United Rentals, Inc. Morgan Stanley's 14th Annual Laguna Conference

Perfect. Thanks everyone for joining us, and good afternoon. Angel Castillo, Head of U.S. Machinery and Construction here at Morgan Stanley, and it is my pleasure today to have Matt Flannery, CEO of United Rentals, and Ted Grace, CFO of United Rentals. Before we get started, I just want to read a quick disclaimer. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. With that, gentlemen, thank you for hosting us here today.

Thanks for having us. Lots of topics to discuss.

Obviously, everything around construction in the U.S. is very topical today. Maybe figured it would be a good place to start, just a little bit bigger picture, macro, and a little bit broader kind of demand backdrop, if you could set the stage for it. Maybe give us the state of the union, what you are seeing in terms of across construction end markets in the U.S. Particularly curious how, if at all the geopolitics, interest rate moves, energy prices, how all of that, if at all, it has impacted what you are seeing in terms of construction demand in the last few months as the scale.

Well, I will let Ted handle the geopolitics and the.

Good point. Okay. rest of it, but the demand environment feels great.

It has really been strong. We had pretty solid expectations when we came out with guidance in January, and the year has just progressed better than we had thought. The construct of the demand has been pretty similar to what our expectations were, where large projects were going to drive most of the growth, and we expected the local markets to be stable. That is pretty much the way it has played out, but with the exception that the large project pipeline has just accelerated. It has moved farther and faster than we had expected through the year, and the execution of the teams allowed us to raise guidance to the most recent level that we did in July. We are really pleased with demand environment, and the industry overall is really on a strong trajectory. Ted, you think the same?

Yeah, the macro dynamics have been pretty interesting this year. We came into the year not thinking you would have diesel north of $5. But if you look at our year-to-date results, the team has done a great job managing that unexpected cost headwind. It is hard to AB test to say what would have happened had things not played out the way it has. But to Matt's point, demand ultimately has been stronger than we expected, despite whatever these headwinds, real or perceived, may be. Certainly the U.S. economy has proven to be very dynamic. I think we have seen that consistently. More recently, there has been discussion about rates and people wondering what the Fed is going to do, what has happened at the longer end of the curve.

Certainly we do not sit around pretending to be armchair economists, but we just remind people that if you were to look at the 10-year yield going back more than three years, it has bounced between 4% and 5%. There is no discernible impact you would have seen on a slowdown when it has even approached the upper end. I guess the question the market asks is, where do we go from here? But the economy and our market specifically have proven to be very resilient, right? That is in spite of what has happened at the longer end of the curve, and even as you have seen what has happened on speculation around the shorter end of the curve. We have gone from 5.25, 5.5 to 3.5, 3.75.

We ask ourselves, if we do get into a tightening cycle, if it's a half a point, three-quarters of a point, you're still well within a range that our industry and the economy has weathered pretty well. I guess ultimately we'll see. If we look at our customer confidence through last week, it is not showing any indications that our customers are thinking about their own prospects differently given all the debate going on at every level. Anything else you got there, Matt?

Agree. Maybe, listen, I think it's totally a point taken.

The economy, like you said, on the construction side, has held up far better than expected. I think as we look at the data, I think what I want to make sure to touch on is you still have done much better than even what the underlying has been showing, right? You look at construction starts in terms of square footage. You look at construction spending, and yet you're guiding to 10% growth, right? You talked about the megaprojects a little bit, but it feels like there's a little bit something here, either the data that is a little bit maybe gets restated, ends up being that it was better than we thought, or there's something that URI is doing that's ultimately delivering better results ahead of what even the industry or the macro would suggest.

Hoping you could kind of unpack that for a little bit, like for us. What are you doing in terms of differently that go to market, either winning more than your fair share? What is a little bit different about your results that you're driving?

It goes back to the strategy we deployed as far back as 2010, coming out of the recession, right? We decided we have to be aligned with the largest contractors, the largest projects that existed in our space because we learned if we wanted to have resiliency, we needed to be with people that were going to get to work through downturns, upturns, and just really counter the cyclicality story that we were burdened with. It's actually playing out really well. We spent a couple of decades building out this network and this connectivity to the largest customers and contractors in the world, and it's really playing out well during these megaprojects. This isn't anything new for us. We've been focusing on major customers and major projects for so long that this is just a manifestation of that strategy.

The other big part of that strategy is our one-stop-shop strategy, where we started talking about specialty once again 20 years ago and 15 years to the street in more consistency. That strategy has developed now into seven different business units that solve different problems for our customers. As you can imagine, these megaprojects have more complex needs. You can assume the larger the project, the broader the needs are going to be. So the competitive moat that that's created is really why I think you see us outperforming the industry overall and all the data points that you point to that show maybe we shouldn't be able to have double-digit growth right now.