Yahoo Finanza United Rentals, Inc. (NYSE:URI) Q1 2024 Earnings Call Transcript
United Rentals, Inc. (NYSE:URI) Q1 2024 Earnings Call Transcript April 25, 2024
United Rentals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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 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.
Matthew Flannery: 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. Coming into the year, we knew the key to success would be doubling down on being the best partner for our customers. And that's just what we're doing. And we're meeting their needs and finding opportunities to deepen our relationships with them. For example, we broadened our product offering to include matting [ph] solutions, and we continue to invest in technology to improve the customer experience.
Additionally, we're executing on our plan to open more cold starts. And just as critically, we're doing all of this while maintaining our focus on operational efficiency. The team continues to demonstrate its commitment to our strategy, and we remain confident this will be another year of profitable growth. Today, I'll start with a recap of our first quarter results and then discuss our recent acquisition of Yak, followed by what's driving our optimism for the year. And finally, I'll give a very recent example of our 1UR culture at work, which in my mind is a true differentiator. So let's start with some of the highlights in the first quarter. Our total revenue grew by 6% year-over-year to $3.5 billion, a first quarter record. And within this, rental revenue grew by 7%.
Fleet productivity increased by a healthy 4%, and adjusted EBITDA increased to a first quarter record of $1.6 billion, translating to a margin of 45.5%. And finally, adjusted EPS grew by 15% to $9.15, another first quarter record. Now let's turn to customer activity. We continue to see growth across both our gen rent and specialty businesses. And within specialty, we delivered double-digit growth across all lines of business. By vertical, we saw growth across both construction, led by non-res, and our industrial end markets with particular strength in manufacturing, utilities, and downstream. And we continue to see numerous new projects across many of the same areas we've discussed the last several quarters, including power generation, data centers, automotive, and infrastructure.
Additionally, the used market remains strong, allowing us to sell a first quarter record amount of OEC. In turn, we spent $595 million in the quarter on rental CapEx, and this is consistent with our expectations. As a result, free cash flow was $860 million in the quarter. Our ability to generate strong free cash flow throughout a cycle, while simultaneously funding growth, is a critical differentiator. The combination of our profitability and capital efficiency, coupled with the flexibility we've engineered into our operations, enables us to consistently generate strong free cash flow and create long-term value. Now, turning to capital allocation, our number one goal is supporting growth, while also maintaining a strong balance sheet. And after funding organic growth, including 15 cold starts, and completing the Yak acquisition, we also returned $485 million to shareholders in the quarter via share buybacks and our dividend, all while remaining comfortably within our targeted leverage range.
Speaking of the Yak, I want to share some initial thoughts now that we've started the integration process. This acquisition is a textbook example of our M&A strategy at work. Through Yak, we've added more capabilities for our one-stop shop platform, enabling us to be even more responsive to our customers while also generating attractive returns for our shareholders. And for those of you not familiar, Yak provides temporary access roadways and surface protection to any site with uneven or soft surfaces where you need to safely move and operate heavy equipment. And similar to our purchase of general finance in 2021, Yak is a leader in its market, yet still has plenty of room for growth as we bring this capability into our network. Since we've closed the deal, we spent a lot of time with their team, and we're even more excited with the potential here.
Turning to our updated outlook, as we look to the rest of 2024, we remain optimistic about the opportunities for growth. Thus far, the year is playing out as expected. Our updated guidance reflects the addition of Yak with our underlying expectations unchanged. Customer confidence remains strong while our team in the field is focused on the opportunities ahead. And while these indicators are tangible examples of what gives us confidence and our ability to deliver on our guidance, it's the team's daily actions which further bolster our belief that we will continue to deliver strong shareholder value while supporting our customers in their normal operations and times of emergency. A good example of this was our response to the devastating news of the Key Bridge collapse in Baltimore back on March 26.
In true, United Rentals fashion, we were all hands on deck, helping with the immediate urgency response and the ongoing work. This support included a broad range of assets including mobile storage, power, life towers, portable sanitation and fencing, as well as both our aerial and dirt equipment. And what's more, through the acquisition of Yak, which had just been completed, we're also able to provide the Mats needed at the site for the operations. This is a perfect example of our differentiated business model, where we provide unmatched support through our one-stop shop offering to our customers and ensure they can safely and efficiently focus on their own operations. It's also a true testament to our culture and the people that work for United Rentals.
So in summary, we're excited by both the immediate opportunities, particularly on large projects, and the longer-term outlook we see. We've built a resilient company with a well-proven strategy that positions us to continue to drive profitable growth, strong free cash flow, and compelling shareholder value. And with that, I'll hand the call over to Ted, and then we'll take your questions. Ted, over to you.
William Ted Grace: Thanks, Matt. Good morning, everyone. As Matt highlighted, the year is off to a strong start has 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. So with that, let's jump into the numbers. First-quarter rental revenue was a record $2.93 billion. That's a year-on-year increase of $189 million, or 6.9%, supported by both the market-tail wins we've been discussing, as well as our strong position in large projects and key verticals.
Within rental revenue, OER increased by $138 million, or 6.1%. Within this, growth in our average fleet size contributed 3.6%, while fleet productivity added 4%, partially offset by assumed fleet inflation of 1.5%. Also within rental, ancillary and re-rent revenues were higher by $51 million, or approximately 10.8%. Turning to use results, supported by the strong demand Matt highlighted, our first-quarter results were consistent with expectations. Use revenue came in at $383 million at a healthy, adjusted margin of 53.3%. As we've talked about for the past few quarters, our use margins reflect the ongoing normalization of the use market, following the extraordinary conditions created by supply chain issues that peaked in 2022. From an OEC recovery perspective, which we view as a key indicator of the health of the use market, our proceeds equated to better than $0.59 on the dollar versus $0.50 to $0.55 prior to COVID.
So, another quarter of very solid results there. Moving to EBITDA, adjusted EBITDA was a first quarter record at $1.59 billion reflecting an increase of $84 million or 5.6%. The year-on-year dollar change includes a $108 million increase from rental. Outside of rental, used sales and SG&A were headwinds to adjusted EBITDA, about $27 million and $4 million respectively, while other non-rental lines of businesses were a $7 million tailwind. Notably, SG&A as a percent of sales declined 40 basis points, setting a new first quarter best at 11.2%. Looking at first quarter profitability, our reported adjusted EBITDA margin was a healthy 45.5%. Due to the use dynamics I just discussed, consolidated margins compressed 30 basis points year-on-year, implying a flow-through of 42%.
Excluding used however, our core EBITDA margins increased 70 basis points, equating the flow-through of 54% per quarter. And finally, our adjusted earnings per share increased 15% to a first quarter record of $9.15. Shifting to CapEx, gross rental CapEx was $595 million, which was in line with both our expectations and historical seasonality from a percentage of full-year perspective. Turning to return on invested capital and free cash flow, ROIC increased 50 basis points year-on-year to 13.6%, which remains well above our weighted average cost of capital, while free cash flow was up to a strong start at $869 million. Moving to the balance sheet, our net-leverage ratio at the end of the quarter was a very solid 1.7 times, while our total liquidity was just under $3.6 billion.
And as a reminder, we continue to have no long-term note maturities until 2027 and a very manageable distribution of maturities thereafter through 2034. Within the quarter, I'd highlight that we issued $1.1 billion of 10-year senior unsecured notes to fund the Yak acquisition and were very pleased with the market reception. The notes priced at a coupon of 6.18%, representing both the lowest coupon and the tightest credit spread to treasuries in the high-yield market for all 10-year issuers since August of 2022. Notably, and probably most importantly, the transaction also marked the lowest spread to treasuries that United Rentals has ever achieved for a bond of any tenor. While this is driven by a number of factors, we view it as further evidence that credit markets continue to reward the company for its track record of impressive growth, strong execution, smart capital allocation, and prudent balance sheet management.
Looking forward, you saw last night that we raised our full-year guidance to include the acquisition of Yak, which is expected to contribute approximately $300 million in total revenue and $140 million of adjusted EBITDA in 2024. In terms of the specifics on the updated outlook, we've raised our guidance for total revenue to a range of $14.95 to $15.45 billion, implying full-year growth of just over 6% at midpoint. Within total revenue, I'll note that our use-sales guidance has unchanged at roughly $1.5 billion. We've raised our adjusted EBITDA range by $140 million to $7.04 to $7.29 billion. On the fleet side, we've raised both our gross and net CapEx guidance by $100 million to $3.5 billion to $3.8 billion and $2 billion to $2.3 billion, respectively.
And finally, we've raised our free cash flow guidance by $50 million to a range of $2.05 billion to $2.25 billion after funding growth. This is enabling us to return over $1.9 billion to shareholders this year, which translates to about $29 per share or a current return of capital yield of roughly 4.5%. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.
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