Latest Acquisitions Bring Growth Opportunities, Flannery Tells Investors

United Rentals’ acquisitions in 2018 raise new opportunities for the industry’s largest rental company, president Matt Flannery told a conference call of investors after United Rentals announced strong results in the third quarter. And, CEO Michael Kneeland added, United Rentals may add more.

“Our acquisition of Baker adds new capabilities for fluid solutions while the segment’s robust organic performance in the quarter outpaced the company as a whole,” said Flannery. “Things are going well with Baker and the combination is on track. The North American operations have been fully integrated and we plan to do Europe next year. We retained Baker’s key leaders and the entire team has proven to be a great fit. They are excited about our initiatives from branch collaboration and they are sharing customers with our Gen Rent locations. We are actively engaged in the market for our new offerings of tanks and filtration systems.”

Flannery said looking at the company’s specialty segment as a whole, it continues to gain critical mass. “The Baker acquisition added 56 branches to the segment and we also opened an additional 26 cold starts this year,” Flannery said. “So together this brings our specialty footprint to 319 locations in North America with another 11 in Europe.”

During the third quarter, specialty rental revenue increased more than 39 percent year over year, including 18 percent organic growth. The numbers include a significant contribution from cross selling, which grew nearly 25 percent year-to-date.

“Our investments in the specialty segment aligned well with our companywide commitment to drive returns in our core business while adding valuable services for our customers,” said Flannery. “That's what the team is focused on, maintaining our strong customer relationships through a comprehensive offering of products and services while keeping a keen eye focused on profitable growth. This goes far beyond our scale and service offerings.”

Flannery also talked about United Rentals’ training academy. “We are growing our United Academy curriculum, which now stands at 435 training courses and we are continuing to develop our customer-facing technology,” he said. “This includes our digital capabilities including our proprietary Total Control software. And last month, we held our annual Total Control conference in Dallas for more than 250 customers who use that software. The agenda focused on digital solutions that help our customers drive productivity, safety and efficiency at their work sites. And the customers also got to hear about our technology strategy and we received a lot of great feedback from them. This was our 19th conference and our biggest one yet.”

Flannery noted the importance of having a wide-ranging, varied customer mix and demand across a wide spectrum of industries. “Project diversity is another hallmark of demand,” Flannery said. “On the West Coast, the tech giants are building data centers, and we have four major airports that have work underway including a $14 billion project at LAX. And in the Gulf, there are continued opportunities across the entire petrochemical complex from upstream oil and gas to midstream pipelines to downstream refining and chemical processing. In Canada, our rental revenue growth stayed positive up almost 10 percent over the prior year. There are some big projects on the horizon in Canada as well, including a massive $40 billion liquefied natural gas plant in British Columbia. We've been supplying the pre-work at that project for a while, and once it ramps up, we expect to be onsite until about 2023.”

Chief financial officer Jessica Graziano discussed the company’s planned fourth quarter increase in fleet spending. “Rental CapEx in the [third] quarter was $736 million, up $164 million from last year,” she said. “The increase was in response to the broad demand we're seeing. Our guidance for the year modestly increases the range on our growth CapEx spend to between $2 billion and $2.1 billion. Year-to-date growth CapEx was just over $1.96 billion. We would be looking at lower Q4 CapEx considering the fleet we pulled forward into last year to support Hurricane Harvey and Irma.”

On the acquisitions, Graziano said, “Baker closed on July 31, so we had two months of contribution in the third quarter. Baker added approximately $56 million of revenue and $16 million of adjusted EBITDA both in line with what we expected in the quarter. We're on track as far as synergies with the run rate of about $14 million so far and a million of that is already realized. As for BlueLine, we anticipate closing the deal this quarter. If we assume the transaction closes at the end of October, we expect that BlueLine will contribute in the neighborhood of $120 million of revenue and about $50 million of adjusted EBITDA to calendar 2018. We don't anticipate any significant CapEx spend for BlueLine before the end of the year.”

Flannery said that the company is planning approximately 25 more cold starts in the specialty area in 2019, adding that some of them may be at branches that are part of the BlueLine acquisition. “Sometimes we get to use some of the real estate that we get from an acquisition because they have extra capacity, and sometimes we just have to go out and find real estate,” Flannery said.

And CEO Michael Kneeland said that even after the acquisitions of BakerCorp and BlueLine Rental, coming on the heels of the major acquisitions of NES Rental and Neff Corp., United Rentals still might acquire more.

“We've seen acquisition has an opportunity and we will continue to focus on that,” Kneeland said. “We have a very robust pipeline that we were reviewing. We will be very disciplined in our approach and nothing's going to change there, but clearly we are still very much in that game.”