Q1 2021 United Rentals Inc Earnings Call
Good morning, and welcome to the United Rentals Investor Conference call. Please be advised that this call is being recorded before we begin note that the company's press release comments made on today's call and respond.
As 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.
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, 2020, as well as to subsequent filings with the.
C C.
You can access these filings on the company's website at Www Dot United Rentals Dot 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 excess.
Dictations you should also note 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 these reconciliation from our.
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, Jessica Graziano, Chief Financial Officer, I would now turn the call over to Mr. Flannery. Mr. Flanagan you may begin.
Thank you operator, and good morning, everyone. Thanks for joining us today.
As you saw yesterday, we reported a really strong performance out of the gate in 'twenty, one and what's shaping up to be a great year.
We knew we had built good momentum in Q4 and that the economy was moving in the right direction, but the first quarter was still uncertain as we entered the year, while not anymore, both our operating conditions and our performance have improved faster than we expected.
We gained back a lot of the ground on the rental revenue narrowing the decline from 2020, and importantly, we exited the quarter up year over year in March.
Our customers are also optimistic.
They are gaining more visibility and they're turning to us for the equipment they need.
Just a few months into the year, we've absorbed almost all of the excess fleet we had in 2020.
This was evident in the sequential improvement in our fleet productivity that we reported.
And we took advantage of a healthy used equipment market driving record retail sales to generate almost 30% more proceeds in the quarter than we did a year ago.
None of this would be possible without our greatest asset our employees.
And their willingness to take on the challenges as well as the opportunities presented to them.
Our people know how much I respect them for their commitment and.
And our customers feel the same way.
And I'm proud to report the team United delivered $873 million of adjusted EBITDA in the first quarter and.
And they did it safely turning in another quarterly recordable rate below one.
Given all these factors.
We feel confident in raising guidance across the board. This includes our new revenue range. It starts above the top end of the previous guidance.
We feel equally comfortable leaning into M&A as evidenced by our recent acquisition of Franklin equipment, and our agreement to acquire General Finance, which we expect to close mid year.
We feel the time is right to allocate capital to attractive deals like these that meet our M&A criteria for a strong strategic financial and cultural fit.
With Franklin, we added 20 stores to our general rental footprint in the central and southeast regions and the Franklin team is already on board and I will take this opportunity to officially welcome them to team United.
General finance as a market leader in mobile storage and modular office rentals.
These services complement our current specialty and Gen rent offerings, and we're excited about the opportunity to unlock additional growth.
More of our customers' needs with these new products.
We'll be entering these markets with a strong presence and established footprint and a talented team with solid customer relationships many of them new to our company.
It is a textbook example of one plus one equaling more than two.
If you Werent able to join our earlier call on General Finance will be happy to take your questions during Q&A.
Now, let's pivot to demand, where we have more good news to share.
The rebound we're seeing in our end markets just broadly positive on this is true up on channel rental business and even more so on our specialty segment.
Specialty had another robust performance led by our power and HVAC business.
Rental revenue per specialty moved past the inflection point and was positive year over year for the full quarter.
We're continuing to invest in growing our specialty network with six cold starts year to date and another 24 planned this year.
Now I will drill down to our customers and our end markets.
Customer sentiment continues to trend up on our surveys as the majority of our customers expect to see growth over the next 12 months and.
And importantly, the percent of customers, who feel this way has climbed back to pre pandemic levels.
Well, we think there are a few reasons for this for one thing our customers have a significant amount of work in hand.
And they can also see that our project activity is continuing to recover.
On the vaccines are rolling out restrictions are easing in most markets and the weather is turning warmer three positive dynamics converging rate before our busy season.
Also we're seeing the return of activity in the manufacturing sector after more than a year of industrial recession.
Okay.
And the construction verticals that have been most resilient throughout COVID-19 are still going strong areas that we've discussed like technology and data centers.
Power healthcare and warehousing and distribution.
And with infrastructure our customers are encouraged that it's back on the table on Washington most.
Most of the infrastructure categories and the administration's current proposal are directly in our wheelhouse things like bridges airports and clean energy.
We'll see how the process goes but almost any infrastructure spending will benefit us in the long term both directly and indirectly.
Now there are some market share taking longer to recover like energy.
Most parts of the energy complex, including downstream remained sluggish and additionally, retail office and lodging are largely in limbo.
So while we are firing on all cylinders at United There are pockets of the economy that are still catching up and this means more opportunity for us down the road.
I will sum up my comments with this perspective.
2021 is shaping up to be a promising year.
And our performance says a lot about our willingness to lean into that promise, whether it's with Capex M&A cold starts or other strategic investments in the business.
Our balance sheet and cash flow give us the ability to keep every option on the table.
Throughout last year, we made the decision to retain capacity by keeping our branch network and our team intact.
Now that the and the economic indicators are flashing green.
Our strategy is paying off by driving value for our people.
Our customers.
And our shareholders.
And with that I'll ask Jess to take you through the numbers and then we'll go to Q&A over to you Jeff.
Thanks, Matt and good morning, everyone.
Wrong start to the year is reflected in our first quarter results as rental revenue in used sales exceeded expectations and costs were on track that.
That strength carried through to our revised guidance and more on that in a few minutes, let's start now with the results for the first quarter.
Rental revenue for the first quarter was $1 67 billion, which was lower by $116 million or six 5% year over year.
Rental revenue <unk> decreased $117 million or seven 7%.
In that a five 7% decline in the average size of the fleet was an $87 million headwind to revenue inflation of one 5% cost us another $24 million and fleet productivity was down 50 basis points or $6 million impact sequentially fleet productivity improved.
By a healthy 330 basis points recovering a bit faster than we expected.
Finishing the bridge on rental revenue this quarter is $1 million and higher ancillary and re rent revenues.
As I mentioned earlier used equipment sales were stronger than expected in the quarter coming in at $267 million, that's an increase of $59 million or about 28 per cent year over year led by a 49% increase in retail sales.
The end market for used equipment remained strong and while pricing was down year over year, it's up for the second straight quarter with margin solid at almost 43%.
Notably these results in us reflect our selling over seven year old fleet at around half its original cost.
Let's move to EBITDA adjusted.
Adjusted EBITDA for the quarter was just under 873 million a decline of $42 million or four 6% year over year.
On the dollar change includes an $84 million decrease from rental Inc.
That OTR was down $86 million, while ancillary and re rent together were an offset of $2 million.
New sales were a tailwind to adjusted EBITDA of $19 million, which offset a 2 million dollar headwind from other non rental lines of business and.
And SG&A was a benefit in the quarter up $25 million and similar to the last couple of quarters. The majority of that SG&A benefit came from lower discretionary cost mainly <unk>.
Our adjusted EBITDA margin in the quarter was 42, 4% down 70 basis points year over year and flow through as reported was about 62%.
You mentioned two items to consider in those numbers are first as I mentioned in our January call, we'll have a drag in bonus expense during 2021, as we reset to our planned target on that reset started in the first quarter.
You sales made up a greater portion of our revenue this quarter, which was a revenue mix headwind.
Adjusting for those two results is an implied decremental flow through for the quarter of about 37%.
Across the core business. The first quarter's cost performance played out as we expected and reflects our continued discipline as we respond to increasing demand and as our cost continue to normalize.
I'll shift to adjusted EPS, which was $3 45.
That's up 10 cents versus Q1 last year, primarily on lower interest expense and a lower share count.
Quick note on Capex for the quarter gross rental Capex was $295 million a proceeds from used equipment sales were $267 million, resulting in net capex in Q1 of $28 million.
Now turning to ROIC, which remained strong at eight 9% as we look back over what's obviously been a challenging 12 months one of the things that we're most pleased with is the weekly generated which is consistently run above our weighted average cost of capital through what was the trough of the down cycle.
Free cash flow was also strong at $725 million for the quarter.
This represents an increase of $119 million versus the first quarter of 2020 or about a 20% increase.
As we look at the balance sheet net debt is down 21% year over year with our having reduced our balance by about $2 $3 billion over those 12 months.
Leverage continues to move down and was two three times at the end of the first quarter that compares with two five times at the end of the first quarter last year.
Liquidity remains extremely strong we finished the quarter with over $3 $7 billion in total liquidity. That's made up of ABL capacity of just under $3 2 billion and availability on our AR facility of $276 million. We also had $278 million in cash and.
And as Matt mentioned, our acquisitions earlier I'll take a second here to note that we expect to fund the general Finance deal later this quarter with the ABL.
Let's shift to our revised 2021 guidance, which we included in our press release last night on this update does not include any impact from general Finance, if we close as expected in June we'll update our guidance likely on our Q2 call in July to reflect the impact of that business.
What is included in this update is mainly three things.
First the impact of higher rental revenue.
Second increased us sales capitalizing on a stronger than expected retail market and third the contribution of our Franklin equipment acquisition, which we estimate at about $90 million of revenue and $30 million of adjusted EBITDA for the remainder of the year.
We've revised our current due to rental revenue given the start to the year and how we expect things to play out from here.
The increase in our guidance reflects a range of possibilities with a growth opportunity over the remainder of the year largely follows normal seasonality, albeit from a higher starting point as you can see at midpoint, our updated guidance implies strong double digit growth over the remaining nine months of the year.
A quick note on the guidance change in EBITDA and what hasn't changed in this revision, which is our continuing to manage costs tightly even as activity ramps more than forecasted.
Our revised range on adjusted EBITDA considers that cost performance across the core business and reflects the impact of higher used sales and the Franklin acquisition with margins and flow through in line with our prior guidance.
Certain of our costs continue to normalize from low levels in 2020 bonus expense remains the headwind. We've discussed previously and at midpoint is about a 60 basis point drag on margin year over year.
Finally, the increase in free cash flow reflects the puts and takes from the changes I mentioned and remains robust at a midpoint of $1 $8 billion.
Now, let's get to your questions. Operator would you. Please open the line.
Certainly ladies and gentlemen quick question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Jerry Revich from Goldman Sachs. Your question. Please.
Yeah.
Okay.
Hi, Gary.
Okay.
Hello.
Hello, Hi, this is Adam EBIT on for Jerry Revich.
I was wondering if you could just talk about how you expect to benefit from steel cost.
Cost inflation as we move through the year and what Youre seeing in Q1 in that respect.
So this is Matt is as you guys know we've talked about it many times before a lot of the purchasing that we do for the full year, we do in advance so by.
By January of this year, we had already had all of our slots in which covers about 70% to 80% of our capital spend for a year. So we're not really seeing that impact from ourselves from a cost perspective.
As far as where the trends in the industry obviously.
Increased prices for new products, if that's where it goes should help the used proceeds should help the market for us in what is already a robust market. So from that perspective, it certainly could help us and.
What I'd say about it so thank you for the question.
And.
My second question is if you could just talk.
Talk about what youre seeing in the used equipment inventories market and how those trends have developed a quarter to date.
Certainly so as you can see from the numbers we reported.
We still are selling into a robust used equipment market.
Impressive with the year over year growth book, but when you look underneath the headline of almost 30% growth. What's really impressive is almost 50% growth in our retail products. So we didn't drive this by doing broker work or a lot of trades. This was.
Not auctions not not a channel that we usually participate in but this is selling to end users customers and supporting their needs. So we think that's encouraging on two fronts number one we want to be a one stop shop for them, but more importantly, it means that they feel good about the amount of work they have coming forward, which is why they are buying used equipment. So Q1 was was really a great start out of the.
And we think it will remain to be a nice robust area to serve our customers and new sales for the balance of the year.
Great. Thanks, so much thank you.
Thank you. Our next question comes from the line of Big debris from Baird. Your question. Please.
Thank you good morning, everyone. Good morning, Thanks for taking the question.
So Matt.
You're talking about the fact that demand seems to be pretty good there out there in the market that you are too.
Where you've absorbed almost all your fleet.
I guess I'm looking to get a little more context around that.
Clearly the oil and gas vertical is lagging, but starting to recover if I leave oil and gas could decide and just look at the rest of your business, where would you say activity is relative to pre COVID-19 levels.
And given that your fleet is almost absorbed at this point, how do you sort of think about what needs to happen.
On a go forward basis as seasonally you get you get busier and.
And presumably.
Demand actually ramps up sequentially.
Sure. So as you guys know will really get into the meat of our inflow of additional capital here in Q2 and Q3, So that's where we'll bring in a large portion.
$65, 70% of our full year Capex will come in on those two quarters. So we will have plenty of inflow and we still have headroom within the existing capacity. We have my point was we've absorbed all that excess capacity, we had outside of a normal Q1, you know last year when we hit the decline.
In mid March all of a sudden we have all this extra capacity well that's worked through the system very well and we're at a more of a normalized pace right here from the seasonal cadence and that will include a little bit extra capacity, we have now but more importantly, the inflow, which we didn't have last year of significant capex to help serve our customers in Q2 and Q3.
And that's what will support this additional demand that we're seeing on anticipating to continue.
I see and then given sort of the way comparisons work on your reported fleet productivity metric when youre kind of looking at your <unk>.
Your outlook your guidance you, obviously know how this.
This incremental equipment is going to is going to come into your business.
You've got a view on demand as well I'm. Just wondering is it fair for us to infer that your fleet productivity metric will essentially be able to make up the lost ground.
2020.
Or will we continue to see sort of modest erosion.
On a go forward basis.
No.
Frankly.
Just because of the easy comps alone we're going to have significant fleet productivity in the balance of the year I mean, we're talking double digits. So we feel really good about that part of it an easy comp, but reason why we raised our guidance as part of it we're in a better place today in fleet productivity than we expected to be coming out of Q1 and Thats why I made those absorption comments.
So, we'll certainly see robust fleet productivity improvements.
Throughout the year based on that year over year improvement.
Yes, I didn't ask the question.
Just to clarify because I didn't ask this correctly.
Where I was getting at is are you comfortable with the fact that the margin can absorb this incremental equipment that youre getting really.
That's where we're always going on really.
It really.
Absolutely, yes, yes.
Yeah.
Yeah.
And is in line with raised guidance is in line with everything we've discussed.
And then maybe the final question for me you know you were you were talking about the impact from infrastructure, but I'm sort of curious if you can maybe give us a little bit better framework in terms of I mean, we all know what's been passed already and what's being proposed.
Is there a rule of thumb that you guys apply to your business with regards to what that might mean for your revenue and debt and what you might need to do maybe with the fleet in debt.
Future years here. Thank you.
So infrastructure overall is more than double digit percentage of our overall business revenues, we feel good about that and that's before a bill. So when we think about infrastructure overall scenario, we decided to invest in years ago, because we knew that the latent demand was there we knew it was an area that that could be.
US long term.
Our growth and now that we're talking about whenever a bill gets passed we would see that as icing on the cake not certainly not going to have a 2021 impact but with the demand the net the need for especially in the U S. The need for the infrastructure Bill we feel really good about how much focus we've put on this area for the past few years.
And it is paying off well and we think that will continue to be the case and whatever the the amount of funding. We get we think we'll we'll out-country our weight so to speak in that in that category when we get more funding.
Thanks for taking my question.
Thank you.
Thank you. Our next question comes from the line of Ken New from Keybanc capital markets. Your question. Please.
Hey, good morning, everyone Hey.
Hey, Kevin.
So my first question is I saw that your bumps through gross capex number a bit in the guidance Im just curious if you'd talk about.
One of those units were ordered in the first quarter and just how we should think about the margin impact from pricing on those units.
There will be.
Taken after your <unk> typical capex type of negotiations.
So Ken I'll I'll repeat.
No real impact on the pricing because as I mentioned outside of some spot needs. We really through the majority of our Capex orders in advance so theyre not even subject to any kind of surcharges any other additional cost and that's why we do it. So early it's a fair trade off with our partners and when we get certainty of certainty of volume and get the benefit.
Net from the other way so we feel fine about debt.
On the other part of your question was.
Yes, I was just curious.
Maybe just more of a follow on here I guess is.
As you think about the supply chain capacity and just where lead times are from some of your suppliers.
Is there very much upside or or or any upside that you guys see the gross capex number or is it kind of go through the rest of the year or is that more going to be a 2022 type of event.
I think there'll be I think even heard from some of the public calls this week from some of the larger Oems that they are starting to get their handle on their supply chain, that's improving I don't know how long it'll take to work through the pipe. We've got plenty on the pipeline for the next quarter or two debt to absorb regardless and that will support the demand and and then I also.
So think debt you know we are.
You want to think about our top 10 vendors, which is really the big portion of our capital we have very solid relationships and feel that we support each other.
And we'll continue to do so so we don't we don't see that as an issue and the other part of your question earlier was about the increased Capex I just wanted to point out that was not a net change. It was really just the increase in our Capex guide was about the increase you sales that we're guiding to so you're not seeing a net bump there and the opportunity to replace that.
Fleet debt.
Understood. Thanks.
Thanks.
Our next question comes from the line of Neil Tyler from Redburn. Your question. Please.
Yes. Thank you good morning.
A couple from me please.
Firstly within your raised revenue guidance.
Can you offer a sense of whether your assumed rate is about half of the year is better than it was a fully a stage or whether it's really just a demand pause.
But just that you've that you've always said that's the first question. Please.
Okay.
So hi, there this is Josh.
So we actually do not any longer talk about the components within revenue, specifically way utilization or mix, but rather speak to fleet productivity.
And as it really the output and the interplay between those three factors.
And as Matt mentioned earlier, you know for <unk>.
As we look at fleet productivity that will.
Just based on the comps from last year get significantly better.
As the year plays out that's going to be largely due to the opportunity in absorption.
And in the remaining quarters of the year and that's more on more to do with the year over year comps being so favorable.
That category.
We'll say and you know just reminded everyone appropriately that we don't go to the components because it's the interplay of them I don't want anyone to mistake, our rigorous management of the components that Cowen are on.
Our leaders in the field and our sales teams are still very focused on the components of fleet productivity, which is driving the appropriate return on rate for our services, making.
Making sure that we don't we're not over fleeting and network, serving the customers and keeping that balance. So just wanted to clarify that.
Thank you.
Helpful. So.
Moving on and in that case, you mentioned, Matt Joe.
You're on.
Ability to have retained all of your capacity over the last 12 months.
Can you help me understand outside of the you know the the.
The largest listed companies.
Obviously about this how.
You also the competitors have.
Whether that's been the case across the competition as well.
And.
Therefore houses.
From a dynamic.
Does respond it's too any differences and on I suppose.
Kind of linked question to that and Ah.
Closer to one of the earlier questions about the tight supply chains at the OEM level have you encountered any conversations with customers, where they've been unable to fill fulfill on the road capex needs and therefore, this year turning to rental where perhaps thing.
You wouldn't do we expected to do that to the same extent.
Sure Neil So first of all on the capacity and specifically with with like retaining your team or branch closures. It's all over the board. So you have to think about what how strong was a company coming into the pandemic and they all everybody had to do what they have to do we were fortunate that we use are.
Strong balance sheet right resiliency of our business to retain because we knew when we got through the other side of the tunnel. We wanted to make sure. We can respond faster. So that was a very definitive decision. We may I'm sure. Some others made that same decision and I'm sure others have to do what they had to do to make sure. They had the liquidity and they had to get through.
On a different way. So I think you have a little bit of everything there and as far as some customers being able to fill their own capital demands on.
I'm not really hearing that as a priority right now it is early in the season, but I will say, if there's one area where the supply chain could impact it would be on new sales, which is by definition a spot sale on spot deal right. So we're not going to take rental slots that are that are really precious right now to support any new sales. So it could have an <unk>.
Past on new sales on the margin, but that's a small piece of the business.
Anyway, so outside of that I'm not hearing much.
Okay, great. Thank you that's very helpful.
Welcome.
Thank you. Our next question comes from the line of Timothy Thein from Citigroup. Your question. Please.
Yes. Thank you good morning.
And just as a bit of on kind of a high level one but.
I just wanted to ask around this notion of inflation.
Clearly some debate from the fed and others as to the sustainability.
<unk> of it but.
As it's kind of in your markets in New Jersey.
Kind of what's in front of you I mean, the magnitude of some of these increases is pretty pronounced and so I guess the.
The twofold.
Twofold one is.
Look at the inflation, that's hitting your customer base.
Right.
At large.
And when you kind of look at the.
The CPI so are the prices they are selling relative to their PPI that that's been it.
On our balance so I'm trying to think how you how does that in the interplay with that.
With rental rates and again I know, that's kind of what I'm not asking specifically about your rental rate, but I'm, saying just in general.
Does this does any more inflationary backdrop.
Hum.
Help or hurt the opportunity from an industry not United but from an industry standpoint from the standpoint of rental rates and then.
More specific to European on I'm, not asking about equipment inflation I'm asking about inflate.
Inflationary pressures with interest within cost of rent.
Kind of pressure points are there obviously labor is a big one and you guys historically manage that well, but just maybe talk about the again the inflationary backdrop, what it could mean from a from an opportunity to potentially.
Go further.
Potential opportunity on the rate side, and then more specific to United P&L. Thank you sure I'll answer the first part of it and I'll ask Jess to take care of the internal inflation from a customer's perspective.
And you kind of tied it to rate. So I'll do my replacement of fleet productivity first and foremost its why we put that one in 5% bogey if everybody remembers when we talk about fleet productivity, we understand in any environment, our job and what we pay our managers to do out in the field is to make sure. We can outpace inflation, it's natural in every business.
And what could be an accelerated inflationary period looking forward for debt.
See how that manifest that would just that need and certainly with.
With all components of fleet productivity would be leaned upon to help drive that.
And inflationary costs will be being absorbed by our customers so they'll they'll understand the dynamic.
I think as far as what it does for the industry. When you think about cost of capital inflation now that could drive some secular penetration for rental overall as an industry, we see that as a positive.
People would it would just make what we think already pencils very well for a favorable look to rent versus own it would even drive that GAAP on that.
And that help that we can give people even more so so I'd say that'd be a benefit for the industry and then Jeff if he could handle the internal inflation for questions sure. Thanks, Matt Hi.
Hi, Tim Good morning, So if I think about it from a P&L perspective right. So the day there's of course, the revenue component in the cost component and the revenue component and the support that the P&L guests and that kind of environment. We will of course come from how fleet productivity sets up right on the individual components within that so.
Then shifting to the cost side of it as you mentioned labor for sure is a consideration and we talk.
Talked a lot about the the merit increases that we do in the normal course across our business as one component of our contract with our employees. In addition to lots of other things like training and benefits and other support.
And managing through merit increases and other inflationary costs that we would have by looking for offsets with.
In efficiencies and productivity as well.
Whether it's leveraging our scale to tighten up on costs within the <unk>. The branch network not unlike we've talked about in leaning more so on in sourcing than the premium cost in outsourcing things like delivery and repair, but also just working through the P&L on on smarter ways that we can.
Can drive better efficiency in things like facility costs, and utilities and things like that and so we'll always look to offset other increases where we can to ultimately protect.
The EBITDA and the margin that we're delivering in the business.
Alright.
Okay.
Thank you. Our next question comes from the line of Steven Ramsey from Thompson Research. Your question. Please.
Hi, good morning, Thanks for taking my questions.
A couple of quick ones on GFS, and I guess thinking about GSE and fleet productivity with the with an asset base, that's more geared to leasing.
That impact fleet productivity, I mean, I guess I would assume it's positive, but just any thoughts you can offer.
So frankly, we don't know how it can impact that will bring over the data as we do from any acquisition over from them and we'll try to make ourselves a better owner by driving more productivity of that.
I'd say I wouldn't characterize it that is more set to leasing that's not really the business. We're going after this is a rental model. They use that term leasing, but it's really rental rate. It's not it's not balance sheet management and it's not financing it's truly rental and.
Just wanted to clarify that because they do use the word.
Leasing now the asset attribute is more of a longer return focus on necessarily an immediate value because just like tanks. The assets live 25, 30 years, plus so you'll you'll see a little bit different profile, but this was much more of a return base business and more importantly strategically for us.
Just another step to the one stop shop.
Profit for our customers.
Yeah.
Okay, Great and then one more on GSA on thinking about the growth plans.
You guys have for that business and on cross sell.
How much of that thinking about footprint expansion, how much of that is driven by adding <unk> fleet to your existing branches or will that be more geared to opening day.
<unk> branches.
And then thinking about.
Their utilization.
Being pretty strong do you think.
You will be adding meaningful net capex for their type of fleet will be retrofitting the existing fleet.
So as excited as I am about GFS on how much I want to talk about talk about it I just have to remind everybody. We are still on regulatory approval phase. So we can't go too far, but we but what we have set on what I'll continue to say this is absolutely a growth play.
And it will be a stand alone.
Category for Us, we're a big believer in not homogenizing specialty products, we're a big believer in having to focus on them to drive further growth as you see in the rest of our portfolio and you could expect that that's what we'll do now leveraging our network as a whole another on customer base as a whole another opportunity we feel comfortable.
As we as we.
Bring this team on board.
And we feel that will be a huge growth driver for the business and from the people that we're bringing on and we think it brings opportunity both ways. We're excited about.
Great. Thank you.
Thanks Ian.
Thank you. Our next question comes from the line of Rob Wertheimer from Melius Research. Your question. Please.
Hey questions a little bit just on.
Learnings from.
Improvements that you executed across a remarkable year.
The industry, obviously tightened capacity in.
I think what you guys said you were at all do you would do in specific.
Out of the downturn and now you're coming out of it and you kind of proving out the trough model.
A little bit curious on just what new processes procedures technology or whatever you may have deployed during the downturn that could.
It could help productivity for the company.
Go through it and whether you expect the next few years to see a resumption on the margin gains you had when you rolled out some of your initiatives cash 79 years ago. Thanks.
So.
First off one of our biggest COVID-19 learnings and something we've talked a lot about in the past Rob is the flexibility and resiliency of our model and I know that wasn't your specific question, but when I think about your question on what we learned in the last year boy. It was great to see that manifest itself in reality versus the modeling of it. So that's first and foremost we can be.
As flexible as we need to be but a big part of that flexibility is to your point on the cost side now some of this was let's say when we get into comps into Q2, and Q3, where we had on naturally low cost well, where we are on like a shutdown mode. We won't go quite that far but the learning of in source and one of the ways, we were able to retain.
The capacity, we had on our team was to in source a lot of the work that we were outsourcing previously both on R&M and third party delivery longer haul transport for transfers those are learnings that I think we may be able to be more efficient longer term as this business as the business gets back to operating at full.
Capacity and then unnecessary travel I don't want us to go as far as nobody travels I want us to get back to.
So not just a team building, but getting back in front of our customers and building those relationships and selling the value in person, but we certainly have a lot of learnings that not only is that COVID-19 taught us from a cost perspective, but also from a time management perspective from an efficiency perspective that would be another one that I think will certainly stick around.
And a lot of industries are going forward. So those are the things I'd point to.
No. That's a very helpful answer and then just on the I know you work hard probably every year on on outsourced delivery in repair and maintenance.
Are you able to I mean as volumes, presumably come back at some point you figured out I guess.
Sometimes I wonder if that's just pure overflow and you can't analytics. So you weren't outsource you think youre able to hold onto some of those savings because of how you are systematically changed I guess on and I will stop there. Thanks.
Yeah, I think we will actually look at our head count model of the past and think about those peak periods of how much of that peak period could be served by additional head count that will add other values versus the higher cost of outsourcing and it'll depend on market and it will depend on the duration of that peak, if we have a peak and peak need that's a month or two well Frank.
It's probably a lot will continue to outsource on that but if we have a longer period of peak I think that's where we'll adjust some of the metrics. We use historically in our head count model and probably get some learnings from savings and more importantly, some additional capacity and productivity. So that's an area that.
We can't wait to get back to full throttle and we're getting there we're closer to that today than we've been in a while and I think we'll share those learnings as they go.
Thanks, Matt.
Thank you Rob.
Thank you our final question for today comes from the line of Scott Schneeberger from Oppenheimer. Your question. Please.
Thanks, Good morning all.
I'm just curious obviously last year was a strange comp year, but how does this how does this seasonal uptick look view, we're seeing strong industrial production Abi. If you can just go back to perhaps a compare contrast to some past years on on.
What youre seeing for strength relative to to the historical cycle time.
Yeah, I think debt our guidance actually denotes a more normal seasonal build think about that we would have achieved in our 17 18, even 19 phase as opposed to what we just went through so although.
Although the season did repair so by by definition of Gulf in 2020, we see this to be much more normalized seasonal build on embedded in our guidance, we had a little bit of lower point from a fleet perspective, as you guys know, but we feel really good.
Not just the balance of 'twenty, one, but the repairing of the economy and our end markets going forward and then when we get further down the road when we start seeing oil and gas.
Up energy overall pick up we feel really good about the outlook.
Great. Thanks, and then just switching over to you.
Fleet is.
The average age of the fleet.
And you know it is the highest it's been that I can recall and obviously, there's mix and I know you maintained it better than in the past, but could you give us a feel of where you think you'll exit the year with regard to the.
On the Capex developments that you had in the first quarter on your guidance for the year.
Yeah, Hi, So we think we'll be down a couple of months just from sort of use the midpoint of guide and play that through.
Like you mentioned, we think we're probably at the highest point now and then that'll start to kind of move down to as I mentioned a couple of months.
Younger fleet as we finish the year.
Yeah, and I think it's important to note debt debt, we only utilize two four months on that capacity. So we're sitting here only four months year over year higher fleet age and you've heard US talk historically about leaving at least 12 months worth of headroom, we went through a pretty severe.
20, and only had to utilize a portion of that 12 months. So we actually feel really good about where our fleet ages and as Jeff stated, we will bring it down a couple of months from the inflow and some of the new sales that will do this year.
Excellent. Thanks.
Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Matthew Flannery for any further remarks.
Thank you operator and.
Thanks for everyone for joining us so we're off to a great start in 'twenty, one hopefully hear our enthusiasm.
And in what is now a growth year, and we will give you an update and look forward to it in July but until then you can always reach out to Ted if you have any questions and don't forget you can find our Q1 investor deck online and Theres also a separate deck for the general Finance acquisition. So thanks for joining everyone stay safe and operator can you. Please go ahead.
On the call.
Certainly thank you and thank you ladies and gentlemen for your participation at today's conference. This does conclude the program you may now disconnect good day.
Okay.
[music].