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spk09: Good morning, and welcome to the United Rentals Investor Conference call. Please be advised that this call is being recorded. Before we begin, note that the company's press release, comments made on today's call, and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties. many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2021, as well as two subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations. You should also note that a company's press release and today's call include references to non-GAAP terms, such as free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measures to the most comparable GAAP financial measures. Speaking today for United Rentals is Matt Flannery. President and Chief Executive Officer, and Jessica Graziano, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.
spk06: Mr. Thank you, operator, and good morning, everyone. Thanks for joining our call. I know there's a lot of interest in 2022, but before I go there, I want to take a look back because the foundation for our current outlook can be found in our 2021 performance. I'll start with our strong finish to the year. As you saw yesterday, our record results for the quarter solidly outperformed expectations for growth and profitability. We grew fourth quarter rental revenue by 25 percent year over year and total revenue by over 21 percent. And our adjusted EBITDA was 26 percent higher than a year ago with a margin improvement of 170 basis points. This translated to a solid flow through of 55 percent. These gains kept a full-year performance that was far better than we could have imagined back in January. Our team is firing on all cylinders with strong execution in the field, solid cost control, effective investment in the business, and thoughtful management of our resources, starting with our talent base. In short, it's our people who outperformed expectations, and our numbers reflected that. I want to stay with this theme for a minute and summarize some of the accomplishments for the year. We maintained a strong safety record, finishing with a full-year recordable rate of 0.79, and that was while integrating multiple acquisitions. We also grew our net headcount by 12 percent. Roughly half of that came through M&A. And the $1.4 billion of capital we allocated to acquisitions is generating attractive returns. In fact, our 2021 return on invested capital improved by 140 basis points to end the year at 10.3. We also generated $1.5 billion of free cash flow last year after investing a record $3 billion of rental capex. And we sourced that equipment in the midst of a supply chain disruption. On the ESG front, our company recently earned an upgrade to an A rating by MSCI. We've received similar scores from other ESG rating agencies, reflecting our commitment to our progressive culture. Environmental, social, and governance matters have been drivers of value in our business for more than a decade, and it's gratifying to see that recognized. Now on to 2022. As you can tell from our guidance, we're very confident in our industry's outlook for strong growth this year. A number of key indicators have been moving the needle higher for months. including the broad recovery in construction and industrial demand, the continued strength of the used equipment market, and the economy that's moving in the right direction, despite some lingering challenges. Given these dynamics, it's not surprising that industry sources show a steady increase in confidence among contractors. And our own customer confidence index improved throughout 2021, ending at its highest point at the end of the year. And importantly, The same optimism was echoed by our field leaders last month as we worked through our annual planning process. And we heard it again at our virtual meeting. We had our annual managed meeting virtually two weeks ago, and this meeting is always a great opportunity to get everyone aligned on goals and strategies, and it's clear that our people are fired up for the opportunity. They could see the benefits of the countless improvements that we've made over the past decade, both operationally and also with our customer service. and they know those efficiencies count for a lot as we grow the top line. The biggest signpost pointing to ongoing growth in 2022 is the diversity of the demand that we're seeing in our end markets. In the fourth quarter, we grew rental revenue by double digits across all of our regions, and all verticals showed positive growth as well. And these were solid increases, with rental revenues from non-res construction verticals up 24 percent year over year, and infrastructure up 11%. Industrial also grew 11%, with strong gains in refining, metals and minerals, and power. And it's notable that both non-res and industrial picked up steam in the back half of 21, with year-over-year rental revenue gains in Q4 coming in higher than those of Q3. Our specialty segment had another strong performance, with every line of business growing double-digit year-over-year. The segment as a whole reported a rental revenue gain of 45 percent, including a pro forma growth of 28 percent. This year, we're planning for around 40 cold starts in specialty, following the 30 that we opened this last year. Specialty is key to our competitive differentiation, and given the segment's history of high returns, expansion will continue to be a priority for us. I'm sharing these numbers to underscore the point I made at the start of my comments. that the building blocks for our current outlook were laid in 2021. Our core markets have recovered faster than expected, and the underlying construction and industrial forecasts are positive. The broad-based acceleration of the last 12 months has become the foundation for a new cycle of growth. And for the first time since COVID arrived, we're seeing a sustained improvement in long-term visibility, which gives us some insight into future market conditions. And that's a huge plus for us after two years of uncharted waters. I'll mention a couple of tailwinds on our radar. One, of course, is the infrastructure bill, which will add an additional $550 billion of funding for projects directly in our wheelhouse over the next five years. We've been expanding our infrastructure capabilities for years, and we have a rock-solid value proposition with traction in the right verticals for this bill. We expect to see some benefits as early as 2023. Another tailwind in our future is the relocation of manufacturing operations back to the U.S. Onshoring initially drives demand for construction, followed by the need for our industrial services once they're up and running. The pandemic has caused manufacturers to rethink how they operate, and we've already seen some funding for new projects tied to this trend. Along with the increase in customer demand comes a large responsibility to have equipment available for rent. And I mentioned that we brought in $3 billion of fleet last year when equipment wasn't easy to find, and that was a home run for the company and for our customers. We're continuing to work with our strategic partners to land a similar amount of fleet this year. And finally, before Jessica goes over the numbers, I want to mention an announcement we made yesterday and a milestone that's coming up later this year. The announcement is our share repurchase program. We expect this program to return a billion dollars to shareholders in 2022. And the milestone I mentioned is our anniversary. United Rentals will turn 25 years old this year. And as you know, we've been a growth story from day one. Even so, I don't think there's been a time in our history when our strategy, culture, and financial strength have been more of an advantage than they are right now in this new cycle. We have a highly engaged team. a cohesive customer service network, and industry-leading scale that matches the market opportunity. We built these levers into the business to create shareholder value, and they did their job in 2021. Now, we'll take that to the next level this year and for the foreseeable future. And with that, I'll ask Jess to cover the results, and then we'll go to Q&A. So, Jess, over to you.
spk11: Thanks, Matt, and good morning, everyone. Our fourth quarter results exceeded expectations behind better seasonal trends in rental revenue and continued disciplining costs. We delivered record results with our total revenue, rental revenue, and adjusted EBITDA surpassing pre-pandemic levels for both the quarter and the full year. The momentum we carried out of the quarter is reflected in the growth you see in our 2022 guidance. And even as we invested record amounts in CapEx last year, we generated a significant amount of free cash flow at just over $1.5 billion. And we expect to generate even more this year. And more on 22 guidance in a bit, let's dive a little deeper first into the results for the fourth quarter. Rental revenue for the fourth quarter was 2.3 billion, an increase of 458 million or 24.7% year over year. Within rental revenue, OER increased 345 million or 22.1%. Our average fleet size was up 13.3%, or a $207 million tailwind to revenue. Better fleet productivity provided an additional 10.3%, or $161 million. And rounding out the change in OER is the inflation impact of 1.5%, which was a drag of 23 million. Also within rental, ancillary revenues in the quarter were up about $92 million, or 36%. That's primarily due to increased delivery fees and other pass-through charges. Re-rent was up $21 million. Used sales for the quarter were $324 million, which was up $49 million, or about 18% from the fourth quarter last year. The used market continues to be very strong. which supported higher pricing and margin in the fourth quarter. Adjusted used margin was 52.2%, which represents a sequential improvement of 190 basis points and a year-over-year improvement of 970 basis points. Our used proceeds in Q4 recovered a very healthy 60% of the original cost for fleet that averaged over seven years old. Let's move to EBITDA. Adjusted EBITDA for the quarter was just over $1.3 billion, an increase of 26% year-over-year, or $272 million. The dollar change includes a $282 million increase from rentals, and in that, OER contributed $245 million. Ancillary was up $33 million, and re-rent added $4 million. Used sales helped Adjusted EBITDA by $52 million. SG&A was a headwind to adjusted EBITDA of $58 million, in part from the reset of bonus expense that we've discussed on our prior earnings calls. We also had higher commissions on better revenues and higher T&E, which continues to normalize. Other non-rental lines of business were also a headwind of $4 million. Our adjusted EBITDA margin in the quarter was 47.2%. That's up 170 basis points year over year. with a solid flow through of 55%. This reflects, in large part, the strong underlying cost performance in the fourth quarter, which absorbed costs that continue to normalize, inflation headwinds, and the fourth quarter impact of our bonus reset. I'll shift to adjusted EPS, which was $7.39 for the fourth quarter. That's up 47%, or $2.35 versus last year. primarily from higher net income. Looking at CapEx, gross rental CapEx was 690 million, the largest fourth quarter we've ever had. We put that fleet to work supporting the demand we saw in the quarter, which will carry into the start of 2022. Our proceeds from used equipment sales were 324 million, resulting in net CapEx in the fourth quarter of 366 million. That's up $465 million versus the fourth quarter last year. Now turning to ROIC, which was a healthy 10.3% on a trailing 12-month basis. That's up 80 basis points sequentially and 140 basis points year over year. Importantly, our ROIC continues to run comfortably above our weighted average cost of capital. Let's turn to free cash flow and the balance sheet. As I mentioned earlier, we generated over $1.5 billion in free cash flow after investing a record $3 billion in CapEx last year. We deployed that free cash flow to help fund over $1.4 billion in acquisition activity. We've also continued to delever the balance sheet, which is in great shape. Leverage was 2.2 times at the end of the fourth quarter. That's down 20 basis points sequentially and versus the end of 2020. liquidity at the end of the year remains robust at over $2.85 billion that's made up of abl capacity of just over 2.65 billion and availability on our air facility of 57 million we also had $144 million in cash. let's look forward now and talk about our guidance for 2022 which we shared in our press release last night. the headline here. is our plan to deliver a year of strong, profitable growth, servicing our customers in this new cycle. Our total revenue range is supported by solid demand we expect to see broadly across our end markets in 2022, equating to almost 12% year-over-year growth at the midpoint. That will be supported by a significant investment in growth capital included in the growth capex guidance. Our adjusted EBITDA range includes the impact of our remaining diligent on costs as we manage inflation this year. At the midpoint, we'll generate over $5 billion of adjusted EBITDA growing mid-teens year-over-year. Implied margins expand over 100 basis points with flow-through in the mid-50s. We expect to generate another year of significant free cash flow, getting to $1.6 billion at the midpoint. The strength of our cash flow continues to provide significant firepower available to invest in growth while maintaining a healthy balance sheet. It also provides an opportunity to return cash to shareholders. As Matt mentioned, this week our board authorized a new $1 billion share repurchase program, which we intend to complete in 2022. This leaves us plenty of capacity given our leverage targets for M&A. Now let's get to your questions. Operator, would you please open the line?
spk10: Thank you. We will now take your questions. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Russo with Evercore ISI. Please go ahead.
spk15: Hi. Good morning. I mean, listening to your comments you know, about the demand profile. And we know the market's pretty tight out there right now. So, I mean, it seems like you're pretty comfortable with some near-term project visibility, even some of the secular trends you mentioned, even outside the infrastructure bill. Your cash flow obviously has kind of proven itself now over the last decade or so. But I'm curious more on the margins. The last 10 years, your EBITDA margins have averaged around, you know, 46.7. This year, you're guiding 46.5, which is, you know, a nice incremental margin. from 21 but I'm just curious when you look at the margin profile and how you run the company and I know it's been a little more about returns but still I'm just curious when you look at the margin profile and I know some of the margin issue has been you've bought some businesses with lower margins but better return on capital profiles but I'm just curious how do you think about the margins for the company if we were comfortable with the demand profile you know for the next you know few years Where is the margin potential, you think, be it cost of rental, which is also right now still below the last 10-year average, or the EBITDA total company level? Just curious how you think about it and what the potential is for the business model.
spk06: So, David, you accurately touched on the acquisitions. Being a little bit of a misnomer to the headline, so you can look at a headline, and I think we even have a slide in the deck, where EVA looks like it may have flattened out since 14-15, but when you aggregate the acquisitions that we've done since that period of time, we've acquired almost $3 billion worth of revenue at an average EBITDA of 38%. So I'm actually really pleased that the team was able to keep the high level of margins that we expect while absorbing those. Now to your question about where future margins could be, The honest answer is it depends on what we acquire and how we grow. Like, what are the businesses we grow in? But we're much more focused on returns, and can we be a better owner? That's why we could turn that 38% margin into mid-40s, because we felt we could be a better owner for those businesses in our network. And that's the way we'll look at it in the future. You know, 22 at the midpoint, guys, is up margins significantly. nicely up, so we feel really good about that. And we wouldn't just look at margins when we're looking at where we're going to get our growth from. We're going to look at overall returns is the way I'd answer that.
spk15: When you look at the profile for 22, the buckets from labor costs, maintenance via parts, or even delivery costs, where there is some inflationary pressure, I would say the incrementals for next year were maybe a little better than we were thinking you could at least guide to initially. What are some of the buckets you've been able to maybe control those costs or find some other offsets that we can be comfortable with that guide?
spk11: Morning, David, Jess. You know, as we think about 2022, you're right. Listen, it's definitely going to be an inflationary environment, but there isn't any one area that we would single out that we would say we think that there will be something that we can't manage through. Right, so puts and takes as we've put the plan together and feel comfortable with the guidance and where that flow through increase is kind of coming out. So there's nothing that we would highlight to say, you know, it's going to take an extraordinary effort one way or the other. We feel really good that as we think about, you know, just starting with the kind of growth that we'll generate, right, that's going to then also continue to give us the opportunity as we stay diligent on cost to be able to deliver that margin benefit, and that flow through in the 50s. And we feel really good about that. So nothing I would point to specifically, I think, that's causing us any extraordinary action.
spk15: And just to wrap up, then I'll leave it at this. The fourth quarter just reported anything abnormal in it that helped provide the EBITDA beat more so even than the revenue beat. Even the rental level margin before any used equipment sales were also a little bit higher than we were modeling. So I just want to make sure there's nothing unique in that number.
spk06: No, no. Just obviously the revenue coming in higher always helps with the fixed cost portion. But just to Jess's point, just good, solid P&L management top to bottom.
spk15: All right. Thank you very much.
spk06: Thank you.
spk10: Your next question comes from Ross Gilardi with the Bank of America. Please go ahead.
spk14: I was interested in your comments that the benefits from federal infrastructure could kick in as early as 2023. I mean, I would think that'd be the latest that would kick in. So can you give us a little more flavor of what, you know, what you're hearing from Washington? I mean, is it taking longer than you expect for the funds to get appropriated? And can you give us a little more sense of how you go to market to make sure that you are capturing the maximum portion of the project activity that will come out of the bill?
spk06: Sure, Austin. So as you know, we've been focused on infrastructure for quite some time because we know how big the latent demand was long before the bill. We're just not seeing that money be appropriated to shovel-ready projects, but we're still seeing our infrastructure revenue grow. We talked about it growing 11% in Q4. So we're very well positioned, and when you think about the type of large customers that the largest civil contractors in the U.S. that will benefit from this, it plays right into our value proposition for large national accounts. So we actually think we're real well positioned from a customer perspective. We think we're very well positioned from a product perspective. And to be fair, most of these products are fungible from our other end markets that we serve, but we have gone and bought specific assets to help fortify that infrastructure, whether they be you know, message boards, traffic continuators. So we're really like where we're positioned, and we think we'll probably be able to outpunch our weight when that infrastructure bill does get turned into shovel-ready projects. But we haven't seen a lot of the funding turn into actual rental opportunity, and we think that'll start happening in 23. If it happens sooner, that's great news. We'll be ready for it.
spk14: But, I mean, does it feel like the timing is getting pushed out just because you haven't seen anything yet? I mean, I get that you're ready now and your infrastructure business is performing very well now and you're investing, but specifically on the bill itself, does it feel like it's just going to most likely be more of a second half 23 type event? Can you give us a flavor of anything you're hearing?
spk06: So we've been talking about this bill for three years. I think it will manifest into shovel-ready projects maybe as early as the back half of this year. But as I said in the prepared March, we're thinking by 23, we'll start being able to take advantage of that funding. Our customers will be able to put it to work and therefore need our services. Think about the supply chain needs once the money is appropriated. Then you have the planning process for the projects. You have the materials. So we do come in a little bit on the midpoint to latter end of the funding actually being assigned to a specific project. But we're not terribly worried about that timing. One of the things we've learned in the last two years is how quick we can flex up and down depending upon what the needs are.
spk11: And Rob, just to add a quick comment on the timing aspect, it's This is consistent with what we've been expecting, right? We've been consistently expecting this was more of a 2023 event as we've been following, you know, the communication of the bill from Washington. So there's no change from our perspective, right? Just wanted to cover that as well.
spk14: Yeah, not at all. Okay. And do you have CapEx for federal infrastructure bill built into your 22 CapEx guide at all? I mean, I presume you're not going to. I presume you're going to buy at least some of that in advance of 2023, and I'm just wondering, does that represent upside to your 2022 CapEx outlook if you get a little bit more visibility by the middle of this year?
spk06: If everything played out as we're – and we have a range, as you know – but if everything played out as we're projecting right now and then we got some over and above, that would be a reasonable thought as long as it's not shifting from one end market to the other. But I think – We feel really good about where we are with CapEx for this year, and even the $3 billion headline number for 2022 is a little bit understated because you saw what we brought in, almost $700 million in Q4, and a lot of that is, we could call that, we pulled it in advance for what we think is going to be a robust growth year in 2022.
spk14: Okay. If I could just squeeze in one more. On oil and gas, can you just comment on what you're seeing? I would assume some activity is coming back. Any way to Think about the mixed tailwind you might get as activity in the oil patch picks up again, assuming it does.
spk06: Yeah, so as I had mentioned in prepared remarks, all verticals that we participated in grew year over year, and oil and gas did as well. When you think about the upstream, downstream, midstream combination, they grew by 15% in Q4, and now that's down to about 9% of our total revenues now, but we're pleased for an end market that was, you know, singing the blues for a couple of years now, we're pleased for our people out there, specifically those out in Shale, Texas, to get some of this work activated and drive a little bit more volume there. Thank you. Thanks, Ross.
spk10: Your next question comes from the line of Steven Fisher with UBS. Go ahead.
spk04: Thanks. Good morning. On the capital allocation side, as you pointed out, you still have a lot of flexibility, even with the billion dollars of buybacks. I'm curious, what's most important to you when you think about the M&A landscape? Is it first adding more specialty? Is it getting more access to equipment technicians? Is it adding more branch density or just really being opportunistic regardless of what the value proposition is, if it's interesting enough? How would you kind of what's most important to you on this M&A front and where you're seeing the opportunities come to you at the moment.
spk06: Sure, Stephen. And as you noted, you know, the billion-dollar share repo does not prevent us at all from M&A. So we're real excited. And the pipeline's broad. It's broad both in scale and has been for the last year and also in market opportunities. So when we think about how we prioritize M&A, First and foremost, think about like the GFN deal. Anytime we can add a new product or service to our customers, that's a home run. The integration is easier. We get to put our cross-sell engine to work, especially if they're not fully formed, so to speak, where they have white space and they're not operating in all of our MSAs that we operate in. That makes the growth opportunity really strong and makes us a better owner. So that's priority number one. Second is specialty, partly because specialty has more white space. for us, even geographically, but even through a penetration perspective. So we think that would be our secondary prioritization. And then on the Gen Red side, you saw us do a couple of tuck-in deals this year that we really liked. So we're going to take the opportunity to get more capacity, as you said, whether it's people, real estate, or fleet, whatever the math makes sense. We feel we're really good integrators. We have a history of doing well with M&A. And, you know, Jess and the team have put together a balance sheet that affords us to do it. So it's still very much on our radar.
spk04: Great. And then just to continue on with the maintenance technicians, I'm curious how utilized your folks are there at the moment. You've been taking in a lot of fleet, and I'm curious how much more fleet they can handle. Are you able to hire them at the pace of your fleet growth? to be able to make sure that you maintain the equipment adequately and get it out on rent, back on rent quickly and efficiently?
spk06: Yeah, I would say that we have run, and you see it show up in our fleet productivity, we have run about as hot as I can remember in this past year, specifically in the back half of 21. And, you know, our team held up really strong, did a great job, And we didn't have to rely too much on third party or overtime, which is why you saw the margin come in well. So we feel good about where we are. But recruiting, especially in a market like this, is nonstop. We have an internal team, a robust internal team that helps with this. And that's why we were able to add 12%, so really say 6% if you took out the M&A in 2021. And that's a continued focus for us this year because as much as technology enables our people, that last mile is going to have that human touch for a while for the foreseeable future. And it's those people in the field that we need to make sure we have working safely and efficiently, and they're doing a great job. Thanks, Matt. Thank you.
spk10: Your next question comes from Rob Rothermeyer with Millis Research. Go ahead.
spk07: Yeah, hey, good morning, everyone. I had two questions kind of related to fleet. I mean, one is just, I don't know if there's availability if demand shows up stronger or whether your fleet purchasing is a little bit supply constrained. So is there any flex up there if the market is strong? And then just a second question. I know you don't talk time utilization exactly, but I'm a little bit curious about how you stand on your ability to sort of improve those metrics versus, say, the last time you were really hot in 2018 roughly. Have you gotten a little bit more efficient? Did you reach your sort of max and need to add more fleet? Maybe just talk through efficiencies. Thank you.
spk06: Sure, Rob. So I'll answer the last part first, and then maybe Jeff will take the first part. When I think about time utilization, you know that we don't like to get to the individual components of fleet productivity. But in the vein of being helpful here, as you've seen, we've been driving robust fleet productivity for the past few quarters. And we think we have an opportunity partly due because of how well we're running, but also because the comp's a little easier here in Q1. to drive that kind of level. But then once we get into Q2, 3, and 4 of 22, I think the time utilization part of that fleet productivity opportunity is going to be pretty close to exhausted. We'd be really pleased operationally if we were able to match the levels of time use that we ran in quarters 2, 3, and 4 of 21, again, 2, 3, and 4 of 22. So that's just, you know, not going to tie to historical levels, but it's really, really robust time use that we're very pleased with. Don't mistake that for that we don't still have opportunity to drive fleet productivity comfortably above our threshold of one and a half, because we still have two other levers there in fleet productivity that we're going to be managing appropriately. And I think the end market supply-demand dynamics, the discipline of the industry, all may have comfort with that number.
spk11: so i'll take uh fleet availability you know when we think about what we are underwriting in the guidance right so let's talk three billion dollars in at the at the midpoint uh there's no doubt we think it'll continue to be a challenging supply chain um and we're really proud of what the team has been able to do working closely with our partners right our our suppliers in sourcing what we were able to source in 2021. we feel good that even with those challenges we'll be able to source what we're, you know, we're looking for in our guidance in 2022. And, you know, it's going to be definitely comfortable on the amount of fleet we think we can source. Now the timing, we're expecting the timing, it'll look something like, you know, kind of a normal seasonal cadence as we've done in the past. But if we have an opportunity to bring in some fleet a little earlier this year, we will likely do that too. So that timing can move around a little bit, but I would say on the whole, we feel comfortable that we're going to be able to get what we need through the year.
spk07: Okay. Thank you.
spk11: Thanks, Rob. Thanks, Rob.
spk10: Your next question comes from Jerry Rivage with Goldman Sachs. Go ahead.
spk12: Yes, hi. Good morning, everyone. Hi. Justin, why don't we start on GFN. When you folks were announcing the acquisition, you spoke about over time getting the margins and dollar utilization of that business closer to industry comps. Where are we in that journey today as you look at the 22 guidance? How far do you think you folks will close the gap there? And can you just give us an update on the location count and what you folks think you'll be able to do by your end to ramp that up
spk11: Yeah, thanks, Sherry. It's a great question. I think we had shared when we did the acquisition, it'll take us some time to get to that kind of margin profile similar to industry peers. I think the real opportunity for us, and we've been really excited even post-acquisition, is to look at the kind of growth opportunity that we have with that business. The margins will actually kind of come in line with that growth that we're anticipating. As Matt mentioned, we continue to look at growing that business through cross-sell and as we look at the cold start opportunity that we have to increase the footprint for mobile storage for United. So not there yet, but definitely on the way. as we really focus on getting the growth that we expect with that business.
spk06: And I would just add, Jerry, with what we thought going in about that this was the right team to enter this product with and that the end market would be a comfortable cross-sell for our customers is working out fine. And so that's a real important part of what Jeff stated to reach our growth goals. So we're feeling good about it.
spk12: Got it. Okay, great. And, you know, on a separate note, when we look at the double-digit price increases on new equipment put through by all the industry suppliers, you know, how do you folks think about over what time frame those increases are going to be passed through? You know, obviously you folks have locked in pricing given your market position, but overall, given the sharp increase, I'm wondering over what time frame do you expect the market to adjust and that you have to push through the pricing to keep returns where they need to be.
spk06: So I think, and not just for us, but for the OEMs as well, there's a balance between just pushing all your inefficiency downhill and making sure that you're pricing downhill and making sure you do the right thing for your business so you don't have to pass it all on to your customer. And that's what we focus on. So I think that the industry is in good shape right now. I think it's a responsible reaction. to the realities of the supply chain, right? So I wouldn't go to the double-digit area right now. I know there's a lot of talk out there, but we're not seeing those type of increases. But regardless of that, this is still an opportunity for us. Our team works real hard out there. We do have cost creep in the business, as does everybody, and we've got to make sure that we continue to manage P&L from top to bottom, and you'll see us continue to do that.
spk12: Okay, thanks. Thank you.
spk10: Your next question comes from Ken Newman with KeyBank Capital Markets. Go ahead.
spk13: Hey, good morning, guys. Good morning. So I appreciate the earlier comments on fleet productivity and equipment availability. You know, obviously it seems like some of your larger suppliers are expecting deliveries for new equipment to really open up in the back half. Can you just talk about a little bit more in color about how you view fleet availability in the back half of this year and just where you see the impact potentially on industry rental rates utilization?
spk06: Yeah, I mean, I'm not sure our suppliers all know just what that means, right, about how fast and how robustly the supply chain will get back to normal, let's say. But I will say that they've been working really well with us, and that's why we're able to get the fleet we are. Do I think there's an opportunity to accelerate stuff in the first half, that'll probably be a bigger challenge. But Ross had asked earlier about the infrastructure bill. If the market, which you've come out with our guidance, pretty robust feeling about the market right now, if that ramps up and the supply chain goes, I think there's a little bit more room for more capital. I'm not betting on that, which is why we brought in all the capital that we brought in in Q4. In a normal year, maybe we would have pushed some of that out into the spring. and stick with our just-in-time philosophy. That's not the environment we're in right now, and I think we all got to live that reality. And I really, you know, I feel for our partners because I know they're trying to do the best they can for us and the challenges they have. I haven't seen clear signs of people getting ahead of the order board yet. So I think the guide that we gave is aggressive and appropriate.
spk13: Got it. And then for my follow-up, you know, I may have missed this in your prepared comments, but I think in the past you've talked a little bit about – just your internal customer survey on backlogs, and I'm curious if you just have any color on where that's trending and whether or not you expect it to trend further upward.
spk06: Yeah, so we're at the highest levels we've been since pre-pandemic, and we closed our latest one in Q4 there at the highest level. So that momentum just continued to build throughout 2021. And we call it our Customer Confidence Index, our CCI, is really strong. What gives me more comfort is that our managers, when we went through our budgeting process, were very bullish. They're getting good feedback through their sales teams and their relationships with our customers on the ground that all feel really good about 2022. So I think all signs are pointing to a good growth year, which is why we came out with the strong guidance that we did.
spk13: Thank you very much.
spk06: Thank you, Kent.
spk10: Your next question comes from Mig Dobre with Baird. Go ahead.
spk16: Hey, good morning. Matt, I appreciate all the color and comments in terms of the customer confidence that you're seeing and what you're saying about infrastructure in 2023 starting to be additive makes a lot of sense to me. So on that basis, I'm just sort of trying to interpret the gross capex guidance that you're providing here at $3 billion, because if you are seeing some inflation, presumably then the number of units that you're getting is at least modestly lower than what you've gotten in 2021. And You know, per what you were saying earlier, the opportunity for time utilization on the fleet is sort of largely exhausted, but demand looks pretty good. So in an environment like this, wouldn't you normally want to spend more and add to the fleet, add units to the fleet to prepare yourself for growth, for further growth, I should say, into 2023 as infrastructure potentially accelerates?
spk06: Yeah, it's a great point. And it's one of the reasons why we brought in 690 million in Q4, because we exactly feel that. So that's why I said earlier, the 3 billion called the same year over year is a little bit of misnomer, because what would we bring in a normal Q4? 250, maybe 300. So we brought in almost double what we would in a normal Q4. So I think that's a bit of a hedge towards what you're talking about. Now, if if the infrastructure work starts to step up sooner, or just activity overall, it doesn't have to be infrastructure, and we see the supply chain remedy in the back half of the year, we'll do what we did this year. We'll pull it forward, especially as we have even better visibility to 23 at that point. I still think this is a pretty strong guy coming out, so I don't want to run away from it, but if the dynamics present itself as such that there's the opportunity to grow more, profitable growth, we will do it. And I think we've proven that this year, and that's the great part of the flexibility of the model.
spk16: Okay, understood. But, you know, you're not encountering any challenges with potentially securing production slots because, you know, you obviously have been very successful getting early production slots, and I would imagine that there are other mouths to feed on a part of your suppliers. And if allocation is tight, you know, I don't know if that's part of the discussion or part of the challenge that you have to manage through.
spk06: Yeah, it's part of what we manage through, right? So I would like to think that our partners feel equally strong about us as we do them. And you know what? Their actions this past year have proven that. So I'm counting on that to continue. Without the partners, it's a whole different ballgame. But I think we're well-positioned and the dialogue's you know, very transparent about how quick things move. So we're working well together so that we can have the appropriate fleet for the opportunity when it presents itself.
spk16: Understood. And then one final question, kind of a near-term question, if I may. I'm kind of curious as to how you're thinking about the first quarter, you know, seasonally here. I mean, normally we are seeing a bit of a revenue step down seasonally in Q1. But there's kind of a lot of moving pieces here in terms of where demand is. It sounds like things are quite good and, you know, the industry is still pretty tight. So, you know, can you maybe do a little hand-holding here as to how we should be thinking about revenue and maybe even flow-through margins in Q1 versus the full-year guide? Thanks.
spk06: Yeah, no, I'd love to help you there, but we're going to stick to our guns and not talk about inter-quarter results. But I do – You know, Q1 is always going to be our lowest seasonal quarter, but we think this momentum will help, and we're going to continue to build off that momentum, and the real build will come in the spring as usual.
spk16: Appreciate it. Good luck. Thank you.
spk10: Your next question comes from Tim Thine with Citigroup. Go ahead.
spk03: Thank you. Good morning, Matt. I just wanted to come back to the earlier comment about You know, don't, don't expect time to be the real driver as we get past the first quarter. So, you know, obviously rate in the mix, uh, have to do more of the heavy lifting, which certainly has implications for, for margins. And I'm just thinking back, you know, if you look back at historical periods, when rate was expanding at, it was called, you know, above the average levels and there, there weren't distortions from M and a United was. you know, pretty consistently getting to that 60% kind of flow through number that we often use is kind of a, you know, benchmark. Do you think does, does the, the environment we're in, obviously there's the degree and magnitude of these factors will of course matter, but is the inflationary environment that we're in supply chain, you know, choppiness that we're in, does that, does that, preclude that or not in terms of just thinking about could there be upside here in later quarters if, in fact, you do start to see potentially rate driving more of the fleet productivity?
spk06: Yeah, and just to be clear, I don't want anybody to mistake that all of our fleet productivity – no, because you guys can make some mistakes with the math here – but all of our fleet productivity was driven by absorption It's just that portion of it's going to go away. We've been getting support from all three components of fleet productivity in 21. So for your question of what 22 looks like in the base year. As far as, you know, the flow through, it certainly could be better if we didn't have the inflationary, just natural inflation on everything from copy paper to bottles of water. We all live in the world. We know what's going on out there, but we still think, you know, no apologies for 55% flow through. When you're growing the business at 12%, we are very pleased with that. You make a fair point. Could it be higher if we were in inflation? Yeah, Mike. There's a lot of things that could be better, but we've got to control what we can control and take the opportunity to present themselves. And we're really pleased with the guide that we gave him.
spk03: Yeah. No, it wasn't meant as a knock. No, no. I know. I know. Yeah. And then the second is just on the revenue guide. if we you know just make our own assumptions on on fleet growth uh based on the capex guide and and you know our assumptions obviously there's a lot of them but you know rate and other factors it would by our math anyway suggest that equipment the equipment rental piece um could potentially grow you know maybe in excess of what's implied but you know that's not the entire there's other factors that that of course, get added up into that total revenue. So are there, of the other lines, obviously they're a lot smaller, but are there other factors that we should be thinking about? I would imagine the sales of new equipment probably aren't growing, but are there other factors that maybe you can help us just think about in terms of what potentially goes against equipment rental growth in the context of the top line?
spk11: Hey, Kim, it's Jess. Let me see if I can help with the math a little bit. So if you think about the total revenue growth, right, at let's call it 11.7 at the midpoint, just based on, again, kind of midpoints of what we're looking at for used, you could assume that the growth within that number for used is probably something at midpoint in the area of about 8.5%. Right. So that should that should help a little bit in kind of recalibrating the math on what you might be using for rental growth within that total that that total revenue piece. So so that's I hope that's helpful right to just sort of recalibrate where where you think that rental could shake out.
spk03: Got it. Yep. I was thinking other like ancillary and other In fact, we can chat offline on that. And then just one quick one, Jess. Just the operating cash flow guide, just getting from EBITDA of almost half a billion dollars year on year and operating cash flows effectively flat, working capital potentially or cash taxes, what are the big components of that?
spk11: Both, actually. Tim, so right now we're looking at cash taxes being up somewhere in the neighborhood of about $200 million. And that's largely coming from the increase in the pre-tax income that we're expecting. And then the rest, as you mentioned, is working capital. And that's really more about kind of the normal payment terms and largely just timing of payment on the capex.
spk03: Understood. Okay. Thank you very much.
spk11: Sure. Thanks, Tim. Thanks, Tim.
spk10: Your next question comes from Stanley Elliott with Stiefel. Go ahead.
spk02: Hey, Matt. Hey, Jess. Thank you guys for fitting me in. Quick question. With all the survey work you guys are doing and talking to people on the ground, obviously very bullish and excited. Has anybody expressed any concern around labor availability? Not necessarily for you all. You know, you're a hire of choice. Really more for the contractor base. And what risk, if any, does that present to some of the outlooks that we're thinking about?
spk06: So for as long as I've been in the business, contractors are complaining against getting the labor, but it's certainly exacerbated in this post-COVID world we're in. But we haven't seen project delays or cancellations from it, so that's really the important part. But it's topical. I think all of us on the supply side and on the build side, meaning our customers, are all working harder than we ever had before to bring in labor. And, you know, it's just part of the new rules of the game. But they're getting it done. And as I said, there's a lot, very topical, but not any cancellations or delays that we see because of it.
spk02: And I guess switching gears, I'll ask a quick question about the international business because there is some stimulus and some infrastructure spend in various other parts of the world where you all now have a footprint. How is that business performing up to expectations, you know, Is that going to get much of the growth capex? Just curious how you're thinking about that.
spk06: Yeah, so actually our teams both in Europe and New Zealand, Australia, which as you guys know, two totally different businesses with the European part coming from the Baker acquisition and the New Zealand, Australia group coming from the general finance acquisition with mobile storage are both doing great. They've actually both grown in the high 20% in Q4. They're really... The European folks have been with us longer, but they've really taken to being part of the United team and very pleased that we're able to fund their growth. So I would say both exceeded expectations a little bit. Admittedly, the team in Europe had to deal with severe drop during COVID, but they bounced back from that and got back to pre-pandemic levels. So we're very pleased with the results there.
spk02: Perfect. Thanks so much and best of luck.
spk10: Your next question comes from Scott Snaberger with Oppenheimer. Go ahead.
spk08: Thanks very much. I guess I'll start off on specialty. Just curious, you know, an acceleration in the cold start plans for this year. Just if you could delve a little bit more into maybe some specificity of what specialty categories you're pursuing. And you touched earlier, Matt, on specialty. GFN and it's progressing well. But just curious, if you could address or maybe just come in on this, the cost savings and revenue synergies, is that where you wanted it to be at this point or are you beyond that point? Just curious on that progress. Thanks.
spk06: Yes, sure. And just on that last part, there's it wasn't a cost play, right? So GFM was not a cost play in any way, shape, or form. So there's not a lot that Chet has to add there because that was a grow, grow, grow play, 100%. And we're pleased with what we're seeing on that. So as you can imagine, they're going to have a decent amount of that targeted 40 cold starts that we're going to have this year. But the other area that we'd want to do is our ROS business, right? Our affordable sanitation business has a lot of growth goals, and we continue to grow you know, parts of our power HVAC business. And it's specialty overall, but the leading two product lines that we'll be doing cold starts in would certainly be mobile storage and then our reliable onsite with the portable sanitation.
spk08: Thanks. Appreciate that. And then the, with regard to just the purchasing from the OEMs this year, obviously you, typically October, you go out to them and then obviously there have been supply chain issues. So I'm just curious if you could share with us, you know, you typically purchase for each asset class just one or two vendors. Were you forced to go broader this year? You obviously sound very confident on your ability to procure equipment. So just curious on some of the behind the scenes of interacting with your partners. Have you had to go in different directions or add a third per asset class? And then what type of fleet age are you looking for and how do you weigh that with repair and maintenance expense just on the go forward? What's implied in the guidance and where could that be longer term? Thanks.
spk06: Yeah. So on the brands that we're buying from, the partners that we're partnering with, we certainly expanded from just not our top in each one, but maybe we had to go to number three. We're always dealing with at least two vendors in each product category. So maybe we extended to a couple of other approved suppliers. We're not talking, you know, no knockoff brands or anything like that, but just people that weren't winning one of the top two spots, but very capable product suppliers. So we definitely expanded into number three and even number four in some areas to achieve the capital growth that you saw us achieve in 21. And we expect we're going to be doing that. We actually found some pretty good results from some of these folks who are looking to get in with the team in a bigger way than maybe they have historically. So that's an opportunity for us to continue to find new ways to solve problems for customers. And, you know, the OEMs and us are teammates. We have to communicate with each other regularly. It's not just the price negotiation October and then see you next year. So these guys are interacting at the ground level daily. on deliveries, on slots, whether they're slipping, whether there's opportunity to buy more. And that's an ongoing relationship with the customers. As far as the fleet age, Jeff?
spk11: I'm happy to take that. Yeah, so the fleet age really is more of an output for us and is really going to depend on fleet mix, what we buy, what we sell. There isn't necessarily a target that we're working towards. And even on the R&M side for repair and maintenance, less of a target per se and definitely not tied to fleet age, that's more considered when we do the calculations of our rental useful life by asset, where we then determine the right time at which to sell the asset, right, considering what it would end up costing us as we think about repair and maintenance as that asset gets older. So that's really where we would consider the impact of repair and maintenance you know, within the kind of that RUL or rental useful life calculation. So I hope that's helpful.
spk08: It is. Thanks, Jess. Appreciate it. Great.
spk11: Sure.
spk10: And the last question comes from Courtney Yacovannis with Morgan Stanley. Go ahead.
spk01: Hi. Thanks, guys. Just wondering if we can delve back into the infrastructure discussion a bit. Can you just help us understand, you know, where your portfolio is kind of or which types of projects your portfolio is most exposed to when we think about the different components of the bill, whether it's more traditional roads and bridges or air and water or the investment in the grid. If you can just help us think about that, because I think you had mentioned some message boards and traffic continuators that might be a little bit more exposed to the traditional elements. And then also whether you would expect, you know, your specialty portfolio to have a significant impact from some of that spend.
spk06: Sure, Courtney. So the infrastructure definition can be quite broad for some, and it is for us in the areas that we're able to participate. And I think the funding, as you saw, has been earmarked for a broad array of end markets. So whether it's road and highways, whether it's the electric grid and power infrastructure, rail services. Broadband, right? So think about broadband. That'd be something that our trench team has participated highly in historically. So specialty will get the opportunity, specifically power and trench. But even our mobile storage folks have the opportunity. These all become job sites, even if they're alongside a road or in a wing of the airport that's all fenced off. This is the way the infrastructure projects run. But we think whether it's public transit, Water infrastructure is another opportunity. All these are opportunities that are going to require our products. So almost all, other than if it's literally buying the trains, right, almost all of this is going to require our needs for the money that's earmarked in the infrastructure bill. So we feel really, really good about it.
spk01: And can you just remind us again what percentage of your rental revenue at this point comes from infrastructure today?
spk06: Yeah. Probably, yeah, I don't know if we'd share, but it's about mid-teens. I don't have it in the top of my head. Kat can get back to you with that, but it's probably somewhere in the mid-teens. Okay, great.
spk05: It also depends how you define it, right? It gets back to the challenges of, you know, if you were to say power, power is about 10% of our mix, right? That's not included in the number Matt referenced. So it really gets back to how you define it and how do we kind of define it in our definitions.
spk01: Okay, great. Thanks, guys. Thanks, Courtney.
spk10: And that is it for the Q&A. Any closing remarks?
spk06: Thank you, Operator. I want to thank everyone for joining us as we kick off another year of growth. We're off to a great start, and we look forward to sharing our progress with you in April. In the meantime, if you have any questions, please feel free to reach out to Ted. Thank you. Operator, you can now end the call.
spk10: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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