McGrath RentCorp (MGRC) Earnings Call Transcript & Summary

Good morning, and welcome to the UBS Industrials Conference. My name is Jane Zovak, I am a Managing Director in the Global Industry's team. Joining us this morning are Joe Hanna, CEO; and Keith Pratt, CFO of McGrath RentCorp. McGrath is a leading specialty equipment rental company that operates in the modular buildings, portable storage and electronic test equipment areas. Joe and Keith will go through a presentation first, followed by Q&A. And with that, let me hand the mic to Joe.

Thank you, Jane, very much. Once again, my name is Joe Hanna, and with me is Keith Pratt, our CFO. Very happy to be here this morning to talk to you about this wonderful company McGrath RentCorp. So before I get started, just a word about a safe harbor in that some of the comments that we make today will be forward-looking, and results could differ materially from what discussed today. Please make sure that you look in our Forms 10-K or other SEC filings for risk factors. And with that, what I'm going to do is talk a little bit about the company. I'll give you an overview, and then Keith will get into our financial details. We've been quite busy at the company over the last months. On February 1 of this year, we announced a transformative transaction, where we had the unique opportunity to divest the company at 1 of our non-core assets, which was our Adler Tank business and actually purchased another company in our modular segment, Vesta Modular and it happened to be from the same company or the same owner, Kinderhook Industries. And this allowed us to really concentrate the business on our modular segment, which is something, as we've reviewed our strategic plans over the last several years, definitely a focus area for the company. So this was a unique opportunity for us to make that happen, and we are very pleased with that opportunity that we had. And this, I think, it really helps us accelerate our growth in the modular part of the business. And we did so realizing that we're going to get synergies, both revenue and cost synergies out of this set of transactions. And we did that, all maintaining a favorable leverage ratio in the company as we executed this. So all in all, very good set of opportunities for us. And I'll talk more about this as we go along today. As you can see on this chart right here, the left-hand pie chart there was our revenue breakout prior to the set of transactions, I just mentioned. And then to the right is what our revenue breakout looks today. So you can see right now, with the addition of Vesta Modular, we're primarily a modular business company -- rental company, and that's exactly, where we'd like to be in the market. So let me click up just a second, and I'll tell you a little bit about who McGrath is. As you can see on this wheel here, if you start over in the 9:00 position, we are -- had revenues last year of about $740 million. We're very, very proud of the investor focus that we've had over the years. And as you go clockwise around, you can see that if you would have invested in our IPO, when we went public in 1984, you would have made 16% assuming you reinvested dividend. So we're very proud of this track record with returning value to shareholders. We are a B2B rental company, and we actually are a dividend champion. If you look over at 1:00 there, we've raised our dividend consecutively for 32 years. We're in a small group of companies that can make that claim, and we're very proud of returning that value to our shareholders. So let's just look at this modular building segment that I've talked about a little bit. I'll describe a few things for you here. Really this part of the business consists of 2 major components: modular buildings and then our temporary storage containers. And within those segments, we have some subsegments. So if you have a modular building, you could deploy that unit as a rental unit in a commercial application or an education application. And commercial applications are things like swing space for construction projects, could be extra space for a renovation that's taking place in an office. It could be extra space because it's been expansion opportunity that the company. It could be a hospital that's doing a renovation or a medical facility. And so there are many, many uses for these modular buildings, and that's on the commercial side. On the education side, you'll have a modernization project, where a school might be redoing or revamping their facilities to bring them up to a more modern stature. And those modernization projects typically are about 2 years. And the school will need temporary space, they move the students out, they'll do the modernization project and then they move them back in. And so we're very uniquely positioned to be able to provide buildings for those applications. And then you'll have growth and that's in areas like Florida, as an example, a high influx of student population and the [ school ] districts just cannot keep up with the growth. And so they literally will take 5 years to build a new school and realize, when they open that school that they don't have enough classrooms for the kids because so many more have moved in during that time frame, and we are able to provide classrooms to take up that extra need that they have. So that's on the building side. And then on the storage containers, you have a construction site that a contractor will need to store their plumbing or their drywall or something like that on site. They might need an office, where they put it on the ground, they bring it in. We put -- unload it from a truck, put it on the ground and they're able to use an office very quickly that's made out of a container. And so just a [ myriad, myriad ] of different opportunities for us to deploy our product. We have a nice presence. We're present in 35 states right now. I'll show you a map here in a few moments about, where we're operating from. And this is just a wonderful business for us, and we're growing it very rapidly. If you look just a minute at the Vesta transaction that I just talked about, here are some statistics from our acquisition. Vesta had a profile very similar to our mobile modular business, education and commercial customers. And so Vesta is a wonderful addition to our portfolio. You can see basically the size of the business, generated about $40 million in EBITDA, 6,000 units on $129 million in total revenues. We're very, very pleased so far with this acquisition. We closed in February. The integration work is taking place as planned and on schedule. We've been very pleased with what we've learned about the business, since we acquired it, and we really like the people and we like their relatively aggressive stance in the market. They really grew their business nicely. We're bringing all that DNA into our business, and we're very pleased with what we're seeing. So one of the things that's nice about this business is it helps us not only into new markets but it helps us become more dense in some of the markets that we already operate in. And you can see on this map here, you can see now we're in 13 new states and then 15 states with additional geographic density. So if you look at this map from just a modular building perspective, we're in the states that really have a lot of economic activity. And so we think we're well positioned to be able to continue to grow in the next several years. And so we're very excited about our future prospects. Let me just pause. I'll just go slow on this slide here and then talk about some of the growth opportunities that we have. Again, we're geographically very strategically placed in very good markets, very strong markets, markets typically that people are moving into. And so those present commercial growth opportunities for us. We do have this leading education position in the business, and we have the expertise. We've got the product, and we've got a lot of experience serving education customers across the country. And so we're going to really be able to leverage that with this acquisition and as a future growth opportunity for us. So we've been busy, not only organically growing the company, but we've also been doing M&A, which we just discussed here. So these regional expansion opportunities that we see the Vesta, the Design Spaces and there are some other companies out there that we could acquire. We're very interested in continuing to grow the business that way. And then if you look on the smaller side, we've announced -- we call them tuck-in acquisitions. They're smaller, and they're primarily in our portable storage business, but they open up new geographies for us, the Brekke and Dixie acquisitions opened up Colorado and part of South Carolina for us. We were able to close those transactions efficiently and quickly to be able to add units and add rental revenue to the business. And so we've got a nice pipeline of these projects or these potential tuck-ins that we have in the future that we're actively working. So in addition to those things that I mentioned, we also have custom modular solutions, which is our larger sale projects that we do for customers. We've got site-related services, which is connecting the buildings up to electricity or plumbing, providing those services to customers. And then we have Mobile Modular Plus, which is providing furniture, like tables and chairs and other furniture inside the building so that's when the customer gets the building, it's not just an empty shell, it's got units, things in there that they can use. And immediately, it's kind of a turnkey opportunity for us to provide to the customer everything they need to use the building. And so these are all additional growth opportunities that we have for the modular business, and we're quite excited about them. Now let me turn to our electronic test equipment business. This is TRS. We are a leader in this business. We cover primarily in the North American market, and we have 2 primary segments that this business serves. One is our general purpose rental part of the business. And the general purpose part of the test equipment market is like high-end oscilloscopes and signal generators and things like that, that an aerospace and defense customer might need an industrial customer, a semiconductor and computer customer might need cutting-edge technology for them to do high-end testing. And customers typically don't want to buy $100,000 test equipment piece of a unit that they might use for only a month or 2 on a specific application that's when they turn to us. And we have the relationships with manufacturers that we get the latest technology and put that into our fleet and provide that for our customers. And that's all about how we manage this rental business. We've gotten a very experienced crew that does it down there in the Dallas-Fort Worth area, which is where our primary location is, and we believe we're a very, very good owner for this business. We've run it for a very long time, and we're very, very happy with the economics that it produces for us. So this picture here is of our lab in the Dallas-Fort Worth office, and that's our calibration lab that we have. If you look at our growth opportunities here, I think I can sum this up by saying the desire for increased speed, bandwidth for electronic equipment is just never ending. Look at your phone and what you had 10 years ago compared to what you have now. Look at components in your automobile. Everything is faster, everything does more. And everything needs to have sophisticated test equipment to be able to test it and get it ready for market. And so we feel that this has been a solid business for us, and we feel due to these long-term secular driving dynamics that you have in the business that we're going to be around for a very, very long time because customers are going to need this equipment as they go along. Just touching really quickly on our corporate responsibility. We McGrath is a wonderful company. We're filled with just people that want to serve our customers. They want to serve each other and they want to serve their communities. And so we view this as a very important part of why we exist as a business. And if you like to learn more about some of the ESG initiatives that we have and learn more about that, you can always refer to our website, and you can see some of the things that we're doing as a company. So at this point, I'll turn the clicker over to Keith, and he'll talk about our financial highlights.

Thank you, Joe, and good morning, everyone. Thank you for joining with today's presentation on McGrath. I'll start with a 5-year view of the financials. And just a comment, Joe mentioned earlier that transformative transaction on February 1 of this year. These historic financials do include Adler, but I want to point out a few things just about the company's journey over those past 5 years. First thing is we spent the early part of that period with a lot of performance improvement efforts at the company, heavy focus on return on invested capital and a lot of initiatives, particularly around market segmentation and pricing that really put a lot of wind in our sales for improving both top and bottom line performance. And if you look at the company over those 5 years, you can see headline improvements in revenue and adjusted EBITDA. Importantly, I would point out that during the pandemic, the business was very resilient. We did grow slightly on the revenue side and slightly on the adjusted EBITDA side, which I think is very commendable. And it also reflects a lot of the way our business operates. On the modular side, as Joe pointed out, a big part of our business, a lot of long-term contracts that created some insulation from the activity downturn in the early quarters of the pandemic. We also made an important acquisition of Design Space Modular in May of 2021 that helped us in 2021 and 2022 as we continue to grow the business. If we really look at the business we have today, post the divestiture of Adler, I wanted to take the same data, same 5 years and look at our 2 ongoing rental segments. Clearly, Mobile Modular, and our electronics business, TRS-RenTelco. And what you see very quickly is that Mobile Modular has been the engine behind our growth in adjusted EBITDA over that period and it will be an even more important part of our future. I'd also point out, when you look at the characteristics of the 2 rental segments that we have. Our electronics business, the growth there is more modest in terms of the last 5 years, but it's a very high-quality business with very high adjusted EBITDA margins, typically in the high 50s to 60% neighborhood. Joe mentioned earlier, February 1 and what a transformative time it was for the company, and I want to hit on a few of the other highlights of our first quarter. First thing is really significant to do the 2 transactions that we did simultaneously and in a very capital-efficient manner. We're very fortunate to be able to line all that up, acquiring Vesta, divesting Adler. We also talk on the M&A side about keeping a pipeline of opportunities active. So while we've spent many months working on the transformative transactions that occurred on February 1, we keep an active pipeline on smaller but no less significant opportunities for our long-term growth. And we completed 2 of those opportunities to tuck-ins for our portable storage business, also in the first quarter, Brekke Storage in Colorado and Dixie Temporary Storage in South Carolina. In each case, those acquisitions, we look at a make buy for entering new markets and sometimes buying a small operator in a region, where we don't have a presence, can jump start our activities in that new market. Once we've done that, our goal is to further grow the presence organically fund more capital investing, build out the team and have a long-term successful presence in those markets. We're really well positioned, I think, for 2023 and beyond. We're off to a good start. We have a more focused portfolio. It simplifies a lot of our capital allocation decision-making, and we feel very good about the business opportunities we see with the current portfolio, particularly in the modular side. We also raised our financial outlook, when we announced our first quarter results, and I'll talk a little bit more about that when we look at that slide. Just some highlights for the first quarter, and this is on a continuing operations basis. So for the modular business and the electronics business. First of all, all our revenue streams up nicely in the first quarter compared to a year ago for continuing operations. Rental revenues are really the core revenue stream for the business. We get paid, when people use our equipment. Rental-related services, primarily delivering equipment to customers, setting it up for them in the case of the modular business and then dismantle and return delivery, when the rental term is over. So another significant rental stream very much tied to the rental side. And then sales, which Joe mentioned earlier, we have a focus on growing our modular sales component of the business. This is another good opportunity. We've always done sales in the business. Every year, if we look at the modular fleet, we will sell some used equipment. That's either because a customer, who was renting decides to purchase the unit off rent or we simply manage our fleet and we sell equipment that we deem as no longer needed in a market, and we want to free up the capital and reinvest it elsewhere. So sales is very important as well. And you'll see just high-level metrics, gross profit up nicely by a slightly higher percentage than total revenue and healthy growth in adjusted EBITDA in the first quarter. I'll also point out that in that first quarter on our continuing operations basis, 2 months of Vesta contribution, we own the business for February and March of this year and 1 month of Brekke, which was the small portable storage acquisition in the Colorado market. I talked earlier about the rental revenue stream is really the foundation of the business. It's the biggest revenue stream. It's the most critical revenue stream, and we can look at where the growth occurred in the first quarter. Nice growth at Mobile Modular, 32% growth. If we take out the contribution from the acquisitions, the underlying organic growth was 17% year-over-year, which we're very proud of. That's a very nice level of growth. I'll talk a little bit more on the modular side, where have we seen the growth come from? And in short, it's been broad-based. Joe mentioned we have in the modular building side of the business, an education component and a commercial component. Education, which had been relatively flat during the pandemic has been growing for the last 3 quarters. In the first quarter of this year grew 8% and then the commercial side grew 23%. That has been very strong for us and continues to be strong. Within the segment, we have our portable storage business that has been growing very nicely for us over the last few years. That growth continued in the first quarter and grew 27% compared to a year earlier. So when we look at the whole Modular segment and we look at the rental growth, certainly, the acquisitions were important, but the core underlying trends in the business, we have been operating for a number of years, very, very healthy. One of the advantages of the business currently is healthy tailwinds on pricing. Our overall fleet pricing was up 9% compared to a year earlier and new rentals are going on at rental rates well above that. On the electronics side, growth in 2 parts of the electronics business. We break that business into the communications subsegment and the general purpose subsegment both grew modestly in the first quarter. You'll see 2% growth in rental revenues overall. We did see some softness in the computer semiconductor and customer group. And so that meant our growth was not as good as we've seen over the last couple of years, but we still managed to get some growth in the first quarter. And then adjusted EBITDA for the first quarter, similar comments. M&A was significant at Mobile Modular. If you exclude the M&A, adjusted EBITDA grew 17% and so still healthy organic growth in the business. And for TRS-RenTelco, flat quarter in line with the fact that rental revenues did not grow much in the first quarter of this year. But overall, good positive trends on the modular side and that really driving the business performance in the first part of this year. I mentioned earlier, we edged our guidance up at the beginning of May, when we announced those first quarter results. A couple of things to consider. First of all, we felt we had a very good first quarter. It was above our expectations and we were very pleased with that. Second comment is we've acquired Vesta, you do your diligence, you're always trying to understand the business before you buy it. But as Joe commented, we're very pleased with that acquisition. We're really excited to work with the new team, and we're feeling even more positive now that we've had the business under our ownership for these first few months. That was another factor. We did do the 2 tuck-in acquisitions relatively small, but incrementally positive in our outlook. And then the business trends we've seen year-to-date make us feel like this is going to be a good year for the company. So taking all that together, we edged our guidance up for both revenue and adjusted EBITDA, and we think we can accomplish those numbers with the same capital budget that we outlined back in February. The company has a long track record of paying a dividend. We've actually increased that dividend annually for 32 consecutive years, current dividend $1.86 per share, giving a yield of right around 2%. Just pause for a minute and talk about the company's priorities. And these priorities have been with us for the last couple of years, and we expect them to be very relevant for the next several years. First of all, strategic growth. We're very focused on the modular segment. And if we go back a few years ago, I talked about a period where we were very focused on performance improvement across the portfolio. We did a lot of things to improve, how we do pricing, improving fleet utilization. That gave us growth in both top and bottom line in the business. As we entered 2020, we actually felt very good about the opportunities for that business, did a lot of strategic work on it and saw that M&A could complement a lot of our success in building the business organically. And I mentioned that because the 2 acquisitions we made Design Space in May of '21 and then Vesta in February of this year have really complemented our geographic coverage. We've now got a much larger presence in the West Coast markets as a result of Design Space and a greater presence on the East Coast and Central region as a result of Vesta. In each case, we got some markets where we already had a presence and where we've improved our density and density improves our economics. And then for the regions, which are new to McGrath, those regions, because we've entered them through M&A, it accelerates our ability to become a major provider in those markets. And from a capital allocation point of view, we will now increase our presence and deploy more capital into those markets. And that's very much what we've witnessed over the last few years. Just going back to design space, which we completed in May of 2021, when we did the deal, we acquired a very good quality business largely focused on the commercial modular opportunity. With our ownership, we've expanded their presence in education, so they're doing more work on the education side in those new regions that we acquired and also doing more portable storage business. So good examples where we use M&A to really open up more opportunities for the company, where we can follow on with more capital investment organically. The other thing Joe touched on is with this larger modular platform. We have an opportunity to grow the business by doing more for the customer. We have services inside the building, what we call Mobile Modular Plus, services outside the building, our site-related services and then for some customers, who want to buy and permanently own equipment, we have our custom modular solutions team that completes those new sales projects. And again, we're leveraging our know-how, we're leveraging our supply base to help our customers do all those things. As we do all of this, very focused on disciplined capital allocation. We're looking for a good return for the shareholder, whether we're investing organically or when we selectively do M&A, and we remain very disciplined. We look at a lot of opportunities. The opportunities have to have strategic fit, and they have to have good economics, and we retain that discipline. If we look at the company today, as a result of that disciplined capital allocation, we've got a strong balance sheet, leverage at the end of March, 2.2x. We feel very comfortable with that. and the business is generating cash. We have a very healthy model as we saw it during the pandemic, even in an economic slowdown, very resilient with long-term modular contracts and good relationships with our customers. Joe mentioned earlier, shareholder value focus. We do that with our dividend where we have a long-standing track record. And as Joe mentioned, that 16% compound annual return, if you had invested in the McGrath IPO and reinvested your dividends, really emphasizes that for many years, the company has always thought shareholder first and to make wise investments for long-term shareholder returns. And again, as we do all of that, we do it with an important sense of corporate responsibility. So to sum up, McGrath Rentcorp an established rental business. We have 2 segments. In each case, our 2 businesses, Mobile Modular and TRS-RenTelco very solid market positions. We have many, many repeat customers, who do business with us year in and year out. That's a very important part of the business model. We've talked a lot about our strategic focus for the future, a real emphasis on the modular segment. You'll see more of our capital, both from an organic deployment and occasional M&A focus in that area. We're very disciplined. When we invest capital, we look for a good return. Our business model generates strong cash flows and shows resiliency even during economic disruption. We're a dividend player, and we've got a very solid financial foundation on which to run today's business and invest for future growth. So with that, Joe and I will be happy to take a few questions.

Thank you. So we're happy to take questions from the audience, please just raise your hand and we'll call out on you. I also have a few questions of my own here prepared. So Joe, Keith, thank you very much for the presentation. As you mentioned recently raised guidance for full year 2023 and that's passing the trend of a lot of the other companies to see out there. Especially heading into the second half of 2023, where we have quite a number of potential macro concerns that are in people's minds. What's driving optimism? How much visibility do you really have on the revenues going into the rest of the year?

Yes. I'll touch on part of that. One of the things that's very positive for us right now is our -- we look at our quote volumes and our pipeline of rental activity that we have. It's actually quite strong and for the first quarter was actually up over the prior year. And so that was for both businesses. And that gives us, I think, a high degree of confidence that the rest of the year should be pretty good for us. So we feel very positive in that regard.

So within Modular, you have customers across commercial, you mentioned education, portable storage. I imagine some of that might be construction related. What have you been seeing in each of these end markets? And what's your expectation between now and end of the year for each one of these?

Yes. So I can talk a little bit about the education market first. The funding for education comes from typically state tax revenues and state bond measures. And a lot of -- or local bond measures too. And a lot of those have been in place now and passed by local municipalities now for the last several years. So there's actually a lot of money that's in the system right now that's actually being deployed for these projects. And for education, there is a huge backlog of deferred maintenance on classrooms and so there's a high degree of public support to get these things, these projects done. And so the money is there now and the public support is there. And so that just needs to feed through into finishing these projects. So that's on the education front. On the commercial side, we're finding there's a lot of government work that's actually in the pipeline right now, the funding for military bases and things like that to improve our infrastructure and upgrades. We're very happy that the Infrastructure Act was passed. We feel there's not been a lot of capital deployed yet for those projects. And so we see that as an upcoming tailwind for us. And then also some of the reshoring of manufacturing, some of the very large semiconductor plants and data centers and things like that, that are actually underway right now is also potentially another tailwind for us as we -- as the year unfolds. So there -- while there are some cautionary flags out there, we see actually a lot of very positive indicators too, that have us remain positive on how this year is going to play out for us.

And then within storage. [indiscernible].

Yes, that's a great question. We'd love to have a crystal ball to be able to see into all that. I don't think the debt ceiling issue is really going to affect us much. I think that's feels like it's been rectified at this point. The issue is how quickly that capital gets deployed and we just don't know. But we know there is a lot of capital that hasn't been deployed yet that will get deployed. And so that's just a positive for us. And I would say over the next year, I think it's a good thing.

[indiscernible].

There's always some of that. But I mean, a portion of our work is government, but a lot of it is private too. And so we have a very nice mix. We're not overly exposed in any of those particular categories. But yes, I don't really see the government projects of having been slowed down a lot. At least that's not what the folks are telling me internally at this point.

Great. And then just geographically, where do you see that money going to? And do you feel like you have the right equipment in the right geographies?

We do. The projects that the government will fund are actually [ Myriad ] and in a lot of different geographic areas. And we feel based on the map, and the locations that we're in that we're really deployed very nicely to be able to take advantage of that. So we feel positive.

I think, Keith, you mentioned pricing, right? So if we're in an inflationary environment, prices are going up. You've managed to pass quite a bit of inflation on to our customers. Have you changed the way you think about pricing and how frequently you do that price adjustment? And I guess the follow-up to that question is, do you sense a little bit of customer fatigue, when it comes to pricing increases?

Yes. It's a great topic, and I think it's a topic across the industry. So the first comment I would make is, and we talked about it earlier in the presentation, we're very returns focused. So when we look at running the business in the normal course of business, we're always looking at what is the cost of new equipment and what's happening on our operating costs. So we are frequently making adjustments to price to take account for any inflationary pressure in either of those areas. And certainly, for the last few years, we've seen the cost of new equipment become more expensive. There have been significant upward pressure there. And then in our operating costs, we have operating costs on the modular side related to maintaining our equipment. So we use building materials, whether it's fixing a window, repairing a roof anything like that, the cost of those materials has gone up and labor cost has gone up. So we're constantly looking at what is the price we need to secure on the next new contract to make sure we get a healthy return on that contract. So to your point, Jane, we absolutely have increased the frequency of pricing reviews. We do a lot of modeling around contracts to make sure we're pricing for new capital that we put into the business, and we'll get the expected return. And the other thing I talked about earlier was a few years ago, we had our performance improvement project, did a lot of work on the way we operate our business and looked at important areas to be better at. Pricing was one of those areas. So one of the good things we put in place a number of years ago was much more sophisticated IT to support pricing in the business. In particular, on the modular and portable storage side so we can act more quickly. We can see at a very granular level what we're achieving from a pricing point of view, right down to individual salespeople in individual regions. And we can look, as Joe mentioned, we look at win-loss ratios. So we have a rich set of data that lets us turn the dials and make adjustments, make sure we get paid appropriately in light of the costs we incur and also react to any changes in the market. So all of that is a focus area. It moves with a faster cadence and more sophistication than the business did 4 or 5 years ago.

You had also asked about fatigue. I think we're not seeing a lot of that at this point. So customers have been pretty willingly accepting higher prices for just all the reasons that we mentioned. So we still think...

So it's my understanding of why you're raising prices.

Exactly.

You're having constructive dialogue.

Absolutely.

Correct. And again, it comes back to you start with the cost environment and I think people understand just as our costs have gone up, we need to be paid appropriately for the value we provide. And I would really emphasize in this business, and Joe hit on it earlier, there's a huge value component. We're a trusted partner to a lot of our customers many are repeat users. You think of school districts around the country, major commercial customers around the country, and they come back to us time and time again because they get the equipment they need and they get all the support and service that they need as well. And that's very important. And so they'll pay a fair price for the value they receive.

[indiscernible].

Yes. Pricing on equipment in the modular part of the business, typically, once it goes up, it doesn't come back down again. It's much more cyclical for the containers, but the container price is much less a driver of the economic returns that you get in that part of the business. So the fluctuations we see there are less impactful. But typically, we just don't see pricing coming down anytime soon, even though some of the commodities have come down in price. We'll just have to see what happens over the next months ahead.

[indiscernible].

It's tight. We have excellent relationships with our suppliers, and we prenegotiate production time and room on their production schedule. So it's not been a problem for us.

So how long does it take for pricing to go through your portfolio, right? Because at any given point, you have a number of equipment already out in long-term, medium-term contracts. And then when you change pricing, it's only on the new contracts. So how much time do you typically give yourself to see that effect to come through?

Yes. It's a multiyear process.

It's a process, it takes a while. But we're happy to see that gap there in terms of new equipment going out and what the current fleet average is. And as long as that delta is positive in this regard, then we know that we're going to continue to have price appreciation across the entire fleet, which is pent-up actually profitability for us in the future.

And a great tailwind for the business.

Great tailwind.

Got it. And just switching gears a little bit on the M&A topic, right? You did a transformative M&A. So as part of that deal, are you repricing some of Vestas contracts as you go along. And then also in terms of other synergies, like how long do you think you're going to take to fully realize that? What are some of the unforeseen upsides or downsides from that transaction post-COVID?

So Vesta had actually very good pricing. And so where and when we could reprice, we're absolutely doing it. But it's not a huge opportunity for us. They were disciplined. And then in terms of synergies, we shared that we believe we'll get $8 million in synergies and EBITDA. We'll start to see some of that this year, but actually, most of it will occur in 2024. So we're on schedule for that.

I think that's probably us...

I think, we're good.

That wrapped up our time. Yes. Thank you, everyone. Thank you, Joe. Thank you, Keith, for your time. Hope you will enjoy the rest of the conference.

Thank you.

Thank you all.