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, 2023, as well as to subsequent filings with the SEC. You can access these filings on the company's website at .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. As you saw yesterday afternoon, 2024 continues to play out as we expected. We were pleased with our third quarter results, which continued to reflect growth across both our construction and industrial end markets. Our updated guidance reaffirms our expectations for another year of profitable growth, which we were able to deliver thanks to our more than 27,000 team members. Their hard work enables us to support our customers with world-class service and innovative solutions, all while keeping safety as priority number one. As you've heard me talk about before, we continue to double down on being the partner of choice for our customers. We're helping them solve for their goals across safety, productivity, and sustainability through our compelling value proposition. Importantly, not only does our business model enable us to best serve our customers, but it also generates strong shareholder value. Today, I'll discuss our third quarter results, our expectations for the rest of this year, and share some examples of how we continue to innovate and rapidly respond to customer needs. And then Ted will discuss the financial details before we open up the call for Q&A. So let's start with the third quarter results. Our total revenue grew by 6% year over year to almost $4 billion. And within this, rental revenue grew by over 7% to $3.5 billion, both third quarter records. Late productivity increased by 3.5%, supported by our focus on capital efficiency and continued industry discipline.

Adjusted

EBITDA increased to a third quarter record of $1.9 billion, translating to a margin of almost 48%. And adjusted EPS grew year over year to $11.80, another third quarter record. Now let's turn to customer activity. We saw growth in both our general and specialty businesses. Specialty rental revenue grew an impressive 24% year over year and a strong 15%, even if you exclude the benefits of the ACK acquisition. Our cross-selling efforts helped fuel growth across all of our product offerings. And furthermore, we added 15 cold starts in the quarter, putting us at 57 year to date. By vertical, third quarter trends were similar to the second quarter. We saw growth in both construction, led by non-res, and our industrial end markets, with particular strength in manufacturing. It'll come as no surprise that we again had multiple new projects in the quarter across data centers, airports, healthcare, and battery manufacturing, to name a few. Now turning to the used market, which remains healthy. As Ted will elaborate on, we sold a third quarter record amount of OEC, which speaks to the strength of demand, while our margins primarily reflected the ongoing normalization of the market. And as we replaced this equipment by additional fleet to meet our customer needs, we spent almost $1.3 billion on CapEx in the third quarter. We continue to see opportunity to put fleet on rent, and our full year guidance reflects a tightened CapEx range with the midpoint unchanged. Year to date free cash flow is over $1.2 billion. We're on track to hit our full year goal, which translates to a free cash flow margin in the mid teens. Our industry leading profit margins, focus on capital efficiency, and flexible business model translates to strong free cash generation, and ultimately provide us the ability to create long-term value for our shareholders. And finally, capital allocation. We returned nearly $500 million to shareholders in the quarter via share buybacks and our dividend. Our balance sheet is in excellent shape, and we're on track to return nearly $2 billion this year. As we wrap up 2024, we're focused on continued execution and delivering another year of records across revenue, adjusted EBITDA, and earnings. Our updated guidance, which maintains the midpoint for revenue, EBITDA, and rental CapEx, reflects just that. We have good momentum heading into 2025, which is setting up to be another year of growth based on what we see and sense today. The tailwinds for a multitude of large complex projects are still in the early innings, and we believe we're uniquely positioned as the partner of choice with our customers. To support these initiatives, we continue to make investments in optimizing operations for both ourselves and our customers. For example, we're investing in our next generation telematics products, which help customers gain new insights into their own operations and allows our technicians to prioritize their workflow and best manage our fleet. Elsewhere on the innovation front, we recently announced a great example of a customer-supporting technology. Our ProBox On Demand is a Bluetooth-enabled automated tool tracking system, which ensures workers have the right tools where and when they need them, and tracks tools in real time to significantly reduce worksite loss. Both of these examples demonstrate our culture of innovation and continuous improvement. But taking care of our people and helping our communities are also key elements of our culture. And I was very pleased with how quickly our team reacted in the aftermath of the devastating damage caused by both hurricanes Helene and Milton. In both instances, we were immediate to respond, putting our proven United Runnels playbook to work and providing our customers with the support needed to start the cleanup and rebuild process. So to wrap things up, 2024 remains on track, with 2025 setting up to be another year of growth, which we'll discuss in greater detail in January. We continue to deepen our relationships as we partner with our customers, not only providing them the equipment they require, but also helping them solve their other challenges. The combination of our competitive advantages and flexible business model, coupled with our focus on profitable growth, strong free cash flow, and smart capital allocation, positions us to drive long-term and sustainable shareholder value. And with that, I'll hand the call over to Ted before we take your questions. Ted,

over to you.

Thanks, Matt, and good morning, everyone. As Matt just highlighted, the year continues to play out as expected, with third quarter records achieved in total revenue, rental revenue, EBITDA, and EPS. Looking ahead, our reaffirmed guidance at the midpoints across all metrics reflects our continued confidence in delivering another year of solid growth, strong profitability, healthy returns, and significant free cash flow. As importantly, we remain focused on prudently allocating capital to help maximize shareholder value. So with that said, let's jump into the numbers. Third quarter rental revenue is a record $3.463 billion. That's a -on-year increase of $239 million, or 7.4%, supported again by growth from large projects and key verticals. Within rental revenue, OER increased by $153 million, or 5.8%. Growth in our average fleet size contributed .8% OER, while fleet productivity added 3.5%, partially upset by a soon fleet inflation of 1.5%. Also within rental, ancillary and rerent revenues were higher by $86 million, or 15%, resulting primarily from strong growth in our specialty businesses. Turning to our used results, we sold a record amount of fleet in the third quarter, generating proceeds of $321 million in a strong demand environment. While we continue to see a normalization of used pricing, our adjusted margin and recovery rate both remained high by historical standards at .5% and 54%, respectively. It's also worth noting that our recovery rate was impacted by the age of fleet we sold in the quarter, which increased roughly four months -on-year to 95 months on average. Moving to EBITDA, adjusted EBITDA was a $44 million, or 2.9%. Within this, rental contributed $132 million -on-year. Outside of rental, used sales were a $43 million headwind to adjusted EBITDA, driven by the ongoing normalization of the used market. SGA increased by $40 million -on-year, primarily reflecting a larger business, including the addition of YAK and some discrete items in the quarter. And finally, the rental lines of businesses increased $5 million -on-year. Looking at third quarter profitability, our adjusted EBITDA margin was 47.7%, implying about 140 basis points of compression. Excluding the impact of used, however, our margin was down about one percentage point, reflecting the impact of the investments we've talked about making this year, normal variability in costs, and the impact of roughly $15 million of discrete items in the quarter. Converting this to flow through, our incrementals would go from about 24% in an as reported basis to 36% ex-used, and into the low 40s, excluding the $15 million of discrete items I just mentioned. And finally, our adjusted earnings per share was a third quarter record of $11.80. Shifting to CAPEX, gross rental CAPEX was $1.3 billion, which was in line with expectations and within the range of historical seasonality. Moving to returns in free cash flow, a return on invested capital of .2% remained well above our weighted average cost of capital, while -to-date free cash flow totaled over $1.2 billion. Our balance sheet remains very strong, with net leverage of 1.8 times at the end of September, and total liquidity of almost $2.9 billion. I'll note, this was after returning a record of over $1.4 billion to shareholders -to-date, including $326 million due to dividends and $1.1 billion through repurchases that have reduced our share count by almost $1.7 million -to-date. Now, let's shift to the updated guidance we shared last night, which reflects our continued confidence in delivering another year of strong results. As previously mentioned, we are maintaining the midpoints for all metrics and narrowing the ranges for total revenue, and gross and net cap X, as we normally do at this point of the year. In terms of specifics, for total revenue, we've narrowed our guidance to range of $15.1 to $15.3 implying total revenue for your growth of just over 6% at midpoint. Within this, I'll note that our used sale revenue guidance is unchanged at roughly $1.5 billion of proceeds on OEC sales we now expect closer to $2.6 billion. On adjusted EBITDA, we've narrowed the range to $7.115 to $7.215 billion. Our range for gross cap X is narrowed to $3.55 to $3.75 billion, and our net cap X is narrowed to $2.05 to $2.25 billion. We're still on pace to return a record $1.9 billion to shareholders this year, which translates to almost $30 per share or a current return of capital yield of about 3.6%. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Thank you. At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question at any time by pressing star and two. We'll take our first question from David Rassow with Evercore ISI. Please go ahead. Your line is open.

Hi, good morning. Thanks for the time. You made a comment, Matt, about good momentum into 25, another year of growth. Can you give us, Liz, how you're thinking about that between specialty and gen rent growth and also fleet productivity versus fleet growth? I'm not looking for, you know, exact numbers, but just how do you think about the different contributors? And then I have a second question.

Sure, David. So when we think about how next year is playing out, and I'll just talk about this qualitatively because we haven't even finished our planning process, and that'll inform what we actually think our growth will be. But we're going to have a little bit of carryover in fleet, right, that we feel confident that we'll put to work. And on the demand perspective, there's still a good pipeline of large projects. The wild card as we get deep into with our customers and our field leaders, what's that local market going to do? And we talked about that a lot this year. You know, our assumption of interest rates starting to show some give and possibly more coming. We think at least the emotional part of that step has been heard from our customers. So people are starting to feel a little more confident. What kind of activity that actually turns into is the part that we don't have quantitative way of filling that out, but we're going to figure out from our customers and our field leaders. And then we'll add that growth. But when you think about the ending fleet having a little bit of growth to it, we'll continue to strive to drive fleet productivity. I'm not going to put a number out there or forecast it, but our goal is to always drive revenue growth more than fleet growth, which is all fleet productivity measures. So we'll continue to do that. And we think specialty certainly has more headwind. I mean, we've been, I don't know since when, but we've been eight, probably eight years plus with specialty growing over 20% each year. And we continue to think that they have that kind of opportunity. And the tailwinds that we talk about in the mega projects, infrastructure and the like really plays to our one-stop shop full value offering. That also helps specialty drive more growth. So that's the way we think about it. What kind of growth and what kind of growth capex we'll put in. We'll talk about that in January after we're done with our planning process.

And also you mentioned the strength of the balance sheet, the cash flow, as you're aware, right? The sizeable acquisition and the mobile modular space recently broke apart. So I'll just give you the platform here if you want to comment at all on the attractiveness of that space. Obviously you became a player with GenFinance. If you can touch on that. And of course any other M&A landscape comments would be appreciated. Thank you.

Sure, David. On the first part, we're very pleased with the acquisition we did with General Finance. We talked about when we bought that doubling the size of that business in five years. We're probably ahead of schedule on that, but certainly on track. We feel really good about that. And for that space, we like the idea of growing off of that platform a lot. And we're accomplishing that. We don't necessarily need to be the biggest provider in that space overall. We just need to be the biggest with our customers. And that's the way we look at a lot of our adjacent product lines. So please there. And as far as M&A, we continue to look at the pipeline, right? We've got a competency of integration and cross selling that's unique and something that really plays well with our customers and within our organization. But the bar is high, right? So it's not always easy to get the right dance partner. We can get the strategic fit. We can get cultural fit. And the last part is financial. And our bar is high there. I think one of the reasons we're good integrators is because we're smart buyers. So we continue to work the pipeline. And when something's imminent, we'll let you all know. All right. Thank you. Thanks, David.

We'll take our next question from Michael Seneca with Bank of America. Please go ahead. Your line is open.

Yeah, guys. Thanks for taking my question. I just was curious, Matt, when we think of 2025, just the puts and takes, like the last few years, rate has been a good guy as we've been in a backdrop of higher inflation. You guys were clearly able to pass that along. The industry was able to. As we approach 2025, Matt, if equipment pricing is softening, can you guys still drive rate in that environment, even if we're in a more deflationary environment? Just love to get your view on that.

Yeah. So absolutely. We could continue to drive rate. That's about what's your value to the customer. And you got to try to offset inflation. Even if equipment pricing stayed flat down this year for the next batch we buy, we still have to absorb the inflation that we've been paying for the last couple of years on the fleet, which was significant. But additionally, there's been fluid inflation throughout the business. And we're going to continue to give our employees raises. We continue to have cost inflation that we've been absorbing throughout the last couple of years. So the need to continue to drive rate is certainly there. And probably more importantly, the discipline in the industry is there. So everybody's in the same boat where we have inflation that we've got absorbed. And I think the industry is creating good value and giving a good output for the customer, which is the most important part of allowing yourself to get price increase.

Fair enough. And Matt, if you could just follow up with my last question. Just, how are you feeling with your fleet age, your fleet mix, if we are in another environment where there's a little bit more mega versus local, a little bit more specialty versus general rent, just gives me a comment of where you feel your fleet is positioned to still be able to have a growth year next year with where the age is today. Thank you.

Yeah, our fleet's a little over 50 months, I believe right now. It's the lowest it's been pre-COVID. And that's even absorbing some longer-lived assets that we've bought in the last five, seven years, right, with general finance and tanks. And so we feel really good about where it is. There's plenty of headroom if we ever had to lean on that, but that's not our expectation. But we're in real good position. Like I said, we're back to pre-COVID fleet age.

Thanks, Mike. We'll

take our next question from Tim Thine with Raymond James. Please go ahead.

Thank you. Good morning. Maybe just, Matt, on the topic of fleet productivity, I'm curious, the expectation coming into the year was to maybe hold serve on time. I'm just curious as we're nine-plus months into the year, how you're trending relative to that initial objective.

Yeah, as we've said, we'd be really pleased if we were able to repeat the kind of time utilization that we achieved in 2023. And I'm pleased to say that's what the team's doing. So when we talk about the components of fleet productivity qualitatively, Ray's still a good guy. And let's call time neutral, which is a good achievement. When we're talking about, just to put it in perspective, I've said this previously, these are time utilizations back to better than 2019 levels, back to pre-COVID levels. So we're pleased with that. And then the last part is mix, which that's the variant part. That's the part that is an output of tens of thousands of transactions a month. And just to remind everybody, within that mix is any inflation that we've paid for the fleet that's over and above the one and a half percent PEG. And we've talked to you earlier this year that that looks more to be like two and a half to three this year. So when we think about that fleet productivity, even ExYAC at 1.9, absorbing that extra inflation, we're really pleased with the execution of the team.

Got it. Okay. And that's safe to assume, obviously, given how you layer in fleet, that inflation, even in mildly, if it were to play out, where one year's equipment purchase is layered in with seven, eight years. So that would still remain that fleet inflation dynamic, Matt. We should still think about that in the headwind in 2025, correct?

Yeah. Oh, yeah. Yeah. That tail's going to last a little bit in a couple more years.

Yeah. Yeah. Understood. Okay. And then just on going back to the thoughts around capital in 25, you just brought in what, 30-ish percent or close to 30% more fleet in the third quarter year over year. And with fleet productivity, just call it 2% ExYAC. And obviously, you'll typically fleet a bit in the fourth quarter. If these trends kind of persist, would next year maybe lean a little bit lighter in terms of how you layer in that capex in terms of the first half? I know it's early days, but just thinking about kind of the timing of how you may think about landing a fleet in 25. Any thoughts on that?

Yeah. Without having done the work, I would just make the assumption of a similar cadence at this point. But we'll talk about that a little more in January after we finish the budgeting process. But I don't think we're going to be that far off the cadence that we typically run. We're back to a more normalized cadence as the supply chain's just about fully repaired. I mean, there's just a handful of items that maybe have longer lead times than we'd like. But the supply chain, our partners have done a good job getting their business back in line and their suppliers back in line. So we're in pretty good shape. And I think we'll return to a more normalized cadence, which is similar to what you saw this year.

OK. Thank you.

Thanks, Tim. We'll take our next question from Jerry Revich with Goldman Sachs. Please go ahead.

Clay, on for Jerry. You've talked about the pockets of soft demand in some of the markets, particularly the local markets. How much more to optimize productivity?

You broke up a little bit. Could you repeat that question,

please? Yeah. So just regarding the pockets of soft demand in some of the local markets, just curious how much more fleet you are moving geographically today versus last year to optimize productivity. Thanks.

Yeah. We have a very dense network, right? We're covered just about all of US and Canada. So we're not having any exorbitant costs or any extra efforts to have to move things more than maybe a state to state at the most. We're not doing coast to coast movements or anything like that. We were asked that question in Q2. And fortunately, with our business model of fungible assets, we're able to move stuff within districts. So really nothing to call out there.

Thanks. And then obviously, really strong growth on the specialty side. Can you rank order?

I didn't catch it all again, Clay. I think we're asking us to rank order our specialty growth.

Yeah. We're just some color on what's the stronger areas within specialty. Sorry about that. Sure.

Sure. I mean, we don't get too granular here, but certainly we've talked about power being a very strong region for us. And that has continued to be the case. Frankly, there's growth across segments of specialty. They each have different variances. Some are less mature and building out. So you're kind of building off smaller numbers. So you can have stronger growth rates as a result. But they all perform quite well in the quarter and have year to date. And that's really what you've seen in those numbers. Thanks.

Thank you.

We'll take our next question from Robert Wertheimer with MyList Research. Please go ahead. Your line is open.

Thanks. Good morning, everybody. Morning, Rob. So my question is going to be on cost. So the question is on cost. And I know it's not the highest growth revenue quarter. I think we talked about that last quarter where littleish costs show up. And I don't imagine you're managing your strategy for a quarterly ST&A number anyway. So the question is really around the IT investments that you've made. Are you doing anything different there? Do you have a sense of, you know, is there a payback? Are you thinking about, you know, a payback in the next year? I mean, what's interesting about that spend there and what are you trying to do? Thank you.

Yeah, good question, Rob. So as we've talked about all year, we are making, call it additional investments in various aspects of technology. We do each and every year. This year, there's probably a couple of new programs we've talked about. Some of it would relate to AI related stuff. Some of it would relate to the advanced telematics packages that we're rolling out, all of which we think both make the company more efficient and improve the customer experience. I'm not sure we've dimensionalized them. And one of the reasons we've called them out is just to bring up the fact that in the current environment where you're growing kind of in the single digits, not in the double digits as we had in prior years, it does have a relative impact on flowthrough. So as we've talked about kind of margin performance in 24, flowthrough performance in 24, that along with the cold starts are really the two underlying things that kind of bridge people to where we are and expect to be this year versus maybe where they would have thought we would be in a otherwise different environment. But the investments, they're across a broad range of certainly on the fleet side, sourcing, purchasing, there's a lot of things we're doing there that we think are exciting that we think we're very confident have very attractive ROI. You certainly get into proof of concepts and then pilots and then you prove it out and then you get ready to roll it out and then you've got change management. So there's a lot of considerations that take time to implement an example like that. Certainly we've got other examples across the business. You know, in aspects of HR, for example, but there's a whole host of them that we think are really exciting. Inventory management, R&M, I think we've talked about a few different examples. So they are all in varying stages and certainly some will prove to be very attractive returns and some will prove to be not as attractive and those are ones we probably won't move forward with. But at the same time, you know, we've talked about augmenting our current capabilities internally with third parties and it's quite a process. I think you're probably well aware of this, Rob, but you know, as you start embracing some of this technology, you've got to kind of go through your data, you've got to clean it up, you've got to reorganize it, restructure it so that you can lever it in these new models and that's certainly part of the foundational work that we've been focused on the last year that then puts us in a position to really get even more value out of the data. Matt, I don't know if you'd add anything. No, and I think

Rob said it right, this question, we're not managing

for

a specific flow through number. We're not going to put long-term investments aside because maybe the growth is a little bit slower. So I think that's the way your question was phrased and that's the right way to think about it.

That's fantastic. Thank you.

Thanks,

Rob.

We'll take our next question from Jamie Cook with Truist Securities. Please go ahead.

Hey, good morning. I guess just piggybacking on Rob's questions, I'm just trying to think the path for potentially improved profit pull through or incremental margins next year. Ted, it sounds like it's highly reliant to some of you guys getting back to double-digit growth in order to achieve that or I'm wondering if with improved visibility because of mega more mixed towards specialty, maybe some of these technology investments paying off, is there a path, I mean, not to get to your targeted 50% incremental margin but at least path towards improved incremental margins 2025 over 2024? Thank

you. Yeah, I'll certainly touch on that, Jamie. I mean, I don't want to get ahead of ourselves. We'll obviously give that guidance in January, but it's dependent on a lot of things, right? So certainly growth is one we've talked about this year and then the call of the investments you're making and or other elements of cost. So, you know, as you think about 25, you know, certainly there could be additional tech investments conceivably, right? I don't want to forecast that. At this point, the cold starts have been a drag. You know, we've talked about the impact that has as you start a branch and it's fully burdened from a cost perspective and yet it doesn't really have revenue and it scales in over probably two years. So you think about this year, we're at 57 cold starts. So we've already exceeded the total we did in 2023. You know, as we go through our 2025 plan, we'll figure out what the game plan will be there. Certainly used as one of those other elements that, you know, you've got to be mindful when you think about flow through. But when we kind of synthesize the whole thing back to the core margins and profitability, we've been really pleased with how 2024 has played out.

Thank you. Thanks, Jamie.

We'll take our next question from Ken Newman with KeyBank Capital Markets. Please go ahead. Your line is open.

Hey, good

morning,

guys. Morning.

So, Matt, just I wanted to touch back on the local accounts. You know, correct me if I'm wrong, but you do sound slightly more optimistic about the demand there in terms of stabilization. Is it, is the expectation there that demand is stable from three Q to four Q or any color there on the local accounts specifically?

Yeah, I would say the optimistic view would be supported by our customer confidence index, number one. So they remained positive. And as I said about the interest rates, there's an emotional portion of that. The fact that that's finally pivoted has got people thinking about, you know, what are we going to fund? What kind of projects are going to come back, come back? And the real question is, when does that emotion sentiment and in future cuts turn into shovel ready work? We don't know that. The great news is we don't need to know that, right? So we have a business model where we can react quickly. So we'll talk, like I said earlier, to our customers and our field team to put this plan together. And a big part of our internal investigation will be what does the local market look like for us next year? And as we build that plan, we may be right to the upside. We may be wrong to the downside. But the supply chains back intact and our flexible business model, I feel very confident, will let us to react to whatever the reality is. The truth is there's no quantitative way to measure how fast these cuts will turn into revenue. But we are optimistic because of what we're hearing from our customers.

Right, no, that makes sense. Just here for my follow-up, Ted, you know, obviously you've got a couple of moving pieces here in terms of the improvement, whether that's mixed out with specialty. You did touch on a little bit from disaster recovery and hurricanes. I know it's kind of still early days, but I'm curious if you can help us quantify what's embedded into the implied 4Q margin at the midpoint at this point, from hurricanes specifically. It's

really nothing. I mean, there's been no change to the guidance. So, you know, we'll see kind of what the net impact of these two events is. But certainly as relates to our guidance, there is no change. Yeah, I mean, the impact

of the storms, although, you know, devastating to the folks there. And we certainly are going to help out in any way we can, both our employees and the communities and customers that we work and live in. But at the scale of our business, I mean, we're talking small numbers here in the big scheme of things and probably more 25 event if there is some significant rebuild. But even within that, we're talking small numbers in the big scale of things. Got it.

Thanks. We'll take our next question from Kyle Limenchus with Citigroup. Please go ahead. Your line is open.

Thanks, guys. It would be great if we could hear a little bit more color on just what you're seeing in some of the industrial end markets. Maybe if any call that manufacturing sounds like that's been strong, but anything else that's perhaps been weak this year. I know we've heard some other companies that industrial MRO hasn't exactly been that strong this year. So maybe that starts to improve into next year as you get some improvement in PMI. Just anything noteworthy on the industrial side of things to call out that could maybe improve a little bit next year.

So on our side, the one thing we've called out here to date, and it was again true in third quarter, some of the headwinds we've got in petrochem. And it's really across the board. So upstream has kind of mirrored what's happened with the US land rate count. We'll see what happens with upstream investment in North America next year. But that has continued to be a headwind. Midstream has kind of followed on. Not a surprise there. If you're not completing wells, there's no need to tie them back. And then when you think about refining and chemical processing, there's been a lot of down a bit. So that to us is more likely timing. Certainly if you look at things like gasoline demand, diesel demand, jet fuel demand, very strong. It's our sense that a lot of refineries are postponing work to the degree they can to take advantage of the margins they're earning. So that to us is more of a timing issue. And certainly on the chemical processing side, it would seem to be similar to refining. Other than that, industrial manufacturing has continued to be very strong for us.

That's helpful. Thanks. And then certainly the revenue contribution from ancillary and rerent has been a nice tailwind for this year and sounds like it's been driven by specialty. So just how should we be thinking about that into next year? Should we assume continued growth in ancillary and rerent just given expecting specialty growth as well next year?

Yeah, I mean, time will tell. If you look at that, I think it was up 15% in the quarter. So it certainly outpaced rental revenue. Part of that is YAK, the contribution they have. So as we anniversary YAK, you won't have that component as a tailwind with an ancillary. But otherwise, certainly the growth we've had in specialty is also contributing to it, whether it's set up, break down, fueling, those sorts of things we do for customers. So the thing to just remember is we will anniversary the impact YAK has on it. But yeah, it should certainly correlate to some of that specialty growth.

That's helpful. Thanks, guys. Thanks, Cal.

We'll take our next question from Angel Castillo with Morgan Stanley. Please go ahead.

Morning, guys. Thanks for taking my question. Just wanted to go back to your comment about some of the discrete investments that you're making, particularly on the sourcing side that you mentioned. Just curious if you could unpack that a little bit more as to what exactly you're doing on the sourcing. And in particular, I was hoping you could provide some color as well, as it pertains to the equipment type that you need, perhaps between small and local markets versus what is needed in the kind of mega projects and any differences there and how that impacts your fleet management, your sourcing, and CapEx.

Sure. I'll take the first part of that, and I think Matt will take the second part. On the sourcing side, there are two ways we think about sourcing. One is the way we manage fleet across our own network. And so certainly we're leveraging technology, new aspects of technology and data analytics to more efficiently move fleet, to improve the customer experience, to make sure that that equipment availability is there, but also to reduce costs. And there are a couple of different ways that we think we can do that. But ultimately, you come back to kind of predictive analytics and the idea of trying to forecast where fleet is and where it needs to go across multiple iterations. So you're thinking multiple steps. We think that's an area where there's a lot of opportunity for us to leverage technology. Certainly, it can help with more efficient purchasing. Internally, the way we think about planning, not so much as it relates to the acquisition of fleet, but the way we think about managing fleet internally. So I think we've always done a very good job there, and this, we think, could make us a little better. I think that was the first part. The second part was on fleet by project type.

Yeah. Yeah. So we don't expect to have any kind of large change or swing in any category. One of the things that's key to our business model, and you guys hear me talk about it plenty, is the fungibility assets. We don't get into niche items that are just for one specific vertical. That's the exception, not the rule here. And we think that's important because with our broad coverage and our broad customer needs, it's important that we can move assets from one vertical to the other vertical in case one slows down, like we talked about oil and gas, and one picks up like we talked about infrastructure. And if we got too specialized, we think it'd be a lot harder to have the resiliency that we have by different end markets.

That's helpful. Thank you. And then maybe just, if you could talk about the trends that you're seeing kind of in new equipment, prices and supply. You talked about inflation a little bit earlier on the call, but maybe to the extent that, you know, trends you're seeing there, and then if you could comment on just the discipline on rental rates that you're seeing the independence across particularly your local markets.

Yeah, so first on the supply side, you know, as I said earlier, we're real pleased with our vendors, how hard they've worked to get their supply chain, which was severely disrupted in line. As far as pricing, you know, we, as I said before, we won't talk about our partnerships and the pricing and negotiate on public forum. But, you know, I think our vendors do realize the price increases they had to push on over the past couple of years, and I think they value the steadiness and of our demand and of our commitment to them. So we feel good about our position there. And to the second part, as far as, what was the second part of the question, Angel? Discipline. Oh yeah, so as far as the price family, you see it in any data you look at, you see it, you hear it from our public peers. I mean, the industry's grown up, and we've been talking about this for a while, and I'm just really pleased that people realize you can't just keep absorbing inflation and absorbing these costs. You're just going to hurt your business. So, and I think the value that rental brings overall, certainly we feel like we lead the way, but I think the industry overall gives better output, better value to the market. We're a much more reliable channel, a much more flexible and responsive channel. So I think that's part of the reasons why people are able to keep that

discipline.

Very helpful, thank you.

Yep. We'll take our

next question from Neil Tyler with Redburn Atlantic. Please go ahead, your line is open.

Yeah, thanks, good morning, Matt, Ted. One last question, I want to come back to the cold starts and the pace of openings there. I wonder if we think about that in the context of what you said compared to 23, what drives your planning outlook for how many and where to land those starts, and how should we think about the cold starts, particularly when I think about specialty and specialty branches within that number. How should we think about where we are in say a five year view on that journey? Are you trying to put a lot of branches in place in order to capture future growth or do you think this is a more measured cadence over the next few years? If you could just talk a little bit around that, that would be very helpful. Thank you.

So sure, Neil, we don't have multi-year goals in order we put it out. In the beginning of each year, we'll go through the planning process. We'll see who wants to fund what cold starts and who wants to fund organic growth in many different ways and then we'll go through it and we'll communicate that in January. But just when you think about it, we still have white space, some products that are more mature, maybe not as much in geographic expansion as opposed to penetration, but in others, we have a lot of new product lines that we've added over the last couple of years, whether that's our reliable on-site business, our acquisition of Yak, and still quite frankly, the general finance team where in mobile storage we still have white space to fill in. So that's most of what it is. It's new products and or deeper geographic penetration and we communicate that each year. We think there's plenty of headroom in specialty overall as a team and quite frankly, one of our most mature in power still is showing tremendous growth and they're just doing it by penetration versus cold starts. So we continue to see a lot of opportunity with our specialty business. We think we've built a unique value proposition for large projects, large plants, and large customers throughout the US and Canada and I won't give you a forecast of future cold starts other than to say there's lots of headroom for us there.

Okay, great. Thank you, Phil. I was really just trying to think about the margin impact that's taken place this year and whether that's something we need to think about as an ongoing, but I guess to some extent it is. But can I follow up with perhaps picking up on your comment about power and the penetration there? Could you perhaps help us understand what's driving that additional penetration, some of the market trends that you're picking up on?

Well, I think power overall is a growth space as an end market vertical and that's not just for our business but also for the industry as a whole and our general end products as well. But within our power business, which is PowerHVAC, we've got a lot of additional products that we've added in. We've got a lot of penetration that's through deeper product offering to existing customers and allowing us to get into new verticals because of some of the products that we've added. So the team's very innovative, very creative, and very growth-minded and I think they've done a great job deepening existing products and broadening with new products and a lot of that in the HVAC part of the business. So that's about it. If you want to go any further than that, I want to get into competitive opportunities, but we're really pleased with the headroom there.

Thank you. Thank you very much. Thanks,

Neil. And we'll take our next question from Stephen Voltman with Jefferies. Please

go ahead. Your line is open. Stevie there. And Steve, you may need to check the mute function on your phone. We move on. Guessing, Steve.

We will take our next question then from Scott Schnabberger with Oppenheimer. Please go ahead. Your line is open.

Thanks very much. Good morning, guys. I have two kind of end of the call questions. One for Pat. I'll ask them both up front. Matt, on M&A, is there a long-term initiative to grow specialty within the portfolio mix? As you come into the new year, you've done Digesting Yak, how are you thinking about gen rent versus specialty rent acquisitions? I know part of your answer will be whatever is ripe and looks the best at the time, best cultural financial fit, but are you looking at that mix when you make these considerations? Is that heavy consideration? And then also, you made a comment on David's first question up at the beginning of the call about not needing to be number one in the specialty category. I just was curious if you could elaborate on what you mentioned. You cited gen finance as a good building platform, but just curious if you could elaborate on what you meant. And then Ted, for you, real quick, new sales were up a lot in the quarter, I think the biggest quarter in maybe three, four years. Just curious if there's anything there, unique, mega projects, a big sale, is that a trend or is that a unique event? Thanks, guys. Appreciate it. Thanks,

Scott. I'm glad I wrote those down. You're testing my memory here. But as I go through the M&A prioritization, which is how I heard your first question, it's wherever we're going to need more value for the customer, whether that's in a new product offering, which is mostly specialty, and we love, we would highly prioritize any kind of brand new offering to the business where we could take a reasonably good size platform and then grow upon it through our very, very strong network like we did with Yak, like we did with general finance. So I wouldn't call it that it's because it's general rent or specialty, just like anything additional. If we found a new general rent product line that we didn't carry, we would feel the same way. And then when I think about general rent, it's more like where do we need more capacity? Where do we need more density? Where we need more of an offering? And when we have that opportunity, we certainly are very comfortable integrating in our general rent business as we've done, as you see our history very thoroughly. There's not as much white space geographically, but certainly a lot of opportunity to add more capacity to serve more of the marketplace. When I talked about not being number one, just for clarity, I want us to be number one with our customers. So let's use an example for ROS, our reliable onsite. We don't need to have Porta Johns at every wedding or every soccer field, but when you go into a major project or you go into a plant, we're going to make sure we're there to support our customer a full one-stop shop value. So we want to be number one with our customers and those products. I use general finance as an example. We don't need to have modular classrooms in every school, right? That's not the business we're after. What we do need to do is make sure if our customers want a modular building or a storage container on a site for their needs, we want to be the number one in that space. So that's what I mean when I talk about that. Not every product line do we need to be the largest in the industry. We need to be the largest in our industry. So that's the way we look at that. And then Ted, I think new sales.

Yeah, that's an easy one, Scott. So YAC had an impact there. I think YAC had new sales of something like 16 million. So while you see that number up 48% nominally, I think if you back that out, we're up about 15%, which is kind of probably a little more in line with what you would have expected.

Great.

Thanks for the call, guys.

Thanks, Scott.

And there are no further questions in queue at this time. I will return the call to Matt Flannery for any additional or closing remarks.

Great. Thanks, operator. And thanks to everyone on the call. We appreciate your time. And I'm glad you could join us today. Our Q3 Investor Deck has the latest updates. So please take a look at that when you get a chance. And as always, Elizabeth is available to answer your questions. So until we speak again in January, stay safe, have a great holiday season, and we'll talk to you soon. Operator, you can end the call.

This does conclude today's program. Thank you for your participation, and you may now disconnect.