United Rentals, Inc. — 2024 Q1
Transcript
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Good morning, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded.
Thank you, operator, and good morning, everyone. Thanks for joining our call. As you saw yesterday afternoon, 2024 is off to a strong start and playing out as expected, and I'm pleased with our results across growth, margins and fleet productivity, all executed through the lens of putting the customer-first and with an unwavering focus on safety.
Thanks, Matt, and good morning, everyone. As Matt highlighted, the year is off to a strong start as healthy demand and strong execution supported first quarter records across revenue, EBITDA and EPS. Consistent with our strategy, we remain focused on allocating capital both rental CapEx and M&A investment to drive profitable growth while also returning excess cash to our shareholders. Combined, this supports the solid earnings growth, free cash flow and returns, you see embedded in our updated 2024 guidance.
[Operator Instructions] Our first question will come from Steven Fisher with UBS.
I just wanted to start off on CapEx. I know you said it was in line with your expectations, but it seemed to be maybe at the low end of your target range for the quarter. Can you talk about some of the factors keeping it on the low end there? Was it sort of weather or project timing or any other factors? And I guess related to that, have you made any changes in your thinking about the level of growth CapEx embedded in your plan for the year, either kind of mix of GenRent or specialty rent any changes around that growth CapEx?
Sure, Steve. So actually, no, we don't feel that way about the first quarter CapEx, certainly wasn't any kind of designed outcome to temper the CapEx, for lack for a better word. It was about from our original guidance. So let's not include the 100 that we just upped for the Yak deal. It was about 17% of our -- at the midpoint of our guidance.
Okay. Terrific. And then maybe just one on a vertical. I know there's been a lot of focus this year about power generation, and you have included that in your positive commentary for a number of quarters now. I guess, I'm just curious, given that the theme around power generation has intensified. I'm curious if you could give us a sense if you have any direct color on the types of projects that you're seeing in this -- in your pipeline of power generation in 2024, relative to what you've been seeing in, say, 2023?
Well, so first off, this is something that we've been building that's focused on this vertical as far back as 2016. So this is anything new for us. And it's now over 10% of our business. So this is a big segment and a big focus for us. But you can imagine, whether it's traditional power, right, T&D work generating, whether it's alternative power, right?
No, I think you've captured it all.
Our next question will come from Jerry Revich with Goldman Sachs.
This is Clay on for Jerry. First question, can you update us on your M&A pipeline from here? What's the range of capital deployment towards M&A that you expect to deliver over the next 12, 18 months?
Sure, Clay. So we don't actually set targets nor do we even set plans or budgets for M&A, right? That's just a belief of ours that I think that could force people to feel the need to do M&A, and we're actually very opportunistic here. But to be clear, we work the pipeline regularly. And we have a robust pipeline. We really have a lean towards things that you just saw us execute on, like, Yak, where we can add new products that we think we could be a better owner of by significantly growing them when we introduce them into our network.
And as a follow-up, can you talk about the opportunities you see for Yak access given the shorter useful life and higher depreciation load of the product versus the base business, we were curious what the path is to get the business to URI levels of returns.
Sure. So as you can imagine, before we pay the deal, we did a lot of modeling and sensitivity modeling, and we feel really good about the opportunity. And one of the opportunities might actually be lengthening the life of the asset. It doesn't really take a lot for it to have a meaningful impact, but that's not even required for us to comfortably clear our hurdle rates on this deal. So we really like the returns on this business. .
Yes, the thing I might add there, Clay, is if you look at the deal holistically, we think it's very attractive returns on a cash-on-cash basis, as Matt mentioned, well above our hurdle rate and cost of capital. That would look similar to what we actually achieved with the general finance deal. If you actually zero into the unit economics of a mat I think some of the observations you made are right. But even those cash-on-cash returns at the unit that level, are very attractive. We'd be looking comfortably in the upper teens.
Our next question will come from Stanley Elliott with Stifel.
Can you talk a little bit about the category class. You've done a nice job of expanding it over the years, moved kind of the one-stop shop. How much larger is this an opportunity for you all and maybe what would be the limiting factor, I don't know if it's real estate or workforce or anything like that?
So if you're speaking about new categories, Stanley?
Was that in context of Yak, Stanley, just to be sure we understand the question?
Yes, more in context of Yak, but it would seem like that just the number of category class you've had over the past several years, be it mobile solutions or anything along those lines that, that just continues to be kind of a, I guess, a big white space for you?
Yes, exactly. So we view anything that's temporary on a project or on a plant as a potential right of way for us, right? So anything that doesn't stay with the fixed plant is, by definition, an opportunity for us to serve the customer. And we've continued to expand upon that.
I guess things I might add that we've shared, Stanley. I mean, mobile storage, we talked about a goal of doubling that business in 5 years. We're well on our way. That's obviously a huge market. So even as assuming we're able to do that, there's still plenty of white space beyond that to grow the business, penetrate existing customers. And obviously, we've talked about the opportunity to expand the footprint of that business.
Perfect. And then I guess just a follow-up or second question, rather. Could you talk about kind of anything you saw from a regional basis. And I'm curious, I know you don't like to talk about weather, Matt, but did that have any impact on kind of the progression as the quarter went through?
Yes. Knock on wood, we haven't had to talk about weather in a while. I think maybe even since Harvey -- Hurricane Harvey. But we -- certainly, you all follow. There are some markets that were more impacted than others, but it's not something that we call out. This is the great part of the diversification of our business, both by product and geography. There's really nothing that we would call out as an impact, and that's why we're very pleased that we're able to reaffirm our guidance just with the addition of Yak over and above. So the year played out as expected, and I wouldn't call out any weather constraints, Stanley.
Perfect. Congratulations with the great start.
Thanks.
[Operator Instructions] Our next question comes from Ken Newman with KeyBanc Capital Markets.
First question -- my first question is just on the fleet productivity this quarter. It was pretty impressive and strong just given the tougher pro forma comp from last year. I know that you guys don't quantify the individual movers in that metric anymore, but I was just curious if there's any way to help us understand if there was a big move in one of those drivers, whether it's mix or rates or utilization, just given the tough comp.
Sure. So it played out as expected for us, quite frankly. When we came out in January, I went out a little further than I usually would because we don't like to forecast these individual metrics and certainly not the overall component. But we said we'd have positive fleet productivity each quarter in the year. And we still expect that to play out that way.
Got it. That's very helpful. My second question here is just on the GenRent equipment rental side. It does seem like you saw a decent step down or moderation in the first quarter just on the equipment rental side, was there anything specific there that drove that sequential step down? Or is this more just a function of the fleet kind of returning back to more normalized cadence and seasonality?
Yes. I mean we did expect slower growth. As you could imagine, the GenRent business versus the specialty business, the growth -- the headroom for specialty was much greater. And probably more importantly, the specialty business has a great opportunity with large customers and large projects to cross-sell into some of those that weren't using these products. So we called out specifically the double-digit growth in every one of our specialty segment product lines, which was great.
And with no further questions in queue, I would like to turn the call back to Matt Flannery for any additional or closing remarks.
Thank you, operator. And to everyone on the call, we appreciate it. I'm glad you could join us today. And just to remind everybody, our Q1 investor deck is on our site with its latest updates. And as always, Elizabeth is available to answer your questions. So I look forward to talking to you all in July. Until then, please stay safe. Operator, you can now end the call.
Thank you. This does conclude the United Rentals First Quarter 2024 Earnings Call. You may disconnect your line at this time, and have a wonderful day.