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, 2024, 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. We were pleased to report our solid fourth quarter results yesterday as the year culminated with record revenue, EBITDA, and EPS. We again saw growth across our construction and industrial end markets, as well as continued strong demand for used equipment. Our team doubled down on being the best partner of choice for our customers. Our diligence on safety, coupled with unmatched service, technology, and operational excellence, translated into the results we reported. Importantly, all of this sets a foundation for our future growth. Today, I'll discuss our fourth quarter results, followed by our expectations for 2025, and finally, recap why we are excited about the H&E acquisition we announced a few weeks ago. and then Ted will discuss the financials in detail before we open up the call for Q&A, which we will keep focused on United Rentals as a standalone company. Our plan remains to update the investment community on the combined companies after the transaction closes, which is still expected by the end of our first quarter. So with that, let's start with the fourth quarter results. Our total revenue grew 9.8% year-over-year to almost $4.1 billion, and within this, Rental revenue grew by 9.7% to $3.4 billion, both fourth quarter records. Fleet productivity increased by 4.3% as reported and 2% ex-YAC. Adjusted EBITDA increased to a fourth quarter record of $1.9 billion, translating to a margin of over 46%. And finally, adjusted EPS grew year over year to $11.59, another fourth quarter record. Now, let's turn to customer activity. We saw growth in both our general and specialty businesses. Specialty rental revenue impressively grew more than 30% year over year, and even without YAC, a strong 18%. These results were driven by rental revenue across all businesses with a combination of solid same store sales growth and an additional 15 cold starts, putting us at 72 for the full year. And as a reminder, These specialty cold starts are a key element to accelerating our growth in this high-return segment. By vertical, we continue to see similar trends to the rest of last year, with non-residential growth helping to fuel construction and industrial growth driven by manufacturing and power. We saw new projects across data centers, chip manufacturing, sports stadiums, and power, to name a few. Now, turning to the used market, which continues to exhibit strong demand. We sold over $850 million of OEC in the quarter, which was a record for any quarter in our history. The depth and health of demand in the used market is allowing us to rotate our existing fleet to ensure we can serve our customers' needs efficiently. This is evident through our full-year CapEx of over $3.7 billion. And as a result, we drove free cash flow of nearly $2.1 billion which translated to a very healthy free cash flow margin of over 13%. The combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle, and in turn, create long-term shareholder value. To that end, we returned over $1.9 billion to shareholders last year through a combination of share buybacks and our dividends. And while we've paused our share repurchase plan ahead of the H&E closing, I'm pleased to announce we'll be raising our quarterly dividend by 10% year-over-year to $1.79 per share. Now, let's turn to 2025, which we expect to be another year of growth, again led by large project growth. Customer optimism, backlogs, and feedback from our field team, combined with the demand we're carrying into the new year, all support our guidance. This was reinforced at our annual management meeting, which we held earlier this month in Houston, Texas. We've discussed how a key element of our culture is the quality people who work for United Rentals. And this was on full display in Houston as over 2,600 team members came together to focus and engage on being the partners of choice for our customers through our differentiated value proposition. Finally, I'd like to reiterate what I said two weeks ago when we announced our intent to acquire H&E. We're very excited to combine two complementary businesses. The transaction checks all three boxes we require when evaluating M&A, strategic, financial, and cultural. Growing the core is a key component of our strategy, and I'm really thrilled to have the opportunity to add high-quality capacity, meaning people, fleet, and real estate, to the United Rentals team. This will allow us to better serve customer demand over the long term. It will also accelerate our growth, all while generating compelling returns for our shareholders. It's really a win-win outcome. Things remain on track for a first quarter close, and there are no further updates to provide you today. In closing, and building upon what I just discussed with our latest acquisition announcement, we remain focused on being the best rental company in the industry. Our unique value offerings industry-leading technology, and our go-to-market approach, combined with our capital discipline, give me confidence that we're well positioned for both customers and shareholders for the long term. We continue to progress towards our 2028 aspirational financial goals, which we laid out in May of 23, and look forward to delivering on these results as we continue to execute our strategy. With that, I'll hand the call over to Ted, and then we'll take your questions. Ted, over to you.

Thanks, Matt, and good morning, everyone. As Matt just shared, we had a strong finish to the year, setting both fourth quarter and full year records for total revenue, rental revenue, EBITDA, and EPS, which supported the attractive returns and significant free cash flow we also generated in 2024. So with that said, let's jump into the numbers. Fourth quarter rental revenue was a record at $3.42 billion. That's a year-on-year increase of $303 million, or 9.7%, supported again by growth from large projects and key verticals. Within rental revenue, OER increased by $177 million, or 6.9%. Breaking this down, growth in our average fleet size contributed 4.1% to OER, while fleet productivity added another 4.3%, partially offset by assumed fleet inflation of 1.5%. Also within rental, ancillary and re-rent grew by 22% and 30% respectively, adding a combined $126 million to revenue, driven primarily by strong growth in specialty and hurricane-related work in the quarter. Turning to our use results, as Matt mentioned, we took advantage of a strong market to sell a record amount of fleet in the fourth quarter, generating proceeds of $452 million at an adjusted margin of 48.9%. and a recovery rate of 53% on assets that were almost eight years old on average. Moving to EBITDA, as I mentioned, adjusted EBITDA was a fourth quarter record at $1.9 billion, translating to an increase of $91 million, or 5%. Within this, rental gross profit increased 7%, contributing an additional $136 million year on year. This was partially offset by used, where the ongoing normalization of the market drove a 9% decline in used gross profit dollars, translating to a $21 million headwind to adjust the EBITDA in the quarter. SG&A increased by $36 billion year-over-year, which was in line with revenue growth, so good efficiency there. And finally, the EBITDA contribution from other non-rental lines of businesses increased $12 billion, driven largely by strong new equipment sales. Looking at profitability, our fourth quarter adjusted EBITDA margin was 46.4%, implying 210 basis points of compression. I'm sure we'll dig into this during Q&A, so I thought it might be helpful to frame some of the key factors here. The combination of used and stronger than expected new equipment sales were together about 80 basis points of year-on-year headwind. Said another way, excluding these two factors, our adjusted EBITDA margin would have been down about 130 basis points with flow through a little better than 33%. Closer to the core, and as you just heard me highlight, we had higher growth in ancillary and re-rent revenue that, as you know, come with lower margins. If we also adjust for these, our EBITDA margin would have been down about 60 basis points with implied flow through of roughly 40%. While this is modestly below our long-term goal, it reflects our continued investment in key aspects of our strategy, including specialty, technology, and capacity to support the long-term growth of our business during what we view as a slower phase of the cycle. And lastly, our adjusted earnings per share was a fourth quarter record at $11.59. Shifting to CapEx, fourth quarter gross rental CapEx was $469 million. Moving to returns and pre-cash flow, our return on invested capital, 13%, remained well above our weighted average cost of capital while full-year free cash flow totaled a robust $2.06 billion. Our balance sheet remains very strong, with net leverage of 1.8 times at the end of December and total liquidity of over $2.8 billion. I'll note this was after returning a record of over $1.9 billion to shareholders in 2024, including $434 million via dividend and $1.5 billion through repurchases that reduced our share count by over 2.1 million shares. So, to wrap up both the quarter and the full year, we were very pleased with the results our team achieved in 2024. Now, let's look forward and talk about our 2025 guidance, which I'll remind you is standalone, meaning it does not include any contribution from H&E. As you've seen from the press release, we anticipate another record year. Total revenue is expected in the range of $15.6 to $16.1 billion, implying full year growth of 3.3% at midpoint. Within total revenue, I'll note that our use sales guidance is implied roughly $1.45 billion, or a mid-single digit year-on-year decline on a percentage basis. This, in turn, implies a little faster growth within our core rental revenue. Call it mid-single digit on a percentage basis. Within used, I'll add that we expect to sell around $2.8 billion of OEC, translating to recovery rate in the low 50s versus the mid-50s in 2024, but in line with pre-pandemic norms. Our adjusted EBITDA range is $7.2 to $7.45 billion. At the midpoint, excluding the impact of used, this implies flow-through in the 40s and flattish adjusted EBITDA margins versus as reported flow-through of around 30%, at approximately 50 basis points of margin compression at the midpoint of guidance. On the fleet side, our gross capex guidance is 3.65 to 3.95 billion dollars, with net capex of 2.2 to 2.5 billion dollars. Within this, we peg our 2025 maintenance capex at around 3.3 billion dollars, implying growth capex of roughly 500 million dollars at midpoint. And finally, we are guiding to another year of strong free cash flow in the range of $2 to $2.2 billion. Turning to capital allocation, one of the benefits of our balance sheet strategy and free cash generation are the flexibility they provide to invest in growth opportunities when they arise. As you know, we intend to capitalize on this through the pending acquisition of H&E, where we will invest almost $5 billion in targeted returns well above our cost of capital. As previously shared, we are pausing our buyback program ahead of H&E, and we intend to utilize our free cash flow in 2025 to reduce our leverage from roughly 2.3 times on a pro forma basis to a goal of around two times within 12 months of close. Finally, consistent with our strategy to return excess capital to our shareholders, I am very pleased to reiterate that we are increasing our quarterly dividend by 10% to $1.79 per share translating to an annualized dividend of $7.16. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.