United Rentals, Inc.

patience in holding we ask that you please continue to remain on the line your call will begin shortly thank you Thank you. © transcript Emily Beynon Thank you.

Good morning and welcome to the United Rentals Investor Conference Call.

Please be advised that this call is being recorded. Before we begin, please 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 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, 2022, as well as to 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 the 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 presentations to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Thank you, Operator, and good morning, everyone. Thanks for joining our call. Yesterday, we reported record fourth quarter results that capped the best full year financial performance in our history. And we definitely raised the bar in 22, and we intend to raise it again in 2023. We're moving forward with a larger sales and service team, a more expansive footprint, and a fleet that's significantly larger than a year ago. And that's a lot of tailwind at our back in another year of high demand. I'll start with a recap of fourth quarter results which kept us on a strong trajectory. We grew both rental revenue and total revenue by a solid 19% compared with fourth quarter last year. And we grew adjusted EBITDA by 26% with a 280 basis point improvement in margin. And that brought our margin to 50% in the quarter, and that came in at a very strong flow through of 65%. We also continued to generate significant cash. For the full year, we delivered $1.76 billion of free cash flow, and that's after investing over $3.4 billion in fleet. And none of this would have been possible without our people. First off, as you know, our top priority is always safety. And our team delivered another first-class recordable rate in 22 in a year when we onboarded over 6,000 new employees. On the financial side, you can look at every metric I just mentioned and see the quality of Team United behind the result. For example, our revenue growth comes from keeping our customers front and center in the field. Our people are laser focused on helping our customers succeed. And our flow through comes from the team's ability to leverage our growth and maintain good cost discipline. Inflation was a factor, but that didn't stop us from delivering very good margins. We also reported a record return on invested capital of 12.7% at year end. And on the ESG front, we made good progress with sustainability, including new investments in zero emission vehicles and fleet. And the customer adoption of our new emissions tracking tool has been excellent. This is the technology we launched on our total control platform, and it's an industry first. Another highlight of the quarter was the Ahern acquisition. And I'm pleased to say the integration is going very well. We closed the deal on December 7th. And then by the 16th, our new team members were already operating with the rest of the company on the same technology system. And this means our branches are sharing fleet and customer information seamlessly. One of the main reasons we like M&A is the capacity we gain. And that comes in three forms, people, fleet, and facilities. We always focus on the people first because it's critical to get that right. And we're really bullish about the talent we onboarded in this acquisition. We had over 100 of the AHERN managers at our annual meeting earlier this month, and they fit like a hand in glove. They're excited to be part of United, and they're raring to go. Now we're focused on optimizing the fleet and facilities. We're running on schedule, and it's boosting our resources at an ideal time to capture share. The diversity of demand that we pointed to a year ago turned out to be a major tailwind in our operating environment, and that continues to be true. And I'll share some fourth quarter data to underscore how we translated this opportunity into top line growth. Demand in our key verticals was broad-based, with total construction up 19% year over year, and non-res up 22%, and industrial up 11%. We leaned into that opportunity across the board and grew rental revenue by solid double digits in all of our gen-rent regions, as well as all of our specialty businesses. Our specialty segment delivered another strong performance with an 18 percent increase in rental revenue year over year. And it's notable that every line of business in that segment reported solid gain, led by our mobile storage business. Our greenfield investments in specialty are highly strategic, and they're targeted by geography and line of business to generate attractive returns. We opened 35 of these locations in the past 12 months, and our plan calls for at least another 40 cold starts in 2023. That brings us to 2023. There are plenty of reasons to feel confident about our operating environment. We have terrific internal and external momentum with good visibility into revenue, and the team's done a great job of driving strong fleet productivity to help offset the cost inflation we've experienced. Contractor backlogs are growing, and not surprisingly, the employment reports indicate that U.S. contractors continue to be in expansion mode. Industry indicators like Dodge Momentum Index show healthy growth trends in commercial construction, and this includes the planning trends for future projects. There's also a strong institutional component to the trends, which we see in our business. A number of our multiyear projects are in sectors like healthcare and education. And the industrial indicators, like the PMI, still have room for improvement, but the construction activity and manufacturing is going strong. We're winning business on a wide range of new plant construction, including automotive and batteries, semiconductors, and petrochem. And importantly, our own survey shows that customer sentiment remains strong, with the majority of our customers pointing to growth over the next 12 months. One final indicator of market strength, and an important one, was at our annual management meeting. We had over 2,000 field leaders with us in Houston two weeks ago, and their take was extremely positive. And I'm throwing that into the mix because this is coming directly from people on the front lines. We took all this into consideration when we developed our 23 guidance. And as you saw yesterday, we expect our revenue and adjusted EBITDA to hit new high watermarks including free cash flow of more than $2.1 billion, while our return on invested capital should be another milestone for us. In addition to the capacity we carried into January, we plan to invest more than $3.4 billion in gross capex this year. And at the same time, we'll continue to take advantage of a strong used equipment market to optimize our fleet. Longer term, the outlook for our industry continues to be very favorable, driven by several tailwinds that we believe are largely independent of macro conditions. And we've talked about these before, things like infrastructure spending, the Inflation Reduction Act, and the return of manufacturing to North America, as well as investments in both energy and power. Now, before I wrap up, I want to mention two important announcements we made yesterday regarding capital allocation. First off, we're reactivating the $1.25 billion share repurchase program that we paused when we announced the Ahern deal. We plan to buy back a billion dollars of stock this year. And we'll also be instituting quarterly dividends for our shareholders, totaling $5.92 per share this year. These two decisions underscore our confidence in the durability of our cash generation and the strength of our balance sheet. And together, they'll return $1.4 billion of capital to our shareholders in 2023. So to come full circle, 2022 was a demand environment that threw the door wide open for a record year, and we ran with it. But to quote Babe Ruth, we also know that yesterday's home runs don't win tomorrow's games. So now it's onwards and upwards. 2023 is officially the start of the next quarter century in business for United Rentals, And by all accounts, this will be another memorable year. So with that, I'll ask Ted to cover the results, and then we'll go to Q&A. Ted, over to you. Thanks, Matt, and good morning, everyone. As you saw in the results we reported last night, the team did a great job delivering across the board, both in the quarter and for the full year. And importantly, as you can see in our guidance, we expect these trends to continue in 2023. Combined with the enhancements to our capital allocation strategy that we've announced this quarter, we are confident that we will continue to drive meaningful long-term value creation for our shareholders. I'll dig into this more in a bit, but first, let's dive into the quarter. Fourth quarter rental revenue was a record $2.74 billion. That's an increase of $435 million, or nearly 19% year over year. Within rental revenue, OER increased by $354 million, or 18.6%. Our average fleet size increased by 14.2%, which provided a $270 million benefit to revenue, and fleet productivity increased by a healthy 5.9%, which added another $113 million. This was partially offset by our usual fleet inflation of 1.5%, or roughly $29 million. Also within rental, ancillary revenues were higher by $81 million, or 23.1% year-over-year, while re-rent was essentially flat. Outside of rental, fourth quarter used sales increased by roughly 26% to $409 million as we sold some fleet we'd held back on selling earlier in the year. To help accomplish this, we broadened our channel mix for used sales in Q4 to something closer to normalized levels. The net of this was our adjusted use margins increased by 940 basis points year-over-year to 61.6%, supported by strong pricing. Let's move to EBITDA. Adjusted EBITDA for the quarter was $1.65 billion, another record, and an increase of $338 million, or 25.8%, year-on-year. The dollar change included a $291 million increase from rental, within which OER contributed $256 million, Ancillary added $34 million, and re-rent was up $1 million. Outside of rental, used sales added about $83 million to adjusted EBITDA, while other non-rental lines of businesses contributed another $18 million. SG&A was a $54 million headwind to adjusted EBITDA due primarily to higher commissions and the continued normalization of certain discretionary costs. As a percentage of sales, however, SG&A was down slightly year over year. Looking at fourth quarter profitability, our adjusted EBITDA margin increased 280 basis points to 50.0%. Excluding the benefits of used sales, flow through was in line with recent quarters at a healthy 59%. I'll add that within the fourth quarter results, in the roughly three weeks we owned Ahearn, the business contributed about $54 million in total revenue, the vast majority of which was rental, and roughly $20 million of EBITDA. And finally, fourth quarter adjusted EPS was $9.74 per share. That's an increase of $2.35 per share, or almost 32% year on year. Turning to CapEx, fourth quarter gross rental CapEx was $980 million, and net rental CapEx was $571 million. This represents an increase of $205 million in net CapEx year over year, which positions us well for the growth we see in 2023. Now, let's look at return on invested capital and free cash flow. ROIC was another highlight at a record 12.7% on a trailing 12-month basis. That's up 50 basis points sequentially and an increase of 240 basis points year on year. Free cash flow also continues to be very strong, with the year coming in at $1.76 billion, or a free cash margin of better than 15%, all while continuing to fund growth. Turning to the balance sheet, our leverage ratio at the end of the quarter was 2.0 times on an as-reported basis, including the impact of the AHERN acquisition. More importantly, on a pro forma basis, our year-end leverage ratio was flat sequentially at 1.9 times. And finally, our liquidity at the end of the quarter was a very robust $2.9 billion with no long-term note maturities until 2027. Let's look forward and talk about our 2023 guidance. Total revenue is expected in the range of $13.7 to $14.2 billion, implying full year growth of about 20% at midpoint and pro forma growth of roughly 12%. This increase is supported by the momentum we've carried into the new year, particularly within rental revenue, and the contribution from AHERN. Within total revenue, I'll note that our used sales guidance is implied at $1.3 billion with the expectation that we'll sell roughly $2 billion of OEC. This 35% increase in used sales year over year primarily reflects two things. First, is the normalization of our used sales as the supply chain continues to improve. And second, a substantially larger fleet, including the addition of Ahearn to our business. We remain focused on efficiently converting this growth to our bottom line. Our adjusted EBITDA range is $6.6 to $6.85 billion. On an as-reported basis, including the impact of AHERN, at midpoint, this implies roughly flat full-year adjusted EBITDA margins and flow-through of about 48%. On a pro forma basis, however, which we think is the more appropriate way to think about it, our guidance would imply roughly 80 basis points of margin expansion and flow-through in the mid-50s. On the fleet side, our initial gross capex guidance is $3.3 to $3.55 billion, with net capex of $2 to $2.25 billion. And finally, our free cash guidance is $2.1 to $2.35 billion. To be clear, this is before dividends and repurchases. Assuming these two factors are a use of cash of roughly $1.4 billion, that leaves $825 million of remaining free cash flow to fund additional growth or reduce net debt. Now, before we go to Q&A, I want to make some additional comments on our updated capital allocation strategy, specifically around our plans to return excess cash to our investors. As you heard Matt say, we are very pleased to be adding a dividend program to our mix. Based on an initial yield of 1.5%, we expect to pay $5.92 in dividends per share in 2023. This will translate to approximately $400 million this year, or roughly 18% of free cash flow. We expect that our first quarterly dividend payment of $1.48 will be made on February 22nd with all four payments expected within the calendar year. Following the transformation of the company over the last decade or so, we feel that it's the appropriate time to add this last element to our capital return strategy to help drive greater shareholder value. Not only will this help expand the universe of potential investors, we expect that it will also provide another means of enhancing total returns for our investors over time. It also reflects the confidence we have in our operating model to consistently generate considerable excess free cash flow after investing in growth. We're also very pleased to announce the restart of our share repurchase program, which we paused in November with the announcement of AHERN. The restart is probably a bit ahead of schedule, but the integration is off to a great start and the decision is well supported by the financial performance we expect this year. It's our intention to repurchase $1 billion of the $1.25 billion authorization in calendar 2023. As Matt said, these two programs combined should return approximately $1.4 billion to our shareholders this year, or about $20 per share, at the same time that we continue to see substantial growth in our earnings. Finally, I want to be clear that these announcements are being made in the context of our continued commitment to a disciplined balance sheet strategy. Our financial strength has served the company and its shareholders very well, and we're not planning any changes there. So with that, we'll turn to Q&A. Operator, could you please open the line?

Yes, sir. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Again, to ask a question, please press star 1. We'll take our first question from David Rasso with Evercore ISI.

Hi, thank you for the time. Two questions. One, where there's some worry by investors, and another where there's a clear cementing of a structural improvement on people's minds about the business model. First, on the area of some angst, equipment availability. I think, Matt, you mentioned earlier about maybe taking some market share this year. Can you let us know what you're seeing and hearing regarding competitors and even include OEM dealers, rental fleets in this comment? What are you hearing about their incremental ability to get equipment? What are you hearing about their adding fleet for the year? Just the overall availability from that side. And what are your equipment suppliers suggesting about increased availability versus last year? And then I'll follow up the other question.

Yeah, sure. So it's still a tight market. I'm hoping it'll be a little better as far as delivery slots than we got last year. But we don't expect the supply chain to be fully back to normal this year. Maybe to the back half, but to be fair, I thought maybe the back half of last year would have, and we still saw slippage. There's some niche products that are being quoted out, you know, the 2024. Now, that's the exception, not the rule, but I think that that kind of underlies another year of some supply chain challenges, and we're mitigating that by, as you saw, we brought in some fleet in Q4, and you'll probably see us do a little bit more in Q1 than usual to make sure we're ready for the build season. And then from there, we'll adjust according to demand appropriately. So I think it'll still be a little bit of a challenge. I think our vendors work hard, David, to get us the fleet they did in 22, and we think they'll work hard to get this number. I'm not seeing a remedy to the supply chain challenges.

Can I ask one question related to what you just said? The first quarter a little larger than normal. I'm just curious, just the cadence for the CapEx for the year. I'm talking gross, the 3.425 midpoint. Can you give us some sense of cadence? I know you pulled forward, but on the idea of roughly flat gross for the year, is the down quarter more the fourth quarter because of the pull forward?

That's our expectation as we sit here today, David. What I really wanted to refer to is your prop, because it's the one that we feel pretty sure of, is that you'll probably see us do more about 20% of our capital spend here in Q1, as opposed to maybe in a standard year, it'd be 12 to 15. And that pull forward is really just to get ready for the spring season and making sure specifically in these high time categories that have been the most challenging supply chain, that we're ready to respond for the customers. Is that really what I was referring to? As far as the cadence for the rest of the year, Q2 and Q3 really will depend on how fast we're absorbing the fleet that we brought in as well as, you know, how well we're doing with the Ahern fleet. So we'll adjust as we have the past three years accordingly.

That's pretty interesting. That's taking about a billion six a fleet in the fourth quarter and the first quarter when you combine the two. I assume you're seeing project backlogs that are really, you know, focused on we need this equipment for a certain project. This is not a, you know, presumption of demand. I mean, that's a pretty big first quarter number to follow the fourth quarter.

Yeah, absolutely it is, and that is because we see the underlying demand, and we've talked a lot, right, in the last quarter as well about the mega projects, so they'll require a lot of this high-time utilization assets. Additionally, we'll also get more to a more normal cadence of used sales than we have. We held back, and we hope we don't have to this year. We're planning on selling about 35% more used sales to get back to a normal fleet rotation. So some of that capital will be to make sure that we have the ability to sell and we don't have the team losing confidence in their ability to rotate fleet out so that we can still meet demand.

It's just a strong, obviously you've seen very strong demand and the year is going to start very strongly with that much fleet over the six months, even with the use sales as well. Second question, so even if we do the dividend, we do the repo, If you look at the guide, it implies net debt to EBITDA at the end of the year at 1.55, which is almost a half turn below the low end of your range. Can you give us a sense of the capital allocation, how we should think about that? Where would you be comfortable with the leverage, or should we think of it as you want to get the leverage back to the low end of the range, and thus M&A?

David, this is Ted. I'll take that one. There's no change to that longer-term framework we've provided of two to three times being that optimal level. we'd always said there was nothing religious about the low end. And so living there for some amount of time to us is something that is consistent with what we've articulated. The idea really would be to kind of stockpile dry powder for potential growth opportunities. If we were to kind of decide to live in a different zip code entirely, we would certainly update the street. But certainly for the immediate future, we're comfortable at these levels.

I appreciate it, guys. Thanks for the time.

Thanks, David. Thank you. Our next question comes from Stephen Fisher of UBS.

Thanks. Good morning. So I'm curious how the fleet productivity you reported in Q4, how did that compare to what you thought you could do going in? Some of the investors we chat with kind of seem to note the moderation in fleet productivity as the year progressed. I guess what's the message you want to give to them about how they should think about sort of lower level of fleet productivity in 2023. Is it just more that it's settling into a more normalized level, you know, still above your hurdle rate, but just kind of moving beyond these unusual dynamics of utilization and inflation in 21 and 22, and it's just sort of settling into a more normalized path? Is that what message you would give, or how would you frame that?

I think that's a, first of all, this is an output, right? So we're going to manage the heck out of out of rate and time, even though we don't report it out individually. And I'm very pleased that the whole industry is doing that. And we see the discipline shown in the industry from that perspective. But I think the way you characterize it is fair. We're pleased with our Q4 fleet productivity. It was what we expected. And just for clarity, for those that may not have picked it up, the 5.9 as reported, when you take out Ahern, that would be six and a half. So That's about three weeks of Ahern built into the fourth quarter. So we will report next year fleet productivity as reported and on a pro forma basis so you can see that impact. What we'll really be focused on is making sure we take the entirety of the fleet and drive more value out of it. And any time this number exceeds our threshold we expect to comfortably do next year, that's a net gain. And we'll be measuring that on a pro forma basis for you so you can see what we're doing with the Ahern fleet against their baseline as well.

Okay, and then I'm wondering about the general cadence of project activity that you expect during the year and where you are with these large projects. Obviously, you talked about taking all the extra CapEx more front-end loaded. I guess I'm wondering how you compare what's still in the planning stages on these large projects compared to what you have on rent at the moment, because there are some investors that think your business is slowing down, but I'm wondering if There's actually, if you're seeing more large projects in the planning stages than what's on rent, I'm wondering if that could actually lead to some type of acceleration as the next year or two plays out.

Yeah, we'll stay away from quarterly cadence, but obviously you can tell by our portfolio that we expect to need more fleet come the spring buildup. Q1 is always going to be the slowest quarter seasonally, but we see strong demand here today, and we expect that to continue to ramp up from big projects. And then once you really get to the peak season, once you get past, you know, May, June, and even all the local market stuff starts popping. So when you hear about this pull forward, we don't feel the fleet that we would normally have had ready is going to be enough for when we get to the real build season in April. And that's really more what that pretends to be in Q1, you know, isn't really the focus. The focus is, are we going to be ready for the build? All these projects that are scratching dirt or coming out of the ground that we're going to need. we're going to need to mobilize fleet for in the spring.

Okay. Just a quick clarification if I could, what's the embedded flow through that you have on the, uh, the Ahern business in 2023 compared to 2022? Now you've got a 55% pro forma for legacy or I what's, what's the Ahern flow through?

Yeah, see that one's harder to speak to just because of the way we integrate, uh, acquisitions, especially in gen rent. And that's why it's easier to frame, uh, as a function of pro forma. So, You know, I think you hit the nail on the head. Certainly, as reported, flow through would look like 48, excuse me, as reported looks like 48 pro forma 55. But it's hard to kind of discreetly break apart the businesses.

Okay. Thanks very much.

The one thing I would note just to remind people of, we do think we'll achieve about $30 million of the cost savings out of the $40 million we talked about. So we can certainly share that opportunity. Yeah, in 23.

We'll only get about 40, but we'll only get about 30 of it in 23 is our expectation.

Thank you. Our next question comes from Rob Wertheimer with Milius Research.

Hi, thanks. Good morning, everybody. I wanted to kind of circle back to the demand side, or at least the end market support that's out there in the short and the long term. And so If you look at the dynamics, I guess we have the mega projects that people talk about. You have the fear or the risk that rising interest rates and a potential recession will cause project delays or cancellations. And then you have the infrastructure bill, which is kind of different from some of the chips and semiconductors and stuff that will flow in. So I wonder if you could level set us on those. Are you seeing any delays, cancellations, et cetera? The mega projects, I assume, are flowing in. Are you seeing any of the infrastructure bill starting to flow and I assume there's pretty good duration on some of this stuff, so I wonder if you have any comments on what your visibility is now versus past eras in history.

Yeah, sure, Rob. So broadly, we believe that many of these projects are not macro reliant. You heard me say that in our opening comments, and we're talking about the type of megaprojects we're talking about. We feel really good about that. As far as infrastructure, we've been saying all along we expected this to be a 23 event. And I'm pleased to say that we are seeing projects coming out of the ground and projects that are taking fleet as we speak. Mostly you're looking at bridges, airports, whether it be expansions or remodels. So we're pleased and we think that'll carry out and accelerate through this year and beyond, right? Be a multi-year event. So we're very pleased with that. Ted, I don't know if you had anything to add. Yeah, no, I mean, we really have not seen anything along those lines, Rob. Probably the one area where maybe we've seen some delays, we've talked about it, has been more on the alternative power side. And I think there's been some stuff written about this publicly. Solar has had some supply chain issues. And within wind, we've seen a couple permitting issues. All that said, our power business in the quarter was up about 9%. And for the year, we're up about 10%. So while we're seeing kind of reports that you're seeing delays on project starts, that business for us has continued to be very robust. And just for clarity on the broadness that we've been talking about, right? In just the megaprojects, the megaprojects are really the kicker of why you hear this strong tone and guidance that we're coming out with. But we have seen this broad breadth growth throughout all geographies. So it's not megaproject reliant, but they're kind of the kicker that maybe could offset if you think commercial retail is going to drop or you think office space is going to drop. So we really feel that the balance is appropriate for this type of guide and the bullishness you hear in our tone.

And just to clarify on that, I was going to ask anyway, but we all talk construction, but you have a lot of non-construction verticals. You're seeing strength kind of throughout the industrial side?

We are, yeah.

I mean, if you really go through all the verticals, with the exception of midstream, which throughout the year has been the only vertical down for us, everything's up. And even the rate of change across those verticals has been negligible. I mean, it's really been very consistent across the year.

Perfect. Thank you. Thanks, Rob.

Thank you. Our next question comes from Seth Weber with Wells Fargo.

Hey, guys. Good morning. You guys are obviously planning to sell a lot more used fleet this year. And, Matt, I think I heard you reference something about a broad mix or something, different channel mix or whatnot. Can you just give us some more details on, you know, what you're – kind of how you're selling this used fleet. I mean, there's obviously some concerns about used pricing starting, you know, kind of rolling over and what your expectations are, what's embedded in your expectations for used equipment pricing for 2023. Thanks.

Sure. So we feel good about the end market, including pricing. You know, we'll fall off the historic highs that we've set over the last two years, maybe a little bit, but we'll find out. And I think one of the things we're going to see is is that the increase of replacement capital costs could definitely have a halo effect on used pricing. But when we think about what channels we're going to open up is what we were talking about, we've been strictly or 90% retail all the way in the first three quarters of 22. And then you saw we loosened it up a little bit to get to do some more volume in Q4. And that wasn't because there weren't options. It was to retain fleet to rent because the supply chain just wasn't getting fleet to us fast enough for our customers. We're hoping, our expectation is that we can go back to a more normalized channel mix in 23, and that's what's embedded in our guidance. So we'll open up the broker chain. We'll do some trades. We probably won't do much auctions unless you have something that's really in disrepair. We're not really a big auction player. But just opening up that channel mix over and above the retail, and that will allow us to rotate out about $2 billion worth of fleet.

Got it. Okay, that's helpful. Thanks. And then just on the – The strength in the specialty margin in particular was pretty notable. It is, you know, I think it was 400 basis points year to year. Is there something, is there some step change that's happened there? Is it the general finance business that's clicking or anything you'd call out that is supporting that big jump year over year? Thanks.

Yeah, I think there are a couple things there, Seth. I mean, certainly growth has been good, so that's helped drive, you know, fixed cost absorption. But beyond that, you had really good cost control in the quarter, and you also had some beneficial mix, both within the specialty segments and on a project basis that benefited that flow through.

Okay. All right, guys. Thank you very much.

Thanks, Seth.

Thank you. Our next question comes from Timothy Fine with Citigroup.

Thanks. Good morning. I'll just maybe group two together here. Matt, maybe the first is just on fleet productivity and just how you think about the components within that in 23, you know, just thinking of maybe time and rate, you know, given that, you know, you held on to fleet longer this year, you know, to make sure you met the demand. I'm presume you're running pretty hot on time. So, you know, potentially that starts to run against you, but maybe I'm wrong on that. And then, you know, just kind of the interplay on rate. And then the second question, maybe for Ted, is just any help in terms of EBITDA to operating cash flows? How should we think about, say, you know, cash interest and cash taxes? Any help you have on that? Thank you.

Sure, Tim. On the fleet productivity, we still feel that the environment is going to be very constructive to drive positive fleet productivity. But you pointed out the reality of our time may have been running so hot that at some point you have to look at, are we running the appropriate level of time? Can we continue to raise it? Or does it become a bit of a headwind? With that being said, even if time becomes a headwind just because we're running so hot in some key categories and we need to make sure we have availability for our customers, we still have ample opportunity to drive positive fleet productivity. And we think the end market's constructed for that. We'll feel comfortable that both an as reported and pro forma basis will exceed our hurdle rate that we talk about, that one and a half, even if that goes up to 2%. So we feel good about it. And Ted, you can take the EBITDA question. Yeah, so Tim, just in the absolute, we would look for cash taxes in 2023 to be about $565 million. That's an increase roughly of about 240 million. cash interest at about $600 million, which would be an increase of $195 or so. And so when you bridge kind of that $1.1 billion increase in EBITDA against a roughly $460 million increase in pre-cash flow, really the delta is going to be the change in working capital.

Got it. Thanks, Ted. And did you usually speak to a merit increase as we think about an SG&A

um kind of bridge year over year any have you quantified that as to how we should think about that for this year yeah i don't know they're ready to quantify it but certainly we've got that built into our guidance and built into our operating plan you know we always talked about the importance of supporting our our employees and taking care of them and that's that's an important aspect of doing just that so there is absolutely a merit increase built into this guidance um But in terms of quantifying it, it's not something I think we're prepared to do.

All right. Fair enough. Thank you.

Thanks, Tim. Thank you. Our next question comes from Jerry Revich with Goldman Sachs.

Yes. Hi. Good morning, everyone. I'm wondering if we could just talk about the impact of the new higher pricing on new equipment on the marketplace. You know, when we saw a Tier 4 higher pricing roll through that had a nice pricing umbrella on the rental industry for the entire fleet, and I'm wondering, I know it's early post the January run price increases by the OEMs, but to what extent is that a pricing opportunity for the industry as you folks see it? You know, how would you... compare and contrast this transition versus the Tier 4 transition in terms of driving pricing upside? Thanks.

Sure. Well, number one, this would be more across the board. We feel comfortable. I talk about it in used pricing as replacing CapEx gets increased. That's kind of an umbrella on the used pricing residuals, which is a positive. And I think to your point about the whole industry having to absorb some inflation has – has bolstered the discipline that we've been seeing. But to be fair, we saw it even before the price increases, and I think this is just the maturity of the industry. You've heard us talking about the bigs getting bigger and just more sophistication and information in the industry. I think all those are helping, and certainly increased OEM pricing makes that even more important. So I think your point's well taken. It will probably bolster some of the behavior in the industry.

Super. And just curious, there are lots of cross-currents in the cycle as we've discussed. I'm wondering if you look at the 2011 through 2015 environment, any analog that you would draw in terms of the industry's ability to match supply and demand today versus that cycle where early on supply and demand matched pretty well, but obviously 2015

touch of oversupply can you just talk about how you view the industry's position today between availability and data etc and how you're managing the supply demand balance yeah so one of the biggest differences is the information that that access everybody has access to right whether it's the rouse data whether it's you know now that over a third of the industry is covered by top three public companies right these these type information gets everybody more understanding and visibility of the important metrics to focus on and the opportunities that exist in the industry. And the scale. So specifically for us, and let's say our next largest competitive scale allows us to get through things in a different way. And so I don't really, wouldn't draw a comparison. I think the industry changed significantly in my 32 years, but even in the last 10, we do things differently. And I'm sure some of our peers do. And I think you're seeing that manifest in better performance overall for the customer and for shareholders.

And lastly, if I could just sneak one more in. Ted, I'm wondering if you could just talk about what level of inflation is embedded in guidance overall. And if you can, just touch on transportation specifically, where it feels like there might be some tailwinds for you folks on third party. Thanks.

Yeah. In terms of the inflation that's built into our expectations, it's certainly probably elevated versus historical levels. you know, probably not as significant as what we saw in 2022. And yet we've been able to manage it very effectively, right? So if you look at that flow through last year, as an example, when you back out use across the full year flow through would have been, you know, 56, 57%. So clearly indicative of our ability to manage that inflation very effectively. And when you think about what we're pointing towards in 23, a similar level of flow through on that pro forma basis. So It's not to say that we're in a benign cost environment. There's still elements of inflation that we're managing and all companies are managing, but we feel very comfortable in our ability to manage it effectively. In terms of pickup and delivery, that's an area where, frankly, we're not trying to make money. As you see, the price of diesel, as an example, ebb and flow, the impact on our margins is relatively de minimis. It's something the team has done a great job managing through in 2022 when obviously diesel prices were a substantial headwind to companies. But as you think about that dynamic in 23, I don't think it'll be very appreciable.

Super. Thanks.

Thank you. Our next question comes from Michael Findager with Bank of America.

Hey, guys. Thanks for taking my question. Just I know there's been a lot of talk of mega projects. You know, we see Tesla announcing a $3.6 billion of new investments in two battery plants in Nevada. Just when we think about the economically sensitive areas of non-res like office and retail, can you just help us understand when we think of these mega projects, how much more fleet on rent for these projects versus your typical office or retail? Are the terms and structures different? Is it different in terms of the the multi-year visibility there, the different type of fleet required. Just curious if we see that tradeoff over the next 12, 18 months, how we should kind of view that.

Yeah, Michael, the type of projects vary so much that it would be pretty hard to do. I mean, outside, if you're thinking about towers, right, large towers, office buildings, which may be more limited in what type of fleet you would rent on it, all these projects have different needs. And the great thing about our product line is whether it's early when they're scratching dirt or whether it needs trench plates, from creating the infrastructure to then creating the structure to then finishing off the building, we've got the opportunity to cross-sell into all those needs. But as far as the volume of needs, we do attribute models. They're really hard to be predictive. I wouldn't really say that it's something that you can rely on. I think the speed... And the time to do the project and the sensitivity probably drives more variation of how much men, material, and fleet they're going to put on there, right? And it seems like nowadays everything's a fast-track project. That used to be a term 10 years ago that meant they were going to do something quicker. Now it's every project's fast-track. So I think that has implications of driving more rental than anything else.

Thanks. And you guys highlighted all year that that fleet productivity number was going to decelerate. I know you kind of gave us some puts and takes for 2023, but is the view that the number continues to decelerate through 2023 or finds more stability at some point? Because you guys were kind of clear through the year how we should kind of prepare for that throughout the quarter. Just curious if there's anything we should kind of prepare as we go through 2023 there directionally.

Yeah, I mean, you see what's embedded in our guidance on as reported basis, right? And within that range would be a different number anywhere. I won't even say the number. You could do the work. Well, I think really the most important thing is that the environment is good for us to continue to drive positive fleet productivity, even if time utilization doesn't go up. And that's really what matters. That's the important part of it. And we will report this on a pro forma basis. There will be a little bit as reported drag. from the AHRN, bringing in the AHRN fleet, but we'll report that out, and that'll be a couple of points differentiation there, even between as reported and pro forma, is what our expectation is. So we'll, you know, it's an output that we really don't want to try to predict, but what our expectations are for rate and time are all embedded within our guidance.

Great, and just I'll sneak one last one, just I know we talked about power exposure, alternative energy. Just on the traditional side, the upstream, midstream, downstream, are you seeing more activity there? Is that actually accelerating? I'm just curious if you can kind of touch on the traditional side.

Yeah. It's been pretty consistent in terms of that progression. Hold on. I'm just turning to something quickly. So certainly you continue to see strong momentum in upstream. I mentioned midstream has been kind of the one sector that has been a headwind for us this year. It's relatively small, call it 2% of our total mix. And downstream has been pretty steady as well. Chemical processing would be the same. So if we look at the business, it's consistently been about 13% of our total business across the year.

Thank you. Thank you, Michael.

Thank you. Our next question comes from Ken Newman with KeyBank Capital Markets.

Hey, good morning, guys. Thanks for squeezing me in here.

Morning, Ken. Morning. Matt, I wanted to go back to a couple of the comments that you made. Obviously, you gave a lot of good color on infrastructure spend opportunities earlier in the call. I think the guide implies a low double-digit organic growth after you strip out Ahern. But maybe – is there any way you can help us try to size what the midpoint of guide assumes are the benefits from the trends we're seeing in industrial reshoring or your visibility on infrastructure projects?

I don't really have it broken out that way. We really look, frankly, when we're planning more by region. versus the verticals, and then we track the verticals as we assign capital after the fact. So I actually don't have that number for you, Ken. We can do a little work and get back to you on that. But just generally, right, without trying to get too pegged on numbers that I haven't vetted, generally, we view infrastructure as something that's accelerating, right? We view that we're seeing the beginnings of it, of the spend, and we think that'll accelerate through 23 and beyond into multi-years. As far as the manufacturing, someone mentioned earlier, there's some big plants going on right now that have a lot of fleet on rent as we speak, but there's also some projects coming out of the ground that we think are multi-year megaprojects. I don't really know how to lay those against each other, but I'd say overall, the megaprojects work, will certainly outpace infrastructure work in totality, but the acceleration infrastructure will continue throughout the year.

Understood.

For the follow-up, and you touched on this a little bit, but obviously we've seen some cracks start to emerge for the broader industrial space, especially on the – you talked about PMI in your prepared remarks. I know that's a little less than 50% of your customer mix, the industrial MRO part of the business. Maybe talk to us a little bit about how much conservatism is built into the bottom end of the guide range, what's embedded there in the assumptions, if we really do see a sharper turn in the industrial MRO demand environment.

Yeah, Ken, I'll take that one. As Matt mentioned, when we do our forecasting, it's really built by the branches up to districts, regions, divisions, and corporate ultimately. So it's really kind of fed by the field. We don't look at it kind of top-down looking by vertical. So as I mentioned, our industrial business has held in very well. Um, we're not seeing any signs of cracks and I know people have looked at whether it's the PMI or other metrics and it's raised concerns. Um, you know, we're not seeing signs of those. And as Matt mentioned in his prepared remarks, we also see a lot of these industrial projects kicking off this year. You know, we've talked about autos and related stuff. We've talked about semis, but frankly, it's, it's even broader than that. And so if there's an offset, you know, from this, if there is a headwind on the MRO side, I think we're very confident you'll see within industrial kind of offsets on the construction side. But just to answer the question pointedly, we don't forecast, you know, our business based on these industrial verticals. Got it.

Maybe if I could just sneak one more in here. It doesn't sound like you guys expect any constraints, certainly from a capital perspective, even with the new dividend in the share repo. But I am curious if you think there's enough management capacity to go after M&A here in the near term.

Yeah, Kent. So outside of anything that has a significant overlap with Ahearn, right? So in those markets where they're integrating the teams together, right, getting the sales reps together, that's a lot of work on the ground. So we're going to pause for a little bit on anything that would have a large overlap. But if we have opportunities and we continue to work the pipeline as we have for the past couple of years, that don't have a big overlap and we have capacity in the field, we're absolutely, if they clear that final hurdle of makes financial sense, we have the dry powder, we have the capability, and we certainly would consider M&A, whether it be a tuck-in, gen-rent deal in a market that Ahern wasn't in or a specialty product line where they're not dealing with any integration issues right now or integration work rather than issues. So I would say absolutely we would. And, you know, just to touch on the capital allocation, you know, one of the reasons why it was the right time for us to do a dividend now is because this is not at the expense of growth. You know, when you look at the past two years and the kind of growth we drove, including significant M&A, we still had the capacity and free cash flow to give a dividend. So we had asked that question by someone earlier, you know, are you giving a dividend because of less growth prospects? No, quite contrary. It's because even after supporting growth, we have excess cash to return, and that points to the resiliency of our strong free cash flow through the site.

Very helpful.

Congrats.

Thank you, Ken.

Thank you. We'll take our next question from Stanley Elliott with Stiefel.

Hey, guys. Thank you guys for putting me in. Matt, in the past, you guys have talked about the big getting bigger. And in the K, you mentioned 4% North American rental growth. And you're talking about 12% sort of growth right now. I mean, you guys have consistently outgrown the broader industry. But are we seeing a step up now, an inflection point with the scale that you have, the specialty that now it's reasonable to think that you guys might be able to put up 3x what the industry is growing at?

Well, certainly yes, because that's what our guidance implies. I think you'd have to think that that 4% number would be locked in as well. So, you know, I don't know what the coming out number for ARA was last year, but I know they raised it throughout the year. But we don't focus on that as a barometer limiting ourself. We focus on what we see in front of us, what we do during our planning process, and what we hear from our customers, as well as our people in the field. But implied in this guide is three times, and we do think we could do that. And the I think, you know, I've talked about this before, how the top end of the business, the biggest getting bigger, is a trend that we think is going to continue. And we think scale gives you some opportunities and options, as well as adding additional product lines and cross-selling that gives better service to the customers and gives you an opportunity to grow faster than the industry. And I think we'll see that continue.

Great, guys. That's it for me. Thanks. Thanks.

Thank you. Our next question comes from Scott Schneeberger with Oppenheimer.

Thanks, guys. Good morning. My first question, in GenRent specifically, I guess I probably paid you maybe the best to speak to this, but how is rental duration different? performed over the last few years. Have you seen an expansion of your equipment staying out on rent? And with megaprojects coming and infrastructure bill feels like 2023 is going to be a lot of that. Is it likely that we may see that expand? I know we're talking a matter of days here, but might the length of period that assets are out on rent

expand and could that have a positive benefit margin benefit for the company thanks yeah so i'll touch the first part of the question uh uh i'll start there in terms of the mix between daily weekly monthly which is really the way we would look at this we don't kind of measure contract duration and maybe the way you're asking scott but those numbers have not moved meaningfully you've seen a very modest shift between daily and monthly to the point of uh to the tune of about a point so we'd be kind of mid-single digits on the daily and we'd be about 80% on monthly. And those numbers have been remarkably consistent for a long time, and there really hasn't been an appreciable change in terms of 22 versus 21 or prior years. In terms of the margin impact, certainly what we're always trying to do is be mindful of getting more of your volume and serve you more efficiently. And so certainly, I don't know that there's a huge change there, but we do have that benefit. As we do get larger projects that last longer and we get more fleet on those projects, we're able to serve that customer more efficiently, and that certainly benefits margins to some degree and, importantly, returns.

Great. Thanks. Appreciate that. And then, Ted, still for you, kind of your thoughts and kind of how the board is looking at with the new dividend program, should we anticipate – United Rentals to be a dividend growth story? I think you referenced about an 18% payout. I don't know if you want to quantify this, but is there a comfort going higher on payout ratio? Is that kind of a direction we'd expect to take vis-a-vis share repurchase? Just high-level thoughts there. Thanks.

Yeah, absolutely. Don't want to get ahead of the board, but absolutely, we have the intention of growing the dividend over time. In terms of what that relative growth looks like relative to you know, net income because you're asking about a payout ratio. I don't know that we'd get locked in there just yet, but absolutely the intent is to continue to grow the dividend over time. It's fully our expectation we'll continue to grow the company over time. We'll continue to expand margins. We'll continue to generate more cash. And so one of the things the dividend allows us to do is have another tool to return that excess cash to investors as we keep growing. So, yeah, I think it's very fair to assume that we will grow the dividend over time. And in terms of what that rate looks like, you know, stay tuned.

Fair enough. Thanks a lot, guys.

Thanks.

Thank you. That concludes our question and answer session. I'll now turn the call back to Matt Flannery for any additional or closing remarks.

Thanks, Operator, and that wraps it up for today. I want to say thank you to everyone for joining us as we kick off another year of growth for our shareholders, and we look forward to reporting a strong quarter for you in April. Until then, if you have any questions, please feel free to reach out to Ted. Have a great day. Operator, please go ahead and end the call.

Thank you. This concludes today's call. Thank you for your participation. You may disconnect at any time. © transcript Emily Beynon Thank you. Thank you. Thank you. Thank you. Thank you. you Thank you. Thank you. Thank you. Good morning and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, please 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 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 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, 2022, as well as to 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 the 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 presentations to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Thank you, Operator, and good morning, everyone. Thanks for joining our call. Yesterday, we reported record fourth quarter results that capped the best full-year financial performance in our history. We definitely raised the bar in 22, and we intend to raise it again in 2023. We're moving forward with a larger sales and service team, a more expansive footprint, and a fleet that's significantly larger than a year ago. That's a lot of tailwind on our back in another year of high demand. I'll start with a recap of fourth quarter results, which kept us on a strong trajectory. We grew both rental revenue and total revenue by a solid 19% compared with fourth quarter last year. And we grew adjusted EBITDA by 26% with a 280 basis point improvement in margin. And that brought our margin to 50% in the quarter, and that came in at a very strong flow through of 65%. We also continued to generate significant cash. For the full year, we delivered $1.76 billion of free cash flow, and that's after investing over $3.4 billion in fleet. And none of this would have been possible without our people. First off, as you know, our top priority is always safety. And our team delivered another first-class recordable rate in 22 in a year when we onboarded over 6,000 new employees. On the financial side, you can look at every metric I just mentioned and see the quality of Team United behind the result. For example, our revenue growth comes from keeping our customers front and center in the field. Our people are laser focused on helping our customers succeed. And our flow through comes from the team's ability to leverage our growth and maintain good cost discipline. Inflation was a factor, but that didn't stop us from delivering very good margins. We also reported a record return on invested capital of 12.7 percent at year end. And on the ESG front, we made good progress with sustainability, including new investments in zero-emission vehicles and fleet. And the customer adoption of our new emissions tracking tool has been excellent. This is the technology we launched on our total control platform, and it's an industry first. Another highlight of the quarter was the Ahearn acquisition. And I'm pleased to say the integration is going very well. We closed the deal on December 7th. And then by the 16th, our new team members were already operating with the rest of the company on the same technology system. And this means our branches are sharing fleet and customer information seamlessly. One of the main reasons we like M&A is the capacity we gain. And that comes in three forms, people, fleet, and facilities. We always focus on the people first because it's critical to get that right. And we're really bullish about the talent we onboarded in this acquisition. We had over 100 of the AHERN managers at our annual meeting earlier this month, and they fit like a hand in glove. They're excited to be part of United, and they're raring to go. Now we're focused on optimizing the fleet and facilities. We're running on schedule, and it's boosting our resources at an ideal time to capture share. The diversity of demand that we pointed to a year ago turned out to be a major tailwind in our operating environment, and that continues to be true. And I'll share some fourth quarter data to underscore how we translated this opportunity into top line growth. Demand in our key verticals was broad-based, with total construction up 19% year over year, and non-res up 22%, and industrial up 11%. We leaned into that opportunity across the board and grew rental revenue by solid double digits in all of our gen-rent regions, as well as all of our specialty businesses. Our specialty segment delivered another strong performance with an 18 percent increase in rental revenue year over year. And it's notable that every line of business in that segment reported solid gain, led by our mobile storage business. Our greenfield investments in specialty are highly strategic, and they're targeted by geography and line of business to generate attractive returns. We opened 35 of these locations in the past 12 months, and our plan calls for at least another 40 cold starts in 2023. That brings us to 2023. There are plenty of reasons to feel confident about our operating environment. We have terrific internal and external momentum with good visibility into revenue, and the team's done a great job of driving strong fleet productivity to help offset the cost inflation we've experienced. Contractor backlogs are growing, and not surprisingly, the employment reports indicate that U.S. contractors continue to be in expansion mode. Industry indicators like Dodge Momentum Index show healthy growth trends in commercial construction, and this includes the planning trends for future projects. There's also a strong institutional component to the trends, which we see in our business. A number of our multiyear projects are in sectors like healthcare and education. And the industrial indicators, like the PMI, still have room for improvement, but the construction activity and manufacturing is going strong. We're winning business on a wide range of new plant construction, including automotive and batteries, semiconductors, and petrochem. And importantly, our own survey shows that customer sentiment remains strong, with the majority of our customers pointing to growth over the next 12 months. One final indicator of market strength, and an important one, was at our annual management meeting. We had over 2,000 field leaders with us in Houston two weeks ago, and their take was extremely positive. And I'm throwing that into the mix because this is coming directly from people on the front lines. We took all this into consideration when we developed our 23 guidance. And as you saw yesterday, we expect our revenue and adjusted EBITDA to hit new high watermarks including free cash flow of more than $2.1 billion, while our return on invested capital should be another milestone for us. In addition to the capacity we carried into January, we plan to invest more than $3.4 billion in gross capex this year. And at the same time, we'll continue to take advantage of a strong used equipment market to optimize our fleet. Longer term, the outlook for our industry continues to be very favorable, driven by several tailwinds that we believe are largely independent of macro conditions. We've talked about these before, things like infrastructure spending, the Inflation Reduction Act, and the return of manufacturing to North America, as well as investments in both energy and power. Now, before I wrap up, I want to mention two important announcements we made yesterday regarding capital allocation. First off, we're reactivating the $1.25 billion share repurchase program that we paused when we announced the Ahern deal. We plan to buy back a billion dollars of stock this year. And we'll also be instituting quarterly dividends for our shareholders, totaling $5.92 per share this year. These two decisions underscore our confidence in the durability of our cash generation and the strength of our balance sheet. And together, they'll return $1.4 billion of capital to our shareholders in 2023. So to come full circle, 2022 was a demand environment that threw the door wide open for a record year, and we ran with it. But to quote Babe Ruth, we also know that yesterday's home runs don't win tomorrow's games. So now it's onwards and upwards. 2023 is officially the start of the next quarter century in business for United Rentals, And by all accounts, this will be another memorable year. So with that, I'll ask Ted to cover the results, and then we'll go to Q&A. Ted, over to you. Thanks, Matt, and good morning, everyone. As you saw in the results we reported last night, the team did a great job delivering across the board, both in the quarter and for the full year. And importantly, as you can see in our guidance, we expect these trends to continue in 2023. Combined with the enhancements to our capital allocation strategy that we've announced this quarter, we are confident that we will continue to drive meaningful long-term value creation for our shareholders. I'll dig into this more in a bit, but first, let's dive into the quarter. Fourth quarter rental revenue was a record $2.74 billion. That's an increase of $435 million, or nearly 19% year over year. Within rental revenue, OER increased by $354 million, or 18.6%. Our average fleet size increased by 14.2%, which provided a $270 million benefit to revenue, and fleet productivity increased by a healthy 5.9%, which added another $113 million. This was partially offset by our usual fleet inflation of 1.5%, or roughly $29 million. Also within rental, ancillary revenues were higher by $81 million, or 23.1% year-over-year, while re-rent was essentially flat. Outside of rental, fourth quarter used sales increased by roughly 26% to $409 million as we sold some fleet we'd held back on selling earlier in the year. To help accomplish this, we broadened our channel mix for used sales in Q4 to something closer to normalized levels. The net of this was our adjusted use margins increased by 940 basis points year over year to 61.6%, supported by strong pricing. Let's move to EBITDA. Adjusted EBITDA for the quarter was $1.65 billion, another record, and an increase of $338 million, or 25.8%, year on year. The dollar change included a $291 million increase from rental, within which OER contributed $256 million, Ancillary added $34 million, and re-rent was up $1 million. Outside of rental, used sales added about $83 million to adjusted EBITDA, while other non-rental lines of businesses contributed another $18 million. SG&A was a $54 million headwind to adjusted EBITDA due primarily to higher commissions and the continued normalization of certain discretionary costs. As a percentage of sales, however, SG&A was down slightly year over year. Looking at fourth quarter profitability, our adjusted EBITDA margin increased 280 basis points to 50.0%. Excluding the benefits of used sales, flow through was in line with recent quarters at a healthy 59%. I'll add that within the fourth quarter results, in the roughly three weeks we owned Ahearn, the business contributed about $54 million in total revenue, the vast majority of which was rental, and roughly $20 million of EBITDA. And finally, fourth quarter adjusted EPS was $9.74 per share. That's an increase of $2.35 per share, or almost 32% year on year. Turning to CapEx, fourth quarter gross rental CapEx was $980 million, and net rental CapEx was $571 million. This represents an increase of $205 million in net CapEx year over year, which positions us well for the growth we see in 2023. Now, Let's look at return on invested capital and free cash flow. ROIC was another highlight at a record 12.7% on a trailing 12-month basis. That's up 50 basis points sequentially and an increase of 240 basis points year on year. Free cash flow also continues to be very strong, with the year coming in at $1.76 billion, or a free cash margin of better than 15%, all while continuing to fund growth. Turning to the balance sheet, our leverage ratio at the end of the quarter was 2.0 times on an as-reported basis, including the impact of the AHERN acquisition. More importantly, on a pro forma basis, our year-end leverage ratio was flat sequentially at 1.9 times. And finally, our liquidity at the end of the quarter was a very robust $2.9 billion with no long-term note maturities until 2027. Let's look forward and talk about our 2023 guidance. Total revenue is expected in the range of $13.7 to $14.2 billion, implying full year growth of about 20% at midpoint and pro forma growth of roughly 12%. This increase is supported by the momentum we've carried into the new year, particularly within rental revenue, and the contribution from AHERN. Within total revenue, I'll note that our used sales guidance is implied at $1.3 billion, with the expectation it will sell roughly $2 billion of OEC. This 35% increase in used sales year over year primarily reflects two things. First, is the normalization of our used sales as the supply chain continues to improve. And second, a substantially larger fleet, including the addition of Ahearn to our business. We remain focused on efficiently converting this growth to our bottom line. Our adjusted EBITDA range is $6.6 to $6.85 billion. On an as-reported basis, including the impact of AHERN at midpoint, this implies roughly flat full-year adjusted EBITDA margins and flow-through of about 48%. On a pro forma basis, however, which we think is the more appropriate way to think about it, our guidance would imply roughly 80 basis points of margin expansion and flow-through in the mid-50s. On the fleet side, our initial gross capex guidance is $3.3 to $3.55 billion, with net capex of $2 to $2.25 billion. And finally, our free cash guidance is $2.1 to $2.35 billion. To be clear, this is before dividends and repurchases. Assuming these two factors are a use of cash of roughly $1.4 billion, that leaves $825 million of remaining free cash flow to fund additional growth or reduce net debt. Now, before we go to Q&A, I want to make some additional comments on our updated capital allocation strategy, specifically around our plans to return excess cash to our investors. As you heard Matt say, we are very pleased to be adding a dividend program to our mix. Based on an initial yield of 1.5%, we expect to pay $5.92 in dividends per share in 2023. This will translate to approximately $400 million this year, or roughly 18% of free cash flow. We expect that our first quarterly dividend payment of $1.48 will be made on February 22nd with all four payments expected within the calendar year. Following the transformation of the company over the last decade or so, we feel that it's the appropriate time to add this last element to our capital return strategy to help drive greater shareholder value. Not only will this help expand the universe of potential investors, we expect that it will also provide another means of enhancing total returns for our investors over time. It also reflects the competence we have in our operating model to consistently generate considerable excess free cash flow after investing in growth. We're also very pleased to announce the restart of our share repurchase program, which we paused in November with the announcement of Ahearn. The restart is probably a bit ahead of schedule, but the integration is off to a great start and the decision is well supported by the financial performance we expect this year. It's our intention to repurchase $1 billion of the $1.25 billion authorization in calendar 2023. As Matt said, these two programs combined should return approximately $1.4 billion to our shareholders this year, or about $20 per share, at the same time that we continue to see substantial growth in our earnings. Finally, I want to be clear that these announcements are being made in the context of our continued commitment to a disciplined balance sheet strategy. Our financial strength has served the company and its shareholders very well, and we're not planning any changes there. So with that, we'll turn to Q&A. Operator, could you please open the line?

Yes, sir. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Again, to ask a question, please press star 1. We'll take our first question from David Rasso with Evercore ISI.

Hi, thank you for the time. Two questions. One, where there's some worry by investors, and another where there's a clear cementing of a structural improvement on people's minds about the business model. First, on the area of some angst, equipment availability. I think, Matt, you mentioned earlier about maybe taking some market share this year. Can you let us know what you're seeing and hearing regarding competitors and even include OEM dealers, rental fleets in this comment? What are you hearing about their incremental ability to get equipment? What are you hearing about their adding fleet for the year? Just the overall availability from that side. And what are your equipment suppliers suggesting about increased availability versus last year? And then I'll follow up the other question.

Yeah, sure. So it's still a tight market. I'm hoping it'll be a little better as far as delivery slots than we got last year. But we don't expect the supply chain to be fully back to normal this year. Maybe to the back half, but to be fair, I thought maybe the back half of last year would have, and we still saw slippage. There's some niche products that are being quoted out to 2024. Now, that's the exception, not the rule, but I think that kind of underlies another year of some supply chain challenges, and we're mitigating that by, as you saw, we brought in some fleet in Q4, and you'll probably see us do a little bit more in Q1 than usual to make sure we're ready for the build season. And then from there, we'll adjust according to demand appropriately. So I think it'll still be a little bit of a challenge. I think our vendors work hard, David, to get us the fleet they did in 22, and we think they'll work hard to get this number. I'm not seeing a remedy to the supply chain challenges.

Can I ask one question related to what you just said? The first quarter a little larger than normal. I'm just curious, just the cadence for the CapEx for the year. I'm talking gross, the 3.425 midpoint. Can you give us some sense of cadence? I know you pulled forward, but on the idea of roughly flat gross for the year, is the down quarter more the fourth quarter because of the pull forward?

That's our expectation as we sit here today, David. What I really wanted to refer to is you'll prop, because it's the one that we feel pretty sure of, is that you'll probably see us do more about 20% of our capital spend here in Q1 as opposed to maybe in a standard year it'd be 12 to 15. And that pull forward is really just to get ready for the spring season and making sure specifically in these high time categories that have been the most challenged in the supply chain that we're ready to respond for the customers. Is that really what I was referring to? As far as the cadence for the rest of the year, Q2 and Q3 really will depend on how fast we're absorbing the fleet that we brought in as well as, you know, how well we're doing with the Ahern fleet. So we'll adjust as we had the past three years accordingly.

That's pretty interesting. That's taking about a billion six of fleet in the fourth quarter and the first quarter when you combine the two. I assume you're seeing project backlogs that are really, you know, focused on we need this equipment for a certain project. This is not a, you know, presumption of demand. I mean, that's a pretty big first quarter number to follow the fourth quarter.

Yeah, absolutely it is, and that is because we see the underlying demand, and we've talked a lot in the last quarter as well about the megaproject, so they'll require a lot of this high-time utilization assets. Additionally, we'll also get more to a more normal cadence of used sales than we have. We held back, and we hope we don't have to this year. We're planning on selling about 35% more used sales to get back to a normal fleet rotation. So some of that capital will be to make sure that we have the ability to sell and we don't have the team losing confidence in their ability to rotate fleet out so that we can still meet demand.

No, it's just the strong – obviously you're seeing very strong demand. The year is going to start very strongly with that much fleet over the six months, even with the used sales as well. Second question, so even if we do the dividend, we do the repo – If you look at the guide, it implies net debt to EBITDA at the end of the year at 1.55, which is almost a half turn below the low end of your range. Can you give us a sense of the capital allocation, how we should think about that? Where would you be comfortable with the leverage, or should we think of it as you want to get the leverage back to the low end of the range, and thus M&A?

David, this is Ted. I'll take that one. There's no change to that longer-term framework we've provided of two to three times being that optimal level. we'd always said there was nothing religious about the low end. And so living there for some amount of time to us is something that is consistent with what we've articulated. The idea really would be to kind of stockpile dry powder for potential growth opportunities. If we were to kind of decide to live in a different zip code entirely, we would certainly update the street. But certainly for the immediate future, we're comfortable at these levels.

I appreciate it, guys. Thanks for the time.

Thanks, David. Thank you. Our next question comes from Stephen Fisher of UBS.

Thanks. Good morning. So just I'm curious how the fleet productivity you reported in Q4, how did that compare to what you thought you could do going in? Some of the investors we chat with kind of seem to note the moderation in fleet productivity as the year progressed. I guess what's the message you want to give to them about how they should think about sort of lower level of fleet productivity in 2023. Is it just more that it's settling into a more normalized level, you know, still above your hurdle rate, but just kind of moving beyond these unusual dynamics of utilization and inflation in 21 and 22, and it's just sort of settling into a more normalized path? Is that what message you would give, or how would you frame that?

I think that's a, first of all, this is an output, right? So we're going to manage the heck out of of rate and time even though we don't report it out individually and and and i and i'm very pleased that the whole industry is doing that and we see the the discipline shown in the industry from that perspective but i i think the way you characterize it is fair we were pleased with our q4 fleet productivity it was it was what we expected and just for clarity for those that may not have picked it up the 5.9 as reported when you take out a her and that would be six and a half so That's about three weeks of Ahern built into the fourth quarter. So we will report next year fleet productivity as reported and on a pro forma basis so you can see that impact. What we'll really be focused on is making sure we take the entirety of the fleet and drive more value out of it. And any time this number exceeds our threshold, we expect to comfortably do next year, that's a net gain. And we'll be measuring that on a pro forma basis for you so you can see what we're doing with the Ahern fleet against their baseline as well.

Okay. And then I'm wondering about the general cadence of project activity that you expect during the year and where you are with these large projects. You talked about taking all the extra CapEx more front-end loaded. I guess I'm wondering how you compare what's still in the planning stages on these large projects compared to what you have on rent at the moment. Because there are some investors that think your business is slowing down, but I'm wondering if There's actually, if you're seeing more large projects in the planning stages than what's on rent, I'm wondering if that could actually lead to some type of acceleration as the next year or two plays out.

Yeah, we'll stay away from quarterly cadence, but obviously you can tell by our portfolio that we expect to need more fleet come the spring buildup. Q1 is always going to be the slowest quarter seasonally, but we see strong demand here today, and we expect that to continue to ramp up from big projects. And then once you really get to the peak season, once you get past, you know, May, June, and even all the local market stuff starts popping. So when you hear about this pull forward, we don't feel the fleet that we would normally have had ready is going to be enough for when we get to the real build season in April. And that's really more what that pretends to be in Q1, you know, isn't really the focus. The focus is, are we going to be ready for the build? All these projects that are scratching dirt or coming out of the ground that we're going to need. we're going to need to mobilize fleet for in the spring.

Okay, just a quick clarification if I could. What's the embedded flow through that you have on the Ahern business in 2023 compared to 2022? You got a 55% pro forma for legacy URI. What's the Ahern flow through?

Yeah, see, that one's harder to speak to just because of the way we integrate acquisitions, especially in gen rent, and that's why it's easier to frame as a function of pro forma. So, You know, I think you hit the nail on the head. Certainly, as reported, Flother would look like 48, excuse me, as reported, looks like 48 pro forma 55. But it's hard to kind of discreetly break apart the businesses.

Okay. Thanks very much.

The one thing I would note just to remind people of, we do think we'll achieve about $30 million of the cost savings out of the $40 million we talked about. So we can certainly share that opportunity. Yeah, in 23.

We'll only get about 30 of it in 23 is our expectation.

Thank you. Our next question comes from Rob Wertheimer with Milius Research.

Hi, thanks. Good morning, everybody. I wanted to kind of circle back to the demand side, or at least the end market support that's out there in the short and the long term. And so, If you look at the dynamics, I guess we have the megaprojects that people talk about. You have the fear or the risk that rising interest rates and a potential recession will cause project delays or cancellations. And then you have the infrastructure bill, which is kind of different from some of the chips and semiconductors and stuff that will flow in. So I wonder if you could level set us on those. Are you seeing any delays, cancellations, et cetera? The megaprojects, I assume, are flowing in. Are you seeing any of the infrastructure bill starting to flow and I assume there's pretty good duration on some of this stuff, so I wonder if you have any comments on what your visibility is now versus past eras in history.

Yeah, sure, Rob. So broadly, we believe that many of these projects are not macro reliant. You heard me say that in our opening comments, and we're talking about the type of megaprojects we're talking about. We feel really good about that. As far as infrastructure, we've been saying all along we expected this to be a 23 event. And I'm pleased to say that we are seeing projects coming out of the ground and projects that are taking fleet as we speak. Mostly you're looking at bridges, airports, whether it be expansions or remodels. So we're pleased and we think that'll carry out and accelerate through this year and beyond, right? Be a multi-year event. So we're very pleased with that. Ted, I don't know if you had anything to add. Yeah, no, I mean, we really have not seen anything along those lines, Rob. Probably the one area where maybe we've seen some delays, we've talked about it, has been more on the alternative power side, and I think there's been some stuff written about this publicly. Solar, you know, has had some supply chain issues, and within wind we've seen a couple permitting issues. All that said, our power business in the quarter was up about 9%, and for the year we're up about 10%. So while we're seeing kind of reports that you're seeing delays on project starts, that business for us has continued to be very robust. And just for clarity on the broadness that we've been talking about, right, In just the megaprojects, the megaprojects are really the kicker while you hear this strong tone and guidance that we're coming out with. But we have seen this broad breadth growth throughout all geographies. So it's not megaproject reliant, but they're kind of the kicker that maybe could offset if you think commercial retail is going to drop or you think office space is going to drop. So we really feel that the balance is appropriate for this type of guide and the bullishness you hear in our tone.

Just to clarify on that, I was going to ask anyway, but we all talk construction, but you have a lot of non-construction verticals. You're seeing strength kind of throughout the industrial side?

We are, yeah.

I mean, if you really go through all the verticals, with the exception of midstream, which throughout the year has been the only vertical down for us, everything's up. And even the rate of change across those verticals has been negligible.

I mean, it's really been very consistent across the year. Perfect. Thank you. Thanks, Rob.

Thank you. Our next question comes from Seth Weber with Wells Fargo.

Hey, guys. Good morning. You guys are obviously planning to sell a lot more used fleet this year. And, Matt, I think I heard you reference something about a broad mix or something, different channel mix or whatnot. Can you just give us some more details on, you know, what you're – kind of how you're selling this used fleet. I mean, there's obviously some concerns about used pricing starting, you know, kind of rolling over and what your expectations are, what's embedded in your expectations for used equipment pricing for 2023. Thanks.

Sure. So we feel good about the end market, including pricing. You know, we'll fall off the historic highs that we've set over the last two years, maybe a little bit, but we'll find out. And I think one of the things we're going to see is is that the increase of replacement capital costs could definitely have a halo effect on used pricing. But when we think about what channels we're going to open up is what we were talking about, we've been strictly for 90% retail all the way in the first three quarters of 22. And then you saw we loosened it up a little bit to do some more volume in Q4. And that wasn't because there weren't options. It was to retain fleet to rent because the supply chain just wasn't getting fleet to us fast enough for our customers to We're hoping, our expectation is that we can go back to a more normalized channel mix in 23, and that's what's embedded in our guidance. So we'll open up the broker chain. We'll do some trades. We probably won't do much auctions unless you have something that's really in disrepair. We're not really a big auction player. But just opening up that channel mix over and above the retail, and that will allow us to rotate out about $2 billion worth of fleet.

Got it. Okay, that's helpful. Thanks. And then just on the... The strength in the specialty margin in particular was pretty notable. It is, you know, I think it was 400 basis points year to year. Is there something, is there some step change that's happened there? Is it the general finance business that's clicking or anything you'd call out that is supporting that big jump year over year? Thanks.

Yeah, I think there are a couple things there, Seth. I mean, certainly growth has been good, so that's helped drive, you know, fixed cost absorption. But beyond that, you had really good cost control in the quarter, and you also had some beneficial mix, both within the specialty segments and on a project basis that benefited that flow through.

Okay. All right, guys. Thank you very much.

Thanks, Seth.

Thank you. Our next question comes from Timothy Fine with Citigroup.

Thanks. Good morning. I'll just maybe group two together here. Matt, maybe the first is just on fleet productivity and just how you think about the components within that in 23, you know, just thinking of maybe time and rate, you know, given that, you know, you held on to fleet longer this year, you know, to make sure you met the demand, I'm presume you're running pretty hot on time. So, you know, potentially that starts to run against you, but maybe I'm wrong on that. And then, you know, just kind of the interplay on rate. And then the second question, maybe for Ted, is just any help in terms of EBITDA, of operating cash flows? How should we think about, say, you know, cash interest and cash taxes? Any help you have on that? Thank you.

Sure, Tim. On the fleet productivity, we still feel that the environment is going to be very constructive to drive positive fleet productivity. But you pointed out the reality of our time may have been running so hot that at some point you have to look at, are we running the appropriate level of time? Can we continue to raise it? Or does it become a bit of a headwind? With that being said, even if time becomes a headwind just because we're running so hot in some key categories and we need to make sure we have availability for our customers, we still have ample opportunity to drive positive fleet productivity. And we think the end market's constructed for that. We'll feel comfortable that both an as reported and pro forma basis will exceed our hurdle rate that we talk about, that one and a half, even if that goes up to 2%. So we feel good about it. And Ted, you can take the EBITDA question. Yeah, so Tim, just in the absolute, we would look for cash taxes in 2023 to be about $565 million. That's an increase roughly of about 240 million. Cash interest at about $600 million, which would be an increase of $195 or so. And so when you bridge kind of that $1.1 billion increase in EBITDA against a roughly $460 million increase in pre-cash flow, really the delta is going to be the change in working capital.

Got it. Thanks, Ted. And did you usually speak to a merit increase as we think about an SG&A? kind of bridge year over year. Have you quantified that as to how we should think about that for this year?

Yeah, I don't know that we're ready to quantify it, but certainly we've got that built into our guidance and built into our operating plan. You know, we always talked about the importance of supporting our employees and taking care of them, and that's an important aspect of doing just that. So there is absolutely a merit increase built into this guidance. But in terms of quantifying it, it's not something I think we're prepared to do.

All right. Fair enough. Thank you.

Thanks, Tim.

Thank you. Our next question comes from Jerry Revich with Goldman Sachs.

Yes, hi. Good morning, everyone. I wonder if we could just talk about the impact of the new higher pricing on new equipment on the marketplace. You know, when we saw a Tier 4 higher pricing roll through that had a nice pricing umbrella on the rental industry for the entire fleet, and I'm wondering, I know it's early post the January run price increases by the OEMs, but to what extent is that a pricing opportunity for the industry as you folks see it? You know, how would you... compare and contrast this transition versus the Tier 4 transition in terms of driving pricing upside? Thanks.

Sure. Well, number one, this would be more across the board. We feel comfortable. I talk about it in used pricing as replacement capex gets increased. That's kind of an umbrella on the used pricing residuals, which is a positive. And I think to your point about the whole industry having to absorb some inflation has has bolstered the discipline that we've been seeing. But to be fair, we saw it even before the price increases, and I think this is just the maturity of the industry. You've heard us talking about the bigs getting bigger and just more sophistication and information in the industry. I think all those are helping, and certainly increased OEM pricing makes that even more important. So I think your point's well taken. It will probably bolster some of the behavior in the industry.

Super. And, you know, just curious, there were lots of cross-currents in the cycle as we've discussed. You know, I'm wondering if you look at the 2011 through 2015 environment, any analog that you would draw in terms of the industry's ability to match supply and demand today versus that cycle where early on supply and demand matched pretty well, but obviously 2015 touch of oversupply. Can you just talk about how you view the industry's position today between availability and data, et cetera, and how you're managing the supply-demand balance?

Yeah. So one of the biggest differences is the information that everybody has access to, right? Whether it's the Rouse data, whether it's, you know, now that over a third of the industry is covered by top three public companies, right? These type information gets everybody more understanding and visibility of the important metrics to focus on and the opportunities that exist in the industry. So, and the scale. So specifically for us, and let's say our next largest competitive scale allows us to get through things in a different way. And so I don't really, wouldn't draw a comparison. I think the industry changed significantly in my 32 years, but even in the last 10, you know, we do things differently and I'm sure some of our peers do. And I think you're seeing that manifest in better performance overall for the customer and for the shareholders.

And lastly, if I could just sneak one more in. Ted, I'm wondering if you could just talk about what level of inflation is embedded in guidance overall, and if you can, just touch on transportation specifically where it feels like there might be some tailwinds for you folks, third party. Thanks.

Yeah. In terms of the inflation that's built into our expectations, you know, it's certainly probably elevated versus historical levels. you know, probably not as significant as what we saw in 2022. And yet we've been able to manage it very effectively, right? So if you look at that flow through last year, as an example, when you back out use across the full year flow through would have been, you know, 56, 57%. So clearly indicative of our ability to manage that inflation very effectively. And when you think about what we're pointing towards in 23, a similar level of flow through on that pro forma basis. So It's not to say that we're in a benign cost environment. There's still elements of inflation that we're managing and all companies are managing, but we feel very comfortable in our ability to manage it effectively. In terms of pickup and delivery, that's an area where, frankly, we're not trying to make money. As you see, the price of diesel, as an example, ebb and flow, the impact on our margins is relatively de minimis. It's something the team has done a great job managing through in 2022 when obviously diesel prices were a substantial headwind to companies. But as you think about that dynamic in 23, I don't think it'll be very appreciable.

Super. Thanks.

Thank you. Our next question comes from Michael Findager with Bank of America.

Hey, guys. Thanks for taking my question. Just I know there's been a lot of talk of mega projects. You know, we see Tesla announcing a $3.6 billion of new investments in two battery plants in Nevada. Just when we think about the economically sensitive areas of non-res, like office and retail, can you just help us understand when we think of these mega projects, how much more fleet on rent for these projects versus your typical office or retail? Are the terms and structures different? Is it different in terms of the the multi-year visibility there, the difference of the fleet required. Just curious if we see that trade-off over the next 12, 18 months, how we should kind of view that.

Yeah, Michael, the type of projects vary so much that it would be pretty hard to do. I mean, outside, if you're thinking about towers, right, large towers, office buildings, which may be more limited in what type of fleet you would rent on it, all these projects have different needs And the great thing about our product line is whether it's early when they're scratching dirt or whether they need trench plates, from creating the infrastructure to then creating the structure to then finishing off the building, we've got the opportunity to cross-sell into all those needs. But as far as the volume of needs, we do attribute models. They're really hard to be predictive. I wouldn't really say that it's something that you can rely on. I think the speed... And the time to do the project and the sensitivity probably drives more variation of how much men, material, and fleet they're going to put on there, right? And it seems like nowadays everything's a fast-track project. That used to be a term 10 years ago that meant they were going to do something quicker. Now it's every project's fast-track. So I think that has implications of driving more rental than anything else.

Thanks. And you guys highlighted all year that that fleet productivity number was going to decelerate. I know you kind of gave us some puts and takes for 2023, but is the view that the number continues to decelerate through 2023 or finds more stability at some point? Because you guys were kind of clear through the year how we should kind of prepare for that throughout the quarter. Just curious if there's anything we should kind of prepare as we go through 2023 there directionally.

yeah i mean you see what's embedded in our guidance on as reported basis right and within that range would be a different number anywhere uh i won't even say the number you could do the work well i think really the most important thing is that the environment is good for us to continue to drive positive fleet productivity even if time utilization doesn't go up and that's really what matters that's the important part of it and we will report this on a pro forma basis there will be a little bit as reported drag from the AHERN, bringing in the AHERN fleet, but we'll report that out. And that'll be a couple of points differentiation there, even between as reported and pro forma, is what our expectation is. So we'll, you know, it's an output that we really don't want to try to predict, but what our expectations are for rate and time are all embedded within our guidance.

Great. And just I'll sneak one last one, just I know we talked about power exposure, alternative energy. Just on the traditional side, the upstream, midstream, downstream, just are you seeing more activity there? Is that actually accelerating? I'm just curious if you can kind of touch on the traditional side.

Yeah, it's been pretty consistent in terms of that progression. Hold on, I'm just turning to something quickly. Mike, give me one sec. There it is. So certainly you continue to see strong momentum in upstream. I mentioned midstream has been kind of the one sector that has been a headwind for us this year. It's relatively small, call it 2% of our total mix. And downstream has been pretty steady as well. Chemical processing would be the same. So if we look at the business, it's consistently been about 13% of our total business across the year.

Thank you. Thank you, Michael.

Thank you. Our next question comes from Ken Newman with KeyBank Capital Markets.

Hey, good morning, guys. Thanks for squeezing me in here.

Morning, Ken. Morning. Matt, I wanted to go back to a couple of the comments that you made. Obviously, you gave a lot of good color on infrastructure spend opportunities earlier in the call. I think the guide implies a low double-digit organic growth after you strip out Ahern. But is there any way you can help us try to size what the midpoint of guide assumes are the benefits from the trends we're seeing in industrial reshoring or your visibility on infrastructure projects?

I don't really have it broken out that way. We really look, frankly, when we're planning more by region. versus the verticals, and then we track the verticals as we assign capital after the fact. So I actually don't have that number for you, Ken. We can do a little work and get back to you on that. But just generally, right, without trying to get too pegged on numbers that I haven't vetted, generally, we view infrastructure as something that's accelerating, right? We view that we're seeing the beginnings of it, of the spend, and we think that'll accelerate through 23 and beyond into multi-years. As far as the manufacturing, someone mentioned earlier, there's some big plants going on right now that have a lot of fleet on rent as we speak, but there's also some projects coming out of the ground that we think are multi-year megaprojects. I don't really know how to lay those against each other, but I'd say overall the megaprojects work, will certainly outpace infrastructure work in totality, but the acceleration infrastructure will continue throughout the year.

Understood.

For the follow-up, and you touched on this a little bit, but obviously we've seen some cracks start to emerge for the broader industrial space, especially on the – you talked about PMI in your prepared remarks. I know that's a little less than 50% of your customer mix, the industrial MRO part of the business. Maybe talk to us a little bit about how much conservatism is built into the bottom end of the guide range, what's embedded there in the assumptions, if we really do see a sharper turn in the industrial MRO demand environment.

Yeah, Ken, I'll take that one. As Matt mentioned, when we do our forecasting, it's really built by the branches up to districts, regions, divisions, and corporate ultimately. So it's really kind of fed by the field. We don't look at it kind of top-down looking by vertical. So as I mentioned, our industrial business has held in very well. Um, we're not seeing any signs of cracks and I know people have looked at whether it's the PMI or other metrics and it's raised concerns. Um, you know, we're not seeing signs of those. And as Matt mentioned in his prepared remarks, we also see a lot of these industrial projects kicking off this year. You know, we've talked about autos and related stuff. We've talked about summies, but frankly, it's, it's even broader than that. And so if there's an offset, you know, from this, if there is a headwind on the MRO side, I think we're very confident you'll see within industrial kind of offsets on the construction side. But just to answer the question pointedly, we don't forecast, you know, our business based on these industrial verticals. Got it.

Maybe if I could just sneak one more in here. It doesn't sound like you guys expect any constraints, certainly from a capital perspective, even with the new dividend in the share repo. But I am curious if you think there's enough management capacity to go after M&A here in the near term.

Yeah, Kent. So outside of anything that has a significant overlap with Ahearn, right? So in those markets where they're integrating the teams together, right, getting the sales reps together, that's a lot of work on the ground. So we're going to pause for a little bit on anything that would have a large overlap. But if we have opportunities and we continue to work the pipeline as we have for the past couple of years, that don't have a big overlap and we have capacity in the field, we're absolutely, if they clear that final hurdle of makes financial sense, we have the dry powder, we have the capability, and we certainly would consider M&A, whether it be a tuck-in, generate deal in a market that Ahern wasn't in or a specialty product line where they're not dealing with any integration issues right now or integration work rather than issues. So I would say absolutely we would. And, you know, just to touch on the capital allocation, you know, one of the reasons why it was the right time for us to do a dividend now is because this is not at the expense of growth. You know, when you look at the past two years and the kind of growth we drove, including significant M&A, we still had the capacity and free cash flow to give a dividend. So we had asked that question by someone earlier, you know, are you giving a dividend because of less growth prospects? No, quite contrary. It's because even after supporting growth, we have excess cash to return, and that points to the resiliency of our strong free cash flow through the site.

Very helpful.

Congrats. Thank you, Ken.

Thank you. We'll take our next question from Stanley Elliott with Stiefel.

Hey, guys. Thank you guys for putting me in. Matt, in the past, you guys have talked about the big getting bigger. And in the K, you mentioned 4% North American rental growth. And you're talking about 12% sort of growth right now. I mean, you guys have consistently outgrown the broader industry. But are we seeing a step up now, an inflection point with the scale that you have, the specialty that now it's reasonable to think that you guys might be able to put up 3x what the industry is growing at?

Well, certainly yes, because that's what our guidance implies. I think you'd have to think that that 4% number would be locked in as well. So, you know, I don't know what the coming out number for ARA was last year, but I know they raised it throughout the year. But we don't focus on that as a barometer limiting ourself. We focus on what we see in front of us, what we do during our planning process, and what we hear from our customers, as well as our people in the field. But implied in this guide is three times, and we do think we could do that. And the I think, you know, I've talked about this before, how the top end of the business, the biggest getting bigger, is a trend that we think is going to continue. And we think scale gives you some opportunities and options, as well as adding additional product lines and cross-selling that gives better service to the customers and gives you an opportunity to grow faster than the industry. And I think we'll see that continue.

Great, guys. That's it for me. Thanks. Thanks.

Thank you. Our next question comes from Scott Schneeberger with Oppenheimer.

Thanks, guys. Good morning. My first question, in GenRent specifically, I guess I probably paid you maybe the best to speak to this, but how is rental duration different? performed over the last, you know, few years. Have you seen an expansion of your equipment staying out on rent? And with mega projects coming and infrastructure bill feels like 2023 is going to be a lot of that. You know, is it likely that we may see that expand? I know we're talking a matter of days here, but might the length of period that assets are out on rent

expand and could that have a positive benefit margin benefit for the company thanks yeah so i'll touch the first part of the question uh uh i'll start there in terms of the mix between daily weekly monthly which is really the way we would look at this we don't kind of measure contract duration and maybe the way you're asking scott but those numbers have not moved meaningfully you've seen a very modest shift between daily and monthly to the point of uh to the tune of about a point so you know, we'd be kind of mid single digits on the daily and we'd be about 80% on monthly. And those numbers have been remarkably consistent for a long time. And there really hasn't been an appreciable change in terms of 22 versus 21 or prior years. In terms of the margin impact, you know, certainly what we're always trying to do is be mindful of getting more of your volume and serve you more efficiently. And so certainly, you know, I don't know that there's a huge change there, but we do have that benefit. As we do get larger projects that last longer and we get more fleet on those projects, we're able to serve that customer more efficiently, and that certainly benefits margins to some degree and, importantly, returns.

Great. Thanks. Appreciate that. And then, Ted, still for you, kind of your thoughts and kind of how the board is looking at with the new dividend program, should we anticipate – the United Rentals to be a dividend growth story? I think you referenced about an 18% payout. I don't know if you want to quantify this, but is there a comfort going higher on payout ratio? Is that kind of a direction we'd expect to take vis-a-vis share repurchase? Just high-level thoughts there. Thanks.

Yeah, absolutely. Don't want to get ahead of the board, but absolutely we have the intention of growing the dividend over time. In terms of what that relative growth looks like relative to you know, net income because you're asking about a payout ratio. I don't know that we'd get locked in there just yet, but absolutely the intent is to continue to grow the dividend over time. It's fully our expectation we'll continue to grow the company over time. We'll continue to expand margins. We'll continue to generate more cash. And so one of the things the dividend allows us to do is have another tool to return that excess cash to investors as we keep growing. So, yeah, I think it's very fair to assume that we will grow the dividend over time. And in terms of what that rate looks like, you know, stay tuned.

Fair enough. Thanks a lot, guys.

Thanks. Thank you. That concludes our question and answer session. I'll now turn the call back to Matt Flannery for any additional or closing remarks.

Thanks, Operator, and that wraps it up for today. I want to say thank you to everyone for joining us as we kick off another year of growth for our shareholders, and we look forward to reporting a strong quarter for you in April. Until then, if you have any questions, please feel free to reach out to Ted. Have a great day. Operator, please go ahead and end the call.

Thank you. This concludes today's call. Thank you for your participation. You may disconnect at any time.