we see, I expect those constraints will persist for some time, is my expectation. All else equal, that is supportive of the pricing environment. And inflation is still a very real impact, not just to us and our business, but for our customers and many of their inputs, and that is reflective in new product cost that we see across our supply base.

And as you know, our supply base is a little bit different. We've got a variety of sources of new product, but we also have a very differentiated ability to reactivate and refurbish fleet that we already own. In many categories, though, we are looking at higher utilization levels and supplementing those categories with some new fleet.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Tim Boswell for any closing remarks.

Great. Thank you for the questions, everybody, for those listening, thank you for your interest in WillScot. And again, to our team, thank you for taking care of each other and our customers and focusing on our execution plans for the second half of the year. With that, we can conclude the call.

This concludes today's program. Thank you all for participating. You may now disconnect.

Welcome to the First Quarter 2026 WillScot Earnings Conference Call. My name is Cherie, and I'll be your operator for today's call. [Operator Instructions]

Please note that this conference is being recorded.

I will now turn the call over to Charlie Wohlhuter. Charlie, you may begin.

Thank you very much, Cherie. Good afternoon, everyone, and welcome to our First Quarter 2026 Earnings Call. With me in the room today are Worthing Jackman, our Executive Chairman; Tim Boswell, President and Chief Executive Officer; and Matt Jacobsen, Chief Financial Officer. Presentation material may be found on our Investor Relations website at investors.willscot.com.

Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's presentation material. Also, unless otherwise stated, we're comparing results to the same period in 2025.

Before we begin, I'd like to direct your attention to Slide 2, containing our safe harbor statement. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC.

And now it's my pleasure to turn the call over to our President and Chief Executive Officer, Tim Boswell.

Thank you, Charlie, and good afternoon, everyone. We appreciate you joining us on today's call for a discussion of the operating environment, our strategic priorities, first quarter 2026 results, and our improving outlook for the remainder of the year. As you saw with our results this afternoon, we delivered a solid first quarter, and I'd like to thank the team for their continued focus on consistent execution, on behalf of our customers, our shareholders and for one another.

The operating environment remains uneven, though we continue to see encouraging internal leading indicators across the business, and we remain focused on executing the commercial, field and central operating priorities that are within our control and support our return to organic growth and long-term shareholder value creation. Matt will go into more detail regarding the first quarter financials.

If I zoom out, all metrics are consistent with the progression towards organic topline growth, which continues to be our focus for the second half of 2026. Modular activations were up year-over-year for the second consecutive quarter. And total activations were up 10% year-over-year in Q1 and increased across all product lines. Leasing and services revenue grew modestly by $2 million year-over-year, which is a step in the right direction. But within that, delivery and installation revenues were up 12% year-over-year. This is evidence that our order backlogs, which have been growing for several quarters now are converting as expected, which is a good leading indicator for future leasing revenues.

Adjusted EBITDA of $211 million in the quarter exceeded our outlook. And while adjusted EBITDA margin was lower than we planned, the compression was volume driven with rental costs up 9% and commissions up 33% year-over-year, respectively. So those line items, combined with a higher mix of delivery revenue represent short-term margin headwinds, but they are the type of headwinds associated with lease revenue inflection, which again, aligns with our objective for the year and is included in the increased guidance driven by topline growth.

Even with those investments and increased capital expenditures in Q1, adjusted free cash flow was $116 million, representing a 21% margin on total revenue. So we continue to see best-in-class free cash flow conversion and strong returns on capital, which is the fundamental strength of our business. That gives us flexibility with capital allocation, and we remain balanced in Q1. We returned $20 million to shareholders through share repurchases and our quarterly cash dividend, while reducing $76 million in debt balances. And based on the increased activity levels, which are driving the guidance raise, I expect there will also be greater opportunities to reinvest organically in the business. Altogether, I'm happy with the results to start the year that mostly focused on advancing the strategic initiatives that are within our control and critical to our positioning in the market for the long term.

First, from a commercial perspective, both our customer value proposition and competitive positioning have never been stronger. And we're finding this stride at a moment when the mix of market activity is skewing towards larger, more complex projects, where our capabilities are disproportionately strong. From World Cup scale logistics to data center builds, power generation, manufacturing and other critical infrastructure projects, we are supporting some of the most important work in the North American economy. These projects align extremely well with our value proposition, coordinating detailed requirements at a large scale on unforgiving timelines with dependable execution right from the start.

These differentiated capabilities are resonating with our most sophisticated customers. Enterprise accounts revenue increased 12% year-over-year in the first quarter, which is higher than the growth rate we expected for the full year. Order and activation trends strengthened throughout the quarter, with the current pending order book for enterprise accounts up over 25% year-over-year, excluding the World Cup. This provides visibility into the second half of the year. And overall, this is a healthier revenue mix with growing exposure to larger, higher quality and longer duration projects that tend to draw from our full product offering and capabilities.

While that is a real bright spot, we still see opportunity to execute more consistently across the entire organization. Our new regional sales management layer gives us the right leadership and oversight model in the field for improved alignment at the territory accounts and product levels. And after 4 months under this structure, we're seeing newly activated revenue in line with our budgeted sales quotas and an over 30% year-over-year increase in commission payouts, and that is despite a continued 6% year-over-year decline of nonresidential construction starts square footage and continued contraction of the Architectural Billings Index in the quarter.

So while we have not seen stabilization across all of our local markets, the favorable mix of end market activity, combined with better internal execution are providing commercial momentum. Operationally, I'm very proud of how our field and central teams are executing across multiple priorities. We are on track with our network optimization efforts, including real estate and fleet dispositions while simultaneously supporting elevated activity levels and fleet investments in high-demand product categories. We are increasing work order volumes to drive unit availability and reduce lead times, the ability to reactivate large volumes of idle equipment quickly and cost effectively in a rising demand environment is a significant competitive advantage, while we also make meaningful and deliberate new fleet investments to further differentiate our offering long term. And we mobilize this capacity with in-house expertise better than anyone in the industry.

Continuing to develop these capabilities we are rolling out enhanced to dispatch and route optimization tools across the field. These tools are improving utilization of our drivers and trucking fleet as well as our service and setup teams, reducing average miles per route and enhancing the customer experience through more effective omnichannel communication. And we are focused on improving service levels across all customer touch points to improve the experience and ease of doing business, while reducing our cost to serve. And we're doing all of this safely. Our recordable incident rate dropped below 0.5 for the last 3 months. That is exceptional performance and that's a direct result of disciplined execution and a strong safety culture across the organization. So thank you again and great work by our team.

The common denominator in delivering successful outcomes is our people. WillScot was again recertified as a great place to work for the fourth consecutive year, which is a designation based entirely on independent employee feedback and a reflection of our company culture. Engagement compounds when we execute at a high level and engaged teams deliver better results for customers and for shareholders.

Looking out through 2026, we remain cautious around local market demand, but believe we are better positioned than ever to win when these markets stabilize and return to growth. Meanwhile, our other commercial strategies to develop enterprise accounts, new verticals and our differentiated offerings all show strong momentum. And we expect that our multiyear operational improvement road map will continue to be a source of both differentiated execution capabilities and structural margin expansion over time. Our focus is clear, execute on initiatives within our control, strengthen our competitive positioning, serve our customers exceptionally well, be a great place to work and drive long-term shareholder value.

I'll now turn the call over to Matt to go into more detail on Q1 and our outlook. Matt?

Thanks, Tim. Starting with the quarter, our first quarter results exceeded our expectations entering the year despite continued softness across certain end markets, as Tim noted. Beginning on Slide 4. Total revenue for the quarter was $549 million, modestly lower year-over-year due to lower sales activity, but ahead of our outlook. Importantly, leasing and services revenue was up year-over-year by $2 million or about 0.5% due to the strong growth in delivery and installation revenues on increased activation volumes and large complex activity in the quarter. Breaking this down a bit further, leasing revenue totaled $426 million, down approximately 2% year-over-year, reflecting ongoing pressure in local markets with container unit on rent volumes driving the majority of the overall decline.

Pricing and product mix continued to offset a portion of the volume impacts and VAPS revenue in the quarter ticked up modestly year-over-year in absolute dollars and rose 50 basis points year-over-year to 17.7% of total revenue. In contrast, delivery and installation revenue increased more than 12% year-over-year to $100 million. Large project demand is driving solid activation growth. Modular unit activations exceeded our internal expectations and increased 8% year-over-year in Q1, marking the second consecutive quarter of year-over-year activation growth. This is a testament to the hard work at all levels of the company, executing against our strategic plans and a positive indication of the continued improving commercial demand that we're seeing, even despite some continued end market softness.

As Tim mentioned, we believe that our ability to execute on large projects is a competitive advantage, and we're seeing continued increased activity levels on these types of projects, proving our position as a solutions provider of choice in the industry. Based on where we stand today, coupled with our on activation activity and the pending order book, we now have increased conviction around leasing revenue inflecting to year-over-year growth at some point in the second half of 2026.

Adjusted EBITDA for the quarter was $211 million with an adjusted EBITDA margin of 38.5%. Margins were down year-over-year, largely due to higher variable costs and increased delivery and installation activity. Importantly, this margin pressure stems from the gross margin line reflecting unit preparation costs associated with increased volumes, which is common in a period where we're increasing activations and working towards leasing revenue and an eventual unit on rent inflection. The large project activity we're seeing typically comes with long durations and solid returns, but there is a timing element around revenue recognition and cost absorption.

While that affects margins in the near term, these activations increased fleet utilization and support leasing revenue run rates in subsequent periods. So very much a positive for units on rent and the underlying business trends. Importantly, we continue to see opportunities for efficiency gains through operational initiatives that Tim mentioned, and we expect to see positive operating leverage in the business as we return to growth. Adjusted net income in the quarter was $39 million, and adjusted diluted earnings per share was $0.21. The impacts of lower container unit on rent volumes, lower sales and increased unit preparation costs year-over-year in the quarter, were partially offset by lower SG&A, depreciation and interest expense alongside a lower share count from repurchases.

Overall, we're encouraged by the quality of activity in the quarter and the implications that it has on the remainder of the year.

Turning to cash flow on Slide 6. The business continues to generate strong and predictable cash flows, and we're reinvesting more of those cash flows into driving growth in the business. Net cash provided by operating activities was $191 million in the quarter, which included approximately $14 million of costs associated with network optimization and executive transition costs. Given our strong, large project demand, we reinvested $89 million of net CapEx in the quarter, which increased about 40% year-over-year.

Adjusted free cash flow generated in the quarter was $116 million at a 21% margin. This equates to adjusted free cash flow per share of $0.64 at our current share count or $2.54 over the last 12 months. The increase in adjusted free cash flow year-over-year was entirely due -- the decrease in adjusted free cash flow year-over-year was entirely due to increased net CapEx investment to support fleet growth in higher-value product categories and the project demand pipeline. These are value-accretive investments which has strong returns and position us well for future growth. Free cash flow in the period supported a $76 million reduction of our outstanding debt and funded $20 million of returns to shareholders through our quarterly dividend and share repurchase programs.

From a balance sheet perspective, on Slide 8, we ended the quarter with net debt of $3.5 billion and leverage of 3.7x. Our debt maturity profile remains favorable, with no maturities until August of 2028. And our weighted average cash interest rate is approximately 5.7%, with roughly 90% of our debt effectively fixed, inclusive of our interest rate swaps. We have approximately $1.5 billion of availability under our ABL facility, so ample liquidity with a flexible governance structure.

Now on to Slide 9. Based on our first quarter performance and our current order book visibility, we are raising our full year 2026 outlook. We now expect revenue of approximately $2.25 billion, adjusted EBITDA of approximately $915 million and net CapEx of approximately $325 million. As we discussed in the prior 2 quarters, our conservative approach to our outlook is unchanged and does not assume a recovery in the local markets. We continue to drive internal plans and compensation targets for the year that exceed the increased revenue and EBITDA guidance we laid out today.

The increase in revenue and adjusted EBITDA reflects stronger-than-expected project activity and improved visibility into the middle of the year. Our large-scale modular project pipeline is giving us more confidence that leasing revenues can inflect year-over-year at some point in the second half of 2026, which is now implied in the current outlook.

Looking into Q2, we believe total revenues for the quarter will increase about 7% sequentially from Q1 2026 to approximately $585 million in Q2 of 2026 driven by higher leasing and delivery and installation revenues. Given the size of large project pipeline, we expect to incur additional unit prep costs in Q2, additionally, increased delivery and installation revenue mix, including that, which is related to our support of the World Cup event, will provide sequential margin pressure. Increasing leasing revenue should offset a good portion of these headwinds, but we expect Q2 margins to be pressured by about 30 basis points sequentially from Q1. As a result, we expect adjusted EBITDA of approximately $223 million in Q2.

As Tim mentioned, serving these types of projects as part of our unique value proposition that differentiates us with a full suite of capabilities to serve our customers. Again, these are all strong investments with solid return profiles. In conjunction with this spend, our increase in net CapEx reflects higher investment in select product categories tied to those projects. Local demand remains stable, but we remain cautious about this segment of the market. As such, we believe the targeted investments in higher return opportunities is the right approach to maximize long-term value.

Looking at a few other items for Q2. We expect depreciation and amortization expense in the period to be approximately $100 million, interest expense to be about $54 million and our effective tax rate to be around 27%. To wrap up, Q1 was a strong start to the year and reinforces our confidence in the durability of our business model. We're investing to support growth and growing demand in high-quality opportunities, maintaining balance sheet strength and returning capital to shareholders, all while positioning the company for improved performance as we move through the year.

With that, I'll turn it back to Tim.

Thanks, Matt. We've all put in a lot of hard work over the last few years to integrate and reposition our business in a challenging market backdrop. Those efforts have put us in a position today to execute at a higher level, capture new market opportunities and deliver on expectations. And our team is committed to continuing to raise the bar and performance standards, while executing in the right way, consistent with our values. All of that makes me really proud to be part of the WillScot team. I believe that our business has never been better positioned to compete and win than we are today. And I'm confident that together, we can deliver on our commitments for sustainable long-term growth and value creation.

Thanks again to our team for the strong start to the year. This concludes our prepared remarks. I'll turn it back to the operator for Q&A.

[Operator Instructions]

And our first question will come from the line of Scott Schneeberger with Oppenheimer.

I guess let's start out, please, with some discussion about the guidance and the back half of the year. Leasing revenue growth inflection now is what you're anticipating for the second half of '26. Could you talk about kind of the -- I guess, Tim, for you, the couple of 3 things that maybe could put you there earlier and what would be going right, things we would look for? And then on the flip side, what would be the things that have you nervous about achieving that? And I'll come back with a follow-up.

Okay, Scott. As we said in our remarks, we haven't assumed any real improvement in local market activity, nor have we assumed any continued erosion of that activity, right? So that's a variable that's outside of our control. As I think about what's been working to date in the business, activations were up 12% year-over-year in Q1 across the business. The sales org size is up about 10% year-over-year across the business. But much of that activation growth is being driven by the enterprise accounts portfolio.

So we haven't necessarily seen the full productivity expectation that we think we can get out of the local field sales org. So that's a variable that we're still working on, and there was a market element to that. I'm very, very confident in the enterprise accounts strategy in backlog. There are some really exciting things going on out there in the economy, and we tend to -- our win rates tend to improve as those project sizes go up, right?

So we're really holding our own there. We have seen some examples of delays in project starts. That's not uncommon for some of these very large projects, again, outside of our control. We quite like it when they get delayed after they start, that works in our favor. So those are some things that we're watching. But at this point, the team is huddling weekly on sourcing supply for some of these major opportunities, and a lot of that is building up in the back half of the year.

Great. I guess the appropriate follow-up to that is, Matt, thanks for the second quarter outlook. And I believe I heard 30 basis points quarter-over-quarter down on a few drivers that would be dilutive in the second quarter. Is that -- are they going to persist into the third? Or when we speak of back half by midyear, should those dilutive impacts of World Cup otherwise, is -- are we going to really see a bit of a hockey stick turn in the back half. How should we think about the margins? Obviously, moving back into looking at the full year and you get into it, but just kind of the cadence of the third and the fourth.

Yes, Scott, thanks for the question. I think we'll see a bit of dilution into the second quarter, sequentially. But as we generally do, I would not expect to see that as we go into Q3 and Q4. Q2 even without the World Cup, is generally one of our higher. You start to really build the activation volumes, but you're also incurring more of the upfront get-ready costs. That's a pretty normal phenomenon. It's exasperated a little bit this year by the large project activity and some of the World Cup impacts, which also impact D&I margins, given there's a lot of activity moving around those units. But exiting Q2, I would not expect that to persist. In fact, I think we would see some pretty good expansion probably even more than we would have seen last year as we go into the third quarter coming out of what would be a little bit lower of a Q2 than we would generally expect.

And that will come from the line of Andrew Wittmann with Baird.

I guess maybe let's talk about rate a little bit AMRs here. So maybe you could just address kind of what you're seeing there. obviously, in modular, up slightly year-over-year. But it looks like sequentially, the rates were down a little bit. Is that reflective of enterprise customer mix because VAPS was up here, so I guess I'm kind of focusing in a little bit on the base pricing. I'm just trying to get a sense of what's out there competitively and what it means for the rates that you're able to achieve in that modular business.

Yes. Andy, I wouldn't attribute any of it to enterprise accounts. We tend to get pretty strong -- have a pretty strong value proposition when you're working with those more sophisticated customers and their purchasing criteria, in many cases, tend to skew away from price towards dependability, execution, service elements, those types of things, which, again, all works in our favor. If I look across just market pricing on new contracts, it kind of varies a bit by product category. We've had pressures on the ground level office product line for some time. That feels like it's stabilizing, but still down quite significantly from the peak.

Then in contrast, you've got the complex business in FLEX, where we're seeing actually pretty good price momentum. There is a little bit of a mix headwind from FLEX just given those are smaller format units, but higher return on capital and higher priced from a per square foot basis. So no real concerns sitting here today from a rate perspective, and we've got some real pockets of strength where I think we can continue to push here as we progress through the year.

Yes. The Q4 phenomenon to Q1 isn't an unusual one as well. We do see some variability there as you go from Q4 to Q1.

Yes. No, definitely, there's always a little bit of that. I just wanted to drill into this quarter specifically, but a fair point, Matt. Just then my follow-up, I guess, is on the margins. I just want to get a sense here. Maybe Matt, you can help us $240 million year-over-year. We heard the factors. Can you just give us some like relative positioning as to what were the bigger factors here? Obviously, when you've got the topline negative deleverage is probably one of the bigger ones. But I'm just curious, the mix effect to the -- I heard things like getting units prepped, so repair and maintenance costs. These are good things that made the case, but just wanted to try to understand the order of magnitude is how these things are flowing through. And do any of these subside at all as the year progresses in terms of the way you're looking at the year evolving?

Sure. No, no, I think that's right. These are -- we do look at these generally as good things. Most of them, right? We're happy to be getting more units ready, increasing -- or sorry, decreasing our response time to customers as incremental demand has been coming. So that impact, if we look at the first quarter and we look at the 8% increase in modular activations, that increased ready cost and the commission. So kind of the increase in variable cost is about 150, 160 basis points of margin compression, Andy. So it is a real impact.

I think we expect to see that continue a bit in the second quarter. And then I think as we get into the later quarters in the year, it will be subsiding a little bit based on what we know today. Obviously, the demand picture could be a little bit different. And then the other big piece is D&I revenue. I mean, we mentioned it a couple of times that mix, over $10 million or 12% increase in D&I revenue, it is a lower margin revenue line for us than the overall blended EBITDA margin. So that is a bit of an impact. That's worth another 50 bps or so.

So there's a few things there. In addition to just our container unit on rent volume being down, we talked in Q4 about that $50 million headwind for the year, obviously impacting overall margins, given the reduction in containers that are on rent kind of in the first quarter versus what was there a year ago. So those are the main drivers there.

And that will come from the line of Kyle Menges with Citigroup.

I know you mentioned that enterprise account order book was up 25% ex World Cup. Maybe I missed it, but I'm curious just what the total order book growth looks like and maybe through April as well and ex enterprise accounts, too.

Yes. This is Tim. So overall, pending orders in modular are up 14% year-over-year. So pretty strong across the board and up 7% for storage. And within that, you've got pending orders for climate control, which are up like 100% year-over-year. So kind of across the board, seeing pretty good performance there. Order rates, it's a little bit different. The pending orders are those orders that have accumulated and not yet delivered. If I just look at the order rates week-to-week. In modular, they're up kind of mid-single digits for non-enterprise customers year-over-year, and they are down year-over-year about that same magnitude in storage when you take out enterprise accounts. So we're seeing better performance across all customer segments in the modular order activity relative to storage, where storage is more weighted towards that enterprise performance and some larger RFP wins, but that's consistent with what we talked about a couple of months ago.

That's helpful. And then as a follow-up to that, good to hear about your increased conviction and seeing leasing revenues inflect at some point in the second half. I am curious just what sort of year-over-year orders growth you would actually need to see, say, in May through the rest of this year to actually see that second half leasing revenue inflection come to fruition?

Yes. There's 2 sides of it, right? There's also the returning units. But I think based on the activity levels we've seen. This is now our second quarter in a row of modular activation growth. And I would have said I think at year-end, I would have said you get year-over-year activation growth for a few quarters. You start to get to a point where you get that leasing revenue inflection and then another quarter or 2 after that, you've got a chance probably to drive the actual volume inflection. So I think it's really just based on our current rates and what we're seeing on activations, gives us good visibility into -- at least into the middle of the summer. We'll continue to monitor it from there. But in Q4, we would have said we were looking at early '27 for that leasing revenue inflection. And based on what we've seen so far, we've kind of pulled that forward a quarter or so. So we're happy with that. We're still driving to accelerate that even more, but that's what we're seeing right now, Kyle.

And that will come from the line of Steven Ramsey with Thompson Research Group.

Wanted to continue that thought process there, good to hear the activation story. Can you talk about the returned units side of things, maybe more on the modular side if the return units level year-to-date is coming in as expected and how it's impacting the guide.

Yes. We've definitely seen -- we've seen over time those -- the returns subsiding, probably a little bit more significant over the last few years, obviously, in storage, as you've seen the units on rent, the change in units on rent and there being fewer units on rent, less to return. But we've been seeing the same in modular. And we did -- we had a -- the first quarter was a pretty good start for us from a unit on rent perspective kind of within the quarter. It's the best that we've had since 2022, some modest increases from kind of the end of Q4 into the end of March, but very encouraging. And we want to see that continue.

And what that means is that our activations, obviously, in the first quarter exceeded the amount of returns that we had in both products, both for modular and for our storage units. So it's been a trend that we do expect to continue until we see the activations increase even more and some of those projects start coming back, but there's some long duration in a lot of these projects that we're seeing that are driving the activity.

Only thing I'd add, Steve, is that the return activity is pretty much right in line with our original plans for the year. So we haven't been surprised one way or another from the return side of the equation. They are down modestly year-over-year, but we modeled and expected that just based on our historical experience. So the variable that's changed here is on the delivery side.

Okay. Helpful color. And then secondly, VAPS leasing revenue edged up a bit in the quarter, you've been just under $400 million the last 2 years on VAPS leasing revenue. Do you expect this particular line to be a grower this year?

Yes, we do. I think there's more work we have to do here. I'm not 100% satisfied with the penetration levels that we're achieving currently on new contracts, kind of varies by product, but quite a few of the product lines are off their peak from a couple of years ago, and that is on our plates turnaround here. But even with that, we still have kind of a healthy spread versus the AMRs that we're reporting, inclusive of value-added products. And so we'll expect to grow that line during 2026 with opportunity to perform better internally on the attachment rates.

And I would just add that we've got some new product introductions this year as well in the form of perimeter solutions, which are going to be contributing to the VAPS revenue line. along with some of the other newer fleet categories. So really, there's pretty good momentum across all those new product introductions.

And that will come from the line of Angel Castillo with Morgan Stanley.

I just wanted to go back, I guess, to unpack the mega project or maybe the shift in mix that we're seeing a little bit more. I guess it sounds like the enterprise accounts are doing well. But just trying to understand a little bit more like why is there more of a timing impact, I guess, than we've seen in the past as we think about these projects in terms of prep?

Is it the type of products they're requiring? Is it the location more remote or -- just curious if we could unpack that a little bit more? And then I guess as we think about D&I, is the shift in that ahead of as well as the projects and maybe more of the lead times. Is that due to more inflation that we're seeing in D&I or, again, location? I guess I'm a little surprised at how much that's leading versus kind of historical trends.

Well, let me start, Angel, this is Tim. On the first part of your question as it relates to the timing of mega projects and how that can flow through the P&L. And Matt can maybe follow up on anything I miss as it relates to the D&I side of things. The only thing unique about the larger projects, we have small, medium, large and mega is kind of how we think about the market segmentation is you typically have longer lead time and there is typically a more involved setup and installation component on some of these larger projects.

But at the end of the day, they're no different than the rest of our modular deliveries where you recognize variable cost when the work is performed in advance of a unit being put on rent and you recognize the delivery and installation revenue and margin as that work is performed at the beginning of a rental and then you recognize the rental revenue thereafter.

So we're not seeing anything different there. It's just that, that delivery and installation element is picking up pretty rapidly, up 12% year-over-year in the first quarter, and the rental revenues associated that will enjoy for the next 3 to 4 years on average based on the size of these projects, and that's just how these things work. As you look at the composition of market activity and you cover this as well as anybody, as you already know, the overall volume of projects that we're tracking is flat. But when we look at the large and mega segments, they're up like 30% year-over-year.

And then within that, data centers are up 70% year-over-year. So there is a very meaningful mix shift in terms of the composition of market activity, and that actually lends itself well to our value proposition because when it comes to the more sophisticated requirements that these customers have, we are disproportionately well positioned to serve them and to win the project. So that's what we're seeing, and a lot of that does then flow into the enterprise book of business.

Yes. I think Tim hit on the D&I piece, but it's really just the D&I revenue as a mix of total revenue that's driving margin down. It's not that anything has really changed with that. So that 12% increase in revenue. It's just at a lower margin than our overall blended margin. And that's why it's depressing the Q1, and we expect it to do the same in Q2 with all this increased activity.

That's very helpful. And then I was hoping we could also talk about the CapEx a little bit more and just unpack that. It sounds like you're kind of following where the demand is going and making some investments there and kind of I don't know if it's specifically kind of what products, if you could kind of talk about where within your VAPS are you -- maybe deploying more capital that you weren't anticipating. And maybe what are the kind of needs? Is it something with mega projects or data centers that there's just different products that you're having to deploy more capital for? And as we think about, I guess, going forward, is this kind of higher percentage of -- the percentage of sales to be better approach to kind of how we should think about CapEx going forward? Or is this more kind of a onetime step-up. Just trying to understand that a couple...

Angel, it's always demand driven, right? So if you look back over recent history, I think we've been as low as $200 million of annual net CapEx and as high as, I think, $360 million, if you go back to 2022, which was a pretty robust market environment, right? So we're going to follow the demand here. in terms of where the incremental CapEx is going, it's largely going into our Complex Modular business, which is -- tends to be pretty highly utilized and also tends to be associated with larger projects.

So the market mix is shifting towards mega and large, that's been driving disproportionate demand in our larger complex fleet for some time now. We are investing behind that, inclusive of FLEX. And then there are some other smaller categories like Perimeter Solutions and Clearspan as well, but the majority is going to be going into the modular business.

That is a combination of new fleet and refurbishment, right? It's both about 60% in Q1 was kind of on the new fleet piece and the other 30% of the year-over-year growth was in the refurbishment side of things. So we're hitting it from both sides.

That will come from the line of Josh Chan with UBS.

I guess on local, I know that you're not embedding any improvement or change in the market, but are you seeing anything on the ground that suggests that, that market is moving one way or another?

I think we've seen it be more stable. So it's not -- it doesn't seem to be moving a whole lot. The pace of decline has reduced and it's been relatively stable. I mean, I think Tim's comments on containers are a good example of one area where it was down a little bit. But on the modular side, we're kind of seeing that local market be stable.

Yes, Josh. And we're still adding to the sales force, right? So that in and of itself should be an indicator that we think there's opportunity out in the market. But the data is the data, right? And if you look at nonres square footage, it's still down 6%, right? So we have beefed up the enterprise organization. And I think if the mix of market activity continues to shift, we'll shift how we allocate our sales coverage resources.

Sure. Sure. That makes a lot of sense. And then on the rate growth, I guess the base rate growth, what's embedded in your guidance in terms of how much year-over-year rate growth you get in 2026?

Yes. So I think for -- I'll talk maybe specific to the second quarter. I would expect for modular, for example, we were just under 3% here in the first quarter. You may see that decelerate a little bit in the second quarter. And a lot of that be driven by some of the smaller units we're putting out for the World Cup. So a little bit of a kind of project nuance there that we'll see in the second quarter. And then from there, I think we would generally expect it to have opportunities to increase from there.

We do see opportunities within our FLEX and our Complex equipment. But the reality, we do continue to see a little bit of pressure on ground level offices and some of the smaller equipment. So I think at the guide, it's probably a little bit conservative on the pricing side. And if we do better than that, that would provide additional upside, but that's what we kind of see right now.

And that will come from the line of Philip Ng with Jefferies.

This is Maggie on for Phil. I just wanted to go back to the now expectations for a leasing revenue inflection in the back half. Maybe if you could talk about what trends you're seeing in modular versus storage and how each segment is contributing to that inflection? And then I guess, similarly, how we should think about the volume recovery piece versus AMR contribution to that inflection?

Yes. That's -- yes, I can definitely do that, Maggie. So I think for us, the opportunity is definitely in the modular side. We are facing the $50 million -- coming into the year, the $50 million headwind on storage. So for us to get year-over-year inflection on storage. We probably have a little bit further to go on that due to that volume headwind that we started with. But on the modular side, if you rewind a quarter ago, we were off 5% on volume. We're now off 3% on volume.

So we're starting to eat into that year-over-year volume headwind. And as we do that, the rate and VAPS tailwind that we've had will shine through, and that's where we start to get the inflection in modular. So you'll get modular inflection before you get total inflection, but that's really what's driving the inflection is the modular side of the business. And although the headwind on storage is still declining, which is good.

Okay. Got it. And then switching gears a little bit. It looks like you've just closed about 40,000 units in the quarter. I'm assuming that's part of your network optimization initiative. How do you see that potential that disposition activity the next few quarters? Is this kind of a one and done or you have more to do? And then is the primary benefit from that and the savings on real estate or carrying costs or is there a potential cash inflow opportunity as you start disposing off some of these underutilized assets?

Sure. Yes. So from a fleet perspective, our reported fleet numbers, we would have -- when we took the restructuring charge in Q4, we would have taken those units out of our fleet. So in the Q4 earnings deck, we would have provided kind of pro forma utilization for Q4 had those units not been in our fleet the entire quarter. So there was really no change in what we would call our fleet count in the first quarter.

it was more that if you're looking at averages, the reported average from Q4 wasn't fully burdened by that reduction. So if you go back and look at the pro forma, that might help. But physically, we did start destructing some of those -- many of those units as we work to get out of these properties in the first quarter. But from a reported kind of fleet count perspective, there was really no change.

From a benefit perspective, clearly, the real estate benefit we talked about last quarter to help kind of control some of the increases that we would otherwise expect over the next few years. But it's interesting, every day. We're seeing other benefits around some of this, whether it's property insurance costs, whether it's some of the indirect costs of just having multiple locations in a market. So I think we'll continue to see and discover new benefits of just kind of operating in a more optimized way in each of our markets.

[Operator Instructions]

Our next question will come from the line of Faiza Alwy with Deutsche Bank.

Tim, you answered my real questions in response to another question, which was around data center growth. I think on the last call, you talked about potential increase in the data center vertical of 50%. And I think you said 70% this quarter. So help me think through like do you have an updated estimate for how to think about growth in this vertical this year into 2027? Because it feels like we're just starting and activity seems to be accelerating.

Faiza, I would agree with how you just ended the question. It does feel like the activity levels have accelerated. And just to clarify some of the metrics I gave you, I still think we're on track to kind of deliver new activated revenue this year, that's up 50% year-over-year in the data center vertical. My comments, a few questions ago was around -- if I look at our CRM database, we map out all of the projects around North America that the sales org is positioned to chase. And when I look in kind of the large and mega project segment, the volume of those data center projects is up 70% year-over-year.

The real interesting thing though is they still only represent about 25% of the large and mega projects that we're going after. So it's important. It's grown tremendously, but we're seeing large projects across pretty much every vertical I can name. And that's what's really exciting. It's not just the pace of the data center activity, but the overall volume and diversity of the project activity that we're going after. That would include power generation that oftentimes is associated with data center activity, a lot of technical manufacturing, pharmaceutical, some large-scale stadium and special event projects. As you know, we touch virtually every sector in the economy, and we're seeing activity in a lot of different areas.

Okay. That is very helpful. And then I guess just the discrepancy between how you're doing on the enterprise accounts and the larger mega projects versus what you're seeing on the small project and the local market side. Is that because you're devoting more sales resources to your largest customers, which I know is part of your strategy. Or is it just that general macro activity is just stronger and you are well positioned to play in that large mega space?

It's a combination of the above. We're certainly more mature from an operational standpoint in our field-based sales organization. That's how the business has traditionally always gone to market. So the investments that we made less than a year ago, I would remind you, in the enterprise accounts team represents a new focus and initiative for the company. And certainly, the structure and strategy that we've put around 5 or 6 key industry verticals is absolutely showing traction.

So there is an internal kind of strategy element that I think is playing out. There is a market activity mix element that we just talked about that is playing out. And there are our own competitive strengths and capabilities as an operator that I think are playing out and make us more likely to be successful on some of these larger, more demanding situations. So it's a combination of those factors.

I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr. Tim Boswell for any closing remarks.

Thanks, everybody, for your interest and your support of the team here at WillScot to the WillScot team. Thanks again for a strong quarter and the focus on clear and clean execution as we round out 2026.

This concludes today's conference. Thank you, ladies and gentlemen. You may now disconnect.

Welcome to the Fourth Quarter 2025 WillScot Earnings Conference Call. My name is Sherry, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Charlie Wohlhunter. Charlie, you may begin.

All right. Thank you, Sherry, and good afternoon, everyone, and welcome to our fourth quarter and year-end 2025 earnings call. With me in the room today are Worthing Jackman, Executive Chairman; Tim Boswell, President and Chief Executive Officer; and Matt Jacobsen, Chief Financial Officer. Today's presentation materials may be found in our Investor Relations website at investors.willscott.com. .

Before we begin, I'd like to direct your attention to Slide #2, containing our safe harbor statements. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. for more completion of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC.

And now it's my pleasure to turn the call over to our President and new Chief Executive Officer, Tim Boswell.

Thank you, Charlie, and good afternoon, everybody. We appreciate you joining us on today's call for a discussion of the operating environment, our strategic priorities, our fourth quarter 2025 results and our outlook for 2026.

I'd like to begin by saying that I'm grateful for and humbled by the opportunity to lead and support this remarkable company and its people on our next chapter of evolution, after spending considerable time across our operations in 2025 and as I approach my 14th anniversary with the company. I'm very excited about how we're positioned in the market our talent level, the alignment of our team around priorities and our culture and values that define how we show up every day for our customers and for one another.

Today, our business is emerging from a period of rapid transformation with an opportunity to set a new standard of performance in our industry through focused execution of our strategy. As we will discuss today, we are beginning to see momentum from our commercial initiatives to improve local market execution, develop our enterprise accounts and industry verticals and expand our more differentiated value-added offerings.

We're backing this up with the strongest operational capabilities in the industry. Dependable execution is at the core of our right from the start value proposition, and we are executing a multiyear continuous improvement road map to further improve both our customer experience and our margins.

This is a simple formula that builds upon the already outstanding financial characteristics of our business that include industry-leading free cash flow conversion and strong returns on capital. And while we have not assumed any turnaround for purposes of our guidance, we do see encouraging signs of progress across the business and the entire organization is aligned to drive a return to growth and shareholder value creation.

This obviously starts with stabilizing the top line. Matt will cover the details of our Q4 results. The total revenue was down 2% year-over-year in the quarter, excluding write-offs with the decline nearly all attributable to lower seasonal storage demand from one customer.

Revenue from modular products was effectively flat year-over-year. So the lease portfolio is stabilizing as a result of our initiatives despite the continued contraction of nonresidential square footage starts in Q4.

Adjusted EBITDA of $250 million in the quarter was right on top of our guidance, although the 44% margin was a bit lower driven by the revenue mix and some SG&A items. Cash generation remains strong with $91 million of adjusted free cash flow in the quarter, and we returned $30 million to shareholders through share repurchases and our quarterly cash dividend, while reducing $41 million of debt balances.

Capital allocation was balanced as we leverage -- as we manage leverage prudently and prioritize opportunities with the strongest returns. And overall, there were no surprises in the quarter from my perspective, which is important as our team focuses on getting back to more consistent and dependable execution for shareholders.

Looking ahead to 2026. Our initial guidance is intentionally conservative consistent with the approach that we articulated after the third quarter and does not assume any improvement in business trends. Our internal plans and compensation targets comfortably exceed this outlook, although the market backdrop remains mixed, and we think the conservatism is prudent given our recent trends.

That said, our top priority is returning the business to steady organic growth, and we believe there is a path to deliver positive organic revenue growth inflection in the second half of the year. And we're seeing early results from our initiatives that if sustained, would get us there.

First, entering 2026, sales staffing is up 13% year-over-year and with greater tenure, stronger sentiment and lower turnover across the sales organization. In Q4, we strengthened our regional sales management layer so that we have consistent oversight and accountability at the local level, clearly aligned incentives, and improved sales enablement systems. We absolutely have a productivity tailwind from this team, and I'm very happy with the changes that we've implemented.

Second, enterprise accounts is accelerating with our focus on developing existing accounts and underpenetrated industry verticals. Enterprise account revenue was up 7% year-over-year for the full year in 2025 and up 10% year-over-year in Q4 excluding one large seasonal container customer. We expect to carry this momentum through 2026, delivering mid- to high single-digit revenue growth from the enterprise portfolio.

And third, our expanded offering and focus on the customer experience absolutely complement these efforts, giving us more ways to win on every opportunity and in some cases, opening new opportunities that we may not have pursued historically. This is all consistent with what we shared in Q3, although we are a bit further along with the implementation and with clear visibility into the impact on our leading indicators.

From an order perspective, our modular pending order book is up 17% year-over-year, with a significant impact from large RFP wins in the enterprise accounts portfolio, which are often tied to large project demand such as data centers, power generation and large-scale manufacturing. This excludes demand related to the upcoming World Cup, which we expect will be an additional 2,000 units of demand in Q2 and Q3, albeit on short duration.

If we exclude all enterprise account activity, modular pending orders are up 5% year-over-year, so we are seeing increasing order volumes across customer segments and across all product lines within our modular offering. This is on the heels of 3% year-over-year activation growth in the fourth quarter on our modular products and with strong order growth continuing into January and February.

We've also seen order rates on our portable storage product lines, up 11% year-over-year over the last 13 weeks, with that growth all coming from RFP wins within enterprise accounts, including some shorter-duration retail store remodels. So it is good to see growth in the storage order rates, but it is not yet as broad-based as we are seeing in modular. So it is early in the year, though our commercial team is well organized and with the significant order backlog, we are increasingly focused on operational readiness to support demand and have 3 key initiatives in flight across our field and centralized operations.

First, as Matt will discuss, we are advancing our network optimization plan, following approval by the Board of Directors in December. This will allow us to exit surplus real estate positions and idle fleet while maintaining full service and coverage capabilities in all markets that we serve.

Second, heading into Q2, we will be rolling out our enhanced scheduling and route optimization platform, which we expect will improve our dispatch function and transportation margins as well as customer service.

And third, we're continuing to make improvements across our support center operations, resulting in accelerated cash collections, reduced days sales outstanding and significant improvements in Net Promoter Scores related to our invoicing and customer service functions.

We prioritized each of these initiatives to improve efficiency and the customer experience. And these will be sources of operating leverage when activity levels pick up across the network and reasons we're confident in our longer-term target range for EBITDA margins.

Before I turn the floor over to Matt. I'd like to thank the entire WillScot team again for their support through our recent leadership transition. Over the last several months, we have worked hard and collaboratively to align on our strategic priorities. And we have a shared understanding that our success will be defined by disciplined execution that delivers consistent, repeatable results across the organization. The initiatives we have in motion from strengthening our go-to-market strategy, to continuous improvement of our operations, create a pathway back to sustainable organic growth and shareholder value creation, which is our focus. Matt?

Thanks, Tim. I'll get it in the details shortly, but overall, results in the year were in line or better than we had guided.

In the fourth quarter, total revenue was $566 million and adjusted EBITDA was $250 million representing a margin of 44.2%. Revenues in the quarter came in a bit better than we had expected, but were down $38 million or 6% versus the prior year quarter. Excluding the cleanup of out-of-period AR that we discussed last quarter, revenues were down approximately $12 million or 2% year-over-year, the majority of which was driven by the reduction in our seasonal retail container volumes with one customer.

While higher sales and delivery and return activity supported revenue performance above our guide, the shift in revenue mix weighed on consolidated margins by about 50 basis points versus our expectations.

We also incurred elevated levels of health insurance costs in the fourth quarter, which compressed margins by another 60 basis points and reduce the favorability to our guide from an EBITDA perspective.

For the full year 2025, total revenue was $2.28 billion and adjusted EBITDA was $971 million at a margin of 42.6%. So overall, we ended up the year a little better than we had guided and our focus on operational discipline and cost control as we position the business to support a growing order book in early 2026.

If we look a little bit closer at our leasing revenue on Slide 5, we can see the underlying stability in our leasing revenues. Here, you can see our performance with and without write-off activity. Write-off activity within leasing revenue was flat sequentially and at approximately $25 million, but up approximately $19 million versus the prior year quarter. However, our modular space leasing revenues in the quarter were essentially flat to prior year, which when combined with improved activity levels and the growing order book, as Tim highlighted, indicates lease revenue stabilization in our largest product class and the opportunity to drive revenue inflection in the second half of 2026.

Portable storage leasing revenue was down approximately $10 million from the prior year as expected driven by lower volumes and end-of-year seasonal storage business, partially offset by a modest sequential increase driven by our climate controlled storage offering.

And VAPS revenue in the quarter was essentially flat in absolute dollars, both year-over-year and sequentially. The with increasing VAPS penetration, which was up by 100 basis points year-over-year to 17.8% of total revenue or 17.4% for fiscal year 2025.

Turning to Slide 6. In the fourth quarter, adjusted free cash flow was $91 million, representing a 16.1% margin and $0.50 per share. For the full year 2025, adjusted free cash flow totaled $489 million and exceeded our guidance of $475 million, representing a 21.4% margin and $2.70 per share. Consistent free cash flow conversion continues to be a unique strength of our business and has demonstrated remarkable resilience as the lease portfolio positions for inflection.

As shown on Slide 7, for the full year, net CapEx totaled $273 million, up 17% compared to fiscal year 2024. While we estimate approximately $200 million of our CapEx is for maintenance CapEx, we've been investing above maintenance levels to service large project demand with our FLEX product, additional complexes and also in our newer product categories to support growth where customer demand is strong. We will continue to prioritize demand-driven investments in the more differentiated, higher-value products.

We also opportunistically allocated $145 million towards acquisitions, paid down $146 million in borrowings and returned $151 million to shareholders through both repurchases and our quarterly dividend distribution program in 2025. We will continue to take a balanced approach to allocating capital by managing leverage while being opportunistic with share repurchases and potential acquisitions.

Moving to Slide 8. We ended 2025 with total debt of under $3.6 billion with a leverage ratio of 3.6x. During the quarter, we amended and extended the maturity of our ABL credit facility to October of 2030 and use some of our availability to redeem $50 million of our 2031 notes, which carry the highest interest rate in our debt stack. Our next maturity is not for another 2.5 years, and we have sufficient flexibility and liquidity to fund our capital allocation priorities.

Slide 9 is new and provides an overview of our network optimization plan, which was approved by the Board of Directors on December 18. As leases expire over the next 4 years, and we exit approximately 25% of our leased acreage, we expect to realize between $25 million and $30 million of annual real estate cost savings. Said another way, the annual growth rate of our occupancy costs should decline to a mid-single-digit average growth rate over the period. versus the 10% plus that we've been seeing over the last several years, helping support achievement of our EBITDA margin target range.

As part of this plan, we recognized a noncash restructuring charge of $302 million from accelerated depreciation on our rental equipment in the fourth quarter that reduced the net book value on approximately 53,000 units to salvage value, which is approximately $10 million. The move aligns with our strategy of shifting the portfolio towards higher-value offerings as presented at our Investor Day last March. In turn, stronger unit economics of our overall portfolio will support improved margins and ROIC, while still preserving sufficient capital to meet demand in all product categories.

With regards to the optics of our utilization rates, the average size of our entire fleet over the quarter does not fully reflect the network optimization plan since we recognized the accelerated depreciation on the units in December. Therefore, you will not see the entire impact on our utilization until the first quarter of 2026, but we have provided a pro forma view in the appendix, which shows that our utilization for both modular space and portable storage products increases by over 700 basis points after removing these units from the fleet.

As we ramp up our network optimization initiative, we will also begin to incur cash costs related to rental equipment disposals and fleet relocation costs about $60 million over the next several years with an estimated $35 million in 2026. From a presentation perspective, fleet disposal costs will be included in restructuring expense and both fleet disposal costs and fleet relocation expenses will be added back as we present adjusted EBITDA, adjusted net income and adjusted free cash flow.

The related salvage value for recycling containers and estimated real estate proceeds in future years will partially offset these cash implementation costs, but will have limited impact on earnings.

And finally, on Slide 10 is our 2026 outlook for revenue of approximately $2.175 billion and adjusted EBITDA of $900 million. As we spoke about in the third quarter, relative to the $971 million of adjusted EBITDA in 2025, we're entering the year with an approximately $50 million headwind in our traditional storage business. Our outlook of $900 million is a conservative view relative to our current run rate beginning the year and does not include benefits from ongoing internal initiatives that have sustained could drive year-over-year leasing revenue growth at some point in the second half of the year, and place us on a growth trajectory into 2027. As Tim mentioned, we're driving internal plans and compensation targets that would inflect revenue in the second half of the year and comfortably exceed the revenue and EBITDA guidance.

For modeling purposes, the first quarter is the slowest period of the year for activations, and we will incur increased variable rental costs for the spring activation period as seen the sequential progression of our adjusted EBITDA margins. Based on where we're starting the year, we would guide to approximately $515 million of revenue for the first quarter and adjusted EBITDA of approximately $200 million.

Beyond the first quarter, we anticipate revenue to increase sequentially by 7% or 8% into Q2 as we support our highest logistics activity quarter, including the beginning of the World Cup. For net CapEx, we expect to invest about $275 million in 2026. Our net CapEx plan maintains the same strategic approach, prioritizing high-value and differentiated product categories and will be slightly front-half weighted to support demand.

Approximately 70% of our net CapEx will be split evenly between normal modular refurbishments and new fleet purchases of differentiated product categories such as FLEX and complexes to support large project requirements. 25% directed towards continued VAPS investment and the remaining 5% towards infrastructure. Clearly, the $275 million net CapEx guide implies that we're investing into growth opportunities that are not fully reflected in our revenue and EBITDA guidance.

As we progress through the year, we will adjust investment levels to reflect the demand environment. Though based on what we're seeing right now, we expect to invest at this annualized level in the first half of the year.

Further down the P&L, we expect total depreciation and amortization to be approximately $400 million for 2026 or approximately $100 million per quarter. About $310 million related to rental equipment and the remaining $90 million includes approximately $40 million of amortization expense and $50 million of other depreciation related to infrastructure. Based on current debt balances, we would expect interest expense to be approximately $215 million for 2026 including approximately $9 million of noncash expense. And just as a reminder, the cash timing of bond interest payments is concentrated more in Q2 and Q4.

And finally, regarding taxes. Our effective tax rate remains approximately 26%, but cash taxes will remain isolated to state and local levels as they were in 2025 as we do expect our NOLs to shield the federal level 2026. Based on current projections, we expect to become a full federal cash taxpayer in 2027.

So in summary, the end of 2025 finished up as expected, and our outlook for '26as we sit here today, is a conservative view relative to our run rate entering the year the positive commercial momentum that we're seeing today continues, we believe we could see year-over-year leasing revenue growth at some point in the second half of the year, which would drive us comfortably above our current outlook. Our internal team is fully aligned on inflecting revenue in the business and returning to growth.

Back to you, Tim.

Thank you, Matt, and thanks again to our entire team who are aligned and focused on delivering results. and delivering them in the right way, consistent with our values. WillScot is uniquely positioned in the marketplace with opportunities for growth that only we can execute, given our differentiated capabilities and without constraints given our outstanding financial profile. I'm incredibly excited about our prospects in 2026 and beyond. And I see clear alignment between the strength of our culture, the execution of our strategy, the growth of our business and long-term shareholder value creation. This concludes our prepared remarks.

I will now turn it back to the operator to open the line for Q&A.

[Operator Instructions] And our first question will come from the line of Andrew Wittmann with Baird.

So I guess I just wanted to kind of guess check in on the order book. I mean, Tim, you gave some pretty decent stats here about orders kind of returning you kind of hedged the comment that it's kind of early here. You got to see if this holds. Are you seeing anything seasonally that maybe accelerated some of the orders that maybe they're running above trend? Or what are some of the other factors, I guess, that would lead you to believe that maybe this is good, but maybe it's not sustainable here because obviously, the guidance is much lower. So I thought maybe you could just elaborate on that, please.

Yes. As you know, Andy, and good to talk to you, the seasonal activity usually picks up as we move deeper into Q1 and early Q2. So in a normal year, we still wouldn't have seen kind of the typical impact of that seasonal increase in construction activity in the lower 48 states in particular. What I did call out is a number of larger RFP wins in our enterprise accounts portfolio. And that is a very big driver here of the momentum we're seeing in the business.

As you will recall, we reorganized that team back in Q2 of last year, added some leadership depth across the team and organized it across 5 key industry verticals, and we're seeing traction really across all of those with construction being the greatest. If I unpack what's going on in the construction vertical, data centers, not surprisingly, are popping up all over the United States, and we are present on many of those.

And as we look at data center activity, specifically in contractual written revenue, we expect that subvertical could be up 50% year-over-year in 2026. So we don't see that slowing down. So overall, the modular book is building earlier in the year than we would typically see and with a strong bias towards enterprise accounts.

We do have the World Cup coming up. We try to keep that separate from the stats that we gave you just because that will be kind of a one and done deal at least this year until we get to the Olympics, but really encouraged by what we're seeing through the enterprise account team.

And then the other important commercial strategy has been on dialing in our local market execution. And we made a number of structural changes through the second half of last year that I'm very pleased with. I think we're getting good momentum across the local sales org as well. We're seeing that in some of the more transactional product lines within Modular, which are also up from an order standpoint, not so much yet in storage, but those changes are fairly recent and the early trends are encouraging.

So a little too soon to extrapolate all of that across the rest of the year, especially not knowing how the typical construction season is going to build, but I'm happy with the progress year-to-date.

Got it. That's helpful. I guess for my follow-up, I wanted to ask about VAPS as well. To me, I mean you've talked about kind of trying to go to market a little bit differently there that maybe the last year wasn't totally up to your standards. It looks like there's a little bit better momentum coming out here. I guess my question is, is that true? Have you made changes -- and do you believe that they're benefiting on the VAPs? Or obviously, you're still not to your target levels, but just starting to get a little momentum there. So I just -- I wanted to give you an opportunity to talk about that and let us know what you're doing there and seeing there on that initiative?

You're right that the penetration levels is measured in terms of percentage of revenue of the lease revenue book are slightly increasing. I'd say that's more of a function of the mix shift and the traction that we're seeing in the modular portfolio than it is improvement in terms of penetration on a per unit basis, which as you'll recall, is how we used to look at it. I still think we have some opportunity and work to do there.

And as I think about our commercial initiatives in the first half of 2026, we made some changes to the regional sales leadership structure at the local level across the network and modular VAPS penetration in furniture, in particular, is a very high priority for that team as we kind of get back to the best practices that we knew we're working a couple of years ago.

So I still put that in the opportunity column, Andy, and -- the only other thing I'd add there is the offering is continuing to expand. Fencing and perimeter solutions is set for a nationwide rollout this year. So we are going to have a tailwind across that solution set in addition to the traditional offering where we've got a further penetration opportunity just across all the volume that we're delivering.

One moment for our next question. And that will come from the line of Angel Castillo with Morgan Stanley.

Tim, I appreciate all the color. I guess, just trying to make sure I understand this because as we think about maybe a second half inflection point here, I guess I'm not entirely following why we're seeing modular orders on the nonenterprise build or rise 5% year-over-year, but you're also talking about, I think, some perhaps maybe you're seeing some backlog build that's a little further out or earlier than normal. But why wouldn't we see some of this reflect itself at least in 2Q and see more of a ramp up there? Is it just -- is this a factor of more mega project than local? Or why wouldn't we see that, I guess, that nonenterprise piece as well showing up earlier?

Well, as you look at the pending order book that we have today, we do expect a sizable portion of that to convert in the first half of the year. What we're not doing is extrapolating these activity levels deep into Q2 and the second half of the year, just given it's early in that traditional construction season when activity would typically build.

So the early signs are indeed encouraging. The majority of that order book activity should deliver in the first half. Lead times have not changed dramatically as I look across the portfolio. there is a heavy mix of mega project activity, as I mentioned, data center power gen, manufacturing, really across all geographies, but we're just not prepared today to extrapolate that into the second half of the year.

Understood. And then sorry if I missed this, but I guess did you say what your 2026 free cash flow guidance? And just curious if you didn't, what that is and what the free cash flow margin kind of implied, -- just help us bridge the puts and takes as we think about next year's or I guess, this year's free cash flow versus last year?

Yes. Angel, I can take that one. I mean we've kind of included most of the most of the components there. But our math would say around $415 million of adjusted free cash flow. So just one thing to note there, we do expect, like I said, to incur roughly $35 million to implement our network optimization plan. That would be excluded from that $415 million.

So think of that as kind of an adjustment to get back to an adjusted free cash flow -- but really, between interest and the different pieces there, that's about where we're ending up. So pretty resilient, honestly, and kind of looking at how the business has performed over the last few years in a macro decline. And as we start to get to that inflection point, the free cash flow has been really resilient.

Only thing I'd add to that is just the CapEx guide, given the activity levels that we're seeing right now in the first half of the year, we do expect to be investing at that $275 million net CapEx annualized level. We'll, of course, revisit that weekly is kind of our practice based on the demand that we're seeing. If we see these levels continuing. I expect we hit that $275 level for the year. if things slow down, we'll obviously pull it back and you'd see that free cash flow margin pop back up north of 20% versus where it sits in the current guidance. So we'll continue to take a demand-driven approach to the net CapEx.

One moment for our next question. And that will come from the line of Steven Ramsey with Thompson Research Group.

I wanted to see if you could parse out the enterprise forecast of the mid-single to high single-digit growth for 2026. And if the pricing contribution in enterprise is similar to the modular segment displayed in 2025, that points to volume being an equal contributor to the enterprise revenue growth. So maybe you can parse just the drivers of enterprise revenue.

Steven, I think this is an easy one. It's really volume driven, right? We don't see significant pricing differences as we segment across enterprise and other customers. We take a dynamic approach to pricing. We look at customer characteristics and project characteristics and all those good things.

But at the end of the day, you don't see significant price or VAPS penetration differences between the enterprise accounts, especially in modular versus other customer segments. So the growth in that segment is volume-driven, and that's a function of going deeper with customers where we already have relationships, but maybe didn't have as robust of an account strategy as well as the vertical business development strategy.

And as you know, we touch every sector within the North American economy. Historically, we've been very organized around construction and we're taking that same focused approach and applying it to 4 or 5 other key industry verticals that we talked about at the Investor Day, where we know we've got great marquee accounts, great value proposition and opportunities to grow with our existing offering.

Okay. That's helpful color. And then I wanted to think about the sales staffing and the measurements you gave on numbers of better 10-year maturation, et cetera. And how that connects to the better order and activation trends coming in on a lag? How much of the activation in order growth is the maturing staffing and seeing more and capturing more opportunities versus the mega projects being better?

I'd say it's earlier in terms of the impact of the field sales organization. Some of the changes that we put in place at the end of 2025 are just kind of taking hold now. We've completed our first month of the year from a commission standpoint and exceeded the targets that we had deployed across the field sales organization. So that's a good start for the year and bodes well for earning potential across our sales organization. So that's a good thing.

As I look at the objective metrics, staffing up 13%, turnover is -- or at least voluntary turnover is half of what it would have been back in the middle of 2024 when we were experiencing peak disruption from the field reorganization we measure employee sentiment across all categories quarterly, and that is a driver of performance, whether you're in a sales role or any other role, and we're seeing improvements there.

So all of those are either quantitative or qualitative indicators that tell me we've got tailwinds across that team. We have made systematic improvements from a sales enablement standpoint in our sales HQ. This is our CRM system where we're taking a more prescriptive approach to prioritizing opportunities and next best actions for sales reps through our CRM as well as through phone routing and other things.

So sitting here today, we really don't have any other changes that we're contemplating for the field sales organization. I feel like that work is done. The team is in place. The leadership is in line. The incentives are consistent across really all sales roles, which has been a long time coming. And I'm happy with the positioning and it's time to let him run.

One moment for our next question and that will come from the line of Kyle Menges with Citigroup.

I was hoping if you could just talk about the positive rate you're seeing in portable storage. So and just maybe what's driving some of that? And talk a little bit about how you're balancing rate versus market share within portable storage? .

Okay, I'll start. Matt, I'll probably miss some details, so you can jump in. If you look at the as reported average rate up 9% year-over-year that we report in the investor presentation that is almost entirely mix driven by rapid growth within our cold storage offering.

If I think about traditional storage, those spot rates have bottomed over the last couple of quarters, it feels like and are off significantly from where they would have been back at the peak in the middle of 2023. So I think we've digested that headwind, and that's included in the $50 million revenue headwind that Matt referenced for the traditional storage business. So I think that is behind us at this point.

The favorable mix shift is driving that growth in AMR. Our order book old storage sitting here right now is up 105% year-over-year. So that's performing quite well and has an added benefit of taking us into sectors and customers where we really didn't have a hook previously.

A good example of that would be third-party logistics, warehousing and distribution. We've had customers in that sector forever, but not with a targeted strategy. The flexible cold storage offering is really attractive across those 3PLs, warehousing and distribution and retail. And it's allowing us to then pull other more traditional parts of our offering into those types of customers.

So really happy with how that's performing. It's a good example of how we're repositioning the portfolio towards higher value-added solutions. Higher value-added solutions allow us to capture that value and pricing, and that's what you're seeing in the storage AMR.

Yes. Not much to add there other than the containers, if you look at them, by themselves are up about 1% year-over-year. So we're continuing to get impact of all the different pricing levers that we have, but it's been relatively -- it's been very stable, which is not a bad thing, but makes contributing to the overall increase.

Helpful. And then a follow-up question on AI and just how you're leveraging AI internally. And in your prepared remarks, I think you said that efforts you're making around minimizing logistics costs, I think, some efforts around collections as well. I mean you seem like areas that would be ripe for AI implementation. So curious what you're doing today and if you're exploring just any use cases for AI internally in the future?

We are indeed, first and foremost. We hope everybody just keeps spending on AI and building data centers. It's probably the most impactful thing that we see in the business right now. We've been stepping into this area for a couple of years now. We started with AI tools in our branches and video monitoring of movements within our branches for safety purposes.

Our pricing optimization platform is AI-based. Internally, we have developed a sales call coaching model that is AI-enabled. And just to dig in on that one a little bit. This is a tool that can review all of our sales call transcripts. It's got a scoring rubric, whereby it can identify sales calls that could have been improved in some way. It helps our sales coaches, diagnose very quickly, which reps need coaching on what topics and be a lot more efficient with how we spend that sales manager resources time right. So there are a host of ways that we can deploy these tools in the back office.

That said, we don't need to jump straight to being cutting edge on all things, right? There's still a lot of basic blocking and tackling in the back office, where we're seeing traction on collections and customer service, the old-fashioned way, which I think can drive real margin improvement in the business. But I completely agree with you. There are aspects of our sales model, aspects of our customer service model, employee training, where AI is very relevant, and we are very open to those opportunities.

And 1 moment for our next question. That will come from the line of Tim Mulrooney with William Blair. .

This is [indiscernible] on for Tim. Can you provide some insight into how conversations with your local customer set have been trimming recently? I know things like interest rates, tariffs, building costs for that customer cohort this past year is sentiment or confident in the outlook for 2026 improving at all with that customer set?

The best barometer there is the feedback that we're getting from our local general managers and our local sales team. And going back to November when we had those teams in for budgeting and I've been out on the road recently, meeting with the teams for early updates in 2026. And that sentiment and that energy level is notably improved relative to where we would have been last year. I can't say that's all customer or market driven.

A lot of that is being better organized internally and with better structure and accountability in place relative to how we entered last year. So I think that's probably the bigger driver of the 2.

That's helpful color. And as my follow-up, I know one of your ongoing commercial priorities has been to do improve and do a better job winning subcontracted business. And the large projects where you work closely with the prime GC. Can you provide an update on your progress there around winning that subcontractor work?

Yes. This is pretty exciting, actually. Back in -- it was early Q4, we introduced a kind of a rewards program and referral program for our larger general contractors. And this is a way to partner with our largest contractors and provide our customers with an incentive to help bundle more of that subcontractor activity with us. It has huge benefits to the primary general contractors because they get more control and visibility and uniformity, frankly, across all of the subs coming on to the job site. .

And from our perspective, obviously, it's almost like an indirect sales channel that allows us to capture that activity more efficiently than targeting every subcontractor individually. So very encouraged with the early performance of that program. And if you think about our focus on local sales market execution, one thing that we had gotten away from over the last couple of years is having true account ownership at the local level.

So what we've done is gone across every territory in North America Obviously, every ZIP code rolls into one of our territory sales reps. And within those ZIP codes, we've got top accounts for which that territory sales rep is personally accountable for. So I think historically, we've done a good job targeting construction project activity through our various systems.

What we got away from was just that ongoing account management and relationship development at the local level. And we've absolutely reemphasized that later in Q4 and going into 2026. And I think that's a really important ingredient for the effectiveness of the local sales organization. And it mimics that account focus in that account strategy that we've put in place at the enterprise level. So we're trying to do it at both ends of the spectrum.

For our next question. And that will come from the line of Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Are you helping with the underlying volume and price assumptions for the respective segments for 1Q and/or full year '26. And can you comment on if and how conservatism such as I think what was discussed in Andy and others question as to not extrapolating order book conversion or not including any impact of commercial initiatives specifically impacting those assumptions and the opportunity for upside there?

Ronan, thanks for the question. I'll try and capture that here. I mean I think as we look at our pricing and volume assumptions and kind of what's in our guide and what we think is opportunity kind of above our guide if the trends continue. Is that kind of what you were what you were kind of trying to get after?

Yes, yes. And if you're able to help with how to think fundamentally about volume and price, where that's been taken back, respectively, by conservatism and the potential upside?

Yes. No, I think as we look at our guide and we think about volume and price, I mean, you -- as we said in our opening comments, the guide that we've provided is kind of a continuation of recent trends, right? And those trends have been having some volume pressures, obviously, on the storage side of the business, we're starting the year with about a $50 million kind of headwinds. So we're not assuming that, that picks up and starts to reverse.

On the modular side, that's been a bit more stable, right? We showed modular leasing revenues were basically flat year-over-year, and we're kind of starting from a standpoint of that being the starting point for -- at least from a revenue perspective, not volume, but revenue starting point for the year and that kind of continuing forward.

And if these trends that we're seeing recently are sustained for a couple of quarters, you start to then get to a point where you're getting closer and closer to some potential volume inflection. That won't happen in 2 quarters, but you're moving in that direction. And that's ultimately what we're all focused on is driving internal volume growth, doing that smartly, not at the expensive price, but driving consistency there as well.

So we're just -- we're being conservative in the guide because it's only 1.5 months in. And -- this is what we know today, but we know that can also change as things go forward, and we'll be watching it closely and give you guys an update here in a few months.

Got it. And if I may, as a follow-up, can I ask -- are you helping with how to think about -- and I know, Matt, you just alluded to, it's only so far into the year. cognizant of that time frame. But going back to last March and the strategic -- or the initiatives and the targets rolled out for the 3- to 5-year horizon. I would say things haven't necessarily played out as anticipated, certainly from a market demand dynamic standpoint, then you had the 325 introduction of further strategic initiatives, prioritization of some optimization initiative and a fundamental shift to the more conservative approach to forecasting and guiding. Is there a way to think about the 3- to 5-year targets in light of all that? Or is it -- look, they're 3 to 5 years and there's still plenty of time, and that's why it was 3 to 5 years? Or just interested in your thoughts on that, please.

Ronan, I'll take this one. And I think you ended in pretty much the right place. Obviously, we didn't finish 2025 where we would have hoped back in March of 2025. And so you can think of the starting point to get to those longer-term revenue and EBITDA targets is obviously lower. And the implication there is it may take more time to get there.

So look at the outer end of that range. In terms of our strategic initiatives, the only thing that's new relative to where we were in March is the network optimization initiative. And that was a function of, hey, we see the market bottoming in a place that's lower than we anticipated, which means we've got an opportunity to optimize both fleet and real estate.

So that's a -- that was a new 1 relative to where we would have been not quite a year ago, but the focus on local market execution has -- in terms of the changes that we've implemented has played out very much with what I -- how I would have planned about a year ago. enterprise accounts, the same. The focus on the value-added offering, the same. I mentioned in my prepared remarks, the focus operationally on route optimization and scheduling.

We talked about that in March a year ago. We talked about optimization of back-office processes, and we're making progress across all those things. The reality is you can't really see the impact of that -- those margin-oriented initiatives because they're being offset in 2025 by the natural negative operating leverage in the business in this environment.

So in my prepared remarks, I alluded to the fact that these are structural improvements to the business and the margin profile and margin potential in the business that we expect will manifest themselves when we get volume back -- flowing back through all the branches. I like what I see sitting here in mid-February from a volume standpoint, but in order to get that impact, it has to be sustained and that's why we're taking a cautious approach to the guidance.

One moment for our next question. And that will come from the line of Faiza Alwy with Deutsche Bank. .

I wanted to follow up first just on the conservatism comments again. I just want to make sure I'm understanding -- so as you're talking about revenue inflection in the back half, is that included in the guide as of right now? Or are you essentially saying that if current trends sustain then that's where we will be. .

It's more the latter there, Faiza. Thanks for the question. I think we're seeing some good commercial indicators right now. but don't know that those will sustain themselves to get us to a point where we would see second half inflection for sure. So our conservative guide is based on the run rate coming out of last year based on kind of where that would play out. So if we do see a sustained consistent year-over-year improvement in the commercial activity, that would be above our current guide. And that's where we see that there could be a potential for inflection in the second half of the year, but that's not included in our guidance.

Perfect. And then I have to ask about data center since we've been sounding so positive on that for good reason, I'm sure. Maybe help us think through like what percentage of the business is that vertical at this point. I suspect it's small, but maybe you can give us some background on like what's that RFP process like as you think about those RFPs, like what has been your win rates there? .

And what -- essentially, I'm trying to figure out what the competitive dynamics are there? Because I think a lot of us believe in that, that activity continuing. So any additional perspective there would be helpful.

Yes, I'm not going to have a precise quantification of this for you, Faiza, but I'll give you maybe a way to think about it. And first and foremost, I'd say, from our perspective, this activity is picking up. not slowing down, at least that's been our experience here from Q4 coming into Q1.

And as I said in either in response to an earlier question, we measure the new contractual revenue that we write in any given period. This is number of units times the price, times the duration is the total project value. And we think that the data center sub-vertical could increase by 50% or so on that metric in 2026.

So that's a meaningful increase, but you're talking about less than 5% of our overall revenue at the end of the day. So it's a very important and kind of unique change in the demand environment. We are absolutely taking advantage of it. I can think of data center projects from Des Moines to Milwaukee, Lubbock in Abilene, Texas, Indianapolis, Jackson, Mississippi, Chicago, Reno is on fire, Northern Virginia. So it's everywhere, right? I can't quote you the win rate off the top of my head, but we're on all of those projects.

There are situations I'm thinking about Micron, not a data center, but related to that supply chain where we'll have hundreds of units, but actually can't supply the entire demand across that project, and it's fundamentally changing the nature of the Boise market for the next 10 years probably.

So this is a very significant change as I reflect back to other changes like this in the business, like when the business was bottoming coming out of the GFC, we had a very significant increase in oil and gas activity in 2011, '12, '13, which really led the reinflection of the nonres market coming out of the GFC. This feels a little similar to that, but I haven't seen anything quite like this since that time.

Question -- and that will come from the line of Philip Ng with Jefferies.

I think in your prepared remarks, you talked about nonrisk square footage starts were down about 6% in '25 and about 12% for the quarter. Is there a good way to think about the typical lag of that number to your units on rent because you're calling out pretty encouraging orders. I know it's very early to start the year. So just curious what kind of end market assumptions are you kind of baking into your outlook for this year?

It's a good question, Phil. This is Tim. And our activation volumes typically align with project starts, right? So the encouraging thing from my perspective is we're seeing meaningful activation and order growth in a declining starts environment. And that's a bit unusual in our business.

To me, that means 2 things. We're outperforming that metric as an organization I think that's got a couple of pieces to it. One, the local sales organization is better organized today than it would have been a year ago to the enterprise efforts and the mix of that activity is working in our favor because we are disproportionately well positioned to serve the needs of these larger industrial projects.

In the case of some of these things like this large soccer tournament that's coming up, I'm not sure anybody could do exactly what we're doing for the customer. That's just a function of our unique capabilities and our unique value proposition. And I think the way we're organized right now, we're better positioned to take advantage of that.

That's helpful, Tim. I guess, kind of dig a little deeper on that. Can you remind us like what percent of your business is actually tied to backlogs. I'm not as clear how good of a leading indicator is that in terms of leasing revenue, just overall, it just be helpful to kind of get a little more color on that. And have you seen your units on rent, I guess, inflect like your order book, at least through early February?

Yes. On that latter point, I mean, we had a modest increase in modular unit on rent in January, which is seasonally unusual. We haven't seen that in storage. So is activations lead to orders lead to activations. It's the basic sales funnel and the order book that we see right now supports activation growth leading into Q2. .

And if that's sustained, typically for a couple of quarters, you get unit on rent inflection, and that's been the goal here for some time. And we're not making that assumption in the guidance to Faiza's question a minute ago, but if sustained these activation levels and order levels would support it later in the year.

[Operator Instructions] Our next question will come from the line of Scott Schneeberger with Oppenheimer.

It's Daniel on for Scott. Could you please provide the bridge from the EBITDA 25 to the guide for 2026. I know you have the storage headwind, but the other components are you able to quantify that?

Yes, Daniel, that is the biggest component. It's really a $50 million kind of headwind that we're facing. And then if everything else, we've provided some conservatism to that point, which then brings us down to the $900 million.

Got you. .

Really that's the main thing, right? So if -- obviously, if our commercial activity sustains like we've seen recently, we would go -- we would do better than that. And that's what we're driving to internally as a team. That's what all of our compensation is based on. But that's really the main brick in the bridge.

Okay. So there's a lot of real swing factors in that range that could put you higher and lower? .

I mean there's obviously other opportunities and risks, but it really does boil down to that storage headwind. .

And on M&A, last year in the second quarter, 25, you had a pretty big M&A spend. Will there be a trickle through to EBITDA growth in 26 from that? And the level of M&A spend you had in '25 and in '24, is that a good way to think about it going forward? .

It's a good question. You can assume that the impact of those acquisitions are fully in our run rate exiting 2025. So I don't expect anything incremental for purposes of 2026 that we haven't already talked about. I think it's a reasonable M&A level to assume, but we don't really give M&A guidance given it's difficult to predict the timing and probability of those transactions.

I would just point you back to the capital allocation framework. And over time, I think we've demonstrated that we have been able to deploy that roughly 25% of our available capital into tuck-in acquisitions. -- nothing imminent to announce sitting here today. But over time, I think that's been a reliable capital allocation framework.

Thank you. We have now reached the end of today's Q&A. I would now like to turn the call back over to Mr. Tim Boswell for any closing remarks.

Thanks, Sherry, and thanks again to the entire WillScot team for your focus and dedication. Thanks to everyone on the phone for attending and for your interest in WillScot. We look forward to following up with many of you here in the coming days and weeks and providing another update after we conclude the first quarter. Thanks very much.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.

This morning, today, we have WillScot. And with us today is Matt Jacobsen, CFO of WillScot.

Good morning.

And please, if anyone has a question, raise your hand, we'll get over a mic to you. So thank you.

Thank you very much for having us.

Maybe just start off, just provide us an overview of WillScot and any recent developments.

Sure. Yes, we're a turnkey space provider for those that -- we'll get to this. This picture is always helpful in just explaining kind of what it is we do. So we're the largest temporary space provider in North America, providing turnkey space solutions to customers across all kinds of markets. Construction, obviously, is a big piece of that, but also in education and commercial applications, including retail and warehousing, distribution, those types of things. We provide modular offices to our customers. We also provide storage solutions for on-site storage. And really, there's no kind of better way to provide customers the space that they need on their site for as long as they need it. And we offer this with a curated portfolio of value-added products and services. And the idea behind that is, one, it's very good financially for the business and increasing returns on our assets, but also provides our customers a way to get into their space and be productive right from the start of their project, right?

So they can get in there and not be worrying about furniture and those types of things, but get right to work on and focus on getting their project delivered on time and on budget. From a financial perspective, we do about $2.25 billion of revenue. Of that, about 43% flows down to EBITDA. So strong margins in the business. We've got a lot of different initiatives to, over time, increase that into that 45% to 50% range. And from a cash flow perspective, about $0.23 of every dollar of revenue flows down to free cash flow. So it's a very strong business from a cash generation perspective and kind of affords us the ability to make a lot of investments into the business. And as we look at capital allocation, actually, I've got one here. When we look at capital allocation, we continue to use that cash from operations to about 25% of that, we reinvested in the business through net CapEx.

So that's a combination of maintenance in our fleet as well as growth CapEx in key product categories that continue to have strong demand. We target about 25% towards M&A, and we're probably more selective today on M&A than maybe when markets were a bit stronger here in the last few years. And then the last 50% is going back towards leverage management and shareholder returns, including about 5% that we started allocating towards the dividend back in Q1 of this year. So lately, that's been a pretty balanced approach between some debt paydown as well as some repurchase activity. We are always kind of managing that balance as we go through things. So that's kind of where we are right now.

We're in about year 3 of kind of a nonres. Nonres construction start slowdown, which impacts a good portion of our business and have kind of been really working on a lot of operational improvements here during this time to help drive long-term growth in the business. And really, all we need from a growth perspective is for markets to stabilize, and there's a lot of levers in the business that will shine through as soon as that stabilizes a bit to provide growth and increase value for shareholders and increase cash flows for the business.

So maybe towards the end there, you kind of started to talk about your end markets, and we are year 3 of a pretty tough environment. But there has been this little bit of a bifurcation in the current market where the large mega projects doing really well, your local contractors maybe that's where most of the pain is.

Yes. I guess.

How do you think about kind of that bifurcation and where you're playing there and how you see those dynamics kind of evolving into 2026?

Yes. When we talk about the non-res slowdown that we've had, we're off about 30% of peak, which would have been end of '22, early 2023. That reduction has been much more concentrated in the smaller projects, right? So you hear data centers, power gen, those things have been continuing to be strong. Those are more likely to be managed by a lot of our enterprise account customers or our larger customers. And those customers represent around 20% of our overall business. So there's a portion of the business there that's been very strong, and we continue to see growth. Our EA accounts are up about 9% year-over-year, year-to-date, and we expect those to continue to grow into next year but they haven't overshadowed or been able to overcome the weakness we've seen in some of our smaller customers and the smaller projects, which are kind of the remaining 80% of the business. And so that's where you've continued to see some weakness, and that really kind of started early 2023 time frame.

And we are -- there's choppy kind of news out there around some of the indicators for 2026. ABI, which is the Architectural Billing Index is a metric that we look at that kind of looks at construction activity 9 to 12 months from now. Last month, it was 40 -- or I guess, in October, it was 43, which is not very good. 50 is kind of neutral, but it did improve to 47 here in November. So that's gotten a little bit -- I might be off by my months, September and October. So it's gotten a little bit better. But I think for us is we're focused. We're not waiting for the market to turn. We're focused on what we can do internally. We have increased the sales team about 10% from beginning of the year, and they're still coming up to speed and ramping up. So what we're focused on is growing internally kind of our activity levels year-over-year going into 2026, so we can kind of start to get a return to organic growth from a volume perspective sometime in the next few quarters.

Maybe going back with the enterprise accounts away from sheer scale, I guess, -- what's different about their needs and how you're able to serve them versus other companies?

Yes. I mean scale is a big piece of it. They often are on projects that are very large, and they need a partner that can potentially be sourcing equipment from even maybe multiple markets in order to service the need that they have on that project. They need somebody who can deliver that project on time to avoid delays and cost overruns on their side. And we're able to do that. We've got 260 locations across North America. We can pull fleet from different markets to service the need. And we've got an internal construction services team that really can help with a lot of the design work and the planning around these projects. It can be a bit more complicated. We think of a bunch of units that have to couple together. There's permitting requirements, engineering requirements, different things that you just -- you're not able to partner maybe with a local provider in those situations. So scale is a big piece and being able to do that and just the know-how of our team.

Talking about the general end market and how it relates to your business. I think your contracts are typically fairly long or longer than kind of what people would think of in relation to general rent. I guess how does that temper the influence of the broader market? And how do your results look versus when we do finally see this market upturn?

No, they definitely do. I mean lease duration is a big thing in our business. Our average is over 3 years of actual lease duration. Typically, on average, our initial contracts are only about 12 months. And I'm speaking more to the modular side of the business. But those projects go on, customers keep units well beyond the initial term. And so you did see -- when we started to see the declines in 2023, that lease duration absolutely tempers the impact and gives us lots of visibility into kind of how things are trailing from a lease revenue perspective. And you saw during that period, our lease revenues were fairly steady. Even through this whole contraction of around 30%, our EBITDA went from about $1.060 billion to -- we'll do about $975 million this year. So that's not a huge -- it's not a huge decline when you kind of step back and you look at the decline in the overall market.

The same is true on the way up. It does -- you do need to see that activity. We call it activations, but that new contract starts, you need that to increase year-over-year for a few quarters before you start to see unit on rent growth in the overall portfolio. But it's a great part of the business. I mean things just don't change that quickly, and it gives you a lot of flexibility from a financial perspective to make sure that you're planning your cash flows and can meet all your obligations there. So it's a key attribute of the business that's a bit different than maybe gen rent that has much shorter contract duration.

So I guess looking at your results, and you kind of indicated this since late 2023, we have seen units on rent for both sides kind of have tailed off. I guess -- how do you think about your units on rents as maybe even like a jumping off point into the next year? Maybe what are kind of utilization rates that you're targeting as well?

Yes. I think for us, the focus first is on year-over-year activation growth. And eventually, that leads to volume growth. We're probably -- given what we know today, and we don't have a crystal ball, I mean our order outlook is at most probably 90 days on the modular side, and it's much shorter on the storage side. As we were exiting the third quarter, our modular order book has been kind of up most of the year and relatively flattish kind of coming out of Q3 year-over-year. That's -- our order book is basically our backlog of kind of future activations. And on the storage side, it was down around 6% year-over-year. So I think there's still a bit of decline to occur on the storage side as we continue to work through this. The modular side probably could -- the activation growth could increase a little bit sooner.

And it's probably not at least until the second half of the year, maybe even the end of the year or early into '27 when you start to actually see unit on rent growth. But revenues will turn before volumes turn, just given we've got kind of a positive -- we've been driving year-over-year rate growth even in this declining environment. So modular was up about 5% year-over-year. And storage, if I strip out the kind of our climate controlled storage, which is providing a lot of mix benefit, we were still up, I think, around 2% on storage containers as well. So that positive rate trend will make revenues flip before volumes do, and that could happen in the second half of the year, but we're still -- we're still looking at the -- we'll know a lot more when we come into February and actually give our '26 guidance.

Great. That makes sense. And obviously, you're not just sticking around and waiting for the market to turn and flex in your hands. You recently announced this network optimization initiative that includes selling 10% of your rental fleet and a reduction of acreage. I guess what was the thought process behind that? Why now? Yes.

Yes. Since the Mobile Mini merger in 2020, we've been working through a lot of our system integration. So we did ERP in 2021, our CRM in 2023. And then we actually brought the field leadership structure into a common single structure in early 2024. So now you've got one general manager over each market managing both the storage and modular product lines. And previously, those were separate in a market. As we've done that, we've seen a lot of opportunities in markets to start to consolidate some of those branches.

We've also been looking at increases that we've seen in real estate costs here over the last few years, which has been around 10% a year just from kind of inflationary pressures and market rates on lease extensions. And so we started kind of not adding any more acres at the beginning of this year and started targeting select properties that we wanted to exit to help drive real estate cost savings. And as part of that, there's fleet on those properties. And so as we look at our business, we look at the demand over the next 5 years or so, we've got enough fleet to service that demand and there's excess fleet on top of that.

So we've identified some fleet already that we've exited through disposal. We're not selling it, but through disposal. And that's freed up some of that real estate that we can then get out of. When we got through kind of the third quarter, we really started looking forward for the next 3, 4, 5 years and identifying properties that we want to get out of just because of different efficiencies within the branch network, being able to obviously to save that real estate cost and making sure that we've still got plenty of fleet to service customer demand. And so we're looking -- we're kind of working through that actually still right now to finalize that plan and take it to the Board. But that would potentially reduce about 20% of our leased acres and reduce roughly 10% of the net book value of the fleet. But it still leaves ample room to grow. I mean storage right now is about 50%.

So if it was all pro rata, that would take it up about 10%, maybe to 60% utilization, which is still plenty of room to grow. And then modular is about 60%, probably takes that one up a little bit less, but you're into the mid- to upper 60s on modular. So still plenty of room to grow and meet customer demand, but we'll avoid about $20 million to $30 million of real estate cost increases in the future. So definitely one that provides a bit of cost savings, and it just allows us to operate more efficiently in our branch network.

What are those target utilization rates for each of those segments?

Yes, it's not so much a target per se. But if we think of modular, if you're getting above 80%, 85%, you're really constraining demand. You won't be able to meet demand in a market if you're up at that level. Storage can run a little bit higher. You would have seen back in end of 2022, we were getting pretty close to 90% utilization on storage. And I think at that point, you're still constraining demand a little bit. So maybe 85% is really the highest that you would want to be. But we focus more on units on rent and do we have enough idle fleet in good condition to service demand. And that's kind of the guiding principle of this project to make sure that we're not constraining that in any way.

Does this network optimization plan impact your Investor Day targets from March of '25?

I don't think so. I think it's probably a new node within the EBITDA margin expansion plans. So when we think about our field operations, our central operations and commercial operations, we had several initiatives within that to drive us into the 45% to 50% margin range. And this is, I'd say, helps us -- helps to that cause within kind of our field operations space. So I don't think it changes those, but definitely helps provide incremental opportunity to drive cost savings.

Another self-help action has kind of been your focus over the number of years on your value-added products. I think it's -- I guess, describe kind of what do you consider your value-added products? What's the pathway to go from today at 17% to your target of 2025? And maybe on new contracts, what's your -- what I would call your VAPS attach rate?

Sure. Yes. So VAPS is -- it's been in process for quite some time. We're probably -- I think we just passed kind of the decade milestone of introducing kind of curated furniture packages into our modular units, which has provided a ton of growth to the business over the years. I think the focus -- a lot of the focus has been on -- when we talk about driving local market execution, which in addition to enterprise accounts, is kind of one of our other top line focus areas. A lot of that is rep productivity and rep performance around VAPS. I mean we find that when we quote VAPS, we typically close about 75% of whatever it is we quote. So we need to make sure that we're always quoting it.

Sometimes we still have reps that don't -- that aren't always penetrating quotes with a kind of a full curated portfolio of VAPS. So that's a big one. And we are still working through some tools to help reps from a productivity perspective and to make it simpler both for them to quote VAPS, but also for our customers to kind of see that and interact with our quotes. And we've added some new products. So our perimeter solutions, we bought a company through M&A back in Q4 of last year that was only in about 5 markets, but provides fencing and barricade, those types of things. And we are working through rolling out that product offering across the branch network here over the next couple of years.

So that will continue to provide added benefit. And we like that product because it is very similar to our products in that it's first on site. It stays out there for generally the entire project length. And actually, we think it will open up some windows for us to potentially pull through some other products that just by being there first, maybe we weren't getting some of those opportunities before, but by offering the fencing solution, being able to get to site earlier and pull through other products as well in addition to pulling through fencing on with existing customers that, that industry is not -- there's not really a national provider in that space. And so that's one that we intend to grow over time and can be a big contributor to that VAPS line for us.

Maybe shifting to capital allocation. I guess, we kind of saw that chart that you kind of gave us earlier, I guess, today, how are you prioritizing given the outlook, et cetera, between deleveraging shareholder returns and growth investments?

Yes. I think it's a balanced approach is what I would -- is how I would characterize it. I mean on the fleet CapEx side, we're going to invest where we see opportunity because the returns in the business are very strong. I mean our new fleet investments are kind of 25% IRR plus once you add in VAPS, those types of things. So we'll always do that. On the M&A side, we have been a bit more selective just given kind of market outlook, given our own utilization and fleet availability as well as kind of expectations from a pricing perspective for those targets. They haven't necessarily adjusted kind of given where market is at. And then on the shareholder returns and leverage management, it's definitely a balanced approach. We're at 3.6x levered right now, which we're perfectly comfortable with.

We've operated quite a bit higher than that. But we do know that, especially in the equity, the public markets, there's some sensitivity around that. But we're very comfortable where we're at, but do want to work that down over time into our 2.5x to 3.25x target. I think in the kind of more near term, over the next year or so, you probably have a little bit more of that reduction coming through debt repayment and paydown. And then over time, continued growth will help with that leverage as well. So I'd say it's still a balanced approach, and we'll probably be doing a little bit of both from a paydown as well as repurchase perspective. But definitely a little bit more focused on paydown than we had maybe a couple of years ago.

How do we think about the maintenance CapEx for both products? Do you think of it as like a percent of OEC or percentage of revenue? How do you think about it?

Yes. I think we typically think about it in just in dollars, kind of thinking about what's required. And from a modular perspective, somewhere around that $200 million a year is kind of what we think is kind of maintenance level. On top of that, we're reinvesting and driving growth in value-added products and services. So if you add a bit maybe for that. Within storage, it's pretty minimal. If you go back to '22, '23, I'd probably argue that whatever CapEx we were spending even on particular units may have been more to drive growth when we got up to that 90% utilization level. We were obviously investing in new fleet back then as well, given the demand in the market. But storage CapEx -- maintenance CapEx is pretty minimal, especially on the traditional storage side of things.

Turning to your capital structure, you kind of just earlier we were saying like you expect maybe more of a focus on repayment early on and then EBITDA growth kind of driving you to that 2.5x, 3.25x. I guess what debt are you targeting? Yes, I guess what type of debt?

Yes. I mean I think based on current kind of EBITDA in the business, I mean, to get kind of down into that range, you'd be closer to, let's say, $1 billion of ABL, which would put you somewhere around $3 billion of total debt. So it's not that far from kind of where we are today at about 3.5x but again, it will be a balance, right? I think we'll have debt pay down, but also continue to be in the market where it makes sense. And again, no kind of concerns around deleveraging into that range over time, but it will be a little bit more pay down now and growth will continue to push it down as we look forward. We're not in a rush to get to that range, but know that it makes sense to do so over time.

How do you think about the use of your ABL? Because you still have quite a bit of borrowing there. I mean, do you use it for working capital? Do you view it as part of your permanent capital structure? And then why -- what was the decision or to kind of decrease the size of that ABL?

Yes. I view it as part of our permanent capital structure. I mean it's our most efficient form of debt. We took the line cap down from $3.7 billion to $3 billion here just in October when we extended and amended the ABL. And really, that's because that's what -- that's all we really need. We haven't been using kind of -- we haven't been using that capacity or needed that capacity. And so now it's really more of kind of a cash interest optimization play by bringing that down to $3 billion and being able to save on that incremental capacity. And we were able to get some really good pricing in the market as well when we restructured that. So we're in a really good spot. We don't have any debt maturities until 2028. We'll continue to look at it opportunistically, but nothing that we have to do right now for the next few years.

Do you have like a minimum liquidity amount in mind?

I mean I think generally, we've tried not to operate into the top third of the ABL. But we've got about 50% availability currently, which is $1.5 billion of liquidity, which is plenty. We can do whatever we want to do. And if there's something that we need above that, I know we've shown in the past that we can get support and go out to the market and get support from our lenders to do other larger deals if a large M&A deal came up that we wanted to do. So no concerns on availability of increasing what we would need to in those situations.

One of your bonds, the [ 47S] has kind of a distinct indenture versus your other bonds. I guess, what's different there? And then do you view it as a good idea to kind of potentially take those out earlier because it kind of enables something within the wider capital structure.

Yes. I mean all the bonds after our 2028, we kind of introduced a feature such that the bonds become unsecured once there's no other secured debt other than the ABL. The 2028 are the last bond that did not have that provision. But they're also our lowest coupon rate. And so I don't -- sitting here today -- sitting here today, like there's no -- whether -- when our debt goes -- when the notes go unsecured, I mean, it doesn't change the operations of the business. I don't think we would take those out early. We'd have to look at it. But at this point, we're in a really good spot. And again, it was just making sure that as we mature, as we continue to mature as a company, we've got that flexibility and having more unsecured debt probably makes sense over time.

During your third quarter call, I believe you said you think your guide philosophy is more conservative. I guess, what's changed? And maybe what are some of the more conservative aspects of your guidance?

Yes. I mean, historically, we've always aligned our external guidance, like the midpoint of our external guidance with our own internal, call it, budget or plan or forecast depending on what time of the year you're in. And internally, we're always pushing ourselves to drive performance on certain initiatives, for example. We're also not -- we don't have buffer or contingency in there for other unforeseen things like market -- continued market decline, some of those things. And so I think that's what's hurt us a couple of times in the last couple of years. And so we had Worthing Jackman come on as move into an executive Chair role here in September. And he's been providing Tim and I and Brad, a different perspective just on kind of how to communicate outlook and those types of things.

And so coming here into the third quarter results call, we basically kind of made a switch to say, "Hey, you know what, here's our guide. It's not going to include continued -- maybe some of these continued initiatives that we're driving, and it's going to include some cushion for unforeseen events so that we can be confident that we're going to hit that number that we say. So it is a bit more conservative. It's got some cushion for some unforeseen things. We'll do that again when we do our '26 guide. But I think over the last couple of years, we've just been in a situation where some things out of our control, some in, some out, have driven results below kind of our own expectations, and we want to kind of restore that investor experience and be able to drive and hit our targets. So big focus on that, and it's a little bit of a different approach than we've done in the past, but I think it's one that makes a lot of sense.

So maybe we're already in December, pretty close to year-end. We kind of take your 2025 guide and we start to think about on a high level, like bridge into 2026, I guess, how do we think of good guys, bad guys, new items as we kind of look into 2026?

Yes. I mean the formula in our business, it's volume rate and VAPS and then you've got margin opportunities kind of over time. And so as you go through that, we're starting the year down in volume on both products. So it is a sequentially compounding business. So if you think of each quarter, you've got where you're starting from, from a volume perspective and you're either adding or subtracting to that based on kind of your view of the market. We are down year-over-year in volume exiting the third quarter and would be the same in the fourth quarter. So I'd say the volume is a bad guy when you're looking at revenue and EBITDA growth into next year. Rates have continued to hold though through this period. I mean our modular rates, inclusive of VAPS were up about 5% out of the third quarter.

So I think you'll still have some continued benefit from rates on that side of the business. And then on storage, overall is up about 10%. Part of that is mix from our climate controlled business, which is a growing part of the business. So I think you'll still have some tailwinds into next year from that perspective. And then on the margins, margins typically, as volumes are still down a little bit, there might be a little bit more to go there on kind of margin progression before we start to kind of see some of those underlying initiatives shine through. So definitely opportunity there, but probably still a little bit of time to stabilize that as we go into next year.

How do we think about incremental, decremental margins on volume perspective?

Yes, it's -- they're pretty high. They're pretty high. So as I kind of said, coming down in volume, there's pretty high decremental margins that we're doing a lot to offset. You just don't -- you don't see all that in the overall results. But as that stabilizes and then starts to grow, you can get pretty high incremental margins as well. So that's what -- that's part of kind of the formula that gets you back into the 45% to 50% margin ranges.

Maybe our final question. You recently had a change in -- or you're about to have a change in management with the new CEO to start 2026. I guess, why now? And kind of what changes with WillScot in the future?

Sure. No, it's something that's been in discussion with the Board for a while. The succession planning probably started back in 2023, and they're always looking at Board refreshment, leadership succession, those types of things. And so I'm excited. I mean, Brad has been -- Brad, Tim and I, all of us have worked together for over a decade really closely. So excited for Brad and kind of his next adventure, but also for Tim and under his leadership where we can go. Tim, in this last year -- Tim and I transitioned back in January, the CFO role. Tim moved in as COO and has been able to spend a lot of time in the field this year, really getting close to kind of how the field is operating. And I think that perspective and the ability for him to do that is -- gives him a lot of sight into things that we need to do to kind of return to organic growth.

So really excited about that and what we can do forward. And then having Worthing moving to the Executive Chair role in September, as I said, has just been great to get additional perspective. Again, we brought a lot of external people into the organization over the last few years and CTO and CHRO, some of our divisional leadership positions. It's just about getting new perspective and a different way of looking at things, and that's been a refreshing add as well here in the last few months.

Great. And with that, I want to thank Matt for telling us about WillScot. Really appreciate it.

Thank you.

Thanks, everyone.

Welcome to the Third Quarter 2025 WillScot Earnings Conference Call. My name is Gary, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Charlie Wohlhuter. Charlie, you may begin.

All right. Thank you, Gary. Good afternoon, everyone, and welcome to the WillScot Third Quarter 2025 Earnings Call. Participants on today's call include Brad, Chief Executive Officer; Tim Boswell, President and Chief Operating Officer; Matt Jacobson, Chief Financial Officer; and Worthing Jackman, Executive Chairman. Today's presentation material may be found on our Investor Relations website at investors.willscot.com.

Before we begin, I'd like to direct your attention to Slide 2 containing our safe harbor statements. We will be making forward-looking statements during the presentation and our Q&A session. Our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control. As a result, our actual results may differ materially from comments made on today's call. For a more complete description of the factors that could cause actual results to differ and other possible risks, please refer to the safe harbor statements in our presentation and our filings with the SEC.

With that, it's my pleasure to turn the call over to our Executive Chairman, Worthing Jackman.

Thank you, Charlie. Good afternoon. We appreciate you joining us for today's call, where we will discuss the current operating environment and strategic priorities, third quarter results and our updated outlook for 2025.

As many of you know, I joined the WillScot Board about a year ago, became Chairman this past June and was named Executive Chairman in early September upon our announcement that Tim will be succeeding Brad as CEO effective January 1. My expanded role has been designed both to assist Tim and the senior leadership team in achieving our strategic plan, returning to growth and driving shareholder value creation.

With ongoing cyclical headwinds and an intense competitive environment, we must compete differently and execute better to drive growth. With a focus on returning to growth, we expect that a mix shift in revenue to more differentiated, higher-value offerings should create more consistent and predictable results while also reducing variability from more commoditized or transactional lines of business such as dry storage.

When revenue inflects back to positive growth, adjusted EBITDA growth should outpace top line growth. We see the ability to drive adjusted EBITDA margins above 45% as units on rent trends begin to improve given the associated high incremental flow-through. That is in addition to initiatives underway to optimize our platform outlined at our Investor Day in March.

There are multiple aspects of our optimization plan, a new component of which is evaluating our branch network and fleet storage acreage needs following the integration last year of WillScot and Mobile Mini's field sales and operations teams. We see opportunity to reduce our real estate footprint and related expenses, along with eliminating excess fleet, which Matt will review in his remarks. Together with continuing efforts to streamline corporate support functions and drive a more decentralized operating model, we see a pathway to help accelerate margin improvement.

We believe we have the right strategy and team in place. But to earn credibility and build momentum, we must increase accountability across the organization and deliver on our commitments. The company has fallen short over the last 2 years to deliver against expectations that it set and takes full responsibility.

Guidance is a key focus for me. Management's previous approach relative to expectations exposed the company if activations did materialize when expected, end market demand was less than anticipated, competition increased on more transactional lines of business or sales effectiveness and execution issues arose. I believe that expectations should be set against outcomes under our control, providing cushion to either exceed guidance or absorb the unknowns and more importantly, to minimize the risk of surprising investors.

Going forward, we'll be taking a more conservative approach to guidance to minimize the risk of negative surprises versus communicated expectations.

It's important to emphasize, however, that our internal plan and incentive comp targets will always hold us accountable to deliver results above this more conservative guidance approach.

With that, I'd like to pass the call over to Brad for some brief remarks on this, his final earnings call. Matt and Tim will then review our current operating environment, third quarter results, our updated outlook and strategic priorities before heading into Q&A. Brad?

Great. Thanks, Worthing. I'd like to underscore Worthing's comments and emphasize that we are fully aligned to deliver on our commitments and to drive profitability and returns higher. Accountability is paramount, and I firmly believe we have aligned the organization and the team is well prepared to execute on our strategy.

Tim has been by my side throughout the evolution of the company, and he knows this company and this industry through and through. I have immense trust in his leadership and excited for what is to come. With the leadership we have in place and a well-defined strategic plan, I'm more confident than ever in our ability to achieve our top line growth, operational excellence and profitability goals.

With that, I'll turn it over to Matt for a review of our third quarter financial performance.

Thanks, Brad. Before I jump in, I just wanted to thank you for your leadership over the last 10 years and for all you've done for the company and for me, both professionally and personally. On behalf of the finance team, we wish you the best in your future endeavors.

As noted in our earnings release, third quarter 2025 financial results were mixed. We delivered strong cash flow and leasing revenues were stable sequentially from Q2 to Q3 across both our modular and storage portfolio with favorable rate and mix offsetting volume headwinds.

Looking at the results. Revenue for the quarter was $567 million, down $34 million year-over-year, driven primarily by increased accounts receivable cleanup of approximately $20 million in the quarter as we continue to accelerate improvements in our order-to-cash process and lower delivery and installation revenues related to our large project with the LA Rams in the prior year that we discussed in the Q2 call. This accounts receivable cleanup overshadowed what would otherwise have been a sequential quarter stability in our leasing revenues, which I'll jump into here shortly. Sales in new and rental units increased 10% year-over-year.

Our ability to take out variable costs in the business supported a 42.9% margin on adjusted EBITDA of $243 million for the quarter, which was up 60 basis points sequentially from the second quarter.

Slide 5 is a new slide that takes a deeper look at leasing revenue trends with and without the impact of write-offs related to our order-to-cash improvement initiatives. In total, leasing revenues were $434 million in the quarter, a 5% year-over-year decline. However, Q3 year-over-year leasing revenues, excluding write-offs, were only down 1.3% year-over-year. So this cleanup is driving a bit of noise in the top line results.

The key takeaway here, however, is the underlying product leasing revenue across each of our modular, portable storage and VAPS portfolios were stable sequentially. On a year-over-year basis, the 1.3% decline, excluding write-offs, is a result of favorable rate and mix, largely offsetting volume declines. VAPS revenues were flat year-over-year despite volume headwinds.

Within the storage portfolio, rate and mix improvements of 10% partially mitigated a 14% volume headwind. And within the modular portfolio, average monthly rates improved 5%, largely offsetting a 6% decline in volume.

As you know, the sequential stability in leasing revenues is important since our revenue growth in this business is a factor of sequential trends that compound over time. We expect the year-over-year impact of the cleanup efforts around accounts receivable to decrease as we get into 2026.

Importantly, the cleanup work we've completed this year of aged receivables has largely already been reserved through the provision for credit losses and SG&A in prior years, and we're beginning to see real improvements in our collections experience, such as the net impact to EBITDA of write-offs and our bad debt within SG&A is a $4.3 million positive impact to adjusted EBITDA year-over-year.

Adjusted free cash flow in the quarter was $122 million, representing a 22% margin or $0.67 per share. Year-to-date, adjusted free cash flow was $397 million at a 23% margin.

Free cash flow has remained stable through the recent revenue contraction, providing continued flexibility to reinvest in our business, further strengthen our balance sheet and pursue M&A opportunities as they present themselves.

We have invested about $206 million in net CapEx year-to-date or about a 16% increase over the prior year. This mainly reflects investments in high-demand categories such as flex, complexes and continued fleet refurbishment, along with investment in our newer product categories.

During the quarter, we paid down $84 million in borrowings and returned $21 million to shareholders through both repurchases and our dividend distribution program.

On October 16, we amended and extended our ABL credit facility, reducing our estimated annual cash borrowing costs by approximately $5 million based on current debt levels and extending the maturity through October 16, 2030.

The new agreement reflects the quality of our borrowing base, enhances our financial flexibility, locks in more favorable rates and terms and positions us to continue funding organic investments and targeted M&A opportunities.

Once again, I'd like to thank our lending group for their long-standing commitment, support and outsized commitments, which facilitated a successful process. After the amendment, we have no debt maturities until 2028 and ample optionality to fund our capital allocation priorities.

Before I move on to our updated outlook, as Worthing mentioned, earlier this year, we began reviewing several of our real estate positions on a property-by-property basis as leases have expired with the intention of reducing our real estate footprint while maintaining market coverage.

Over the past several years, our real estate costs have increased by 10% or more per year as long-term leases renewed at current market rates and as we've added additional properties through M&A and to store idle fleet. To facilitate these exits, we've identified certain surplus fleet for disposal. For the 9 months ended September 30, 2025, we had identified fleet with a net book value of $27 million for disposal and accelerated the depreciation on these units, essentially reducing that book value to 0 or to a nominal scrap value. You would have seen this in our increased depreciation in the second and third quarter primarily.

Over the past few months, we've expanded these efforts into a multiyear network optimization plan aimed at enhancing operational efficiency and reducing structural costs. This effort builds on the integration of our field sales and operations teams last year and includes a strategic review of our network, including our total real estate footprint.

As part of this initiative, we expect to continue to identify fleet for disposal to facilitate real estate exits while ensuring we maintain sufficient supply to meet future demand. And we estimate the net book value of rental fleet units that could be disposed as part of this optimization plan to be in the range of $250 million to $350 million. This plan could reduce leased acreage by more than 20% and avoid between $20 million to $30 million of annual real estate and facility cost increases over the next 3 to 5 years, reducing our annual real estate cost increases from over 10% per year to mid-single digits.

To the extent we finalize a multiyear network optimization plan by the end of 2025 and that plan is approved by our Board of Directors, we may accelerate the recognition of the $250 million to $350 million of incremental depreciation expense into 2025 as a noncash restructuring charge.

Now turning to our updated outlook for 2025. We have revised full year guidance to reflect the current operating environment and our updated more conservative approach as Worthing laid out in his opening comments. This outlook includes expectations on near-term demand and unit on rent levels, factoring in the absence of a typical seasonal uplift as well as further progress on order-to-cash improvement initiatives and a slower-than-expected ramp within clearspan and perimeter solutions.

For Q4 2025, we expect revenue of approximately $545 million and adjusted EBITDA of approximately $250 million. We believe this outlook is conservative and provides sufficient cushion to meet or exceed those levels while establishing an initial baseline for 2026. For the full year 2025, this results in revenue of approximately $2.26 billion, adjusted EBITDA of roughly $970 million and adjusted free cash flow of approximately $475 million, inclusive of about $275 million of net CapEx.

With that, I'd like to pass it over to Tim to discuss our areas of focus looking ahead.

Thanks, Matt, and good afternoon, everyone. Before opening the call for Q&A, I would like to elaborate more on WillScot's strategic priorities to better position us for growth, increase margins and returns and ultimately drive shareholder value as we transition into 2026.

First is reestablishing organic growth in the business through our local market initiatives, enterprise accounts and our adjacency offerings. Historically, approximately 80% of our revenue is derived locally and improving performance starts with ensuring consistent sales coverage across the network, then driving productivity. Following last year's sales reorganization, we have implemented best-in-class sales enablement tools and consistent sales coverage and sales leadership such that we have a simplified structure with clear accountability for performance heading into 2026.

Our focus on enterprise accounts and new industry verticals continues to show great traction. We rebuilt and strengthened this team in Q2 and expect that enterprise accounts revenue in the second half will be up approximately 5% year-over-year despite the seasonal storage headwind that Matt described. Data center and power generation infrastructure are very active subsectors for us right now across the United States.

With expansion of existing relationships and more intentional focus on our nonconstruction verticals, we expect that our enterprise portfolio will carry a mid- to high single-digit growth rate into 2026.

Value-added products and our newer product line additions remain compelling organic growth levers for us. VAPS revenues are up 5% year-over-year on a per unit basis on modular units and approximately 22% on storage units.

Climate-controlled storage units on rent were up 44% year-over-year at the end of October. Flex units were up 30% year-over-year, and we expect our perimeter and clearspan offerings will continue ramping into 2026. So as Worthing mentioned, there are some positive signs in a favorable mix shift within the portfolio and a significant amount of operating leverage in our traditional offerings and local markets when those stabilize and recover.

This leads to our second area of focus, which is operational excellence and improving the customer experience. Continuous improvement is central to our culture, and we collect extensive customer feedback that tells us where we can improve service levels. Billing and collections have been great examples that we introduced at the March Investor Day.

Through the course of the year, our shared services team has made meaningful gains through enhanced quality control and faster response times. These efforts have resulted in a roughly 10% year-over-year decline in days sales outstanding to the low 70s, very strong cash flow performance and meaningfully improved customer satisfaction scores. We expect further improvements in the order-to-cash process, resulting in continued working capital reductions and reduced bad debt and write-off expenses heading into 2026.

Our network optimization initiative that Matt described is another example where we see an opportunity to reduce operating costs and increase efficiency in our network and fleet and move towards our 45% to 50% EBITDA margin range.

Importantly, both of these opportunities were contingent on completing our integration of field operations last year. Combined with our ongoing focus on improvements to our transportation and logistics function, I expect that we will continue to find these types of synergies as we work to optimize the platform and focus on the customer experience.

Developing human capital is a third pillar, which transcends every part of our operations. I've spent a significant portion of my time this year getting to know our talent at all levels in the organization. I am incredibly humbled and impressed by the quality of our team.

But we need more depth and stronger development pathways for our people, and we have been inserting external talent strategically in the areas where we need to operate differently. The structure to scale is in place and driving this talent evolution over the next several years is a personal passion of mine and a critical ingredient for sustainable growth as well as our employee experience and culture.

And as we all know, sustainable growth and returns correlate with shareholder value creation. We're strengthening our ROIC focus across the organization and see multiple balance sheet and asset optimization opportunities across working capital, our fleet and our real estate footprint to name a few. And we will continue to focus on reducing leverage into our updated leverage range over time. As Matt mentioned, that will include an increased allocation of capital to absolute debt reduction as we reinflect towards growth, but we do not feel constrained from pursuing high-return investments in the business given the strength of our cash flows.

Together, these initiatives represent our path to strengthen our financial position and deliver sustainable higher returns. The platform that we have built under Brad's leadership is stronger and better positioned to compete in the market today than at any point in our history. We intend to execute with a high degree of urgency and accountability, and I believe we have the team to deliver on our growth ambitions and drive shareholder value.

Lastly, I'd like to take a moment to thank Brad for his partnership over the nearly 12 years that we have worked together. It has truly been a pleasure working alongside you and learning from your leadership. Your guidance, your integrity, your collaborative spirit and your unwavering commitment to excellence have made a lasting impact on me, the broader team and the company.

I'm honored and humbled to lead our team in pursuit of the highest standards that you've set and that inspire us all to be better every day. And I know that I and so many others in the company will continue to draw upon your leadership lessons as we chart the path forward for WillScot. Thank you, Brad. And on behalf of the company, the best wishes to you and your family.

This concludes our prepared remarks. Operator, would you please open the line for questions?

[Operator Instructions] Our first question today comes from Tim Mulrooney with William Blair.

First, I just want to say farewell to Brad. It's been a pleasure working with you these last few years, Brad [indiscernible] on your next chapter.

Thank you.

So on the revenue outlook, I just wanted to ask about the lowered top line outlook this year. If we set aside the seasonal retail headwind that you telegraphed earlier in the quarter, what other parts of the business underperformed relative to your revised guidance that you gave on the second quarter call? Were there any other end markets or regions that you'd characterize as being a bit surprising on the softer side relative to where you were sitting a few months ago?

Tim, this is Tim Boswell. I'll take that one. Certainly, the seasonal storage component is one of the biggest contributors, circa $20 million or so of revenue relative to our original expectations. There's about another $20 million across the write-off activity that Matt talked about. And that's important because those are all out-of-period adjustments to kind of aged accounts. And on that Page 5 in the presentation, which we can go back to, when you strip that impact out, you actually see very solid sequential stability of those lease revenue streams. So those are the 2 biggest components.

The only other pieces I'd call out relative to the guidance coming out of Q2 would be the Canadian market. That's roughly $130 million of total revenue for us. That economy has been hit hard since Q2, I think, for obvious reasons related to the trade posture here in the U.S. So we have seen a slowing in our Canadian market. And then the ramping of our clearspan and perimeter businesses are still quite attractive in terms of the market opportunities that we see, but ramping slower into Q4 than we anticipated.

And as Worthing mentioned, we have built in some conservatism into this outlook so that we're exceeding these expectations going forward. So that's not an insignificant part of the overall message here. But certainly, the write-off activity accelerated. I'm really happy with where the portfolio is from a cleanup standpoint.

And while it does create some noise in the top line, the customer experience side of that is really important for us. That's the area where we've probably gotten the most negative feedback in terms of NPS and customer satisfaction historically. And we definitely see that temperature coming down as we go into 2026, which is an important part of our strategy going forward to drive the customer experience positively.

Okay. That's a lot of helpful additional color with the write-offs. And I hadn't given enough consideration to the Canada dynamic as well that I probably should have. So that's good color.

Maybe sticking on this policy point. I wanted to ask about any potential impacts that you're seeing on your business from the federal government shutdowns. I know it's a smaller piece of your overall revenue stream, but I thought I'd ask because I know you've talked about government and other verticals tied to government like military, maybe education as being a growth vertical for your business moving forward.

Yes. Good news, bad news. They are growth verticals going forward, I guess, is the positive piece. And as part of our enterprise portfolio, we have added dedicated resources to go after government opportunities at the federal state and local levels, both in the U.S. and Canada. Good news is that's not a huge part of our business today. So we've seen negligible disruption across the -- either unit on rent portfolio today or the payment side of things, which is also important. So no material impact sitting here today and still enthusiastic about the ability to penetrate those sectors better going forward.

The next question is from Andy Wittmann with Baird.

I wanted to ask about the fleet review that is ongoing here and sounds at least possible, if not likely to be more explicitly defined by the end of the fourth quarter. But this $250 million to $350 million of fleet basically write-down or impairment or scrap here, do you think that this is actual scrap like it's going to the junkyard because you mentioned in the press release kind of tired old been sitting? Or do these get sold off and maybe wind up in your same markets as discounted units? I'm just kind of curious as to what the final disposition of this is going to be.

And you talked about the book value here. I did some quick math. It looks like that's about 4% of your net book value. Is it fair to think that this would be then probably less than 4% of your fleet because these are kind of below average unit price. Maybe you could just comment on some of that, please.

Yes. Sure, Andy. This is Matt, and I'll hit your questions. We do sell our fleet in the normal course of business as rental unit sales, as you know, but we kind of view this as excess fleet that we've got and the intent there is to dispose and scrap of it. As we look at the percentages, though, that's -- it's more than the 4% that you're talking about, kind of at the middle of that range, you're getting closer to probably 10% of kind of total, but it's excess fleet, right?

The whole point here is we've got adequate fleet to service our customers in the market and to grow in the future. And this is fleet that today we're paying to store on some excess acreage, and there's other indirect costs and things around that, that we can optimize. And so we're taking action now to review this with the Board, obviously. And as you said, we'll give more of an update once that continues a bit more, but it is probably more about 10% kind of around that midpoint. So it's a big thing, but I think it's something that we should do, and we know that there's cost savings associated to this in the future.

Andy, this is Tim. The only thing I'd add is if you look at that chart in the deck that looks at non-res starts and the cycle that we've been through here, we're sitting here today in a position where non-res square footage starts are off about 30% from the peak and appear to be stabilizing in line with 2017 or 2018 levels.

So if you can think about the ramp of the company up through 2022 and 2023, we've got enough idle fleet in the business to support growth prospectively over the next couple of years. And we can do that -- we can eliminate some of this excess, reduce the related real estate, still have adequate market coverage, still have adequate idle inventory to drive the business more efficiently. So this is about tightening things up, moving back towards the 45% to 50% EBITDA margin range and allowing our team in the field to operate more efficiently.

Yes, that's clear. And I remember, obviously, Mobile Mini had a similar type of scale write-down when they did a kind of a cleanup like this, and that was a very good thing probably a decade ago.

So okay. Just for my follow-up question, I wanted to kind of ask about the fundamental trends in the business. And it's often asked how your order book and your activations have evolved during the course of the quarter. Maybe, Tim or Matt, you could talk about that, just to maybe give us a flavor of where we are in this kind of bottoming process. It's been elusive. And so I thought just getting kind of your latest thoughts on it would be helpful.

Yes, Andy, this is Tim. It has been elusive. I won't deny that. If you look at the modular order book sitting here today, it's actually now down about 1% year-over-year relative to the pending order book in early November last year. We actually converted a fair amount of it over the last 1.5 months or 2 months such that activations in modular have been up low single digits over the last month, and I'm optimistic that we'll see growth of similar magnitude in November. So I view that as stable.

It's good to see the order book converting, but I certainly wouldn't call that a victory or overall change in the trajectory of the business. I think that's the conversion of the order book that we've been hoping to see through the course of the year.

Storage is still quite weak, right? So no real change in the trajectory of the traditional storage business. On the climate controlled storage business, all signs are flashing green with orders and activations up circa 60% year-over-year. So that initiative continues to show great traction. Modular is stable and consistent with what we've been seeing all year and continued weakness across the traditional storage business.

The next question is from Angel Castillo with Morgan Stanley.

Brad, I guess, first, just to start out, it's been a pleasure working with you and wish you all the best in a new chapter. And Worthing, welcome and looking forward to working with you in your new role.

I actually had a question for you. I guess I wanted to go back to your opening remarks. It just wasn't entirely clear to me, I guess, as you commented on the operational strategy or some of the changes that you're talking about here, whether this was indicative of kind of continuation of the initiatives the company laid out at Investor Day or whether based on what you've seen so far since taking over as Chairman, understanding that it's only been a couple of months. But just whether you believe that there's anything kind of incremental or more meaningful changes required, whether it's at a portfolio level or operational strategy than what's maybe already been laid out at Investor Day.

Sure. Well, again, my remarks endorsed the initiatives that the company laid out at the Investor Day, but then went on to expand that portfolio of initiatives to include the asset optimization and network optimization that Matt and Tim referred to, and that's laid out in the press release.

The company has also, since that Investor Day, made structural changes within the sales organization, within the field to help bring more decentralization and accountability to the field. I'd tell you the energy level I've seen throughout the organization has been fantastic. We've talked about green shoots in the past. I know people hate to hear green shoots. But I think today, you heard a lot about all the good things happening with regard to activations and rate, et cetera.

But what I also found when I came here was just kind of a dark cloud of the impact that declines in traditional storage has over the business because it's basically masking all the good things that have been happening. I look back over about a 3-year period, and the company has probably taken a $150 million hit, EBITDA hit from that more commoditized or transactional side of the business, but obviously has not fallen that much. They've clawed back about half of that through growth in other areas.

And when we talk about this mix shift in the portfolio to more differentiated, higher value-added products and the success around enterprise accounts, et cetera. I mean it's truly a shift in the book that will insulate us going forward once this whole runout finishes on traditional storage to have a different higher margin, more predictable business, more defensible business.

We're probably in the sixth or seventh inning of the decline in traditional storage that has -- we're 70% or 80% of the way through that. Once we get that behind us, obviously, what's happening beneath the surface, so to speak, will come to the time.

That's very helpful. And maybe just related to the disposals. Tim, you talked about, I think, 10% of the fleet essentially being reviewed here for potential disposal.

At the Investor Day, I think you had identified $600 million of kind of potential revenue growth that you could achieve, I think, at 20% of kind of new fleet cost, thanks to kind of your refurbishment capabilities overall. Is that still the right number? Or do these disposals imply a smaller opportunity kind of at that lower 20% of cost and kind of future growth?

Just kind of any implications of that to CapEx? Is there a requirement then if we grow? How does that change, I guess, the algorithm around the required CapEx to grow beyond this point? If you could touch on that, that would be helpful.

Good question, Angelo. And no, we would not dispose of any fleet that we thought would constrain us and constrain our ability to grow in the future. So we view this disposal as purely targeting surplus that we do not need over the next several years that allows us to tighten up both the branch network and the fleet without compromising ability to service customers either with product or with proximity to customer in our real estate footprint.

No, I don't think this materially changes that concept at all. We still absolutely have the lowest marginal cost in the industry. If we want to activate older fleet through our refurbishment process, we've got the capability to do so. I think that capability is differentiated. To the extent we're adding new fleet, which we are in certain pockets today, tends to be allocated more towards our complexes and flex, which are performing great.

We obviously did a small regional acquisition in climate-controlled storage this year and got some excess capacity through that acquisition, which we are deploying. So that's how we're thinking about fleet investments going forward, and I don't see the disposal here as changing that narrative whatsoever.

The next question is from Kyle Menges with Citigroup.

It'd be helpful to hear just trends you're seeing with local and regional customers, especially as you're looking into 2026. And in your view, what do you think you need to see really in the markets to see some recovery within those local and regional accounts?

Kyle, this is Tim. I'll start and anybody else can jump here and jump in. Nice to meet you. We really haven't seen any change in market trends at the local level. As I mentioned in my remarks, our enterprise portfolio is going to be up approximately 5% year-over-year total revenue in the second half of the year. That implies that the rest of that local market and regional exposure continues to be down. And I don't have any indicators right now, whether you look at the Architectural Billing Index or other third-party indicators that says that, that underlying market trend is changing at the local level.

I think what is changing, if you think about our structure is the stability of our field-based sales organization. Worthing just alluded to some structural changes we've made there in terms of how the sales leadership function is organized.

We've also added over 10% to the field sales organization through the course of this year, and there is a natural ramp time in those resources. So I've got some optimism that we'll see greater productivity out of those resources as we go into 2026.

We've got our team in town in Scottsdale this week for budget meetings. And the message is irrespective of changes in those local market conditions. We know we weren't performing optimally over the last 18 months, and there's an opportunity here to outperform ourselves at the local level. And that's the challenge that we're pushing down to our local market teams as we go into 2026, and we're not sitting here holding our breath waiting for the market to rebound.

Got it. That's helpful. And then on the enterprise customer side, good to hear that you're expecting those customers to grow mid- to high single digits next year. I'm curious what your sense is. Is that growth in line with the market, maybe a little bit below or above? Would love to hear that.

And then my understanding is enterprise customers would have greater VAPS penetration. I am curious, though, it seems like maybe competition is heating up with others coming out with offerings that are comparable to your VAPS offerings. in this space, just your confidence in maintaining market share with VAPS as well with the enterprise customers?

This is another area where I think outperforming ourselves is step number one. This is a function that looking back over the last 5 years, just given the relative size of our company had been relatively immature. And going into really Q2 of this year, we took a step back, put some of our best field-based leadership into this function, reorganized the team by industry vertical across 5 or 6 high potential verticals, construction being the largest today. But historically, we've never intentionally gone into federal government, which I talked about earlier.

Retail, we've had some presence, but not with a lot of intentionality. Professional services, energy and industrial or other sectors where we see opportunities to grow our penetration in those markets. So step one is let's outperform our historical baseline, and we're absolutely doing that.

Your comment around value-added products and propensity to consume those at the enterprise level, I would just broaden and make a more general statement that when we're having enterprise-level RFPs, the ability to bundle not just value-added products, but climate controlled clearspan parameters and all aspects of this broader space solution offering that we're putting together is pretty attractive, right? So I think it's cross-selling those products within the enterprise, not just value-added products is a big part of the opportunity that we see going forward.

The next question is from Phil Ng with Jefferies.

Well, Brad, thank you. I appreciate your partnership over the years. Tim, congratulations to the new role. Looking forward to working with you.

I guess from a high level, you guys talked about how you want to shift your portfolio away from more commodity products to differentiated offerings, driving more of a decentralized model. Does that require a meaningful step-up in CapEx and SG&A? There was an element of holding management more accountable and you're kind of rebuilding the field-based structural changes. Are you realigned the KPI and incentive comp and having a higher portion of your comp tied to variable, especially on the sales side of things?

Okay. I'll start and anybody else who would like to jump in, please do so. So we had a question a minute ago about, hey, does this fleet disposal change -- fundamentally change the capital requirements in the business going forward? No, I don't think it does. I think the mix of that CapEx has absolutely changed. And that process started probably a year, 1.5 years ago. So I don't see a significant change in the overall magnitude of CapEx requirements in the business. I think the mix of where that capital is going is likely to be very different than it would have been over the last 5 years in some of the categories that I mentioned.

Actually, see an SG&A opportunity in the business, not an incremental add, especially as we look across our corporate functions. And some of that efficiency, I think, is supported by the fact that we've completed a lot of the integration activities that were related to the Mobile Mini acquisition now almost 5 years ago. So I don't really see any fundamental changes to the cost structure or the CapEx requirements in the business based on those comments.

Incentive comp and variable comp?

So we have always had a significant portion of our annual bonus plan that is tied to forward-looking revenue metrics in our business. As you're well aware, this is a sequentially compounding business. every period, we should be incentivized to put more units on rent at higher prices with more value-added products and services to drive that forward-looking lease revenue stream. And that's roughly about 30% of our annual short-term incentive bonus plan. We will tweak that calculation methodology a little bit to be more closely aligned with the metrics that our sales force is compensated based on. And I think that's extremely healthy. But that's really a refinement rather than a significant change, Phil.

Okay. Super. And then in your prepared remarks, you mentioned reestablishing organic growth. What are like the one or two things you want to call out that will help accelerate that? Is there a big shift in terms of your go-to-market strategy? And I did -- if I heard you correctly, a pivot to some of these different end markets. How are you going to tackle that? -- historically, there's been a big focus on M&A and AMR growth. Is there more of a pivot now towards organic growth on the volume side and just a big shift in terms of what markets you're going to really go after now?

Absolutely more of an emphasis on the organic volume side across all product lines. And in some cases, as Worthing alluded to, I think we need to compete a little bit differently, leveraging our service infrastructure and customer service capabilities in some of those more commoditized product lines where maybe the product itself isn't as differentiated.

But through our scale and capabilities, we can actually offer a differentiated experience to the customer. So that's absolutely a big focus within the company right now in terms of ease of doing business, speed of delivery and consistency of execution across all our product lines. But I think it becomes even more important in some of those legacy more commoditized lines. Meanwhile, we are allocating capital and resources to grow in some of those more differentiated product lines like complexes, flex, climate controlled, et cetera, all the stuff that we've been talking about. So that's one of the 3 kind of commercial go-to-market pillars.

A second would be everything that we've done in the field-based sales organization. I mentioned we've added over 10% to that population through the course of this year. That population is ramping up from a productivity standpoint in many cases, and we would expect to see benefits from that going into 2026.

And then the enterprise portfolio is the place where I'd say we are tapping into new verticals with more intentionality than we have in the past and also being more strategic with existing relationships and growing wallet share and deepening partnerships with existing contractors, especially in the construction vertical. So we've got 3 pillars to that go-to-market strategy across adjacencies, the field sales force and enterprise, and we're pushing hard across all 3.

The next question is from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. As far as the rental footprint and fleet optimization and the ongoing evaluation as to whether you will do the further acceleration of the recognition of depreciation expense. I know we've talked about potential impacts on CapEx structure requirements and mix. But is there any potential change and lessons learned around capacity and utilization management into this initiative and out of it going forward?

Ronan, thanks this is Matt. Thanks for the question here. I think for us, it's kind of a kind of where we're at right now with the acreage that we've got and the fleet that we have. I mean, I think, we're always trying to manage the fleet, and we spend a lot of time planning the amount of CapEx and maintenance that needs to go into the fleet. And none of that has changed because of this.

As we're just at a point where, as Tim spoke about, we're off about 30% from peak levels, and we have excess fleet that we need to get cleaned up right now, and now it's time to do it. So I think markets are going to ebb and flow over time. You always have to keep an eye on these things, but just kind of a point of where we are right now.

Okay. And then just if you could shed some further light with regards to the changed approach and guiding. Obviously, there's an element if you are going to have that less transactional subject to the volatility around activations, et cetera. But was there anything else from philosophy or process or perhaps even anchoring to leading indicators that had good historical correlation, but has changed given the length and severity of the decline in non-resi or intensifying competition? How should we think about that?

No, I think it's just -- this is Matt again. It's just a change in approach, right? We want to make sure that we're setting guidance out there that's got a little bit of cushion to it so that we can beat it. That's really what it is. We've had some times where we haven't met those expectations, pretty quite a few here in the last couple of years, and we want to turn that around. That's it.

Yes. I'd also add, it's Worthing -- you mentioned a protracted decline. I think the historical approach basically set a range of expectations that could materialize based on whether it be execution, the competitive environment or recovery in the markets, in the end markets. And I think the decision now is just to make sure we're not making bets on things we don't control. And so let's let a lot of things be upside. Let's make sure we're guiding conservatively.

But I think also going into it, look, the company has spent the last couple of months tightening up how they forecast the business. And I think you look at -- Matt, you didn't cover it, but I think you look at the October results and activations and units on rent. I mean every metric that we forecasted for the month, we met or exceeded. And so it's just nice to see the effort the team has made throughout the organization to try to tighten down the forecasting to not try to call a turn and to keep a lot of things that are out of our control as upside.

[Operator Instructions] The next question is from Scott Schneeberger with Oppenheimer.

Brad, I really enjoyed working with you, best wishes. I guess for the first question, it's going to play off of Ronan's discussion there on guidance. I know you're not going to provide 2026 guidance right now. We're not going to get that until probably February. However, with the trends you're seeing here into the end of the year across the primary asset classes, how should we think about volume and price on modulars and storage as we enter next year? And what type of influence would that have just kind of starting out next year as an endpoint of '25 into '26?

Scott, it's Tim. I'll give you my current view of the playing field here. And as I said a minute ago, I don't see anything sitting here right now in the third-party leading indicators that says that we found stability. I mean you track the ABI as closely as anyone and most recent reading was around 43%, which is pretty soft, and it's been that way for 3 years, right? You have seen some slowing in the rate of decline of non-res square footage starts, which is encouraging. And that's definitely a precursor to a bottom, but there's nothing that says that, that has actually occurred yet.

As I look across the portfolio right now, spot rates across most of our modular product line are really solid. Ground level offices are really the only category where we've made some strategic decisions to soften our pricing stance. But I see stability or opportunity across much of our modular portfolio going into 2026.

Storage, I mentioned earlier, order book, if I exclude seasonal orders right now is down about 6%. So you've still got that mid- to high single-digit volume decline implicit in the current storage order book as we're going into 2026. And I've seen continued softening in the rate environment for traditional storage. And that's not just us. I think that's fairly well documented across the industry at this point. So definitely some mixed trends as I look at the leasing KPIs across the legacy kind of product line.

Climate-controlled storage, I mentioned, volumes, rates, value-added products associated with them are all trending very strongly. So that's a place where I think we can make some luck going into 2026. And overall, if you just think about the volume trajectory in the business, we're trending down year-over-year across traditional modular and storage. If we were to see an inflection there, you're probably looking at the second half of the year sometime, but we don't have any crystal ball, and some of that's going to be dependent on the market environment.

So as you well know, we typically give our full year guidance on the Q4 call. The reason for that is, at that point, you typically have better leading indicators and visibility for the U.S. construction cycle, which tends to ramp up as you go from March and April into Q2. And we'll stick to that practice in terms of providing the formal guidance.

I appreciate all that color. It's helpful. And prompts a few follow-ups, but I'll ask them later in a follow-up. I wanted to ask another question just on the optimization of the footprint and the assets. I guess on the assets portion of it, what -- are we going to see it more in modular? Are we going to see it more in traditional storage?

I know it's a little bit of everything, but can you give us a sense of where you're really going to focus in on? And this feels like it could potentially be a first step. Is this a tip of the iceberg, the $250 million, $350 million or -- and it could be more as you go because you do have a few years of utilization potential to grow into and you'll be coming at it from one angle. It just feels like there could be a little bit more. So what assets and what made you decide upon this size right now?

Scott, I'd say -- this is Tim, and then Matt jump in. We've actually approached this more from the real estate side of things, right? And the priority #1 here is reduce operating costs and inefficiency in the system. And as you accumulate surplus fleet, you get drop lots and things like that and industrial real estate is expensive.

So what we've looked at are actionable real estate opportunities over the next couple of years where you actually have an actionable ability to reduce those costs. And where we see those cost reduction opportunities if we see surplus fleet associated with those locations that we can dispose of in order to take advantage of that savings, that's kind of the lens that we've used to approach this.

Absolutely, yes, we'll keep an eye on changes in overall market activity. If markets ramped up, maybe you want to dispose less, although we're at pretty low utilization levels right now. If markets continue to decline, you might take a different approach. But we're using actionable real estate cost reduction as the guiding light in this initiative.

Yes, Scott, this is Matt. The only thing I would add is that we started this really kind of beginning of the year and did some property-by-property analysis, and you've seen us do some of these throughout the year. Given where we're -- what we've seen, we saw the opportunity to kind of look at all of this at once, everything we kind of see in the next 3 or 4 years to really try and pull it all together and have a multiyear plan. So that's what you're seeing right now.

From an asset perspective, I mean, think of this, it's very tied to forward-looking demand. Complexes and Flex and these newer products are high-demand products and differentiated products. It's not those, right? It's more going to be around the transactional type things where we've seen a real reduction in demand over the last few years as non-res has come down and the local smaller local projects have done. So it's some storage containers. It's going to be some single units, those single, smaller units typically, but any single. So it's not these differentiated products. It's stuff that we have ample supply of, and we know we can still meet the demand that we need to meet with remaining fleet.

Got it. And so it's real estate first that you're going. And then when you're at a selective location, you're then assessing the assets at that location. That's the order process.

That's correct.

We have now reached the end of today's call. I'll now turn the call back over to Charlie.

This is Brad. I'll take the closing here. First, I'd just like to say I'm proud of and humbled to have been part of this fantastic team as we've navigated the initial chapters of this young and great company.

In closing, I'd like to thank my family, our customers, shareholders, all of you on this phone and most importantly, this team for the support over the years. And I remain an invested and exciting supporter of this company for the long future. Thanks.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines.