Q1 2023 H&E Equipment Services Inc Earnings Call
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At this time I would like to turn the call over to Mr. Jeff <unk>, Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to our review of <unk> equipment services first quarter 2023 result.
Your participation. This morning and continued interest in HD is appreciated a press release reporting our results was issued earlier today and can be found along with all supporting statements and schedules at the H any website.
Www Dot H E dash equipment Dot com.
Our discussion. This morning is accompanied by a slide presentation, which can also be found at the <unk> website under the Investor Relations tab in the events and presentations.
Slide two please.
I'm joined this morning by members of our senior management team, including Brad Barber, Chief Executive Officer, John Engquist, President and Chief operating Officer, and Leslie Magee, Chief Financial Officer, and corporate Secretary.
Brad will begin today's call and I will be turning the call over to him. After I call your attention to slide three and remind you that today's call contains forward looking statements within the meaning of the federal Securities laws.
And that's about our beliefs and expectations and statements containing words, such as May could believe expect.
Anticipate and other similar expressions constitute forward looking statements.
Forward looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward looking statement.
A summary of these uncertainties is included in the Safe Harbor statement contained in the company's slide presentation for today's call and includes the risks described in the risk factors in the company's annual report on Form 10-K, and other periodic reports.
<unk> potential investors and other listeners are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on forward looking statements. The company does not undertake to publicly update or revise any forward looking statements. After the date of this conference call.
Also we are referencing non-GAAP financial measures during today's call you will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation as supporting schedules to our press release.
And in the appendix to today's presentation materials.
I'll now turn the call over to Brad Barber, Chief Executive Officer of HMA equipment services.
Thank you, Jeff Good morning, and welcome to our review of first quarter of 2023 financial results. We appreciate your participation and continued interest in HD.
Our first quarter performance was very encouraging demonstrating a strong contribution from our exceptional pricing gains achieved in 2022 with further progress already shown in 2023.
So a robust fleet growth in branch expansion provided support.
Through our strong year over year performance.
Please proceed to slide four.
I'll begin today with a brief review of key financial metrics in the quarter before I shift the discussion to an update of our rental performance.
Next I'll share my thoughts on the equipment rental business and while we remain confident in the prospects for 2023.
Finally, I'll provide an update on our strategic objectives, including fleet growth in branch expansion goals and our achievements in the first quarter Leslie will follow with a review of first quarter financials, including business segment performance data and update you on our capital structure and liquidity then we'll be happy to take your questions.
Slide six please.
Excellent rental rates fleet growth branch expansion. The addition of one source and the continuation of a fundamentally strong business environment. We're all significant components of our first quarter growth.
Compared to the first quarter of 2022. These factors were primarily responsible for the better than 18% improvement in total revenues.
Movement was partially offset by lower new equipment sales revenues and to a lesser degree part sales and service revenues.
The lower sales from these three business segments were largely due to the December 2020 through divestiture of our last exposure to the low margin distribution business.
Equipment rental revenues increased 31, 5% in the first quarter as we captured strong year over year rental rate improvement with our exceptional rate achievement for 2022 carrying into the new year rates in the first quarter, excluding <unk> were up nine 5% from a year ago quarter, Despite an expected year over year decline.
First quarter physical utilization I'll provide additional details on fleet utilization in a moment.
Also our rental fleet experienced rapid growth with the first quarter original equipment cost or <unk> of 28, 1% or $534 million when compared to our fleet always see in the first quarter of 2022.
Additionally, we benefited from 14 more branches operating in the first quarter of 2023 compared to a year ago, which followed the record growth in 2022 of our branch network.
This growth was achieved through our accelerated branch expansion program and the acquisition of one source. The 14 branch increase reflects an adjustment for our recent branch consolidation.
Finally used equipment sales experienced a meaningful increase in the quarter as part of our fleet management strategy Lastly will cover this point and others through in her financial review.
These same factors drove a strong year over year increase in EBITDA, which totaled $140 1 million in the first quarter of 35, 4%.
While an EBITDA margin of 43, 4% was 540 basis points ahead of the same quarter of 2022.
I will now cover some highlights from our rental business.
Slide seven please.
Rental revenues when compared to the year ago quarter improved an impressive 31% to $232 1 million.
Rental gross margins for the quarter were 48, 4% compared to 49, 9% over the same period of comparison with higher depreciation the primary cause for the decline.
Lastly, we will explain this further during her financial discussion.
I noted earlier the positive impact on rental rates in the quarter as we continued to demonstrate excellent relative pricing performance across the equipment rental industry and.
In addition to the nine 5% year over year improvement rental rates, excluding one source, we're up 7% on a sequential quarterly basis, our expectation for modest sequentially quarterly rate improve in 2023 remains unchanged.
Consistent with our first quarter expectation fleet utilization of 67, 3% was in line with a typical first quarter measure.
The 310 basis point decline compared to the year ago quarter was largely due to persistent disruptive weather across several of our geographic regions.
Dollar utilization in the first quarter was 38, 6%, a 100 basis point improvement when compared to the first quarter of 2022.
This favorable result, which has demonstrated strong improvement since late 2021 highlights our ability to effectively address critical factors for success.
The success factors include rental rate discipline.
Growth in effective fleet management continued branch expansion in other areas of operational excellence.
We also benefited from our resilient business environment, and we remain confident that sound fundamental conditions will persist in 2023.
Next I want to provide some facts behind our positive industry basis.
On to slide eight please.
Construction activity remains strong contributing to the robust end market backlogs, especially the nonresidential and industrial segments. These two important end markets end markets accounted for 77% of our revenues over the last 12 months, we were witnessing in abundance.
Projects across our operating footprint and are in various stages of execution and planning and several key industry measures of future nonresidential construction activity continued to support a positive outlook, although certain measures have softened from peak levels in recent months. They continue to signal healthy activity throughout the balance of 2023 and into two.
24.
Also large private and bandwidth funded construction projects addressing a variety of manufacturing and infrastructure building programs are increasingly apparent across our operating footprint. These projects include but are not limited to LNG export terminals, along the Gulf coast solar farms and chip factories ship.
Fabrication plants in the central and Western U S.
Electric vehicle battery facilities in the east central and western regions of the country and data centers across all regions. Our participation in these extensive opportunities is expected to increase throughout the year.
Lastly, our continued equipment supply imbalance and the likelihood of further improvement in rental penetration represent favorable dynamics that reinforced the positive industry outlook on the latter point rental penetration is estimated to have exceeded 53% at the conclusion of 2022.
This important measure approaches as pre pandemic highs.
These numerous sources of customer demand are expected to support favorable business conditions, including higher physical fleet utilization and modest sequential rental rate improvements as the year proceeds.
Finally, and before I turn the call over to Leslie I'll provide an update on our progress towards our growth and expansion strategy.
Slide nine please.
Significant improvement in a relatively continued expansion of our branch network and opportunistic M&A remain principal components of our growth strategy in 2023.
Our gross fleet capital expenditure in the first quarter totaled approximately $128 million with an expected expenditure for the full year remaining 500 million to $550 million.
The sizable first quarter outlay attractively positions, our existing branches with equipment needed to address escalating customer demand as the seasonal expansion and construction activity begins wallet share and we have an optimal fleet mix required to seamlessly execute our new location strategy.
Regarding new locations. Our previously reported goal in 2023 of no less than 10, new locations and possibly as many as 15 remains unchanged.
We remain focused on greater density in key geographic regions.
No new branches were added in the fourth quarter. However, we currently expect to open as many as six new branches during the second quarter.
Slide 10 please.
We closed the first quarter with 119 branches across 29 states the modest reduction in branches from our year end 2022 total reflects the consolidation of a one source branch as we finalized our integration process in.
In summary, the combination of rental rate discipline substantial fleet growth effective fleet management meaningful branch expansion and superior operational execution Concisely describes the storyline for the first quarter leading to another successful quarterly result.
With a continued focus on fees and other critical factors, we fully expect to demonstrate further financial improvement and operational achievement in 2003, while we advance our strategic growth objectives.
Now on to slide 11, and I'm going to turn the call over to Leslie for an extensive review of our first quarter financial performance Leslie.
Thank you Brad good morning, and welcome everyone. I will begin this morning on slide 12, with a review of revenues gross profit and profit margin.
First quarter revenues totaled $322 5 million or 18, 4% better than the first quarter of 2020 team.
The $50 million <unk>, primarily to higher revenue in both rental and used equipment sales.
At the business segment level rental revenues in the corner, we're at 31% to $113 1 million compared to $177 2 million in the year ago quarter.
In our rental fleet and appreciation and rental rates contributed meaningfully to the improvement as Brad noted earlier, our rental fleet Green 28, 1% or $533 8 million when compared to the first quarter of 2020 team and we continue to demonstrate excellent rate of television with rental.
$9, 5% higher than the first quarter of 2018, and 7% better on a sequential quarterly basis.
Unlike the year ago quarter, when we recorded physical fleet utilization of 74%.
First quarter of 2023 utilization at 67, 3% reflected a more typical first quarter outcome.
Revenues from used equipment sales raised 49, 2% and according to $32 1 million compared to $21 5 million in the year ago quarter. The execution of our fleet management strategy together with our decision to capitalize on a strong market for used equipment resulted in.
Increased sales in the quarter.
<unk> sales in the quarter declined 17% to $7 8 million compared to $26 million in the first quarter of 2020 team that decline was due primarily to a reduction in the <unk> meeting Quentin.
And as a reminder, in December 2022 weeks, Teladoc Komatsu earthmoving distribution business, representing the final step in our planned exit from distribution activities.
Consolidated gross profit in the first quarter increased $29 8 million or 26, 7% to $141 4 million compared to $111 6 million in the year ago quarter.
Our consolidated gross margin improved to 43, 8% compared to 41% over the same period of comparison and improved revenue mix and higher gross margins on used equipment sales were the primary contributors to the improvement.
Total equipment rental margins were 43, 6% in the first quarter of 2023 compared to 44, 9% in the year ago quarter.
Comparing our results to the year ago quarter rental margins were 48, 4% compared to 49, 9% lower margins resulted from higher depreciation expense on the fair market value of our recently acquired fleet from one source usage.
Used equipment margins increase.
Eight.
6% compared to 41, 7% with fleet only margin, which excluded use equipment obtained through trade in at 59, 1% compared to 45, 2%.
Margins on new equipment sales.
13, 3% compared to 14, 2% and finally margins on parts sales improved 228, 8% compared to 27, 1% while service margins finished the quarter at 64% compared to 65, 4%.
Slide 13 please.
Income from operations closed the first quarter at $46 7 million compared to $34 7 million in the first quarter of 2020 team that 34, 7% increase resulted in a margin of 14, 5% compared to 12, 7% in the year ago quarter.
Favorable revenue mix and higher gross margins on used equipment sales contributing to the improved margin, which was partially offset by lower rental margins as discussed previously and higher SG&A costs.
Proceed to slide 14 please.
Net income in the first quarter increased 57, 5% to $25 7 million or <unk> 71 per diluted share compared to $16 3 million or <unk> 45 per diluted share in the year ago quarter.
Our effective income tax rate in the first quarter was 26, 1% compared to 26, 3% for the same quarter in 2018.
Proceed to slide 15 please.
First quarter EBITDA totaled $140 1 million compared to $183 4 million in a year ago quarter, and a 35, 4% and crazy compared to an 18, 4% increase until revenues EBIT.
EBITDA margin in the first quarter and 540 basis points to 43, 4%.
The favorable outcome was again the result of increased revenue mix and higher gross margins on used equipment sales.
These factors were partially offset by an increase in SG&A expense.
Next slide 16 please.
SG&A expense in the first quarter increased $17 1 million or 21, 8% to $95 3 million. The result, compared to $78 $3 million in the year ago quarter. The increase was due primarily to employee salaries wages and variable compensation as well as increased head count.
Higher professional fees and facility expenses added to the quarter over quarter increase.
Expressed as a percentage of revenues SG&A expenses in the first quarter were 29, 6% compared to 28, 7% in the prior year quarter.
Approximately $3 5 million at the expense increase in the quarter was attributable to our branch expansion strategy since the close of the prior year quarter. Nevertheless period, we opened eight new branches, excluding branches acquired in the <unk> acquisition.
Slide 17 please.
Greg rental fleet capital expenditures in the first quarter inclusive of non cash transfers from inventory totaled $127 7 million net rental fleet capital expenditures were $96 million gross PP&E capital expenditures in the quarter were $12 4 million or 11.
One 5 million net of sales of PP&E.
Net cash provided by operating activities totaled $23 2 million in the quarter as compared to $38 5 million in the year ago quarter free cash flow use in the quarter, let's start $14 2 million compared to free cash flow of $4 8 million over the same period in comparison.
The average age of our rental fleet at March 31, 2023 was $43 seven months and compares favorably to the industry average fleet age at 51 nine months.
Slide 18 please.
Our rental fleet size based on original equipment cost at March 31, 2023, exceeding $2 4 billion and was approximately $533 8 million or 28, 1% larger than our fleet size at the conclusion of the first quarter of 2022.
Average dollar utilization in the first quarter of 2023 improved to 38, 6% compared to 37, 6% in the prior year quarter with the improvement due largely to rental rate improvement and fleet mix.
Moving on to slide 19, please.
Net debt at March 31, 2023, with approximately $1 2 billion essentially unchanged when compared to the measure at December 31, 2020 team. We concluded the first quarter with a net leverage measure or up two one times compared to two two times at December 30 <unk>.
2020, we have no maturities before 2028, and our 125 billion of senior unsecured notes.
Slide 20 please.
Our liquidity position at March 30, <unk> two.
2020 period totaled $789 $4 million, including a cash balance of $89 9 million and borrowing availability under our amended ABL facility of $699 4 million.
Excess availability under the ABL facility of approximately $1 5 billion was unchanged from the manager on December 31, 2020 team.
Minimum availability as defined by the ABL agreement remain $75 million and net debt excess availability is the measurement used to determine if our springing fixed charge coverage is applicable and with excess availability of $1 5 billion. We continue to have no covenant concerns.
Finally, we paid our regular quarterly dividend of 2017, and a half cent per share common stock in the first quarter of 2023, and while dividends are subject to board approval. It is our intent to continue to pay the dividend.
Slide 21 please.
To conclude we are encouraged by the strong start to 2023, our financial performance demonstrates the significance of the successful rental rate strategy.
Operation performance and disciplined growth and expansion objectives.
Many key financial metrics continued to record strong year over year improvement and now we benefit from a position of greater financial stability through the cycle.
We have scrutinized prevailing business.
<unk> given inflationary pressures interest rate actions in recent banking system instability.
We believe a fundamentally sound environment remains in place supported by strong project backlog and emerging opportunities.
The environment is favorable for the execution of our 2023 growth initiatives. These initiatives are supported by our excellent financial resources and our conservative capital structure.
Recently extended our senior secured credit facility into 2028, and we have no senior note maturities until 2028, and our leverage ratio and EBITDA interest coverage ratio stand at two one times.
And $10 five pounds respectively. Thank.
Thank you for your interest in <unk>, and we look forward to keeping you apprised of our progress.
We are now ready to begin the Q&A period.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Our first question is from Steven Ramsey with Thompson Research Group. Please go ahead.
Hi, good morning.
Like a strong environment out there still I guess, if you think about customer feedback maybe how did it change through the first quarter are they still as bullish as they were entering the year and then maybe a follow on to that.
The projects in hand or in the pipeline of your customers are there more projects with multiyear timeframes than a year ago or than in normal times.
Yes, good morning, Steve.
Customer sentiment has not changed one bit it remains very strong.
The feedback from customers is really around their ability to.
The field enough employees to do the work that's in front of them. So their backlogs remained strong and there is no no inflection point that we witnessed at this point in time.
The second part of your question I'm, Sorry remind me.
Sure Roger Yes, I see sorry more.
Our project with multiyear I don't think Theres a doubt there are more multi year projects in front of us today than they were 12 months ago.
Many of the some of these have broken ground. Some broke ground late last year and many more are scheduled to start here. This quarter Q3, Q4 and into 2004. So I think it's quantifiable there are more multi year projects in front of us as we sit here today than certainly there was a year ago.
Okay helpful. And then the fleet deliveries you received in the first quarter of 128 million. How did this compare to your original views of 2023 deliveries.
If it is ahead of your prior views does this cause you to increase your rental revenue expectations for the year.
Yes.
<unk>.
Within range of what we were planning for internally, we're very pleased that the planning we've placed with the manufacturers for capital. This year appears that it's going to be on time and as expected. So we're very encouraged by what we've seen in Q1 were very encouraged by what we're seeing in Q2 with availability, meaning that its alive.
With our plans and expectations so.
Yes.
<unk> revenues due to the quicker we get this fleet the quicker its going to go on risk as I mentioned in my prepared comments, we've got a slate. We think we're probably opened six locations this year.
The heels of the 20 locations we've opened over the last two years and of course, one source that we've spoken about previously with their nine locations now that we've had one consolidation and finalize that integration so very happy with where we are with our capex.
Okay helpful. And then one more for me on SG&A as a percentage of sales I think you've talked about flattish this year relative to last year.
Given the major revenue growth and the strong rental rates, helping contribute there what are the factors for not getting SG&A leverage this year and at what revenue levels do you expect to start getting leverage on that line.
Let me give some commentary to the sort of the wise, we're not showing more leverage and it's really around this rapid growth.
We're posting better than 10% new unit growth per year.
David that our expectations are 10 to 15 locations.
This year as we're continuing to build out one source that we purchased in October of last year. So that's why we're not seeing the leverage you may be referring to as far as that flattish type guidance, we're comfortable with that if we were more focused on reducing SG&A as we could accomplish that but I think we're doing a nice job.
About the substantial fleet growth unit location count that's going to serve us for decades to come the market, we're moving to where all primary markets that will serve HLA for many many years to come Leslie would you add anything to that.
I think that answered it perfectly I mean, I would just concur that you know our expectation is still that will be flat to 2022, which was 27, 6% for the full year.
Very helpful. Thank you.
Thank you.
The next question is from Seth Weber with Wells Fargo Securities. Please go ahead.
Balance sheet substantial fleet growth unit location count that's going to serve us for decades to come the markets, we're moving to where all primary markets that will serve HLA for many many years to come but lastly would you add anything to that.
Hey, guys good morning.
I wanted to follow up on a couple of Stephens questions.
The positive customer sentiment I guess I'm just trying to.
Tie that together with the sentiment good but have you heard anything about customers.
Having challenges getting financing for projects so is that potentially a.
Just a governing factor on stuff going forward and do you have any sense for.
What how much what percentage of the projects in your area or maybe finance locally versus money center banks or bigger banks or anything like that you're hearing anything on the financing side I guess maybe to start there.
Yeah, Seth good morning to you know we are not.
We spoke to investors, we spoke to others, who have asked the same question and for very obvious and logical reasons.
And our engagement with regional banks and more specifically with customers and focus on our projects, we've seen zero impact so far.
I am not guidance.
See feedback about any projects that may not go due to financing out of the current environment. We're in so.
We are aware, we're paying attention, but the answer to your question is no there has been zero change.
Okay. That's that's helpful and then just.
Brian how should we think about the economics on some of these longer term projects are they.
Is it a lower gross margin, but maybe there's less back and forth of the fleet or less maintenance or something like that so the operating margin is about the same or is there any kind of rule of thumb that you guys think about it.
Project duration gets longer the impact.
That might have on the margin.
Yes.
Adequately outlines the longer the project the larger the project.
Stated more clearly the more products you put on a project for a long period of time.
Typically see a collection rates and it's a supply and demand environment.
We see a lower rental rate on a project thats going to go multi years that may consume hundreds of machines than we would on a project that's going to consume a handful of machines for a month or so.
So those are just kind of a simple economics around that that being stated we're very happy with the yield.
These projects produce and I'll also say to you that the price increase that to 10% last year. The nine 5% were shown in the quarter to seven tenths of a percent were showing sequentially. We're really proud of that number coming up in Q1, where it was is where does it was.
That reflects increase in rates among all of our project types in all of our customer types. So we're not we're certainly not looking to discount any products, but certainly in the rental business you look at yield and you consider the duration and the quality of the job.
Got it Okay, and then just maybe lastly.
Used sale margins were surprisingly high it's obviously been a point of concern for investors that kind of look at the auction pricing but.
Are you.
Is there anything out there that's suggesting to you that you.
<unk> prices might start to soften whether it's more new equipment coming online or.
Shifting more towards the auction channel or anything like that.
There is not I mean, we were very proud of the performance of our operations and their achievement, but I think margins in that low to mid fifties and similar rate of fleet sales going forward for the rest of the year right in line with our expectations and I have no concerns that we're going to see any type of softening.
And the used equipment margins.
Is there anything out there that's suggesting to you you know that used prices might start to soften and whether it's more new equipment coming on line or.
We're happy again as I stated to Stephen that we're that we're gathering the equipment as early as we are into our plan, but there's not an abundance of equipment in the marketplace. So it's going to keep it constrained for the foreseeable future.
Shifting more towards the auction channel or anything like that.
There's not I mean, we were very proud of the performance of our operations and their achievement, but I think you know margins in that low to mid fifties and similar rate of fleet sales going forward for the rest of the year right in line with our expectations and I have no concerns that we're going to see any type of softening.
Got it okay. Thank you guys I appreciate it.
The next question is from Alex Rygiel with B Riley. Please go ahead.
Thank you and good morning.
Investors about the cycle and peak <unk> utilization.
Or rates had peaked how would you respond to that.
And the used equipment margins.
We're happy again as I stated, it's just even that we're that we're gathering the equipment as early as we are into our plan, but there's not an abundance of equipment in the marketplace. So it's going to keep the constraint for the foreseeable future.
I don't think I don't I can assure you that rates have peaked at this point.
And I don't think that utilization as an industry has peaked it's interesting Alex when you asked the question of course speak specifically with HD.
Got it okay. Thank you guys I appreciate it.
A number of new locations, we've added over the last few years, coupled with the 10 to 15, we will open this year are persistent but balanced approach on increasing rental rates going forward.
The next question is from Alex Rygiel with B Riley. Please go ahead.
Thank you and good morning.
Investors felt the cycle and peak demand or utilization.
The substantial fleet growth.
Or rates had peaked how would you respond to that.
It's going to be a slight headwind on our year over year physical utilization.
Yeah.
I don't think I don't I can assure you that rates have not peaked at this point in time and I don't think that utilization as an industry has peaked it's interesting Alex when you asked the question of course speak specifically with H D. You know the number of new locations. We've added over the last few years, coupled with the 10 to 15 well.
But I wouldn't want to indicate that we feel like the opportunity for our peak utilization is over with.
That's a factor or the variety of things we're focused on now that we're a pure play rental business.
Specifically I don't want to point out the full year impact of those rental rates all of these locations. We're opening we're exceeding our internal expectations consistently with warm starts and I would point you to dollar utilization and other other return metrics just to prove out how strong we can be with utilization.
Open this year are persistent but balanced approach on increasing rental rates going forward.
And the substantial fleet growth.
If it's going to be a slight headwind on our year over year physical utilization.
So while I don't think we're doing well I do think we're going to have a little headwind on a year over year utilization I think the net result is going to be hugely positive nothing is nothing as peak ish for us yet.
But I wouldn't want to indicate that we feel like the opportunity for our peak utilization is over what that's a factor of it or the variety of things. We're focused on now that we're a pure play rental business.
With the exception of if we run utilization similar to or less than last year. While we get these other performance enhancements, we're going to be really happy and I think that's what's going to happen.
But specifically I did want to point out you know the full year impact of those rental rates all of these locations. We're opening we're exceeding our internal expectations consistently with warm starts and and I would point you to dollar utilization in the other other return metrics just to prove out how strong we can be with utilization.
And then can you discuss the expectation for improved rental penetration is there.
Other than your warm starts are there any other pressures on more favorable rental rates in other words to gain some of this penetration or market share.
Do you find yourself, having to reduce rates to a modest extent that might be a headwind to the even more positive rental rate number youre printing.
No absolutely not when we refer to penetration it's a measure of the dollars spent by the customer base in the marketplace for rental assets as opposed to purchasing of assets and being that we were founded as a crane distributor. We were one of the largest earthmoving commodity work.
Moving distributors for the better part of our 60 plus year history.
In other words to gain some of this penetration or market share.
We've witnessed when Theres times of economic uncertainty people rent and they don't buy or they buy I should so they don't they buy less and so there's much less volatility than what we're talking about penetration. It's really speaking of shift secondarily from that I think you can look that we're taking more market share and while I won't get into quoting.
Do you find yourself, having to reduce rates to a modest extent that might be a headwind to the even more positive rental rate number you're printing.
Hypothetical market shares you can look at our growth rates and we would compare favorably with anyone in the industry. We will continue to do so when it comes to growth.
And coming back to that last comment it just means.
In a hypothetical scenario if customers were not to buy but they pursued a rental.
Option, given some uncertainty in the future.
Have you noticed any of those decisions being made at this point in time, yet in the cycle.
Shifting secondarily from that I think you can look that were taking more market share and while I don't get into quoting hypothetical market shares you can look at our growth rates and we would compare favorably with anyone in the industry. We will continue to do so when it comes to growth.
Look it's no.
It's very anecdotal and short windows of time, and Thats why as measured over broader periods of time.
I can tell you.
Working here at <unk> for 25 years, and we have consistently seen our traditional distribution customers. Some slowly some will rapidly migrate to the rental process, but the one thing you can count on is when a customer moves to using the rental process with any consistency. They do not go back to their buying habits.
And coming back to that last comment you just made.
The hypothetical scenario if customers were not to buy but they pursued a rental option given some uncertainty in the future.
Have you noticed any of those decisions being made at this point in time, yet in the cycle.
Very helpful. Thank you nice quarter.
Thank you.
Look it's no.
The next question is from Stanley Elliott with Stifel. Please go ahead.
It's very anecdotal and short windows of time, and that's why it's measured over broader periods of time.
Hi, Good morning, this is Brian Brophy on for Stanley.
I can tell you I've been working here at H any for 25 years, and we have consistently seen our traditional distribution customers. Some slowly some will rapidly migrates to the rental process, but the one thing you can count on is when a customer moves to using the rental process with any consistency. They do not go back to there.
I was hoping you could talk about the one source integration, how that's gone relative to your expectations and then any updated thoughts on how youre thinking about M&A and the M&A pipeline.
Sure I'll take that Brian .
So first of all one source, we fully integrated one source last year from a system standpoint, we have them up and running with our platform and they are performing well as expected.
Buying habits.
Very helpful. Thank you and nice quarter.
Thank you.
The next question is from Stanley Elliott with Stifel. Please go ahead.
As far as M&A, the M&A pipeline still remains strong there's lots of opportunities out there. We are consistently vetting deals and hopefully we'll be able to capitalize on that this year, but we're going to continue to pursue acquisitions.
Hi, Good morning, this is Brian Brophy on for Stanley.
I was hoping you could talk about the one source integration, how that's gone relative to your expectations and then any updated thoughts on how youre thinking about M&A and the M&A pipeline. Thanks.
That meet our needs and fit what were looking for yes, Brian Let me add as John just stated our pipeline for acquisition opportunities is relatively speaking as strong as it has ever been.
Sure I'll take that Brian .
So first of all one source you know we fully integrated one source last year from a system standpoint.
We have them up and running with our platform and they are performing well as expected.
At the same time, we're as disciplined as we've ever been we just simply will not overpay for core assets.
As far as M&A.
The M&A pipeline still remains strong you know there's lots of opportunities out there you know we're consistently betting deals and hopefully we'll be able to capitalize on that this year, but we're going to continue to pursue acquisitions that.
Questionable markets are old rental fleets and so.
We hope that we hope to continue to do one or two tuck in acquisitions a year.
But when you see US do an acquisition you can know that it checked all the boxes for us and that we take a somewhat conservative approach to deploying capital because we know we can continue to stamp out 10 to 15 locations a year and get substantial returns on those assets. So it's not a one or the other we can do both we've got more than enough.
To meet our needs and fit what we're looking for yeah, Brian Let me add as John just stated our pipeline for acquisition opportunities is relatively speaking as strong as it has ever been.
At the same time, whereas disciplined as we've ever been we just simply will not overpay for poor assets.
Up adequate bandwidth for both internally operationally you can look at our balance sheet supports substantially more than we're investing.
And in a questionable markets are old rental fleets and so you know we hope that we hope to continue to do one or two tuck in acquisitions a year.
So I'd say that hopefully get one or two done this year pipeline is strong, but we're going to remain disciplined with where we deploy our capital with acquisitions.
But when you see what they have to do an acquisition you can know that it checked all the boxes for us and that we take a somewhat conservative approach deploying capital because we know we can continue to stamp out 10 to 15 locations a year and get substantial returns on those assets. So it's not a one or the other we can do both we've got more than a.
Thanks, that's really helpful and then kind of touching on.
A comment you made thinking about the longer term outlook for warm starts how much how much visibility is there and the ability to open 10 to 15 a year.
Is this.
Enough adequate bandwidth for both internally operationally you can look at our balance sheet supports substantially more than we're investing.
A multi year opportunity I guess, how do we think about that.
Look I think this is our opportunity going forward.
So as John said, it hopefully get one or two done this year our pipeline is strong, but we're going to remain disciplined with where we deploy our capital with acquisitions.
The only reason we do not open 10 to 15 locations on a go forward basis would be an economic disruption that we don't see yet.
If we were to see a severe recessionary period, we're not going to continue opening at the same pace, but bar that type of situation you should expect us to open 10 to 15 locations a year in high growth markets that are stable and will serve the company and our investors well for decades to come.
Thanks, that's really helpful and then kind of touching on a.
A comment you made thinking about the longer term outlook for warm starts how much how much visibility is there and the ability to open 10 to 15 a year.
Is this a.
A multi year opportunity I guess, how do we think about that.
Got it. Thanks, that's helpful and then last one for me.
Yeah look I think this is our opportunity going forward do the the only reason we do not open 10 to 15 locations on a go forward basis would be on the economic disruption that we don't see yet a you.
Obviously your fleet age continues to creep higher.
You guys have historically run.
A much much younger fleet.
Curious as to how you're approaching that any changes in how youre thinking about fleet age and how we should think about fleet age changing going forward as equipment availability improves.
You know we did if we went to see a severe recessionary period, we're not going to continue opening at the same pace, but bar that type of situation you should expect us to open 10 to 15 locations a year in high growth markets that are stable and will serve the company and our investors well for decades to come.
Sure.
Our fleet age is really not I mean, I think it creep forward, a 10th of a month or something quarter over quarter. There was if you were to look at it last quarter. When <unk> came on you saw a little bit of a notable increase then because they had an age rental fleet.
Got it. Thanks, that's helpful. And then last one for me obviously your fleet age continues to creep higher you guys have historically run a much much younger fleet kind of curious as to how how you're approaching that any changes in how youre thinking about fleet age and how we should think.
That being said, we're closer to a year younger than industry average then than we are away from it. So we have a very young fleet.
We want to age our fleet further.
About fleet age changing going forward as equipment availability and Bruce.
Positioned to do so and so again I don't know 10, 11 months younger than industry average today.
Sure.
Say it differently, we could Asia that much and be like everyone else, but we kind of like this younger profile with our rapid growth. We have planned with this branch expansion and some same store growth I think.
Our fleet age is really not I mean, I think it creep, Florida Tampa vote.
Mark this up in quarter over quarter. There was if you were to look at last quarter. When one source came on you saw a little bit of a notable increase there because they had an age rental fleet.
You should expect to see us kind of continue to hover in the range, we are and not have a material aging issue, but please be reminded we have a very young rental fleet relative to our competitors.
That being said, we're closer to a year younger than the industry average then than we are away from it. So you know we have a very young fleet. If we want to age our fleet further we're in a position to do so and so again I don't know if it's 10 11 much younger than industry average today.
Got it thanks I'll pass it on.
Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Avi duress wallets with UBS. Please go ahead.
Stated differently, we can age it that much and be like everyone else, but we kind of liked this younger profile with our rapid growth. We have planned with this branch expansion and some same store growth I think you should expect to see us kind of continue to hover in the range, we are and not have a material aging issue, but please be reminded we have a very young rental fleet realm.
Hey, good morning, guys.
Sure.
So just want to.
Time utilization a little bit.
We're thinking about the year progressing.
Realizations to build seasonally but.
You also called out weather impacts for Q1 so.
Should we be thinking about.
I've talked competitors.
No change year over year from pardon me by basin three panels in Q1.
Got it thanks I'll pass it on.
Thank you.
Again, if you have a question. Please press Star then one.
Do you expect that to narrow as the year for longer.
About the same.
The next question is from Avi duress wallets with UBS. Please go ahead.
I think it would probably narrow a little bit, but I think as I stated earlier I think we're going to have a little headwind on our physical utilization peak you should expect between now and the end of October where we traditionally peak.
Hey, good morning, guys.
Fisher.
So just want no kidding.
Time utilization a little bit.
We're thinking about the year progressing we expect utilization to build evenly but.
We continue to get incremental gains in physical utilization as we sit here in Baton Rouge. This morning, we're bumping up against 70% utilization this week.
You also called out weather impacts for Q1, so how should we be thinking about yeah yeah.
Change year over year pardon me by these three panel I think in Q1.
And so we're not in the busy part of our season yet.
Do you expect that to narrow as the year goes on.
We're right, where we expect it to be including with the rate gains and the growth. So.
Okay about the same.
I think it's it it it would probably narrow a little bit, but I think as I stated earlier I think we're gonna have a little headwind on our physical utilization peak you should expect between now and the end of October where we traditionally peak that.
We're going to be a little behind on a year over year utilization comp, but I think more importantly, well ahead on all of the other drivers and subsequently our return metrics and profitability.
Got it thanks for that.
We continue to get incremental gains in physical utilization as we sit here in Baton Rouge. This morning, we're bumping up against 70% utilization this week.
And so just turning to Capex.
Mike.
<unk> down three percentage points from same period last year.
And as you know so we're not in the busy part of our season yet.
The agents up for AWP, Latin material handling down in earthmoving.
We're right, where we expect it to be including with the rate gains and the growth. So are you know we're gonna be a little behind on a year over year utilization comp, but I think more importantly, well ahead on all of the other drivers and subsequently our return metrics and profitability.
Just as we think about the mix within Capex.
Yes, how should we be thinking about that.
Youre trying to rebalance the fleet seemed to imply that everything besides DWP would be.
Down in terms of volumes is that the right way to think about it.
Yeah.
Got it thanks for that.
Well I think I don't think its a volume issue as much as a percent of the mix right and so we've been very intentional we love of aerial work platform is still a very meaningful piece of our overall investment we will continue to be we're not having a reconfiguration, but what you see is very thoughtful of fleet management and we clearly are going to manage to where the opportunities are.
And so just turning to Capex looking at your fleet mix AWP is down three percentage points from same period last year.
The agents up for AWP, Latin material handling down in earthmoving.
Just as we think about the mix within Capex.
To improve returns and serve our customers and over the last 12 month period that you're referring to.
Yeah, Yeah, how should we be thinking about that I'm, assuming you're trying to rebalance the fleet seem to imply that everything besides AWP would be.
Essentially brought down some of the AWP components and redeployed more capital and two other areas, where we see higher returns and better future opportunity.
Down in terms of volume.
What's the right way to think about it.
Well I think I don't think it's a volume issue as much as a percentage of the mix right and so we have been very intentional we love of aerial work platforms. It's still a very meaningful piece of our overall investment will continue to be we're not having a reconfiguration, but what did you say it was very thoughtful of fleet management and we clearly are going to manage to where the opportunities are to.
Okay.
Makes sense.
And then just lastly for me. So also looking at your end market mix.
Residential vertical it's really kept pace with the rest of the business, which I think is most frightening.
Can you just discuss some of the dynamics that youre seeing there and also.
Improved retarded to serve our customers and over the last 12 month period that you're referring to you know we intentionally brought down some of the AWP components and redeployed more capital into other areas, where we see higher returns and better future opportunity.
Can you remind us how much of your non res exposure in commercial.
Or how much of our non res exposure as rental was that the last one.
His commercial.
If it's a small pieces.
Okay.
Certainly larger than than residential which is almost nothing in our business and anything we have is tied to multifamily.
Makes sense and then just lastly for me. So also looking at your end market mix residential.
Residential vertical it's really kept pace with the rest of the business, which I think is a little surprising.
Commercial it varies depending on the region and the projects that are going on at a particular point in time. So we.
Can you just discuss some of the dynamics that you're seeing there and also can you remind us how much of your nonresident closure in commercial.
We do plenty of commercial work, but it would depend on what type of commercial work Youre speaking of.
Okay, that's fair.
Or how much of our non res exposure as rental was that the last time.
Thanks, guys congrats on the quarter.
Thank you.
His commercial.
This concludes our question and answer session I would like to turn the conference back over to Jeff <unk> for any closing remarks.
It's it's a it's a small piece. It's you know, it's certainly larger than the residential which is like almost nothing in our business and everything we have is tied to multifamily.
Okay, well, thank you and we appreciate everyone taking the time today to join us.
Commercial it varies depending on the region and in the projects that are going on at a particular point in time so.
We look forward to speaking with you again good day everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
We do plenty of commercial work, but it would depend on what type of commercial work you speak enough.
Okay, that's fair.
Thanks, and congrats on the quarter.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jeff chest pain for any closing remarks.
Okay, well, thank you and we appreciate everyone taking the time today to join US and we look forward to speaking with you again good day everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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