Letter to stockholdersFrom Our CEO and Chairman
Our theme for 2023 was “raising the bar” and we delivered on that goal
with record revenue, earnings and returns. Our results were driven by a
relentless commitment to serving our customers, as we stayed laser focused
on safety and operational excellence, all while integrating Ahern Rentals,
our second largest acquisition ever, and continuing to invest in future
growth.
Demand for the year was broad-based across geographies, verticals and
customer segments. Industrial markets saw healthy growth with particular
strength across Power and Industrial Manufacturing, while non- residential
and infrastructure led the way within our construction markets.
Furthermore, our specialty businesses all recorded double-digit growth.
Strategically, we continued to expand our business organically with cold
starts and growth capital expenditures, while also pursuing M&A. These
initiatives, combined with ongoing investments in our technology platform,
allow us to provide our customers with the best experience, leading to
strong returns for our shareholders. To us, this defines success.
For the full year 2023, we reported record total revenue of $14.3 billion,
GAAP diluted earnings per share of $35.28, and adjusted EPS1 of $40.74. Net
income was $2.4 billion, at a margin of 16.9%. Adjusted EBITDA was also a
record at $6.9 billion, translating to a margin of 47.8%1. We generated $4.7
billion of net cash from operating activities and $2.3 billion of free cash
flow1 after investing $3.5 billion of gross capital expenditures in rental
fleet.
Our year-end return on invested capital (ROIC) improved 90 basis points
year-over-year to 13.6%, while our net leverage ratio ended the year at 1.6x
and our liquidity was strong at $3.3 billion. Furthermore, after fully funding
growth, we returned $1.4 billion of capital to shareholders in 2023 through $1
billon of share repurchases and the introduction of our dividend program.
This return of cash to shareholders was enabled by our strong free cash
generation. We view our ability to generate strong free cash flow throughout
the cycle as a hallmark of the company and a testament to both the
profitability and flexibility in our business model. Moreover, the durability
of our free cash generation provides us tremendous flexibility to create
long-term value for our shareholders.
Based on the combination of our growth, cash generation and strong balance
sheet, in January 2024, we announced an enhanced capital allocation strategy,
including lowering our targeted full-cycle leverage ratio to 1.5x-2.5x from
our prior range of 2.0x-3.0x. In furtherance of this strategy, we also
announced a 10% increase in our quarterly dividend to $1.63 per share, and
that the Company intends to return $1.5 billion to shareholders through share
repurchases during 2024. In total, these plans should return almost $30 per
share to our stockholders this year.
As we look to 2024, we continue to see opportunities for growth in both
non-residential construction and industrial markets. This is supported by
customer sentiment indicators, solid backlogs, and most importantly, feedback
from our field teams. We believe we are uniquely positioned to benefit from
these opportunities as we leverage our scale, go-to-market approach,
technology and one-stop shop offering.
Longer-term tailwinds also continue to look favorable for our industry. These
include the secular shift towards renting equipment, combined with reshoring
in North America and the significant investments being made across
infrastructure, manufacturing, and energy.
Our incredible team, which puts the customer at the center of everything we
do, gives us confidence in our ability to continue outpacing the industry and
capitalizing on the opportunities ahead of us. In 2023, we saw strong employee
retention in a tight labor market and grew our employee base by almost 7%. We
invested in our best-in-class safety culture, resulting in another excellent
safety recordable rate for the year, while also strengthening the diversity of
our organization and earning national recognition for our strong culture.
On the sustainability front, I’m pleased to share that we made further
progress on our key initiatives in 2023. In recognition of this we received
multiple accolades, including an “AA” ESG rating from MSCI in May 2023.
Throughout the year we engaged key stakeholders on a variety of sustainability
topics while also introducing our new Estimated Emissions Digital Dashboard,
which helps customers understand their equipment emissions and make data-based
decisions in order to help achieve their own goals.
Outlook
Based on all of the market factors summarized above, we expect another year of
growth in 2024. Our 2024 guidance reflects our expectations for total revenue
of $14.65 billion to $15.15 billon, and adjusted EBITDA of $6.9 billion to
$7.15 billion, after a gross capex investment of $3.4 billion to $3.7 billion
in fleet. We expect to generate net cash from operating activities of $4.15
billion to $4.75 billion and free cash flow of $2.0 billion to $2.2 billion.
Last May we introduced our aspirational targets for 2028. These include ~$20
billion in total revenue, ~$10 billion in adjusted EBITDA and 15%+ ROIC. We
are proud of the team’s unwavering commitment to our strategy and look forward
to continued growth as our strength extends across all elements of our
business: cultural, operational and financial. Our scale and capabilities
position us to generate compelling returns for our investors as we extend our
market leadership and continue to Work United®.
March 27, 2024
Matthew J. Flannery
Chief Executive Officer
Michael J. Kneeland
Chair of the Board