Q4 2023 United Rentals Inc Earnings Call
Please continue to standby the conference will begin momentarily.
[music].
Speaker Change: Good morning, and welcome to the United Rentals Investor Conference call.
Speaker Change: Please be advised that this call is being recorded.
Before we begin please note that the company's press release comments made on today's call and responses to your questions contain forward looking statements.
Speaker Change: 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.
Speaker Change: A summary of these uncertainties is included in the Safe Harbor statement contained in the company's press release.
Speaker Change: For a more complete description of these and other possible risks.
Speaker Change: Please refer to the company's annual report on Form 10-K for the year ended December 31st 2023, as well as to subsequent filings with the SEC.
Speaker Change: You can access these filings on the company's website at Www dot United Rentals Dot com.
Speaker Change: Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations.
Speaker Change: 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.
Speaker Change: Adjusted EPS EBITDA and adjusted EBITDA.
Please refer to the back of the company's recent investor presentations to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.
Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and take rates Chief Financial Officer I.
Speaker Change: I will now turn the call over to Mr. Flannery, Mr. Flannery you may begin.
Matthew John Flannery: Thank you operator, and good morning, everyone.
Matthew John Flannery: Thanks for joining our call.
Our theme for 2023 was raising the bar and today I'm very pleased to discuss our record fourth quarter, which capped a number of notable achievements by our team and enabled us to indeed raise the bar this past year with record revenue earnings and returns.
Matthew John Flannery: The team did this by continuing to serve our customers with an unmatched commitment to operational excellence and a laser focus on safety all while integrating our second largest acquisition.
Matthew John Flannery: Today, I'll start with a recap of our fourth quarter and full year 2023 results followed by whats driving our optimism for 2024, and finally, our updated leverage and capital deployment strategies.
So let's start with some of the highlights from the fourth quarter.
Matthew John Flannery: Our total revenue grew by 13% year over year to $3 7 billion.
Matthew John Flannery: Fourth quarter record.
Matthew John Flannery: And within this rental revenue grew by 13, 5%.
Fleet productivity increased by two 4% on a pro forma basis.
Matthew John Flannery: Adjusted EBITDA increased almost 10% to a fourth quarter record of over $1 8 billion.
Matthew John Flannery: Translating to a healthy margin of 48%.
Matthew John Flannery: And adjusted EPS grew by 16% to $11.26.
Matthew John Flannery: For the full year rental capex of $3 $5 billion was in line with our guidance and I'll add that with the supply chain largely recovered. We now expect the quarterly cadence of our capex spend could be more closely matched to historical patterns.
Matthew John Flannery: 2023, free cash flow exceeded $2 $3 billion with.
Matthew John Flannery: We view our ability to generate strong free cash flow throughout the cycle as a hallmark of the company and a testament to both the profitability and flexibility of our business model.
Matthew John Flannery: Moreover, and this may be the most important thing to convey.
Matthew John Flannery: The durability of our free cash generation provides us tremendous flexibility to create long term value for our shareholders.
Matthew John Flannery: Now, let's turn to customer activity.
Matthew John Flannery: We continue to see broad based demand across geographies verticals and customer segments.
Industrial end market saw a healthy growth led by industrial manufacturing and power.
Matthew John Flannery: Within our construction markets, both infrastructure and non res continue to show solid growth year over year as our customers kicked off new projects across a diverse range of markets and these include battery plants semiconductor related jobs power infrastructure as well as data centers.
Matthew John Flannery: Geographically, we continue to see strength across the business and.
Matthew John Flannery: And specialty specifically delivered another strong quarter with rental revenue up 15% year on year, reflecting double digit growth across all businesses.
Matthew John Flannery: Furthermore, we opened 10 cold starts during the quarter, resulting in 49 for the full year.
Speaker Change: Finally, turning to capital allocation.
Speaker Change: In addition to the investments we made in 2023.
Speaker Change: We returned over $1 $4 billion to our shareholders.
Speaker Change: Looking ahead, we expect 2024 to be another year of growth led by large projects.
Speaker Change: This is supported by customer sentiment indicators solid backlogs and most importantly feedback from our field teams.
Speaker Change: And finally and I'll be quick here, because I don't want to steal too much Thunder, but I am very pleased to announce our updated capital deployment and leverage strategies, which cover our plans to return nearly $2 billion of cash to shareholders. This year.
Speaker Change: And our reduced leverage target of one and a half to two five times.
Speaker Change: This announcement reflects our work towards building, an even stronger company and driving shareholder value.
Speaker Change: And what's more this comes after fully funding growth.
Finally, before I get to my concluding remarks.
Speaker Change: I want to share with you all that we hosted our annual management meeting in Indianapolis earlier this month.
Speaker Change: This provided an opportunity for over 2500, United rentals leaders to gather and build momentum as we execute on our strategy.
Speaker Change: It also highlighted our incredible team, which is a real competitive differentiator for us.
Speaker Change: And offered an opportunity to remind ourselves of the culture, we worked so hard to strengthen and maintain.
Speaker Change: So it's no surprise when you see everyone in action, while the team continues to win accolades, including recently from the Wall Street Journal and Newsweek.
Speaker Change: In closing I'll.
Speaker Change: I'll repeat what you've heard me say many times before.
Speaker Change: But it's what continues to be relevant and true.
Speaker Change: We are building the best business to serve our customers.
Speaker Change: Our scale and go to market approach technology.
Speaker Change: And one stop shop offering across Gen rent and specialty are unmatched.
Our team puts customers at the center of everything we do given me confidence that we're well positioned to continue to outpace the industry and capitalize on the opportunities ahead of us.
Speaker Change: We expect 2024 to be another record year for our company and longer term.
Speaker Change: We continue to March towards our 2028 aspirational goals that we shared with you last may at our Investor day.
Speaker Change: I'm so proud of all our teammates will help us deliver these results.
Ted: With that I'll hand, the call over to Ted and then we'll take your questions Ted over to you.
Ted Smith: Thanks, Matt and good morning, everyone I'm going to start my comments by adding some more color on our record fourth quarter results before pivoting towards 2020 guidance, which points to another strong year for the company.
Ted Smith: One quick reminder, before I jump into the numbers as usual the figures I'll be discussing our as reported <unk>.
Ted Smith: Except where I called them out as pro forma which is to say the prior periods adjusted to include <unk> Standalone results.
Ted Smith: With that said, let's get into the numbers.
Ted Smith: Fourth quarter rental revenue was a record $3 one 2 billion.
Ted Smith: That's a year over year increase of $372 million or 13, 5% supported by diverse strength across our end markets and our strong positioning on large projects.
Ted Smith: Within rental revenue increased.
<unk> increased by $313 million or 13, 9%.
Ted Smith: An increase in our average fleet size contributed 15, 1% as reported fleet productivity added 0.3%, partially offset by simply inflation of one 5%.
Ted Smith: Also within rental ancillary revenues were higher by $61 million or.
Ted Smith: Were 14, 2%, which was consistent with rental revenue growth.
Ted Smith: I'll add that re rent declined $2 million year on year.
Ted Smith: On a pro forma basis, which as you know is how we look at our results rental revenue increased seven 6% year on year with fleet productivity up two 4%, reflecting a healthy rate environment that continues to be supported by good industry discipline.
Ted Smith: Turning to use results fourth quarter proceeds increased better than 7% to $438 million as we continue to take advantage of a strong retail market to refresh our fleet at attractive returns by recovering roughly 62% for our original fleet cost.
Ted Smith: Our adjusted <unk> margin was flat sequentially at 55, 3%, while the year over year decline in margin reflected the ongoing normalization of these markets we've been talking about for the last several quarters.
Ted Smith: Moving to EBITDA adjusted EBITDA for the quarter was a record 1.81 billion.
Ted Smith: Reflecting an increase of $162 million or 10%.
Ted Smith: The year on year dollar change includes a $197 million increase from rental within which <unk> contributed $195 million.
Ted Smith: Larry and rerun added $2 million on a combined basis.
Ted Smith: Outside of rental used sales were a headwind of about $10 million to adjusted EBITDA, while other non rental lines of businesses were up $4 million.
Ted Smith: SG&A in the quarter increased $29 million due.
Ted Smith: The increases in variable costs.
Ted Smith: As a percentage of sales however, SG&A declined about 100 basis points to 10, 5% of total revenue.
Ted Smith: Looking at fourth quarter profitability, our adjusted EBITA margin decreased 150 basis points year on year to 48, 5% due largely to the combined impact of acre and used margins.
Ted Smith: When looked at pro forma for EBITA margin ex used was down just 20 basis points translating the flow through of 46% versus the 38% you can see on an as reported basis.
Ted Smith: And finally, our adjusted earnings per share increased 16% to $11.26.
Ted Smith: Shifting to Capex gross rental capex was $430 million, reflecting a return to a more normalized seasonal cadence supported by improvements in the supply chain.
Ted Smith: You can also see this in our net rental capex, which declined $8 million.
Ted Smith: Turning to return on invested capital and free cash flow ROIC increased 90 basis points year on year to 13, 6%.
Ted Smith: <unk>, our weighted average cost of capital by over 260 basis points.
Ted Smith: Free cash flow also remains a good story with the year coming in at just over $2 3 billion.
Ted Smith: Translating to a free cash margin of 16, 1%, even as we continue to fund significant organic growth.
The business continues to generate very strong free cash flow on both an absolute and relative basis.
Ted Smith: As Matt said this provides us with a lot of flexibility to drive shareholder value across the cycle through both investment and growth and the return of excess capital to our investors more on this in a bit.
Moving to the balance sheet, our net leverage ratio at the end of the quarter improved two tenths of a turn sequentially to one six times, while our total liquidity exceeded $3 3 billion at year as Ed.
Ed: And as a reminder, we continue to have no long term note maturities until 2027.
Ed: Notably all of this was after returning over $1 4 billion to shareholders in 2023.
Ed: This included $1 billion through share repurchases and $406 million via dividends combined this translated to the return of over $20 per share during the year.
Ted Smith: Now, let's look forward and talk more about our 2020 for guidance.
Ted Smith: Total revenue is expected in the range of $14 65 billion to $15, one 5 billion.
Ted Smith: Implying full year growth of about 4% at midpoint.
Ted Smith: Within total revenue.
Ted Smith: That our used sales guidance is implied at roughly $1 5 billion.
Ted Smith: We're down mid single digits year on year on a percentage basis, which implies slightly better growth within our core rental revenue.
Ted Smith: We then used I'll add that we expect to sell around $2 5 billion about we see translating to recovery rate of about 60% versus roughly 66% in 2023, what historical norms that are more in the $50 to 55% range.
Ted Smith: Yeah.
Our adjusted EBITDA range is six 9% to 715 billion.
Ted Smith: At mid point, excluding the impact of used this implies flow through in the forties and flattish adjusted EBITDA margins versus as reported flow through of around 30% and approximately 70 basis points year on year margin compression at the midpoint of guidance.
Ted Smith: On the fleet side, our gross Capex guidance is three four to $3 7 billion with net capex of one nine to $2 2 billion.
Ted Smith: And finally, we are guiding to another strong year of free cash flow in the range of two to $2 2 billion.
Ted Smith: Now, let's shift to our updated balance sheet and capital allocation strategy.
Ted Smith: First and foremost we remain focused on funding growth, where we can attract generate attractive returns both organically and through acquisitions.
Ted Smith: Beyond that our goal is to allocate excess free cash flow to drive shareholder value.
Ted Smith: To this end last night, we announced several exciting things.
Ted Smith: First consistent with the intentions, we shared a year ago. When we introduced our dividend we are increasing our quarterly payment by 10% to $1 63 per share or $6 52 per share annualized.
Ted Smith: I'll add that remains our plan to consistently grow dividend in line with long term earnings.
Ted Smith: Second we plan to repurchase $1 5 billion of common stock in 2024, an increase of $500 million versus what we bought in 2023.
Ted Smith: So in total we intend to return over $1 9 billion to shareholders. This year equating to almost $30 per share or a return of capital yield of over 5% based on our current share price.
Ted Smith: Lastly, and importantly, we were able to do this while also lowering our targeted full cycle leverage range by half a turn to one five to 2.5 times.
Ted Smith: As a reminder, this production follows the similar half turn reduction we announced in mid 2019.
Ted Smith: As most of you know this is something we've been working towards with the idea of building, an even stronger company and critically driving shareholder value. What's more this has all been achieved after fully funding growth.
Ted Smith: Just to provide some perspective since 2019, when we introduced the first leg of our enhanced capital allocation strategy, our revenues increased by more than 50%. Our EBITDA has increased closer to 60% and our earnings per share has grown more than 130% while at the same time, our leverage ratio has declined from two.
Two six times at the end of 2019 to one six times at the end of 2023.
Ted Smith: This combination results has supported very strong shareholder value creation that our team is very proud of the remains very focused on sustaining.
So with that let me turn the call over to the operator for Q&A operator, Please open the line.
Ted Smith: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad you.
You may remove yourself at any time by pressing star two.
Ted Smith: Once again, if you would like to ask a question at this time, Please press star one.
Ted Smith: Our first question will come from David Raso with Evercore ISI. Please go ahead.
Hi, Thank you I wanted to look into the fleet growth that you appear to have planned for this year.
David Raso: And also how to think about fleet productivity on top of that growth.
David Raso: With some carryover from 23.
David Raso: And the roughly 1 billion plus that you look to add this year right. The three and a half bill plus of gross minus the OE see you expect to sell the two and a half.
David Raso: It looks like Youre, roughly say four 5% fleet growth Youre looking for and 24. So just given some of the demand concerns. Some people have out there I'm just trying to calibrate how much of the fleet growth would you argue is earmarked for projects that are essentially lined up.
Ted Smith: First is the natural you have to take some assumptions into how you manage the fleet generally and then on top of that how should we think about fleet productivity with that type of fleet growth. Thank you.
Ted Smith: Sure. David This is Matt when you think about that fleet growth than you would have to net out of whatever inflation you had for the replacement. So when we think about the fleet overall, we're thinking about about $2 5 billion of sales, although original always see and maybe almost $3 billion to replace that depending on what we buy and all that and all of that so you're talking about the <unk>.
David: 550 of growth within that we have cold starts that we are going to support and specialty again, we'll continue to invest in the business. There and then to your point a lot of the major projects bolster up some of our our products that we know we're going to be using on major projects and just general growth. So we also asked some carryover to your point that we'll be able.
David: To utilize so we feel really good about the positioning we have and while were talking about capex, we expect it to be a little more normalized cadence from what you've seen the last couple of years.
David: As our partners have repaired their supply chain, probably at about 90% level almost all the way there how that will turn into fleet productivity as you saw as we exited this year, we felt all along we needed to work through in 'twenty three the <unk> acquisition, and some really tough comps on time.
From unusually high time utilization during COVID-19.
David: We have now leveled off at a strong level of time historically higher than we were pre COVID-19 in 2019, and we think we can continue that throughout 2024, we think there'll be a positive rate environment, we think the industry showing good discipline there is still demand.
In the markets that we serve and we think that will be a good guy and a fleet productivity and then mix, maybe a little bit of drag off of that and really only because if you think about the inflation of our costs that might be over the one and a half that we put out there we know it's going to be higher than that probably more in the two to three range. So when you net.
Ted Smith: We feel good about positive fleet productivity throughout 2024, we don't get into forecasting but embedded in our guidance is that expectation.
Ted Smith: Alright, Thats helpful. And then lastly, free cash flow a large majority of last year returning to shareholders. The guide for this year as you know a very large majority to shareholders. How should we think about the balance sheet usage. The M&A landscape, but also appreciating the lower target range can you give us an update on the M&A thoughts.
Ted Smith: Thank you, yes, sure I'll touch on the M&A.
David Raso: Ted can talk a little bit about capital allocation. None of this is at the expense of M&A. We're open for business. Obviously, we have a high bar as always but the pipeline remains robust we're always looking at assets that we could be a better owner of and specifically any new products that we can add to the system for our customers. So.
Ted Smith: I mean, if you just think about one turn even with all the share repurchase and the dividend and the lower leverage I mean, one turn is still $7 billion worth of capacity, So and Thats before you add EBITDA from any potential acquisitions that you would have and so this is not at the expense at all its opportunity we have.
Ted Smith: To return cash to shareholders.
As Ted said in his opening remarks, lower our leverage.
Anything that.
Ted Smith: I think Matt touched on the key points, but certainly we feel great about where we sit within the range currently just because it's a tremendous flexibility optionality.
Ted Smith: And puts us in a great position to as we said kind of return excess capital to investors to augment shareholder value.
Matt Smith: He is going to be our goal.
Matt Smith: And lastly for me the implied incremental margins if you exclude the used activity year over year, so a bit lower than the 50 to 60 range. We've spoken of historically it looks like it's about 46% can you help us understand some of the inputs there that keep that incremental a little bit lower but that's it for me.
Matt Smith: Yes of course.
Matt Smith: David Thats, a fair observation I think ex us we'd be looking for flow through in the <unk> call flat margins.
Matt Smith: Yes.
Matt Smith: The key thing to think about here is we are getting into a point of modestly slower growth than what we've experienced the last several years I think we were up 23% last year were up 20% the year before that in 2014 the year before that so if you think about the nature of fixed cost absorption. Obviously, when you are talking about double digit growth.
David Raso: It really kind of supports a.
Pretty good absorption in those environments as you.
Kind of get to this year, which we view more as a transition year and you're looking at mid single digit core growth.
David Raso: And still a somewhat inflationary environment. It obviously creates new dynamics that you didn't have in the prior three years.
Speaker Change: At the same time, you heard Matt talk about kind of the optimism we have in our multi year outlook. We think it's critical to make key investments in the business things like cold starts and specialty will be targeting 50, plus this year.
Matt Smith: Those are great long term investments at the margin do they kind of weigh on Incrementals. They do I don't think Thats, a surprise to anybody and there are other investments we want to continue to make quarter. The business think about areas like technology.
That's long been an area, whether you want to talk about aspects of telematics do you want to talk about different aspects of.
Matt Smith: No.
Matt Smith: Performance optimization I mean, those are areas, where we will continue to be very focused and.
Ted Smith: In the current environment, which again is this modestly slower environment, we don't want to forego those investments that have very strong rois to hit respectfully kind of an arbitrary target. If you will the flow through of some number. So we're going to continue investing in the business because we feel really good about our outlook. So Matt I don't know what else.
Matt Smith: Absolutely you can imagine we have these conversations so we feel we feel good about where we are.
Matt Smith: Thank you.
Matt Smith: Thanks, Dave Thank you David.
Matt Smith: Thank you. Our next question will come from Rob Wertheimer with Melius Research. Please go ahead.
Rob Wertheimer: Thanks, and good morning, everybody.
Rob Wertheimer: I had a couple more questions on how youre thinking about the new leverage range and capital allocation.
Rob Wertheimer: You have kind of a multi year, maybe five plus years of deleveraging in the recent past you had sort of dipped below your old range. As you are on that journey I think everybody understood that now that you've kind of reset the range should we expect a one and a half to be more of a floor or would you go below it.
We've kind of hang out and maybe this is too much but we're hanging out at the low end of the range and see the upside for acquisitions as Matt mentioned, that's a ton of capacity.
Rob Wertheimer: And then last question I'll, just ask them all at once.
Matt Smith: Is this year I don't think it would take a whole ton of upside to catch it right down to that one five and so if you do go past. It I mean do you use the excess cash for share buybacks I know, there's a potential to add fleet.
Matt Smith: Just generally how you think about working within that capital allocation range. Thank you.
Rob Wertheimer: Yes, thanks for the question Rob.
Rob Wertheimer: The idea is obviously to live within that range.
Rob Wertheimer: As was the case with the prior range stepping religious about that low end at the margin.
Rob Wertheimer: We set our capital allocation plans for the year obviously in January.
Rob Wertheimer: And so hypothetically if <unk>.
David Raso: EBITDA were to outperform and you ended up getting different sake argument. One four I don't think you should look for us to suddenly step in and just for the sake of staying within that boundary.
Rob Wertheimer: Do something that we otherwise hadn't planned to do we focus on being very disciplined when we go through these programs.
Rob Wertheimer: That said, we do have every intention of living in that one to two and a half sorry I wanted to ask you two and half range and I'll remind people. There is a cyclical overlay. So the concept is obviously at around the peak you wanted to be at the lower end of that range and Conversely, when your trough EBITDA you want to be within the upper boundary. So please remember theres.
Cyclical overlay.
Rob Wertheimer: Even with all that said leaves us with tremendous firepower that we can use to augment earnings through acquisitions.
Rob Wertheimer: Other growth initiatives, whether its more organic growth through M&A.
Rob Wertheimer: Perfect Alright that answered that pretty cleanly and then just one last one on capital allocation. The dividend you obviously took up the payment.
Rob Wertheimer: Your earnings have been up more than what you took it up and just reiterate if you would your policy there will that overtime just follow trend line earnings or how do you do that and I'll stop there. Thank you.
Rob Wertheimer: Yes.
Rob Wertheimer: Yes.
Rob Wertheimer: No.
Rob Wertheimer: The idea is we set a year ago was to grow it in line with long term earnings we don't want to get algorithmic. If you will but certainly we think that.
Rob Wertheimer: We've got the.
Rob Wertheimer: The growth capacity and the cash flow growth capacity to support our growing dividend, which we recognize as an attractive aspect of the share profile. So.
Rob Wertheimer: What I would say as we look at companies that really benefited from dividends that dividend aristocrat list.
Ted Smith: We've long said, we aspire to be part of that group. That's the intent. So I don't want to kind of get too caught up in.
Ted Smith: Our formula of what dividend growth will look like but our intent is absolutely to grow it consistent with how we think about the long term earnings power of the company, Matt anything you'd add there no I think you said it right directionally it'll be aligned but it won't be it won't be mathematically.
Ted Smith: Exactly.
Matt Smith: Thank you.
Matt Smith: Thank you. Our next question will come from Jerry Revich with Goldman Sachs. Please go ahead.
Matt Smith: Yes, hi, good morning, everyone.
Jeff: Morning, Jeff.
Jerry Revich: I'm wondering if you could just update us on how the <unk>.
Jerry Revich: Integration is trending versus plan.
Jerry Revich: The guidance for 'twenty for whats the magnitude of margin uplift that's embedded from that.
Jerry Revich: Integration then on a separate note on <unk> now that we're halfway through the five year plan for that asset I'm wondering if you could just update us on where we are on the OCC at EBITDA growth plan that you folks laid out to double that business over five years. When you made the acquisition.
Jerry Revich: Sure Gary So on the <unk> acquisition, all the integrations.
Fairly complete when we talked about we did the people first and then we went to the fleet in the facilities and as we talked about Q3 that was going to roll through the end of 2023, we're pleased to say that all of that work's been done we'll continue to get efficiencies out of that business as some of those legacy 800 facilities continue to adopt our processes and our technology.
Gary So: You can't you can't stick the six inch fire hose estimate just haven't drink everything at once so we will continue to get further improvement in those in that business, but as far as separate margin.
Gary So: Contribution the AG pretty scrambled. So these are all blended into our existing district and region networks out there, but we're pleased with what we've seen so far.
Gary So: Specifically pleased about the capacity that we added from.
Gary So: From a <unk> perspective, I don't think we have been calling that out separately, what I'll say unless Ted you have some different data, but what I'll say is we've been ahead of schedule really from year one so.
Ted Smith: So when we talked about doubling that business in five years.
We expect to achieve that sooner than the five year Mark.
Ted Smith: Don't know Ted we're giving any specifics about <unk> no no.
Ted Smith: Just said we're ahead of target business is really <unk>.
Speaker Change: Implemented the rest of our business exceptionally well the one thing I'll add on the I think Jerry you asked specifically about some of the margin uplift in <unk> 24 versus 23.
Speaker Change: I guess now that we've lapped the deal we can say, we've really reached the targeted synergies and frankly, we gave ourselves 18 months, we've probably got a.
Jerry Revich: Supermajority of the way there within 12, so there isn't that much kind of carryover incremental benefit it would be really de minimis, because we were able to realize the synergies pretty quickly and in 'twenty three.
Jerry Revich: Super and can I ask just one last one the cold starts that Youre planning roughly 50 can you just give us a sense for mix.
Jerry Revich: The trends versus other lines of business just to help us get a feeling of that trajectory is any different from the mix within.
Jerry Revich: What you saw in 2003.
Jerry Revich: Yes, it's pretty broad I mean, we have different maturity levels, but you could imagine whether it's a reliable onsite business right affordable sanitation some of the additional products that we're adding to our power HVAC team and the mobile storage right as part of that continued footprint rollout would be the three largest areas ironically not trench.
Jerry Revich: <unk> is continuing to get penetration, but don't necessarily need geographic.
Jerry Revich: Distribution growth for that for their penetration. So all as I said in my opening remarks, all the specialty businesses all those product lines grew by.
Jerry Revich: Double digits in the quarter. So we're really pleased with that continued headroom for growth in specialty.
Jerry Revich: Okay. Thank you very much.
Jerry: Thanks Jerry.
Jerry: Thank you. Our next question comes from Michael Feniger with Bank of America. Please go ahead.
Jerry: Yes. Thank you guys for taking my question.
Ted Smith: Ted if we look back at the last big downturn and construction after rates were cut it took some time for nonresidential.
Ted Smith: Really come back do you believe your portfolio of business and the environment.
Ted Smith: Is different now if we see some easing of financial condition, how do you see that kind of flowing through your business mix with MRO exposure different verticals versus maybe the past, whereas it's been much more gradual longer recovery.
Ted Smith: So I'll start with I don't pretend to be accountants, or an expert forecaster, but when we think about what the impacts could be of the fed easing rates right. We've seen slower growth in the local market business. We're very pleased that it's still growth and as we said pretty broad based growth in Q4, as we exited the year, but not double digit growth.
Ted Smith: Are you out there and Thats why you see our guidance hesitation, we feel while this transition of maybe that local market pipeline of business starting to be built out and funded right as interest rates slower. That's that's our future growth as we go forward, we're very pleased and we've been talking about for a while that the <unk>.
Ted Smith: <unk> tailwind that we've been trumping throughout 'twenty, three as a way to hedge against some of that slower growth in the local market has allowed us to come out with 24 being a growth year. That's always been our thesis how it plays out Michael we're not experts in that but we do talk to our customers. The majority of our customer survey.
Michael: Customer confidence index continue to feel positive that I don't want to paint a picture of that.
Michael: There is negative growth or that we have problems in the local market. It's just not what it's been for the last couple of years and we do think it will ramp back up once the fed takes their actions.
Michael: Pipeline will take a little while to fill but.
Michael: We don't we don't really have the ability to forecast how long.
Matt Smith: Alright, great and Matt just a follow up I mean, just delivered $2 3 billion of free cash flow in 2023 regarding another $2 billion in 2024, and a year that you are saying its a transition year.
Matt Smith: And you're still investing in the fleet is it safe to say that the new baseline free cash flow level for you Ray going forward is this $2 billion marker I mean, 'twenty 'twenty four is the transition year 2025, and still see some growth like any reason why we shouldn't be thinking that maybe there's $2 billion line is kind of the new.
Matt Smith: Baseline going forward.
Matt Smith: So I'm thinking through this Michael because we've never really kind of given that kind of guidance.
Matt Smith: Through and give you a more thoughtful answer I mean, you've heard us long say, we feel great about the cash generation characteristics characteristics of our business.
Michael: Tend to frame things more as a function of normalized free cash margin.
Michael: And I think certainly if you were to apply that kind of construct to reasonable outlook.
Michael: Again, I hesitate to kind of give you a kind of numbers, but I think we'd feel comfortable that what you've seen us do historically in the recent history is something we can continue to sustain.
Michael: I would agree and <unk> just had you know he doesn't want to make sure. We just don't want us to give a five year 10 year future cash flow.
Michael: Forecast and I don't disagree, but I think the way youre thinking about what's been this evolution in the business and the change in the business is something we talked about a while back about driving positive free cash flow through the cycle and I feel like we've been proving that out.
Michael: Yeah.
I agree with that sentiment and the sentiment of your question, we're just not going to forecast out all the way.
Michael: Fair enough and just last one to squeeze in just with your guidance around Capex disposal just well.
Michael: Hello.
Michael: How do you deal with your fleet age right now, where it's going to end this year relative to where you guys worried maybe pre COVID-19 that would be helpful. Thanks, everyone.
Michael: Yes, great question, we actually feel really good about where the fleet age is I think we are technically at.
Michael: Just over 52 months right now.
Michael: But when you adjust for tanks.
Michael: Mobile storage some of the longer life assets that we've mixed into the fleet. We look at this from a mix perspective, we're back to pre COVID-19 levels. So we're back to a healthy level of fleet age does it mean that we still don't want to refresh and keep turn into some of the assets, but net net we feel really good about where we are in fact.
Ted Smith: Pre COVID-19 levels, when when you adjust for mix of fleet.
David Raso: And that will improve further in 2024, right and the easiest way to think about this mathematically is we're going to buy $3 5 billion of Capex, just playing with the re Sim simple assumptions midyear convention would say that six months on average we're going to sell $2 5 billion of fleet that you could assume is 90 months old on average. So just you can just see how that would.
David Raso: Client mathematically, how youre going to kind of re age down further.
David Raso: So again to Matt's point 50 to nominally kind of back to pre COVID-19 levels in the upper Forty's adjusting for those acquisitions and it's going to get a little better. So it gives us it gets back to that strength of the balance sheet strength of the fleet gives us a lot of optionality.
David Raso: Thank you. Our next question will come from Ken Stein with Citigroup. Please go ahead.
David Raso: Yeah.
Ken Stein: Or Tim Thein whichever.
Ken Stein: Got it.
Tim W. Thein: I like that one.
Tim W. Thein: The.
Matt Smith: Matt back to your comment about.
Matt Smith: Fleet productivity when you are.
Matt Smith: I think when you came out with that contract.
Matt Smith: The goal was the target was to be able to outrun inflation do you think.
Matt Smith: I know you don't guide quarterly but.
Matt Smith: Should we be thinking about that number.
Matt Smith: Yes inflation, each quarter or will that is that too much of a.
Matt Smith: Okay.
Matt Smith: Seasonality and other factors close to much of a challenge on that.
Matt Smith: Okay.
Matt Smith: You should think about that our goal if it is is to exceed that one and a half.
Matt Smith: Target.
Matt Smith: Every quarter, whether we achieve it or not right. Even if you look at our pro forma this past year, which is how we looked at it we actually did achieve that this past year. So we get we didn't as reported level, but we did from a pro forma which is how we kind of managed business. So that's our goal that's what we'll be marching towards and we think the end market is conducive to doing that.
Rob Wertheimer: Got it Okay and then.
Rob Wertheimer: Okay.
Ted Smith: Ted maybe on the notion of when looking at the conversion from.
Ted Smith: From EBITDA to free cash flow.
Ted Smith: Specifically on cash taxes.
Ted Smith: Yes.
Ted Smith: There is a there is a tax bill proposed in Congress, who knows it could actually passes but would restore 100% bonus depreciation.
Ted Smith: What have you.
Ted Smith: Alright.
Ted Smith: Through that but implications maybe as is if it doesn't go through how we should think about.
Ted Smith: Cash taxes 'twenty three 'twenty four 'twenty five and then if that were to go through with it.
Ted Smith: If you have thought of it.
Ted Smith: <unk> implications of that.
Ted Smith: Yes, so I'll take those in reverse order, yes, and it's obviously, a big if but if that were to pass.
David Raso: Our understanding is it would actually even be retroactive. So in 2023 that would be worth certainly several $100 million of incremental cash flow to us.
David Raso: Given the benefit it would have to our cash taxes.
Rob Wertheimer: Taking the first part of the question as you think about cash taxes going forward.
Rob Wertheimer: Do you see a significant step up in 24 versus 23, I think if you look at our investor presentation. In the guidance is cash taxes of about $990 million, we paid about $500 million in 2023, So you see a $500 million step up that number.
Rob Wertheimer: It's not at all representative of how to think about this on a go forward basis I would remind people one of the benefits. We had in 2023 from a cash tax perspective was the expensing of the <unk> fleet acquisition. So that was worth about $300 million of benefit so apples to apples you would say the step up 24 versus 23 is more like two.
Rob Wertheimer: $200 million and so as you think about that going forward as you see this assuming you don't have that bill passed and we're stuck with US sunsetting provision within 2017 tax reform you would see depending on your assumptions on obviously pre tax income growth and capex.
Rob Wertheimer: You would see a gradual increase in our cash taxes Thats that's there.
Rob Wertheimer: But we think is obviously very manageable and something that has been known since the legislation was passed in 2017. So from a planning perspective, it's something that we've been aware of and obviously built into <unk>.
Rob Wertheimer: All of our expectations from a forecasting a capital allocation of balance sheet strategy perspective does that help Tim I'm happy to go deeper if you want.
Rob Wertheimer: Yes.
Ted Smith: Sufficient thank you Ted.
Ted Smith: And then maybe last one what kind of deepen the call here.
Ted Smith: Maybe an appropriate time, but I noticed there was a.
Ted Smith: Within the risk statements in the case something about.
Ted Smith: How youre doing more and more things within specialty and operating more and.
Ted Smith: More services and activities that it introduces more risks.
Speaker Change: Okay, United I'm, just curious does that meant.
Speaker Change: Maybe foreshadow something in terms of adding more legs to the stool within specialty or just.
Speaker Change: Something to lawyers major drop in.
Speaker Change: I think it's much more of the latter.
Speaker Change: Yes.
Yes, just more of the latter I mean, theres nothing thats changed structurally.
Speaker Change: Okay.
Speaker Change: Very good thank you.
Speaker Change: Thanks, Tim.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Steven Fisher with UBS. Please go ahead.
Steven Fisher: Thanks, Good morning, so it seems like you've put yourself in a pretty good position to make some of these long term investments even while the growth is slowing I'm wondering if you can just kind of quantify the inverse.
Steven Fisher: You make the investments youre, making in 2020 for either in dollar terms or or what the impact on the flow through is and then are these going to be kind of like ongoing investments through 2025 or.
Steven Fisher: Is it more just sort of a onetime headwind in 'twenty four.
Steven Fisher: So I'll take that one Matt or at least so.
Matt Smith: It would be hard to dimensionalize in isolation, what the headwinds or maybe another way to think about this is if you wanted to say, what's the difference from an EBITDA perspective, or a cost perspective, just framing it is cost to get from 46% to 50 for the sake of argument you'd be looking at something like $50 million EBITDA, which is materially less.
Matt Smith: And 1% of our cash operating cost so.
Matt Smith: That is the net effect of that drag from cold starts, which again are excellent investments.
Matt Smith: Yes, we don't get into showing kind of what the year one margin profile of a cold start is but I don't think that surprises anybody that it's a drag as you kind of get those fully up to speed.
Matt Smith: Both from a revenue perspective and efficiency perspective.
Matt Smith: On the technology side again, we don't call out.
Matt Smith: The specifics there, but I think people understand the cost of.
Investing in technology, it's not insignificant, it's again not going to move the needle in the context of a company with $15 billion of revenue if that can move it dramatically, but these are smart investments right. If you think about things going on.
Matt Smith: Let's just say I don't want to get into the AI term, but certainly if you look at a lot of the work we do around machine learning optimization and I'll, even stretch as far as saying leveraging AI. When you bring in third parties. Those proceeds can be substantial but we think you get great return for that investment and so again could it be a short term.
Matt Smith: This year, yes that is our expectation in terms of what it looks like in 'twenty five we'll address it at that point it will be a function of growth and the decisions we make around what incremental investments, we may or may not need to make.
Matt Smith: Matt would you know I think well said I think the real tone of why we make the conversation. It's a difference between $46, 50% flow through in the transition year. So to say is not something that would cause us to have an austerity program right. We're still going to run the business as we run it continue to improve the systems that we have the tools that.
Matt Smith: We have and grow the footprint for future growth Thats really if we were in a different environment. We have the playbook you guys saw a little bit of a direct COVID-19 then.
Matt Smith: Then you'd run a different play and we're nowhere near that world, nor do we expect to be for a few years.
Matt Smith: Got it that's very helpful. And then maybe if I could just dig into the manufacturing and industrial vertical a little bit.
Matt Smith: I know, it's an area that youre still looking for some strength can you just talk about your sense for how that market is going to be different.
Matt Smith: In 2024 versus 23, obviously was very strong in 'twenty three.
Matt Smith: What are your field managers and customers, telling you about how 24 will look relative to 'twenty three obviously.
Matt Smith: Bill mentioned semiconductors in Evs, but just curious kind of how this year is going to be different than last year.
Matt Smith: Well I think it will continue to be strong and I think it will carry a good part of the growth. This year, specifically, a big part of the Mega projects when Youre thinking about.
Matt Smith: The plants, we talked about and the onshoring of manufacturing we saw it play through all the way in Q4, where that was our largest growing vertical that we track in Q4 in the industrial sector was industrial manufacturing, we haven't even really touched on LNG nor is it kicked off in a big way yet that's yet another opportunity in the industrial space. So.
Steven Fisher: We feel really good about the industrial end markets outside of oil and gas.
Gary So: And really the upstream which was down you guys, all probably see that in the rig count.
Gary So: That was down in Q4, and we expect to be down next year outside of that we think it's going to continue to be another strong year in the industrial end markets.
Gary So: Terrific. Thank you.
Steven Fisher: Thanks, Steve.
Steven Fisher: Thank you. Our next question comes from Seth Weber with Wells Fargo. Please go ahead.
Steven Fisher: Yeah.
Speaker Change: Hey, guys good morning.
Speaker Change: Okay.
Matt Smith: Matt I appreciate the comment about normalizing Capex I just wanted to.
Matt Smith: Dig in on that a little bit. So I think historically first quarter Capex was sort of like low double digit percentages of your total.
Matt Smith: Is that kind of the right number we should be thinking about because that would suggest we're down year in the first quarter.
Matt Smith: For Capex for gross Capex is that how youre thinking about it yes.
Matt Smith: Yes, as we've gotten bigger to be fair the ears, but year quarters of Q1, and Q4 has to get a little bit bigger just to be fair to the branches that have to process it and the and our partners that have to deliver it. So we think more like in that 15% to 20% range as kind of a new normal in Q1 that will still be a down year by the way I believe but well.
Or flattish, but the difference is we didn't bring in that load in Q4, so think about the cadence.
Matt Smith: We would say are more in that 15 to 20 range.
Matt Smith: The outside quarters of Q1, and Q4 and it would depend Q4 be the bigger variable to depend on what the year looks like and then about two thirds of our capex in those middle quarters is kind of the way to look at it without being exact right because.
David Raso: We couldnt even forecast exactly if we wanted to but that's the way we think about it.
David Raso: So Seth just to your question on the first quarter. If you go back to the strategy, we had to implement last year, we took down.
David Raso: Certainly 20 plus percent of our full year capex in the first quarter I think it was 22, 23% that's about $800 million.
Seth Weber: So if you think the Capex is fractionally up this year, but youre going to have a smaller fraction.
Gary So: People should be thinking the capex landed will be down because of the unusual actions we had to make in the fourth quarter of 'twenty, two and the first quarter 'twenty three.
Gary So: Given the supply chain challenges we faced.
Gary So: Yes, that's exactly right. Okay I appreciate that and then yes.
Gary So: Maybe just.
Gary So: Okay.
Gary So: Can you just dimensionalize some of this Mega project.
Gary So: Terry.
Gary So: Maybe just talk to.
Gary So: Where do you think we are in that process are these projects starting to move.
Gary So: Move forward.
Gary So: You like seeing shovels endured on these projects, there's a lot of debate around this stuff and just a lot of skepticism.
Gary So: Isn't it some of these projects are going to go forward and can you just talk to.
Gary So: Just sort of the rate of activity that youre seeing on those projects, maybe even touch on just sort of the competitive environment.
Gary So: Our United to to win those projects or anything you can give to help us.
Gary So: Get comfortable that those projects are moving forward in.
Gary So: There will be an impact in 2024, thanks, yes, certainly well.
Gary So: First off there's not any skepticism from our perspective right. So were these.
Gary So: Yes.
Gary So: No no no. These jobs because we have more visibility to this because of the planning thats required frankly than we do the local market business. So we actually feel really solid about our prospects on the large projects and I think most of our peers that can participate in that think the naturals do as well and I think youll continue to hear that commentary, but their projects are ongoing right now.
Matt Smith: Some of the largest projects we've ever been on our half year on them today and did.
Matt Smith: And at least back half 'twenty three but this is a multiyear tailwind.
Matt Smith: We will use for example.
Matt Smith: People talk it has been a lot of talk about Evs, there hasn't been an EV cancelation yeah right. So I think one project was re scoped, a little smaller than one was pause.
Matt Smith: Because environmental needs and now it's back online so we really aren't seeing.
Matt Smith: A few delays for just idiosyncratic reasons, but we're not seeing cancellations at all in the major projects and then as I mentioned earlier Theres a lot of LNG work, that's coming we think the infrastructure Bill is an at risk that was regardless of what happens with the election that was bipartisan support fully and more importantly, we really need it.
Matt Smith: As a country and then the IRI, which is more longer term I guess, that's the one you could debate, but that's got a longer tail to it and one that hasnt, even manifesting yet, but the tailwind that we've been discussing are showing up in our business today and we expect to for multiple years.
Matt Smith: Okay and can you is there anything you'd add on win rate or.
Matt Smith: How.
Matt Smith: It's.
Matt Smith: Successful you guys have been on.
Matt Smith: Getting these projects.
Matt Smith: Now, we view that as competitive and it's not something that we don't discuss all I can say is.
We've been the largest provider of equipment to national accounts and the people through these type jobs for many many many years long before Mega projects became a new term. So we feel we feel good about our position.
Matt Smith: Got it okay. Thanks, guys I appreciate it.
Matt Smith: Thanks Pat.
Matt Smith: Yeah.
Matt Smith: Thank you. Our next question comes from Nicole <unk> with Deutsche Bank. Please go ahead.
Matt Smith: Yeah. Thanks, good morning, guys.
Great.
Nicole DeBlase: So a lot of a lot of ground has been covered here I just wanted to ask one that I had left on used equipment sales. So another year of kind of higher than normal use equipment sales you guys are forecasting I guess any thoughts on how long that elevated level of investment will glass and can you also talk about the expected mix of <unk>.
Nicole DeBlase: Wholesale versus auction in 24, thank you.
Nicole DeBlase: Yes so.
Nicole DeBlase: So not knowing the context exactly of how you think about that data I mean to us that replacement.
Nicole DeBlase: The OSC sold is right in line with where it should be from an <unk> perspective, so while the numbers are bigger it's on a bigger base. So that replacement cycle is driven by a very systematic approach to how we manage the fleet in returns. So I'm not sure. We can dig into this further in the call, but it's tough to know.
Nicole DeBlase: Exactly how to interpret that question on that basis.
Nicole DeBlase: So we feel good about that in terms of channel mix.
Nicole DeBlase: We would expect to kind of go back to that normal distribution is it rough numbers, but over time, you would see something like two thirds going through retail you would see something like <unk>.
Nicole DeBlase: Twentyish or so going to trade packages.
David Raso: <unk> low doubles in broker and that would leave auction in kind of that mid single digit if you compare that to 23 really the big difference was we used auction to clear out some of that inventory, we talked about especially in the second half.
David Raso: You would've seen that margins you would have seen that in the recovery rates too.
Nicole DeBlase: So I don't know if that helps answer the second part did I Miss anything no I would just add Nicole when you think about the.
Nicole DeBlase: Let's use the recovery rate right as a percentage of what we see as you can see from what were forecasting that number is coming down off historical highs, but still above the mid fifty's that we used to talk about and we do think that as new equipment pricing continued to rise that acts as a bit of an umbrella coverage. So we don't think were going all the way back to the mid <unk>.
Nicole DeBlase: Nor is that implied in this guidance so we still think.
Nicole DeBlase: Somewhere in between the low Seventy's, where things picked up to the historical mid <unk> is where we think will level out it's never good to correct your boss, but more like $50 to 55.
Nicole DeBlase: Thanks, guys I appreciate that.
Matt Smith: Youre welcome.
Matt Smith: Thank you. Our next question comes from Ken Newman with Keybanc capital markets. Please go ahead.
Ken Newman: Hey, good morning, guys. Thanks for squeezing me in.
Ken Newman: So the first question I just wanted to touch back on the forward visibility that you guys are will talk a little bit from your customers.
Matt Smith: Obviously, you've talked a lot about Matt the manufacturing activity and obviously manufacturing has had an amazing 2023.
Ken Newman: Im thinking about your growth visibility for 'twenty four.
Matt: That primarily kind of driven by the infrastructure and the power side, because obviously, we're not going to see I don't think there's any expectations to see like another year of multiple $10 billion plus semi fab projects on the Mega project side, So what's kind of driving that that wave of growth here in 'twenty four.
Matt: Yes, I'll start there I mean, I guess, we have Kiddingly talk about this term mega projects and no one's even sure what it really means in completely different definitions, what I would I'm not sure I get caught up specifically on whatever mega projects means.
Matt: We've talked about.
Matt: Number of verticals, where we think there is growth opportunity certainly manufacturing is at the top of that list.
Matt: It was very strong.
Matt: But then you look at elements of infrastructure, which may or may not be quote unquote Mega projects do you think about health care I think about education. These are all areas, where we've seen good momentum in 2023 and the indications are from our field team and customers that that will sustain itself into 2024. So maybe some of those are mega projects, but many of them are kind of areas.
Matt: That.
Matt: Could be.
Matt: Maybe they don't qualify as this term, but they're still important verticals, where we've got very strong strategies that benefit us.
Matt: I don't know if that nothing you would add but you covered it well said.
Matt: Okay No that's helpful.
Matt: And then.
Matt: Matt I think at the beginning of the call you talked about.
Matt Smith: <unk> for rental rate, maybe being a good guy for fleet productivity this year.
Matt Smith: I don't disagree with you, but I'm curious if you could just help us square us with that that comment because obviously the guide is assuming supply chains are normalizing and used equipment sales were going to be a drag on margins. This year, So where is the support for rates kind of staying here positive through the year.
Matt Smith: So a couple of things number one there is still a growth environment right. That's first and foremost, but the industry has shown discipline, whether you want to say that discipline has caused that of demand because it was a robust demand.
Matt Smith: Or the need because of rising equipment prices, but also information is so much more information in this latest cycle that we're in versus previously and people always want to go back to the <unk> nine and what happened.
Matt Smith: Current industry now.
Ken Newman: It's a different world now, but it's definitely a more mature industry, there's more information there, but the need and think about it for us though is that probably buys at the best in the industry I would assume if we see the rising prices I can't even imagine the industry overall, how anyone would consider that going negative on pricing would even be it.
Ken Newman: Reasonable thesis or financially feasible. So we really feel that all of these reasons are why we feel good about it and then also obviously what we see in our business every day.
Ken Newman: Yes, hi.
Ken Newman: That makes sense appreciate the color.
Ken Newman: Thanks, Ken.
Ken Newman: Thank you. Our next question comes from Scott Schneeberger with Oppenheimer. Please go ahead.
Scott Schneeberger: Thanks, guys good morning.
Scott Schneeberger: Two the first is the first kind of a two parter.
Scott Schneeberger: So.
Scott Schneeberger: And that you referenced earlier Youre surveys I thought you've always done surveys with your maybe 300 largest customers I assume you do surveys with smaller customers and you talked about a little bit weakness being being local when I mean that could you talk about just compare and contrast, those two categories and the second part of this day.
<unk> question is infrastructure, Bill, where do you see VC funds flowing yet per your customers I know theres a lot of projects a wet but are you seeing those funds flow.
Scott Schneeberger: Yes, I'll talk to the customer set a little bit and let Ted give you. Some details on the survey and infrastructure. So when we talk about slowing local market business. It's what we see when we segment our customers, we see that local markets that we're growing double digits or growing mid to low single digits someplace. So when we see that flowing it's the reality of what we see the survey.
Ted Smith: Still positive overall in time, we'll get to that but I didn't want that to be mistaken and.
Scott Schneeberger: And we just think we will be putting more of our fleet towards the tailwind in the major projects that we've been discussing that we have historically that you want to touch on the survey, yes. So Scott.
Scott: The way. The survey is constructed is we can look at different customer slices.
Scott: And certainly we can look at what we call national and strategic accounts and then we kind of look at the total responses in the responses are trailing three week average more like eight to 900. So it's a pretty large survey size. We think it's pretty representative of the world that our customers are living in.
Say its certainly on a relative basis the strongest results.
Scott: Our diffusion based index, so those that fall into the categories pointing to growth are definitely going to be the bigger customers. I think that's a lot of what underpins where you've heard us talk about today.
Scott: But people should not and furthest to mean that the the other accounts or what would be in the total composite or negative there's still positive just not as positive.
Scott: We continue to see an exceptionally small fraction that actually see the world going down.
Scott: <unk> talked about that being in the very low single digit ranges.
Scott Schneeberger: Still true so we're not seeing any kind of like bearish indications from our customer confidence syndication. It's just kind of you are seeing kind of responses that are more consistent with the way we've talked about our expectations for 'twenty four.
Scott Schneeberger: Great. Thanks, and then anything specific to infrastructure Bill and funds phone guys.
Scott Schneeberger: So we've seen those awards too so it's been good to see a lot of those Big awards made in 2023.
Scott Schneeberger: If you look at the top 10 list that's on the Whitehouse website.
Scott Schneeberger: Very few of those have broken ground, you've obviously got an exceptionally large tunnel project.
Ken Newman: Between New York, New Jersey that.
Ken Newman:
Ken Newman: I assume would be at 24 event, maybe its 25 suspect theres, an awful lot of engineering and permitting.
Ken Newman: But we've definitely seen anecdotally.
Ken Newman: More dollars flow into that world in 'twenty three 'twenty. Two we said this we really didn't see much in 'twenty two very late in the year, we saw some but across 23, we started to see certainly road and highway projects that where you could see that attribution to III JA. We saw a number of airports break ground. It wasn't just the <unk>.
Gary So: <unk> ones, but it was secondary and tertiary airports, you've heard us talk about that.
Gary So: Yes, we've seen some restoration projects in the Everglades and elsewhere that we've won so again it ends up being more anecdotal feedback from the team there isn't some great summary, or audit that the government has provided.
Rob Wertheimer: We're aware of but certainly gaining momentum I'd agree I'd say, there's a lot more shovel ready to use your word work ahead than theres been behind US certainly so we're in the early innings of this but I just want to remind everyone. We've had we've had growth and even in the fourth quarter. We've had good growth in our infrastructure sector really for the past couple of years plus and this is <unk>.
Ted Smith: Something we started focus focusing on as early as 2017 with the Neff acquisition for those who had been covering us for a while so we feel good about this and we think to your point and what Ted's comments more room ahead of us on the infrastructure as far as shovel ready active work over the next few years.
Ted Smith: Great. Thanks, that's good color I appreciate that kind of follow up Ted probably more for you just a summary of what we've heard on this call your guidance for revenue a little higher than the guidance for EBITDA growth I think I heard you know hey, same level of cold starts on a little less revenue growth and in a lot of technology investment.
Ted Smith: That's kind of my summary, takeaway, but anything you'd add in is that accurate.
Ted Smith: They used piece is a critical one to make sure that you understand Scott and I think you do but you know anybody else who is who is listening.
Ted Smith: We've talked for the last several years about the prospective normalization of the used market you started to see that in 'twenty three versus 22, probably the easiest way to express this isn't that recovery rate.
Scott Schneeberger: 2022, we recovered about 74 cents on the dollar selling 90 months old equipment, historically, we get 50% to 55 and that really was driven by an extraordinarily unusual environment.
Scott Schneeberger: As everybody remembers we at that time, we went out of our way to tell people. Those were not we didn't think those would be sustainable recovery rates.
Scott Schneeberger: Brian you wouldn't expect to buy an asset at seven and a half years of cash flow and then sell it for only 26% economic depreciation.
Brian: So you fast forward to 2023, we got back about 66 cents on the dollar so that was part of that normalization and if you think about what we expect for 2024 and what's embedded in our guidance, it's getting to about 60 right. It's at $1 5 billion of proceeds relative to $2 5 billion of OCC sold so down from <unk>.
'twenty, three but still well above those historical norms as you would expect that will impact margins.
Brian: Margins are still very high in the entirety of 'twenty three I think we are about 57%. If you went back to kind of pre pandemic levels normal was more in the upper forty's.
Brian: So we continue to see very strong margins, there as well, but as I said as you normalize that recovery rate that will impact your margins. When you play through all of that for the sake of argument. If you assume that there is a linear relationship between that normalization on recovery and margins you would say alright, if you guys get to let's say.
The low fifty's adjusted used margin and you apply that to the revenue that will give you a way to dimensionalize what that EBITDA headwind is we're facing and really overcoming in 'twenty four as used markets normalize so we.
Brian: <unk> gave you kind of handholding to think about how to quantify this when you do that you place those numbers, that's where you see kind of flat margins year on year ex us.
Brian: Matt anything you'd add there very thorough.
Matt Smith: Great. Thanks, Thanks, guys.
Matt Smith: Thank you.
Matt Smith: Thank you and this does conclude our question and answer session I will now turn the call back to Matt Flannery for any additional or closing remarks.
Matthew John Flannery: Thank you operator, and thanks to everyone on the call. We appreciate your time and I'm glad you could join US today and I'll just remind everyone. You can go to our site. Our Q4 investor deck has the latest updates and as always Elizabeth is available to answer any of your questions. So stay safe and I look forward to seeing you all in April.
Matthew John Flannery: Operator, you can now in the call.
Matthew John Flannery: This does conclude today's call. We thank you for your participation you may disconnect at any time.
Matthew John Flannery: [music].
Matthew John Flannery: Mhm.
Matthew John Flannery: [music].
Matthew John Flannery: Sure.
[music].
Matthew John Flannery: Yes.
Matthew John Flannery: [music].