William "Ted" Grace
Executive Vice President and Chief Financial Officer at United Rentals
Thanks, Matt, and good morning, everyone. As Matt just highlighted, the year continues to play out as expected with third quarter records achieved in total revenue, rental revenue, EBITDA and EPS. Looking ahead, our reaffirmed guidance at the midpoints across all metrics reflects our continued confidence in delivering another year of solid growth, strong profitability, healthy returns and significant free cash flow. As importantly, we remain focused on prudently allocating capital to help maximize shareholder value. So with that said, let's jump into the numbers. Third quarter rental revenue was a record $3.463 billion. That's a year-on-year increase of $239 million or 7.4%, supported again by growth from large projects and key verticals. Within rental revenue, OER increased by $153 million or 5.8%. Growth in our average fleet size contributed 3.8% to OER, while fleet productivity added 3.5%, partially offset by assumed fleet inflation of 1.5%. Also within rental, ancillary and re-rent revenues were higher by $86 million or 15%, resulting primarily from strong growth in our specialty businesses. Turning to our used results, we sold a record amount of fleet in the third quarter, generating proceeds of $321 million in a strong demand environment. While we continue to see a normalization of used pricing, our adjusted margin and recovery rate both remained high by historical standards at 49.5% and 54%, respectively. It's also worth noting that our recovery rate was impacted by the age of fleet we sold-in the quarter, which increased roughly four months year-on-year to 95 months on average. Moving to EBITDA, adjusted EBITDA was a third quarter record at just over $1.9 billion, translating to an increase of $54 million or 2.9%. Within this, rental contributed $132 million year-on-year. Outside of rental, used sales were a $43 million headwind to adjusted EBITDA, driven by the ongoing normalization of the used market. SG&A increased by $40 million year-on-year, primarily reflecting a larger business, including the addition of Yak and some discrete items in the quarter. And finally, the EBITDA contribution from other non-rental lines of businesses increased $5 million year-on-year. Looking at third quarter profitability, our adjusted EBITDA margin was 47.7%, implying about 140 basis-points of compression. Excluding the impact of used, however, our margin was down about 1 percentage point, reflecting the impact of the investments we've talked about making this year, normal variability in costs and the impact of roughly $15 million of discrete items in the quarter. Converting this to flow-through, our incrementals would go from about 24% on an as-reported basis to 36% ex-used and into the low 40s, excluding the $15 million of discrete items I just mentioned. And finally, our adjusted earnings per share was a third quarter record of $11.80. Shifting to capex, gross rental capex was $1.3 billion, which was in-line with expectations and within the range of historical seasonality. Moving to returns and free cash flow. Our return on invested capital of 13.2% remained well-above our weighted average cost-of-capital, while year-to-date free-cash flow totaled over $1.2 billion. Our balance sheet remains very strong with net leverage of 1.8 times at the end of September and total liquidity of almost $2.9 billion. I'll note this was after returning a record of over $1.4 billion to shareholders year-to-date, including $326 million view dividends and $1.1 billion through repurchases that have reduced our share count by almost $1.7 million year-to-date. Now let's shift to the updated guidance we shared last night, which reflects our continued confidence in delivering another year of strong results. As previously mentioned, we are maintaining the midpoints for all metrics and narrowing the ranges for total revenue, EBITDA and gross and net capex as we normally do at this point of the year. In terms of specifics, for total revenue, we've narrowed our guidance to range of $15.1 billion to $15.3 billion, implying total revenue full-year growth of just over 6% at midpoint. Within this, I'll note that our used sale revenue guidance is unchanged at roughly $1.5 billion of proceeds on OEC sales that we now expect closer to $2.6 billion. On adjusted EBITDA, we've narrowed the range to $7.115 billion to $7.215 billion. Our range for gross capex was narrowed to $3.55 billion to $3.75 billion and our net capex has narrowed to $2.05 billion to $2.25 billion. We're still on pace to return a record $1.9 billion to shareholders this year, which translates to almost $30 per share or a current return of capital yield of about 3.6%. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.
