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Good day and welcome to the Herc Holdings, Fourth Quarter, 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operators Instructions]. After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Elizabeth Higashi. Please go ahead.
Thank you, Jason. And thank you all for joining us this morning. Welcome everyone to our Fourth Quarter and Full Year 2021 Earnings Conference Call. Earlier today, our press release, presentation slides, and 10-K were filed with the SEC and are all posted on the Events page of our IR website at ir.hercrentals.com. This morning, I'm joined by Larry Silber, President and Chief Executive Officer. Aaron Birnbaum, Senior Vice President and Chief Operating Officer, and Mark Irion, Senior Vice President and Chief Financial Officer. We'll review our fourth-quarter and full-year results with comments on operations and our financial, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Before we begin our formal remarks, I'd like to remind you to review our Safe Harbor statement on Slide 3. Today's call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.
I would caution you that our actual results could differ materially from the forward-looking statements made on this call. You should also refer to the Risk Factors section of our Annual Report on the Form 10-K for the year ended December 31, 2021. In addition to the financial results presented on a GAAP basis, we will be presenting non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, a replay of this call can be accessed via dial-in or through a webcast on our website. Replay instructions were included in our earnings release this morning. We have not given permission for any other recording of this call and do not approve or sanction any transcribing of the call. I'll now turn the call over to Larry.
Thank you, Elizabeth, and good morning, everyone. Please turn to Slide Number 4. 2021 turned out to be a pivotal time for the equipment rental industry and an outstanding year for Herc Rentals. The excellent performance of our operations and field support teams combined with tight supplies of equipment and steady demand have created an optimal environment for us. Our strong fourth-quarter contributed to a record year. We increased dollar utilization year-over-year by 400 basis points to 44.6% in the fourth quarter, reflecting improved volume, mix, and rates. In the fourth quarter, we added another seven acquisitions. Since December 30th, 2020, we have completed 12 acquisitions for a cumulative total net cash outlay of approximately $477 million. Yesterday, we were also pleased to announce a 15% increase in our quarterly dividend to $57.05 per share which was initiated in the fourth quarter of 2021.
Our strong 2021 performance is clearly providing the momentum and growth that we expect going forward into 2022 and we raised the 2022 guidance for adjusted EBITDA from what we presented at our Investor Day last September. Please turn to Slide number 5. Our fourth quarter results continue to demonstrate outstanding operational execution and reflect new records in many of our financial metrics. Slide 5 shows the fourth quarter results over the last three years. Given the unusual performance in 2020 due to the impact of COVID-19, we share a comparison not only with 2020 but 2019 as well. As you could see, our performance in 2021 clearly accelerated our growth trajectory. Equipment rental revenue was $542.4 million in the fourth quarter, an increase of 26.9%, or a $115.1 million compared to the prior year, and 18.7% over 2019. This increase was driven by solid performance in our core business and growing market share from our specialty businesses, both of which continue to outpace our pre -pandemic performance in 2019.
Adjusted EBITDA grew by 31.1% over prior year and 19.6% over 2019. Our focus on operating leverage improved year-over-year adjusted EBITDA margin, 680 basis points, to 44.4% in the fourth quarter of '21, another record. We reported net income of $71.8 million or $2.36 per diluted share in the fourth quarter compared with $35.5 million or a $1.19 per diluted share last year. Our industry-leading rate management delivered strong results in a favorable operating environment which benefited from tight equipment supply and steady rental demand. This is an exciting time for team Herc as you likely inferred from the growth goals, we presented at our Investor Day last fall. Our team has committed to providing excellent customer service and expanding our rental solutions to a broad array of customers and industries to achieve even greater success. Now on Slide 6. With over 56 years of history in the equipment rental industry, our 5,600 team members work hard to ensure our customers achieve optimal performance safely, efficiently, and effectively every day.
We welcome all of the employees that joined us from locations acquired since December 2020. Everything we do is built on our promise and commitment to help our customers and communities build a brighter future. As of today, we are now operating 312 locations across the United States and Canada, in 40 states and five Canadian provinces. The addressable North American market size is estimated to be $57 billion in 2022, a year-over-year increase of about 10% according to the American Rental Association. We expect to continue our momentum by addressing the opportunities in the market and continuing to outperform the overall industry as we grow both organically and through M&A. Now, please turn to Slide number 7. We intend to capitalize on opportunities we have in an expanding addressable equipment rental market and a truly fragmented industry. Our team has experienced and have what I call fire in the belly to take advantage of an exceptional opportunity before us.
As you can see from this slide, that we introduced at our Investor Day, our major strategic pillars are focused on growing the core business, expanding our specialty business, elevating technology, integrating ESG and maximizing our allocation of capital. Before I hand off to Aaron, let me share with you just how our strategy has been delivering results. On Slide number 8, you will see that 2021 proved just how well we can pivot from a tough 2020. Our dollar utilization reached a record 43% for the year. Adjusted EBITDA margin jumped to an all-time high of 43% even as we reach for a higher goal. And net leverage has dropped from 4.1 times in 2016 to 2.1 times at the end of '21. Now, for more about the details of our operations in the quarter and our outlook, here's Aaron Birnbaum, our Chief Operating Officer.
Thank you, Larry. And good morning, everyone. What a year. The fourth quarter and year-to-date results reflect the outstanding commitment and operational execution of our sales, field management, and field support teams. Despite a challenging environment, our team demonstrated their commitment and conviction in serving our customers every single day no matter what the circumstances. I'm so proud of how we overcame challenges from the pandemic and continue to serve our customers in our local markets. Whether we were supporting the response to COVID on the front-lines or serving our local and national customers, we were able to grow our customer base and our business overall. I want to thank our branch teams and the team that support them here at our field support center for their commitment in 2021. It was a memorable year.
Now, please turn to Slide number 10. Our Q4 results showed exceptional performance compared to 2020 and compared to a strong fourth quarter in 2019. Equipment rental revenue in the quarter was $542.4 million and rose 27% compared with 2020 and 19% higher than the comparable period in 2019. Business activity continued to be solid and all of our end-markets are showing positive momentum. The typical seasonal decline in the fourth quarter was more mild in 2021 and our core business continued to benefit from solid operating performance in all of our regional operations. Our ProSolutions business also continued to contribute double-digit growth year-over-year in the fourth quarter of 2021 as we continue to expand our market share in the rental power generation, climate control, and remediation equipment.
Our entertainment and services business also recorded strong improvement in rental revenue growth primarily related to the continued robust production calendars for content providers. The strategic investments we made to diversify our customer base and industry verticals provide a solid foundation for growth, as we successfully build upon our urban market strategy and deepened and broaden our markets throughout North America. The integration of the acquisitions we made to date is on track and we are actively pursuing other acquisitions in targeted markets. Our Herc operating model continues to drive operational performance in fleet efficiencies and margin improvement, offsetting increases in year-over-year personnel related costs in the quarter. Our scale and leverage will support further margin improvement over the next few years as our revenue growth remains robust. Now please turn to Slide 11. One of the key ingredients behind our excellent performance in 2021 was fleet growth. Our fleet expenditures at OEC totaled $725 million in 2021 with expenditures of $210 million in the fourth quarter.
Given current equipment rental demand and our strategic management of fleet in this equipment constrained environment, we reduced the level of disposal substantially in the fourth quarter of 2021. We disposed $60 million of fleet at OEC in the fourth quarter and $286 million for the full year. Our fleet composition at OEC is on the left-hand side of the slide. The fleet is now at $4.4 billion as of the end of the fourth quarter, about 22% higher than OEC fleet at the end of Q4, 2020. We continue to invest in our specialty fleet which includes ProSolutions and ProContractor and accounted for about 24% of our total fleet as of the end of Q4, 2021. We also continued to improve dollar utilization each quarter in 2021 and achieved a record 44.6% in the fourth quarter. Our fleet department did a great job getting in front of a tight market for new equipment purchases from the OEMs. We ordered early for 2021, and while we have experienced delays of certain equipment, we have largely received a fleet from our initial orders.
Our equipment cost increases were not material in 2021, but as shortages, inflation, and labor costs impact the industry, we anticipate that industry fleet costs will continue to rise in 2022 and 2023. Fortunately, with most of our 22 orders in early last year, so the inflationary impact to our 2022 orders will be modest in the mid-single digit level. Stronger pricing of used equipment and an improvement in our sales channel mix contributed to an increase in equipment sales proceeds as a percentage of OEC, which rose to 42% on the quarter compared with 36% last year. The average age of our disposals was 84 months in the fourth quarter and fleet age is now about 49 months. Please turn to Slide number 12. Our diverse customer mix with our base of large national customers operating in essential business sectors and our expanded specialty business continues to drive our sales strategy. We are expanding through acquisitions in Greenfield and fast-growing urban markets to drive top-line growth.
Additions to core and specialty fleet are expected to continue to be growth drivers. As we can offer a broader array of premium fleet while the market remains constrained due to supply chain issues. We will continue to focus on the expanding addressable markets of climate control remediation, [Indiscernible] and entertainment, as well as other major verticals and industrial customers in utilities and energy, healthcare warehousing, and manufacturing, and general construction. Our diversification strategy over the last several years targeted new industry verticals to drive healthy and stable growth. As you can see by the strong growth we produced. We have successfully grown across multiple industry verticals. As an example of the contribution from oil and gas was up double-digits in 2021. It's still represents only about 9% of our total rental revenue. Economy is gearing up and look to support strong equivalent loan growth in 2022 and beyond. In the fourth quarter our local rental revenue increased 27% year-over-year, representing 57% of our total rental revenue.
New customer accounts continued to be a solid source of growth in the fourth quarter and full year and will continue to be a major focus of our sales organization in 2022. We are targeting high-growth segments of the economy and our end markets are showing momentum to continue a strong recovery in 2022. Now please turn to Slide 13. 2021 was a busy year for our M&A and integration teams. Besides improving our revenue synergies, we also -- we are also pleased with the talented workforce and local customer relationships we have acquired. Through acquisitions, we've been able to increase density and cross-selling. We invested $477 million in net total cash outlay for the 12 acquisitions we made since December 30th, 2020. We welcome all of our new team members from the 37 different locations that we have now integrated into the Herc Rentals organization. We're thrilled to have these skilled and experienced professionals join our team. You could see on the slide the names and dates of the companies we acquired along with assumed EBITDA and the implied multiples we paid.
Our M&A pipeline remains robust and we continue to seek additional targeted locations in the top MSAs to help enhance our urban density and improve our operating leverage and scale. Please turn to Slide number 14. We have been spending a fair amount of time here at Herc discussing sustainability and the programs we need to consider to meet the goals that we set for 2030. The ESG goals were a part of last year's objectives established by our Board of Directors and will continue to be a priority going forward. In 2021, we began to identify the areas that will help us reduce our Scope 1 and 2 greenhouse gas emissions intensity. We are in the process of moving all of our branches to LED, evaluating how we can expand our seller initiatives to reduce our electricity usage, and focusing on other longer-term initiatives we plan to incorporate to improve fuel efficiency and reduce greenhouse gas emissions of our fleet. We have said repeatedly that we intend to be the employer of choice in the industry and we have made it a priority to offer competitive salaries and benefits to enhance retention and attract talent to team Herc.
Our recent annual employee survey showed that we improved on all of the major metrics including employee participation which rose to nearly 90% of our 5,600-employee base. Our employee net promoter score doubled over the prior year and job satisfaction improved despite the challenges of COVID to our operations and health of our team members. We've been busy integrating over 500 new team Herc members and helping them understand our culture, our business mission, vision and values. We are also spending time to assist new and current team members in understanding their future at Herc through training, career development, and job opportunities. Our employee resource groups, Women in Action and the Veterans Employee Resource Group also continue to be active in offering career-related programs, networking opportunities, and support. As always safety is at the foundation of everything we do. We start every day across our branches with a safety huddle and stretch.
We continue to maintain our total recordable incident rate or TRIR under 1.0 in 2021. We remain committed to improve our safety scores with a TRIR goal of 0.49 or less by 2030. As you've heard us talk in the past about various safety initiatives, one of our major internal safety programs focuses on perfect days; that is days with no OSHA reportable incidents, no at-fault motor vehicle accidents, and no DOT violations. In the fourth-quarter and full-year, on a branch-by-branch measurement, all of our branch operations achieved at least 98% of days as perfect. We're always striving for 100% perfect days and our commitment to safety means continuous focus through communications and training. It also means supplying a team with equipment that will help them perform efficiently and safely, particularly in their driving and daily equipment servicing and maintenance activities at all of our branches. Our rental days are best when they are done safely seven days a week. Now, I'll pass the call on to Mark.
Thanks Aaron and good morning, everyone. The Herc team has clearly shifted into high gear in 2021 and delivered record rich revenue, EBITDA and dollar utilization. All key metrics that will drive long-term value creation. It's a great environment for the rental industry with strong demand for most of our end markets and construction equipment had to come by as our manufacturers are dealing with ongoing supply train constraints. Our fleet team has done a great job with getting our orders in early so that our new fleet arrives steadily throughout the year and likely ahead of our smaller competitors. Our operations team have also done a great job with delivering record time and dollar utilization, getting the fleet to the right customers and the right jobs, managing peak demands for storm response, and by integrating new team members and customers and fleet into the Herc model. This consistent execution has led to excellent fourth quarter performance and strong momentum that will continue into 2022. Slide 16 shows the summary of our fourth quarter and full-year results compared with 2020 and 2019.
Equipment Rental revenue increased 26.9% from $427.3 million in 2020 to $542.4 million in the fourth quarter of 2021, primarily due to improved volume and continued momentum in pricing. Compared with our previous peak year in 2019, equipment rental revenue increased 18.7%. We've shifted into high gear and are executing well on our growth strategy that we outlined at our Investor Day last September. We continue to deliver solid profitability with adjusted net income in the fourth quarter of 2021 of $74.9 million or $2.46 per diluted share compared with adjusted net income of $40.2 million or $1.35 per diluted share in Q4 2020. Adjusted EBITDA increased 31.1% in comparison to Q4 2020 and was up by 19.6% compared to Q4 2019. Adjusted EBITDA margins were also a record for the fourth quarter at 44.4% in 2021, improving from 37.6% in 2020 and by 470 basis points from 39.7% in 2019.
As expected, rolling over the low base effect on the cost side of the business in the COVID impacted quarters of 2020 was likely to impact our ability to maintain our historic [Indiscernible] REBITDA margins for Q4, 2021 remained strong at 45.2% down slightly from 2020. For the full year, we are successfully expanding REBITDA margins with a 60-basis point increase over 2020 to a record result of 44.8%. Adjusted EBITDA flow for a 43.4% was in line with our expectations and should return to our targeted range of 60% to 70% in 2022. On the cost side, we have some operating expenses coming back into the business along with rental -- record rental revenues, we incurred higher delivery, re-rent, payroll, and commissions in order to provide superior customer service to delight our customers. As part of striving to be the employer of choice in the industry, we are committed to providing competitive compensation and benefits, and we have been adjusting our operating team's compensation to strategically stay ahead of wage inflation and to build and invest in the team that will become our platform for growth. All of this is manageable within the context of double-digit growth in rental revenues as was evidenced in our 2021 results.
We can invest in our business and in our people and continue to improve our margins in investor returns. On Slide 17, we highlight the momentum in our pricing and utilization trends by quarter. The graph on the upper left illustrates our success in managing price over the last couple of years and is a testimony to our ability to consistently drive rate growth. The latest quarter reflects average rates of up 350 basis points compared to last year. Q4 2020 highlights how well we managed rates in the COVID downturn, down only 80 basis points despite all of the challenges we faced in 2020. Our track record of executing on price in all sorts of operating environments is clear and our rates are up by 6.2% over the last three years. The right momentum we are building in 2021 is also clear and we will maintain this momentum into 2022. The current market environment of tight equipment supplies and steady demand continues to support our focus on rate and we continue to benefit from our excellent pricing tools and the discipline and professionalism of our sales team.
In addition, the industry seems to have gotten price momentum back and we intend to continue leading the industry on price. Our REC fleet size closed the year at about $4.4 billion. Average fleet grew by approximately 15% in Q4 compared to Q4 in 2020, which is an exciting transition. A combination of early ordering and savvy purchasing saw us receiving most of our fleet orders during the year. And we supplemented those orders with some fleet integrated in conjunction with acquisition activity. Our average fleet on rents that we see in Q4 was up by 21% in comparison to fleet growth of 15%, which represents excellent execution and a solid operating environment with record time utilization and efficiency. Rate growth, record time utilization, and continued momentum in our specialty businesses drove another quarter of record dollar utilization. At 44.6% in Q4, we continue to track towards our goal of industry-leading dollar utilization in the mid-40s as a full-year effort.
This positive momentum is a long-term value driver going forward and has a powerful and positive impact on our return on assets. On Slide 18, we can see there was no near-term maturities, we have ample liquidity from the growth goals we laid out at our recent Investor Day for 2022 and into the future as we commit capital to invest in our business to drive fleet growth and to the new cycle. We generated $213.7 million of free cash flow before acquisitions during 2021. After funding $431 million of acquisitions, our net debt increased approximately $260 million to $1.9 billion as of December 31. We have ample liquidity to fund our growth plans, and our leverage of 2.1 times is at the lower end of our target range of 2 to 3 times. Yesterday we also announced a 15% increase to our quarterly dividend to $57.5 a share, a rate which implies an annual payout of $2.30 per share. On Slide 19, we share the latest industry forecasts. ARA forecasted an increase for industry growth of 4% in 2021, and our 24% rental revenue growth in 2021 was almost five times the growth rate of the broader industry. We clearly have much more momentum than the industry in general and are taking market share.
This is consistent with past experience. Rental companies of scale with broad rental fleets and a well-diversified customer base that have consistently grown faster than the rental industry in general. And as we have seen in 2021, Herc is a company of scale with a large, well-diversified mix of customers. IRA currently projects a 10% increase in North American rental revenues to $57 billion in 2022. We are clearly in the early stages of the next construction up-cycle with steady demand even before we get into any potential benefits from the proposed boost to infrastructure spending. Equipment supply to type in our OEMs is challenged to manufacture and deliver new equipment due to worldwide supply chain bottlenecks. This is a very favorable environment on 4.4 billion of rental fleet. As our customers really appreciate our fleet availability, the breadth of our fleet offerings, and our commitment to service. It should remain a favorable environment for increasing rates as everyone is facing cost inflation to a certain extent.
Also, the majority of our business is not directly connected to non-residential construction. Our specialty ProSolutions business is a real strategic benefit and we will look to continue to gain share and grow that business. There is pent-up demand for maintenance and turnarounds in a lot of industrial plants and this segment should also rebound in 2022. There's plenty of demand in most [Indiscernible] markets to support growth in 2022 and we have the balance sheet and liquidity to be able to fuel that growth by investing in our fleet and our market share and that is what we intend to do. Looking at the left side of 2020, you can see the momentum in our results for 2021 and our expectations to maintain double-digit top-line growth momentum for 2022 through 2024. We raised 2021 guidance three times last year and are raising our 2022 guidance from what we provided at our Investor Day last September. We're focused not only on top-line growth but profitable top-line growth and have improved our adjusted EBITDA margins in 2021 to 43.2% and intend to continue to improve our margins with a goal of EBITDA margins in the high 40% range by 2024.
On Slide 21, we're very excited with the growth momentum we currently have in our business and are raising our adjusted EBITDA guidance for 2022 to a range of $1.075 billion to $1.175 billion and maintaining our net capital expenditures guidance of $820 million to $1.12 billion. On Slide 22, we also wanted to highlight the longer-term growth goals we laid out last September. We are a leader in an industry that is beginning to grow into a new up cycle, and it continues to benefit from a secular shift from ownership to rental. Rental industry leaders can grow two to three times the growth rate of the broader industry and we see our organic rental revenue CAGR at 12% to 15% through 2024. And our adjusted EBITDA CAGR at 17% to 20%. We have focused on profitable growth and our goal for adjusted EBITDA margins is to improve to the high 40% range by 2024. We are clearly in the early stages of an exciting industry up-cycle and are excited about the performance we anticipate over the next couple of years as we look to take advantage of strong momentum and excellent results that will likely result in a [Indiscernible] in 2022. With that, I'll turn the call back to Larry.
Thanks Mark. Now please turn to Slide 23. Before we move on to Q&A, I wanted to point out our purpose, vision, mission and values we developed when we became a public company nearly six years ago. We frequently talk about our vision and mission but today I wanted to also focus on the values we hold dear particularly given the commitment we are making to investors about our growth goals over the next several years. We want you to know that we manage our business by these values. We do what's right, we're in this together, we take responsibility, we achieve results, we prove ourselves every day, and we are committed to investing in our communities. And now, Operator, please open the line for questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Neil Tyler from Redburn. Please go ahead.
Yeah, good morning, everyone. I'll start with a couple please. Firstly, on your slides where you talk about the acquisitions, the multiples imply roughly, I think, a 35% uplift in profits from synergies, and I wonder if you could help me understand over what time period you anticipate you can hit that goal. And then if you would just share a little bit more insight into the deals that you've closed, what and where those are, during December. That's the first question parts A and B. Second question more specifically, can you talk about the daily practicalities of taking delivery of such a huge quantity of equipment over the coming months? And for the most part, do you already have mechanics and drivers and the like that you'll need to be able to offer that equipment to customers? Thank you.
Yeah. Hi, Neil. On the M&A synergy slide, most of those synergies are coming from revenue enhancements. So, we see an ability to increase the utilization of that fleet and get a bit of return from what the previous owners had. They typically take place over the first two years with the waiting probably in the first year. The acquisitions that we did in Q4 were Northeast, so around Philadelphia, New Hampshire, Toronto, and Jersey. And I think Aaron will take the fleet load.
Yeah, I think. I knew we'd get a question about the practicality of absorbing the fleet. We call it how well can we absorb the fleet coming in? And you asked about our staff, the drivers, mechanics. We really have no concerns of the fleet coming in. It is a bigger purchase of fleet this year than last year but we've -- we're well prepared with more locations. We've been aggressively -- although it's a tight labor market, and we've been increasing the wages of our existing staff. We do have more drivers and mechanic staff on board than we did a year ago. So, we've been aggressively recruiting and hiring [Indiscernible] people in place for this growth curve that we are putting our plan and that we're achieving in actuality.
If you look at the slide on Page 19, a meal with average fleet going up by 15% in the quarter and average fleet on rent going up by 21% in the quarter it's pretty clear we're absorbing that fleet as fast as it comes in a little bit more.
Got it thank you. That's very helpful.
The next question comes from Ross Gilardi from Bank of America. Please go ahead.
Good morning, Ross.
Hey, good morning, Larry. I just have a question on ratings. They continue to accelerate at 3.5% this quarter, headline CPI is now running above 7% and just generally speaking, based on your historical experience, I mean, is there any reason why rental rates wouldn't continue to accelerate to just inflation rates of the broader economy and just with that, does your EBITDA guidance this year assume ongoing rate acceleration for the next several quarters? Thanks.
I mean our P&L is slightly different than the CPI and the exact rate, so we don't necessarily see that direct impact. We are seeing an increase in costs. I mean, that's clear in our wages, but you sort of look at the rental revenue line maybe our wages are 25% to 30% or in employee costs of 25% to 30% of our revenue. So, the ability to raise rates by three with my midterm, which we continue to see into 2022 when do expect to continue. We feel pretty comfortable that we can continue to grow our margins in this environment. You look back to the rental industry over previous inflationary environments. You got to get it back away into the early 2000s and inflation tends to benefit the rental industry. So, it's not necessarily a challenge as a cyclical business, a little bit of inflation is a positive to the industry in general.
And coupling that with tight supply, Ross and continuing secular shift, and the prospect at some point of seeing incremental opportunities with the infrastructure bill certainly puts a great opportunity in our hands to channel that gear to the types of markets and customers where we can command improvement in rate.
Got it. Thanks, guys. And then just a follow-up. Just on acquisitions in general, since Herc 's obviously gotten much more active over the last 12 months. Just in general, what's your elevator pitch to the targets? And are you encountering a lot of competition from your two bigger competitors? And just what's the number one reason that you're finding that these players are selling right now?
Yes. Look, I think there is a mixture of reasons that we're seeing and some of them we go after. And quite frankly, some of them come to us because they've heard about how we treat employees and how we integrate, and what we do. We are a little different, perhaps maybe than some others, in that we're still growing, so we want to keep all of the talent and the people that are part of these companies that we acquire. And we need that talent in order to continue to grow. So, I think how we approach that is what we do upon integration and how we handle those businesses. And look, we're focused on specific markets primarily in high-growth urban markets and that's where we see the opportunities. What's motivating the owners obviously is, look, some are aging out and don't have firm succession plans in their business and the market is obviously at a point where the multiples are improved from perhaps where they were a few years ago and they see it as an opportunity. There's always this obvious looming concern about, will there be a tax change relative to capital gains tax? And that certainly is motivating several.
Just something I want to ask you just on your equipment rental revenue was up 27% in the fourth quarter and 24% for all of '21. What was the acquisition revenue contribution to those growth rates? And are you able to say how much EBITDA M&A contributed to 2021? Thanks.
Yeah. No, we haven't really broken that out in terms of communication. I think the way to look at it is you can back into the EBITDA from the guidance that we've given or from the slide that we put down there. It's sort of a bill, that's an annual run rate number to work with. They come later in the quarter then you would probably expect, then the bill of EBITDA contribution in the first couple of months takes a while to get ramped up. So, there's a ramping benefit, I would say, to our EBITDA in the multiples in the total dollar of purchase price that you're looking at on Slide 13, as you can get a run rate impact to 2022 from that more than 2021 impact.
Okay. Thanks, guys. I'll turn it over.
The next question comes from Brian Sponheimer from Gabelli Funds, please go ahead.
Hey, good morning, Brian.
Good morning, everyone. Just a couple of questions about how your visibility on outlook, obviously very positive from a real broad perspective. What are you looking for from your customer base when you're thinking about your ability to plan fleet? Vis -a - vis economy growing versus the potential for any sort of contraction as we move towards the latter half of the year and into 2023, if that's even on the radar?
Hey, Brian. It's Aaron, I'll take that one. As far as the momentum, we believe it's very, very strong as we went through Q4. As we're starting Q1 in '22, we see strong momentum. The normal seasonal slowed down really wasn't -- is very mild compared to historical year. So, lots of momentum, lots of demand for fleet. I think that has a lot to do with the -- just the supply and demand economics of new fleet coming into the market and who has the fleet these days. But from a point of view from our customers, still very, very healthy demand from our customers. We see large projects continuing to start. We manage our business in different verticals and we're seeing all the verticals we operate in have very healthy demand from our customers. Very bullish environment overall, I would say.
Okay. Going back to Ross ' question about acquisitions, I'm curious as to maybe if you could bookend the size of acquisition that you look at either on the small side or the -- how big an acquisition would you consider given your leverage is now at 2.1x?
Yeah. We'll look on -- on the top end, I think that's limited to what's available, right? There just not a lot of big rental companies left out there that are either available or making themselves available to the market. So, I think -- we did a deal last year which is outlined in our K. It was about $175 million. So that was the biggest deal we've done to date. And I'd say we've done several deals that are under $20 million. We're prepared to do that range and look, if there's anything bigger that becomes available, we certainly have the ability, we have the balance sheet, and the capability to do it. And I just don't see much out there that's much bigger than that, quite frankly.
Understood. Well, another great quarter, another great year. Congratulations to you and your team.
Thank you very much.
Thanks, Brian.
Thank you.
The next question comes from Jerry Revich from Goldman Sachs. Please go ahead.
Good morning, everyone. This is Jatin Khanaa (ph) on behalf of Jerry Revich. Can you talk about the pricing cadence over the course of the quarter on your transactional business? And with new prices for the industry up significantly, has transactional pricing momentum accelerated into January?
Pricing was pretty consistent through Q4, there's clear momentum. Looking at the slide, that our year-over-year pricing has continued to increase quarter-after-quarter and we expect that to continue into 2022. You get into seasonality at the end of Q4 and into Q1, so the read you get from pricing gets a little bit murky, just given the sort of slowdown in demand with the winter season. We've done a really good job on our on our pricing and getting orders there nearly in 2021, so we're looking at net single digit increase in the inflation in the equipment going into 2022. That obviously doesn't unpack the whole fleet. And we've got ideas to sort of get that back. So, we're real comfortable with hitting towards mid-single-digit rate increases. And as you can see from our results, we're able to manage inflation grow our rental revenues really, really strong and improve our margins.
And just as a follow-up, could you please talk about the M&A pipeline as it stands now? And how much fleet do you anticipate you can add this year based on the pipeline today?
Look, the pipeline remains fairly robust and active and we continue to evaluate new opportunities as they present themselves. From a standpoint of fleet, that will all depend upon the size and the type of acquisition that comes our way. Whether it's a specialty business or a ProContractor tool business or a cooling business or assuring business or general rental. All of those come with different fleet makeup and different size fleets. But I would equate it not too dissimilar to what we did in 2021.
Got it. Thank you very much.
The next question comes from Steven Ramsey from Thompson Research Group. Please go ahead.
Good morning.
Good morning, Steven. Good morning.
Yes. To start with, a few questions on the entertainment vertical, this being a premium rate category, can you talk to that in Q4? I may have missed that. And then how you see that shaping up in 2022. And lastly, there -- can you share roughly what percentage of rental revenue this vertical is for -- or on a normalized basis right now?
I can comment on the dynamics of the business. It's still robust Q4 was strong there is still a pretty significant sling shot back from when there were shutdowns from COVID. In the winter typically there's a hiatus like late December, January where they slow down, take a break, ready for new content. We saw that, but as we see ourselves getting through the last part of February into March, that hiatus concludes and we see a growing momentum in entertainment in '22 versus '21.
Okay. And is there a rough percentage of rental revenue that you could share on that vertical?
We haven't broken that out, Steve. That's buried in the other portion of the slide on Page 12, but we don't break it out.
Okay. Okay. Sounds good. And then curious on the acquisitions that you've done recently in the CAPEX being unchanged for 2022. I guess maybe can you talk to the fleet situation as you -- are you loading in those new branches with some of this CAPEX? Or is the fleet fine at those branches?
Look, we acquired significant amount of fleet, obviously. But when we were planning our 2022 fleet, CAPEX, certainly all of these companies were on our radar screen and we incorporated that into our CAPEX planning. So yes, they will get a portion of the incoming fleet that will help them refresh and build those brands fleets as well.
Okay, great. And then last quick one for me, operating cash flow version of EBITDA in that mid to high 80 range the past three years. Is there any factors that would change that in FY2022?
No. I don't think so. That should continue to -- that should continue to expand along with that margin.
Excellent. Thank you.
[Operator Instructions] Our next question comes from Ken Newman from KeyBanc Capital Markets. Please go ahead.
Good morning, Ken.
Good morning, guys. I'm curious if you could just talk a little bit about the OPEX trends relative to the first quarter. Mark, I think you mentioned higher personnel costs from wage increases and I'm hoping you could provide a little more color on how you view SG&A leverage into the first half of the year. Just in context with higher fleet growth and absorption.
Right. So, it's the typical season as there's a seasonality to the business in the way those expenses roll through. So, in terms of nominal dollars, you'll see a decrease into Q1 and Q2 off of the Q4 numbers as a percentage of rental revenues is probably the easiest way to look at it that continues to decrease as a percentage of rental revenues each quarter as we focus on operating leverage. There should be more in the back-end than there is in the first half. But we challenged ourselves to drop those metrics as a percentage of rental revenues, year-over-year each quarter just to focus on flow-through and upgrading leverage.
Okay. And to clarify, obviously you're up against some pretty difficult comps in the operating leverage for EBITDA flow-through, but does the guide today still imply that REBITDA flow-through of the 60% to 70% just given the absorption benefits?
Yes. That's our ongoing target. Obviously less than that in 2021 just given the COVID impact and it's going to take us a while to work our way back into that, but we are focused on getting into that direction and that's our target for the 2022 year.
Understood. And then just for my follow-up. It does seem like supplier production schedules are expected to open up a bit here into the back half. I understand you're taking delivery of equipment’s a little bit earlier than some of your competitors but just can you talk a little bit about how you view equipment availability into the second half of this year and where you think that impacts industry rental rates or utilization?
Well, we believe -- Ken this is Aaron. We are getting fleet every single day. We did plan for it to come in early so that we had it for the second quarter and it's happening. We do believe that there'll probably be some solutions to it later in the second half but we really don't think that things will get back to normal until after into next year as far as the normal supply delivery schedule. And what was your second part of the question?
No, I'm just curious if you have a view on the impact for rates as availability starts to open up?
I think we anticipate fleet's going to be tight all the way through 2022. There's no real indication that that's freeing up. But I don't think there's going to be a flood of equipment that's going to create some overnight supply and demand rewrite so I think the right environment is going to continue to be good. We've got inflation pressure for more than just fleet. And I think the industry really got focused on rate. I expect that continues through the year and that remains a favorable rate environment.
Yeah. I'll ask one more, if you don't mind.
Sure.
I just want to -- how we should think about baseline dollar utilization in '22? You put up record dollar in the fourth-quarter. Just thinking about the absorption benefits and the structure of the company today, is it fair to assume that 40% is the minimum for any given quarter in '22 or are there puts and takes from seasonality?
There are puts and takes from seasonality. But the way our business is improving and the returns on our fleet are improving, we've been pretty steadily improving those sequentially quarter-over-quarter for the last couple of years, so we continue to see that happening. We've hit a mid-40s for a quarter in Q4 and now our goal is to get that to mid-40s for the full-year average. And that's our target on the fleet.
Understood. Thank you very much.
Thank you.
Our next question comes from Rob Wertheimer from Melius Research, please go ahead.
Good morning, Rob.
Thanks. Good morning. My question was also on [Indiscernible], which obviously look really good and has trended very, very well. And I just wonder it's more of a more of a big picture one just if you could talk about what went right in the quarter and I know you talked about some outside trucking and stock which obviously happens going to have strong growth. But what went right, what levers do you have left to pull there? Is it mostly pricing from here or do you continue to sort of see operational pathways obviously will improve the acquisitions? I understand that two sear deploy the capital we guided, but what slip pathway is do you have left to improve dollar [Indiscernible]? And what's going well? Thank you.
I will take part of it and then maybe Mark can finish off. But look, pricing certainly is one of the levers. And as you've seen over the past several years, we've played the pricing card pretty well. And we have great pricing tools that enable us to price well and continue to look for opportunities, and all of our organization, our sales force is certainly motivated and have the tools in their hands to improve pricing and dollar utilization. But additionally, as we continue to grow our specialty business, that is a pretty important part of improving our dollar use. Our specialty businesses tend to drive a higher dollar use. And we continue to focus on those
grow, add fleet to those and do fair amount of cross-selling on that certainly with our new acquisitions which enables improved dollar utilization there as well.
Okay. Thanks, Larry. And then just on fleet acquisition. You touched on this, you seem covered for the year with inflation, I think you said at mid-singles. And obviously, just given the way your business is structured, you don't absorb all the inflation any one year across the fleet age as more the way. But you seem to have hinted, it could be higher in the future. Any sense as to -- was that mentioned to might have high-singles into '23 based on what you're hearing from your vendors? And I'll stop there. Thanks.
This is Aaron. Yeah, we believe that in '22 it will be a mid-single, and we think it's very likely in 23 it'll be that again. So, over a couple of year period, we expect about ten points.
Got it. Thanks.
Our next question comes from Mig Dobre from Baird. Please go ahead.
Good morning, Mig.
Good morning, everyone. Good morning. Thanks for squeezing me in here. A lot of good questions have been asked already. I guess one that I would ask is surrounding your guidance -- your updated guidance. Initially, you provided this outlook back in September and it feels like a whole lot has happened since you provided this outlook. You bumped it $25 million today. I'm curious, as you look at your -- the way your operating plan has evolved for 2022. Can you share some of the moving pieces here in terms of what got better, what got more challenging, how you ended up getting to this new set of numbers?
So, I think, Mig, we were [Indiscernible] in September with the Investor Day, so we had a pretty good -- we'd put a lot of thought into 2022 at that stage and coming out with guidance much earlier than what we had and actually giving thoughts up to 2024. One of the M&A might have changed a bit, since then there was something like $280 million of M&A in September and we did an additional $200 million in the back end of 2021. A lot of that was in the pipeline but we didn't really know what was going to close and what wasn't going to close. [Indiscernible] part of it but that happened later in the year. So, it's not a significant driver of the guidance range. I think the main impact was a real strong Q4 and we didn't see the normal seasonality in the later end of Q4 that we normally do. Business maintained really strong right up until the holidays. And that my mid-term -- and that pricing my mid-term rolls into Q1 and gives us the confidence for the raise on 2022. So, a real strong finish and a hot start to 2022, I think, are the main drivers there.
And to be clear, Mark, I was referring to your 2022 outlook. Right. So, you mentioned the incremental M&A which obviously, all of it carries into 2022 as far as EBITDA contributions, but I'm again curious as you're say, for instance, rental rate outlook got better. Are you thinking differently in terms of time utilization? You talked about dollar utilization, but I'm also curious, time utilization. And do you have a maybe on the negative side, maybe you have a different outlook on inflation and labor costs for instance as well? That was what I was trying to angle for in terms of the moving pieces here, if that makes sense.
Yes. No, I get it, and maybe I wasn't articulate enough, but we had actual results through September, our Q4 results were better than what we anticipated and that momentum rolls into Q1 which leaves us to feel that Q1 is going to be better than we anticipated. So strong start to the year. 99% of the time that ends up with a really good year, and that's what we're seeing. Time utilization very strong to close Q4 and to open Q1 and also rate momentum very strong closing Q4 and into Q1. The momentum and the business out of Q4 into 2022 is stronger than we anticipated, and that makes us feel pretty confident that we can hit our '22 numbers and raise the guidance as we have.
Sure. Understood. Then last question here. Maybe a comment from you on how you're thinking about sales of rental equipment. I obviously understand as to why you pulled back on down the back half of '21. Are you thinking any different for '22? Thank you.
Maybe it opens up in Q4. The demand for equipment is so strong and time utilization is so strong. We've completely choked off the sale of our equipment just to maximize the size of our rental fleet and the ability to rent that, there's much more economic value to renting than there is to selling. So maybe by Q4 of 2022 that opens up a little bit. But certainly, the first couple of quarters of 2022, we'll be sitting pretty tight on that and just maximizing our rental fleet and our volume of rental equipment on rent.
Thanks, Mig. I think, Jason, I think we've got time for one last question.
Last question is from David Raso from Evercore ISI. Please go ahead.
Hi. Thank you. I'll be quick. Appreciate you fitting me in. The EBITDA margins on the acquisitions that you made in '21; how do they compare to the 43% adjusted margins you had for the full year?
The EBITDA margins of '21 compared to the full-year of '21?
Acquisition.
On the companies you acquired relative to your 43%. Or if you can just give the direct EBITDA margin of what you acquired.
There's a mix. It really depends, as Larry was mentioning, on the type of business we're -- you're acquiring. Specialty businesses tend to have higher EBITDA margin than the general rents business. I would say just in general, the businesses we're acquiring run lower dollar utilization than we run ourselves and lower margins than we run ourselves. The synergies that we outline on that slide is not really coming from expense savings, it's mostly coming from improving the performance of the fleet and improving the margins of those businesses as they come in.
Okay. And we just trying to back into if the margins were said, 37% of what you acquired, that means you acquired about $225 million in revenue. But then the acquisitions were late in the year, so maybe acquired sales helped the quarter $25, $30 million, something like that would just trying to get a sense of the organic growth versus your acquired. So we can better understand your comments about market share gain.
I'd say, the acquisitions come in -- the impact this year has been immaterial. The impact is going to be more into 2022. [Indiscernible] it's not far off let's say it's 75% organic growth and maybe 25% acquisition growth by quarter. That sort of building through the year.
Okay, that's similar to the numbers we're running. Okay. Really appreciate it. Thank you so much for fitting me in.
Thank you.
This concludes our question-and-answer session. I'd like to turn the conference back over to Elizabeth Higashi for any closing remarks.
Thank you all for joining us on the call today. And we look forward to talking with you. If you have any other questions, please feel free to contact us. Thank you. Thanks, Jason.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.