Please stand by. Your program is about to begin. If you need assistance during your call, please press star zero. 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 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 31st, 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 presentations to see the reconciliation for each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matthew 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 the 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. I won't reiterate every item, but I do wanna 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 twelve 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. 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. This is consistent with what we've done with like deals in the past. 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 18-36 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 General rental 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 Coasts and in the Gulf, which are all areas where we wanna 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. 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 in 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. 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?" By that, I mean, can we help this business grow profitably? The answer here is an emphatic yes.
Large M&A is one of our core competencies. 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. 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. With that, we'll take your questions. Operator, please open up the line.
Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star and one on your touchtone phone. If you find that your question has been answered, you may remove yourself by pressing star two. Once again, that is star and one to ask a question. We'll pause just a moment to allow questions to queue.
Operator, are you still there?
Yes, sir. We'll go ahead and take our first question from Jerry Revich of Goldman Sachs.
Yes. Hi. Good morning, everyone.
Hey, good morning, Jerry.
I'm wondering if you folks can talk about how this asset compares to the three large general rental deals you folks have done over the years. You know, 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 closest to as you see it?
Yeah. From a fleet profile perspective, I'd see this as a larger NES deal, right? Very aerial and reach forklift focused, which it's over three-quarters of their fleet, which is real exciting for us at this time. But, you know, it's more than double the fleet. It's it looks a lot like that deal from a strategic perspective. From a scale perspective, a little more like the BlueLine deal. 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 RSC deal being the largest amount of overlapping consolidations. In this deal, we're really looking for that extra capacity, and we're real excited to get the three components of capacity for us in these strategic markets, which is fleet, people, and real estate.
I would say it matches up favorably, specifically from an economic perspective. I don't know, Ted, if you had anything else you wanted to add.
Yeah. I'd 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 General rental deals we've done. When we go through it on a risk-adjusted basis, we feel that in any scenario, this is a deal that's gonna work out very well for the company and for our shareholders.
The reason why I wanted to draw that comparison, because on those deals, you folks were able to get time utilization and dollar utilization to United Rentals standards, you know, within a year. It sounds like based on your comments on the economics, Ted, that this one stacks up pretty favorably on the ability to do that as well. I believe you did it within 6-12 months on the other deals. Is that right?
Yeah. You know, I can't recall how quickly, but we certainly, the first thing we're gonna do, 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, you know, as soon as we can after close on the same system so that everyone can be sharing assets right away. That's how we drive, to your point earlier, that strong fleet productivity. 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 the customers understanding one go-to-market. That'll be done before we really ramp up in the spring busy season.
We think timing-wise, this is good. Whether we get those that fleet productivity and those synergies, you know, how fast we get them, 6, 12, 18 months on the cost side is the right range.
Congratulations. Thanks.
Thanks, Jerry.
Thank you. Our next question comes from David Raso with Evercore ISI.
Thank you very much. A couple quick questions. How does this impact the share repurchase announcement, the $1.25 billion that was announced a few weeks ago to be done by the end of 2023?
Dave, I'll start there. The game plan for the immediate term is deposit, very consistent with what we've done in prior large General rental deals. 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 gonna lead right into our 2023 capital allocation planning process and the broader, you know, 2023 planning process. We would certainly have an update for people come January on what our plans will be for next year. Does that help answer the question?
It does. I'm not sure how long the pause you're referring to exactly. I mean, is this something? To dovetail into that question, and I'm sorry if you hear a little echo in the background. I do. The idea of how does this impact your appetite going forward for any further acquisitions? I mean, my math, you'll end the year pro forma about 1.95, a little bit less than two on leverage, which is the low end of your range. I'm just trying to think how this deal impacts your thoughts on further capital allocation, be it the share repurchase, 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?
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. From our perspective, 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. Anything that would overlap with the Ahern business geographically and by product lines, we'd 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 within a pipeline, something met the criteria, with financial being the toughest one these days to get over the transom.
If we found a specialty deal or something in a different marketplace, or we saw opportunity, we feel very comfortable to the point you made of where our leverage is. We feel very comfortable about the dry powder we have and the opportunity to integrate. There'll be a natural pause just based on the work that the field has to do to bring these two teams together. From a CapEx perspective, we haven't finished our plan yet for 2023, so I don't even have a baseline for you to work off of. 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 and reach forklift, which this is, you know, over three-quarters of the fleet we're acquiring.
We feel like that'll give us a bit of a hedge to a head start here in 2023. Whether it changes our views at all, we'll go through the planning process and see how we go.
Yeah, because overall, my net takeaway here, I'm 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. Let's face it, you're getting ahead of price increases for 2023 by taking the iron in 2022. We're now adding $1.85 billion of fleet, and it just seems your comfort with this fleet hitting the ground being utilized. I'm not sure where your initial CapEx will be for 2023, but it sounds like the line of sight you have for fleet utilization must be pretty strong, which is right now not the usual strong seasonal period, right? Post-October, we usually have a little malaise in utilization.
It just seems like you're implying your time utilization 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.
Yeah. Well, absolutely. From a 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 buildup starts, whether it starts in March, whether it starts in April. If we're carrying a little more fleet in Q1 than we normally would have from this acquisition, this isn't, you know, that wouldn't kill or make the deal, right? I think more importantly, you have to remember, this fleet's coming with some needs of their own, right? There's a-- there's over $3 billion... I mean, $300 million of EBITDA that this is generating. There's a customer base already renting this fleet. Worst case scenario, this will drag fleet productivity a little bit in Q1.
Outside of that, we don't have any concerns about the use of these assets. As always, if we're wrong, we adjust in the year in our CapEx, but that's not really what we're worried about right now.
Yeah. No, I appreciate it. It just seems the fleet, you must be pretty healthy to do what you did for the original CapEx and the timing and everything. All right, really appreciate your time.
Yeah, it remains strong.
Yeah.
Thanks, David.
Thank you. Bye-bye.
Thank you. Our next question comes from Steven Fisher of UBS.
Thanks. Good morning. 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 longer term, and maybe you'll say all the above, but curious if there was any of those aspects that were kind of more important to you than others.
100% the combination of the capacity components, right? Leading with people, fleet, and real estate. All three of them are things that we are hungry for in these markets. There's more demand for us to meet. You know, all three of those components help us do that. 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. We saw this at great economics. We just saw this as a real strong opportunity to continue to meet the demand in the marketplace.
Got it. I guess following on that, I know it's hard to time these things, and you have to be opportunistic and, you know, and you just obviously talked about needing a lot of capacity. I guess just, you know, how would you assure investors that they shouldn't be concerned about doing a deal ahead of a potential recession?
Hey, Steve, this is Ted. I'll take that one. Hopefully people heard what we said on 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. I think that speaks to kind of what we're seeing in that momentum in the next year. Again, on a forward-looking basis, our customers continue to look very positive.
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 five big buckets. We see those as pretty substantial, incremental sources of demand in any economic environment. Those are the things, you know, you hear us talk about, you know, favorable economics in any tested scenario. Those are things that underpin kind of those, call it more conservative cases when we model them or, you know, we think we can go through an outright recession with no tailwinds and still do very well with this deal.
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, you know, help us kind of underwrite a deal like this.
Okay, sounds good. Congratulations.
Thanks, Steve.
Thank you. Our next question comes from Stephen Volkmann of Jefferies.
Hi. Good morning, guys. Thank you for taking the question. Most of my question has 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?
Yeah, Steve. This deal doesn't come with NOLs. When you look at the tax benefits, they kind of break into two different categories. The first is the benefits we get on the asset purchases themselves, which is akin to CapEx. 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-$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-$70 million. To your question, there's no NOLs that'll be coming with the assets.
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?
Yeah. Certainly when they come across, they will, you know, 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, you know, they're gonna 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 wanna adjust for the composition of their fleet.
Okay. 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. We don't own the company yet, so we're limited to clean room work. 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 gonna have the opportunity now to cross-sell to. We're excited about the combination. As we get you know under the covers more after close, we'll have an even more of a view of how to attack the market as a combined entity, but we're excited about the opportunity.
Got it. Thank you, guys. I'll pass it on.
Thank you. Our next question comes from Seth Weber of Wells Fargo.
Hey, guys. Good morning. Thanks for taking the question. 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 basis points from 2019. Is that, you know, like an uptick in maintenance or repair costs? Is there something going on where they're just not getting a rate? Or, you know, 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? Thanks.
Sure, Seth. I'd say one of the major things that's changed is they were expanding, so they had a lot of cold 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. 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 cold starts. 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. Just, you know, on 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? Thanks.
Ted had mentioned earlier about even the question about D&A. This is over three-quarters aerial and reach fork fleet, so it can run older by just the profile of fleet. Think about this compared to the NES deal that I referenced earlier in the call, but I think NES was even older. 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 to asset. Not anything we're concerned about. We also think they have a good reputation for maintaining with their back of the shop kind of manufacturing background of the owner. We actually are looking forward to getting this fleet and don't have a concern about the fleet age.
Got it. That's helpful, Matt. Thank you, guys. Appreciate it.
Thank you. If you find that your question has been answered, you may remove yourself from the queue by hitting star two. We'll go ahead and take our next question from Tim Thein of Citigroup.
Great. Thank you. Good morning. I'm just curious that, you know, this is a company that has had, like many in the industry, I guess, had some ups and downs over the years. I believe had some fairly high leverage. I'm just curious if you found that perhaps that strained their ability to, you know, to invest maybe as efficiently as maybe you have. as such, are there, you know, catch-up areas of kind of catch-up investment, you think, that may have resulted from that?
Just how you think the company's positioned just, you know, as you've dug more into it and from the standpoint of operating with, again, a fairly high degree of leverage. Just curious if you have any insights on that.
Yeah. We do think that we could support the growth in these branches with our balance sheet, our systems and processes faster. We do think there is actually a lot of opportunity to, once we harmonize and organize the businesses together in one go-to-market strategy, that we can move a little faster, that we can get more productivity out of that fleet. Also even out of the facilities, we could probably add some volume to these facilities. That's exciting for us. As far as any concerns, I mean, when you think about anybody running on an 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 in each market.
That scale in each market creates a lot of efficiencies, and that's why we're excited at adding this because regardless of how well capitalized or not they are, the efficiencies of scale are what's a real opportunity. The fact that we can invest faster and further is what we think we're gonna get the upside on this deal.
Got it.
Yeah, I guess.
It-
Kevin, I guess the only thing I would add to that is, you know, certainly their reputation with customers is good, so they've made the right investments to support their customers with, you know, reliable fleet. When we think about it from that standpoint, you know, that's obviously an important factor as we did our diligence.
I candidly don't know the status of it now, but they had done some work with respect to, I think, that Snorkel business they bought, or Xtreme or maybe both. Kind of some in-house manufacturing assets. What's the status of that? If in fact they have that, is your intention to stay with that or what's the thought there?
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 forklift 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. Outside of the relationship we'll now have that they had already between the two parties, there's nothing. We won't take those assets on. Those are separate entities. They even have, if you saw some exclusions, some retail locations outside of the Ahern Rentals business, overseas, and those will remain with the Snorkel Xtreme brands as manufacturing retail opportunities.
Got it. Thank you. Matt, just and I'm done after this, but you mentioned harmonizing. I mean, I know that has been a feature of some deals historically from the standpoint of harmonizing rates. Do you see that as a big opportunity here in terms of, again, you're on the same system, so presumably you have a head start, but is there not a big opportunity there just from the standpoint of harmonizing rates across the platform?
We think the opportunity to drive fleet productivity is gonna come in every form and fashion, probably most importantly in having a more robust value prop from both breadth and depth of our fleet and our location. You know, 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. The harmonization 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 harmonization.
Got it. Thank you.
Thank you. We'll take our next question from Scott Schneeberger of Oppenheimer.
Thanks. Good morning. Congratulations, guys.
Thank you.
Two questions. I'll ask them separately. One will set up the other. This acquisition, you have more revenue synergies than you do cost synergies. You know, just looking at some of your other big acquisitions that you have on slide five of the deck, those always have had a larger anticipated cost savings versus revenue synergy. If you could, like Jerry's question, but if you could just elaborate a little bit more on that dynamic, and then I'll follow up. Thanks.
Yeah. I'll let Ted talk to the comps a little bit. Most importantly, as I said earlier, this is not a consolidation play. All the back office synergies are really primarily, it'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. You're not gonna have the branch closures that we did in RSC, let's say, where we had so much excess capacity and overlap when you put the two companies together. This is capacity that we want and need. That's the difference what you'll see in the cost synergy.
In 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 General rental. Because they're more than three-quarters of their fleet is aerial and reach forklifts, we even have a more robust General rental platform to sell to these customers. Additionally, our specialty business is broader and bigger now, right, with more product lines than we had in the other deals. Those are two 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 synergy.
There's even more upside, from that perspective if you modeled in the revenue synergies with that. Ted, anything to add?
No, I think you hit it all.
Great. Thanks, Matt. Then my follow-up. Across your specialty rental categories, I know you categorize them in five main segments. Could you please elaborate on the fleet that Ahern has? I know maybe Xtreme plays into this a little bit, but are they doing a lot of re-renting or do they own assets themselves? If you could just kinda go by your five main buckets and talk about what they do own as far as assets or is this just it. It sounds like a very big cross-sell opportunity for you, but just curious what they have existing in their offering. Thanks.
Yeah. I'll take that one, Scott. They've certainly been much more focused on the core general rental area. If you look in our deck on Slide 6, it kind of breaks out the fleet mix. Power & HVAC is about 2% of their mix, so it's pretty small, and certainly I think they're gonna be much more concentrated towards the lower end of the size spectrum. They've got small trench operations, in the scheme of things, are relatively de minimis. It's hard for us to opine on exactly how the re-rent strategy works. 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.
Great. Thanks, Ted. Thanks, guys.
Thank you. We'll take our next question from Stanley Elliott of Stifel.
Hey, good morning, guys. Thank you guys for fitting me in. Quick question. Have they had the same sort of approach you all have had with the national account and strategic account within their go-to-market strategy?
Yeah. No, 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 of competing with them. 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 multi-regional type companies. The go-to-market strategy and the focus on driving safety, productivity, and earning that business every day is, you know, for a company that's been in business for almost seven decades, that's what we like about it, and they are very familiar with the end markets that we serve, and the products that we serve them with. We actually are very comfortable with this team fitting into United Rentals quickly.
This, I guess the second question would be kind of on their thoughts on or, you know, with them for CapEx into next year. I'm assuming that it's very similar to your arrangement where, you know, you all have the ability to, you know, get your prize, kind of set your equipment capital schedule for next year. Just trying to make sure they weren't, you know, overly committed or curious if they were into next year given the size differential and things like that versus you all.
Yeah. We don't really have all that detail yet. Either way, as you know, the flexibility we have anywhere with our vendors and being good partners, anything that they had in place will be reviewed and another part of the harmonization consolidated in, negotiated in with our terms. 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 very comfortable with and have longstanding relationships with.
Cool. Great, guys. Thanks for the time. Sounds like a great deal. Congratulations.
Thanks, Stan.
Thank you. We'll take our next question from Michael Feniger of Bank of America.
Yes. Hey, guys. Thanks for taking my question. Matt and Ted, it says 62% exposure to non-residential, yet non-res can be split up in many different verticals, from infrastructure to bigger megaprojects or thicker to lighter non-res, that can be more cyclical. Given the footprint, those five states like, you know, California, Texas, Nevada, Arizona, is it more megaprojects 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. Certainly, if you look at their footprint, that would include a number of geographies that will have these so-called megaprojects. It certainly benefits us from the standpoint of the footprint, importantly the fleet, especially those large aerials that'll be great assets for us to have to compete even more effectively on those kinds of projects. I'd say that 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 megaprojects that, you know, that we've talked about.
Great. 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 a deal this size, you know, do you feel like this business could support a dividend at some point?
Yeah. Look, we've talked about all the benefits of having a strong balance sheet, and that's really, you know, the cornerstone of this leverage ratio of two-three times. Obviously, we've afforded ourselves leverage, especially towards the low end. When we talked about the benefits of being, you know, below that 1.9 at the end of the quarter, you know, kind of 1.9 implied at our guidance—or 1.7, excuse me. You know, we definitely view that as, in this example, an opportunity to flex it, take advantage of it, buy these, you know, assets and drive returns. It also affords us the ability to do a lot of other things on the capital allocation side. You know, again, we'll have an update for the Street in January.
We're, you know, we continue to be very well-positioned to take advantage of the balance sheet to create value through a lot of different vectors.
Thank you.
Thank you. We'll take our next question from Rob Wertheimer with Melius Research.
Thank you. I'm not sure you guys have commented on EBITDA margin potential on General rental versus specialty in a while, and maybe this is an aerial leaning one, so it's different than the overall General rental. Should we expect EBITDA margin or maybe EBIT's better given the life of the asset to normalize versus URI over a couple-year period? Or you know, is there an inherent margin gap? If I'll just ask my second one at once, your impression of the reasons for the margin gap, whether it's time utilization or SG&A that you guys are leveraging or anything else that you know, you would attribute to the lower profitability there. Thanks.
Yeah, I'll take that one, Rob. 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 General rental margins. That's certainly part of the plan, you know, and it ties into your second question. When you think about kind of probably what explains some of the variance now within General rental, obviously Specialty is gonna have its own effect. You know, relative scale matters when you think about fixed cost absorption. We'd like to think that we are, you know, very efficient operators, so we think there's opportunities there for us to drive improved margins. And then, you know, Matt's talked about it, but the opportunity to drive better fleet productivity out of these assets, right? That's French for higher dollar yield.
That will come in a pretty accretive manner. 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, you know, 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%-60% flow-through on a consolidated business. That's everything. That's both sides of the business. Nothing's changed there. You know, 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 that's what people can look for us to produce, you know, certainly in up cycles.
Great. Thanks.
Thank you. Our next question comes from Ken Newman of KeyBanc Capital Markets.
Hey, good morning, guys. Congrats on the deal.
Thanks, Ken.
Could you just talk a little bit about, you know, you had 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. You know, 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. It's a little early to quantify it. You know, we need to get through a number of things, including the financing. Certainly, we're confident it's gonna be positive in that year one, driven by a number of factors. You've obviously got the tax benefits, you know, that would be something we at least would wanna make sure people are cognizant of. To your point, as you improve that profitability and you drive better productivity, that will also augment the underlying cash flow characteristics.
Okay. You know, I know you're still kind of working through, you know, digging into the assets here. Can you talk a little bit more about that specialty cross-sell synergy? You know, to me, it seems a bit conservative just given how heavy that fleet is on General rental. You know, 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?
Yeah, Ken, this is Matt. It's we have some quantitative ways that we base, and we'll update this, by the way, once we own the asset and get even deeper. We have a pretty good idea of what their customer profile looks like, and then when you do a lookalike in our customer profile, what the specialty opportunity is, and then we de-risk it, quite frankly, just because you're not gonna win all those opportunities right away. It's important to note. I would agree with you. I think we could outperform that. I think historically, you know, 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 they've done. We do think there's a great opportunity there.
At some point, it becomes a scrambled egg, so we don't wanna oversell it. Most importantly, this deal's accretive even without the cross-sell. We do think there's a lot of upside here longer term. We wouldn't disagree with you on that. My specialty team's on the phone here, and that's a conservative number. They have a great opportunity here.
Great. Thanks for the color.
Thanks, Ken.
Thank you. 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. I feel like it was a great discussion, and we appreciate the opportunity to share our excitement on this deal. I'll remind you that we posted a deck on the acquisition on our website. 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. If you have any other questions, you can reach out to Ted. 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.