Timothy Boswell: This is Tim. Look, the Investor Day, $1 billion is one of those milestones among many that were in the Investor Day materials. And yes, we will be there in 2023. We also presented a bridge to $650 million of free cash flow and free cash flow per share between $2 and $4 as the business compounds predictably over time. So this is just one step on what was always going to be a pretty long and exciting journey from our perspective. In Brad’s prepared remarks, he referenced kind of the 5 major growth drivers in the business. We still have $500 million of growth opportunity in Value-Added Products and Services. Just by holding rates where they are today, we’ve got about $200 million of growth embedded in pricing. We continue to be acquisitive and acquisitive smartly in a very disciplined way in realizing cost and revenue synergies from those acquisitions at attractive valuations.
We’ve delivered on the logistics opportunity, and we think there’s upside there over time. And we also see other scale efficiencies as the business grows. So that’s not a rule to take other growth initiatives off the table, but let’s also stay focused on the fact that there’s still a tremendous amount of gas in the tank in terms of just executing the initiatives that have been propelling the business now for some time.
Unidentified Analyst: And just a quick question on M&A. How does M&A look like to you in 2023, especially if there’s a recession? And if there’s not a recession, could we see sort of an upside to your revenue guidance?
Timothy Boswell: If there is not a recession and we have a stronger demand environment throughout the year than our base case, then yes, that would be one of the factors that takes us to the higher end of the range. I think we said in our remarks that the acquisition pipeline, as we sit here today, certainly supports investing at the levels that we did in 2022, and that was over $220 million of enterprise value invested. And we — again, we won’t miss a quality deal, and quality deal to us is quality fleet, quality people and quality customer portfolio. And we see a pretty attractive pipeline ahead of us.
Operator: Our next question comes from Andrew Wittmann with Baird.
Andrew Wittmann: I guess I had a question on the logistics, the delivery and installation margins, I guess. Obviously, 2022 was a very strong year. You talked about some of the initiatives, and I am asking you to talk a little bit more about some of the things you’ve done on the cost side. I think you’ve also tried to price more for the value on that side as well that’s helping that margin. So I guess if you could just give a little bit more detail about what kind of happened in 2022. Brad, in your opening remarks, you also talked about that there’s still some opportunity here on the delivery and installation, yet it sounds like your guidance is not expecting too much more contribution from that. So I was wondering if you could kind of — maybe I heard that incorrectly, but I was wondering if you could kind of square that one off as to why that’s the approach you’ve taken with the guidance.
Bradley Soultz: Yes, I’m happy to. I mean the majority of the $50 million incremental we realized last year was rate-driven. The team did an outstanding job not only driving the value that we’re delivering but also overcoming all the inflationary pressures in that front. So basically, the initiatives that we had in mind when we put the Investor Day material together, which in-sourcing more Modular route optimization, more fuel-efficient vehicles, et cetera, that’s all still yet to be harvested, if you will. And that’s why I did say in my prepared remarks, I think with those initiatives alone, there’s still another $50 million of potential out there that we’ll just continue to work on.
Andrew Wittmann: So I guess, why was that not included in the guidance for ’23 then if there’s that much opportunity?
Bradley Soultz: Those are heavier lifts, if you will, right? As Tim said, we’ve kind of assume kind of moderation throughout the year. But to bring more in-house, you’ve got to source trucks, which have been hard to acquire. You’ve got to source drivers. We just undertook a massive integration on the CRM side. So looking forward, we’ve got to integrate and harmonize the logistics platforms, et cetera. So there will be a lot of work, if you will, next year, Andy, but those results are probably going to be materializing 2024 and beyond.
Andrew Wittmann: Okay. That’s helpful. And then, I guess, just for my follow-up question here. With the rate approach that you’ve taken and have been taking in ’22 on your Storage business, I was just wondering what the competitive response has been. We heard your confidence, Brad, in the outlook for double-digit growth for some time, certainly, VAPS being a contributor to that but just the raw price as well. Has there been a competitive response that’s either trying to obviously be underpriced? Or is the market coming your way and others are seeing the rising tide potential here and lifting all boats? So I’m just curious as to what your business is experiencing in that marketplace.
Timothy Boswell: Andy, this is Tim. And as you know, we’ve been quite acquisitive on the Storage side of the business. And we do get feedback that our rate strategy is noted, and competitors are following, as you would expect them to. It’s still a difficult environment out there for smaller competitors in terms of sourcing fleet and also the cost of capital, which, I think, is net supportive of the acquisition pipeline going forward. But in the meantime, yes, we do see competitors raising rates, which is healthy for everybody and healthy for the industry. And meanwhile, it hasn’t been an impediment to us growing our Storage volumes quite strongly in 2022 on an organic basis, again, up 8% or 9% in addition to the rate performance, which was pushing 30% in Q3 and Q4 year-over-year.
Operator: Our next question comes from Phil Ng with Jefferies. Our next question comes from Sherif El-Sabbahy with Bank of America.
Sherif El-Sabbahy: I just wanted to come back to the capital allocation framework. And just see — just given the framework you have, is there any appetite for larger acquisitions or M&A activity? Or just given the CRM rollout, some of the additional headcount that’s been brought in, is that something that you’re not really looking to do right now or wouldn’t have an appetite for in the coming years?
Timothy Boswell: Sherif, it’s Tim. We’ve had the appetite in the past, and we would certainly have it in the future. It’s just always more difficult to predict the timing and probability of those types of transactions. So our approach since the Investor Day is to be — talk about that, which is within our control. We think the programmatic tuck-in pipeline is absolutely within our control and something we intend to continue to execute. But to your point, at 3.1x of leverage, we’ve got plenty of capacity on the balance sheet for transactions really of any size as well as supporting our other capital allocations, like the share repurchase, which we still think is a very attractive capital deployment alternative. So appetite is there. It’s just harder to predict timing and probability on the larger stuff.
Operator: Our next question comes from Stanley Elliott with Stifel.
Stanley Elliott: Quick question on the CapEx piece. Are you all seeing any deflation, be it lumber or steel prices kind of embedded in kind of your buys expected for the rest of the year?
Timothy Boswell: Stanley, this is Tim. I would say not yet deflation. Certainly, in specific categories, yes. We track a basket of goods that is common in our Modular refurbishments. And what we’ve seen there is stabilization, which is a good first step. You have things like HVAC, which are still up significantly and other categories that are down. The basket that we track is stabilized over the last two or three quarters, which is a really good first step. In our Modular refurbishments, I also noted in our remarks that on a per work order basis, we expect that spend to be down about 5% to 10% this year, and that’s more just driven by our own — using less material on a work order and being more efficient with that type of activity.
And that is more a result of some of the benefits and visibility we have after moving the Modular business into SAP, but there’s some work to do there. So we have not assumed deflationary benefits in the CapEx guidance, but there are some signs pointing in that direction.
