United Rentals, Inc.

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 more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 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. Three months ago, after our record full-year financial performance in 2022, we told you that we'd continue raising the bar in 2023. And I'm pleased to say that the year is off to a strong start which you can see in the results that we shared last night. The integration of Ahearn is on track and our team's doing a great job executing our plan and delivering for our customers. And as always, we're very pleased that we did this safely with another reportable rate below one. This execution and the continued strength of our end markets give us the confidence to reaffirm our full year 2023 guidance for substantial growth, solid margin expansion, and significant free cash generation. Let's start by digging into our first quarter results. Total revenue grew by 30% to a first quarter record $3.3 billion. Within this, rental revenue increased by 26%. EBITDA increased 32% to $1.5 billion, while margins expanded to 45.8%, both first quarter records. And finally, Our return on invested capital set a new high watermark at 13.1%. During the first quarter, we invested $797 million in gross capex, and year-to-date, we've closed two local acquisitions that nicely complement our strategy. Combined with the actions that we took during the first quarter and fourth quarter of last year, we're well-positioned to support the demand our customers see ahead. Looking more closely at the first quarter demand, key verticals saw growth across the board, led by non-res construction, industrial manufacturing, and power. Geographically, we saw much of the same, including double-digit growth in all of our regions. Our specialty business delivered another excellent quarter, with rental revenue up 24% year-on-year and strong growth across all lines of business, led by our mobile storage team. Within specialty, we opened six new locations and are on track for around 40 cold starts this year. Used sales were another positive in the quarter, with revenue up 84% year-on-year, largely due to the normalized volumes after holding back on sales in 2022. Not only were OEC recovery rates and margins strong, but the level of demand provides another positive indication of how our customers are feeling about their outlook and the need for equipment. Turning to capital allocation, our focus remains on driving profitable growth and returning excess cash to our shareholders. We view this as a hallmark of a good company and a means of maximizing value. During the quarter, we returned over $350 million to our shareholders, supported by the strength of our balance sheet and free cash flow generation. Looking ahead, we see continued reasons for optimism regarding our business in the balance of 23 and beyond. Near term, we're encouraged by the momentum we're carrying into our busy season, combined with a variety of positive industry indicators. First off, both internal and external measurements of customer confidence continue to point towards growth in 2023. This is underpinned by current activity, as well as the strength of customer backlogs. Additionally, Non-res construction starts increased over 30% in March, and the Dodge Momentum Index was up 24% year over year. And the ABI points to growth as well, where the forward-looking inquiries component continues in the right direction. Together, these factors support our reaffirmed full-year 2023 guidance. Longer term, we remain confident in our ability to capitalize on several significant multi-year tailwinds for our industry, that we view as resilient in any economic environment. First is infrastructure. It remains early, but we continue to see a ramp in spending from the federal infrastructure bill across a variety of project types, including airports, bridges, and road and highway. We're also well-positioned to support our customers as they undertake projects across clean energy and advanced manufacturing funded by the Inflation Reduction Act. Within private construction, we continue to see strong investments across manufacturing led by autos, semiconductors, and energy and power. Combined reports indicate that these tailwinds hold the potential for over $2 trillion of project spend in the U.S. over the next decade. We're very well positioned to leverage our competitive advantages on these projects, whether through the size of our network or the breadth and depth of our products and services. Our team's prepared to serve our customers and drive value creation for our shareholders. Before I wrap up, I want to highlight some of the other significant achievements that Team United had in the first quarter. You've long heard us talk about doing well by doing good. Our team continues to be recognized for their efforts in this area, including recent wins from the Wall Street Journal, where we made their management top 250 list, recognizing companies for doing the right things well, and the Just 100, which recognizes companies that are doing right by all their stakeholders while also generating strong performance for shareholders. So to sum it up, we continue to feel good about 2023 and beyond, as our long-term strategy has us well positioned. Our team is executing, and our customers know we're there to support them with unmatched capabilities. And as we've consistently demonstrated, we know how to manage the flexibility of our business model while leveraging the strength of our balance sheet and the durability of our cash flow. This gives us multiple options for creating value. Lastly, before I hand it over to Ted, I want to quickly highlight that we'll be hosting an investor day on May 31st, during which we'll provide an in-depth review of our strategy, key initiatives, and financial performance with a Q&A session to follow. The event will be held both virtually and in person in New York City, and we hope that you can join us. With that, I'll hand the call over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted. Thanks, Matt, and good morning, everyone. As you saw in our first quarter press release, our team again produced excellent results that were consistent with our expectations and, importantly, positioned us well for the full year. And I think, Matt, frame things well in saying that we continue to feel good about both 2023 and beyond, given the market opportunity we see, our strategy, our team's consistently strong execution, and our customers' knowledge that we are here to serve them with unmatched capabilities. One quick note before I jump into the numbers. The figures I'll be discussing are as reported, except in a few instances where I'll call them out as pro forma, which are adjusted to include Ahern's first quarter 2022 standalone results in the year-ago period. So with that said, first quarter rental revenue was a record at $2.74 billion. That's an increase of $565 million, or 26%, year over year. Within rental revenue, OER increased by $469 million, or 26.1%. Our average fleet size increased by 25.6%, providing a $460 million benefit, and fleet productivity increased by 2%, as reported, adding another $36 million. This was partially offset by our usual fleet inflation of 1.5% or $27 million. Also within rental, ancillary revenues were higher by $93 million or 28.3%, and re-rent provided an additional $3 million or 6.1%. I'll note that on a pro forma basis, rental revenues up a robust 16.6%, and fleet productivity increased by a healthy 5.9%. First quarter use sales increased by 84% to $388 million as we returned to a more normalized volume after holding on to fleet throughout much of 2022. Adjusted use margins increased by 170 basis points to 59.5%, supported by continued strong retail pricing. Moving to EBITDA. Adjusted EBITDA on the quarter exceeded $1.5 billion, another first quarter record, reflecting an increase of $364 million, or 32%. The dollar change includes a $313 million increase from rental, within which OER contributed $285 million, ancillary added $29 million, and re-rent was down $1 million. Outsider rental, U sales added about $109 million to adjusted EBITDA, while other non-rental lines of businesses contributed another $5 million. SG&A increased by $63 million due primarily to higher commissions and the continued normalization of certain discretionary costs. As percentage of sales, however, SG&A declined by 120 basis points year-on-year to 11.6% of total revenue. Looking at first quarter profitability, our adjusted EBITDA margin increased 70 basis points on an as-reported basis and 160 basis points on a pro forma basis to a first quarter record of 45.8%. This translates to 48% flow through on an as-reported basis and better than 53% on a pro forma basis. And finally, adjusted EPS was $7.95, another first quarter record. That's a year-over-year increase of $2.22 per share, or almost 39%. Turning to CapEx, gross rental CapEx was $797 million, and net rental CapEx was $409 million. This represents an increase of $138 million in net CapEx year-over-year and positions us well for the growth we see in 2023. Looking at return on invested capital and pre-cash flow, ROIC set a new record at 13.1% on a trailing 12-month basis. That's up 40 basis points sequentially and 220 basis points year on year. I'll add that was 310 basis points above our current weighted average cost of capital. Pre-cash flow was another good story, with the quarter coming in at $478 million, or an LTM pre-cash margin of 13.5%, all while continuing to fund significant growth. Turning to the balance sheet, Our leverage ratio at the end of the quarter improved to 1.9 times, representing a 10 basis point reduction both sequentially and year over year. And our liquidity at the end of March exceeded $2.65 billion with no long-term note maturities until 2027. Notably, all of this was after returning $353 million to shareholders in the quarter, including $103 million via dividends and $250 million through share repurchases. Looking forward, you saw last night that we reaffirmed our guidance across all metrics. Based on the diverse momentum we see across our markets and what we hear from our customers, we remain confident that 2023 will be a record year for the company. Just to review, total revenue is expected in the range of $13.7 to $14.2 billion, implying full year growth of approximately 20% at midpoint and pro forma growth of 12%. Within total revenue, I'll remind you that our used guidance is implied at $1.3 billion. Our adjusted EBITDA range remains $6.6 to $6.85 billion. On an as-reported basis at midpoint, this implies roughly flat full-year adjusted EBITDA margins and a flow-through of around 48%. On a pro forma basis, however, which we think is the appropriate way to think about it, our guidance continues to imply about 80 basis points of EBITDA margin expansion and a flow-through in the mid-50s. On the fleet side, our gross capex guidance remains $3.3 to $3.55 billion, with net capex of $2 to $2.25 billion. And finally, our pre-cash guidance is $2.1 to $2.35 billion, which is before dividends, repurchases, and bolt-on M&A. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

At this time, if you would like to ask a question, please press the star and 1 on your touch-tone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star and 1 to ask a question. Our first question comes from Rob Wertheimer with Emilius Research.