Welcome to the First Quarter 2023 WillScot Mobile Mini Earnings Conference Call. My name is Amy, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Nick Girardi, Senior Director of Treasury and Investor Relations. Nick, you may begin.

Good morning, and welcome to the WillScot Mobile Mini First Quarter 2023 Earnings Call. Participants on today's call include Brad Soultz, Chief Executive Officer; and Tim Boswell, President and Chief Financial Officer. Today's presentation material may be found on the Investor Relations section of the WillScot Mobile Mini website. Slide 2 contains 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 today's comments. 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 statement in our presentation and our filings with the SEC. With that, I'll turn the call over to Brad Soultz.

Thanks, Nick. Good morning, everyone, and thank you for joining us today. I'm Brad Soultz, CEO of WillScot Mobile Mini. WillScot Mobile Mini is a North American leader in innovative and flexible total space solutions. In Q1 of 2023, we continued to execute our idiosyncratic growth levers combined with capital discipline and outstanding operational efficiency, which support our improved 2023 outlook of over $1 billion of adjusted EBITDA. During the quarter, we grew revenue by 25% and adjusted EBITDA by 47%, driven by strong VAPS penetration and rate optimization. And with a company record of 17% return on invested capital over the last 12 months and a free cash flow margin of 18% in the quarter, we pursued our strategy with smart capital discipline, including acquisitions of up to $80 million and $216 million of share repurchases. Turning to Slide 16, I'll share a quick growth lever update. Our value-added products initiatives represent over $500 million of $1 billion of idiosyncratic growth levers, and we made great progress across both segments. Our track record in Modular is proven, as well as over the last 10 years, we've delivered over an 18% compound annual growth in our VAPS average monthly rates. We're also beginning to see benefits from VAPS in our Storage Solutions segment. VAPS revenue in this segment in the first quarter was $22 million, up 60% year-over-year, and we believe that this is just the beginning of a differentiated, long in duration and high-growth value driver that is entirely in our control. Tim will unpack this a bit later in his section. Otherwise, the engineer in me could consume the entire call with my exuberance associated with our basic offering of lights, shelving and pipe racks for portable storage units, as well as many new products under development. Those…

Thank you, Brad, and good morning, everyone. Page 21 shows a high-level summary of the quarter. Before I jump in, I will remind everyone that the results from the divested Tank and Pump and UK Storage segments are reported as discontinued operations in all periods. I will also point out that in Q1, we transferred approximately 6,000 ground level offices, or GLOs, from our Modular Solutions segment to our Storage Solutions segment. We have consolidated all of our containerized products within the legacy Mobile Mini branch infrastructure, which makes perfect sense, both operationally and commercially. We updated all historical segment financials and KPIs to reflect this integration. So you'll see some changes in the segment metrics, but the year-over-year comparisons are all meaningful, and it does not change the trajectory of either segment materially and obviously doesn't impact consolidated financial results. With that said, Q1 2023 was a great quarter. We saw consistent contributions from pricing, value-added products and volumes and frankly had superb results across all financial metrics. Modular unit average monthly rate increased 20% year-over-year and portable storage unit average monthly rate was up 30% on a consolidated basis. Rate is one of the areas where we see upside in the remainder of this year, which in turn creates multiyear tailwinds into 2024 and beyond. Value-added products support our ability to capture rate, differentiate us from our competitors and are an example of the powerful organic growth strategies that we are executing with clear and tangible results. We updated Page 13 to show the VAPS revenue opportunity across both our Modular segment and our ground level office fleets, which is new disclosure, and details $400 million of highly credible growth across these products. And growth from our recently introduced value-added products for containers will be incremental, bringing us…

Thanks, Tim. I would like to take a moment to thank our team for safely and frugally delivering yet another outstanding quarter and progressing each of our growth levers, all while successfully navigating our CRM system harmonization. We will easily eclipse our $1 billion adjusted EBITDA milestone in 2023, and we are on track to achieve all of the long-term financial targets that we established just 18 months ago. I wish all of you listening today continued safety and good health. That concludes our prepared remarks. Operator, would you open the line for questions?

[Operator Instructions] And our first question is from Andy Wittmann with Baird. Your line is open.

Great. Good morning. Thank you for taking my questions. I guess I would just start with trying to get a better sense of some of your leading indicators, in particular the order book, Brad. Obviously, the revenue line doesn't move very quickly at all in response to economic changes, but the order book is probably the best, I guess, derivative in terms of what you're seeing. So I was hoping you could talk about what you're seeing? And if you could break it down a little bit, what you're seeing in Modular versus what you're seeing in Storage, and talk about some of the key cyclical end markets, including your construction-related customers?

Yes. As I said in my prepared comments, there's not a lot changed versus Q1. Our order book remains robust. Looking forward, we expect work order production, as an example in Modular, to be in line with our expectations three or four months ago. We are comping, as you mentioned, against record levels of 2022. The most notable change, if you will, Andy, is that attributed to the retail sector, primarily the store remodels. And if you take the balance of the portfolio across Modular and Storage, non-resi construction in the commercial industrial sectors, we've been cautious. I would not expect growth across the board in those sectors yet this year. Again, this is what we don't expect. We remain cautious. We've been very prudent here. We could see a bit, but we're well positioned irrespective of what these end markets present.

Got it. And I thought maybe, just as a follow-up, I'd have you elaborate a little bit more on the comments about the EBITDA run rate trending up 10% to 15% in 2024. I guess that's almost implicit in your guidance. You can kind of get there, that's what's included. But could you talk a little bit about what some of the puts and takes are regarding that? One of the things I heard, I think it was in Tim's comments, was that there was some rate upside that you're seeing. And so I was just wondering like how does that factor into your guidance, the rate upside for this year, as -- and is that included in how you're looking at 2024 at this early stage?

Hey, Andy, this is Tim. It's a great question. And this is what we really spend our time managing, is how do we drive that sequential run rate into any future period? And to be clear, my comment was around the leasing revenue run rate. So price times, volume times, value-added products across the combined business. As we get into Q4 going into next year, we see 10% to 15% growth going into 2024. And there aren't many businesses out there that I'm aware of that can say that with confidence. That's just a function of the lease duration and the predictability in our business model. As Brad mentioned, the only real notable change in the guidance is the deferral of the retail store remodels in the Storage segment, for a variety of reasons, are pushing into 2024. And what we have seen in the Storage segment is offsetting benefits in pricing and value-added products, such that the midpoint of our revenue range on a consolidated basis has not changed. Our delivery and work order expectations in the Modular segment are not materially different than in our original guidance. And of course, that original guidance had some conservatism in the back half of the year, which we maintain. So as you think about what could change in terms of where you end up in that 10% to 15% range, if pricing continues to progress ahead of our expectations, that could take you higher. If volumes improved materially from where they are today, that's not going to impact the 2023 results significantly, but it impacts the run rate for 2024, which is great, and then value-added products as well. We've baked in some growth on the Storage side of the segment and kind of a continuation of the trends we've had on the Modular side of the segment. So I think those assumptions are balanced. But upside or downside, either way, it takes you to the 10% or the 15% side of the range. And as I mentioned in the prepared remarks, M&A would be incremental.

Great. Thanks a lot, guys.

Thank you. [Operator Instructions] And our next question comes from Tim Mulrooney with William Blair.

Brad, Tim, good morning.

Good morning, Tim.

Good morning, Tim.

Thanks for taking my question. As I'm thinking about your end market exposure to commercial real estate, more broadly, non-residential construction, can you just talk about how much your business is tied to non-residential construction, that's all in, like with contractors, subcontractors, architects, whatever, like all in? And how do you think about that piece of the business being impacted looking forward with tightening credit conditions, particularly with regional banks? Thank you.

Tim, it's a good question. We break it out in our deck by customer SIC code, and you see it's roughly 35% is going to be tied to non-res construction, and that's all the general contractors, big and small, that you just referred to. There's another component that's around 5%-ish that's residential. We work with the larger homebuilders there. And then the other 60% of our business are basically every other sector of the U.S. and Canadian economies. And that is one of the, I think, misconceptions in our business, is there is a segment approximately 40% that's directly tied to construction customers, and then there's another 60% that use our services as the most cost-effective and flexible alternative to construction. And we see that playing pretty well in this environment. Within the non-res sector itself, we see all the same forecasts that everybody else does. Non-residential starts should probably be down this year. We focus more on the square footage starts, and we factored that into our guidance as we always would. Within that non-res mix, though, there are a lot of puts and takes, right? We are absolutely benefiting from the megaproject, onshoring and manufacturing trends that everybody is talking about. It seems like every week, I'm getting a new multimillion-dollar long-duration customer contract that would fit that type of description. And we clearly have infrastructure spending picking up in the United States. And we've always maintained that, that's likely a second half of 2023 and 2024 tailwind for the business. Your question around the impacts of tightening of financial conditions is a good one. And this is something that we have seen in the business going back into the second half of last year. Especially up in Canada, for example, I can think of a number of larger project opportunities that were not canceled because of tightening financial conditions, but budgets are being recalibrated based on elevated input prices, labor constraints, and then capital costs. We're actually seeing Canada now, a lot of that backlog start to flow back through the pipeline, which is pretty encouraging. So going back into our budget process, we were already assuming some impacts in our non-resi markets related to tightening financial conditions. And I think some of the reactions to events in the last couple of months are probably overblown because that was happening for the last 12 or 18 months.

Right. And recalibration sounds very different than cancellation, right?

Absolutely, it is. And remember, disruption and lengthening of project duration helps us. That's one of the mitigating factors in the churn of our portfolio, and we are seeing that in terms of return volumes that are lower than we would have forecasted to start the year.

Yes. The only thing I' add, for everyone, this is not a cyclic profile. I mean, Tim just talked to Andrew through the 10% to 15% revenue growth, so we're highly confident in that next year. If volumes change 1% or 2%, it's not meaningful, right? So the end markets are going to be what they are. We've shared our outlook. But irrespective of what they present, we're extremely bullish and will continue to be.

Thank you for the clarification there and for all the clarity on that answer. I'm just going to sneak my follow-up in real quick. Free cash flow, it's expected to be strong this year. So just curious how you're thinking about deployment of that extra capital that you'll now have. If share repurchases are a priority right now, particularly given the pullback in the stock price over the last month or so, I'm wondering how you think about defending the stock at this valuation? Thank you.

Tim, yes, we love the stock, even at prior higher valuations. So yes, we do calibrate our repurchase activity in part based on valuation. But we've also said that we won't miss a good tuck-in acquisition that comes our way. So, we do maintain a waterfall here. We've given you what our organic investment plan is for the year. We've told you that, based on current pipeline, the tuck-in volume is likely a bit above 2022 levels. And you can infer that given the fact that we're at the low end of our leverage range, everything else is going to go to the repurchase, and we'll calibrate that based on valuation.

Got it. Thank you so much.

Thank you. [Operator Instructions] And our next question is from Kevin McVeigh with Credit Suisse. Your line is open.

Great. Thank you so much. Hey, I guess, Tim or Brad, you said it -- I think I missed it, you talked about VAPS of $400 million of highly credible, and then an incremental $100 million in containers. Was -- I'm just -- I want to make sure I understand that comment because I think it's important.

Yes. And just in round numbers, right, we traditionally talked about what was our Modular focus over the last 10 years, being that $300 million to $350 million. At the time of the merger, we talked about a $50 million incremental opportunity by putting furniture in the GLOs. That together now is about the $400 million, right? And there's another $100 million of opportunity we're very comfortable with on the Storage side.

And remember, that's on top of the growth that's been delivered over the course of the last two years. So, we've grown the business, we've grown value-added products and we've continued to extend both the magnitude and the duration of that growth opportunity through new product introduction and better penetration of the volume that we have. The original estimates for our container VAPS back in Investor Day were approximately $50 million, that's conservative. And we're comfortable rounding up from there to get to that $500 million prospective opportunity on top of everything we've already delivered.

Makes sense. And then the 10,000 units that were pushed out, I mean, obviously, implicitly implies you increased the guidance. Can you maybe dimensionalize what the impact of the revenue on that would have been? And again, was that just timing of some store remodels? Or what drove that, the push-out of those 10,000 units?

Tim can jump in here, but I would qualify, Kevin, that we were contemplating that in our original guidance, right? I mentioned in my commentary that there was uncertainty. So within the range of guidance, before, it was contemplated. Now it's just -- it's certain.

Yes. That's some of the challenges facing the retail sector are not -- this is not a secret, right? So, you do have companies like Target saying, "Hey, we're not doing that activity this year to save on cost." And there's also some store format considerations that they're going through. But this is not a matter of if it happens, it's just a matter of when. That's historically been a good recurring source of business for us. And in terms of in-year impact to rental revenues, you're probably talking about something in the $12-ish million range, plus some transportation to and from on those.

Awesome. Thank you.

Thank you. [Operator Instructions] And our next question is from Dillon Cumming with Morgan Stanley. Your line is open.

Great. Good morning, guys. Thanks for the question. Just wanted to see if you could talk through again the EBITDA opportunities you called out on Slide 15. I think the market still probably not giving you full credit for achievement of those in the long term. Even I think most investors are still confident in that longer term as well. Just curious if you can kind of talk through how resilient those are in a more choppier macro environment and a potential non-res recession? How confident do you feel kind of around hitting that $1 billion growth figure over the long term in such an environment?

Yes. I'll start. Just working down the list on your -- on the value growth slide, Tim just talked about value-added products and service. We've pegged that at $500 million back in November of '21 Investor Day. We've been harvesting from that. It's apparent in our results, and we're saying it's still $500 million. So there's a fair bit of reloading here. Lease rate optimization of $200 million. That doesn't assume any volume expansion. We've already talked about the spread between the units we've delivered in the last 12 months, and the average of the portfolio, highly confident in that. The VAPS are going to fall through, call it 75% to EBITDA, and the lease rate optimization, well over 90% once we pay commissions and such. Market penetration, that's when we've been waiting for the CRM project to conclude to really start to make traction there. So again, we're excited that we've successfully harmonized those two systems. And I think it's going to create operating efficiencies as well as customer satisfaction, that will drive cross-selling and market penetration over time. That's -- logistics, Tim mentioned that was $50 million back in November of '21. We've harvested over $50 million since then. It's still $50 million looking forward. And that's primarily based upon the fact that we're just starting to get to work combining the two systems between the Mobile Mini platform and WillScot, and logistics which will really help with route optimization, continued in-sourcing in the sort. And then the M&A and scale efficiencies, this includes the M&A that we know about. And then the scale efficiencies, again, are apparent in, call it, if nothing else, 650 basis points of EBITDA margin expansion year-over-year.

Got it. That's very clear. Thanks, Brad. And if I can just ask a second one on the leverage range. So I think you've demonstrated clearly in terms of the free cash flow profile that you're comfortable and able to operate, in that 3.0x to 3.5x range pretty comfortably. If there does become a bigger second point for the market, would you consider maybe reducing it by 0.5x turns, 1x turn or so if that would kind of open yourselves up to new investor classes? Or are you kind of, I think, more religious or just willing to stand fast on that 3x to 3.5x range?

Look, I think investors are very well educated on this point -- at this point, just given the stability of our leasing revenues and the predictability of the business and the churn in our in our top-line. So yes, we always look at capital allocation holistically. But to one of the questions earlier, strongly prefer to buy the stock at this level than to pay off pre-tax cost of debt at 5.7%, all right? So that's, in my investor discussions, this is not a sticking point that's come up for over two years, really. The business does have a very significant deleveraging capacity. I mentioned in my remarks, if we want to, we can take a turn out of a leverage in 12 months. And that is just a really profound luxury that we have in this business, and we're perfectly comfortable at the 3x level that we're currently operating at.

Very clear. Thanks. And I'm going to sneak in one last quick clarification. The change in the milestone rate on Slide 13 for the Modular VAPS from $600 million to $650 million, does that just reflect the movement of the GLOs out of the segment, or is that more of a conscious change on your part?

That is a very astute observation. That's really just the mix of pulling out smaller square footage, ground-level offices from the Modular segment, moving them into the Storage segment where they belong, which implies the remaining larger square footage modular equipment in the Modular segment has a higher capacity for value-added products.

Appreciate the time. Thank you.

Thank you. [Operator Instructions] And our next question is from Scott Schneeberger with Oppenheimer. Your line is open.

Thanks very much. Good morning. Covered a bit on the smaller customers, the financing concerns and then the quantifying on Kevin's question of retail, and appreciate that. Brad or Tim, could you guys address the megaprojects? I know you're not too open to sizing it as a percent of units or revenue, but could you provide some anecdotes, or maybe give us a feel for how powerful these projects are? Tim, I heard you say earlier, it feels like every week, there's another one. So it sounds like these remain consistent. How competitive is this? Are you the only one that gets a look or are there others? The tale sounds good, but can you just speak about how powerful this is as an offset to concerns that are out there in the market? Thanks.

It's extremely powerful [indiscernible]. As we've mentioned in our prepared comments, our scale, our total value prop, et cetera, puts us in a very unique position to respond to these. I mean, a simple way of thinking about it, roughly, a third of our net book value is associated with large complexes. Most of those, if not all of those big projects, will have those assets deployed. So that is a space we're uniquely positioned. I mean, we've got in-house construction services team. I mean, if you're setting up 10,000, 20,000, 30,000 square foot, which many of those will require, sometimes, you need to stack two or three high, we're uniquely positioned to deliver on that aspect of the still relatively small percentage of total project spend.

Scott, I think the opportunity for us prospectively on these, these are multiyear engagements, say, three, five, seven years in some cases. In an area where we can, I think, have a very significant advantage is owning that project over the life cycle, not only winning the national general contractor with whom we've clearly got the best relationships, but then all of the other subcontractors and trades that are coming on and off of that project over the course of its life cycle with the full suite of our offering. And if there's one area where we're spending some time as a team. We're already confident we're going to get the main general contractor and the main project, it's owning everything else over the course of that multiyear cycle, which is the real opportunity here.

Thanks. I appreciate that guys. On the CapEx, can you take us a level deeper on the initiatives focused on work order efficiency to improve vendor administration and material consumption? Maybe quantification of that in savings, how meaningful is that on your pullback on the guidance? And then you did provide a little bit more color in the deck and in this discussion about reining in the CapEx this year. But maybe what you're doing with the decrease in container purchases and a little bit more color there to let us know where you are in the CapEx cycle? Thank you.

Yes, Scott, this is Tim. And I'm super excited about this. This has been a bit of a long time coming, coming through the Mobile Mini integration. We basically got a $65 million reduction in the midpoint of the CapEx guidance. About $40 million of that is coming from the fact that, because we're not doing the retail store remodels and storage, we don't need to buy 7,000 containers, right? So that's the biggest chunk right there. On the Modular side, we're getting about a $20 million benefit from roughly a 10% efficiency savings in our cost per refurbishment. And as you go back to the integration now two years ago with -- into SAP, one of the areas where we've gotten a lot better visibility, analytics and reporting, is around how much material is going on average into a certain type of refurb? How much labor are we using? In-house labor or subcontractor labor? And looking at variances on these types of metrics across the entire branch network, you see -- or you used to see extraordinary variability. So step number one is tighten that variability, reinforce those standards from a quality standpoint around what is our expectation for the quality of unit that's going out into the field? And just by tightening that variability, we began to see significant CapEx savings in modular refurbs in the second half of last year. And those are being sustained in our bottoms-up reforecast heading into Q2 and Q3, which is really encouraging. As you know, there's been cost inflation in the business over the last couple of years. And this is really nice tailwind that's starting to offset that in a meaningful way. And the only other thing I'd call out is we are still integrating, like the branch network. And there, we do expect some proceeds from property sales in the forecast as well, which is going to be a further net CapEx opportunity. You can't do those every year. But we will still continue to see those types of proceeds as we optimize our real estate footprint.

Thanks, Tim. Thanks, Brad. Nice work.

Thank you. [Operator Instructions] And our next question comes from Manav Patnaik with Barclays. Your line is open.

Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking my question. Tim, could I just ask for your assessment of, and thoughts on, at a high level kind of pricing dynamics over the last few years through COVID with supply chain and inflationary dynamics, and what you're seeing now? We've got a lot of questions on what people are seeing with regards to surveys of storage prices, pricing on shipping containers, et cetera. So how that plays into versus your initiatives around pricing and you acting like a pricing leader within industry? And your outlook for how you think that will play out, and the assumptions around pricing for the remainder of the year and forward?

Yes. Ronan, this is Tim. I'll start, and Brad, you can jump in. This is an area where we're both quite passionate, so we could spend the rest of the call talking about it. As you know, the double-digit rate growth in our Modular business has been going on since Q4 of 2017, right? That's before we had less than 20% market share. Value-added products have been a great contributor there. Dynamic price segmentation and technology has been a great contributor. Sure, we went through this period of supply constraint. But remember, COVID was a negative demand shock across our business, and we continued to drive price through that period. I do think that driving pricing was incrementally easier during the peak inflation periods. And you saw that through some of the expansion in our delivery and installation margins. But the real momentum there is coming from things like our pricing process in the Storage business, product positioning, where we're charging for patented premium features on certain products and offering a different price point for customers that just want a standard shipping container. That's one of the reasons we're moving the ground level office product into the Mobile Mini branch network. We've got other products that meet that need for a smaller square footage footprint, like our HQ product and our 8' wide mobile offices. So introducing structured products positioning with price differentiation, and pushing those everywhere we see opportunity in the market as a price leader. This is what we do. This is what we love doing as the leader in the marketplace. So, I'm not the least bit concerned about changes in maritime container pricing. It's one thing to have a container in the port of Los Angeles. It's quite another to have containers populated in Milwaukee, Wisconsin, Lexington, Kentucky and everywhere they need to be in order to service our captive customer base.

That's very helpful. Thank you. And then if I may, a follow-up on kind of competitive dynamics within the industry given some M&A by a competitor, some sizable M&A and entry, I don't know a focus on storage, also some portfolio moves, I think replicating along the lines that you have done with divestitures of the UK, Tank and Pump, et cetera. So broader industry competitive dynamics and your outlook for M&A, if that changes your stance or approach on M&A? Or does the current macro outlook change M&A priorities?

Now we've said for a long time that we won't miss a good tuck-in that we like. And I think you can infer that we see everything that goes on in the industry. Very excited about the tuck-ins that we've executed over the course of the last 24 months. We are the acquirer of choice in the market. I don't think anybody else offers a stronger value proposition to a prospective seller than we do. We can be very targeted in our due diligence. We know the assets that we're dealing with. We can diligence, close all cash in a very short window of time because we know what we're doing. And we know how to integrate efficiently, even with smaller portfolios, right? So, no change in our appetite for M&A. It's always been there. We're more confident from an integration standpoint, just given all of the efficiencies that we're seeing in our business, the progress on pricing on value-added products as well as the margin expansion that we're seeing across our portfolio as all of these acquisitions are integrated into our network. And we're also improving the talent level of the organization in so doing. So it really checks the boxes across all aspects of our strategy.

Thank you. Appreciate it.

Thank you. [Operator Instructions] And our next question is from Faiza Alwy with Deutsche Bank. Your line is open.

Yes, hi. Good morning. Thank you. I wanted to touch on Storage pricing again. What are the implications of the deferment of retail remodel into 2024 on pricing? And I think you mentioned that there was still a 30-point gap between realized pricing and spot pricing on Modular, but curious how you're seeing spot pricing trend on the Storage side of the business.

Hey, Faiza, it's Tim. The remodels won't impact Storage pricing at all. We were getting much higher rates on seasonal storage capacity with retailers, and that's because it's short duration, right? That's typically just a September to January type rental contract, and it should have a much higher rate, which is why you saw very modest sequential AMR decline from Q4 into Q1. The retail remodels are more like core business from a pricing standpoint. So there's no change to our pricing expectations. And I would expect that we see continued sequential improvements on storage pricing. Yes, we hadn't talked about the DSR, the spot spreads in the business. But they're as strong as they've ever been. In Modular, the spreads on most recent contracts are about 35% above the portfolio average. It's just under 30% on the ground level office product and pushing 20% on our most recent contracts on the Storage product. So pricing is extremely healthy. And to the question earlier, we're going to continue to do our part there as the market leader.

Great. Thanks for that. And then just bringing it all together, sort of what's really changed over the last few months? When you first gave the fiscal '23 guidance, it sounds like 1Q came in better than how you had thought it might. And maybe these retail deferments is something new and that led to the CapEx decline. But what's really changed from your perspective?

This is Brad, I'll go first. From my perspective, it was the outstanding margin, both EBITDA margins flow through as well as the free cash flow margins in the first quarter. As I mentioned before, the store remodels were contemplated in the range before. They're kind of ascertained now. And then that's -- as Tim characterized in revenue terms, it's relatively insignificant when you're talking about over $2 billion of revenue.

Yes, Faiza, the beauty of this business is not much changes quickly. The strategy has been very consistent. The execution has been I think phenomenal. I agree with Brad, the margin performance across the board is really exciting. And I think whether it's in logistics or SG&A, as I talked about, there continue to be opportunities there. We're not doing any cost cutting or anything like that. That's not what we're talking about. We're talking about just managing the business more efficiently. And there's a lot of flexibility we have in the overall cost structure. So, very pleased with that. And based on what we've seen, it's sustainable well into 2024. So I think we're set up for another year of consistent margin expansion, which we've been doing ever since we went public. So not much has changed there. And again, appetite for M&A is still there. And the growth opportunities that Brad ticked through very thoroughly, are all, frankly, bigger and longer in duration than we would have expected certainly back at Investor Day.

Great. Thank you.

Thank you. [Operator Instructions] And our next question is from Steven Ramsey with Thompson Research. Your line is open.

This is actually Kathryn Thompson with TRG. Thank you for taking my question today. Just a follow-up on megaprojects. Just bigger picture, how much of megaprojects are embedded in your Investor Day long-term guidance? And does this meaningfully improve your leasing revenue outlook for '23 and '24? I know you touched on going after megaprojects earlier in the call. But maybe a little bit more color on just what specific steps are being taken to take advantage of this? And do you prefer this type of business versus some of the legacy day-to-day work? Thank you.

Hi, Kathryn, this is Tim. I'm going to start by just talking about what has kind of been in versus not in our long-term outlook. I think that's a very interesting question. And then Brad, you can maybe follow up on the question around how we go to market and the unique advantages we have on these types of projects. But if you go back to November of 2021, the only thing we knew about back then was the infrastructure bill, right? And that was relatively new news at the time. So we didn't really include any market-based expansion in our Investor Day targets. The whole point of that presentation was that we're talking about the things that are within our control. And now what we have is better visibility into that, projects directly funded from the infrastructure stimulus, and that's great. And we've always said that those will start to ramp up in the second half of this year going into 2024, and we maintain that perspective. We certainly did not anticipate the magnitude of the reshoring that's happening in the United States, manufacturing expansion, renewable energy investment. We're seeing opportunities across all of these things, right? And the confidence in our ability to win is one of the reasons that the revenue guidance isn't changing in light of maybe a net greater concern around the impact of a tightening in the financial system here, right? So this is the nature of the business. There are always puts and takes in terms of the end markets that we serve. Our job is to be there. And I think we've got a disproportionately strong competitive footing on these bigger, more complex projects.

Yes. And I think, Kathryn, Tim characterized this extremely well. If we just use a couple of cases, a specific example. So, we've done a large project near Austin. It's a chip plant well before the CHIPS Act was actually in place. We'll typically supply anywhere from 10,000 to 20,000 square foot of, we'll call it, anchor turnkey space solutions. Oftentimes, that will be half for the general contractor that's building the new facility, right? And then half for the customer themselves that are bringing their early engineers on site, et cetera, that will run the facility once it's up and running. These are three- to five-year duration projects. And it's not just our fleet that puts us in a very unique position to supply those. It's our capability to set that size of a building up, right, maintain it over the course of the three- to five-year project duration, and bring it back and redeploy it. I think what's also quite interesting, Tim referred to in one of the earlier responses, is we've been very good and very unique in our capability to win that anchor tenant, if you will. We have a massive opportunity to make sure we win every subcontractor, every single-wide unit, every storage unit, again, in a full turnkey scenario as we go forward. So I couldn't be more bullish with respect to the next three to five years here. And I think it's a very unique scenario, both in our position as well as the market set up here.

Yes. I assume that you're referencing the Samsung build-out in the Austin market?

Exactly.

Yes, we had a heavy material producer at our private company conference, say that it's essentially bringing 45,000 jobs just for that one project eventually. So this is like a multiple-year construction project. How are you in -- and just to wrap it up, how do you get the subs? Because you have the main producer, Samsung. But what is your strategy for getting the subs? And can you scale that to other markets in the U.S.?

For sure. And the CRM harmonization was a key enabler for that. If you use the Samsung project as an example that's large enough in scale. Everyone on our team's mobilized and aware, right, and talking to each other. That was quite manual prior to the CRM cutover. So whether it's that Samsung project, data center projects that have been of similar magnitude kind of all over the U.S. over the last several years, we're moving that from a phone a friend to our team being fully enabled. I talked about the marketing and analytics that we're capable of leveraging now with the new CRM harmonization to make sure, over the life of the three- to five-year project, we're potentially touching every person that comes on and off of that job site.

Okay. Great. Thanks very much.

Thanks.

Thank you. [Operator Instructions] And our final question comes from Phil Ng with Jefferies. Your line is open.

Hey, good morning, guys. It's Maggie on for Phil. I guess, first, starting on the lower CapEx guide, I mean, all the areas you're pulling back makes sense. And Tim, I think you mentioned 1Q CapEx levels were kind of maintenance level for the business. The $250 million to $300 million guide for the year, is that how we should think of maintenance levels for the current fleet, and then that should be a nice tailwind for free cash flow this year? Can you just kind of remind us how you think about free cash flow in maybe a softer macro backdrop?

Yes, Maggie, this is Tim. We talked about this a bit, I think it was on the Q2 call last year, and kind of pegged maintenance in that $175 million to $200 million of net CapEx range. And I'd say that $200 million level is a very good proxy for just a unit on rent-neutral investment level. What takes us into the kind of midpoint of our current range is a fair amount of growth CapEx going into value-added products and services, right? We're continuing to see no slowdown in penetration in our Modular business. And growth in the Storage segment is, as I said, undeniable and starting to ramp up. So, we will continue to fund that initiative wherever we see opportunity. It is arguably -- it is the fastest growing and arguably the most profitable part of the business from an ROIC standpoint. So, it's really that simple, investing around $200 million on maintenance. The majority of that is going into modular refurbishment in a given year. And as we ramp up growth, we're either buying containers, increasing modular refurbishments to put more units on rent or investing in value-added products and services. And that's the formula we've been running for a long time. And we reassess it using a zero-based process every 90 days. Having just gone through that process, that's the foundation for the guidance and the forecast that we give you every quarter.

Okay. Got it. And then on the CRM integration, maybe if you could just kind of dig in a little deeper to the both near-term opportunities you're seeing there and what you're thinking long term? Is that more on pricing, volumes, logistics, new customer groups? Maybe just walk through how you're thinking about the opportunities there?

It's really all of the above. And I'll use a couple of quick analogies. So, as Tim mentioned, we went live with the ERP back in May of '21. It took us about a year to really get fully optimized reporting in place to really leverage to the power of that. And you're seeing it in the margins and the free cash flow margins. So, I'll put that out there as kind of a time expectation. We're just live with the CRM. We're going to follow the same process. We'll put advanced analytics in place for our team. We're going to leverage the marketing cloud and all the tools of the salesforce.com platform. And going back to the discussion we're having with Kathryn with respect to that Samsung project, it doesn't have to be a person that calls every potential customer, right, and says, "Do you need a storage container? And by the way, you need lights, ramps and shelves with that," right? That can be highly automated, still leveraging the core team we have. So, we're super excited about. I think this year, this successful cutover give us the year to really build out all of the reporting and analytics. You leverage all the automation that -- it's not rocket science that's in place, but it needs to be tuned and customized to all of our end market segments. And then this is a clear accelerant in 2024, 2025 and beyond.

Okay, great. Thanks, guys.

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

Thank you, Amy. Thank you all for your interest in WillScot Mobile Mini. If you have additional questions after today's call, please contact me. Thanks.

Thank you, Ladies and gentlemen, this concludes today's conference. You may now disconnect.