Q2 2021 United Rentals Inc Earnings Call
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Ladies and gentlemen, please standby your conference call will begin momentarily once again, please stand by your kind of fits call will begin.
I really thank you for your patience and please continue to hold.
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Good momentum.
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Yes.
Yes.
Yeah.
Okay.
Okay.
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 responses to your questions contain forward.
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.
<unk> 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 the subsequent filings with the SEC.
You can access these filings on the company's website at Www Dot United rentals.
Looking at Dot Com. Please note that United Rentals has no obligation and makes no commitment to update or publicly revise any revisions to forward looking statements in order to reflect the 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 all of each non-GAAP financial measures to most comparable GAAP financial measure.
Sure, making today for the United Rentals is Matt Flannery, President and Chief Executive Officer, and Jessica Graziano, Chief Financial Officer, I will now turn the call over to Mr. Flannery. Mr. Flannery you may begin.
Thank you operator, and Hello, everyone. Thanks for joining us this morning.
3 months ago, we said.
<unk> said, the 2021 was shaping up to be of great year for United Rentals, that's still very much the case.
Our operating environment continues to recover.
Our customers are increasingly optimistic about their prospects.
And our company is continuing to lean into growth from a position of strength as the premium provider and our industry.
The street's largest 1 stop shop.
Where the supply leader in the demand environment.
And we've leveraged that to deliver another consecutive quarter of strong results.
The big themes of the second quarter, our strong growth in line with our expectations and robust free cash flow even after the step up.
And our Capex and our Capex.
Positive industry indicators, including a strong used equipment market the pricing was up 7% year over year.
The expansion of our go to market platform through M&A and Cold starts. This is time to the broad based recovery in demand.
And our focus.
On operational discipline as we manage the increase in both volume and capacity, while driving fleet productivity of nearly 18%.
Another key takeaways, our safety performance and I'm very proud of the team for holding the line on safety with another recordable rate below 1 while at the same time.
King of robust busy season and on boarding our acquired locations.
This includes general finance, which we acquired at the end of May as.
As you know this was both the strategic and a financial move designed to build on our strengths.
The acquisition expanded our growth capacity and gave us the leading.
The position in the rental market for mobile storage and office solutions.
Of the integrations going well and while we still have more work to do we're moving steadily through our playbook.
As you saw on our release, we raised our outlook to include the expected impact of General finance and other M&A, we closed since the first quarter.
Manage it also includes some additional investments we plan on making capex that'll serve us beyond 2021.
This outlook follows the higher guidance, we issued in April when we raised every range compared to our initial guidance.
So as you can see we're tenacious about pursuing profitable growth in.
On the inverse.
We are making will still have a positive impact on our immediate performance as well as future years.
And before Jessica gets into the numbers I want to spend a few minutes on our operating landscape.
Almost all of the challenges of 2020 of right of themselves.
We are of better line of sight and so to our customers.
<unk> when we surveyed our customers at the end of June the results showed that over 60% of our customers expect to grow their business over the coming 12 months, which is of post pandemic high.
And notably only 3% so a decline coming over the same period.
Customer optimism is of great barometer and the trends that we see in.
On the field support their view.
Yeah.
2021 is a pivotal year for us it confirms our return to growth include.
Including our 19% rental revenue growth in the second quarter.
I will point to some of the drivers of that growth starting with geography.
The rebound in our end markets continues to be brought.
Positive with all geographic regions reporting year over year growth in rental revenue.
Our specialty segment generated another strong performance with rental revenue topping 25% year over year, including same store growth of over 19%.
And importantly, we grew each major line of business by double digits.
Which underscores the broadness of the demand.
For years now our investment in building out our specialty network has been a key to our strategic positioning.
These services differentiate our offering to customers and add resilience to our results throughout the cycles.
This is true of cold starts as well as M&A.
Broadly here, we've opened 19, new specialty branches in the first 6 months, which puts us well on our way to our goal of 30 by year end.
We're also investing in growth in our channel rental segment were the big drivers of our non res construction and plant maintenance.
Both areas of continuing to gain traction and most of our end.
End markets are trending up.
The verticals like the chemical process food and beverage.
In mining and healthcare all showing solid growth.
And while the energy sector remains the laggard it was up year over year for the first time in 8 quarters.
We also have customers in verticals that are less mainstream.
Like entertainment, where demand for our equipment on movie sets and events more than doubled in the quarter and wireless the relatively small part of the revenue. It is a good sign to see of come back.
I also want to give you some color on project types.
There are 2 takeaways the diversity of the projects in Q2, and the fact that.
Net each region contributed to growth in its own way.
The recovery has taken root across geographies and verticals on both coasts with solid activity and heavy manufacturing corporate campuses schools and transmission lines.
And this quarter. We're also seeing project starts and power transit and technology.
<unk> the.
These job sites are using our gen rent equipment, and our trench safety and power solutions.
And fluid solutions of seeing a rebound of chemical processing and sewer bypass work as well as mining.
These are just a few of the favorable dynamics and a very promising upcycle.
And I want.
To put that in context.
2020 was about the temporary loss of market opportunity, particularly in the second quarter now the pendulum is swinging back in 2021 is about locking in that opportunity within the framework of our strategy on <unk>.
Our team is managing that extremely well.
Proof point is of our financial performance and the confidence we have on our guidance.
Another is our willingness to lean into growth today to create outsized value tomorrow and.
And it's about more than Capex in cold starts we're constantly exploring new ways to capture growth by testing new products in the field developing new sales.
1 pipelines and forging digital connections with customers.
And finally, the most important proof point is the quality of our team.
You can see that reflected on our safety record and our strong culture.
The here's the thing to remember about 2021. This is still the early innings of the recovery.
We're committed to capitalize on more and more demand as the opportunity unfolds.
We see a long runway ahead to drive growth create.
Create value and deliver shareholder returns.
I'll I'll stop here and ask Jeff to go through the numbers and then we'll take your questions over to you Jeff.
Thanks.
Sales and good morning, everyone.
When we increased our 2021 guidance back in April we expected a strong second quarter supported by the momentum we were seeing to start the year. We're pleased to see that play out as anticipated with the second quarter results.
And importantly, we're also pleased to see the momentum accelerate in our core.
Core business and support of another raise to our guidance for the year. We've also added the impact from our acquisitions, notably the general finance deal and ill give a little bit more color on our guidance in a few minutes, but let's start now with the results for the second quarter.
Rental revenue for the second quarter was $1.95 billion, that's an increase.
$309 million or 19%.
If I exclude the impact of acquisitions on that number rental revenue from the core business grew a healthy 16% year over year.
Within rental revenue increased $231 million or 16, 5% of it.
The driver of that change with the fleet productivity.
The activity, which was up 17, 8% or $250 million.
That's primarily due to stronger fleet absorption on higher volume in part as we come on the Covid impacted second quarter last year.
Our average fleet size was up 2% or $3 million tailwind to revenue and.
As of now we are the inflation impact of 1.5% cost of $22 million.
Also within rental and ancillary revenues in the quarter were up about $65 million or 31% and re rent was up $13 million and we'll talk more about the increase in ancillary revenues in a moment.
Used equipment sales.
And rounding in at $194 million, that's an increase of $18 million or about 10%.
Pricing at retail in the quarter increased over 7% versus last year and supported robust adjusted used margins of 47, 9% on that represents a sequential improvement.
Sales of 120 basis points and is 190 basis points higher than the second quarter of 2020.
<unk> sales proceeds for the quarter represented a strong recovery of about 59% of the original cost of fleet that was on average over 7 years old.
Let's move to EBITDA.
Adjusted EBITDA for the quarter was $999 million, an increase of 11% year over year or $100 million.
That included $13 million of 1 time cost per acquisition activity.
The dollar change includes a $141 million increase from rentals.
In that OTR was up 125 million ancillary contributed $10 million and re rent added $6 million.
<unk> sales were a tailwind to adjusted EBITDA of $12 million and other non rental lines of business provided $6 million.
The impact of SG&A and adjusted EBITDA was a headwind.
For the quarter of $59 million, which came mostly from the resetting of bonus expense. We also had higher commissions on better revenue performance and higher discretionary expenses like <unk> that continues to normalize.
Our adjusted EBITDA margin in the quarter was 43, 7% down 2.
270 basis points year over year and flow through as reported was about 29%.
Let's take a closer look at margin and flow through this quarter on importantly, you'll recall that our Covid response last year included a swift and significant pullback in certain operating and discretionary costs that was especially.
Headwind pronounced in the second quarter and is impacting flow through this year as activity continues to ramp and costs continue to normalize.
We expect this will play through the rest of the year, notably in the third quarter.
Specific to the second quarter, we've shared in previous calls that 1 of the costs that will reset this year as bonus expense.
From the low levels incurred last year.
As a result, we had and expect the dragon flow through in the second quarter as we reset and now true up of this year's expense.
Flow through and margins were also impacted as anticipated by acquisition activity, including the onetime costs I mentioned earlier.
I also mentioned higher ancillary revenue in the second quarter, which represented in part the recovery of higher delivery costs delivery has been an area, where we've seen the most inflation pressure, including higher cost for fuel and third party hauling on.
While recovering a portion of that increase in ancillary protected growth profit dollars.
It impacted flow through and margin this quarter as of pass through and we expect to see that play out over the next couple of quarters as well.
Adjusting for these few items the implied flow through for the second quarter was about 46% with implied margins flat versus last year.
With our expenses normalizing that reflect.
Flex the cost performance across the core that came in as expected.
I'll shift to adjusted EPS, which was $4.66 for the second quarter, including of 13 cent drag from onetime costs.
It's up 98 versus last year, primarily on higher net income.
Looking at Capex and.
Free cash flow for the quarter gross rental Capex was a robust 913 million of proceeds from used equipment sales were $194 million, resulting in net capex in the second quarter of $719 million of that's up $750 million versus the second quarter last year.
Even as we've.
We've invested in significantly higher capex spending so far this year, our free cash flow remained very strong at just under $1.2 billion generated through June 30.
Now turning to ROIC, which was a healthy 9.2% on a trailing 12 month basis.
Notably our ROIC continues.
To run comfortably above our weighted average cost of Capex.
Our balance sheet remains rock solid year over year, net debt is down 4% or about $454 million.
That's after funding over $1.4 billion of acquisition activity this year with the ABL.
Levy.
Growth was 2.5 times at the end of the second quarter, that's flat to where we were at the end of the second quarter of 2020, and an increase of 20 basis points from the end of the first quarter. This year, mainly due to the acquisition of general finance in May.
I look at our liquidity, which is very strong we finished the quarter with over 2.
$8 billion in total liquidity, that's made up of ABL capacity of just under $2.4 billion and availability on our AR facility of $106 million. We also had $336 million in cash.
Looking forward I'll share some color on our revised 2020.
1 guidance.
We've raised our full year guidance ranges at the midpoint by $350 million in total revenue and $100 million on adjusted EBITDA as we now expect stronger double digit growth for the core business in the back half of the year.
Our current guidance also includes the impact of acquisition activity.
Activity since our last update predominantly to include general finance that.
Of that increase for acquisitions reflects $250 million in total revenue and $60 million and adjusted EBITDA, which includes $15 million of expected full year, 1 time costs.
Additional capex investment.
<unk> will help support higher demand to that end, we raised our growth capex guidance by $300 million of.
Good portion of which reflects fleet, we're purchasing from Acme lift.
While the fleet will provide some contribution in 2021 and is assumed in our guidance, we expect to see the full benefit.
Sure.
Finally, our update the free cash flow reflects the additional capex will buy as well as the puts and takes from the changes I mentioned it remains a robust $1.7 billion at the midpoint and we will continue to earmark, our free cash flow this year towards debt reduction to enhance the firepower we have.
Have to grow our business.
Now, let's get to your questions. Jonathan would you. Please open the line.
Certainly the ladies and gentlemen.
At this time. Please press Star then 1 on you touched on telephone maybe the question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
Your next question comes from the line of David Raso from Evercore ISI.
Next question please.
Hi, Thank you for the time.
The picture question about the margins.
Testers are wondering out there.
How the margins can improve from current levels over the last 4 years or so we've seen.
Steady degradation on the <unk>.
Rental margins.
Your pillar <unk>.
Even the EBITDA margins a bit on.
They're a little pressure.
I'm just trying to think through like when you think of the 5 large acquisitions you've done.
Over the last few years right starting with net.
The asps kind of running through Gen finance.
I'm of acquisition you bought over can you say about 2 and a quarter of $1 billion of revenue.
EBITDA margins were only 38 brand new.
Used to run high 40, so I appreciate that's a lot of revenue, but that's true.
On the margin.
But when I look at the business today moving forward.
Do we think about the rental margin structurally if you want the we've got all the way on to EBITDA, but really the and particularly the.
Revenue rental margins as this is much about just the shift towards specialty might lower margins, but improve returns on capital. Just so we can kind of level set how we should think about not just topline growth growing earnings but margins.
Sure David Great question, Thanks for taking a longer term view of this because that's really how.
We manage it and see the business and although we have some short term pressures when we acquire businesses that come in at lower margins. If you look over our experience of these acquired assets and what we've done with the business is pro forma it validates why we do M&A, we feel we can be a better owner, we can bring more value to those.
Those assets.
It dropped EBITDA margin for a period of time, that's 1 metric, but we also are very focused and quite frankly model our M&A deals on returns so.
<unk>.
And our turns continue to be well above our cost of capital. So I don't think rental margin degradation is of concern for us.
We'll continue to drive fleet productivity to overcome natural inflationary costs as well as efficiencies in our operations and we think that's how we've taken these businesses that are in the third of these yet maintained mid forties tenant at the time of the year to higher EBITDA margin.
And that's what we do right.
That's a great question and I think sometimes when people are looking at the headline I may Miss the fact of what we've done with these businesses pro forma is driving more value.
If I can add 1 thing Dave good morning.
Is that to the earlier part of your question. There is no structural change in the way that we're managing the business.
Business and we're looking at the business longer term and we're thinking about the continued margin that we believe will be able to generate going forward.
But fair to say from from that answer structurally you don't think of this as driving margins per ton as the manager of the matter of <unk>.
Proving returns on capital better cash flow.
Obviously of what you do with the cash flow from Capex to M&A is how you drive earnings more so than thinking this thinking of this is of margin expansion sort of.
Fair generalization.
We still are focused on margin expansion in the individual businesses right. So some of them structurally come in a little bit differently to your point earlier some of the acquired.
It's J F N b in the most recent 1.
As an example, that's never going to be on 50% more of the business, but it's going to be a heck of a good return. So that's really more we're saying no structural issues that we're having here to continue to focus on margin expansion.
Yes, Hello, guys everybody wants everything around you on margins.
On the cash flow, but I'm, saying.
Wired actually of your pecking order feels like this is more about returns cash flow and then grow the business utilizing the cash flow of effectively as well.
Non of generalized.
Absolutely nothing that that point, when we think of 'twenty 2 versus 21 anything you can help us with on framework in the sense of.
The resetting the bonus pool.
The strong how do we think about how 22 starts initially other costs that came back or even how you think about delivery costs on the ancillary can you just give us some thoughts around how we should think of puts and takes on 22 versus 21.
Typically regarding regarding costs.
Yes.
With.
Without even attempting to try to give guidance of 22, I think it's clear to say we feel good about the environment, we wouldn't be leaning into the capital spend in the M&A. If we didn't right that's not just the 21.
Experienced and we will lap some of the headwinds that we've had this year from accomplished specter of in specifically in this quarter as Jeff will continue to talk to as you did.
Remarks, but we feel good about about 'twenty 2 we feel good about the prospects as I said in my opening remarks, we think we're in the early innings of the cycle here. So we're excited about the prospects.
Any color just on the costs. So I mean, I appreciate of matts comments, but thats, a little bit of of topline comment which.
I think at the moment.
In the open on really.
Pushing back on that but I'm, just trying to think about some leverage as well ideally and just anything you can do on the on the.
Bonus pool.
Other other costs, we can be thoughtful about how you're lining up your your delivery costs for next year on any change on how you're contracting things out or in.
Any color would be appreciate.
Sure. Thank you that's it for me.
Sure it's a little.
Too early for us to start to opine on.
On any kind of guy numerically right of where we think some of those expenses are going to go right.
Far as.
How the bonus of play through next year compared to this year and.
The folks what the inflation environment is going to look like next year I think it's anybody's guess right now as to.
If they'll still be pressure on delivery because of the pressure in other places I think the takeaway for US is we're going to continue to respond to the way we have right.
Looking to.
Pass through in.
Even some of the inflation pressures that we're seeing right now, particularly in delivery.
Just as we even think about where are the pressures could come from.
Looking to how the business will be able to respond to.
The continued to drive the kind of the profitability that we can across the business. So it's too early for.
The specifics than that but I can I can tell you we're going to continue to be focused on 2 of the planning process looking at all of those inputs and managing them appropriately.
Alright, Thank you for the time.
Thanks, David.
The Q on next question comes from the line of Mig <unk> from Baird. Your question. Please.
Yes, good morning, everyone.
So sticking with the discussion on costs.
I think I heard.
Jessica commenting that.
The flow through on EBITDA in the third quarter.
I was going to be relatively modest as well maybe you can put a finer point here.
And I am curious.
<unk> on the SG&A side.
Talked about Truing up on on a on the bonus pool is that of comment that impact on Q3, as well or was that just for Q2 specifically.
Hey, Thanks, good morning.
Let me start with the third and fourth quarter on actually I'll I'll I'll.
From the perspective of the back half right, we'll talk about the phasing of the second but just to give a little bit of color behind whats implied in the I'll start with my mic.
My normal call out not to.
Anchor to the midpoint here, but let me let me use the midpoint just to give some color behind.
The the bonus dynamic and even some of the acquisition impact that will have in the back half. So if I use the margin at the.
Midpoint the.
The back half implied margin would be down about 120 basis points for us.
And that's going to generate flow flow through again, the midpoint of about 39%.
I'll take the thinking about margins of 46, 2% that.
Of that bonus headwind is going to continue for us more so in the third quarter than in the fourth as we think about the comp to last year, where the bonus was.
I'll call it abnormally low range.
Lower than normal so.
If you think about that bonus headwind as well as the anticipated headwinds in flow through and margin that we get from the acquisition activity that margin goes from down.
The 120 basis points to 40 basis points or a margin implied in the back half the midpoint of <unk> 40.
The 7.8% from $46 to flow through in that at the midpoint of about 50% adjusting for the 2 items. So those those obviously will be an impact for us.
And as you mentioned the core.
<unk> dynamic will play out if you just think about the comps we have again the belt tightening.
That we did last year, the third quarter will be we will have more flow through pressure than youll see in the fourth.
And then the other thing I just want to mentioned third quarter just to be helpful. On the modeling is third quarter last year, we had $20 million of 1 time benefits from insurance recoveries.
And.
Hospitals are not expected to repeat.
Okay, yes. Thanks.
By the way for the reminder.
Then.
I guess to try to ask David the question, maybe a little bit differently.
When we again sticking with SG&A.
When we're looking at 2022.
2 is it fair for US the thing that you guys can get some leverage on this line items that.
<unk> growth can exceed.
Whatever inflation youre going to have an SG&A is that how you're intending to run the business or are there. Some other things happening in here that might make that.
Difficult to achieve.
Yes, yes.
I think that that's definitely fair and I'd be remiss not the point too.
On the 2021 dynamic is 1 that in part is because of the comps of 2020 right. If you think about sort of the normal course in 2022, it gets back to us.
My comment about there's no real structural change in the way we are planning to run the business in 'twenty 2.
Understood then lastly from me.
Infrastructure is once again in the headlines and I think by now we all sort of had a lot of time to kind of ponder as to what this would mean, so I'm sort of curious from your perspective.
If if something were to actually pass and become become legislation.
Now if.
At all the you plan to change your strategy.
On your feet your go to market.
As a result.
At this point have you.
Of sort of anticipated any of that in your capex plans or the way youre kind of starting to think about framing 2022.
Internally.
Sure.
So great question, Megan we started focusing on this preparing for this all the way back if you recall from the net acquisition, where that added to some of our dirt engaging.
<unk>.
Net net.
Of that team brought with it and product they brought with it which would be played into the infrastructure and we've actually been growing our infrastructure structure business.
Really because of the demand is there right. We all know the need is there. So now we would view this as icing on the cake as far as fleet profile changes.
I'll hazard, a guess to say 80% of the fleet that we would use to support and that we do use to support infrastructure is core fleet. So we have we have very fluid fleet and very fungible fleet. The support this vertical on the boundaries. Yes, we would certainly as things started to move by some more attenuated trucks by some.
The message force some infrastructure, specifically, but outside of that most of what we serve that end market with his core fleet of are very fungible assets, but we feel we're really well positioned not just the talent wise not just knowledge wise, but also relationship what we deal with these large customers. These large civil contract.
So we feel good whenever the monies get released in the past, we'll be able outcomes of our weighted in that category.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Ross Gilardi from Bank of America. Your question. Please.
Okay.
Hey, good morning, guys.
Yes.
I had a couple of specialty rental questions.
Just on growth and aside from general finance.
What are some of the.
The larger growth opportunities in your legacy specialty rental business and I'm thinking specifically of trench.
And hoping you can comment there I mean <unk> is talking about bearing.
10000 miles of power lines in California to curtail forest fire risk I mean, there's enormous project if it actually happens it's all over the headlines.
No that many people would necessarily connect the dots with the United rentals on something like that but is.
Is that the type of project.
French business would be potentially engaged in.
And beyond that.
Attaining too.
All of the stuff on the headlines about forest fires Hurricanes.
Routes and everything what about disaster recovery and how big that business is and how.
How big it can become.
Sure.
You made a great point about trench and in how we would deal with that type of business and frankly, a lot of infrastructure business right really plays into our specialty network as well, but also our gen rent products and when we think about emergency response, we've really built up that need.
Some of the power and HVAC team has done a great job responding to that but whatever the needs are of.
Our fluid solutions team has really broadened their network of customers. They serve back from the day when we basically bought on oil and gas pump company. So this type of spreading the product knowledge.
<unk> and breadth across our broader network and relationships to serve these unique end markets is really really part of the specialty strategy for us. So thanks for giving me that softball. There is certainly is really really a great part of our growth strategy for specialty.
But that those specifically what about burying power like thousands of miles.
The power line is that something you'd be engaged in of that.
Would that be kind of a common projects, where youre trench business all of the dearth of it's gotta be Doug for that.
I'm, just trying to rather than just talking about this all of them very much generalities.
Trying to talk about in relation to like a big project.
Project Thats all over the headlines that we can all kind of relate to a little bit more.
Concretely.
Yes, absolutely.
Absolutely.
That is an absolutely true so 1 last 1 of that.
Maybe we take the rent for the absolutely it would be a higher participation of trench that anywhere else.
Okay great.
And then just.
Studio Entertainment and live events.
I mean, you've got a little bit of of presence, there, but but the absence of a bigger presence with.
It seems like it was a key factor that might have caused the lagged some of the competition on topline growth of at least off of the bottom do you feel like you need to get bigger in that.
That market and are there opportunities to do so via acquisition.
We certainly its a market that we continue to get bigger and I think you just saw where the.
Official the supply of NASCAR now so we keep adding to this portfolio organically, we don't feel a 18 need in the space, but we certainly.
Organically growing that space has some great people associated with it that continue to grow that space.
If an M&A opportunity arose that was positive I think you always know we have a robust pipeline, we look at but it's.
It's not a strategic necessary focus certainly an opportunity that we would want to uncover organic.
The M&A if it arose.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Jerry Revich from Goldman Sachs. Your question. Please.
Yes, hi, good morning, everyone.
Good morning, Jerry.
Jesse I am wondering if you could just talk about your capital deployment.
<unk> options.
Now that you have a bigger footprint in terms of broadening of the specialty business with GSI in new regions as well.
You folks are optimistic about being able to put capital to work.
In the way, where United rentals is a good owner for additional assets.
Now that you have the.
Those additional regions and.
In products.
Well certainly the ethane right. So this is an absolute growth this acquisition not a not of synergy play not a consolidation play so that would be the most obvious area because we really think we could spread that.
Throughout our network and Phil on the blanks and their distribution.
The point continued focus on penetration within our existing businesses and some of them had asked earlier about specialty growth. We continue to grow specialty strong double digits, because although we are very very mature and some of them of markets Theres still opportunity to continue to penetrate further in those spaces and.
I would say all of the above.
And then we will see.
Not ready yet to declare but we'll see about some of the other opportunities that are out there.
We're certainly going to fund organic growth and a very aggressive way because we think coming off of the disruption that we had last year.
We're seeing the opportunity to refresh the fleet get the fleet out there and continue to serve more customers.
And on the <unk> acquisition call, Jeff you spoke about good line of sight on getting GFS margins closer to <unk>.
Industry level of margins and now that you've owned the asset for a little bit of Im wondering if you could talk about.
And just flush that out in terms of what do you think of the logistics opportunity you said the opportunity to leverage your pricing tools I know, it's early but.
We have a little bit more visibility than we did at the time of the acquisition I'm wondering if you might just parse it out a little bit for us.
Sure good morning so.
I can tell you the.
Doing the system integration in North America for General Finance this weekend.
And that's of great step towards continuing to leverage the United rentals tools and support the growth on the opportunities.
And the efficiencies.
You're right that we can share with that business as they grow.
Honestly, the as Matt mentioned with this being the growth play we're going to look for every opportunity we can to grow as productively and as efficiently as we can and to work through how the extension of those branches.
Ranch's right. If you think about part of the growth that we talked about was on <unk>.
Cross sell of existing United business, but the other part of the growth was to expand that business into.
On.
More msas, where they currently are and that's an opportunity for us to leverage the.
The efficiencies of the productivity that we have now in our branches as we continue to support that the geographic extensions for them. So we still feel.
Very comfortable with.
Our original thesis of getting those margins up to be closer to where.
There that business on the peers in that business operate.
And again very excited about.
Looking under the Hood of over the last month and a half very excited about.
Getting that going into the possible.
Terrific I appreciate the discussion thanks.
Thanks.
Thanks Darren.
Thank you. Our next question comes from the line of Tim Thein from Citigroup. Your question. Please.
Thank you good morning, Matt the first 1 was just on on.
Just trying to kind of talk through the opportunity for fleet productivity in the back half of the year obviously.
The comps get tougher but.
As you think about kind of the components of that if I I mean on all my estimates of right, but I would assume that from a time standpoint, you're you're running at or near all time high levels. So obviously the.
But I would assume from here of rate and mix or likely to play a bigger role, but maybe you can just kind of touch on each of those in terms of where you are.
And how you see the opportunity opportunity in the back half of the year.
Sure Tim So we're very pleased with the fleet productivity.
Obviously, the and we have expectations for high fleet productivity in the back half, but just for clarity of that very guarding 18% number is partially driven by the easy comp that we had in Q2. So we don't expect to have those type of double digit fleet productivity improvements in the back half of the year, but still significant fleet productivity improvements a.
The absorption of opportunity was certainly the big driver here in the near term, but we think the market conditions without getting into the each individual component, we think the market conditions and frankly, the industry's discipline is very favorable towards continued fleet productivity and most importantly, the demand is there so we really.
A lot of the good about it and.
Although I don't think we'll see 18% again I do think that we will see strong fleet productivity and that's embedded in our guidance for the back half of the year.
Got it okay.
And then on.
As you think about the the.
The volatility that we've seen this year.
Not just in terms of just commodity costs and how that's impacting.
Yes.
<unk> and some of your supply cost, but as well as the just the availability of new fleet from the Oems is that do you expect that will influence how you will approach the timing.
As you get closer to that initial planning in terms of Capex planning for 'twenty 2.
As well as maybe how youre thinking about use sales in and.
Perhaps maybe of flex that fleet age higher and true.
There is the push and pull here, but.
The used market.
Right.
If it remains as strong as it is which obviously will depend somewhat on the new supply availability, but does that impact how you're again thinking about the timing. The initial budgeting for next year and then too.
Just how youre thinking about managing the fleet in this environment of Super tight views.
He was markets. Thank you.
Sure. So I'll take the latter part first I think and you've seen a little of it play out this youll see a little bit play out in Q3 of them in Q2 the used meet.
Metering.
The use of words characterize what you're seeing is more about just time utilization rate as we continue to drive.
High demand and high use of our assets and theyre not as available sales, but at the end market strong there so I.
I think we'll continue to fill that demand as versus age the fleet I don't think thats necessary and on the first part on the supply side.
We've got some really good partners and good suppliers out there and I think they will get their arms.
The wrapped around the supply chain disruption that everybody has been dealing with in every industry, but commodities, probably will right size a little bit as we get to the end of this year I am assuming that our vendors of working I'm not assuming I've talked on working really hard to continue to improve any supply chain disruptions may have so I'm.
<unk> seen that as a barrier to us supporting our customers next year.
If it is we'll adjust but we're not that's not in our calculus right now and certainly not the age of the fleet.
Got it thank you.
Sure.
Thank you.
Our next question comes from the line of Ken Newman from Keybanc capital markets. Your question. Please.
Hey, good morning, guys.
Good morning, Ken.
I kind of want to piggyback off of that last question a little bit.
1 of your big suppliers talk this morning about some deliveries having slipped through the supply chain tightness in.
I guess I am curious if you have any comments on equipment availability of that Youre seeing today and there are you getting equipment on time at.
Obviously, you took the Capex guide this quarter and I'm curious.
1 how did you how are you able to pull that off of into where do you see the opportunities for potentially increasing that.
The flip side.
The year end.
Sure Ken So we still have a pretty big range. So within that right at the midpoint you you all know about the $300 million change that we made.
Although a lot of that is the assay that we acquired debt that we've talked about.
<unk> of portion of that that's just organic but even raising that guide in April tells you that we feel good about our ability and our team's ability to source of the equipment, we need to supply customers. So.
We understand the noise, maybe it's our relationships, maybe it's our scale or leverage, but we've been able to exceed when we sat here in January what.
They are certainly expected the purchases here, so I think thats a good story.
And I get the challenges that everybody has but we we've got what we want yes, there's been some slippage and if you'd asked me within a quarter and stuff come in a few weeks later absolutely. The team worked through it we drove higher fleet productivity on the asset.
We already had and this is part of those strong supply demand and industry dynamics that I referred to in the earlier question about fleet productivity.
So.
Nothing thats inhibitor the supporting customers.
But something we'll continue to software suppliers of how can we help them helped us and that's how we'll look at it going forward.
Right.
I know, you're not ready to give guidance on on cash.
Capex of fleet growth next year, but as we kind of think about the normal course the.
Ordering patterns I mean.
Can you give us a sense of just how much of the production slots of got the grid for next year, so far or is there.
Any kind of.
Sizing of.
Okay.
On the production slot that you talk with the suppliers.
In terms of just helping us kind of figure out just how tight the supply today and how hard is to get new equipment.
Yes, it's a little bit early for us we're not in the planning process, but as far as the more strategic part of the conversation.
Our suppliers know us pretty well they have a good idea of what categories were turning they have enough information to know what kind of fleets coming out of what we call rental useful life of our our UL as we referred to so they've got a pretty good idea and then it's just a growth path how much outside of your replacement of your rental useful life of assets are you.
And so 70% of the answers the excellent already maybe more on some years, if youre not growing a lot. So we'll get through the planning process to see how we work through this year, but we don't see a need to actually lock in.
Deals with who switch vendors going to supply what fourth quarter like we normally do.
They are certainly on much more keen to whats the opportunities in our fleet team discusses that with them every week.
Yes.
Last 1 for me.
Justin Thanks for the clarification on the guidance bridge, particularly from the from the acquisition contributions.
Could you clarify how much of the $250 million of incremental acquisitions.
The sales are expected to flow through of equipment rentals versus some of the other businesses or other channels.
So in that number there is about $30 million of used sales.
Got it.
Okay.
Thanks, Kevin.
Q.
Our next question comes on the line of Steven Fisher from UBS. Your question. Please.
Great. Thanks, good morning.
Just wanted to follow up on the acquisition impact here. It sounds like the market environment is continuing to get even better than it was a few months ago.
Some of them I'm curious I know, it's still early for like of GFS, and Franklin, but I'm wondering to what extent the improvement in the market, but enable perhaps faster realization of the synergies on some of these acquisitions.
Yes, certainly so 2 totally different scenarios right Franklin is kind of of scrambled the egg and with the rest of the.
The business already so we're not even looking at Standalone great.
Great acquisition by the way I went and visited some of the folks in the last 2 weeks.
Please of the facilities the quality of the team and everything so therefore, they're all United right now and they're working hand in hand with the stores that we already had in that market <unk>.
Just converting them this week.
So I guess, the we're going to convert and get them on our system. This weekend.
I attended the management meeting they had last week at the meet the team of 100 of my New Best friends and it was.
We're really impressed with the quality and they are excited about moving forward, but its too early to try to accelerate the timing 1 way or another but I would say.
They're excited about the growth prospects there excited about the opportunity to get more fleet sort of more customers. So the growth play is still very much in our sights.
But a month in here and that's not even on the system yet would be premature for us the.
Already ramped up the speed on them externally internally.
Maybe the story, if we told them about growth growth growth, probably 10 times last week.
Got it.
I'm wondering if you can talk a little bit about the re rent market.
And I'm wondering if this is essentially a growing opportunity for you in any way.
Yeah. So that it's not net characterized the list may be I'm. Assuming this question is coming from the Acme acquisition.
We're not necessarily buying those assets to re renter.
Do do re rents every once in a while and we do regret for people every once in a while but this was really us buying these assets because they were available.
And they really fit into our profile of the customers and the projects that we serve.
Got it thanks very much.
Sure. Thank you.
Thank you. Our next question comes from the line of Neil Tyler from Redburn. Your question. Please.
Hey, good morning, Thank you.
<unk> I suppose.
Matt sticking with the topic of the when the deal could be.
You.
Talk a little bit more about the.
How the how that perhaps the came of balance it seems to me the cause of the unique opportunity that presented itself.
And I think I think Jessica said in her introductory comments that the impact from those.
Those assets wouldn't really be meaningful this year and I wondered if I interpreted that.
On the correctly.
Why that would be.
And then secondly, you also.
On the topical.
Yes.
Growth capital.
When youre thinking.
The pace of new branch openings and presumably those branches before they mature they the act with some drag on on the margin.
Is it the is it the the.
The their own branches that you could potentially acquire in those locations or the they're not.
The right price.
Is there something else about the.
The the Greenfield development that is more attractive.
On acquiring.
Thank you.
Sure. Thanks so.
Couple of questions. There so I'll break down the let's talk about the Acme should clear up any misunderstanding so within.
The sale of $300 million of gross Capex improvement anywhere from 200 of $250 million of that we've been telling people are going to be the Acme assets. The reason why that's not a definitive number is the we are going to buy these throughout the rest of the year what was the assets.
A lot of them that we don't have right now came off of our has to come off rent from where.
Net that can be serviced and delivered to us and rent ready good condition and if they're not we won't buy them, so where that ends up we'll know a lot more of them. We all talk at the end of October by then hopefully were primarily done.
Because this is so back half loaded on the receipt of these assets. That's why you wouldn't see the normal correlating.
Are they on Capex acquisition revenue impact that you would see let's say if we brought them in in the second quarter. So I think that's what was referred to there in that opportunity came organically we've had a relationship with them for many many many years and.
The theyre changing their model and we saw it as an opportunity to buy assets that fit our profile of very well so that's out.
All of that came up.
Question I call of the build versus buy conversation.
We absolutely have a dual pronged approach of our strategy as you know M&A has been a big part of our business I would even call the price on acquisition part of a build versus buy we thought we had opportunity to do a better job on the markets that are.
The operating in and there was an opportunity to happen to do that 1 and acquisition versus cold starts, but we're not going to wait just for the perfect deal to come along for us to have organic growth plans, whether it's the specialty or markets, where we think we have more opportunity within the overall portfolio in gen rent. So it's an analysis we.
It's part of our pipeline that build versus buy conversation and.
We will continue to look at it that way.
Thank you.
Perhaps if I could just chunks of follow up as well.
On the topic of fleet utilization as it stands currently.
Uh huh.
I understand you don't provide the numbers, but it is clear that.
At a record level of close to what point does that start to introduce inefficiencies.
In the cost base and so already of those.
It represented in the and the higher delivery costs what was that.
Yeah.
On a cost of fuel and.
And drivers.
Yes, I would say the latter for the delivery cost range of such quick ramp up of the business. When you look at it on a year over year perspective, but to your question about utilization, we've always run higher utilization and we're not sharing the independent individual components anymore, but.
When we did you all know that we've always given higher utilization thats part of what scale gives us. So we expect that we continue to drive for that and you don't see of correlating higher R&M. So forget that would be an area, where you would say youre maybe.
Getting dilutive impact of running running high utilization.
<unk>, we're not seeing that and I think we will continued to reinvent ourselves get more efficiencies out of our business net scale may give us options that have an adjusted before to help continue to drive utilization because that's a big component of the fleet productivity.
Yeah.
Okay. Thank you that's very helpful.
Okay.
Thank you. Our next question comes from the line of Chad Dillard from.
Your question please.
Hi, good morning, guys.
Okay.
So my question was just on the bonus accrual can you quantify the dollar amount of that Youre seeing the share and just the double check it sounds.
I think there was a premium of catch up in <unk>.
What's the cadence for the balance of the year.
So in that back half.
The rapid earlier cash there's about $45 million of on year over year headwind, that's coming from the bonus.
Got you and for the full year.
For the full year of about 90.
Okay great.
And the way that a phase just based off of the comp from last year and there'll be a little bit more on the third than in the fourth.
Got you that's helpful and then just.
A bigger picture question.
Can you just talk about the customer acquisition cost for.
Like in branch versus e-commerce on.
The most of your sales are actually made through the ecommerce channel today and the is there any real preference for.
From your from your end, it's really the margin.
Rachel.
And I imagine that you'd want to segment that channel more towards your non key account customers. Maybe you can talk about that strategy.
Sure I wouldn't say that this the cost play I think it's about giving the customers the avenues to communicate with you that they prefer right. So and I've been very clear about that strategically that we want to we want to engage with the customer the way they want to engage its still not a big part of our revenue to be fair a big part of.
Of the industry's revenue, but it's continuing to grow I think more importantly, specifically for the leader in the industry you have to have that option available for the customer and I will say, the more and more than engage with it and a little bit of that ramped up during COVID-19 the more opportunity for growth. There I also think it's the information that some folks.
Access information of their own time in their own way and I think that's where the digital connections with customers really play out even more than just the acquisition. The acquisition is only a piece of the digital engagement with the customer getting them. The real time information getting them access information that they haven't had a 6 probably longer term the more valuable.
Folks 1 of the experience and just the acquisition market.
Great. Thanks.
Thank you.
Thank you our final question for today comes from the line of Scott Schneeberger from Oppenheimer. Your question. Please.
Thanks, very much good morning.
Matt just curious.
In times of.
The cutoff when business is going well just supply demand imbalance.
The delivery costs go up because of the third party purchase transportation I'm just curious.
A very large business maybe to move that in the future with employing more full time drivers and as a follow up on this question. How are you seeing on the labor market right now and then how are you feeling about staffing and is that is that going to be a problem going forward. If we continue to see.
Of our.
The demand environment.
Thanks.
Singing my tune of here, Scott I think as far as the in sourcing which was we talked about a lot last year during COVID-19 keeping our people working showed us the opportunity now admittedly the ramp up came really quick on now that we're in the peak season.
Outside services.
Sorry, but longer term I view this as an opportunity for us the recruiting of drivers is probably the 1 area not just for our industry I think my trash pickup was late last month, because they didn't have drive of pick up it's the problem for everybody, it's not going to be forever. So longer term I think this is an opportunity for us to continue to drive.
We're not even more efficiency in our business by in sourcing things that we were doing as far as the labor market and.
And overall, we're doing pretty well outside of being able to hire more drivers and even get trucks fast enough I would say the rest of our labor situation. We feel really good about part of it is our low turnover. So.
We're not having to replace as many as as if we had had the higher turnover and frankly part of it is decision we made some asking the layoffs.
So thank goodness, we didn't do that because it would be really tough right now if we had mass layoffs during COVID-19 and then still had the support this level of activity. So I feel really.
The way, we've managed through it but still opportunity to in source of the future and we've been talking about that about that a lot of strategically are internal.
Got it thanks. Thank.
Thanks Scott.
Thank you. This does conclude the question and answer session I would like to hand, the program back to management for any further <unk>.
ARX, Thanks, operator, and thanks, everyone for joining us.
And I'm sure you can hear and you can see we're full steam ahead in a favorable market and our Q2 investor deck reflects our recent expansion. So pleased downloaded from the website and feel free to reach out the Ted if you have any other questions. We look forward to talking to you soon.
Good about peaks and operator, you can now on the call.
Thank you and thank you ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.
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Yes.
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 responses to your questions contain forward looking statements the company's business and operations are.
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, 2020, as well as to the subsequent filings with the SEC.
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.
Obligation and makes no commitment to update or publicly revise any revisions to forward looking statements in order to reflect the 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.
Risks 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 all of each non-GAAP financial measures to most comparable GAAP financial measure speaking today for United Rentals is Matt Flannery President.
And Chief Executive Officer, and Jessica Graziano, Chief Financial Officer, I will now turn the call over to Mr. Flannery. Mr. Flannery you may begin.
Thank you operator, and Hello, everyone. Thanks for joining us this morning.
3 months ago, We said the 2021 was shaping up to be of great year for United rentals.
President and that's still very much the case.
The operating environment continues to recover.
Our customers are increasingly optimistic about their prospects.
And our company is continuing to lean into growth from a position of strength as the premium provider and our industry's largest 1 stop shop.
1.
The supply later in the demand environment and.
And we've leveraged that to deliver another consecutive quarter of strong results.
The big themes of the second quarter, our strong growth in line with our expectations and robust free cash flow, even after the step up in our Capex and our Capex.
Positive.
1 of the industry indicators, including a strong used equipment market the pricing was up 7% year over year.
The expansion of our go to market platform through M&A and Cold starts. This is time to the broad based recovery in demand.
And our focus on operational discipline as we manage the increase in both.
<unk> volume and capacity, while driving fleet productivity of nearly 18%.
Another key takeaways, our safety performance and I'm very proud of the team for holding the line on safety with another recordable rate below 1 while at the same time managing of robust busy season and on boarding our acquired.
Why.
This includes general finance, which we acquired at the end of May.
As you know this was both the strategic and financial move designed to build on our strengths.
The acquisition.
<unk> expanded our growth capacity and gave us a leading position in the rental market for mobile storage and office solutions.
The location.
The integration is going well and while we still have more work to do we're moving steadily through our playbook.
As you saw on our release, we raised our outlook to include the expected impact of General finance and other M&A. We closed since the first quarter. It also includes some additional investments we plan on making.
<unk> Capex that will serve us beyond 2021.
This outlook follows the higher guidance, we issued in April when we raised every range compared to our initial guidance.
So as you can see we're tenacious about pursuing profitable growth.
And the investments, we're making will still of a positive impact on our immediate.
Cash.
As well as future years.
And before Jessica gets into the numbers I want to spend a few minutes on our operating landscape.
Almost all of the challenges of 2020 of right of themselves.
We have a better line of sight and so do our customers.
When we surveyed our customers at the end of June.
The results showed that over 60% of our customers expect to grow their business over the coming 12 months, which is the post pandemic high.
And notably only 3% saw a decline coming over the same period.
Customer optimism is of great barometer and the trends, we see in the field support their view.
2021 is a pivotal year for us.
Confirms our return to growth.
Including our 19% rental revenue growth in the second quarter.
I will point to some of the drivers of that growth starting with geography.
The rebound in our end markets continues to be broadly positive with all geographic regions reporting.
Sorting year over year growth in rental revenue.
Our specialty segment generated another strong performance with rental revenue topping 25% year over year, including same store growth of over 19%.
And importantly, we grew each major line of business by double digits, which underscores the broadness of the demand.
For years now our investment in building out our specialty network has been a key to our strategic positioning.
These services differentiate our offering to customers and add resilience to our results throughout cycles.
This is true of cold starts as well as M&A.
This year, we've opened 19, new specialty branches in the first.
6 months, which puts us well on our way to our goal of 30 by year end.
We're also investing in growth in our general rental segment were the big drivers of our non res construction and plant maintenance both areas of continuing the green traction and most of our end markets are trending up.
The verticals like the chemical.
Food and beverage metals and mining.
And healthcare all showing solid growth.
And while the energy sector remains a laggard it was up year over year for the first time in 8 quarters.
We also have customers in verticals that are less mainstream like entertainment, where demand for our equipment on moving.
And events more than doubled in the quarter and while it's a relatively small part of the revenue. It is a good sign to see it come back.
I also want to give you some color on project types.
There are 2 takeaways the diversity of the projects in Q2, and the fact that each region contributed to growth in its own way.
Proud of the recovery has taken root across geographies and verticals on both coasts with solid activity and heavy manufacturing corporate campuses schools and transmission lines.
And this quarter. We're also seeing project starts and power transit and technology.
These job sites are using our gen rent equipment.
And our trench safety and power solutions.
And fluid solutions of seeing a rebound of chemical processing and sewer bypass work as well as mining.
These are just a few of the favorable dynamics in a very promising up cycle.
And I want to put that in context.
2020 was about the tempo.
Temporary loss of market opportunity, particularly in the second quarter now the pendulum is swinging back in 2021 is about locking in net opportunity within the framework of our strategy.
Our team is managing that extremely well.
1 proof point of our financial performance and the confidence we have.
<unk> guidance.
Another is our willingness to lean into growth today to create outsized value tomorrow.
And it's about more than Capex in cold starts we're constantly exploring new ways to capture growth by testing new products in the field developing new sales pipelines and forging digital connections with customers.
And on and finally, the most important proof point is the quality of our team.
You can see that reflected on our safety record and our strong culture.
Here's the thing to remember about 2021. This is still the early innings of the recovery, we're committed to capitalize on more and more demand as the opportunity unfolds.
When we see a long runway ahead to drive growth.
Create value and deliver shareholder returns.
I'll I'll stop here and ask Jess to go through the numbers and then we'll take your questions over to you Jeff.
Thanks, Matt and good morning, everyone.
When we increased our 2021 guidance back in April.
The expected a strong second quarter supported by the momentum we were seeing to start the year.
Pleased to see that play out as anticipated with the second quarter results and importantly, we're also pleased to see the momentum accelerate in our core business and support another raise to our guidance for the year. We've also added the impact.
We acquisition, notably the general finance deal and ill give a little bit more color on our guidance in a few minutes, but let's start now with the results for the second quarter.
Rental revenue for the second quarter was $1.95 billion, that's an increase of $309 million or 19% if.
If I exclude the impact of.
<unk> on that number rental revenue from the core business grew a healthy 16% year over year.
Within rental revenue over our increased $231 million or 16, 5% of these.
The driver in that change with the fleet productivity, which was up 17, 8% or $250 million that's.
That's primarily due to stronger fleet absorption on higher volume in part as we come on the Covid impacted second quarter last year.
Our average fleet size was up 2% or of $3 million tailwind to revenue and rounding out or we are the inflation impact of 1.5% cost of $22 million.
Also within rental ancillary revenues in the quarter were up about $65 million or 31% and re rent was up $13 million and we will talk more about the increase in ancillary revenues in a moment.
Used equipment sales came in at $194 million, that's an increase of $18 million or about 10.
10%.
Pricing at retail in the quarter increased over 7% versus last year and supported robust adjusted used margins of 47, 9% on that represents a sequential improvement of 520 basis points and is 190 basis points higher than the second quarter.
The 'twenty.
Used sales proceeds for the quarter represented a strong recovery of about 59% of the original cost of fleet that was on average over 7 years old.
Let's move to EBITDA.
Adjusted EBITDA for the quarter was $999 million an increase of 11.
Of $2000 year over year or $100 million.
That included $13 million of 1 time cost per acquisition activity.
The dollar change includes a $141 million increase from rentals in that OTR was up 125 million ancillary contributed 10 million.
And re rent added $6 million.
<unk> sales were a tailwind to adjusted EBITDA of 12 million and other non rental lines of business provided $6 million.
The impact of SG&A and adjusted EBITDA was a headwind for the quarter of $59 million, which came mostly from the resetting of bonus expense.
We also had higher commissions on better revenue performance and higher discretionary expenses like <unk> that continues to normalize.
Our adjusted EBITDA margin in the quarter was 43, 7% down 270 basis points year over year and flow through as reported was about 29%.
Let's take a closer look at margin and flow through this quarter on importantly, you'll recall that our Covid response last year included a swift and significant pullback in certain operating and discretionary costs.
That was especially pronounced in the second quarter and is impacting flow through this year as activity continues to ramp and.
Continue to normalize.
We expect this will play through the rest of the year, notably in the third quarter of.
Specific to the second quarter, we've shared in previous calls that 1 of the costs that will reset this year as bonus expense from the low level of incurred last year.
As a result, we had an expected drag on flow through in the second.
And Carter as we reset and now true up of this year's expense.
Flow through and margins were also impacted as anticipated by acquisition activity, including the onetime costs I mentioned earlier.
I also mentioned higher ancillary revenue in the second quarter, which represents in part the recovery of higher delivery.
<unk> costs.
The delivery has been an area, where we've seen the most inflation pressure, including higher cost for fuel and third party hauling.
And while recovering a portion of that increase in ancillary protected growth profit dollars it impacted flow through and margin this quarter as the pass through and we expect to see that play out over the next couple of.
The quarter as well.
Adjusting for these few items the implied flow through for the second quarter was about 46% with implied margins flat versus last year.
With our expense is normalizing that reflects the cost performance across the core that came in as expected.
I'll shift to adjusted EPS.
Quarter, which was $4.66 for the second quarter, including of 13 drag from onetime costs of sub 98 versus last year, primarily on higher net income.
Looking at Capex and free cash flow for the quarter gross rental Capex was a robust 913 million of proceeds.
From used equipment sales were $194 million, resulting in net capex in the second quarter of $719 million of that's up $750 million versus the second quarter last year.
Even as we've invested in significantly higher capex spending so far this year, our free cash flow remains very strong.
At just under $1.2 billion generated through June 30.
Now turning to ROIC, which was a healthy 9.2% on a trailing 12 month basis, notably our ROIC continues to run comfortably above our weighted average cost of Capex.
Our balance sheet remains rock solid.
Year over year, net debt is down 4% or about $454 million.
That's after funding over $1.4 billion of acquisition activity this year with the ABL.
Leverage was 2.5 times at the end of the second quarter.
It's flat to where we were at the end of the second quarter of 2020.
<unk> and an increase of 20 basis points from the end of the first quarter. This year, mainly due to the acquisition of general finance in May.
I look at our liquidity, which is very strong we finished the quarter with over $2.8 billion in total liquidity. That's made up of ABL capacity of just under $2.4 billion.
Availability on our ABL facility of $106 million, we also had $336 million in cash.
Looking forward I'll share some color on our revised 2021 guidance.
We've raised our full year guidance ranges at the midpoint by 350 million.
In total revenue and $100 million on adjusted EBITDA as we now expect stronger double digit growth for the core business in the back half of the year.
Our current guidance also includes the impact of acquisition activity since our last update predominantly to include General finance.
That increase for acquisitions reflect.
Reflects $250 million in total revenue and $60 million and adjusted EBITDA, which includes $15 million of expected full year, 1 time costs.
Additional capex investment will help support higher demand to.
To that end, we raised our growth capex guidance by 300.
<unk> hundred million dollars, a good portion of which reflects fleet, we're purchasing from Acme lift.
While the fleet will provide some contribution in 2021 and is assumed in our guidance, we expect to see the full benefit next year.
Finally, our update the free cash flow reflects the additional capex will buy.
As well as the puts and takes from the changes I mentioned it remains a robust $1.7 billion at the midpoint and we will continue to earmark, our free cash flow this year towards debt reduction to enhance the firepower, we have to grow our business.
Now, let's get to your questions. Jonathan would you. Please open the line.
Certainly.
Ladies and gentlemen.
At this time. Please press Star then 1 on you touched on the telephone.
Question has been answered and you'd like to remove yourself from the queue. Please press the balance sheet. Our first question comes from the line of David Raso from Evercore ISI. Your question. Please.
Hi, Thank you for the time of bigger picture question about the margins I think investors.
Testers of wondering out there.
How the margins can improve from current levels over the last 4 years or so we've seen.
Steady degradation on the rental margins in particular.
Even the EBITDA margins a bit on.
Under a little pressure.
Trying to think through it.
When you think of the 5 large acquisitions you've done.
Over the last few years right, starting with net any kind.
Kind of running through Gen finance.
Of acquisition you bought over you save up to on a quarter of $1 billion of revenues in those EBITDA margins were only 38, new used to run high 40%. So I appreciate that's a lot of.
The revenue that's dragging down the margin.
But when I look at the business today moving forward, how do we think about the rental margin structurally if you want to weave that all the way into the EBITDA, but really the and particularly the rental margins. As this is much about just the shift towards specialty of my lower margins, but improve returns.
Returns on capital just so we can kind of level set how we should think about not just top line growth growing earnings but margins.
Sure David Great question, Thanks for taking a longer term view of this because thats really how we manage and see the business and although we have some short term pressures when we acquire businesses that some of that lower margin.
Margins, if you look over our experience of these acquired assets and what we've done with the business is pro forma at.
It validates why we do M&A, we feel we can be a better owner, we can bring more value to those assets.
Dropped EBITDA margin for a period of time, that's 1 metric, but we also are very focused.
Quite frankly model, our M&A deals on returns so.
And our turns continue to be well above our cost of capital. So well I don't think rental margin degradation is of concern for us will continue to drive fleet productivity to overcome natural inflationary costs as well as efficiencies.
<unk> durations and we think that's how we've taken these businesses that are in the third of these yet maintain mid <unk> kind of amount of time of the year to higher EBITDA margin.
And that's what we do right. So that's of Great question and I think sometimes when people are looking at the headline I may Miss the fact of what we've done the CS business is pro forma.
And our op.
Is driving more value.
If I can add 1 thing Dave good morning.
Is that to the earlier part of your question. There is no structural change in the way that we're managing the business and we're looking at the business longer term and we're thinking about the continued margin that we believe will be able.
The annual rate going forward.
The fair to say from from that answer structurally you don't think of this as driving margins per ton at the manager of the matter of improving returns on capital better cash flow than obviously, what you do with the cash flow from Capex to M&A is how you drive earnings more so than.
Just thinking of this as of margin expansion sort of.
Fair generalization.
We still are focused on margin expansion on the individual businesses rights to some of the structurally come in little bit typically to your point earlier some of the acquired assets of <unk> being the most recent 1.
As an example, that's never going to be on 50% margin business, but it is going on.
A heck of a good return so that's really more we're saying no structural issues that we're having here to continue to focus on margin expense.
Yes, Hello, Good day, everybody wants everything around you on margins.
On the cash flow, but I'm seeing structurally of your pecking order of feels like this is more about cash flow and grow the business utilizing the cash.
Flow of effectively as well.
On a generalized.
Absolutely nothing that that point, when we think of 'twenty 2 versus 21.
You can help us with on the framework in the sense of resetting the bonus pool, how do we think about how 22 starts initially.
Other costs that came back or even how you're thinking.
Think about delivery costs on the ancillary can you just give us some thoughts around how we should think of the puts and takes on 22 versus 21.
Regarding regarding costs.
Yes.
Without even attempting to try to give guidance in 'twenty 2.
Clear to say, we feel good about the environment, we wouldn't be leaning into the.
The capital spend in the M&A, if we didn't right that's not just the 21.
Experience and we will lap some of the headwinds that we've had this year from a comp perspective, and specifically in this quarter as vessel continue the top tier, which you did in the opening remarks, but we feel good about about 'twenty 2 we feel good about the prospects as I said in my opening remarks, we think.
We are in the early innings of the cycle here. So we're excited about the prospects.
Any color just on the cost, though I mean, I appreciate matts comments, so thats, a little bit of of topline comment, which I don't.
I think at the moment folks aren't really pushing back on that but I'm just trying to think about some leverage as well ideally in gist.
And if you can do on the on the <unk>.
Bonus pool.
The other other costs, we can be thoughtful about how you're lining up your your delivery cost for next year on the change in how you're contracting things out or any color would be appreciated. Thank you Michael that's it for me sure.
Sure, it's a little it's a.
Too early for us to start to opine on.
On.
On any kind of guy numerically right of where we think some of those expenses are going to go right.
Far as.
On how the bonus of play through next year compared to this year and even what the inflation environment is going to look like next year I think it's anybody's guess right now as.
The teams.
If those still be pressure on delivery could the pressure in other places I think the takeaway for US is we're going to continue to respond the way we have in looking to.
Pass through and mitigate some of the inflation pressures that we're seeing right now, particularly in delivery and get this need and think about where.
It could come from.
Looking to how the business would be able to respond to the continued to drive the kind of profitability that we can across the business. So it's too early for more specifics of than that but I can I can tell you we're going to continue to be focused on through the planning process looking at all of those.
Inputs and managing them appropriately.
Alright, Thank you for the time.
Thanks, David.
Thank you on next question comes from the line of Mig <unk> from Baird. Your question. Please.
Yes, good morning, everyone.
So sticking with the discussion on call.
Of course.
I think I heard.
Jessica commenting that.
The flow through on EBITDA in the third quarter.
Was going to be relatively modest as well maybe you can put a finer point here.
And I am curious on the SG&A side.
You talked about Truing up on on a on the bonus pool.
Is that of comment that impact Q3, as well or was that just for Q2 specifically.
Hey, Thanks, good morning.
So let me start with the third and fourth quarter on actually all I.
I'll take it from the perspective of the back half and we'll talk about the phasing in the second but just to give a little bit of color behind.
Because of what the implied in the I'll start with my Mic.
My normal call out not too.
Anchor to the mid points here, but let me let me use the midpoint just to give some color behind the the bonus dynamic and even some of the acquisition impact that will have in the back half.
Hi, if I use the margin at the midpoint the.
The back half implied margin would be down about 120 basis points for us.
That's going to generate flow flow through again, the midpoint of about 39%. So thinking about margins of 46, 2% that bonus headwind is going to continue.
So for us more so in the third quarter than in the fourth as we think about the comp to last year, where the bonus was I'll call it abnormally low range or.
Lower than normal so if you think about that bonus headwind as well as the anticipated headwinds in flow.
<unk> margin that we get from the acquisition activity.
Net margin goes from down.
120 basis points to up 40 basis points or a margin implied in the back half of that midpoint of 47, 8% from $46 to flow through in that at the midpoint of about 50%.
Through and adjusting for those 2 items for those of those obviously will be an impact for us.
And as you mentioned the quarterly dynamic will play out if you just think about the comps we have against the belt tightening that we did last year. The third quarter will be we'll have more flow through pressure than you'll see.
Percent for us.
And then the other thing I just want to mentioned the third quarter just to be helpful. On the modeling is third quarter last year, we had $20 million of 1 time benefits from insurance recoveries.
And those are not expected to repeat.
Oh, Okay, yes, thank you by the way for that.
And the Minder.
Then on.
I guess to try to ask David the question, maybe a little bit differently.
When when we again sticking with SG&A.
When we're looking at 2022 is it fair for US the things that you guys can get some leverage on this line item that.
<unk> growth.
The remain exceed.
Whatever inflation youre going to have an SG&A is that how you're intending to run the business or are there. Some other things happening in here that might make that.
Difficult to achieve.
Yes, yes, I think that that's definitely fair and I'd be remiss not to the point too.
The.
Growth. The 2021 dynamic is 1 that in part is because of the comps of 2020 right. If you think about sort of the normal course in 2022, it gets back to us.
Comment about there's no real structural change in the way, we're planning to run the business in 'twenty 2.
Understood then lastly from me.
Infrastructure is once again in the <unk>.
Headlines and I think by now we all sort of head of lot of time to kind of ponder as to what this would mean, so I'm sort of curious from your perspective.
If if something were to actually pass and become become legislation how.
If.
At all the you plan to change your strategy.
On your feet your go to market.
As a result.
And at this point have you sort of anticipated any of that in your capex plans or the way youre kind of starting to think about framing.
The 2 internally.
So great question, Megan we started focusing on this preparing for this all the way back if you recall from the net acquisition with that added to some of our share.
The engagement fleet experienced that.
That team brought with it and products they brought with it which would be played into infrastructure.
Sure and we've actually been growing our infrastructure structure business.
Really because of the demand is there right. We all know the need is there. So now we would view this as icing on the cake as far as fleet profile changes.
I'll hazard, a guess to say 80% of the fleet that we would use to support and that we do use to support infrastructure.
<unk> has core fleet. So we have we have very fluid fleet and very fungible fleet. The support this vertical on the.
The boundaries, yes, we would certainly as things started to move by some more attenuated trucks by some message force some infrastructure specific fleet, but outside of that most of what we serve that end market.
With his core fleet of our <unk>.
Fungible assets, but we feel we're really well positioned not just the talent wise not just knowledge wise, but also relationship life. We deal with these large customers. These large civil contractors. So we feel good of whenever the monies get released in his past, we'll be able to outcomes of our.
The net category.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Ross Gilardi from Bank of America. Your question. Please.
Hey, good morning, guys.
1 of us.
I had a couple of specialty rentals questions.
Just on growth and <unk>.
<unk> from General Finance what are.
Are some of the.
The larger growth opportunities in your legacy specialty rental business and I'm thinking specifically of trench and hoping you can comment there I mean <unk> is talking about bearing.
10000 miles of power lines.
And California to curtail forest fire risk I mean is the enormous project if it actually happens it's all over the headlines I don't know that many people would necessarily connect the dot.
<unk> with the United rentals on something like that but is that the type of project.
<unk> business would be potentially an engaged in.
And.
And beyond that will.
Pertaining to.
All of this stuff on the headlines about forest fires Hurricanes.
<unk> and everything what about disaster recovery and how big that business is and how big it can become.
Sure.
You made a great point about the French and how we would do with.
With that type of business and frankly, a lot of infrastructure business right really plays into our specialty network as well, but also our gen rent products and when we think about emergency response, we've really built up that need certainly power and HVAC team has done a great job responding to that but whatever the needs are.
On.
Of our fluid solutions team has really broadened their network of customers. They serve back in the day when we basically bought on oil and gas pump company. So this type of spreading the product knowledge and breadth across our broader network and relationships to serve these unique end markets is really really part of the specialty.
Specialty strategy for us so thanks for giving me that softball, there is certainly is really really a great part of our growth strategy for specialty.
So but that those specifically what about burying power like thousands of miles of the power lines like is that something you'd be engaged in of that right.
That would be kind of a common.
The <unk> project for your trench business all of the dirt that's got to be done for that.
I'm just trying to rather than just talking about this all in very much general <unk> bulk of.
Trying to talk about it in relation to like a big project. That's all over the headlines that we can all kind of relate to a little bit more.
Concretely.
I am sorry, absolutely.
That is an absolutely true so 1 of the 1 that maybe we take for granted but the absolutely with the higher participation of trench that anywhere.
Okay, Great and then just.
Studio Entertainment and live events.
I mean, you've got a little bit of of presence there.
The absence of a bigger presence with.
It seems like it was a key factor that might have caused the the lagged some of the competition on top line growth of at least off of the bottom.
Do you feel like you need to get bigger in that market and our other opportunities to do so via acquisition.
Okay.
But we certainly its a market that we continue to get bigger and I think you just saw where the official.
Official supplier of NASCAR now so we keep adding to the portfolio organically, we don't feel a aching need in the space, but we certainly organically growing that space has some great people associated with it that continue to grow that space.
The opportunity arose that was positive I think you always know we have a robust pipeline, we look at but.
It's not a strategic necessary focus certainly an opportunity that we would want to uncover organically and M&A et cetera.
Thank you.
Thank you.
If an MQ. Our next question comes from the line of Jerry Revich from Goldman Sachs. Your question. Please.
Yes, hi, good morning, everyone.
The morning Jerry.
So I'm wondering if you could just talk about your capital deployment options.
Now that you have a bigger footprint in terms of broadening of the specialty business with CFM and new.
The regions as well.
Or are you folks optimistic about being able to put capital to work in the.
The United Rentals, so good owner for additional assets now.
Now that you have the those additional regions.
And products.
Well certainly GSM right. So this.
New absolute growth this acquisition not a amount of synergy play not a consolidation play so that would be the most obvious area because we really think we could spread.
Throughout our network and filling of the blanks and their distribution points.
<unk> focus on penetration within our existing businesses and someone asked earlier about.
This was on LTE growth, we continue to grow specialty strong double digits, because although we are very very mature and some of it of markets Theres still opportunity to continue to penetrate further in those spaces and.
So I would say all of the above.
And then we'll see we're not ready yet to declare.
That'll see about some of the other opportunities that are out there.
We're certainly going to fund organic growth and a very aggressive way, because we think coming off of the.
The disruption that we had last year, we're seeing the opportunity to refresh the fleet get the fleet out there and continue to serve more customers.
And on the GOP on acquisition call. Jeff you spoke about good line of sight on getting GFS margins closer to <unk>.
Industry level of margins and now that you've owned the asset for a little bit of Im wondering if you could talk about in just flush that out in terms of what do you think of the logistics opportunity you said the opportunity to leverage your.
But what tools I know, it's early but.
Given we have a little bit more visibility than we did at the time of the acquisition I'm wondering if you might just parse that out a little bit for us.
Sure. Good morning, So I can tell you. The we are doing the system integration in North America for General Finance This weekend.
And that's of great step towards continuing to leverage the United rentals tools and support the growth and the opportunities.
And the efficiencies that we can share with that business as they grow out of.
As Matt mentioned.
With this being the growth play we're going to look for every opportunity we can to grow as productively and as efficiently as we can and to work through how the extension of those branches right. If you think about part of the growth that we talked about was on.
On the cross sell of existing United business.
But the other part of the growth was to expand that business into.
On.
More msas, where they currently are and that's an opportunity for us to leverage the efficiencies on the productivity that we have now in our branches as we continue to support that.
Of that.
The geographic extensions for them.
We still feel there.
Very comfortable with.
Our original thesis of.
Getting those margins up to be closer to where that business on the peers in that business operate.
And again very excited.
<unk>.
Looking under the Hood over the last month and a half very excited about.
Getting that going.
Terrific.
I appreciate the discussion thanks.
Thanks Terry.
Thank you. Our next question comes from the line of Tim Thein from Citigroup. Your question. Please.
Thank you good morning, Matt the first 1 was just on on.
Just trying to kind of talk through the opportunity for fleet productivity in the back half of the year, obviously, the comps get tougher but.
As you think about kind of the components of that.
I mean on those.
My estimates of right, but I would assume that.
On the time standpoint your.
Running at or near all time high levels. So obviously the.
I would assume from here of rate in mix on.
Likely to play a bigger role but.
Maybe you can just kind of touch on each of those in terms of where you are.
And how you see the opportunity opportunity in the back half of the year.
Sure Tim So we're very pleased with the fleet productivity.
And we have expectations for high fleet productivity in the back half, but just for clarity of that very guarded 18.
Percent number is partially driven by the easy comp that we had in Q2. So we don't expect to have those type of double digit fleet productivity improvements in the back half of the year, but still significant productivity improvements a lot of the absorption of opportunity was certainly the big driver here in the near term, but we think the market conditions without getting.
The each individual component, we think the market conditions and frankly the industry discipline is very favorable towards continued fleet productivity and most importantly, the demand is there. So we really feel good about it.
Although I don't think we'll see 18% again I do think that we'll see strong fleet.
The productivity and that's embedded in our guidance for the back half of the year.
Got it Okay and then on.
As you think about the.
The volatility that we've seen this year.
Not just in terms of of just commodity costs and how that's impacting.
Equipment.
Adding into the some of your supply cost, but as well as the just the availability of new fleet from the Oems is that do you expect that will influence how you will approach the timing.
As you get closer to that initial planning in terms of Capex planning for 'twenty 2.
<unk> as well as maybe how youre thinking about use sales.
Perhaps maybe of flex that fleet age higher and true.
Is the push and pull here, but.
The used market.
If it remains as strong as it is which obviously will depend somewhat on the new supply availability, but.
Does that impact how you're again thinking about the timing the initial budgeting for next year and then too.
Just how youre thinking about managing the fleet in this environment of Sue.
Used markets. Thank you.
Sure. So I'll take the latter part first I think and you.
<unk> seen a lot of it play out this youll see a little bit play out in Q3 and Q2 the used.
The metering.
With the use of work to characterize what you are saying is more about just timing of innovation right. As we continue to drive high demand and high use of our assets and theyre not as available for sale, but the end markets strong there so.
I think we'll continue to fill that demand.
Versus age the fleet I don't think thats necessary and on the first part on the supply side.
We've got some really good partners and good suppliers out there and I think they will get their arms wrapped around the supply chain disruption that everybody has been dealing with in every industry, but commodities probably.
Probably we will right size, a little bit as we get to the end of this year I'm, assuming that our vendors of working I'm not assuming I've talked on the working really hard to continue to improve any supply chain disruptions may have so I'm not really seeing that as a barrier to us supporting our customers next year.
If it is we'll.
On just but we're not that's not in our calculus right now and certainly not the age of the fleet.
Got it thank you.
Sure.
Thank you. Our next question comes from the line of Ken Newman from Keybanc capital markets. Your question. Please.
Hey, good morning, guys.
Okay.
I kind of want to piggyback off of that last question a little bit.
1 of your big suppliers talk this morning about some deliveries having slipped through the supply chain tightness in.
I guess I am curious if you have any comment on.
Equipment availability that you're seeing today and there are you getting equipment on time.
Obviously, you took the Capex guide this quarter and I'm curious.
1 how did you how are you able to pull that all of it into where do you see the opportunities for potentially increasing that fleet side.
The year end.
Sure Ken So we still have a pretty big range, so within that right.
At the midpoint of <unk>, you all know about the $300 million change that we made.
Although a lot of that is the active fleet that we acquired debt that we've talked about there's still a portion of the assets just organic book, even raising that guidance. In April tells you that we feel good about our ability and our teams ability.
City of the source of the equipment that we need to supply customers. So we understand the noise, maybe it's our relationships maybe it's our scale on leverage but.
We've been able to exceed when we sat here in January what we originally expected the purchase this year. So I think thats a good story.
And I get the challenges that everybody has but.
We've got what we want yeah, there's been some slippage and if you'd asked me within a quarter and stuff come in a few weeks later absolutely. The team worked through it we drove higher fleet productivity on the assets that we had and this is part of those strong supply demand on industry dynamics that I referred to in the earlier question about fleet productivity.
<unk>.
So.
Nothing thats inhibited the supporting customers.
But something we'll continue to software suppliers of <unk>.
Can we help them helped us and that's how we'll look at it going forward.
Right.
Okay.
No you are not ready to give guidance on on Capex of fleet growth next year, but as.
Thinking about the normal course of the.
Ordering patterns I mean do you.
Can you give us a sense of how much of the production slots you've got the grid for next year, so far or is there.
Any kind of.
Sizing of.
Of the production slots of you've talked with the suppliers.
In terms of just helping us kind of figure out Jeff.
As the coal tightened the supply today, and how hard is to get new equipment.
Yes, it's a little bit early for us we're not in that planning process, but as far as the more strategic part of the conversation our suppliers know us pretty well they have a good idea of what categories were turning they have enough information to know what kind of fleets.
Fleets coming out of what we call rental useful life or are you well as we referred to so they've got a pretty good idea and then it's just a growth path how much outside of your replacement of your rental useful life of assets are you going to add so 70% of the answers the excellent already maybe more on some years, if youre not growing a lot. So we'll get through the planning process.
Profit and see how we work through this year, but we don't see a need to actually lock in.
The deals with who switch vendors going to supply what.
The fourth quarter like we normally do they all certainly on much more keen to whats the opportunities in our fleet team discussing that with them every week.
Yes.
The last 1 from me.
Justin Thanks for the clarification on the guidance bridge, particularly from the from the acquisition contributions.
Curious could you clarify how much of the $250 million of incremental acquisition sales are expected to flow through of equipment rentals versus some of the other businesses or other other campuses.
So in that number there's about 30 million of used sales.
Got it.
Okay.
Great. Thanks, Kevin Thanks, Thank you.
Our next question comes from the line of Steven Fisher from UBS. Your question. Please.
Great. Thanks good.
Good morning.
Just wanted to follow up on the acquisition of impact here. It sounds like the market environment is continuing to get even better than it was a few months ago. So I guess I'm curious I know it's still early.
The GFS and Franklin, but I'm wondering to what extent the improvement in the market.
But enable perhaps faster realization of the synergies on some of these acquisitions.
Yes, certainly.
Totally different scenarios right Franklin kind of of scrambled the egg and with the rest of the business already so we're not even looking net stand alone.
Great acquisition by the way I went and visited some of these folks on the last 2 weeks.
Please of the facilities the quality of the team and everything so they're they're all United right now and they're working hand in hand with the stores that we already had in that market <unk> <unk>.
Just converting them. This week right. So we're going to convert the and get them on our system. This weekend.
I attended.
Management meeting they had last week at the meet the.
The team of 100 of my New Best Friends and it was we were really impressed with the quality and they are excited about moving forward, but its too early to try to accelerate the timing 1 way or another but I would say theyre excited about the growth prospects. There excited about the opportunity to get more fleet sort of more customers.
So the growth play of still very much in our sights.
But a month in here and then not even on the system, yes, it would be premature for us the.
Already ramped up the speed on them externally internally, maybe the story, if we told them about growth growth growth, probably 10 times last week.
Got it.
And I was wondering if you can talk a little bit about the re rent market.
And I'm wondering if this is essentially a growing opportunity for you in any way.
Yeah, So thats not net characterized and this may be I'm, assuming this question is coming from the Acme.
And the acquisition.
We're not necessarily buying those assets to re renter, we do do rewrites every once in a while and we do regret for people every once in a while but this was really us buying these assets because they were available and they really fit into our profile of the customers and the projects that we share.
Got it thanks very much.
Sure. Thank you.
Thank you. Our next question comes from the line of Neil Tyler from Redburn. Your question. Please.
Hey, good morning, Thank you.
I suppose.
Matt sticking with the topic of the.
Could you.
Talk a little bit more about the.
How the how that perhaps came of balance it seems to me the declines of the unique opportunity that presented itself.
And I think I think Jessica said in her introductory comments that the impact from those assets.
The meaningful this year and I wondered if I interpreted that.
It correctly.
Why that would be.
And then secondly also.
On the topical I suppose.
Growth capital.
When youre thinking about the pace of new branch openings and presumably those branches before they mature they act of some.
Drag on on margin.
Uh huh.
Is it the is it the.
The.
The equipment their own branches that you could potentially acquire in those locations or the they're not for sale at the right.
Price or is there something else about the the sort of.
On the Greenfield.
Development that is more attractive than acquiring.
Thank you.
Sure. Thanks, so yeah.
Couple of questions. There so I'll break it down the stock about the assay should clear up any misunderstanding so within that $300 million of gross Capex improvement.
Anywhere from 200 of 250.
And of that we've been telling people, we're going to be the Acme assets. The reason why that's not a definitive number as we are going to buy these throughout the rest of the year those assets.
A lot of them that we don't have right now came off or have to come off rent from where they are that can be serviced and delivered to us and rent ready good condition and if they're not we won't buy them so where.
Where that ends up we'll know a lot more when we all talk at the end of October by then hopefully were primarily done but because this is so back half loaded on the receipt of these assets. That's why you wouldn't see the normal correlating Capex acquisition revenue impact that you would see let's say if we brought them in in the second quarter. So I think thats what.
What was referred to there in that opportunity came organically, we've had a relationship with them for many many many years.
They are changing their model and we saw it as an opportunity to buy assets that fit our profile very well. So that's how that came up your second question I call. It the build versus buy conversation we absolutely.
We have a dual pronged approach of our strategy as you know M&A has been a big part of our business I would even call. The Franklin acquisition part of a build versus buy we thought we had opportunity to do a better job on the markets that you're operating in and there was an opportunity to happen to do that 1 and acquisition versus cold starts.
<unk>, they're not going to wait just for the perfect deal to come along for us to have organic growth plans, whether it's the specialty or markets, where we think we have more opportunity within the overall portfolio in gen rent. So it's an analysis we do.
Part of our pipeline that build versus buy conversation and the.
We'll continue.
But look at it that way.
Thank you that's helpful. If I could just chunks of some of them up as well.
On the topic of fleet utilization as it stands currently.
And I understand you don't provide the numbers, but it is clear that it is.
At a record level of close to.
The point just to introduce inefficiencies in the.
The cost base.
So R&D of those rep.
Represented in the and the higher delivery costs.
Cynthia.
Our cost of 2.
And the drivers.
Yeah, I would say the latter so the delivery cost range of such quick ramp up of the business. When you look at it on a year over year perspective, but to your question about utilization. We've always run higher utilization then we're not sharing of the independent individual components anymore, but from when we did you all know that we've always shown higher utilization that's part of what scale gives us. So we expect that we continue.
Drive for that and you don't see of correlating higher R&M. So forget that would be an area of where you'd say you're maybe.
Getting dilutive impact of running running high utilization, we're not seeing that and I think we will continue to reinvent ourselves get more efficiencies out of.
Of our business net scale may give us options that have an adjusted before to help continue to drive utilization because that's a big component of fleet productivity.
Okay. Thank you that's very helpful.
Thank you.
Okay.
Thank you. Our next question comes from the line of Chad Dillard.
Just on please.
Hi, good morning, guys.
Okay.
So my question was just on the bonus accrual can you quantify the dollar amount that youre seeing the share and just the double check it sounds like there was a pretty big catch up in <unk>.
What's the cadence for the balance of the year.
So in that back half.
The rapid earlier tests.
About $45 million of on.
Year over year headwind, that's coming from the bonus.
Got you and for the full year.
For the full year is about 90.
Great and.
On the way that'll phase just based off of the comp from last year and there'll be a little bit more on the third than in the fourth.
Got you that's helpful.
A bigger picture question.
Can you just talk about the customer acquisition cost for <unk> brands versus the e-commerce on.
Most junior sales are actually made through the ecommerce channel today and the is there.
Many of our preference for me.
From your end is hurting the margin differential.
And I imagine that you'd want to segment that channel more towards your non key account customers. Maybe you can talk about that strategy.
Sure I wouldn't say that this the cost play I think it's about giving the customers of the avenues to.
Take a view that they prefer right, so and I've been very clear about that strategically that we want to we want to engage with the customer the way they want to engage its still not a big part of our revenue to be fair a big part of the industry's revenue, but it's continuing to grow I think more importantly, specifically.
Community on the industry you have to have that option available for the customer and I will say, the more and more that engage with it and a little bit of that ramped up during COVID-19 the more opportunity for growth. There I also think it's the information that some folks on access information of their own time in their own way and I think that's where the digital connections with customers.
For the lead really play out even more than just the acquisition. The acquisition is only a piece of the digital engagement with the customer getting them real time information getting them access information of that haven't had a fixed probably longer term the more valuable customer experience.
The acquisition market.
Great. Thanks.
Customers.
Thank you our final question for today comes from the line of Scott Schneeberger from Oppenheimer. Your question. Please.
Thanks, very much good morning.
Matt just curious.
In times of.
When business is going well just supply demand imbalance.
Delivery costs.
The hit up because of the third party purchase transportation I'm just curious.
Cyclically you encounter that its on its somewhat of a high class problem, but how are you thinking about that strategically commuted having the very large very large business maybe to mute that in the future with employees.
More of full time drivers and as a follow up on this question. How are you seeing the labor market right now and then how are you feeling about staffing and if that is that going to be a problem going forward. If we continue to see.
The demand environment. Thanks.
Thanks.
The singing my tune of here Scott.
I think as far as the in sourcing, which was we talked about a lot last year during COVID-19 keeping our people working showed us the opportunity now admittedly the ramp up can't really quick on now that we're in the peak season.
Outside services were necessary, but longer term I view this as an opportunity for us the recruiting of drivers.
Probably the 1 area not just for our industry I think my trash pickup was late last month, because they didn't have drive of pick up it's the problem for everybody, it's not going to be forever. So longer term I think this is an opportunity for us to continue to drive even more efficiency in our business by in sourcing things that we were doing as far as the labor.
Evers kit and.
And overall, we're doing pretty well outside of being able to hire more drivers and even get trucks fast enough I would say the rest of our labor situation. We feel really good about part of it is our low turnover. So we're not having to replace as many as as if we had had higher turnover and frankly.
More of a part of it is decision we made to not do layoffs.
So thank goodness, we didn't do that because it would be really tough right now if we had mass layoffs during COVID-19 and then still had the support this level of activity. So I feel really good about the way we've managed through it but still opportunity to in source of the future and we've been talking of that about that.
The part strategically here in <unk>.
Eternal.
Got it thanks. Thank.
Thanks Scott.
Thank you. This does conclude the question and answer session I would like to hand, the program back to management for any further remarks.
Thanks, operator, and thanks, everyone for joining us.
The longer you can hear on you can see we're full steam ahead in a favorable market and our Q2 investor deck reflects our recent expansion. So please downloaded from the website and feel free to reach out the Ted if you have any other questions look forward to talking to you soon stay safe and operator, you can now on the call.
Thank you.
And ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.