United Rentals Q3 2022 Earnings Call Transcript

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Provided by Quartr
October 27, 2022

Key Takeaways

  • United Rentals reported a record Q3 with 20% year-over-year rental revenue growth, 8.9% fleet productivity, and adjusted EBITDA of $1.52 billion at a 49.9% margin (63% flow-through).
  • The company increased full-year rental CapEx guidance by $350 million to secure delayed orders amid tight supply, while holding used equipment sales flat to ensure fleet availability for peak demand.
  • Under its ESG and innovation push, United Rentals became the first equipment rental provider to offer all-electric ride-on dumpsters and launched a sustainability tool tracking greenhouse gas emissions in its digital platform.
  • Key macro tailwinds include a $550 billion U.S. infrastructure bill, $440 billion in Inflation Reduction Act incentives, and over $250 billion of announced manufacturing investments, underpinning long-term demand.
  • To bolster shareholder value, the company authorized a $1.25 billion share repurchase through end-2023, adding to $5 billion returned since 2012, supported by a leverage ratio of approximately 1.9x.
AI Generated. May Contain Errors.
Earnings Conference Call
United Rentals Q3 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

And welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, note that the company's press release, comments made on today's call and responses to your questions contain forward looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control And consequently, actual results may differ materially from those projected. A summary of these uncertainties and is included in the Safe Harbor statement contained in the company's press release.

Operator

For a more complete description of these And other possible risks, please refer to the company's annual report on Form 10 ks for the year ended December 31, 2021, as well as to subsequent filings with the SEC. You can access the filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions Forward looking statements in order to reflect new information or subsequent events, circumstances or challenges in expectations. You should also note that the company's press release and today's call include references to non GAAP terms such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer back to the company's recent investor presentation to see the reconciliation For each non GAAP financial measure to the most comparable GAAP financial measure.

Operator

Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer and Ted Grace, Interim Chief Financial Officer. I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Speaker 1

Thanks, operator, and good morning, everyone. Thanks for joining our call. Well, the teams made my job pretty easy today. We reported another strong quarter in a positive operating environment in a record year. That's a great trifecta.

Speaker 1

And I know it sounds familiar because that's how the year has been going. This quarter was especially gratifying. We delivered year over year increase in rental revenue of 20% with fleet productivity of almost 9%. Our people were definitely on top of that opportunity. We achieved good operating leverage in our business by working efficiently.

Speaker 1

That's not easy to maintain during peak demand, especially in the current cost environment. So I applaud the team for meeting our customers' needs, while staying mindful of profitability, and most of all, for doing it safely. Our recordable rate for both the Q3 and year to date were well below 1, and that's with about 10% more headcount in the quarter versus last year. Against this backdrop, we grew our EBITDA margin by 2 40 basis points year over year to 49.9 in the quarter as we grew EBITDA dollars faster than revenue to over $1,500,000,000 That's a record for us in any quarter And flow through was a very solid 63%. Importantly, we also delivered another improvement in return on invested capital to Our industry has continued to show good discipline in terms of supply and demand, which creates a healthy environment for attractive returns.

Speaker 1

We have 2 levers we can pull to capitalize on this demand. First, we intentionally held back on used equipment sales to make sure we had enough capacity for our customers. And even though we sold less fleet in the quarter on an OEC basis versus our original plan, Our revenue from used sales in Q3 was essentially flat year over year, supported by very strong pricing. And secondly, we had the opportunity to pull forward some CapEx into the current quarter to ensure that we're set up for a strong start to 2023. Our updated guidance includes an increase Of rental CapEx of about $350,000,000 at the midpoint.

Speaker 1

And we think this is prudent as our OEM partners continue to work through supply chain challenges. So that's how we're thinking about CapEx at United Rentals. And on a related note, we're continuing to invest some of the CapEx and fleet that lowers carbon emissions on job sites, in line with our ESG initiatives. We recently announced an agreement to purchase all electric ride on dumpsters from JCB, making us the 1st equipment rental provider to offer this product in our fleet. And on the innovation front, we just launched a sustainability tool in our total control platform that tracks greenhouse gas emissions data.

Speaker 1

This technology is an industry first, and it's a good example of how we differentiate our company as a partner beyond the transaction. And in this case, We're helping customers reach their own sustainability goals. Investments like these continue to add value to our offering and keep us growing faster than the industry. Now I'll turn to the macro. While there are portions of the economy that are clearly slowing, in our industry, customer activity is still on the up And demand for our equipment rental continues to be very strong.

Speaker 1

Customer sentiment and key industry indicators remain positive. And we know this outlook may seem at odds with some views on the broader economy. And if we saw a cause for concern in our markets, we'd be standing here talking about it. We'd also be using the flexibility built into our model to pivot to a more conservative stance. Instead, we're investing in the tangible Here are a few of the unique dynamics that should help our industry continue to outpace the macro in virtually any economic cycle.

Speaker 1

One is the $550,000,000,000 of funding in the U. S. Infrastructure bill, which will finally put shovels in the ground starting in 2023. This should trigger at least 5 years of opportunity. There's another $440,000,000,000 of federal tax incentives in the Inflation Reduction Act for clean energy And plant upgrades, we think these will have a 5 to 10 year impact.

Speaker 1

And in the manufacturing sector, There are multiple tailwinds that will play out on different timelines. This year alone, 100 of 1,000,000,000 of dollars of new investment in manufacturing have been announced. Investments are already underway in automotive electrification, microchip factories and the broader trend towards on shoring. And there's also more focus on energy production to serve markets in North America and Europe. Many of these tailwinds are new to the construction And in combination, they're a major opportunity for our industry.

Speaker 1

Looking specifically at our business, The quarter played out even better than we anticipated. Both of our segments and every one of our regions grew rental revenue year over year by double digits. Rental revenue from non res construction was up 24%, infrastructure was up 11% and industrial was up 13%. 23% year over year as a whole, led by our Mobile Storage and Fluid Solutions businesses. Our greenfield plans for Specialty are moving forward with 25 cold starts open through September and another 11 planned by year end.

Speaker 1

Cold starts continue to be a valuable growth strategy for Specialty with a long term benefit to our company's total performance. Looking at our markets by vertical, the big multiyear projects in Q3 continue to be data centers, distribution centers and renewables as well as the automotive and ship plants that I mentioned earlier. These projects span multiple regions and most of them are megaprojects Where our customer base, our technology and our position as a one stop shop give us a major competitive advantage. Contractors are managing to source the labor and the materials they need, but at the same time, they're dealing with cost inflation, so they need to squeeze more productivity out of every dollar. We have the digital solutions to help our customers get more utilization from the equipment they rent and own.

Speaker 1

Worksites are evolving into connected environments, and we're positioned as a leader in that space, and our customers assign real value to the data that we provide. And lastly, I want to mention the new share repurchase authorization we announced yesterday. This program will return $1,250,000,000 of excess to our investors by the end of 2023, and we're proud to make this additional commitment to supporting shareholder value. So in conclusion, our 25th year in business is also shaping up to be a record year of financial performance. We've got a great team in place And we'll continue to explore every avenue for growth and returns.

Speaker 1

The construction and industrial sectors we serve have their own tailwinds, Driving the historic demand for our services. Our customers are building a strong book of business for 2023 And the secular shift toward renting is expanding the market. In this environment, we'll continue to be good stewards of United Rentals. We'll focus on profitable growth as we have all year and we'll remain flexible to act in the best interest of our shareholders. And with that, Ted, it's over to you.

Speaker 1

Thanks, Matt. Good morning, everybody. As you saw in the results we reported last night, The team did a great job delivering across the board. We continue to take advantage of the market by supporting our customers with the fleet they need, Later. But first, let's dive into the quarter.

Speaker 1

Rental revenue was a record $2,730,000,000 That's up 4 $55,000,000 or 20 percent year over year with strong contribution from both general rental and specialty. Within rental revenue, OER increased by $341,000,000 or 18%. Our average fleet size increased by 10.6%, which Provided a $201,000,000 benefit to revenue. Our fleet productivity increased a healthy 8.9%, adding $168,000,000 This is partially offset by our usual fleet inflation of about 1.5 or roughly $28,000,000 Also within rental, Ancillary revenues were higher by $103,000,000 or 32%. This is due mainly to increased delivery fees and other And finally, re rent increased $11,000,000 Outside of rental, 3rd quarter used sales were essentially flat $181,000,000 as we intentionally held on to fleet to ensure we could support stronger than expected rental demand in our peak season.

Speaker 1

The vast majority of these sales were in the high margin retail channel. This, together with improved pricing, helped deliver a very healthy 64.6% Adjusted used margin for the quarter and record proceeds as a percent of OEC of 83%. Let's move to EBITDA. Adjusted EBITDA for the quarter was $1,520,000,000 another record and an increase of $288,000,000 or 23.4 percent year on year. The dollar change includes a $288,000,000 increase from rental, Within which OER contributed $245,000,000 ancillary contributed $37,000,000 and re rent contributed $6,000,000 Outside of rental, used sales added about $25,000,000 to adjusted EBITDA, while other non rental lines of businesses contributed another $3,000,000 SG and A increased $28,000,000 primarily due to higher commissions related to volume and the normalization of certain discretionary costs.

Speaker 1

As a percent of revenue, however, SG and A showed good leverage declining 90 basis points to 11.7 percent of sales. Looking at 3rd quarter profitability, our adjusted EBITDA margin increased 240 basis points to 49.9%, implying very healthy flow through of around 63%. Excluding the benefit of used sales, flow through was a still solid 58%, supported by robust rental growth, good fleet productivity and vigilant cost management. And finally, 3rd quarter adjusted EPS was a record at $9.27 That's an increase of $2.69 per share or almost 41% year on year. Turning to CapEx.

Speaker 1

3rd quarter gross rental CapEx of $1,100,000,000 and net rental CapEx $921,000,000 were both in line with year ago levels. Now let's look at return on invested capital and free cash flow. As Matt mentioned, ROIC was another highlight in the quarter at a record 12.2% on a trailing 12 month basis. That's up 70 basis points sequentially and an increase of 2 70 basis points year on year. Free cash flow also continues to be very strong With $176,000,000 generated in the quarter, reflecting normal seasonality and over $1,100,000,000 generated through the 1st 9 months of the year, All while continuing to find growth.

Speaker 1

Moving to the balance sheet. Our leverage ratio declined 10 basis points sequentially Let's look forward and talk about our updated guidance for the year. Total revenue is now expected in the range of $11,500,000,000 to $11,700,000,000 I'll note that we've reduced our used sales guidance by $50,000,000 to $1,000,000,000 As part of this change, we now expect to sell between $1,300,000,000 1.4 1,000,000,000 of OEC. As evident in our updated guidance, we remain focused on efficiently converting that additional rental revenue To the bottom line, our adjusted EBITDA range is now $5,500,000,000 to $5,600,000,000 which at midpoint $75,000,000 above the midpoint of our prior guidance. This implies a roughly 240 basis point increase gross CapEx by $350,000,000 as we land delayed orders placed earlier in the year in select high demand cat classes.

Speaker 1

In total, we now expect gross CapEx of between $3,250,000,000 $3,450,000,000 With these changes, we still expect to generate a very healthy $1,600,000,000 to $1,800,000,000 of free cash flow, translating to a free cash margin of around 15%. Now before we go to Q and A, I'll finish with a few comments on our new We view the $1,250,000,000 program as an indication of our confidence in our business, the strength of our balance sheet and The durability of our cash generation. And we're proud of the fact that we've already returned $5,000,000,000 of excess capital to our investors Since 2012 to support shareholder value, while simultaneously getting our balance sheet to its strongest position in our 25 years. So with that, we'll turn to Q and A. Operator, could you please open the line?

Speaker 2

Hi, thanks. Just a bit of an echo, hopefully, that's not triggered by me. But Matt, maybe just first one on this notion of these mega projects. We're clearly seeing that show up in the starts data, Construction starts data and it looks to be an increase in just percentage of just overall spend in these coming years. As we think about here in late October, looking into next year, is there a way to kind of size up How you sit from just from kind of an overall visibility standpoint in terms of What's obviously, you don't operate with a backlog, but just from kind of a project visibility or project backlog standpoint, is there a way to kind of size up How United is a position as we go into 2023 just from essentially work already In hand or forthcoming, if you can help on that at all.

Speaker 1

Sure, Tim. So as far as the scale of it, we'll work on this. Is there some way that we can put a numerical value But I could just tell you in my 32 years of business, we have never seen this amount of mega projects and specifically in the infrastructure and commercial space on the books. The manufacturing is an added bonus that we really didn't expect to see where there's over $250,000,000,000 of funds already activated. So this is very tangible to us.

Speaker 1

When I think about our positioning there, as you can imagine, we've been focused on national counts for many, many years as a big part of our strategy. And these are the folks that are going to get the large share of this work. That alongside with our broader set of services, we think positions us very well in this space. So We certainly expect to out punch our weight of our overall industry market share with these customers and with these projects. And This is just another example of us thinking and believing strongly that the bigs will continue to get bigger and taking share.

Speaker 1

So That's the way I would think about it right now. I don't know if you had any other thoughts.

Speaker 2

Yes, got it. Okay. Thanks. And then Your point on the leverage range and what a change from say a decade or so ago and just in terms of how the balance sheet has evolved. But How are you thinking about the Board thinking about the 2 to 3 times target?

Speaker 2

Obviously, I'm Sure, you want to preserve some flexibility for M and A or other capital return opportunities, but Obviously, with the cash flows continuing to build, the potential for that to go even lower. So how are you and the Board thinking about that Overall, 2 to 3 times range.

Speaker 1

Thanks. I'll let Ted speak to the leverage, but we don't at all see this as preventative Jeff, please. Yes. Tim, thanks for the question. Certainly something we talk about frequently both as a management team and with the Board.

Speaker 1

And I guess if you rewind back to 2019 when we introduced the new balance sheet strategy, obviously, a key rationale was to ensure we had financial strength across the cycle. And where we sit today at 1.9, as you heard us talk about in the call, we absolutely feel very well positioned from that standpoint. It gives us a lot of freedom and flexibility to run the business as we see fit. We also said there was nothing religious about that low end of 2x We are comfortable going below to some degree. So again, kind of stockpile firepower, if you will.

Speaker 1

I think if we were to decide to live structurally in a in a lower zip code. Choose the number you want. 1.5 to 2.5 is an example. At that point, I think we'd absolutely feel obligated Update The Street, but for the time being, we feel like this range and the flexibility we have around it remain appropriate.

Speaker 2

Okay, very good. Thank you.

Speaker 1

Thanks, Tim. Thanks, Tim.

Operator

Question comes from Steven Fisher from UBS. Your line is open.

Speaker 3

Great, thanks. Good morning. Ted, you mentioned that the CapEx increase is targeted at select cat classes, but it sounds like you guys have a pretty Broadly positive view about a lot of end markets. I'm curious why it's only in select cat classes then if I heard that correctly.

Speaker 1

Hey, Steve, this is Matt. So let me put this in context, this increase. We had orders Similar to last year that because of some of the supply chain challenges and you can imagine they would happen in more higher demand categories, right, where the OEMs are doing their best Keep up, but there's a lot of demand for these assets. They slipped all the way towards the end of the year here. As we got to mid October, we had a decision to make.

Speaker 1

Do we let this CapEx flow and therefore raise our guidance or do we cancel it and hope that we can get these high demand In the spring, we made the decision to let this flow and for two reasons. Number 1, the Surety of supplies because these are assets that have slipped quite a bit. And then secondly, we'll get these at 2022 pricing instead of 2023 pricing. And we had Questions that people ask, wow, you're able to raise your CapEx, the supply chain must have really loosened up. It's actually quite the opposite.

Speaker 1

Because the supply chain is tight, we let these orders that have been delayed so long in the year flow through because we really Would rather get ahead of the curve here and we do see 2023 as a growth year. So the selectiveness wasn't really our choice. It was as much because those are the assets that slipped as much as they did because of the high demand. Hopefully that straightens that out for you, Steve.

Speaker 3

Yes, that makes perfect sense. And then on the cold starts, I think you said you've done 25 cold starts With another 11 or so in the Q4, I think that's a bit less than the 45 you had mentioned in Q2. I guess, do I have those numbers right? And What's caused the reduction in that cold start number? Is that again just equipment availability?

Speaker 3

And then are you just planning to push those into 2023?

Speaker 1

Yes, Steve, I'll double check those numbers, but I think the goal is 40% to 45% for the full year. I don't know if that's driving some confusion, but in terms of The pace at which we're opening cold starts with specialty, we're on track. Yes. If there's anything that would hold it up, it'd probably be more Getting the right facilities and people really than fleet in those sectors, specifically in specialty.

Speaker 3

Okay. Thanks very much.

Operator

And our next question comes from Jerry Revich from Goldman Sachs. Your line is open.

Speaker 4

Great. Thanks. Good morning, everyone.

Speaker 1

Good morning, Jerry.

Speaker 4

I'm wondering if you could talk about how you're seeing performance at General Finance, just give us an update for those asset classes and how do you view cyclicality considering that's not And as a class that United had in prior cycles, we'd love to see how you're thinking about the Opportunity for penetration for that category? And similarly, are there any other specialty cross selling opportunities that Could be emerging for additional categories as a result of general finance building out across your footprint?

Speaker 1

Sure. And as we think about the GFN business and the teams that came with that, We had a thesis, if you recall, when we announced, we feel that we could double this business in the next 5 years. And I could say that we're ahead of schedule on We're really getting robust growth out of this group. We're very, very pleased, not just with the team, but with the cross sell opportunities. So it's really Our customer base has absorbed this like a dry sponge.

Speaker 1

So it's really been working well for us and even ahead of the lofty plans that we had for it. And as far as other products in that category, you could just imagine like we did back in the day with pumps and like we did with tanks. Anytime we see something that's On a site, whether that be a plant or whether it be a project that our customers are running that we don't supply, we're looking for opportunities to add to the portfolio. And this was one that we looked at for quite a few years, but we finally found the right partner. So the tricky part for us is we're a believer that Doing this through M and A and buying a big enough platform to make the offering broadly is real important to our national solution strategy towards our customers.

Speaker 1

So we'll continue to be on the lookout for it, Jerry, and hopefully, we'll find other great opportunities like we did here with the GFN team.

Speaker 4

Super. And just to shift gears, I know you folks look at scenario planning A lot. In the COVID recession, margin degradation was really minimal in your business. Can you talk about your scenarios for the next downturn, given the uncertainty in the market. How do you folks think about the levers you would So Paul, any updated thoughts on whether the level of performance we saw in that very different cycle is repeatable to what extent?

Speaker 4

Thanks.

Speaker 1

Jerry, I'll take that one. As you're right, we do a lot of scenario analysis And COVID certainly had its unique dynamics. I think more than anything, it highlighted the flexibility of the business, both from a CapEx and an OpEx standpoint. And you asked about margins. So within OpEx, what you see is a lot of the businesses, a lot of the costs, I should say, cash costs that are really highly correlated to volume and what that allows us to do is flex pretty rapidly and protect kind of those Semi variable costs that are labor.

Speaker 1

That's always going to be the goal in any kind of downside scenario is to take care of our people and retain that capacity, which is the hardest thing to replace if you ever had to. So that would be the play we'd run-in virtually any scenario. Obviously, you look at different scenarios, different scenarios with different severity and different durations, but the playbook itself is very consistent Across all that kind of modeling. Yes. And I would agree.

Speaker 1

And the nice thing is when you do that in sourcing, Utilizing our own labor, you're getting your highest cost out of there. So it worked really well in COVID and Ted explained it well. It's something that we definitely was learning COVID, but both sides of it. The reason we kept that capacity was for the ramp up and it really gave us A great opportunity to move forward on the other side of whatever kind of cycle you deal with.

Speaker 4

Appreciate the discussion. Thanks.

Speaker 1

Thanks.

Operator

And our next question comes from David Raso from Evercore ISI. Your line is open.

Speaker 5

Hi, thank you very much. I was just curious, just trying to think about 20 20 3, not looking for exact guidance, just trying to think through the growth drivers. Where your fleet is going to end the year? We just assume the fleet doesn't grow at all, the fleet will be on average about 5% bigger than it was in 2022. So when we think of the drivers for 23, nothing inorganic, but when we think about further expansion of the fleet, rate and ute, Curious, can you just give us some sense of where do you still see room for growth, be it contracts coming Due that or due for a price increase, kind of where you see rates, just for a sense, I'm not trying to get exact to get some prioritization here of how do we grow across those 3 major buckets as we sit here today?

Speaker 1

Sure, David. So to your point, we'll have some natural carryover fleet growth and then add whatever number once we get through our process that we'll communicate in January, how much fleet we put on top of that for growth CapEx versus maintenance capital. And then think about the carryover we'll have in fleet productivity, although we don't expect fleet productivity to stay in these very frothy double digit ranges, mostly due to comps. When we think about that, we'll have some continued fleet productivity well above our hurdle rate. So We really think that remember that's a year over year metric.

Speaker 1

So anytime your fleet productivity is over that 1.5% hurdle rate, You're growing the business faster. You're growing revenues faster than you're growing your fleet, which is going to have accretive value to the margins and flow through. And we foresee both of those continuing to happen. The level of the wildcard will be how much, and that's what we're working through in And along with our partners to see what the capital situation could be and all be meeting the demand environment and be very flexible. But we do see 23 as Ro, to your point, because some of the natural carryovers that we're bringing into the year.

Speaker 5

When it comes to the rate momentum, do we See further rate increases for 2023. Again, I know you're only speaking about exact rates. I'm not looking for percentage. But just from where we sit today, there's some carryover, of course. But how are you thinking about rate, the ability to raise rate to start 2023?

Speaker 1

So if I think about the last few years, not just this year, and the discipline that's been in the industry, we're all having cost of goods increase. So And our customers are too. So they understand that. So there's a real focus on everybody understanding that. We have to keep it balanced with that inflation from a rate We're going to continue to do our part in that as a leader and I'm very pleased to see that the industry is doing the same.

Speaker 1

So we would expect that. How much? We'll see, but we do expect the environment of 2023 to continue to be conducive to driving, Specifically after calling the fleet productivity.

Speaker 5

All right. Thank you very much.

Speaker 1

Thank you, David.

Operator

And our next question comes from Seth Weber from Wells Fargo. Your line is open.

Speaker 6

Hey, guys. Good morning. Hey, Matt, I just wanted to go back to your pull forward CapEx comment. I mean, I'm Trying to tie that together. So should I'm not looking for 'twenty three guidance, but should we assume or should we think about that as kind of Being a governor on 2023 gross CapEx growth, If you're pulling some of that forward.

Speaker 6

And then I guess my follow-up question is, should we expect Used equipment sales to really pick up next year as well. Thanks.

Speaker 1

Sure. So two points to that. As far as a governor on growth, would you see it as a net of where we end up in CapEx planning? Absolutely. And we'll flex that as always With demand, what this really does is let us not have to worry about how quick the supply and demand pipelines meet each other by getting a little bit of head start on these assets that were tougher to get this year.

Speaker 1

So that's number 1. So there'll be some netting effect Once we finish our planning process, but because we'll have it in hand already, hopefully, it will almost be part of the planning process. So we'll give that new number to everybody. As far as the used sales, we would as long as the supply demand can be at appropriate level as opposed to a little almost too imbalance We had to hold on to fleet because we frankly couldn't sell it because it was on rent. We hope to get the more normalized fleet rotation next year And the time to use sales that you would have seen pre COVID and we hope to get to that kind of cadence in new sales.

Speaker 1

And first 4th quarter and Q1 usually are the heaviest months, and we'd expect that to continue on as we sit here today.

Speaker 6

Okay, that's perfect. Thank you. And then just maybe as a follow-up, Matt, in prior periods of Rising interest rates and stuff, do you typically see the IRCs being less able To buy fleet, are they are you hearing anything about the IRCs being more just restricted here? Or do you feel like The CapEx that's coming into the market is pretty much across the board.

Speaker 1

I think everybody's across the board has an opportunity to grow. And I think most strong solid companies that have the financial wherewithal to do that Are doing that. As you can imagine, the OEMs are going to sell out their inventory anyway. So they're probably being pretty disciplined about who they sell to. With that being said, I don't want to paint a homogenize The whole independent group, but some are better capitalized than others and those that aren't well capitalized, I got to imagine inflationary environment is going to be a challenge for For us and specifically the nationals, this is one of the reasons why we think this environment will continue to drive the bigs getting bigger, So to speak and put a value on scale, to continue to be able to overcome whatever challenges the economy

Speaker 6

Makes sense guys. Okay, thank you.

Speaker 1

Appreciate it. Thanks Seth.

Operator

And our next question comes from Rob Wittenmeier from Melinas Research. Your line is open.

Speaker 7

Hey, thanks. Good morning, everybody.

Speaker 1

Hey, Rob. So I wanted to ask

Speaker 7

on a question that Matt touched on earlier. You guys on mega You guys have spent a lot of years focusing on national accounts and serving big clients. The market Shifting towards big projects in a way that we maybe have never seen before. And I wondered if you'd be willing to give like a 2 minute teach in on what you've done, what market Looks like in a big project serviced by a big national contractor, who can provide the capabilities, what the capabilities are? And if you wanted to get tangible, I assume your market share at Something like Guardia was higher than 15%.

Speaker 7

Just wonder if you can give us any help on that. Thank you.

Speaker 1

Yes. When you think about large projects, Right. Wherever you draw the line at Mega, but really any kind of project of scale is going to need multiple products. This one of the reasons why we think a very broad offering is important because one of the things that people don't necessarily think about is the security and safety A site is very important to construction managers. They're held responsible and held accountable to that security and safety.

Speaker 1

And Obviously, if you don't have 20 different suppliers running around, supporting a project, you have a little bit more consistency. I also think We feel like we lead strongly with safety, but I think this is an area where the larger companies that can invest in tools, invest and have a focus culturally on safety at a competitive advantage. As far as what share is, it's going to depend on each project. But you can imagine that the players that can serve Most of the needs are the ones that are going to be in the best position. And I don't want to get into market share on that because it varies by project.

Speaker 1

There's very few sole source projects as opposed to plant work where you may have a sole source contract that you bid for. So there'll be multiple people on a project And the ones that do the better job are going to get a better share once they prove it to the customer.

Speaker 7

Thank you. And if could just add into that discussion briefly technology. You touched on it earlier. I know you've invested a lot in tech. Do big projects use it a lot more aggressively?

Speaker 7

You mentioned Couple of margins with productivity and so forth, what is most attractive to big projects on the tech front? And I will stop there.

Speaker 1

Sure, Rob. Thanks for the opportunity to mention the visibility that we can give them through our connected assets. So we have over 250,000 assets That has telematics on it. That in itself is a big investment that reads rewards for us and for our customers, so that we can give them real time data, Whether that's location, utilization, fuel alerts, there's a lot of stuff that's unique to that investment. And think about a large complex project, That visibility that the people who are in charge of leading that project really gives them help in running a more efficient process and Bringing more money to the bottom line, which is their job, right, running the job at the appropriate cost levels and productivity.

Speaker 1

So Rental has always been about driving safety and productivity. And I would say the connected job site and the data that we can bring to it through our tools Just up the ante on driving better productivity. Great. Thank you. Thanks.

Operator

And our next question comes from Ken Newman from KeyBanc Capital Markets. Your line is open.

Speaker 6

Hey, morning guys.

Speaker 1

Good morning, Ken. Just

Speaker 8

maybe I missed it, but I think you talked a little bit about Strong customer sentiments. Just any color on how your internal customer survey is trending this quarter relative to last quarter?

Speaker 1

Yes, Ken, good question. Simply, it's trended remarkably in line. There really hasn't been any deviation in Our customer optimism looking forward. And as a reminder to everybody else, that's something we do as part of our Net Promoter Scores, and we ask them on a forward 12 month basis they feel about their revenue prospects. Got it.

Speaker 1

And I guess the other thing I would add is, sorry, Also very consistent with the feedback we get from the field. So we're constantly making sure that those two data points, if you will, do align. And the good news is they continue to align.

Speaker 8

Yes, makes sense. And then for my follow-up, This might be a bit of a harder question to answer, but just given how tight the fleet is and how tight supply chains have been, is there any idea that Just how much revenue opportunities you had to pass on because you didn't have the fleet that you wanted? Or Any idea of whether or not you think, all of that fleet would have been on rent as soon as it hit?

Speaker 1

Yes. Certainly, when the market is running as hot as it has this year and you have the supply demand dynamic we had, I got to imagine that peak season, everyone's missing a little bit of business. And part of it, customers learn to plan better. Part of it, customers didn't turn in for you this quickly. Some even moved to job to job.

Speaker 1

So with our key accounts and the people that we're Got to put more fleet to work. We had to stay very focused on prioritizing our key accounts and making sure we took care of our key relationships and And supported them in a manner they expect United Rentals. So we should certainly lost some, hard to quantify, but net net, we're very pleased with the 20 I won't get too far out there on that. Appreciate it. Thanks.

Speaker 1

Thanks, Ken.

Operator

And our next question comes from Steven Volkmann from Jefferies. Your line is open.

Speaker 9

Great. Good morning, guys. Thank you for taking my question. A lot of discussion about these mega projects and some of the tailwinds from infrastructure, etcetera. I'm just Trying to kind of get a sense of how you think about sizing that.

Speaker 9

I mean, how much of your business in 2 or 3 years when these things are really ramped up? How much of it comes from those types of projects?

Speaker 1

Steve, it's a good question. It's certainly hard to say How much of the total business comes from those opportunities? Or how much of the total business is driven by those? But certainly, we can dimensionalize what those numbers look like in the absolute. So look at infrastructure as an example, it's nominally $550,000,000,000 over 5 years.

Speaker 1

So Pete just said, it's $110,000,000,000 on an annualized basis. That's in the context of a total non res construction market, but that's $800,000,000,000 And within that, the public piece is probably $340,000,000 So it's quite meaningful, right? You would say $100,000,000,000 in an $800,000,000,000 market Is 12% tailwind, all else equal? And then you start thinking about some of the other programs. IRA, harder to dimensionalize.

Speaker 1

You've got $370,000,000,000 of tax credits to get levered, right? So the intended spending there is substantially larger than that, probably a longer timeframe admittedly, But that same dimensionalization, dollars 800,000,000,000 of total non res, dollars 340,000,000 of public non res. If you look at some of the stuff more in the private domain, semis is an example, we're tracking $200,000,000,000 to $250,000,000,000 of projects intended spend the companies have announced in the U. S. So again, you choose the denominator, but if you think it's over 5 or 10 years, That's in the context of a private non res market that's about $470,000,000,000 So there again, it's quite substantial.

Speaker 1

Autos would be another one. These numbers are harder to come by, but we think you can pretty confidently underwrite 100 of 1,000,000,000 of dollars of total in North America by the OEMs and all their supply chain partners, which again is in the context of $800,000,000,000 of total non res, call $500,000,000,000 of private non res. Energy is another one that's tough to dimensionalize, but I think we're all aware of what's going to drive U. S. Natural gas exports over the next many years, and that will be another one.

Speaker 1

So when you think about those in the context of what the existing market is, There are going to be really big tailwinds. In terms of what that fraction is looking at 3, 5, 10 years, it's much harder to say. But suffice to say, They'll be meaningful contributors. Does that help?

Speaker 9

Yes. No, that's great. You guys have definitely thought that through. Appreciate it. Maybe my follow-up a little bit closer term, maybe more of a Ted question.

Speaker 9

I'm trying to think about how To think about SG and A in 2023, and I'm guessing that there's a fair amount of kind of incentive comp of various types That's in there that probably resets and maybe doesn't recur in 2023. Just any way to think about those trends?

Speaker 1

Yes, too early to get into details about the headwinds or the tailwinds, I should say, from Perspectively, incentive comp reset, but certainly you can hear our tone on growth and we certainly expect to leverage The nature of SG and A, again, in 2023, that will obviously be embedded within our guidance we give, Which is EBITDA, as you know, so it's kind of below the line, if you will. But suffice to say, we would look to get another year of healthy leverage on those costs.

Speaker 9

Okay. I'll wait for that then. Thank you.

Speaker 1

Great. Thanks, Steve.

Operator

And with that, it appears there are no further questions over the line. I'd like to go ahead and turn it back to Matt for any closing remarks.

Speaker 1

Thank you, operator, and thanks to everyone for joining the call. We're very proud to deliver such strong profitable growth in our busiest season. But now we got to look forward. We're deep into the planning process for 2023. So stay tuned for our new guidance on the January call.

Speaker 1

And until then, if you have any questions, Feel free to reach out to Ted anytime and he'll be very helpful. So with that, operator, please end the

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