管理層發言
Welcome to WillScot's second quarter 2026 earnings conference call. My name is Sheree, 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 Woolhutter, Senior Director of Investor Relations. Charlie, you may begin.
All right. Thank you, Sheree. 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 two 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. 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. The key takeaways are that activation volumes in our order book continue to be quite strong in certain segments. We are increasing variable expenses and fleet investments to support that demand. 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 non-residential 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. 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. 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. 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. 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. 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. Our safety performance continues to improve year-over-year with fewer recordable incidents despite increased activity levels. 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. 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. 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. We're also seeing a lot of strength across the business, much of which is internally driven. 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. 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. 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. 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 am 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. 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 remained 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, 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. 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. Net income in the quarter was $47 million, diluted earnings per share was $0.26, which was flat to the prior year. Adjusted net income in the quarter was $52 million, 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 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, supporting 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 and increased variable compensation, in addition to our provisions for credit losses, were partially 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, while 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. 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 to pay down $27 million of outstanding debt. We ended the quarter with net debt of approximately $3.5 billion and leverage of 3.7 times 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. 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 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. 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.
分析師問答
Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kyle Menges with Citigroup. Your line is open.
Great. Thank you, guys. It sounds like a lot of the momentum is being driven by large projects. Just curious, starting to think about 2027, is there any risk of modular rates turning negative at some point, maybe from a mix of larger projects driving the growth in 2027?
Hi, Kyle, it's Tim. Matt can follow up with any color commentary. I think the short answer there is no. No risk driven by the large project mix. To the extent there are newer and differentiated fleet products coming into the mix over the next six months, they are supportive of higher modular rates. We do still see very strong growth across our panelized and FLEX fleet, which could present a mixed headwind 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. 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.
Yeah, nothing really to add there. These are good investment opportunities for us to support that growth with high returns, that's why we're making the investments.
Great. Maybe just to put a finer point on it, thinking about more like-for-like rate on products, is the understanding then that the rate that you're getting today on activations is higher than whatever rate you're getting on current units on rent like for like?
There's quite a few dynamics there and mix can have some pretty big impacts, Kyle, but I think what you saw in the quarter was that the whole blend of that was an increase of 3% in the portfolio. I think as we look at these projects and these opportunities where we're making incremental investments, those are opportunities where the returns are probably a little bit better than an average potential unit that we may already have in some of the other categories. 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. Whenever that's the case, that's also suggesting that you've got a strong rate environment.
Great. Appreciate the color. Thank you.
Yep.
Thank you. One moment for our next question. That will come from the line of Tim Mulrooney with William Blair. Your line is open.
Hey, Tim and Matt, thanks for taking my questions. 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 with free cash flow being down year-over-year in the second half?
Yeah, I think that's right, Tim. We're going to continue to make investments as we get to that guide of $375 million. You can look at what we've spent year-to-date. We'll see a similar dynamic into the third quarter. Then, obviously the fourth quarter, we'll continue to monitor and if we can impact refurbishment and some of the activity there if something were to change. Based on what we're seeing right now, pretty strong activity. I think you continue to reinvest in the business and really focus on driving that recurring lease revenue.
Okay. Thanks, Matt. You noted in your slides that step up in CapEx is due to increased investments in these higher value product categories that you guys have been discussing today. Just stepping back a bit, do these higher value product categories 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?
These higher differentiated units are also units that we've had in our fleet for a very long time. Think of units that couple together to make a complex, for example. There's no change there, Tim. These are still getting very good returns. The focus has been on more of those where there's some capabilities required to help plan and execute on those projects rather than some of the single wides and containers, which are a bit simpler and not as differentiated.
From an ROIC standpoint, we haven't changed any underwriting thresholds or anything like that. We're still holding a pretty high bar on these. Really, the differentiators are attractive return on capital, longer duration, and positioning for a lot of this more complex project activity that we're seeing in the market. As you know, market activity has 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. Those are all things that are fundamental to our value proposition and are allowing us to see increasing win rates across the commercial organization. All this is a net positive from my perspective and really focused on setting up a more attractive trajectory for 2027.
Understood. Higher CapEx, but good pricing, better pricing, better sell-through, longer duration, good ROI. All right. Thanks, Tim.
Thank you. One moment for our next question, that will come from the line of Scott Schneeberger with Oppenheimer. Your line is open.
Thanks very much. Good afternoon. I'd like to ask: I thought I heard about World Cup units — could you please clarify? I thought I heard 2,000 overall and 750 modular. If you did say that, could you please clarify? And how should we think about that impact? With the dismantling of units, the cost pressure — you've given the third quarter guidance, we get the sense of what that impact will be. How are you thinking about the comp next year? 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 discuss this once-every-four-years event.
Scott, this is Matt. There's about 2,000 units that we put out at the various sites. That's roughly half and half between modular and storage. The revenue in the quarter was around $13 million or so. That's not the entire project, but in Q2 that's what it looked like. That's split about 40% towards rental and about 60% to delivery and installation. What's left in the third quarter is primarily some of that dismantle that you talked about. Roughly $5 million or so of D&I primarily would be there. You will have a little step down from that project. 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. That's why we called out what the underlying excluding that was. We were basically flat in the quarter in leasing revenue, excluding the World Cup, if that's helpful. For next year, obviously we don't have that project. We don't know of a project similar to that. We're focused on the large project demand and driving overall unit on rent sequential growth in the future.
Thanks, Matt. That helps. For my follow-up, it sounds like you have great momentum with large projects. I wanted to ask about the sustainability of the demand environment. The order book is very good, and you said win rate is strong. How competitive is it on those larger projects? And how are you doing within the demand that's there? Please discuss modular versus storage in that context.
When you look at the modular activations in the order book, they're up double digits across both enterprise customers and non-enterprise. We're seeing pretty good success across the modular business. If you look at storage activations, for the last 13 weeks we're up about 2% year-over-year. There's a big enterprise component there. Our local customers would still be down on the storage business, but it is stabilizing. Regarding major project activity and its sustainability, we don't have a crystal ball, but we do have a large volume of opportunities that we're juggling. It seems weekly that one big project pushes to the right and another one pops up in its place. That's an unusual environment. We're also seeing opportunities that stretch into 2027 from a starts standpoint. Our lead times typically correlate positively with size of projects, which is why we're seeing that extension in lead time. On win rates, it's been an encouraging trend in the business. We started to see some of this changing towards the second half of last year, and it's continued to improve through the first half of 2026. I think it comes down to operational capability. As project complexity goes up, our win rates have gone up. That's a reflection of the service levels we're able to provide in the field and from our shared services. Because of that, we are changing how we deploy our commercial resources. We've been adding to the enterprise team and adjusting the types of resources we reinvest in the fleet. We are letting commercial activity and those nuances help us reallocate resources as we look forward.
Thanks, Tim. Sounds encouraging for next year.
One moment for our next question. That will come from the line of Angel Castillo with Morgan Stanley. Your line is open.
Hi, good evening, and thanks for taking my question. Just wanted to go back to the discussion around key end markets and what you're seeing. I was hoping to get a little more color specifically on rates. Any discounting activity and any quantification you could provide across modular and storage, where I think you're still seeing a little pressure, but curious if any impact on margins from that and how you're seeing it in the second half.
I wouldn't say there's been a real change in the transactional activity or environment there, Angel. We've continued to see pockets where we arm our teams to look at each opportunity and take a different approach on certain projects than on others. I wouldn't say there's been any marked change. The change has been more on the large projects, where some of the fleet is getting a bit more constrained across the industry. That's really the piece I would call out. There's not much else that's moved there.
Got it. No, that's helpful. I wanted to ask about visibility and how you're running the business. Given visibility into 2027 due to some of these mega projects, what gives you confidence there won't be push-outs on some of these? And as you think about the strategy and running the business, how is that changing your appetite for CapEx? You sound like you're moving forward more with that, so as we look forward how do you mitigate risk of projects moving around?
We discuss that weekly, if not daily. The project pipeline, probability adjusted, supports the CapEx levels we're deploying this year. It's the norm for major projects to delay; we are seeing that. There's enough activity that where one delays, another starts. That dynamic makes us comfortable with these investment levels. Second, our win rates and the probabilities we're attaching to projects give us confidence. Third, the investments we're making are in versatile fleet categories. When I look at the major project activity, it's increasing; new opportunities into our pipeline were up another 14% year-over-year. Data centers are only about a quarter of that project activity. We're seeing diversity across end markets. Our enterprise account and vertical strategy is early innings but building momentum, and all else equal we'll see more large project activity from that team. It's this combination that makes us comfortable with the approach.
Very helpful. Thank you.
One moment for our next question. That will come from the line of Andrew Wittmann with Baird. Your line is open.
Great. Good evening. Thanks for taking my question. The questions on the demand environment have been asked in a couple of different ways. You talked about ex-World Cup revenue being flattish, which is good. I wanted to ask more concretely about orders and activations. I think this quarter you said order book was plus 13%, and last quarter it was 14%, so pretty stable. The one number I try to think would be helpful is activations this quarter without the World Cup. You gave moving pieces; I don't know if we can totally back into it. Last quarter you said high single digits. Was it better than that this quarter on activations?
We would've been somewhere around 10% excluding the World Cup units, Andy. The 16% was inclusive of that. So circa 10% excluding World Cup.
Okay. It seems sequentially a little bit better than last quarter. My other question: the strength in mega projects has been in place for some time, and to get the engine going for next year you may need transactional, local business to come around. Is there anything besides the rate cycle coming down to drive more demand there? What do you think it will take to get that piece of the business to come back based on what you're seeing today?
That's the first prong of our commercial strategy: improve local execution, drive enterprise accounts, and expand the value-added offering. That's been our mantra for a few quarters. Staffing across that team is up and there are initiatives to improve productivity. We recently discussed pricing and value-added products as areas of focus. We have work to do on that piece, but it's nice to have momentum in the other two pieces and operational improvements behind the scenes.
That's good context. Thanks, guys.
One moment for our next question. That will come from the line of Philip Ng with Jefferies. Your line is open.
Hey, guys. This is Maggie on for Phil. Thanks for taking my questions. First, it was encouraging to see both modular and storage units on rent inflect sequentially this quarter. I think if I back out the World Cup impact, they were still up quarter-over-quarter. Am I doing the math right there?
Yes, Maggie. Of the roughly 2,000 unit growth in modular sequentially, about half of that was World Cup and will come off rent here. Year-over-year on average that was the 750 I mentioned. If you're just looking sequentially, the entire amount is embedded there. We will drop that 1,000 from modular as those come off rent. Going forward, it's possible we could get to inflection, but I wouldn't assume it's embedded in our base guide just yet. There's normal seasonality: in Q4 on the transactional side you typically shed a bit of units. On the storage side, some of the business is front-loaded in the year, like store remodels that wrap up before fourth quarter, which will come down a little bit. Much of that is offset by normal fourth-quarter seasonality. I don't think the base guide assumes fully flat sequentially, though there's opportunity, particularly on the modular side.
All of that is helpful. Stepping back, and given growth driven by larger projects and enterprise accounts, have competitive dynamics shifted with more national players active in this space? How are you differentiating in this market?
It comes down to operational capabilities and the ability to service the customer. We're aware of changes in the competitive landscape, but we're seeing ourselves be disproportionately successful in this environment. Our strategic focus — where we're allocating resources — and the efforts we've made to improve field operations and support capabilities are geared to the value proposition that resonates with enterprise and transactional customers. Ease of doing business and customer service are key decision points. I'm encouraged that market activity is playing to our strengths, and our win rates are the evidence of our ability to compete.
Perfect. Thanks, guys.
Our next question will come from the line of Manav Patnaik with Barclays. Your line is open.
Hi, this is Ronan Kennedy in for Manav. Thank you for taking our questions. Can you speak to VAPS trends in terms of penetration, pricing, attach rates, and specifically on large projects driving demand? Are attach rates materially higher on those large projects than on traditional modular deployments?
I think you were asking about attach rates on value-added products and whether they're materially different on larger projects. I would say no, not materially. VAPS revenue was up about 3% year-over-year for the quarter. Penetration rates historically have been highest in our single-wide mobile office category, which has been a weaker category from a mix standpoint. That mix impact has been a headwind for VAPS penetration. It's an area of focus: we've been discussing initiatives to reinvigorate the VAPS portfolio. At the same time, we've introduced products like Perimeter Solutions, which is deploying across the country and growing quite well, along with climate-controlled storage and industrial tenting. Those are becoming meaningful contributors to our lease revenue and should roughly exit on a 20% growth rate. Whether it's VAPS specifically or expansions to the offering more generally, we're making progress.
Thank you. As a follow-up on margin: you mentioned 250 basis points activation impact, 160 basis points mix, and 100 basis points SG&A. Which of those components reverses most meaningfully into H2 to support your margin expectation? Assuming volume trends continue, how should we think about 2027 margin opportunity if activation cost normalizes and you capture operating leverage?
For Q3 and Q4, you'll see some impact from the D&I revenue mix subsiding a bit — our large event had a high logistics component as we moved units in and out over three months. You'll see improvement there. The big increase in cost of leasing we saw in Q2 will still be up year-over-year to support higher activity, but it won't be as big a drag in Q3. That's how you get 200 to 300 basis points of expansion into Q3. Into Q4, you get significant expansion again as D&I activity declines seasonally; maybe another 150 basis points of revenue mix improvement. We'll also get some leverage within SG&A as we build the top line. The fourth quarter outcome depends on how much transactional activity we see. Even with different outcomes, you could get meaningful expansion. Into next year, it's a mix of the same levers: entering on a growing lease revenue run rate provides operating leverage, activation activity normalization benefits margins, and our route optimization rollout and back-office improvements offer additional upside.
Yeah, probably into Q4 to kind of get you to the full year margin guide that we've given.
Thank you very much.
Thank you. One moment for our next question. That will come from the line of Josh Chan with UBS. Your line is open.
Hi. Good afternoon. Thanks for taking my question. In past periods of elevated activity, do you usually see a prolonged period of higher activity such that you'll be spending more into a strong recovery? Or can that be lumpy in terms of how much activation spike you get?
No cycle is ever the same; it can be lumpy or sustained. The point is the flexibility we have around timing to flex investments on and off. A big chunk of our CapEx is refurbishment activity we control in-house. We revisit work order production volumes at least every 90 days and can shut them down in about two weeks if necessary. We have no intention of doing that. As we progress through the second half, we'll watch activity carefully to avoid overproducing into next year. I'd be happy to continue current production rates because that benefits long-term lease revenue. But the important part is agility: we're demand-driven on refurbishment.
Thanks for that color. One follow-up on guidance: suppose you keep leasing revenue momentum into Q3 and Q4, why wouldn't the full-year revenue be stronger than your stated outlook? Is it just conservatism or cadence assumptions?
If activity remains elevated compared to our base assumption, yes, you could do a little better. Some of it depends on timing of project starts. We're being prudent. There's also transactional activity you can't predict exactly. We'll remain nimble.
Remember there's a sequential step down from Q2 to Q3 due to the World Cup, which sets the new baseline. We expect leasing revenue will be up year-over-year and continue to grow sequentially. Delivery and installation revenue can move more quickly based on project starts.
That makes a lot of sense. Thanks so much for the color, and congrats on a good quarter.
Great. Thanks, Josh.
Thank you. If you would like to ask a question, please press star one one. Our next question will come from the line of Faiza Alwi with Deutsche Bank. Your line is now open.
Hi. Tim, you alluded to internal initiatives in your prepared remarks, and it seems like you're attributing win rates to capabilities. Which internal initiatives have been most impactful?
They're across commercial and field and shared services. In the field, commercial team staffing, training, and productivity initiatives are important. We restructured the enterprise category and have been building that team for the last 12 months, which is gaining momentum. We've also been building out new product lines like cold storage and industrial tenting and Perimeter Solutions. For field operations, route optimization, real estate and fleet disposition plans have margin benefits for 2027. In shared services, there's business process improvement work. It's multi-pronged, all aimed at driving sustainable growth in a scalable way that pleases customers.
Great. On fleet constraints: how should we think about where we are from an industry utilization perspective? In 2022 and 2023 constraints helped pricing. Is the market tight in specific segments? Are you seeing higher new-unit costs overall?
The market is tightening in segments, not across the board. Based on project types we see, I expect those constraints will persist for some time, which supports the pricing environment. Inflation is real and reflected in new product cost across the supply base. Our supply base is diverse, and we have a differentiated ability to reactivate and refurbish fleet we already own. In many categories we see higher utilization levels and are supplementing those categories with some new fleet.
Great. Thank you.
Thank you. 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. 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.