WSC: The Walking Dead
EBITDA -13% year over year, units on rent -13% y/y, and ~15% of the rental fleet written-off - and it's just the begining, in our opinion.
WSC units in Fontana California
At the 2025 investor day meeting, WSC’s management confidently laid-out a path of increased financial strength that included revenue growth and 7-13% Adjusted EBITDA growth over 3-5 years from $1B to $1.5B. That narrative is dead. 9-months later, investors got financial erosion, increased leverage and asset impairment charges, which we consider a tacit acknowledgement that historical “excess cash flows” funding stock buybacks were really a diversion of cash from fleet maintenance and renewal.
There is little hope that the financial erosion will stop, in our view. Units on rent are worse than reported and the long-awaited inflection higher has been put off yet again. Declining EBITDA is going to increase leverage, asset write-offs will need to continue, in our view, and a highly capable competitor appears determined to dominate the high-end of the business, leaving WSC with its still ageing fleet to compete for the bottom end.
Weak demand, and increasing competition and expected continued decline of units on rent mean that there is little, if anything, for shareholders to look forward to over the next year as finances continue to erode.
Our thoughts:
EBITDA is going down, leverage up. Adjusted EBITDA was down -6.4% y/y and is expected to drop -20% sequentially in 1Q26. TTM EBITDA will decline to ~$942M and debt/EBITDA will increase to 3.8x from 3.7x – far above the target range of 2.5x-3.25x.
Units on Rent are worse than you think. Reported UoR were down -11.75% on a y/y basis. However, we estimate acquired units added ~2,500 UoR in 2025. On an adjusted basis, we estimate total UoR are down ~13%. UoR will continue to decline at least until 2H26 according to management. This clearly indicates lease run-offs exceeding deployments. This trend may be harder to reverse than suggested by management comments.
Fleet impairments are not enough, in our view. The company took a ~$300M charge essentially writing-off 15% of units. We believe that this is unlikely to be enough. The fleet has continued to age since our original publication. Further, increasing CapEx despite declining revenue suggests that current demand is not for the old fleet, thus the company needs to build/buy product for deployment.
No one is talking about competition, but they should. United Rentals continues to target and take share in the high-end of the modular and storage markets. In 2025, URI opened 60 new locations for the products competitive with WSC; in 2026, the company will open another ~40. Increased competition should reduce WSC wins and pressure pricing on large projects. URIs presence may leave WSC increasingly relegated to the smaller construction market, which continues to be extremely weak.
WSC continues to unwind. Lenders likely avoided a First Brands type scenario by extending the 2027 ABL to 2030, in our view. Nevertheless, the old “growth company” with “optional CapEx” narrative died along with the failed Hail Mary to acquire McGrath and underlying financial dynamics begun to surface. In our view, those dynamics will not change.
In the Quarter
The company reported $250M in adjusted EBITDA in the quarter and guided for ~$200M in 1Q26. The table below shows the recent trajectory of EBITDA along with leverage.
The accelerating top-line erosion evident in 3Q25 and 4Q25 is expected to moderate in 1Q26, likely due to acquisitions during the 2025. However, EBITDA erosion continues apace showing negative operating leverage.
With units on rent expect to continue to decline at least for 1H26, these negative trends should continue. Note that leverage is expected to increase to 3.8x, far above the company’s target range of 2.5-3.25x.
The decline in units on rent is notable, though understated, as shown below.
UoR declined -12% on an as reported basis. However, we estimate that of the estimated 3,260 units acquired 2,543 were leased. Adjusting for the acquired UoR, indicates total units on rent declined just over 28,000 on the company’s original book to 189,190 from 217,263.
While management stated that UoR may inflect higher in 2H26, there could be headwinds. In 2022 and 2023 the company acquired 15,800 storage units and 5,100 modular units. The portion that were on-lease at the time should be rolling-off, which could create additional headwinds and pressure UoR lower still.
We wonder if the fleet impairments were a negotiated settlement with lenders? The breakdown of the 53,000 units subject to what management calls “accelerated depreciation” indicates that 15% of both the modular and storage fleets were written-off. The precision of the number suggests to us that it may have been negotiated with lenders. It maintains the impression that the ABL lenders are still whole; we believe they are not.
We do not think that the write-down is adequate. Supporting our assertion is the fact that CapEx guidance continues to increase despite declining revenue and profitability. This suggests that customer demand is for products WSC does not have, thus deploying new units requires purchasing and/or building them.
We expect more write-downs in the future. The old fleet we documented in our original publication is older still.
The competitive environment continues to shift. Gen Rent giant URI is coming in hard after the high-end of WSC’s business. On the 4Q25 conference call management noted that the company’s specialty segment, which contains modular and storage, experienced broad-based growth, in contrast to WSC’s shrinkage. The company opened 60 cold starts during the year, “including 13 in the fourth quarter” alone. In 2026, URI will open approximately 40 new locations for specialty products.
In our view, URI has decided competitive advantages. We believe it will both limit WSC’s ability to compete in large projects and pressure pricing. WSC may be relegated to providing for less lucrative parts of the market that URI does not want, such as small construction.
The bifurcated demand environment does not favor WSC. Large construction projects have been robust, but smaller have not. This is evident in the Architectural Building Index is “sounding an alarm” with its weakness, according to this article.
The Conclusion is Not Good
WSC’s ABL lenders extended the due date 3-years to 2030 from 2027. Had the due date remained 2027, the company would likely default. Yet, it would not make sense to foreclose, in our view, as who would buy the old collateral? In our view, this points out that although the ABL is technically backed by the value of the assets, those assets are not worth the loan balance, because the NPV of the fleet is below the value of the debt according to our analysis. In that context, the loan extension makes sense. However, it does not change the dire implications for the value of the equity.