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

[Audio Gap] Team, I've got CEO, Matt Flannery, to my immediate right; and then Ted Grace, CFO, right next to him. So why don't we get started?

Just give us a quick overview of URI and the company and just how the portfolio has evolved over time.

Yes, certainly. I mean we've had quite a journey from the roll-up days in '98. I won't take you back that far, but that's when I joined the company as an acquired asset and have been here since. And I think really, when you think about the company we are today, it started again with the 2012 acquisition of RSC. And where we really started to take scale to another level that hasn't been in the industry previously. And we've continued that journey where we have accentuated that journey, I think, is on the Specialty product lines, which is a big differentiator for us. And that ability to cross-sell and give a one-stop shop offering to the marketplace has been received really well. And it's not only been a great competitive advantage in our opinion, but also has driven great financial performance. So that's the overview. We're a people-first organization, you'll hear us say that a lot. If you ask me what's your competitive differentiator. I'll say outside of scale, it's people and culture. And if you ask me what I worry about at night, I'll tell you it's people. So we're very consistent, being a people-first organization.

Awesome. Helpful quick overview. I mean I think -- I'm assuming, all your meetings are starting with this question, just on the recent news, the H&E acquisition and then just the Herc counter offer and the decision to walk away. So I guess just what drove that, why didn't you guys want to come over the top? And -- yes.

Yes. I mean we've always talked about our M&A strategy, having 3 legs of our M&A strategic stool. And the first one is strategic. Does this company, this product line fit your strategy and your customers see a right of way to it being meaningful? The answer is yes. Culturally, we really think H&E has built a good company. I think John and Brad has done a great job with that. That's why we were interested in them and why we started negotiations with them. But the last one is really important, and that's financial. And we put a very -- we put what we viewed as strong top end offer for us based on our modeling. And although it would still be, we've been asking, it could still be cash on cash positive. Why didn't you go over the top or match. We're very disciplined about this. We get a lot of credit for being good integrators. So I think it starts at being a good acquirer. And I think you have to leave yourself some room because you can model everything, but you don't know what you don't know. And if we had matched that offer, that would have brought us to an IRR that was a little bit closer to our cost of capital than we're comfortable with. And it's really that simple. It would have been a nice tuck-in added capacity for us. It has more value to Herc. And I get they can run their play. But we're -- we can't let that impact our plans strategically. We don't really think it changes our competitive moat or our competitive atmosphere where it wasn't a big Specialty play. So we weren't concerned about that. It wouldn't have added to our one-stop shop, but it would have added some really good capacity of some good people, and we would love to have had that at $92. Actually, I would have liked to have had at $90, but I went up to $92. So to Herc, good luck. We think consolidation is good for the industry, and we prefer they get their growth that way. So we're good. We're very comfortable with our decision.

Right. This is probably more of a question for Ted. Just now that the H&E acquisition and you're no longer going to pursue that. Just how is that changing your capital allocation priorities for the year?

Yes. So in the press release, you may have noticed we reinstituted the buyback effective immediately. So we're really just going to revert to what we've done historically, which is to make sure the balance sheet is in a great place. I certainly think that's the case leverage at 1.8x, strong liquidity, no maturities. We're going to fund organic growth. We feel good about kind of our plan we laid out in January. If an as opportunistic M&A comes about, then certainly, we'd look at those opportunities. After that, it's really kind of redistributing the excess free cash back to investors. So the dividends, the first call, share buyback kind of comes at the end of that cascading approach. We have $250 million left on the current authorization. So that will get us through the first quarter. We'll obviously sit down as a team decide on what's next, make sure the Board is aligned with us and have an update in April. So I don't want to get ahead of that. But I think people can rest assured that we've been very comfortable buyer of our stock and nothing's changed in that regard.

And I guess anything changed with how you're thinking about CapEx? Was that the H&E acquisition wasn't really a factor in your CapEx?

Yes. No, the guidance that we had put out in January was our stand-alone guidance, and we were very disciplined about that. And so there'd be no change in that guidance, including the CapEx range that we had put forward.

And maybe you guys -- I think you begin to just to hear about what the M&A pipeline looks like, just maybe the mix as well, just kind of GenRent versus Specialty?

Yes. It's still a robust pipeline, and it has been for the last couple of years. We have a high hurdle rate, as you can see. We're very disciplined about when we're going to close a deal, but that's not for the lack of a pipeline or us looking at targets or that there being ample opportunities out there. And that ranges from everything from Specialty acquisitions to looking at maybe looking at some new product adjacencies to GenRent tuck-ins, maybe there's not that many left to that size, but there's still a lot of activity in the business overall. And we've built an internal mechanism where we do this all with our business developed team internally. We don't outsource this. So they've stayed busy for the last couple of years, and we don't expect this year to be any different. And what's on the plate right now, they'll continue to evaluate.

And could you touch on a little bit more? You said there's some interesting product adjacencies potentially...

Yes. We don't want to get into specifics, but we continue to look at. It's how we got into Matting. It's how we got into the general finance deal, which was mobile storage, is we continue to look at what's temporary on the site, whether that be a plant or a project that's not part of the permanent structure. And if it's temporary on the site, we see that as a potential adjacency, potential right of way for us to support the customer with. So well, some stuff are a little further away than you'd think that we've looked at, and that's why we haven't acted on them. But I don't really think people saw Matting coming as a big player. We certainly didn't expect us to buy the largest mat supplier in the industry a couple of years ago. So we just continue to investigate those type of opportunities.

And maybe touch on just some of the acquisitions you've done recently. So Yak was the most recent, and Ahern -- just how do you guys feel like those have progressed so far?

Really well. I mean Ahern was what we expected to be. We were able to buy that at a good price and do more with that capital, right, with that fleet. And that's worked out well and as well as use facilities. So that capacity played out very well for us. The Yak was totally different, right? So we put out when we announced that deal that we'd expected to double that business in 5 years, and we feel like we're ahead of schedule. We are ahead of schedule after a full year 1, I guess, at the end of this quarter -- in the end of this month, technically. So we feel really good about that. We haven't even really started the geographic growth with the Yak as much as just cross-selling and the growth of the business overall. So there's still ample opportunities for us to do with that, much like what we did with the general finance acquisition through getting into mobile storage, where we had said we'd doubled it 5 year. We feel very similar to these new product offerings that we added to the company and are doing really well.

And how much of Yak you said so far ahead and how that's growing? Is that just the power vertical? How that's kind of the growth you're seeing there? Is that the big driver for you, Yak?

Certainly, that was one of the end markets that we had targeted early on that they were already participating in. But probably the extra growth was cross-selling into the United customers because Yak was already the largest in the space. So you could assume they are already in the obvious verticals. But I think cross-selling into the United customer base has really been what's put the growth a little bit ahead of schedule and what will drive the growth for the next few years.

And what international markets do you guys view as right for expansion? I know you've done a little bit of stuff in Europe, but I understand you're also dipping your toe in the water in Australia. So maybe just talk a little bit about that. What you're seeing in that market?

Yes. And just for context, we have a dozen stores in Europe that we got through the Baker acquisition. I think we had 10 at the time. And then we added a couple more. And then we did a small tuck-in deal there, so added another dozen small stores in Europe, but really niche products serving industrial space for a specific set of customers. And we're doing very well with that. And the Baker team, the old Baker team had earned that right for us to invest some more in there for us then to have a few more products to sell into that as existing markets. And so that's going well. Australia is a little bit different. We started there with the Australian and New Zealand business that came from the General Finance acquisition. And at the time, we said, well, we'll learn about this. We didn't have a strategic view on whether Australia was necessary or not, but they've turned out to be a really good team. So since then, we've added some other products through a couple of other acquisitions to cross-sell into that customer base. So I think Australia is a little more like the model we can run in the U.S. where we can continue to add product lines. Because it was -- it's really one consistent marketplace there that they were selling into that also rent products that we offer here in the U.S. So I look at that a little bit different. There may be an opportunity to continue to add products there more than into the niche offering that we have in Europe.

Would you say internationally, you view that as the most attractive market for expansion or at least like selling more products into?

I would call it a strategic opportunity, not a strategic imperative, right? So that's the way I've always talked about it. And so where we have the footprint, we'll continue to look at how can we make that team stronger, that business there stronger, but I wouldn't say that we need to broaden the reach. We still have plenty of growth opportunity here within the U.S. and Canada that we're excited about.

On the 2025 guide a little bit, maybe we can start with the CapEx guidance. So you're expecting growth CapEx of $500 million. Maybe just could you expand on that a little bit, the areas where you're growing the OEC? And what gives you confidence to invest in some growth CapEx this year?

So we've had 72 cold starts in '24. We stated in January, we'll do another 50-plus this year. So first and foremost, it will be very similar to what we did in '24, by the way. We're going to feed our cold starts. Secondly, we've had double-digit growth in Specialty for a dozen years now, and we expect to have double-digit growth in Specialty again this year. So Specialty product lines will constitute for most of that growth CapEx. And then the balance of wherever we end up in that range will be for the growth in the GenRent team. We didn't -- we don't -- we really expect this to be more similar to '24 as a year and as we came forward with the plans. And if the team exceeds those expectations, right, or doesn't meet them, right, each of those individual teams have the right to earn more CapEx, but all constituted within the guide that we've given.

Maybe touching a little bit on where we are in the cycle. So you guys mentioned on the last earnings call, I think you said we're entering a "slower growth phase" of the cycle. So maybe just expand on that and what you're seeing in some of the key end markets? And in general, maybe what verticals are showing some growth versus weakness in 2025?

Sure. So I guess if you rewind back to a year ago, we talked about '24 being a slower year and a transitional year. And the thesis then was you had the Fed obviously tightened dramatically over the preceding 24 months with the intention of slowing the economy resting inflation in '24, but then the expectation was rates would start coming down across '24, reaccelerate in '25. Obviously with the benefit of hindsight, we now know that inflation has been stickier than the Fed expected, the market expected. And so it feels like that the Fed is obviously staying kind of tight on monetary policy, and that's slowing the economy on the whole and certainly credit-dependent verticals within the economy. So certainly, as inflation continues to subside, our expectations of the Fed then kind of reintroduces easing that obviously accelerates the economy, provides more capital for our customers to then start putting into projects. And so really, it's just operating in a similar environment, '25 than '24. Still growing, still see healthy growth for the business, in spite of the Fed not cutting as maybe the market expected a year ago and we'll see how that goes, but our customers feel very good about the prospects, and we'll take it from there.

And I mean, is that what you're hearing a lot from your general construction customers just probably need rates to come down a little bit before maybe those markets start to pick back up?

Yes, I just think activity in the local markets is really what we're talking about here. We think the big project work will be consistently strong throughout '25 as it was in '24. Some of that's demand that's carrying over from '24 as well, but also with new projects coming out. So we'll call that constant. And then really, it's what is going to be the variable in the local markets. And there were puts and takes. It was a huge dispersion depending on where you were geographically and how much local market opportunity you had. And we think a stronger overall economic environment would get us back to that broad-based growth as opposed to having to pick who gets what capital because individual markets are acting differently. And the thesis is that interest rates certainly dampened some of that investment in those local markets, those small businesses. And hopefully, that won't be too much longer.

And could you talk a little bit about your mega project exposure as well? Just maybe your share of mega project spend? Do you think relative to competitors, just how are you winning that mega project business?

Yes. We don't talk about the share of the scale too much. We view that as competitive. But when we think about our offering, the more complex and the broader the needs of a project, we think our one-stop shop offering actually has more value. So the more -- and it's true for national accounts as well. The more that we could sell to the customer, we think that's an advantage for us to bundle that for them. So we continue to focus on that and the large projects, which -- we've been doing large projects for quite some time and throughout my career, even pre United. We were doing a lot of car plants and power plants and large projects. And this is just a bigger, better, stronger version of that. So we have a lot of experience here, more importantly, than me. We have a lot of people in the field who have a lot of experience in this. So we feel really good about our ability to compete in that market.

And do you guys actually see mega project spend accelerating in 2025? And just what's the visibility just into that project pipeline?

Well, the visibility is definitely stronger. I would say you have 12 to 18 months visibility on large projects versus local market, which is why you hear us hedging on where that's going to end up. But we feel the demand will be at least as strong as it was in '24 -- in '25, and that's what implied in our guide.

Anything to consider maybe with the new administration, how that could impact any of these end markets that you're...

Well, I think sentiment is that this new administration should be more pro business. Therefore, maybe we might get some more macro growth quicker. So I think sentiment wise, our customers are already feeling pretty good about '25. So it upticked a little bit. It's really all about how long it takes to manifest into actual -- still going up or dirt moving, right, into real actionable activity.

Got it. Makes sense. Maybe can you just talk a little bit about what's driving anticipated rental revenue growth in 2025, some of the key components of fleet productivity as well and just how you anticipate them trending this year?

Yes. So certainly, the growth that we expect within the GenRent -- sorry, the rental business, mid-single digits. It will be similar to the factors that we saw in '24. I think Matt mentioned that the year should play out similarly. So certainly, Specialty will carry a lot of the weight for the growth. We think GenRent is positive, how much will be dependent on a lot of factors. Some verticals are going to be challenged by a higher rate environment. We'll see what happens with residential, residential related. We do expect positive fleet productivity. We don't get into the specific components. But certainly, we expect to have another year of very strong time utilization. We do think it will be a positive rate environment as the industry stays very disciplined. And so that combination will drive better fleet productivity -- positive fleet productivity, I should say. We can dive into any of those, if you want.

Yes. I mean, I guess, like the time you -- how you're thinking about that this year versus last year?

We had said the same thing last year. So sorry to be repetitive and boring. But we had real strong time in '23. And we had said in '24 when we came out that if we were able to replicate that for this year, we'd be really happy. Well, we did. Team executed great, and we have the same expectation embedded in our plans this year. So we're really driving time utilization at a strong level, higher than pre-COVID levels. So we feel good about that, and we think that's unique. I think you heard in the industry, some folks had to readjust CapEx, that was a drag. We did not have that experience this past year. So I think we were probably a little more focused on time utilization coming into the year and with our CapEx plans and we're pleased that we're able to execute on that. And I would view it as the same opportunity this year.

Yes. And I mean why do you think that is you've got some of your peers have cut CapEx last year, this year. Your guys' CapEx has been a bit more steady. Do you think it's just that focus on time utilization? Or is there other...

No. So I think it's probably different for each of them, and I don't want to speak for them. But I think the most important part is you had 2 different public peers that said their timing was struggling, so they were cutting their CapEx, that's the right decision. That gets back to the discipline in the industry and people not forcing things into the market. I think their overall growth was fine. So we expected mid-single growth from -- the mid-single-digit growth from the beginning of the year, and that's what we planned for. And that's what they ended -- where our other peers ended up. So I actually think it was a smart and right action to handle and not indicative of any end market challenges.

And could you just talk about the sort of industry discipline you're seeing this cycle? And I know you don't disclose pricing, but just maybe talk about the pricing environment as well...

So I think the discipline comes in many forms. But I think the biggest thing is making sure your fleet is rightsized and utilized. That's how this industry -- I'll tell you prosper in this industry is capital efficiency, right, and utilizing your fleet properly. And if you have to use price as a lever to either to move that up, then you're going down the wrong path because we're all absorbing the same amount of inflation. The inflation that the industry has absorbed on the equipment that we purchased over the last few years since the supply chain disruption caused by COVID was significant. And we're not caught up to that yet. So if necessity is the mother of invention, you could assume that folks -- we have the need to continue to drive positive pricing just to absorb the fleet inflation that we bought. And that has a tail to it. So it doesn't matter what the fleet purchases you're buying this year are, they could be flat. You could have no increase. But you're absorbing increases within your embedded fleet that you're renting out that you've had for the last few years. So I think that's a lot of what's going to drive the price opportunity. But I think the supply-demand dynamics are in really good shape. I think the OEMs are in good shape. I think they're solid, their supply chains are fixed. So I think we're back to a strong normal cadence of capital coming into the business and the appropriate behavior from the...

Yes. And maybe just touch on a little bit the industry discipline you've seen. And just what gives you confidence in the industry continuing to be disciplined, managing to the time utilization, not getting more aggressive on pricing?

Here the actions that we've heard some of the public folks talk about are the obvious examples of where when they weren't happy with where their time utilization was, they publicly stated they're pulling back CapEx spend. I mean that's it in a nutshell. It isn't complicated. And but that wouldn't have happened 15 years ago, right? People might have forced it into the industry, and that's just not happened anymore. So we're very pleased with that.

I can open it up for questions, if there's any questions from the audience? All right. One from...

Hypothetical past you. So let's say you get a Trump and a 10% across-the-board tariffs, right? When you think about your CapEx or your procurement process from that point, looking at a U.S. manufacturer of a said piece of equipment versus a non-U.S. manufacturer, what would your evaluation process look like?

Well, it will be total cost of ownership, right? So our TCO mechanisms that we use for our manufacturers, and we have outside the U.S. manufacturers right now is always going to come down to that cradle to grave and the reliability, including the reliability of that product line. So that will be the economics of it, but it's also the support of the product line. So I don't think it will change other than that sum of the numbers, right? Within the calculational change if somebody's got to pass on some level, it may be a full 10%, but some level of tariff on it if there not manufactured here in the U.S. That will be a challenge for those folks. We have multiple partners in just about every -- in every category, but we'll have 2 to 3 strong A, what we would call A-level partners, and we do that for a reason so that we don't get stuck in a situation where we're going to have to absorb something that was unforeseen or that we really economically doesn't fit our model.

Any other questions? All right, I guess we can keep going. Yes. I mean I think it would be helpful to unpack just the margin guidance in 2025. I guess the implied flow-through is a little bit below what that 50-or-so percent target. So just how much of that is just from used sales and then what else is impacting that lower than target flow-through?

So the biggest thing is used to your point, Kyle. So if you look at the guidance, our used revenue would be implied down $70 million. And if you look at what the implied gross profit contribution is, it's down about $100 million. So when you translate that to the guidance, right, nominally, you'd see total revenue, I think, up $505 million, which includes a $70 million headwind. So ex used, you'd have revenue up $575 million. And then within that $165 million increase in EBITDA, embeds $100 million of headwinds roughly, right, we're approximating. So $265 million on $575 million is 46% flow-through, which basically is a flat margin. So while we do aim towards margin expansion, sometimes that's easier, sometimes it's more difficult. 2025 will be kind of -- it will be a growth year, but not robust growth. So certainly, that will affect kind of the fixed cost absorption we can generate at the same time that is inflationary. So frankly, to hold flat margins, given those dynamics takes work. And so we feel really good about how the team is operating, how it's executing on the cost side. And we'll manage through '25 with what's assumed as flat margins ex used.

And what are you seeing this year just as far as cost inflation? Is it labor, SG&A or those kind of the biggest?

Yes. Labor and benefits is still above trend. I don't think labor doesn't surprise people. It's still a pretty inflationary environment. We do feel it's important to take care of our people. They are the people who have built this entire business for us, take care of our customers every day. Benefits has obviously been inflationary. I'd say, above trend. I think every business is absorbing that. For us, there are a couple of other areas have been notably inflationary. Real estate is one we've talked about, given our class of industrial properties, you're looking at vacancy rates that are in the very low single digits. So those landlords have a pretty good amount of pricing power. We typically would roll about 1/5 of our leases a year. So we're marking into a higher market than we would have set 5 years ago. So we've got to offset that. And then there are other puts and takes. We've talked about insurance is one example. I don't think it surprises anybody in this room that either owns a house or has a car that the insurance companies are pushing rates very aggressively. And as the frequency of events, whether that's home damage or car damage and the cost of those repairs goes up, that gets passed through to obviously premium payers. So we are managing through that as are all companies, and we're offsetting it, right? Our goal this year is to ensure that while we do have those inflationary headwinds that we've got tailwinds that enable us to drive flat margins and what we view as a relatively low growth environment versus history, right? We're looking at ex used, you'd be saying mid-single-digit growth, whereas if you looked at last year, we were up 8%, the year before that 23%, the year before that 20% and the year before that 14%.

Well, I think more importantly, we're managing through that, but we're not giving up on investing in the future. We talked about 72 cold starts that we did last year. We're talking about another 50-plus this year. Our investments in technology, the platforms and for our customers and more importantly, the tech-enabled and improvements for our labor to continue to drive efficiency. So if we can hold flat margins in a low-growth environment, still invest in growth for the future, I think that's an outcome that we're shooting for.

Can we dive a little deeper into the used margins. I mean I understand they were just really high and coming out of the pandemic. Now you're just kind of seeing a mean reversion. But I mean how close are we do you think to that mean maybe still further to go for used margins to still do some more of that mean reversion in 2026? Or are we about -- is that about over at this point in '25?

I think our sense is we're in the later innings of that normalization process. '22 was truly a perfect storm that benefited both recovery rates and margins. And at the time, we talked about our expectation that things would normalize in '23, they did. We talked about it normalize in '24, they did. And certainly, if you look at kind of what's implied in our guidance for the -- for '25 versus what that exit rate looked like in '24, it's very consistent. So we do think it's likely finding its floor. And in terms of where it goes after that, time will tell. But definitely, we often joke about second derivatives internally, and it feels like the second derivative has turned favorable here.

Okay. I like it. And then just what do you think needs to happen kind of beyond this year to get back to that targeted flow-through of 50-plus percent?

Stronger growth. I mean, simple, stronger macro, stronger growth. I mean the fixed cost absorption part is real, especially as it's inflationary. And that's why you see us continue to invest in growth. Because we think this is a slower growth part of the cycle, right? Admittedly, it's lasting probably a year longer than we thought. We really thought last year was that transitionary year, but we didn't get the rate cuts, we didn't get the macro growth that I think a lot of folks thought sitting here this time last year maybe was going to come in '25. But we still do see a brighter future from a growth perspective. So we're going to make sure we're get ready for that. And we get ready for that, I think you'll get back to the kind of flow-throughs that we've seen historically, but we're going to have to get -- we're going to have to continue to drive growth.

And I think your diversification just by vertical is often overlooked. So maybe talk about some of these. We've talked a lot about construction, obviously, is the biggest end market, but -- how are you viewing the, I guess, industrial MRO piece, petrochem, some of these other verticals that don't get talked about as much in 2025?

Definitely, favorably. I mean in '24, it's almost easier to talk about what didn't work well. So residential and residential related won't surprise people is a challenge for us. That's one that we think is rate sensitive. On the industrial side, the broader petrochem sector was a challenge. And when we peel that apart, the U.S. land rig count has been going down for years now. Obviously, the former administration wasn't particularly pro drill. You've got a new administration that clearly is focused on greater U.S. energy production and independents. That will benefit midstream. Downstream for us was down last year, but that really is more, I think, about timing and margins and discrete decisions that refineries are making. And then chemical processing was down modestly. That's one that I think will be levered to economic growth. But those are really the areas where we saw the headwinds. Those are the areas where we saw the headwinds. So -- we'll see what happens with each of those in '25, but it certainly doesn't feel like it's getting worse.

That's good. Can we also talk about the cold starts. You've been pretty consistent with 50-or-so cold starts a year, doing the same thing in 2025, even though it's maybe a bit of a slower growth year. So just -- where are you finding those opportunities to continue to doing -- to be doing 50 cold starts this year? Just how does that look?

When we think about these new product lines that we've added, right, when we look at adding a new product line or buying any of these Specialty pieces, there's almost none of them that are fully formed that are as broadly distributed as our network. So the goal is, is to buy at least a good chunk of a footprint that we can grow off and spread it out throughout the network. And that's what these cold starts are primarily doing. So think about the Matting business. Think about the mobile storage business. We also have an ROS business, reliable on-site, which is Port of John's and restroom trailers. So that's something that we've grown more organically. We have had some M&A, but most of our growth has been organic. So we're continuing to grow that footprint because that's a pull from our customers -- looking for us in that one-stop shop environment to help them out with these on their projects and their plants. And then even within some of the more mature Specialty businesses like Power, which is one of our most mature Specialty businesses, but still one of our strongest growers because we're adding new products, so climate solutions. We're doing a lot of climate solution cold start stores. We're getting a little more into the climate side of our power and HVAC business. So that's what's really driving these is mostly new offerings or building out the footprint of new offerings that we started over the last couple of years.

And I mean, how does that pipeline look? I guess, like beyond this year? There's other pretty clear opportunities to continue to doing a good clip of cold starts every year?

Yes. I mean I think if I were modeling and trying to model in the next few years, I think you could peg similar to the 50 that we've talked about. We -- I would have thought -- we exceeded our goal in '24, and I have thought maybe the team was going to come in a little bit light on their request for '25, but they've -- they've got a pipeline of markets that they want to enter and then it's all about just finding the people in the real estate to do it, and they've proven to execute it very well. So I think you'll see a continuation. It will take a couple of years to fill that footprint out at a minimum. So I think you'd see that type of continuation.

Let's talk about Specialty a little bit. So just -- you've seen double-digit growth for the past several quarters. What's driven that? What's continuing to drive that Specialty growth in 2025?

It's what I've talked about taking the -- well, first of all, there's a lot of secular penetration going on and even the mature products, whether you're talking about trench, where these folks are now selling against noncompliance, they don't even take share from anybody. They just need to help people work safer. And that's why we're one of the largest trench safety trainers in the U.S. Or when you're talking about power, where we're adding more products and services to the existing footprint. But Specialty overall is gaining more visibility and knowledge in the rental space. And you'll hear some of our peers starting to get into it as well because it's something that the customer realizes a rental company can be a better solution than self-performance or quite frankly, nonperformance. And we continue to see that driving our growth in Specialty. But our team is doing a great job, not only broadening their offering, but cross-sell within our existing GenRent customer base. So that's another huge advantage that we have, once again, especially with the new product lines. And Matting was a great example of that. They're not even -- they haven't even had their first anniversary yet, yet the amount of penetration they've gotten with some of our larger customers has really been good. I don't know if you have anything to add.

I think the one-stop shopping concept is sometimes underappreciated. I mean, if you -- we talk to our customers frequently and what they tell you is they want more services from fewer suppliers. And so as we're able to bolt on additional capabilities and provide that with the unified sales force, service force. There's a lot of advantages that the customer recognizes. And in that process, I would tell you, frankly, it disadvantages monoline providers because that's not what the customer wants. What the customer wants is somebody they can really solve all of their problems. And so I think that's an important part of our growth. I think it will continue to be an important part of our growth as customers look to have fewer suppliers to do more for them.

And how are you thinking about just the split of Specialty versus GenRent? I mean now Specialty is, I think, 30-plus percent of the portfolio. Do you feel good about that? Is there maybe more room for that to...

Well, if you think about our 2028 goals that we put out there a few years ago, I would say, roughly 35%, right? So I would say we get -- if get that business to $7 billion. And I think we could still do that. I think that's our aspirational goal. They'd probably be higher right now, but we did the Ahern acquisition. We grew our GenRent business a little faster than we had expected. So I think you'll see that continuation of this being in that 30% to 35% range of our business is something that we'll continue to hold on. And if we add more products, it could go higher.

And I think that's an important point. We've got hard dollar goals rather than mix. And the reason we made that decision is you don't want to forgo a really good opportunity to chase some arbitrary goal, right? So as an example, if we are committed to 40% Specialty for the sake argument, right? And we said, well, so we wouldn't be able to do an Ahern. You'd hate to give up the opportunity to allocate billions of dollars of capital in a great investment and an excellent business, create real value for our shareholders, just for the sake of hitting a number. That's why when we had the Analyst Day, we talked about really even for a $7 billion goal. And that's -- we feel very comfortable that that's achievable. But if we could grow GenRent such that, that percentage wouldn't be 35%, we don't think that's a bad outcome, right? If we can do it in a way that drives attractive returns, that's certainly going to be part of our goal.

Helpful. Probably got time for one or two more questions. So I have a question for you, Ted, just -- could you talk a little bit about just in your time as CFO, how you've managed the balance sheet and capital allocation. We certainly see bring down leverage over time, recently lowered that leverage target range, started paying a dividend. It seems like you're increasing the dividend every year, granted, I mean, it hasn't been that long, but just -- and then also doing buybacks, M&A. So just would love to hear kind of how you've approached leverage and capital allocation?

Sure. I would love to tell you as one person making decisions, but it's not. So I can't take credit for it. It really is a team approach. And it's a journey we've been on for a long time. I think if you go back in time when Matt and Michael took over the company, and started to turn around, there was a recognition that the balance sheet provided a lot of utility that could support our strategy. And as we executed upon that and reach certain thresholds, obviously, cash generation picked up considerably. We had scale benefits that produced a lot of EBITDA, and we're able to kind of grow into the balance sheet, if you will. So it started with, I guess, the first capital allocation enhancement -- announcement in 2019, where we announced that we were going to reduce leverage by half turn. That came after a lot of internal analysis, frankly, we did a lot of stakeholder analysis, including shareholder perception -- down with many of our largest shareholders to get their input. So it's really kind of a 360-degree perspective on how do we create value, more value, unlock value for our shareholders. We did not anticipate COVID, obviously, so that was kind of a curve ball. But we ended up getting leverage down, living within that range. It didn't inhibit any growth. I think that was one of the important things we wanted to emphasize and demonstrate was we were not going to forgo growth for the sake of chasing an arbitrary balance sheet leverage ratio. And then that resulted in the second announcement of taking leverage down another half turn and introducing the dividend. So it's been a very choreographed introduction of various steps and stages that have led us today. So it's certainly predated myself. I give Matt credit for really kind of having the vision that you see or you see what you see in the company today. The dividend was obviously, we're very happy to do that. I think, obviously, there's an important signaling component to that. It was a very clear indication that we feel that the cash flow durability is there. And we've been a very, very aggressive buyer of our own equities. I think in the last 10 or 12 years, we've probably spent $6-plus billion buying equity, today that's probably worth $35 billion or $40 billion, and that's all excess free cash flow as we delever the balance sheet. So we certainly take that part of our capital allocation strategy very seriously as we recognize. It's a great way to create value and attract desirable shareholders.

And have been very active in M&A and supporting growth at the same time.

Well, I think that's a great way to end. Thanks. Thanks for joining us today.

Thanks, Kyle. Thanks. Appreciate.

Thank you.