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United Rentals Inc
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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 31, 2020, as well as to subsequent filings with the SEC. You can access these 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 to the back of the company's recent Investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.
Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; Jessica Graziano, 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 us today.
As you saw yesterday, we reported a really strong performance out of the gate in 2021 and what's shaping up to be a great year. We knew we had built good momentum in Q4 and that the economy was moving in the right direction. But the first quarter was still uncertain as we ended the year. Well, not anymore. Both our operating conditions and our performance have improved faster than we expected.
We gained back a lot of the ground on rental revenue, narrowing the decline from 2020, and importantly, we exited the quarter up year-over-year in March. Our customers are also optimistic. They're gaining more visibility and they're turning to us for the equipment they need.
Just a few months into the year, we've absorbed almost all of the excess fleet we had in 2020. This was evident in sequential improvement in our fleet productivity that we reported.
And we took advantage of a healthy used equipment market driving record retail sales to generate almost 30% more proceeds in the quarter than we did a year-ago.
None of this would be possible without our greatest asset, our employees, and their willingness to take on the challenges as well as the opportunities presented to them. A lot of people know how much I respect them for their commitment. And our customers feel the same way. And I'm proud to report the team United delivered $873 million of adjusted EBITDA in the first quarter, and they did it safely, turning in another quarterly recordable rate below one.
Given all these factors, we feel confident in raising guidance across the board. This includes a new revenue range that starts above the top end of the previous guidance.
We feel equally comfortable leaning into M&A as evidenced by our recent acquisition of Franklin Equipment, and our agreement to acquire General Finance, which we expect to close mid-year. We feel the time is right to allocate capital to attractive deals like these that meet our M&A criteria for a strong strategic, financial, and cultural fit.
With Franklin, we added 20 stores to our General Rental footprint in the Central and Southeast regions. And the Franklin team is already on board and I'll take this opportunity to officially welcome them to Team United.
General Finance is a market leader in mobile storage and modular office rentals. These services complement our current specialty and general offerings. We're excited about the opportunity to unlock additional growth while solving more of our customers' needs with these new products.
We'll be entering these markets with a strong presence and established footprint and a talented team with solid customer relationships, many of them new to our company. It's a textbook example of one plus one equaling more than two.
If you weren't able to join our earlier call on General Finance, we'll be happy to take your questions during Q&A.
Now let us pivot to demand. We have more good news to share. The rebound we're seeing in our end markets is broadly positive. And this is true of our General Rental business and even more so in our Specialty segment. Specialty had another robust performance led by our power and HVAC business. Rental revenue for Specialty moved past the inflection point, and was positive year-over-year for the full-quarter. We're continuing to invest in growing our specialty network with six cold-starts year-to-date and another 24 planned this year.
Now, I'll drill down to our customers and our end-markets. Customer sentiment continues to trend up in our surveys, as a majority of our customers expect to see growth over the next 12 months. And importantly, the percent of customers who feel this way has climbed back to pre-pandemic levels.
We think there are a few reasons for this. For one thing, our customers have a significant amount of work-in-hand. And they can also see that our project activity is continuing to recover. The vaccines are rolling out, restrictions are easing in most markets, and the weather is turning warmer, three positive dynamics converging right before a busy season.
Also, we're seeing the return of activity in the manufacturing sector after more than a year of industrial recession. And the construction verticals that have been most resilient throughout COVID are still going strong, areas that we've discussed, like technology and data centers, power, healthcare, and warehousing and distribution.
And with infrastructure, our customers are encouraged that it's back on the table in Washington. Most of the infrastructure categories and the administration's current proposal are directly in our wheelhouse, things like bridges, airport, and clean energy. And we'll see how the process goes. But almost any infrastructure spending will benefit us in the long-term both directly and indirectly.
Now, there are some markets that have taken longer to recover like energy. Most parts of the energy complex, including downstream, remain sluggish. Additionally, retail, office and lodging are largely in limbo. So while we're firing on all cylinders at United, there are pockets of the economy that are still catching up. And this means more opportunity for us down the road.
I'll sum up my comments with this perspective. 2021 is shaping up to be a promising year and our performance says a lot about our willingness to lean into that promise, whether it's with CapEx, M&A, cold-starts or other strategic investments in the business. Our balance sheet and cash flow give us the ability to keep every option on the table. Throughout last year, we made a decision to retain capacity by keeping our branch network and our team intact. And now that the end -- the economic indicators are flashing green, our strategy is paying off by driving value for our people, our customers and our shareholders.
And with that, I'll ask Jess take you through the numbers, and then we'll go to Q&A. Over to you, Jess.
Thanks, Matt, and good morning everyone.
The strong start to the year is reflected in our first quarter results as rental revenue and used sales exceeded expectations and costs were on track. That strength carried through to our revised guidance and more on that in a few minutes.
Let's start now with the results for the first quarter. Rental revenue for the first quarter was $1.67 billion, which was lower by $116 million, or 6.5% year-over-year. Within rental revenue, OER decreased $117 million or 7.7%. In that a 5.7% decline in the average size of the fleet was an $87 million headwind to revenue. Inflation of 1.5% cost us another $24 million and fleet productivity was down 50 basis points or $6 million impact. Sequentially, fleet productivity improved by a healthy 330 basis points recovering a bit faster than we expected.
Finishing the bridge on rental revenue this quarter is $1 million in higher ancillary and re-rent revenues. As I mentioned earlier, used equipment sales were stronger than expected in the quarter coming in at $267 million, that's an increase of $59 million, or about 28% year-over-year, led by a 49% increase in retail sales. The end-market for used equipment remained strong, and while pricing was down year-over-year, it's up for the second straight quarter with margins solid at almost 43%. Notably, these results in used reflect our selling over seven-year-old fleet at around half its original cost.
Let's move to EBITDA. Adjusted EBITDA for the quarter was just under $873 million, a decline of $42 million or 4.6% year-over-year. The dollar change includes an $84 million decrease from rental. And in that OER was down $86 million, while ancillary and re-rent together were an offset of $2 million. Used sales were tailwinds to adjusted EBITDA of $19 million, which offset a $2 million headwind from other non-rental lines of business.
And SG&A was a benefit in the quarter up $25 million as similar sales the last couple of quarters. The majority of that SG&A benefit came from lower discretionary costs, mainly T&E.
Our adjusted EBITDA margin in the quarter was 42.4% down 70 basis points year-over-year, and flow through as reported was about 62%.
I'll mention two items to consider in those numbers. First, as I mentioned in our January call, we'll have a drag in bonus expense during 2021, as we reset to our plans target. That reset started in the first quarter. Second, used sales made up a greater portion of our revenue this quarter, which was a revenue mix headwind. Adjusting for those two results is an implied detrimental flow through for the quarter of about 37%.
Across the core business, the first quarter's cost performance played out as we expected, and reflects our continued discipline as we respond to increasing demand and as our costs continue to normalize.
I'll shift to adjusted EPS, which was $3.45, that's up $0.10 versus Q1 last year, primarily on lower interest expense and a lower share count.
Quick note on CapEx. For the quarter, gross rental CapEx was $295 million. Our proceeds from used equipment sales were $267 million, resulting in net CapEx in Q1 of $28 million.
Now turning to ROIC, which remains strong at 8.9%. As we look back over what's obviously been a challenging 12 months, one of the things that we're most pleased with is the ROIC we generated, which have consistently run above our weighted average cost of capital through what was the trough of the down cycle.
Free cash flow was also strong at $725 million for the quarter. This represents an increase of $119 million versus the first quarter of 2020 or about a 20% increase.
As we look at the balance sheet, net debt is down 21% year-over-year, without having reduced our balance by about $2.3 billion over those 12 months.
Leverage continues to move down and was 2.3 times at the end of the first quarter. That compares with 2.5 times at the end of the first quarter last year.
Liquidity remains extremely strong. We finished the quarter with over $3.7 billion in total liquidity. That's made up of ABL capacity of just under $3.2 billion and availability on our AR facility of $276 million. We also had $278 million in cash.
And since Matt mentioned our acquisitions earlier, I'll take a second here to note that we expect to fund the General Finance deal later this quarter with the ABL.
Let's shift to our revised 2021 guidance, which we included in our press release last night. This update does not include any impact from General Finance. If we close as expected in June, we'll update our guidance likely on our Q2 call in July to reflect the impact of that business.
What is included in this update is mainly three things. First, the impact of higher rental revenue; second, increased used sales, capitalizing on a stronger than expected retail market; and third, the contribution of our Franklin Equipment acquisition, which we estimate at about $90 million of revenue and $30 million of adjusted EBITDA for the remainder of the year.
We've revised our current view to rental revenue, given the start to the year and how we expect things to play out from here. The increase in our guidance reflects a range of possibilities with a growth opportunity over the remainder of the year largely follows normal seasonality, albeit from a higher starting point. As you can see, at midpoint, our updated guidance implies a strong double-digit growth over the remaining nine months of the year.
A quick note on the guidance change in EBITDA and what hasn't changed in this revision, which is our continuing to manage costs tightly, even as activity ramps more than forecasted. Our revised range on adjusted EBITDA considers that cost performance across the core business and reflects the impact of higher used sales and the Franklin acquisition with margins and flow through in line with our prior guidance.
A third of our costs continue to normalize from low levels in 2020. Bonus expense remains the headwind; we've discussed previously and at midpoint is about a 60 basis point drag in margin year-over-year.
Finally, the increase in free cash flow reflects the puts and takes from the changes I mentioned and remains robust, at a midpoint of $1.8 billion.
Now let's get to your questions. Operator, would you please open the line?
Certainly. [Operator Instructions].
Our first question comes from the line of Jerry Revich from Goldman Sachs. Your question, please.
Hi, Jerry.
Hi, Jerry.
Hello?
Hello?
Hi, this is Adam Beavis on for Jerry Revich.
Hi, Adam.
I was wondering if you could just talk about, how you expect to benefit from steel costs inflation as we move through the year, and what you're seeing in Q1 in that respect?
So -- this is Matt. As you guys know, we've talked about it many times before, a lot of the purchasing that we do for the full-year, we do in advance. So by January of this year, we'd already had all of our slots in which covers about 70%, 80% of our capital spend for a year. So we're not really seeing that impact from ourselves from a cost perspective.
As far as where it stands in the industry, obviously increased prices for new products that that's where it goes should help the used proceeds should help the market for use in what is already a robust market. So from that perspective, it certainly could help us. And that's what I'd say about it. Thank you for the question.
And my second question is, if you could just talk about what you're seeing in the used equipment inventories market, and how those trends have developed quarter-to-date?
Certainly. So as you can see from the numbers we reported, we still are selling into a robust used equipment market. It's impressive with the year-over-year growth, but when you look underneath the headline is almost 30% growth, what's really impressive is almost 50% growth in our retail products.
So we didn't drive this by doing broker work or a lot of trades. This was certainly not options, not a channel that we usually participate in. But this is selling to end users customers and supporting their needs. So we think that's encouraging on two fronts. Number one, we want to be a one-stop shop for them. But more importantly, it means they feel good about the amount of work they have coming forward, which is why they're buying used equipment. So Q1 was really a great start out of the gates. And we think it'll remain to be a nice, robust area to serve our customers in used sales for the balance of the year.
Thank you. Our next question comes from the line of Mig Dobre from Baird. Your question, please.
Hi. Good morning.
Thank you. Good morning, everyone.
Good morning.
Thank you for taking the question. So, Matt, you're talking about the fact that demand seems to be pretty good there -- out there in the market, that you are to the point where you've absorbed almost all your fleet. I guess I'm looking to get a little more context around that. Clearly, the oil and gas vertical is lagging, but starting to recover. If I leave oil and gas to the side, just look at the rest of your business where would you say activity is relative to pre-COVID levels? And given that your fleet is almost absorbed at this point, how do you sort of think about what needs to happen on a go-forward basis as seasonally you get busier and presumably demand actually ramps-up sequentially?
Sure. So as you guys know, we'll really get into the meat of our inflow of additional capital here in Q2 and Q3. So that's where we're bringing a large portion, 65%, 70% of our full-year classes will come in those two quarters. So we'll have plenty of inflow, and we still have headroom within the existing capacity we have. And my point was, we've absorbed all that excess capacity, we had outside of our normal Q1 last year, when we hit the decline in mid-March, all of a sudden, we had all this extra capacity. Well, that's worked through the system very well. And we're at a more of a normalized pace right here for the seasonal cadence. And that'll include a little bit extra capacity we have now, but more importantly, the inflow, which we didn't have last year of significant CapEx to help serve our customers in Q2, and Q3. And that's what will support this additional demand that we're seeing and anticipating to continue.
I see. And then, given sort of the way comparisons work on your reported fleet productivity metric, when you're kind of looking at your outflows or your guidance, you obviously know how this incremental equipment is going to come into your business. And you've got to be on demand as well. I'm just wondering, is it fair for us to infer that your free productivity metric will essentially be able to make up the lost ground of 2020 or will we continue to see sort of modest erosion on a go-forward basis?
Frankly but just because of the easy comps alone, we're going to have significant fleet productivity in the balance of the year. I mean, we're talking double-digits. So we feel really good about that, part of it easy comp. But reason why we raised our guidance, is part of it, we're in a better place today in fleet productivity that we expected to be coming out of Q1. And that's why I made those absorption comments. And so we'll certainly see robust fleet productivity improvements throughout the year, based on that year-over-year improvement.
Yes, I didn't ask the question.
Sorry --
Just to clarify because I didn't asked this directly. What I was getting at is, are you comfortable with the fact that the market can absorb this incremental equipment that you're getting really that's where I was going with it really?
Absolutely.
Yes.
Yes. Yes I mean, it ties in line with rate guidance, it ties in line with everything we've discussed.
And then maybe, the final question for me, you're talking about the impact from infrastructure. But I'm sort of curious, if you can maybe give us a little bit better framework in terms of I mean, we all know, what's been passed already. And what's being proposed? Is there a rule of thumb that you guys apply to your business with regards to what that might mean for your revenue? And what you might need to do, maybe with the fleet in future years here. Thank you.
So infrastructure overall is more than double-digit percentage of our overall business revenues. We feel good about that. And that's before a bill. So when we think about infrastructure overall, it's an area we decided to invest in years ago, because we knew that the latent demand was there, we knew it was an area that that could bring us long-term growth. And now that we're talking about, whenever a bill gets passed, we would see that as icing on the cake, certainly not going to have a 2021 impact. But with the demand, the need for especially in the U.S., the need for the infrastructure bill, we feel really good about how much focus we've put on this area for the past few years. And it's paying off well, and we think that'll continue to be the case. And whatever the amount of funding we get, we think we'll outpunch our weight, so to speak, in that category when we get more funding.
Thank you. Our next question comes from the line of Ken Newman from KeyBanc Capital Markets. Your question, please.
So my first question is, I saw that you've bumped the growth CapEx number a bit in the guidance. I'm just curious if you talk about what are those units were ordered in the first quarter, and just how we should think about the margin impact from pricing on those units if you know, they will be taken after your 4Q typical CapEx type of negotiations?
So Ken, I'll repeat, no real impact on the pricing, because as I mentioned, outside of some spot needs, we really do the majority of our CapEx orders in advance. So they're not even subject to any kind of surcharges, any other additional costs. And that's why we do it so early. It's a fair tradeoff with our partners, and when we get certainty of volume and get the benefit from that, from the other way. So we feel fine about that. And the other part of your question was --?
Yes, I was just curious maybe it's more of a follow-on here, I guess is as you think about the supply chain capacity and just where lead times are from some of your suppliers. Is there very much upside or any upside they get to the growth CapEx number as we kind of go through the rest of the year, is that more going to be a 2022 type of event?
I think there'll be, I think you even heard from some of the public calls this week from some of the larger OEMs, that they're starting to get their handle on their supply chain that's improving. I don't know how long it will take to work through the pipe, we've got plenty in the pipeline for the next quarter or two, that to absorb regardless, and that'll support the demand. And then I also think that, we are -- when I think about our Top 10 vendors, which is really the big portion of our capital, we have very solid relationships and feel that, we support each other. And we'll continue to do so. So we don't see that as an issue.
And the other part of your question earlier was about the increased CapEx. I just wanted to point out that was not a net change. It was really just the increase in our CapEx guide was about the increased used sales that we're guiding to. So you're not seeing a net bump there.
And the opportunity to replace that fleet.
Yes.
Thank you. Our next question comes from the line of Neil Tyler from Redburn. Your question, please.
Yes, thank you. Good morning. A couple from me please. Firstly, within your raised revenue guidance, can you offer a sense of whether your assumed rate in the back half of the year is better than it was at the full-year stage or whether it's really just a demand perspective that you've altered, that's the first question, please?
So, hi, there. This is Jess. So we actually do not any longer talk about the components within revenue, specifically utilization or mix, but rather speak to fleet productivity. And as really the output is any interplay between those three factors. And as Matt mentioned earlier for -- as we look at fleet productivity that will, just based on the comps from last year get significantly better, as the year plays out, that's going to be largely due to the opportunity in absorption in the remaining quarters of the year.
And that's more to do with the year-over-year comps being so favorable in that category. I will say and Jess reminded everyone appropriately, that we don't go to the components, because it's the interplay of them. I don't want anyone to mistake our rigorous management of the components that go in. Our leaders in the field, and our sales teams just are very focused on the components of fleet productivity, which is driving appropriate return and rate for our services, making sure that we don't -- we're not over fleeted and that we're serving the customers and keeping that balance. So just want to clarify that.
Thank you. That's helpful. So moving on, in that case, you mentioned, Matt, your ability to have retained all of your capacity for over the last 12 months. Can you help me understand, outside of the larger listed companies that talk publicly about this, how your sort of competitors have, whether that's been the case across the competition as well and therefore how the customer dynamic has responded to any differences there? And I suppose, a kind of linked question to that, and leads also to one of the earlier questions about the tight supply chains at the OEM level, have you encountered any conversations with customers where they've been unable to fulfill their own CapEx needs, and therefore this year turning to rental wouldn't have perhaps been, you wouldn't have expected them to do that as to the same extent?
Sure, Neil. So first of all on the capacity and specifically with like, retaining your team or branch closures, it's all over the board. So you have to think about, what -- how strong was the company coming into the pandemic, and everybody had to do what they had to do. We were fortunate that we used our strong balance sheet, right, resiliency of our business to retain because we knew when we got through the other side of the tunnel, we wanted to make sure, we could respond faster. So that was a very definitive decision we made. I'm sure some others made that same decision, and I'm sure others had to do, what they had to do to make sure they had the liquidity and they had to get through in a different way. So I think you have a little bit of everything there.
And as far as customers being able to fill their own capital demands, I'm not really hearing that as a priority right now, it is early in the season. But I will say if there's one area where the supply chain could impact, it would be on new sales, which is by definition of spot sale, a spot deal, right. So we're not going to take rental slots that are really precious right now to support any new sales. So it could have an impact on new sales on the margin, but that's a small piece of the business anyway. So outside of that, I'm not hearing much.
Thank you. Our next question comes from the line of Timothy Thein from Citigroup. Your question, please.
Yes, thank you. Good morning. Matt and Jess, it's a bit of a kind of a high-level one, but I just wanted to ask around this notion of inflation, then clearly some debate from the Fed and others as to the sustainability of it. But as it's kind of in your markets, and in your kind of what's in front of you I mean, the magnitude of some of these increases is pretty pronounced. And so I guess the question is a bit twofold. One is, if you look at the inflation that's hitting your customer base at large, and then you kind of look at the CPIs or the prices they're selling relative to their PPI, that -- that's been, it's out of balance. So I'm trying to think how you -- how does that in the interplay with that with rental rates and again, I know that's kind of I'm not asking specifically about your rental rates, but I'm saying just in general, does this -- does a more inflationary backdrop help or hurt the opportunity from an industry not United, but from an industry standpoint, from the standpoint of rental rates. And then more specific to your P&L, and I'm not asking about equipment inflation, I'm asking about inflationary pressures within -- just within cost of rent. What kind of pressure points are there? Obviously, labor is a big one. And you guys historically have managed that well, but just maybe talk about the -- again, the inflationary backdrop, what it could mean from an opportunity to potentially go further potential opportunity on the rate side and then more specific to United's P&L? Thank you.
Sure. I'll answer the first part of it and I'll ask Jess to take care of the internal inflation. From a customer's perspective and you kind of tied it to rate, so I'll do might replacing the fleet productivity. First and foremost, it's why we put that 1.5% bogey, if everybody remembers, when we talk about fleet productivity, we understand in any environment, our job and what we pay our managers to do out in the field, is to make sure we can outpace inflation, it's natural in every business. And what could be an accelerated inflationary period looking forward for a bit, we'll see how that manifests. That would just up that need. And certainly, with all components of fleet productivity would be leaned upon to help drive that.
And inflationary costs will be being absorbed by customers. So they'll understand the dynamic. I think as far as what it does for the industry, when you think about cost of capital inflation now that could drive some secular penetration for rental overall, as an industry, we'd see that as a positive. People would. It'd just make what we think already pencils very well for a favorable look to rent versus own, it would even drive that gap and that help that we can give people even more so. So I'd say that'd be a benefit for the industry. And then Jess, you can handle the internal inflation question.
Sure, thanks, Matt. Hi, Tim. Good morning. So if I think about it from a P&L perspective, right. So there's of course, the revenue component and the cost component, and the revenue component, and the support that the P&L gets in that kind of environment will of course come from, how fleet productivity sets up, right and the individual components within that.
So if I then shift to the cost side of it, as you mentioned labor for sure is a consideration. And we talk -- we've talked a lot about the merit increases that we do in the normal course across our business as one component of our contracts with our employees, in addition to lots of other things like training and benefits and other support and managing through merit increases and other inflationary costs that we would have by looking for offsets within efficiencies and productivities whether it's leveraging our scale to tighten up on costs within the branch network, not unlike we talked about in leaning more so on insourcing than the premium cost in outsourcing things like delivery and repair, but also just working through the P&L on smarter ways that we can drive better efficiency in things like facility costs, and utilities and things like that. And so, we'll always look to offset other increases where we can to ultimately protect the EBITDA and the margins that we're delivering in the business.
Thank you. Our next question comes from the line of Steven Ramsey from Thompson Research. Your question, please.
Hi, good morning. Thanks for taking my questions. A couple quick ones on GFN, I guess thinking about GFN and fleet productivity with an asset base that's more geared to leasing. How will that impact fleet productivity. I mean, I guess would assume is positive, but just any thoughts you can offer?
So frankly, we don't know how it's going to impact, it will bring over the data as we do many acquisition over from them. And we'll try to make ourselves a better owner by driving more productivity of that. I would say, I wouldn't characterize it, that's more self-policing. That's not really the business, we're going after. This is a rental model, they use the term leasing, but it's really rental, right? It's not balance sheet management, it's not financing, it's truly rental and just wanted to clarify that because they do use the word leasing.
Now, the asset attribute is more of a longer return focus and necessarily an immediate value. Because just like tags, the assets live 25, 30 years plus. So, you'll see a little bit different profile, but this is much more of a return-based business, and more importantly, strategically for us, just another step to the one-stop-shop, value prop for our customers.
Okay, great. And then one more on GFN, thinking about the growth plans you guys have for that business and on cross-sell how much of that, thinking about footprint expansion? How much of that is driven by adding GFN fleet to your high existing branches? Or will that be more geared to opening GFN branches? And then thinking about their utilization being pretty strong. Do you do you think you will be adding meaningful net CapEx for their type of fleet or be retrofitting the existing fleet?
So as excited as I am about GFN, and how much I want to talk of it -- talk about it. I do remind everybody, we're still in regulatory approval phase. So, we can't go too far. But we -- but what we have said, and what I'll continue to say this is absolutely a growth play. And it will be a standalone product category for us. We're a big believer and not homogenizing specialty products. We're a big believer in having the focus on them to drive further growth as you see in the rest of our portfolio. And you could expect that that's what we'll do. Now leveraging our network is a whole another -- and customer base is a whole another opportunity that we feel comfortable as we bring this team on board. And we feel that'll be a huge growth driver for the business and for the people that we're bringing on, we think brings opportunity, both ways we're excited about it.
Thank you. Our next question comes from the line of Rob Wertheimer from Melius Research. Your question, please.
Yes. Hi, question is a little bit just on learnings from your improvements that you executed across a remarkable year. The industry obviously, tightened capacity. And did I think what you guys said you would all do; you would do in specific part of the downturn. And now you're coming out of it in a kind of proven out the trough model. A little bit curious on just what new processes, procedures, technology, or whatever you may have deployed during the downturn that could help productivity for the company as you go through it. And whether you expect the next few years to see a resumption of the margin gains you had when you rolled out some of your initiatives, cash 79 years ago? Thanks.
So first off, one of our biggest COVID learnings and something we talk a lot about in the past, Rob, is the flexibility and resiliency of our model. And I know that wasn't your specific question.
But when I think about your question of what we learned in the last year, way it was great to see that manifests itself in reality versus the modeling of it. So that's first and foremost, we can be as flexible as we need to be. But a big part of that flexibility is to your point on the cost side. Now some of this was -- let's say where we get into comps into Q2 and Q3 where we had a naturally low cost and we were like a shutdown mode. We won't go quite that far.
But the learning of insource. And one of the ways we were able to retain the capacity we had on our team was to insource a lot of the work that we were outsourcing previously, both in R&M, in third-party delivery, longer haul transport, the transfers, those are learnings that I think we may be able to be more efficient longer-term as this business -- as the business gets back to operating at full capacity. And then unnecessary travel I don't want us to go as far as nobody travels. I want us to get back to that not just the team building, but getting back in front of our customers, and building those relationships and selling the value in-person. But we certainly have a lot of learnings that not only is that COVID taught us from a cost perspective, but also from a time management perspective, from an efficiency perspective. That will be another one that I think will certainly stick around in a lot of industries going forward. So those are the things I'd point to.
That's a very helpful answer. And then just on, I know you worked hard probably every year on outsourced delivery, and I guess repair and maintenance. Are you able to I mean, as volumes presumably come back at some point? You've figured out, I guess how that, sometimes I wonder if that's just pure overflow, and you can't handle it. And so, you want to outsource, you think you're able to hold on to some of those savings because of how you systematically changed, I guess. And I will stop there. Thanks.
Yes, I think we'll actually look at our headcount model of the past. And think about those peak periods of how much of that peak period can be served by additional headcount, that'll add other values versus the higher cost of outsourcing. And it'll depend on market and it will depend on the duration of that peak. If we have a peak need, that's a month or two, well, frankly, it's probably a lot. We'll continue to outsource on that.
But if we have a longer period of peak, I think that's where we'll adjust some of the metrics, we use historically in our headcount model, and probably get some learning some savings and more importantly, some additional capacity and productivity. So that that's an area that we can't wait to get back to full throttle. And we're getting there. We're closer that today than we've been in a while. And I think we'll share those learnings as they go.
Thank you. Our final question for today comes from the line of Scott Schneeberger from Oppenheimer. Your question please.
Well, thanks. Good morning. Matt, I'm just curious; obviously last year is a strange comp here. But how does this seasonal uptake of you, we're seeing strong industrial production, ABI. If you can just go back to perhaps compare and contrast to some past years on what you're seeing for strength relative to the historical cycle? Thanks.
Yes, I think that our guidance actually denotes a more normal seasonal build. Think about that we would have achieved in 2017 2018, even 2019 stage as opposed to what we just went through. So, although the seasons did repair, so by definition of goals in 2020, we see this to be much more normalized seasonal buildings embedded in our guidance. We are at a little bit of lower point from a fleet perspective, as you guys know, but we feel really good about not just about of 2021, but the repairing of the economy and our end markets going forward. And then we get further down the road, we start seeing oil and gas pick up, energy overall pick up, we feel really good about the outlook.
Great, thanks. And then just switching over to you. The fleet is -- the average age of the fleet, it's the highest it's been that I can recall. And obviously, those nicks and I know you maintain it better than in the past. But could you give us a feel of where you think you'll exit the year with regard to the CapEx developments that you had in the first quarter and your guidance for the year?
Yes, hi. So, we think we'll be down a couple of months; just we sort of use the midpoint a guide and play that through. Like you mentioned, we think we're probably at the highest point now. And then that'll start to kind of move down to, as I mentioned, a couple of month's younger fleet as we finish the year.
Yes, I think it's important to note that that we only utilized four months of that capacity. So, we're sitting here only four months, year-over-year higher fleet age. And you've heard us talk historically about leaving at least 12 months’ worth of headroom. We went through a pretty severe 2020 and only had to utilize a portion of that 12 months. So, we actually feel really good about where our fleet age is. And as Jess stated, we'll bring it down a couple months from the inflow and some of the used sales that we'll do this year.
Thank you. This does conclude the question-and-answer session of today's program. I’d like to hand the program back to Matthew Flannery for any further remarks.
Thank you, operator and thanks for everyone for joining us. We're off to a great start in 2021 hopefully hear our enthusiasm in what is now a growth year and we'll give you an update and look forward to it in July. But until then, you can always reach out to Ted if you have any questions and don’t forget you could find our Q1 Investor Deck online. And there is also a separate deck for the General Finance acquisition. So thanks for joining. Everyone stay safe. Operator, can you please go ahead and end the call.
Certainly. Thank you. And thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.