Ahern Rentals, Inc. (URI) Earnings Call Transcript & Summary

Good morning, 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 are consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K 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 to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes 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 measures to the most comparable GAAP financial measure. 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.

Thank you, operator, and good morning, everyone. Thanks for joining the call on short notice. I'll start with a few remarks, and then Ted and I will take your questions. As you saw this morning, we entered into an agreement to acquire the assets of Ahern Rentals for $2 billion in cash. This is a significant step forward in executing our grow the core strategy of deploying capital to grow the core business organically and through M&A and drive superior shareholder value. The strong rationale for our latest deal is detailed in our press release. So I won't reiterate every item, but I do want to touch on a few key points before we open the line for questions. Financially, this is a very solid transaction. We'll be buying the assets of Ahern at a favorable multiple. Adjusting for tax benefits and our targeted cost synergies, we're buying the business at 4.5x trailing 12 months EBITDA versus a nominal multiple of 6.5x. We expect to complete the deal this quarter and for it to be accretive to both adjusted EPS and free cash flow in 2023. And our estimated net leverage at the end of this year will still be 2x adjusted EBITDA on a pro forma basis, and that's at the low end of our targeted range. We'll pause our share repurchase during the early stages of the integration to cement our capital allocation plan for the coming months. And this is consistent with what we've done with light deals in the past. And importantly, we stress test the rate of return under different macro scenarios. In each case, the model shows a compelling rate of return with a base case ROIC that exceeds our cost of capital within 24 months on a run rate basis. We've also identified meaningful cost and revenue synergies and other efficiencies of scale with achievable run rates in the first 18 to 36 months. For example, we can cross-sell our specialty services to thousands of new customers. Looking at the acquisition strategically. Ahern is a general rental equipment company similar to our own gen rent segment. They serve many of the same end markets that we do. We're acquiring a footprint that gives us more locations in key geographies on the East and West Coast and in the Gulf, which are all areas where we want to add capacity to serve customer demand. Ahern already uses the RentalMan system, which helps with the integration but there's a lot more we can do for the new team members in terms of technology and field support. And we see this as a big upside to efficiency in this combination. We'll also be onboarding quality service technicians, drivers, sales reps and other key talent and field roles. We'll give an update on the integration in January, but generally speaking, we expect the heavy lifting to be done by the spring prior to our busy season. And that brings me to my final point. We bring a lot to the table as strong operators. Each time we look at a deal, we ask ourselves, can we be a better owner of these assets. And by that, I mean, can we help this business grow profitably? And the answer here is an emphatic yes. Large M&A is one of our core competencies, and we have a tried and true playbook for the integration, and we're also committed to growing the trajectory of these branches so that they can help our network create more shareholder value. Soon, we'll be adding 106 locations in 30 states and most importantly, welcoming 2,100 talented employees to Team United. And that's an exciting prospect. And it comes at a time where our end markets are expanding. We've repeatedly expressed our confidence in the dynamics that are driving demand and in our own ability to grow faster than the industry. We've delivered quarter after quarter of record results this year, and now we're investing in more earnings power out of the gate in 2023. So with that, we'll take your questions. Operator, please open up the line.

[Operator Instructions]

Operator, are you still there?

Yes, sir. We'll go ahead and take our first question from Jerry Revich of Goldman Sachs.

I'm wondering if you folks can talk about how this asset compares to the 3 large general rental deals you folks have done over the years, similar margin gap? Is it the same area of synergies? Can you just give us a little bit of compare and contrast in terms of how -- which asset this deal is close to as you see it?

Yes. So from a fleet profile perspective, I'd see this as a larger Ahern deal , right, very aerial and reach fork focused, which is over 3/4 of their fleet, which is real excited for us at this time, but we're in double fleet. So it looks a lot like that deal from a strategic perspective, from a scale perspective, a little more like the BlueLine deal. And I think when you think about the cost synergies here on this deal, much more focused on back office, corporate than less necessarily consolidations, right? The RSE deal being the largest amount of overlapping consolidations. In this deal, we're really looking for that extra capacity and we're really excited to get the 3 components of capacity for us in these strategic markets, which is fleet, people and real estate. So I would say it matches up favorably, specifically from an economic perspective. I don't know, Ted, if you have anything else you want to add?

Yes. Say from an economic perspective, the deal actually stacks up exceptionally well. As we model it from a base case standpoint, we would actually look for the returns to be probably best-in-class of all the large gen rent deals we've done. And when we go through a non-risk and asset basis, we feel that in any scenario this is a deal that is going to work out very well for the company and for our shareholders.

And the reason why I wanted to draw the comparison because I know those deal you folks were able to get time utilization and dollar utilization to United Rental standards, you know within a year so it's sounds like based on your comments on the economics said that this one stacks up pretty favorably on the ability to do that as well. I believe you did it within 6 to 12 months on other deals. Is that right?

Yes. I think I can't recall how quickly, but we certainly -- the first thing we're going to do in one of our key competencies and one of the reasons we think integration is strong for us is we'll move fast. We'll get everybody as soon as we can have to close on the same system so that everyone can be sharing assets right away. And that's how we drive to your point earlier, that strong fleet productivity. So we will -- the good news is we'll probably get through all the dirty work, so to speak, of integration just getting people familiar, organizing all the changes that we'll make in each market from a personnel perspective to get the teams working together and customers understanding one go-to-market that will be done before we really ramp up the spring busy season. So we think timing-wise, this is good. And whether we get those -- that fleet productivity and those synergies, how fast we get them 6, 12, 18 months on the cost side is the right range.

Our next question comes from David Raso with Evercore ISI.

A couple of quick questions. How does this impact the share repurchase announced the $1.5 billion that was announced a few weeks ago to be done by the end of '23.

Dave, I'll start there. So the game plan for the immediate term is deposit, very consistent with what we've done in prior large gen rent deals and the idea there is really just to get through the first phase of integration and make sure that things are on track. The way the timing works out, given where we are today and where that timetable would put us it's actually going to lead right into our 2023 capital allocation planning process and the broader '23 planning process. So we would certainly have an update for people come January and what our plans will be for next year. Does that help answer the question?

Yes, it does. I am not sure how long the pause you are referring to exactly, is something that -- it dovetail into that question and I'm sorry if you hear a little echo on the background, I do, the idea of how do this intact for appetite going forward for any further acquisitions. My math, you'll end the year pro forma about [ 195 ] little less than 2% on leverage, which is the low end of your range. So I'm just trying to think how this deal impacts your thoughts on further capital allocation, be it the share repo obviously, thinking also about any further M&A that you might think about? Are you comfortable looking at further deals beyond this? Or is there a little pause here for a while and maybe dovetail a bit, how do you think about this fleet coming in? How it might impact your thoughts on CapEx for next year?

Sure, David. I'll start with some of the operational questions and then Ted can add on the capital allocation. But from our perspective, as far at the end, we told everybody the M&A pipeline remains robust. Obviously, we have an absorption, right? Opportunity in the field. People got a lot of work they need to do to integrate this. So anything that would overlap with the Ahern business geographically and by product lines, it would naturally take a little pause from -- let the team absorb this, let them get everything worked out with the customers and the employees in the field. Outside of that, I mean, if we -- if within the pipeline, something met the criteria with financials being the toughest one these days to get over the transom if we found a specialty deal or something in a different marketplace where we saw opportunity we feel very comfortable to the point you made where our leverage is. We feel very comfortable about the drive power that we have and the opportunity to integrate. But there will be a natural pause just based on the work that the field has to do to bring these 2 teams together. And then from a capital -- from a CapEx perspective, we haven't finished our plan yet for '23. So I don't have a baseline for you to work off of, but this certainly hedges us to any concerns we might have had specifically with the profile of these large projects coming up on the tough to get assets of aerial Reach Fork, which this is over 3/4 of the fleet we're acquiring. So we feel like that will give us a bit of a hedge to a head start here in '23. And whether it changes our views at all. We'll go through the planning process and see how we go.

Yes. Because overall, my net takeaway here, just trying to think about what you just did. You added fleet in the fourth quarter for general CapEx more than we originally thought because it felt prudent that you see the utilization for the equipment. And basically you're getting ahead of price increases for '23 by taking the iron in '22. We're now adding $1.85 billion of fleet. And it just seems you're comfort with this fleet hitting the ground being utilized, I'm not sure where your initial CapEx will be for '23, but it sounds like the line of sight you have for fleet utilization must be pretty strong, which is right now not those usual strong seasonal period, right? Post October, we usually have a little malaise and utilization. It just seems like you're implying your time, you must be still really resilient to take that equipment earlier and then go ahead and make this deal right now. That's what I'm just making sure I understand.

Yes. Well, absolutely, from an absorption perspective, we feel really good about the utilization of our fleet. To your point, we'll go through a little bit of a seasonal slowdown until we start building up again how early the spring build up starts, whether it starts in March, whether it starts in April. But if we're carrying a little more fleet in Q1 than we normally would have from this acquisition, this is -- that wouldn't kill or make the deal, right? So I think more importantly, you have to remember, the suites come in with some needs of their own, right? So there's over $3 billion of -- I mean, $300 million of EBITDA that this is generating. So there's a customer base already renting this fleet. The worst-case scenario, this will drag fleet productivity a little bit in Q1. But outside of that, we don't have any concerns about the use of these assets. And as always, if we're wrong, we adjust in the year on our CapEx, but that's not really what we're worried about right now.

Yes. No, I appreciate. I just assume the fleet you must be pretty healthy to -- you did for the original CapEx, the timing and everything. So I really appreciate.

It remains strong. It remains strong.

Our next question comes from Steven Fisher of UBS.

So Matt, of all the benefits you see here, what would you say is the most important thing that Ahern brings to you? Is it the specialty synergy? Is it the people, the real estate, the accretion? I mean, it sounds like you're talking about just the capacity is really what you want at this point. I guess as you think about maybe the longer term and maybe you'll say all of the above, but curious if there was any of those aspects that were kind of more important to you than others?

The 100%, the combination of the capacity components, right, leading with people, fleet and real estate. All 3 of them are things that we are hungry for in these markets. Where's more demand for us to meet. And all 3 of those components help us do that. And I think more importantly, the fact that we're consolidating this capacity as opposed to just adding this capacity is healthy on every front for the industry. So we saw this at great economics. So we just saw this as a real strong opportunity to continue to meet the demand in the marketplace.

Got it. And I guess following on that, I know it's hard to time these things and you have to be opportunistic. And I know you obviously talked about needing a lot of capacity but I guess just how would you assure investors that they shouldn't be concerned about doing a deal ahead of a potential recession?

Steve, this is Ted. I'll take that one. So hopefully, people heard what we said in the third quarter, which is if we look at our performance in the quarter, we feel very good about our underlying markets. When we talk to our customers, we feel very good about the outlook. Our salespeople feel very good about what they're hearing. The indicators we look at on a forward-looking basis remain very encouraging, and we'll be carrying a lot of momentum. You saw us revise our underlying rental revenue guidance by a substantial degree in October just in the fourth quarter. So I think that speaks to kind of what we're seeing and that momentum into next year. Again, on a forward-looking basis, our customers continue to look very positive. And as we think about these emerging tailwinds that Matt and I have talked about, infrastructure kicking in, IRA kicking in, auto continuing to invest in EV, semis and energy are the 5 big buckets. We see those as pretty substantial incremental sources of demand in any economic environment. So those are the things you hear us talk about favorable economics in any tested scenario. And those are things that underpin kind of those, call it, more conservative cases when we model them. We think we can go through an outright recession with no tailwinds and still do very well with this deal. And if we go through a recession that hypothetical, you go through that thought experiment, if we have those tailwinds, these assets will prove to be exceptionally valuable to us. And those are the things that help us kind of underwrite a deal like this.

Our next question comes from Stephen Volkmann of Jefferies.

Most of my questions have been answered, but maybe a couple of modeling things, Ted. How should we think about the NOL and sort of how that impacts you going forward?

Yes, Steve. So this still doesn't come with NOLs. When you look at the tax benefits and kind of break into 2 different categories. The first is the benefits we get on the asset purchases themselves, which is akin to CapEx. So we would get immediate expensing treatment on that, both at a federal and within some states. If you look at the total PV of the tax benefits, $426 million, about $350 million to $360 million would be captured under those dynamics. The balance is the tax shield we would get on amortizing the intangibles over 15 years that equates to present value of about $65 million to $70 million. But to your question, there's no NOLs that will be coming with the assets.

Okay. All right. And then I just noticed that their rental D&A as a percent of OEC is a lot lower than yours. How do we think about that?

Yes. Certainly, when they come across, they will be accounted for on our balance sheet. So you'll see us do that traditional fair market value adjustment. But what I would say is when you look at their historical results, they're going to have their own methodologies, but it's also important to note that a lot of their fleet is aerial. So when you think about those different schedules, you want to adjust for the composition of their fleet.

Okay. And final one, just you mentioned they had -- sorry, I don't have the numbers right in front of me, 44,000 customers or something. I'm sure you'll correct me. But have you been able to take a look and see how much overlap that has with you guys?

Yes, Steve. So we don't own the company yet, so we're limited to clean room work, but we're obviously very familiar with them. This is a company that we've been working in the same markets with for quite some time, and we know that there's some really good relationships there. It's a long-standing company with a lot of tenured employees and relationships that we're going to have the opportunity now to cross-sell too. So we're excited about the combination as we get under the covers more asset close, we'll have even more of a view of how to attack the market as a combined entity, but we're excited about the opportunity.

Our next question comes from Seth Weber of Wells Fargo.

I guess, I don't know, either Matt or Ted, can you just comment on, do you have a view as to the decline in margins over the last couple of years, it's down about 350 bps from 2019. Is that like an uptick in maintenance or repair costs? Is there something going on where they're just not getting a rate or is there anything that you've seen in your diligence that would explain the drop in EBITDA margin over the last couple of years for the Ahern business.

Sure, Seth. I'd say one of the major things that's changed is they were expanding, so they had a lot of hold starts where they weren't getting the pull-through that they needed. And that's one of the benefits for us as we utilize those facilities with the existing scale and economics of scale that we have in those markets, we can turn that around pretty quickly. So I would say that would be -- in talking to them for a while here and understanding the challenge, and it would be mostly related to [ cost structure ]. Nothing structural here to worry about, although we do think, as you introduce this business to our scale and what you get out of that, there's a lot of upside.

Got it. Okay. And then just on the fleet -- the fleet age is fairly old. Do you have any color into the fleet? I mean, is it maybe a situation where it just hasn't been used as much and so you can keep that older fleet? Or would you expect to sell quite a bit of the older stuff as you get into the integration?

Well, so Ted had mentioned earlier about even the question about D&A. This is over 3/4 of aerial and reach fork fleet so it can run older just by the profile of fleet. Think about this compared to the NES deal that I referenced earlier in the call. And I think NES was even older. So it's not creating -- it's not a fair comparison to our average fleet age because the aerial profile is something that will run longer, we will depreciate longer, has a longer life asset. So not anything we're concerned about. And we also think they have a good reputation for maintaining with their back of the shop kind of manufacturing background of the owners. So we're actually looking forward to get in this fleet and don't have a concern about the fleet age.

[Operator Instructions] We'll go ahead and take our next question from Tim Thein of Citigroup.

I'm just curious, this is a company that has had like many in the industry, I guess, had some ups and downs over the years. And I believe had some fairly high leverage. I'm just curious if you found that perhaps that strain their ability to invest maybe as efficiently as maybe you have. And as such, are there -- are there catch-up -- areas of kind of catch-up investment you think that may have resulted from that? Or just how you think the company is positioned just if you've done more into it. And from the standpoint of operating with, again, a fairly high degree of leverage. So I'm just curious if you have any insights on that?

Yes. We do think that we could support the growth in these branches with our balance sheet, our systems and processes faster. So we do think there's actually a lot of opportunity once we harmonize and organize the businesses together in one go-to-market strategy that we can move a little faster. I think we can get more productivity out of that fleet, but also even out of the -- still probably add some volume to these facilities. So that's exciting for us. And as far as any concerns, I mean, when you think about anybody running in the independent platform and the lack of maybe enough scale to invest in some of the technologies that we've been able to but even just the scale of each market, that scale in each market creates a lot of efficiencies and that's why we're exciting adding this because regardless of how well capitalized or not they are, the efficiencies of scale are what's a real opportunity. And the fact that we can invest faster and further is what we think we're going to get the upside on this deal. Ted, anything to add.

I guess the only thing I would add to that is, certainly, their reputation with customers is good. They've made the right investments to support our customers with reliable fleet. And so when we think about it from that standpoint, that's obviously an important factor as we did our diligence.

No. Okay. And then they had -- and I candidly don't know the status of it now. They had done some work with respect to, I think, that Snorkel business they bought a Xtreme or maybe both. So kind of some in-house manufacturing assets, what -- what's the status of that? And if, in fact, they have that is your intention to stay with that? Or what's the thought there?

So the Snorkel manufacturing and Xtreme manufacturing are separate entities are not part of this deal. We expect them to be a very supportive partner in making sure they can supply us, which is great in the aerial and reach fork marketplaces and more importantly, the parts. We have about 25% of this fleet is Snorkel, which is a very well-accepted product in the marketplace. And we -- outside of the relationship we'll now have that they had already between the 2 parties, there's nothing -- we won't take those assets on. Those are separate entities. And they even have, if you saw some exclusions, they even have some retail locations outside of the Ahern rental business overseas, and those will remain with the Snorkel and Xtreme brands as manufacturing retail opportunities.

Got it. And Matt, just and I'm done after this, but you mentioned harmonizing. I know that has been a feature of some deals historically from the standpoint of harmonizing rates. Is that -- do you see that as a big opportunity here in terms of, again, you're on the same system, so presumably you have maybe that's a head start, but is there a big opportunity there just from the standpoint of harmonizing rates across the platform?

So we think the opportunity to drive fleet productivity is going to come in every form and fashion, probably most importantly, and having a more robust value prop from both breadth and depth of our fleet and our location. So we do -- one of the things that gets us excited about this deal is we do think we'll get more value out of this business. In just about every way, shape and form because of the reasons we talked about previously. And the harmonizing is really just us getting one go-to-market platform. Right now, we're each going to market separately. And pulling that together, and make it one unified front to the marketplace is what we talk about when we talk about harmonizing.

We'll take our next question from Scott Schneeberger of Oppenheimer.

Congratulations. 2 questions, and I'll ask them separately, one off set up the other. This acquisition, you have more revenue synergies than you do cost synergies and just looking at some of your other big acquisitions that you have on Slide 5 of the deck, those OEs have had larger anticipated cost savings versus revenue synergies. So if you could like [ Gary's ] question, but if you could just elaborate a little bit more on that dynamic and then I've a follow-up.

Yes. So I'll let Ted talk to the comps a little bit. But most importantly, as I said earlier, this is not a consolidation play. All the back-office synergies are really primarily that's almost all of the $40 million that we noted the opportunity in the field is to use this capacity to continue to support the market and grow. So you're not going to have the branch closures that we did in RSC, let's say, where we had so much excess capacity and overlap when you put 2 companies together. This is capacity that we want and need so that's the difference of what you'll see in the cost synergy. And then on the revenue synergies, it's just assumptions that we make based on the model and our history that we feel very comfortable about selling to this group that hasn't had not only the specialty products, but also even some of the gen rent because they have more than 3/4 of their fleet is aerial and reach fork , we even have a more robust gen rent platform to sell to these customers. And additionally, our specialty business is broader and bigger now, right, with more product lines than we had in the other deals. So those are 2 of the reasons why you'd see a higher revenue synergy. It's important to note that the revenue synergies aren't even calculated in this post-synergized return. That's just the tax treatment and the cost synergies. So there's even more upside from that perspective if you model in the revenue synergies with that. Ted, anything to add.

I think you hit it all.

And then my follow-up, across your specialty rental categories, I know you're categorized them 5 main segments. Could you please elaborate on the fleet that Ahern has. And I know that maybe Xtreme plays into this a little bit. But are they doing a lot of rerenting or do they own assets themselves? And if you could just kind of go by your 5 main buckets and talk about what they do own as far as assets or is it just -- it sounds like a very big cross-sell opportunity for you, but just curious what they have existing in their offering.

Yes. I'll take that one, Scott. They've certainly been much more focused on the core general rental area. If you look at our deck on Slide 6, it kind of breaks out the fleet mix, power and HVAC is about 2% of their mix. So it's pretty small. And certainly, I think they're going to be much more concentrated towards the lower end of the size spectrum. And they've got small trench operations and the scheme of things are relatively de minimis. So it's hard for us to find out exactly how the re-rent strategy works. But as Matt alluded to, when we look at the revenue cross-sell synergies, that's an area where we think there's a lot of opportunity for us on the specialty side.

We'll take our next question from Stanley Elliott of Stifel.

Quick question. Have they had the same sort of approach you all have had with the national accounts and strategic account within their go-to-market strategy?

Yes. Their large account business is obviously a much smaller percentage from the work that we've looked at in the clean room. And frankly, our knowledge in the field is competing with them. But when you think about the regionals and the locals. That's where their stronger relationships are, which is not uncommon with companies of that size, call it, multiregional-type companies. But the go-to-market strategy and the focus on driving safety, productivity and earning that business every day is for a company that's been in business for almost 7 decades. That's what we like about it, and they are very familiar with the end markets that we serve. So -- and the products that we serve them with. So we actually are very comfortable with this team sitting in the United Rentals quickly.

And I guess the second question would be kind of on their thoughts on -- or with them for CapEx into next year. I'm assuming that it's very similar to your arrangement where you will have the ability to get your price kind of set your equipment capital schedule for next year. Just trying to make sure they weren't overly committed or curious if they were into next year given the size differential and things like that versus fuel.

Yes. We're not -- we don't really have all that detail yet. But either way, as you know, the flexibility we have with our vendors and being good partners. Anything that they had in place will be reviewed and another part of the harmonization, consolidated and negotiated in with our terms. And they deal with a lot of this, outside of the Snorkel and Xtreme, right, which obviously we didn't deal with previously. The rest of the vendors are people that we do business with and that we have -- we're very comfortable with and have long-standing relationships with.

We'll take our next question from Michael Feniger of Bank of America.

Yes. Matt and Ted 62% exposure to non-residential, yet non-resi can be split up in many different verticals, infrastructure to bigger mega projects or stickier to lighter non-resi like much cyclical. So just given the footprint, those 5 states like California, Texas, Nevada, Arizona, is it more mega projects breaking ground that you guys just wanted to get well positioned for with fleet and real estate? Is that what you're seeing in the pipeline there that kind of factored into some of the decisions to add capacity there and to get that fleet and real estate?

Mike, thanks for the question. So certainly, if you look at their footprint, that would include a number of geographies that will have these so-called megaprojects. So it certainly benefits us from the standpoint of the footprint. Importantly, the fleet especially those large areas, it will be great assets for us to have to compete even more effectively on those kinds of projects. So I'd say the overriding focus is kind of where it fits geographically as part of our real estate strategy. But I do think it also will lend itself well to these emerging mega projects that we've talked about.

Great. And last question. If you're doing an acquisition of this size, and you're still at the low end of your leverage range. I understand there's this integration phase. Is there room to consider other avenues of capital allocation? If you're generating this level of cash integrating the deal of this size, do you feel like this business could support a dividend at some point?

Yes. So look, we've talked about all the benefits of having a strong balance sheet, and that's really the cornerstone of this leverage ratio of 2x to 3x. And obviously, we've afforded ourselves leverage, especially towards the low end. So when we talked about the benefits of being below that [ 1.9x ] at the end of the quarter, kind of [ 1.9x ] implied in our guidance a year or [ 1.7x ], excuse me, we definitely view that as in this example, an opportunity to flex it, take advantage of it by these assets and drive returns but it also affords us the ability to do a lot of other things on the capital allocation side. So again, we'll have an update for the street on -- in January. But we are -- we continue to be very well positioned to take advantage of the balance sheet to create value through a lot of different vectors.

We'll take our next question from Rob Wertheimer from Melius Research.

I'm not sure you guys have commented on EBITDA margin potential on gen rent versus specialty in a while, and maybe this is an aerial leaning one so it's different than the overall gen rent. But should we expect EBITDA margin or maybe EBIT better given the life of the asset to normalize versus year -- over a couple of year period? Or is there an inherent margin gap? And if I'll just ask my second one at once, your impression of the reasons for the margin gap, whether it's time you or SG&A that you guys are leveraging or anything else that you would attribute to the lower profitability there?

Yes, I'll take that one, Rob. So certainly, as we think about the longer-term opportunity here, I do think it's reasonable to assume that we can harmonize their margins towards our core gen rent margins. So that's certainly part of the plan. And it ties into your second question. When you think about kind of probably what explains some of the variants now within gen rent, Obviously, specialty is going to have its own effect. But relative scale matters when you think about fixed cost absorption we'd like to think that we are a very efficient operator. So we think there's opportunities there for us to drive improved margins. And then Matt have talked about it, but the opportunity to drive better fleet productivity out of these assets, right? That's French for higher dollar use. That will come in a pretty accretive manner. So those -- that combination of factors as we grow that business will certainly improve their underlying margins. Long term, as I said, we do think we can get them towards our base level, right? There's nothing inherent to their assets that would inhibit them from getting there. On the second part, I think you asked about a long-term framework. I mean we continue to have a high degree of confidence that we can continue to produce that kind of 50% to 60% flow-through on a consolidated business. So that's everything. That's both sides of the business. Nothing's changed there. We talked about that, I think, in October. It's driven by a lot of different factors that drive kind of where within that range you can end up. But we still continue to be confident that, so that's what people can look for us to produce certainly enough cycles.

Next question comes from Ken Newman of KeyBanc Capital Markets.

Congrats on the deal. Can you just talk a little bit about -- you talked about the deal being free cash flow accretive one year post close. I'm curious if you could just provide a little bit more color around that. Is that primarily through the margin harmonization that you're talking about? Or I guess, how much of that is CapEx versus margin improvement or any of the caveats around depreciation and amortization.

Ken, I'll take that. So it's a little early to quantify it. We need to get through a number of things, including the financing. But certainly, we're confident it's going to be positive in that year one, driven by a number of factors. You've obviously got the tax benefit that would be something at least we want to make sure people are cognizant of. But to your point is you improve that profitability and you drive better productivity, that will also augment the underlying cash flow characteristics.

Okay. And then I know you're still kind of working through digging into the assets here. Can you talk a little bit more about that specialty cross-sell synergy, to me, it seems a bit conservative just given how heavy that fleet is on gen rent. Any color on whether that's just because of the regional overlap or how much of that is really conservatism on a go-forward basis?

Yes, Ken, this is Matt. It's -- so we have some quantitative ways to [indiscernible] so we'll update this, by the way, once we own the asset and get even deeper. But we have a pretty good idea of what their customer profile looks like. And then when you do a look like in our customer profile, what the specialty opportunity is, and then we derisk it, quite frankly, just because you're not going to win all those opportunities right away. It's important to note, so I would agree with you. I think we could outperform that. I think historically, we seem to do better with the bundling, the cross-selling post consolidation. I think you've seen that through our specialty growth organically, not just through the M&A based on. So we do think there's a great opportunity there. At some point, it becomes a scrambled eggs. We don't want to oversell it. And most importantly, this deal is accretive even without the cross-sell. So we do think there's a lot of upside here longer term, we wouldn't disagree with you on that debt. And my specialty team is on a phone here, and that's a conservative number they have a great opportunity here.

This concludes our time we have for questions. I will now turn the floor back to Matthew Flannery for any additional or closing remarks.

Thank you, operator, and thanks, everyone, for getting on the call. Today was a great discussion, and we appreciate the opportunity to share our excitement on this deal. And I'll remind you that we posted a debt on the acquisition on our website. So we'll update you when we get on our fourth quarter call, until then I hope you all have a safe and happy holiday season. And if you have any other questions, you can reach out to Ted. So operator, with that, please end the call.

This does conclude today's call. We thank you for your participation. You may disconnect at any time.