Before we begin, please 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, 2022, 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 presentations 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; and Ted Grace, Chief Financial Officer.

I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Matthew Flannery — President & Chief Executive Officer

Thank you, operator, and good morning, everyone. Thanks for joining our call.

Three months ago, after our record full year financial performance in 2022, we told you that we’ll continue raising the bar in 2023. And I’m pleased to say that the year is off to a strong start, which you can see in the results that we shared last night. The integration of Ahern is on track, and our team is doing a great job executing our plan and delivering for our customers. And as always, we’re very pleased that we did this safely with another recordable rate below 1. This execution and the continued strength of our end markets give us the confidence to reaffirm our full year 2023 guidance for substantial growth, solid margin expansion and significant free cash generation.

Let’s start by digging into our first quarter results. Total revenue grew by 30% to a first quarter record $3.3 billion. Within this, rental revenue increased by 26%. The EBITDA increased 32% to $1.5 billion, while margins expanded to 45.8%, both first quarter records. And finally, our return on invested capital set a new high watermark at 13.1%.

During the first quarter, we invested $797 million in gross capex. And year-to-date, we’ve closed two local acquisitions that nicely complement our strategy. Combined with the actions that we took during the first quarter and fourth quarter of last year, we’re well positioned to support the demand our customers see [Phonetic]. Looking more closely at the first quarter demand, key verticals saw growth across the board, led by non-res construction, industrial manufacturing and power. Geographically, we saw much of the same, including double-digit growth in all of our regions.

Our Specialty business delivered another excellent quarter with rental revenue up 24% year-on-year and strong growth across all lines of business, led by our Mobile Storage team. Within Specialty, we opened six new locations and are on track for around 40 cold starts this year.

Used sales were another positive in the quarter, with revenue up 84% year-on-year, largely due to the normalized volumes after holding back on sales in 2022. And not only were we see recovery rates and margins strong, but the level of demand provides another positive indication of how our customers are feeling about their outlook and the need for equipped.

Turning to capital allocation. Our focus remains on driving profitable growth and returning excess cash to our shareholders. We view this as a hallmark of a good company and a means of maximizing value. During the quarter, we returned over $350 million to our shareholders, supported by the strength of our balance sheet and free cash flow generation. Looking ahead, we see continued reasons for optimism regarding our business in the balance of ’23 and beyond.

Near term, we’re encouraged by the momentum we’re carrying into our busy season, combined with a variety of positive industry indicators. First off, both internal and external measurements of customer confidence continue to point towards growth in 2023. This is underpinned by current activity as well as the strength of customer backlogs. Additionally, non-res construction starts increased over 30% in March and the Dodge Momentum Index was up 24% year-over-year. And the ABI points to growth as well, where the forward-looking inquiries component continues in the right direction. Together, these factors support our reaffirmed full year 2023 guidance.

Longer term, we remain confident in our ability to capitalize on several significant multi-year tailwinds for our industry that we view as resilient in any economic environment. First is infrastructure. It remains early, but we continue to see a ramp in spending from the federal infrastructure bill across a variety of project types, including airports, bridges and road and highway. We’re also well positioned to support our customers as they undertake projects across clean energy and advanced manufacturing funded by the Inflation Reduction Act.

Within private construction, we continue to see strong investments across manufacturing, led by autos, semiconductors and energy and power. Combined reports indicate that these tailwinds hold the potential for over $2 trillion of project spend in the U.S. over the next decade. We’re very well positioned to leverage our competitive advantages on these projects, whether through the size of our network or the breadth and depth of our products and services, our team is prepared to serve our customers and drive value creation for our shareholders.

Before I wrap up, I want to highlight some of the other significant achievements that Team United had in the first quarter. You’ve long heard us talk about doing well by doing good. And our team continues to be recognized for their efforts in this area, including recent wins from the Wall Street Journal, where we made their Management Top 250 list, recognizing companies for doing the right things well and the JUST 100, which recognizes companies that are doing right by all their stakeholders while also generating strong performance for shareholders.

So to sum it up, we continue to feel good about 2023 and beyond as our long-term strategy has us well positioned. Our team is executing and our customers know we’re there to support them with unmatched capabilities. And as we’ve consistently demonstrated, we know how to manage the flexibility of our business model while leveraging the strength of our balance sheet and the durability of our cash flow. And this gives us multiple options for creating value.

Lastly, before I hand it over to Ted, I want to quickly highlight that we’ll be hosting an Investor Day on May 31st, during which we’ll provide an in-depth review of our strategy, key initiatives and financial performance with a Q&A session to follow. The event will be held both virtually and in person in New York City, and we hope that you can join us.

With that, I’ll hand the call over to Ted to review our financial results, and then we’ll take your questions. Over to you, Ted.

Ted Grace — Executive Vice President & Chief Financial Officer

Thanks, Matt, and good morning, everyone. As you saw in our first quarter press release, our team again produced excellent results that were consistent with our expectations and, importantly, position us well for the full year. And I think Matt framed things well in saying that we continue to feel good about both 2023 and beyond, given the market opportunity we see, our strategy, our team’s consistently strong execution and our customers’ knowledge that we are here to serve them with unmatched capabilities.

One quick note before I jump into the numbers. The figures I’ll be discussing are as reported, except in a few instances where I’ll call them out as pro forma, which are adjusted to include Ahern’s first quarter 2022 standalone results in the year ago period.

So, with that said, first quarter rental revenue was a record at $2.74 billion. That’s an increase of $565 million or 26% year-over-year. Within rental revenue, OER increased by $469 million or 26.1%. Our average fleet size increased by 25.6%, providing a $460 million benefit and fleet productivity increased by 2% as reported, adding another $36 million. This was partially offset by our usual fleet inflation of 1.5% or $27 million. Also within rental, ancillary revenues were higher by $93 million or 28.3%, and re-rent provided an additional $3 million or 6.1%. I’ll note that on a pro forma basis, rental revenue is up a robust 16.6%, and fleet productivity increased by a healthy 5.9%.

First quarter used sales increased by 84% to $388 million as we return to a more normalized volume after holding onto fleet throughout much of 2022. Adjusted used margins increased by 170 basis points to 59.5%, supported by continued strong retail pricing.

Moving to EBITDA. Adjusted EBITDA in the quarter exceeded $1.5 billion, another first quarter record, reflecting an increase of $364 million or 32%. The dollar change includes a $313 million increase from rental, within which OER contributed $285 million, ancillary added $29 million and re-rent was down $1 million. Outside of rental, used sales added about $109 million to adjusted EBITDA, while other non-rental lines of businesses contributed another $5 million.

SG&A increased by $63 million due primarily to higher commissions and the continued normalization of certain discretionary costs. As a percentage of sales, however, SG&A declined by 120 basis points year-on-year to 11.6% of total revenue.

Looking at first quarter profitability, our adjusted EBITDA margin increased 70 basis points on an as-reported basis and 160 basis points on a pro forma basis to a first quarter record of 45.8%. This translates to 48% flow through on an as reported basis and better than 53% on a pro forma basis. And finally, adjusted EPS was $7.95, another first quarter record. That’s a year-over-year increase of $2.22 per share or almost 39%.

Turning to capex. Gross rental capex was $797 million, and net rental capex was $409 million. This represents an increase of $138 million in net capex year-over-year and positions us well for the growth we see in 2023.

Looking at return on invested capital and free cash flow, ROIC set a new record at 13.1% on a trailing 12-month basis. That’s up 40 basis points sequentially and 220 basis points year-on-year. I’ll add, that was 310 basis points above our current weighted average cost of capital. Free cash flow was another good story, with the quarter coming in at $478 million or an LTM free cash margin of 13.5%, all while continuing to fund significant growth.

Turning to the balance sheet, our leverage ratio at the end of the quarter improved to 1.9 times, representing a 10 basis point reduction both sequentially and year-over-year. And our liquidity at the end of March exceeded $2.65 billion with no long-term note maturities until 2027. Notably, all of this was after returning $353 million to shareholders in the quarter, including $103 million via dividends and $250 million through share repurchases.

Looking forward, you saw last night that we reaffirmed our guidance across all metrics. Based on the diverse momentum we see across our markets and what we hear from our customers, we remain confident that 2023 will be a record year for the company.

Just to review, total revenue is expected in the range of $13.7 billion to $14.2 billion, implying full year growth of approximately 20% at midpoint and pro forma growth of 12%. Within total revenue, I’ll remind you that our used guidance is implied at $1.3 billion.

Our adjusted EBITDA range remains $6.6 billion to $6.85 billion. On an as reported basis, at midpoint, this implies roughly flat full year adjusted EBITDA margins and flow through of around 48%. On a pro forma basis, however, which we think is the appropriate way to think about it, our guidance continues to imply about 80 basis points of EBITDA margin expansion and flow through in the mid-50s.

On the fleet side, our gross capex guidance remains $3.3 billion to $3.55 billion, with net capex of $2 billion to $2.25 billion. And finally, our free cash guidance is $2.1 billion to $2.35 billion, which is before dividends, repurchases and bolt-on M&A.

So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Question & Answers

Operator

[Operator Instructions] Our first question comes from Rob Wertheimer with Melius Research.

Rob Wertheimer — Melius Research — Analyst

Hi, thanks, and good morning, everybody.

Matthew Flannery — President & Chief Executive Officer

Hey, Rob.

Rob Wertheimer — Melius Research — Analyst

So my first question is basically on demand. And you gave a pretty good overview. But if we just leave aside the Dodge and all the surveys and everything and just think about what you’re seeing on the ground and hearing from your customers, are you seeing the mega project funding start to flow through? Are you seeing lots of activity in sort of quoting or proposals on loans? And does it give you any differential, I guess, versus other years look into supply-demand as we move through the year? Does it continue to look tight? Does pricing continue to look well supported by supply-demand dynamic as we go through the balance of the year?

Matthew Flannery — President & Chief Executive Officer

Sure, Rob. So I’ll start with the demand portion, whether it be through the broad-based demand that I discussed in the opening comments, where every one of our business units geographically and all of our Specialty businesses show double-digit growth in the quarter, and that’s a continued momentum from what we’ve been seeing for quite a while now.

And all the verticals that we cover remained positive in the quarter. There’s actually one to be technically correct. Disaster and recovery was down a little bit, but that was coming off of 132% comp growth in the first quarter last year. And it’s 1% of our business. So basically, all the verticals, all the geographies, all the product lines remain strong, very strong demand. So we feel good about that.

And when I think about the supply-demand dynamics, partly driven by the mega projects, partly driven by the broad-based demand I just talked about, we see it to be a very constructive market for continued strength for the industry overall, tack along with the discipline. I mean, we’re not going to get into individual components of it, but we feel good about rates. We feel good about the constructive environment, and we feel good about being able to reaffirm our guidance because of that demand.

Rob Wertheimer — Melius Research — Analyst

All right. Perfect. So that’s pretty responsive. And then just on gen rent gross margins, is that any indication of rate versus cost balance? Or is that largely explained by Ahern coming in or other factors? And I’ll stop there. Thank you.

Ted Grace — Executive Vice President & Chief Financial Officer

Yes, Rob, this is Ted. I’ll take that one. That is the indication of the impact of Ahern. And just to be clear, that was in line with expectations. When you look at those margins, it reflects the fact that we bought a business that we knew have lower margins. As we integrate it, that’s the effect you see.

Rob Wertheimer — Melius Research — Analyst

Thanks, Ted. Thanks, Matt.

Matthew Flannery — President & Chief Executive Officer

Thanks, Rob.

Operator

Thank you. Our next question comes from David Raso with Evercore ISI. Thank you.

David Raso — Evercore ISI — Analyst

Yes, I think for most people, the drag that Ahern brought to the reported numbers was a bit of a surprise, the magnitude of it. And I’m just trying to get a sense of productivity going forward. And I know the rate comp gets harder. But the improvement you would think you’d have around an Ahern and the smaller acquisition ABL. But particularly Ahern, can you tell us about why the drag is that much? And the implications for productivity the rest of the year, can you improve that mix or whatever they’re dragging on the reported numbers? And then I know you have the offset though, of course, the rate comp gets harder. I think we’re all just trying to figure out in the reported numbers, the whole year, is it going to be sub 2%, because the base case had been productivity would slow through the year. But now that we have a reported number of 2%, I think we’re just trying to figure out, is productivity flat to down by the end of the year on a reported number?

Matthew Flannery — President & Chief Executive Officer

Yes. So let me help you with it. So, first off, I will start by urging everybody look at the pro forma, right. That puts the Ahern base in there. That’s how we manage the business, that’s how we’re taking that asset base, putting the base of that into the base year that we’re comparing to. So not having in that base year creates that disconnect of, let’s call it, about 4 points. That 4-point gap between pro forma and as reported, we believe will continue.

And I’ll just — I’ll try to explain it simply. If you think about the amount of capital that Ahern had that we’re adding to the base year and the amount of revenue — rent revenue they generated on it, it was about 40%, about $0.40 on every dollar. When you roll that into our experience, which is more like 60% on the dollar, that’s that dilutive effect. And we think it’s going to be somewhere in that 4% gap between what we report as reported and what we report pro forma for the rest of the year. So that’s just — that baseline and what we added into the baseline is not the change because it already happened. It’s baseline.

Now any improvement that we can get on those assets, that will show up in our improvement in our fleet productivity. As you all know by this time, the egg scrambles, right, that fleets in our overall business, we consolidate stores, we have one single go-to-market. So all that, we consolidate customer statements that were overlapping. So that’s all going to be in the improvement that we’ll continue to report on as reported and pro forma basis.

Does that explain that gap for you well enough, David?

David Raso — Evercore ISI — Analyst

It does maybe for one quarter, but the idea that the gap has to be that wide throughout the year, you would think you’d be able to position the fleet, sell off some inefficient fleet, maybe the rates they were getting. Now under your umbrella, you’d get better rates?

Matthew Flannery — President & Chief Executive Officer

Yes, but that would just be added back in [Speech Overlap].

David Raso — Evercore ISI — Analyst

You bought about 10% of the fleet, right. Ahern is about 10% of your fleet now, right. So it’s not immaterial, but it’s not a massive acquisition. I think the idea of the first quarter was the challenge of modeling a big acquisition coming in fine. But that the gap won’t be able to close throughout the year is a bit interesting when you would think you’d be able to improve that drag, make it less.

Ted Grace — Executive Vice President & Chief Financial Officer

Over time, certainly, the idea is we will narrow the gap. I mean, that was part of the opportunity, right. We talked about being a better owner of assets, and it — but it takes time, right. So certainly, when we look at that kind of accrued calculation of dollar, you — we don’t think they’ll be at 40% forever. Our intent is to get them closer to something appropriate over time, but it will take time. And that’s true for every acquisition, so, yes, so where we’ll start to see improvements as we get time used better, as we get cross-selling better, that’s not all going to show up in that debt, right. It will create a little bit better pro forma, but it’s all going to be mixed into your point, only 10% of our overall performance. The real needle mover will be the improvement that we get on our own asset base, right, in the other 90%. So we can walk through the math, but it’s not going to be exactly 4%, but it’s going to be in somewhere between 3.5% and 4% for the balance of the year is our expectation. And once again…

David Raso — Evercore ISI — Analyst

And just [Speech Overlap].

Ted Grace — Executive Vice President & Chief Financial Officer

Yes, sure.

David Raso — Evercore ISI — Analyst

Look, I was just going to ask just kind of what trying to think about 2024 a little bit. You hear some of your suppliers having — taking orders for ’24. People are curious about projects starting to hit the ground that have kind of a multi-year aspect to them. By no means, am I asking for ’24 guidance, but I’m just trying to get a sense of when you went through your capex thoughts for the year, what you’re hearing from suppliers, business beyond ’23? Can you give us a little color on kind of what you’re sitting on right now when you think about ’24 projects, willingness to order earlier, working with kind of three-year kind of conversations, which we haven’t historically heard in the industry? I think they were just trying to figure out how to think about beyond ’23?

Matthew Flannery — President & Chief Executive Officer

Yes. We think that the supply chain will get better next year. So we don’t think we’ll need to pull forward as much as we did. You remember, we brought in probably 700 extra in Q4. And another 400, let’s say, extra in Q1. So we still feel that we needed to do that for this year. We’re not expecting that for next year.

What would change that if we started to see a lot of slippage throughout the peak season this year, then maybe we’d have to revisit with the vendors. But we think we’ll get back to more normalized talk about this in the end of the third quarter, fourth quarter type conversation, making sure we’re securing slots. Now we’re talking to them all along. But as far as trying to put hard numbers down, we don’t feel the supply chain will be in a position for us to have to do that today.

David Raso — Evercore ISI — Analyst

But on the demand side as well though too. Anything you can tell us about multi-year projects? How we should be thinking about it over — yes, please go ahead.

Matthew Flannery — President & Chief Executive Officer

Yes. I mean there are projects. I was at a couple of EV, I was at a couple of electric car plants just last month myself, where these are going to be multi-year projects and require a lot of equipment. So not only do we see it in the reporting and in the starts, but we expect, as I said in the opening remarks, a lot of these mega projects are going to be multi-year projects. We think infrastructure is going to be a multi-year spend, and we don’t really think the IRA has even started to manifest. So that’s all future tailwinds. Ted, I don’t know if you have anything to add?

Ted Grace — Executive Vice President & Chief Financial Officer

Yes, David, I think we talked about this at your conference to some degree. But certainly, when we think about infrastructure, as an example, right, at run rate, that legislation is intended to produce about $100 billion a year of infrastructure spend. We’re still in that ramp phase. So obviously, we’re not going to get anything close to that in 2023. But that provides a tailwind in 2024, right, so just to dimensionalize numbers.

If you thought that you got half of that spend in 2023, that’s an incremental $50 billion of infrastructure in the context of a $900 billion total non-res construction market in the U.S. When you get to 2024, you get the second half of that as you get to an annualized run rate, right. And we thought about this logic across IRA, auto, semis and LNGs, those kind of five key tailwinds. So certainly, those are at a high level, the tailwinds we think about.

Coming back to the capex question, the visibility and the trajectory those will imply that ’24 will be critical to dictating, how we think about capex in the back half of this year because that will determine obviously how we want to have the fleet positioned. Matt, anything you’d add?

Matthew Flannery — President & Chief Executive Officer

No.

Ted Grace — Executive Vice President & Chief Financial Officer

No. Well, does that help? David.

David Raso — Evercore ISI — Analyst

Yes. I appreciate the time. I’ll circle back of any further questions. Thank you.

Ted Grace — Executive Vice President & Chief Financial Officer

Thanks, David.

Operator

Thank you. Our next question comes from Steven Fisher with UBS.

Steven Fisher — UBS — Analyst

Thanks. Good morning. I wanted to just come back to the margins for a minute. So the rental gross margin drags from Ahern that we had in the quarter, how one-time-ish would you say are those drags? In other words, as we model those gross margins year-over-year for the rest of the year, is that still a reported year-over-year drag?

Ted Grace — Executive Vice President & Chief Financial Officer

Yes, it will be. And just as a reminder, if you look at their business, on an LTM basis, when we bought them, they had a reported EBITDA margin in the mid-30s. So obviously, that’s considerably below where we were. Even synergized, they would be below that. So that will be an effect that lasts until we lap them. To put it in perspective, you look at the gross margin reported down 170 basis points year-on-year, Steve. On a pro forma basis, it was up 10 basis points. And that really dimensionalizes what that impact of Ahern was in the quarter. That will be a lasting effect as we kind of progress through 2023. And where you see that really specifically is in the rental — the gen rent segment gross margin. So does that help kind of answer the question?

Steven Fisher — UBS — Analyst

Yes, it does. But does that 170 basis points kind of get smaller over the course of the year? Or that’s kind of a steady 170 basis points?

Ted Grace — Executive Vice President & Chief Financial Officer

So certainly it’s — I mean the big delta aside from the fact that it’s lower margin is, as you get the synergies coming in, that’s one thing to consider. But we’re talking about this in isolation.

Steven Fisher — UBS — Analyst

Right. Okay. So, I guess, then, were there — and you may have answered this before, but were there any other drags on gross margins outside of Ahern like lower utilization or anything else?

Ted Grace — Executive Vice President & Chief Financial Officer

No, that the — I mean, if you isolate it, it’s — and there’s always ebbs and flows to the cost. So — but it’s really, Ahern. And where you can see that is if you look at the gen rent gross margin, right. That would go from, let’s say, down 320 basis points year-on-year to down 100 basis points pro forma. The pro forma only includes Ahern in the year ago period. But there are other accounting adjustments, fair market value on the fleet, as an example, that explained the majority of that 100 basis point pro forma number. Another, call it, shorter-term one-time expenses as we get the fleet in shape, as we get their facilities integrated, that really explain the difference.

Steven Fisher — UBS — Analyst

Okay. And then just one quick follow-up. How should we think about the cadence of used sales? Would you say it’s more front-end loaded because the prices are still good right now? But typical seasonality would suggest you would more be likely to sell used equipment at the back end of the year. So, how do we think about that cadence for the rest of the year?

Matthew Flannery — President & Chief Executive Officer

Yes, your observation is right. When you think about the cadence, normally first quarter and fourth quarter are larger, right, with fourth usually being the largest historically. We think we’ll return to a more normalized cadence as we open up other channels as opposed to the last couple of years where we’ve been primarily retail. So, think about a little bit less in Q2 and Q3 and then ramping it back up again in Q4, as the fleet comes off rent, right. It makes sense. Q1 and Q4, your lower utilization period. So it’s when you have the opportunity to sell the fleet a little easier.

Steven Fisher — UBS — Analyst

Perfect. Thank you.

Matthew Flannery — President & Chief Executive Officer

Thank you.

Operator

Our next question comes from Jamie Cook with Credit Suisse.

Jamie Cook — Credit Suisse — Analyst

Hi. Good morning. I guess just two follow-up questions. Just back on the margin again. Ted, when do you expect to get back to more normalized incremental margin in the mid-50s? Can we expect that sort of by 2024 as we integrate Ahern? And then just my follow-up question. I know you’re seeing broad-based strength sort of everywhere. Is there any difference in the type of customer or the size of customer? Maybe the larger customers are stronger just because they might have more visibility into some of these larger infrastructure projects you’re talking about. So anything on the customer side as well? Thanks.

Ted Grace — Executive Vice President & Chief Financial Officer

Sure. Matt, I’ll take the first one, you take the second.

Matthew Flannery — President & Chief Executive Officer

Sure.

Ted Grace — Executive Vice President & Chief Financial Officer

So, Jamie, on flow through, we look at things pro forma, as Matt mentioned. In the first quarter, pro forma flow through 53%. We would view that as right in line with the full year guidance in the mid-50s. And so, we don’t give kind of sequential guidance or quarterly guidance, but certainly we remain very confident that the flow through is intact and as expected at the beginning of the year. So we don’t view the first quarter as any deviation from that. And as we talk about flow through, and like many things, there’s an ebb and flow. But we talk about targeting 50% to 60% flow through across the course of the cycle. And at some point, they’re going to be at the upper end of that band and some in the lower, but we think this is right in the middle of the fairway of where you want to be in the growth phase of the cycle. So — yes, and it’s consistent with the guidance, right, with the full year guidance that we just reaffirmed.

Matthew Flannery — President & Chief Executive Officer

Yes. But we view this as very healthy kind of pull through, if you will. And then as far as on the customer side, a little bit more skewed towards larger customers, which is in our wheelhouse, but overall, the demand is coming — probably the preplanning because of the size of some of these projects. We’re having more conversations throughout the first quarter and continue today and even the fourth quarter last year about making sure we’re ramped up for their needs because it’s one of the reasons why we feel that the larger companies are going to fare well from this mega project trend because you really have to have the resources and fleet, people and capabilities to be ready for these big jobs. And those are more of the conversations that we’re having. So a little bit more skewed towards our larger accounts, which, as you all know, is a big part of our business.

Jamie Cook — Credit Suisse — Analyst

Thank you.

Matthew Flannery — President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will come from Jerry Revich with Goldman Sachs.

Jerry Revich — Goldman Sachs — Analyst

Yes, hi, good morning, everyone.

Matthew Flannery — President & Chief Executive Officer

Good morning, Jerry.

Ted Grace — Executive Vice President & Chief Financial Officer

Hey, Jerry.

Jerry Revich — Goldman Sachs — Analyst

Slide 34 in your slide deck is pretty interesting. So your margins have been above 45% from the past decade through a range of economic environments. And I’m wondering if you could just talk about what’s your level of confidence that you can maintain above 45% margins in the next downturn. Obviously, different views on the macro out there, whether it’s two quarters from now, a year from now, two years from now. Can you maintain that level of performance that you’ve had over the past decade in the downturn?

Ted Grace — Executive Vice President & Chief Financial Officer

So, I guess, what I’d say is we feel very confident about the profitability of the business and that this is a structural gain. In terms of what the business would do in a downturn, it’s critical to dimensionalize what kind of downturn you’re talking about for multiple reasons, including that will dictate the actions you take. I think if you look at the performance we had during COVID, in the face of a 9% decline in rental revenue, we had 50 basis points of margin compression, EBITDA margin. So in that kind of scenario, you’ve seen what we can do when we lean hard on costs. So, I guess, what I’d say is we feel very confident that the structural improvement, call it, 1,500 basis points to 2,000 basis points is absolutely sustainable.

In terms of giving kind of a threshold of where you would get, that’s harder to say, simply because it is assumptive. I would also just remind people, when you look at the margins, what we’ve done actually understates what the core business has done. Matt and I talked about this a lot. But if you were to back out the acquisitions we’ve done since 2014, our EBITDA margin would be in the 51% to 52% range. So we’ve integrated those businesses. They’ve benefited us strategically. Financially, they’ve been home runs from a returns perspective and the benefits they’ve delivered to the shareholders, frankly. But they have been dilutive to margins as we’ve always talked about when we’ve done them. So I bring that up only because I think when you look at that chart, Jerry, and it’s a great chart, it does even understate how strong the profitability improvement has been in the core business.

Matt, anything you’d add there?

Matthew Flannery — President & Chief Executive Officer

No, I — you said it well. That’s the only thing I would have added.

Jerry Revich — Goldman Sachs — Analyst

And Ted, can I just pull on that M&A part of the conversation? Can you talk about what the Specialty pipeline looks like for you folks? Any interesting meaningful opportunities to structurally increase Specialty as a percent of total from here based on the types of businesses you’re looking at?

Ted Grace — Executive Vice President & Chief Financial Officer

Yes. I mean after 24% organic growth, they might not need it, but we are still looking it. We’ll lean towards anything that is a new product offering as our first filter, but even creating some scale and filling out the coverage model for some of the businesses is an opportunity. We continue to look at a pretty robust pipeline. But as you could see, it takes a lot to get one over the trends and to make financial sense. And that doesn’t mean we’re not working the pipeline. So we don’t really have anything imminent, and there’s certainly nothing that we would discuss on open mic. But we do continue to look. We believe it’s a strength of ours. And we believe M&A and integrating the M&A more importantly and cross-selling products is a real opportunity for us. So we’ll continue to work that pipeline, Jerry.

Jerry Revich — Goldman Sachs — Analyst

All right. I appreciate it. Thank you.

Ted Grace — Executive Vice President & Chief Financial Officer

Thanks, Jerry.

Operator

Thank you. Our next question comes from Seth Weber with Wells Fargo.

Seth Weber — Wells Fargo — Analyst

Hey guys, good morning. I was just hoping maybe just to talk a little bit about how you think about the interplay between your model shifting more towards these bigger customers and longer term contracts, how you think about the impact, how we should be thinking about the impact on, I guess, both gross margin and EBITDA margin? I assume rate is a little bit more competitive, but maybe there’s — maybe you pick up some of the margin on the back end with less dropping off equipment picking up, what have you, less maintenance or whatever. Just how are you guys thinking about longer-term margins with this interplay towards more bigger customers, longer-term projects? Thanks.

Matthew Flannery — President & Chief Executive Officer

Sure. As you can see in our guidance, we’re not planning on a lot of variability in there at all. And part of it is because of the point you just made, yes, your largest customers are going to get a little bit better pricing relative to your spot pricing. But if we can put $100 million on a project and service it with a couple of tax and its long-term rentals, so high utilization rates. And that’s going to come in at a lower cost to serve, whether I have to split $1 million per smaller job over across 100 different jobs, right. So just the logistics, everything, a little bit lower cost to serve. And that balances out, so we’re not expecting any meaningful change in the margin profile, whether it be gross margin or EBITDA margin.

Seth Weber — Wells Fargo — Analyst

Okay. Thanks, Matt. And then maybe, Ted or Matt, your leverage is below the low end of your range, the stock is obviously under pressure here. Is there any updated thoughts as to share buyback? I know you addressed it in the press release that you’re going to complete the $1 billion this year, but is there any incremental message that you would add on capital allocation towards that?

Ted Grace — Executive Vice President & Chief Financial Officer

You know, I guess, the thing I’d say is we have consistently been a very comfortable and consistent buyer of our stock. So we feel very good about that philosophically. From the standpoint of changing our strategy, it’s certainly not something that we’re contemplating at this point. We’ve consistently been kind of a believer in dollar cost averaging systematic execution. So you saw us buy back $250 million in the quarter, which is obviously exactly one quarter of the full year in 10. So we have not historically kind of leaned in or been tactical. Some people call it opportunistic. We think that it served us well. And we think, frankly, when you look at most of these studies on the most effective way to execute buybacks, this is the right strategy.

Seth Weber — Wells Fargo — Analyst

That’s helpful, guys. Thank you. I appreciate it.

Ted Grace — Executive Vice President & Chief Financial Officer

Thanks, Seth.

Operator

Thank you. Our next question comes from Ken Newman with KeyBanc Capital Markets.

Ken Newman — KeyBanc Capital Markets — Analyst

Hey, good morning, guys.

Matthew Flannery — President & Chief Executive Officer

Good morning, Ken.

Ken Newman — KeyBanc Capital Markets — Analyst

Good morning. Most of my questions have been asked, but maybe just a couple of quick ones here. Sorry, if I missed this, Ted, but could you just talk about where the internal customer survey ended up moving this quarter versus last?

Ted Grace — Executive Vice President & Chief Financial Officer

So we don’t get too specific on it, but I will say that it remains very encouraging and customer confidence is not showing any deviation in the last number of weeks or months. So, yes, we’ve gotten this question, and certainly, people would obviously wondered about what’s happened since some of the issues with small banks, etc. I can tell you that we have not seen that manifest itself in any indicator, but including our customer confidence index.

Ken Newman — KeyBanc Capital Markets — Analyst

Yes. And then you — I know you’ve talked a little bit about return on invested capital and that continuing to improve. Maybe this is more of a conversation for when you do your Investor Day, but any kind of broad thoughts on how you think about driving that number up over the longer term? And what are the levers you can pull, especially as you kind of work through some of these margin impacts on Ahern?

Ted Grace — Executive Vice President & Chief Financial Officer

Yes. No, that’s something we talk about as a leadership team often. So really, when we think about it, and there are a lot of different ways to decompose returns, but you’ve got margins times capital velocity. We think we can continue to drive improving margins for the business. We talk about targeting 50% to 60% flow through. If and as you do that, that is naturally accretive to your margins. On the capital velocity side, there are lot of different ways we try to improve this, but obviously we task ourselves as driving higher fleet productivity, as Matt talked about it, improving dollar use. That is another way to think about capital turnover. And so, yes, it is fully our expectation that we should continue to drive higher margins and higher returns over time.

Matt, anything you’d add?

Matthew Flannery — President & Chief Executive Officer

No, no.

Ted Grace — Executive Vice President & Chief Financial Officer

Once again, it’s embedded in our guide. If you look at our guidance, we’re now expecting to not be able to overcome that.

Matthew Flannery — President & Chief Executive Officer

Yes. [Indecipherable]

Ted Grace — Executive Vice President & Chief Financial Officer

Yes. I think that answers the question.

Ken Newman — KeyBanc Capital Markets — Analyst

Yes. Maybe one last one if I could just squeeze it in. Relative to the proceeds on OEC for fleet sales that’s implied for the full year, can you just remind us where did proceeds this quarter end up? And what’s kind of embedding in the midpoint of the guide for the full year?

Ted Grace — Executive Vice President & Chief Financial Officer

So for the quarter, 71.5%. I think we sold $543 million of OEC. Proceeds were $388 million. In terms of the full year guide, we continue to expect to sell about $2 billion of OEC. We continue to expect to generate about $1.3 billion proceeds. So that would translate to about $0.65 on the dollar. As we talked about in January, and those are unchanged since January. As we get into the year, and you talk about increasing the volume of use, we will lean on other channels that we didn’t lean on in 2022, wholesale most specifically. Those are not as efficient means of recycling capital, but we’ll lean on them. And then as we introduce more Ahern sales, that will also have an effect. So that’s what’s kind of contemplated in that 55% versus the 71%.

I guess what I’d say in the first quarter, I think very indicative of strength, right. We got $0.715 on the dollar, selling 92-month-old equipment, which — and frankly, a lot more of it, which speaks, as Matt said, to the demand for this equipment, which we think speaks to the end market. So, I don’t know if that helps, but those are some of the perspectives we would share.

Ken Newman — KeyBanc Capital Markets — Analyst

Yes. Perfect. Appreciate it.

Ted Grace — Executive Vice President & Chief Financial Officer

Thanks, Ken.

Operator

Thank you. Our next question comes from Neil Tyler with Redburn.

Neil Tyler — Redburn — Analyst

Yes, thank you. Good morning. Couple from me, please. Firstly, back to the end market and customer mix. And understandably, the component of the non-residential market that tends to be at the eye of the storm, makes thing slowdown is sort of housed in commercial real estate. Are you able to frame just even in very broad terms, how much of your current base business, those sorts of projects in lodging offices, physical retail, those might comprise? That’s the first question.

And then I wondered if you could talk a little bit in some more detail or give some examples around Ahern and the integration. I know it’s early days, but some insight into how you’re — how, if at all, you’re altering sort of commercial practices at that company. You talked about sort of branch consolidation and the like. But if you could fill in some of the gaps there, that would be very much appreciated? Thank you.

Matthew Flannery — President & Chief Executive Officer

Sure. I’ll take the Ahern part of that, and then Ted can backfill in with some of the exposure to commercial and specifically office. I think, it’s probably one of the areas people are most thinking about, which I’ll foreshadow isn’t much. But when we think about the Ahern integration, as I said in the prepared remarks, on track, and it will remind everybody, this deal was all about capacity, and capacity in fleet, real estate and people. We’re right on track with the fleet and real estate, working through that. We’ve got the plans on how we’re going to consolidate the go-to-market into one go-to-market.

And in few instances, that means repurposing some of the real estate to support some of the 40 cold starts that we’re talking about. So we still have capacity even where we’re consolidating in a market because one of our stores had plenty of capacity to consolidate into. We’re utilizing that other real estate to help grow some of the Specialty business. So that’s from the real estate perspective. The fleet we’ve talked about already, we’ll continue to work towards making that fleet look more like ours, work towards that and probably move some of the older stuff out as we go through the year, and that was Ted’s point about opening other channels.

The people side has been the real positive surprise. We always had the hope that we’d be able to do well with people that they’d integrate into our organization well, and that’s exceeded our expectation. And they have quite a bit higher turnover in that business standalone, and we’re glad to see that we remedied that, made that turnover level look like ours, more like ours, which is really, really the important part of that. And once again, that final piece of capacity, that’s — we’re very, very pleased with.

Ted Grace — Executive Vice President & Chief Financial Officer

Yes, Neil, and I’ll take the other piece. So just to try to dimensionalize it, I’m going to use the Census Bureau’s construction put in place data. We don’t track verticals as granularly as you’re asking. So it’s little easier to talk about it in the context of government data. But on that basis, if you looked at what is defined as total commercial, which is a very broad segment, it would be about 12% of total non-res, about $110 billion out of a $900 billion market. And office would be a separate vertical, which is about $75 billion or about 8%. So that would dimensionalize it. It’s about 20%. Now that runs the entire gamut from office buildings, as I mentioned to grocery stores, gas stations, etc., etc.

I do think it’s important to add other context to that. If you look at manufacturing, manufacturing is also a $110 billion market, about 12% of the total. Power is $100 billion itself, that’s 11%. And public is a $355 billion market, which is 40%. So when you think about these areas that I think people have some concerns, compared to the areas where we’ve talked about seeing a lot of multi-year economically insulated — relatively insulated opportunity, that’s where — that’s what drives a lot of our optimism is when we look at kind of, as I said, manufacturing, power, public, that is over 60% of total construction. And areas that you’re asking about are, call it, 20%.

Neil Tyler — Redburn — Analyst

That’s really helpful. Thank you very much.

Ted Grace — Executive Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. At this time, I’ll turn the floor back over to Matt Flannery for any additional or closing remarks.

Matthew Flannery — President & Chief Executive Officer

Thanks, operator. And that wraps it up for today. I want to thank everyone for joining us. And we look forward to our Investor Day in about six weeks and speaking with you all again in late July. In the meantime, if you have any questions, please feel free to reach out to Ted at any time. Operator, you can now end the call.

Operator

[Operator Closing Remarks]

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Q1 2023

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