Q1 2020 Earnings Call

Dead dead dead. Well

Good morning, welcome to the herc holding first quarter 2020 earnings conference call. All participants will be in listen-only mode off. So do you need assistance, please sing the conference specialist by pressing the star key followed by zero after today's presentation. They'll be an opportunity to ask question to ask a question. You may press star than one on your touch-tone phone to withdraw your question, please press * then two, please note this event is being recorded wage now like to turn the conference over to Elizabeth Hibachi vice president of investor relations, please go ahead.

Thank you. And thank you all for joining us this morning. Welcome everyone to our first quarter 2020 earnings conference call we all hope you and your families are safe. And well, we're conducting a call following the Centers for Disease Control and prevention guidelines using both social distancing and the use of technology for remote access earlier today. Our press release presentation slides were filed with the SEC and are all posted on the events page of our our website at rental, this morning. I'm joined by Larry Silver president and chief executive officer Aaron Birnbaum senior vice president and Chief Operating Officer, Mr. Theory on senior vice president and Chief Financial officers will review the first quarter our view of the industry. I'm in our strategic Outlook. The prepared remarks will be followed by an open Q&A.

Before I turn the call over to Larry there are a few items. I'd like to cover first today's conference call will include forward-looking statements you statements are based on the environment as we see it off 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. Please refer to slide to the presentation for a complete Safe Harbor statement as well as the risk factors section of our annual report on form 10-K for the year ended December Thirty One $20.90. In addition to the financial results found it on a gaap basis. We will be discussing 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 Dial in or through a webcam 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. They transcribing of the call on the I'll turn the car off to Larry. Thank you Elizabeth and thank you all for joining us this morning. It's been quite a start to twenty-twenty the quarter began as expected with volume on rent and pricing relatively solid and moving in the typical seasonal patterns. Then in late March our business was impacted by wave after wave of covid-19 related disruptions to activity in major Metropolitan markets that has significant impact on rental volumes while the velocity of the economic downturn is unlike anything any of us has ever experienced the senior leadership team.

This call has on average more than 30 years of experience in the equipment rental industry. We've experienced several recessions and other unexpected events that temporarily impacted off the equipment demand and while this pandemic surprised everyone were taking steps to manage through the changing environment when business conditions recover we intend to be optimally positioning assist our customers in the turnaround the impact on our end markets has been fast and we had to react very quickly putting in place or recession playbook in short order first and foremost with our reaction to the onset of the covid-19 demek was the focus on the health and safety of our team our customers and our communities and we quickly communicated and implemented actions to take precautions to prevent the virus from spreading.

We have a resilient.

Business model and rent equipment to a diverse group of customers and industries many of which provide essential and critical business services that diversity should help mitigate some of the impact of the covid-19 pandemic on our business results our leadership team work quickly to evaluate the rapidly developing Trends. We were seeing in the market and adjusted our business to take into consideration potential impact of the pandemics and evaluating the changing environment. We took steps to cut variable costs and net capital expenditures. Aaron will cover in detail the steps. We have taken to adjust our business activities. We also develop various downside scenarios to assess our ability to manage it an increasingly challenging environment. Mark will discuss those assumptions later on our call. We are prudently managed our balance sheet and are well-placed with modest leverage and ample liquidity to sustain our operations and even the most difficult environments our dispatch.

Capital Management approach is an important element of our strategy and will continue to make adjustments as necessary to efficiently operate and support our customers in this uncertain environment. Now, please turn to slide number for we implemented CDC recommendations across all of our operations and reinforced hand-washing social distancing and the avoidance of touching your phone number as well as infection control at work and in the home in frequent Communications, we restricted non-essential travel and moved 95% of office staff to remote work in March. We put in place policies regarding sick individuals and self quarantining and stepped up procurement of essential cleaning materials protective gear and disinfectants. We implemented additional cleaning procedures for a branch operations and for returned equipment. We are now monitoring and following CDC recommendations with respect to screening employees. Yep.

And instituting protective measures for employees interacting directly with customers and while we enhance our operational and safety procedures and have been operating in a challenging environment off all of our regions. I'm happy to say have reported at least 85% perfect days before I began the discussion of our results. I want to thank all of our team members for their work in a supporting the critical and essential work of our customers and communities in this challenging environment. I'm proud of the can-do attitude of our team as we work together to navigate the challenging time together off. We remain ready to support our customers operations in whatever capacity we can in this uncertain time and especially when construction and business activities resume the health or safety of our team our customers and our communities. We remain our highest priority while we continue to provide the equipment and services required by our customers.

Now, please turn to slide number five.

Pleased with our performance in the first quarter despite the covid-19 related disruption that started in mid-march. We improved pricing. Once again, we achieved excellent flow through Thursday from better operational efficiencies, and we continue to generate strong operating cash flows and are well-positioned with ample liquidity to fund our business needs in 2020. Now, please send a slide number 6 for a brief overview of our first-quarter financial results.

Equipment rental Revenue grew 2.4% or 8.9 million dollars to 386.5 million dollars total revenue declined a $436,000 due to lower sales of used equipment and lower retail activity. We reported a net loss of three point seven million dollars or $0.13 per diluted share of the first quarter of 2020 and improvement from last year's and that loss of six point seven million dollars or 23% per diluted share in 2019 month just it even increased 3.8% 447.7 million dollars in the first quarter reflecting the success in our cost control initiatives adjusted ebitda. Margin was 33.9% for the first quarter, which was a four hundred basis point improvement over prior year. Now. I'm going to ask Karen to pick up from here to age.

That's our first quarter operating performance and the current environment Aaron. Thank you Larry before I begin our discussion today. I'd also like to thank our team members for the professionalism and dedication. They were exhibiting throughout this new covid-19 environment. This has been a shock to what is typically the beginning of our seasonal uptick in rental activity. Our branch managers are counter staff mechanics truck yard workers and our sales organization have been serving our customers A continuing to deliver what we call White Glove service while anticipating and meeting the needs of our customers. They are on the front page every day. And we want to make sure they know they are appreciated by all of us. I also want to thank our support teams and operations. Please procurement and safety is they provided tremendous field support. Now, let's move on to our discussion of first quarter operating results, please turn to slide eight shelter-in-place directives had an immediate effect on our entertainment business starting in mid-march film and TV production wage.

Music festivals and sporting events were postponed or canceled in a few major Urban cities construction sites were closed down as being this apologies and states began to limit activity by non-essential businesses are always see on rent peaked in mid-march be immediately worked with our customers who are forced to stop activities Midstream to help them consider how to handle Fleet. They wanted to take off rent where possible if the equipment was Secure we left the equipment on site but took it off rent this enabled us to keep Transportation costs down assist the customer and should make it easier to start renting once activity return that we are closely monitoring our rental activity and Rental volume and all of our branches. We have experienced lessening demand and are making adjustments to our staff hours on a branch by Branch assessment. We are regularly reviewing Branch rental volume transaction activity rental Revenue Trends legalization and other key metrics about half of our branches have reduced surfing

Stuff hours through either rotating one week off a month or taking one or two days a week reduction and hours affecting about 10 to 12% of our employees. We monitor these Trends closely may take additional action is

We are maintaining Health and Welfare benefits for all of our furlough team members as we value their experience and expertise. Please turn to slide nine specialty including Solutions and pro contracts are now accounts for approximately $840 million dollars of fleets for about 22% of our total Fleet as of the end of q1 2013 or Fleet of aerial Material Handling trucks and trailers and earth-moving are also broken out on the slide our Fleet expenditures. It always see where $109 in the first quarter about Flats with the prior quarter to covid-19 Market impacts began in late March. So we were well on our way into the normal queuing capital expenditure cycle, he responded immediately by canceling purchase orders and cutting back on deliveries. These adjustments will show up in Q2 and Q3 oec disposals. We're 110 billion substantially lower than the $193 million dollars of oec we sold off.

Here I'll disposals were down in the beginning of the quarter is part of our strategy to minimize replacement capex requirements. Then with markets shutting down in the end of the quarter of the resale Channel start at the time. We are okay with selling Leslie. Our Fleet age is young enough that we can sweat the fleet a bit even occur a bit more maintenance as we keep the fleet run already. We could possibly push used equipment sales out until next year when we hope to see more normal economic and equipment sales activities. We've sold approximately 47% of our Fleet through auction in the first quarter down a bit from prior year due to the tightening of our channels and late March has Metro Markets started Sheltering in place.

Average age as of March 31st 2020 was 46 months flat with the same period last year there's plenty of room for us to age our Fleet while we manage through this covid-19 induced economic slowdown a quarterly break out of this information along with a rolling balance of our total fleet has also in the appendix, please turn to slide 10. We have a diverse customer mix with many of old age national account customers operating and essential business sectors. Most of our locations are open for business and our team is on the ground looking for opportunities to support our communities our rental Revenue off major customer segments for 2020 is shown in the composition chart on the left side of the slide contractors represented 32% of equipment rental Revenue followed by industrial customer with 31% other customers were represented 19% and infrastructure and government increased 18% of the total.

National account Revenue represented about 45% of the total for q1 with local rental Revenue now representing 55% of Total Rental Revenue. Our national accounts are primarily considered a potential businesses is they include major industrial customers such as utilities and energy health care and agriculture. This segment of business has been a lot more resilient than the covid-19 slow down and enjoy the advantage for her artwork for local state and federal government and infrastructure projects is ongoing and as noted accounted for about 18% of rental Revenue in the first quarter Thursday, we're also supporting the health and safety initiatives of private and public responders through rental of power generators climate control temporary containment wall structures and lighting our sales organization is staying focused in a difficult environment. Our near-term sales efforts are focused on essential businesses and activities that are continuing within the shelter-in-place directives these include sectors such as God.

and services Healthcare

Warehousing and distribution industrial manufacturing. The Emergency Services contractors Powers is a relationship and solutions business and be it virtual FaceTime or phone calls. Our office organization is focused on staying in touch with our customers despite the shelter-in-place mandates. Our entire team is doing an outstanding job and we intend to continue to ensure operate safely and efficiently while serving the needs of our customers and communities while now pass the call on the market.

Thanks, Aaron and good morning, everyone.

I'm slight 12. We have the financial summary of our first quarter 2020 results-driven Buy rate improvements that are set of slow down and volume on rent the first 2 months of the quarter will consist of their expectations going into the year and on a similar growth trajectory to the last couple of years.

And the covid-19 and to shelter-in-place initiatives began in mid-march to have a significant impact on our rental values. This impact was only felt in the last couple of weeks of the quarter glass only results. Do not fully reflect the covid-19 impact and we will provide some more discussion on what we are seeing in April in a couple of slides.

Equipment rental Revenue increased 2.4% from 377.6 million to 386.5 million and the first quarter of 2025. Total revenues declined to 436.2 million primarily due to lower sales of rental equipment. Which Aaron has already covered adjusted net income in. The first quarter was 1.1 million. Was there a point four cents per diluted share compared with a net loss of 6.5 million or 23 cents per diluted share last year.

More details regarding are needing coverage and then on get reconciliations are included in their appendix.

Adjusted ebitda in the first quarter of 2020 increased 3.8% or 5.4 million to 147.7 million over the same period of 2019.

Adjusted ebitda margin improved four hundred basis points year-over-year to 33.9% in the first quarter the first quarter of reflected excellent progress in terms of flow through Thursday. We reported reboot of the Year flow through of 107.4% which benefited from absolute reductions in sg&a and lowered the Oe

Now focus on rate growth and self-help cost initiatives has helped turn a small amount of rental Revenue growth into a decent amount of growth and free cash flow as a result. We grew reboot the Imagine by 180 basis points to 38.1% during the first quarter of this year a record for her.

On slide 15 we highlight that progress on pricing and dollar utilization the graph on the upper left illustrates our year-over-year pricing with the latest quarter up 2.4% off the last year our pricing Improvement continued at the initial part of the first quarter and we generated another quarter of good rates. The impact of the covid-19 Slowdown is not apparent in these numbers off is still not yet clear. The initial covid-19 impact was volume related job shut down work stopped in the gear came in or got caught off rent. The man was effectively shutdown. So it wasn't really a r a negotiation type of environment certain segments like oil and gas that are in a slightly different cyclical slowdown are also looking for concessions home for the most part. The impact a date is in the volume.

The chart on the top right of the slot.

I chose average pleaded oec was that 1.7% in the quarter over last year as there are mentioned we're on track with our normal capital expenditure Cadence pre covert which is typically front-loaded to q1 and Q2. We had a decent amount of capex on our yards or being delivered by mid March when the economic impact of shelter-in-place initiatives became apparent since then we've got most Catholics it was scheduled post April and I'm looking to reduce capex and twenty twenty-two somewhere around half of our 2019 capex.

The bottom right chart shows a decline in average feet on rims or ridges will volume during the first quarter of 2020 which was 2% compared with the prior-year rental volt was solid in comparison to freak covid-19 then began to trade negatively in the back half of March despite the initial impact of the covid-19 Slowdown first quarter dollar years. They should reach 35.7% an increase of ten basis points over 2019 a historic high for the first quarter.

You just reboot the waterfall on slide fourteen shows adjusted ebitda for the first quarter was 147.7 Million an increase of 3.8% or 5.5 million compared to 142.3 million in the first quarter of 2019.

The chart starts with higher equipment rental Revenue up 9.2 million over prior year despite growth and Rental revenues direct operating costs were down by half a million dollars for the first quarter of 2019 primarily due to strategic reductions and freight and delivery costs. These reductions were partially offset in the first quarter off by increased personnel and personal related expenses and Facilities costs.

It's an expense declined 2.4% to 69.8 million as we reduced professional fee significantly those savings were offset by higher personal related expenses and an increase in bad debt Reserves.

As you should all be aware by now. We like to focus on rebate. Is this means just the contribution from our core rental business without the impact of sales of equipment parts and supplies Faith believe Reba. Provides a better comparison with their industry peers is it excludes the impact of burying depreciation policies?

The combination of improved rental revenues and reduction in our cash operating expenses is to reboot your every year flow through of a hundred and 7.4% and drove 180 basis point Improvement of reboot. I imagine to 38.1% overall a solid quarter and we continue to deliver on our margin Improvement initiatives.

Erin has think the Ops Team. So I'd like to take a little time here to think the field support team for their contribution to these results and their contribution to getting our results out in a seamless and timely manner our bank is going from working in the office to working at home with a short couple of days notice and thanks to efforts of r i t h r and finance teams. We pulled it off pretty much seamlessly wage without a hitch. We remain productive and effective in a providing White Glove service to our branches and customers.

Please turn this like fifteen.

For the quarter ended March Thirty 12020 free cash flow was 39.2 Million. This quote is free cash flow was impacted by the timing of an interest payment on our notes and lower disposal a rental equipment near the average decreased to decrease to two point seven times compared with 2.9 times a year ago solidly within our targeted range of took a half to three and a half times and have credit ratings are solid be 1 + B +.

Auto-rotate was 2.1 billion as of March Thirty 12020 about the same as the prior-year. It was no near term maturities as as a result of the refinancing of the senior took an ABO credit facility Last Summer the actions we took last year to refinance our balance sheet have us well-positioned to navigate through the challenges ahead of us we have ma'am. Covenants on the senior notes at no material Covenant to be tested on the abl until availability is below 10% or $175 million. We had a month liquidity of over one point 1 billion dollars as of March Thirty 12020 comprised of 954.4 million on our credit facility and 127.1 month on the securitization with cash and cash equivalents of 55.8 million.

Our business model is resilient and as a result of the adjustments we have made to Fleet Catholics and reducing our variable expenses. We are not a significant consumer of cash. It should be generate free cash flow and twenty-twenty and the current projections for the economy to open up in the back half of the year on slide sixteen. Let's discuss further some of them covid-19 impact we have seen today how quickly things will change from our last quarter call many Economist are now forecasting second-quarter GDP could be down anywhere wage 18 to 38% compared with last year the consensus forecast suggests some recovery in the third or fourth quarters, but for the year GDP could be down to to 7 a.m. Construction of cost across the country has been slowed by either side closes or lack of workers Dodge forecasts non-residential construction starts off.

Would be down to 13% in 2020 with a 5% recovery in 2021. The situation is fluid and fax change rapidly from week-to-week luckily off the ship team of seasoned industry veterans and have rapidly implemented the down cycle table over the last month or so.

517 shows how our business has been impacted today with the situation developing so fast in so short a time. We will discuss here what we've experienced so far in life and you can extrapolate out based on your assessment for the remainder of the Year. April rental volumes, attending a training down by approximately 15 to 20% in comparison to pray wage which could potentially have a negative impact to April rental revenues of twenty 25% versus prior-year the entertainment business was particularly hard head was Studios and the event business shutting down the natural national accounts business has been more resilient as as it has waited heavier towards the Central Services in summer us okay, especially business actively involved in sitting up testing facilities and temporary health care facilities. This looks to be the extent of the impact and a fully shop.

to North America we

We've recently seen some positive signs at the decline of volumes may be bottoming out at least the rate of decline has reduced significantly. We monitor activity on a daily basis and adjust accordingly. We believe that the length of the closures will determine the severity of the impact on our 2020 results which remains highly uncertain we have taken immediate actions to dramatically wage at variable expenses including overtime outside Transportation costs hourly labor and impacted locations free rent Etc. Our focus is on taking out external costs while maintaining our team intact. We are not anticipating significant layoffs in the current environment and are maintaining all the health care benefits. Our focus is on page and our customers we have invested in our team and our team will be intact coming out of this crisis to respond to rental opportunities and service our customers and communities dead.

We have a fixed cost business model to a certain extent and the amount of flow through that we generate in the good times limits the amount of cost. We can medicate and tough times. There was an impact to our margins despite the cost savings we have implemented. We should be able to manage decremental reboot our margins in the range of 45 to 55% off in current conditions emphasis here on Reba. Margins will have an impact from our equipment sales volumes as discussed. We've taken actions substantially reduce our Capital expenditures and should be able to reduce twenty-twenty net capex to somewhere around half of what we spent in 2019.

Even in this scenario with rental revenues down by Twenty to twenty-five percent for a number of months. We're unlikely to consume cash and could still in the year with positive free cash flow break-even the uncertainty of the impact of covid-19 on future North American Business activity and our business specifically, we are withdrawing at2020 guidance at the beginning of this presentation Larry focus on our business priorities on the same slide as the pyramid which shows our vision mission and values these statements guide us in good times and challenging times. Now, he's managed through these challenges with the finest of the company as leaders and as individuals, we are committed to making hook the employer supplier and investment of choice and we serve food from this challenge better and stronger and now I'll pass the call back to Larry. Thank you Mark before we go to Q&A. I'd like to summarize where we are today.

Throughout this challenging. We will stick to our purpose and that is to equip our customers and communities to build a brighter future. We intend to support our customers in this challenging environment with a team that is committed and dedicated in a safe and healthy environment. Our business model is resilient and we're committed to the strategy. We laid out for years ago. We believe our response to this changing environment has been Swift and executed. Well, we have taken steps to cut costs and reduce Capital requirements. We have a solid balance sheet an apple liquidity with no near-term maturities. We're sticking to our stated goals and through solid execution. We intend to improve value for our shareholders customers and employees in a long-term and now for your questions operator, please open the line.

We will begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press * then two at this time. We will pause momentarily to assemble. Our roster wage. Our first question is from Jerry from Goldman Sachs. Go ahead.

Hi everyone. How are you? Folks? Good morning, Jerry. How are you doing? Well, thank you off or on the pricing comments that you folks made in the prepared remarks you mentioned. There's some price concessions coming in the oil and gas market. Can you just expand the order of magnitude and just update us on What proportion of your business could be impacted? And you know, how do you expect that to play out relative to your other end markets as well?

I mean the whole pricing situation is just fluid and and very hard to sort of give a lot of clarity on oil and gas and totals something with low single-digits and and our business that's upstream and downstream, you know, typically the pricing impacts on the Downs Upstream business, which say is, you know, less than 5% but just given the magnitude of this oil and gas. We're also seeing Downstream conversations taking place and that's a mid-single digits in terms of that sort of you know, low teens that we're talking about its case by case. It's customer by customer. So it's not really something that we can give you that not even something. We've got Clarity in terms of how that impacts us directly. I think we'd be happy to get out of the quarter with flat pricing but you know, it's still early days and and we've kind of have to pay the rest off.

Order out thank you. And then in terms of the capex Outlook at the free cash flow comments. Should we essentially think about topics next to zero for you folks? Are there any areas where you folks will be investing in Fleet it because I don't think we've had this type of utilization decline wage at least as as as long as financials are available for this weekend's yeah. So the direction we're giving for the year is about half of 2019. So that's still a positive that there is still some positive can fix in there and we still will be spending a small amount of cat fix every month, you know, there are opportunities and the special business especially business that we invest. In fact the some pockets of the business that has slowed down. So there's a small amount of Catholics that happens in no matter what the environment is, but it will be dramatically reduced and as I see it, you know somewhere around half of what we said.

last you

Okay, and and lastly the flow-through comments were pretty encouraging of 45 to 55% decremental margins. Can you just talk about what parts of the cost structure you're able to scale back? It looks like that applies. Correct me if I'm wrong Mark, but that you're able to reduce operating costs by call it 70% of the sales decline life and maybe just flush that out for us in terms of what the labeling you to cut costs and so significantly.

Yes, so we've you know, it's an experience team. You know, we've we've hit all those sort of key notes in the Playbook really quickly, you know, this happens so often it's been a busy couple of weeks outside hauler we've effectively, you know, take it out of the business. We've adjusted hourly wages at certain location instead of seeing a dramatic volume drop. So does it cost savings there in terms of our our wages? We have maintained health care costs throughout so that's something that we continuing to our focus on support we can we think that's very appropriate in this environment re-rent overtime. So, you know just about any variable cost that we've been able to make an adjustment to we've sort of gotten into and and just taking out there spend anything that sort of leaving the business for outside Consultants or or outside expenses. We've looked at a, New Jersey

We've sort of looked to maintain our our experiences in terms of payroll and and internal costs as much as we can.

Thank you, Joe. Thanks. Jerry. History stay safe. Next question is from Roth gelardi from Bank of America. Go ahead. Good morning guys everybody. Good morning Ross. How are you doing our best you can do this environment Mark. I was just wondering if you could elaborate on the The Decline and Fleet on rent of of fifteen to Thirty 20% in April with Total Rental revenues down 20 to 25% is the difference pricing or or mix or maybe it's both in yet. Can you help us bridge that Gap a little bit

Yeah, so this like I said, there's a small impact on pricing that we really haven't you know, ever got completely mapped out wage, but it's mostly volume, you know that says so it makes it it's mixing volume the H years years and entertainment business does price at a premium package and the the mix of some of the the business coming off for instance is having that sort of slightly different ratio in terms of volume to rental revenues month and I was curious about the comment that you think the declines in Fleet of bottomed out. I mean, are you suggesting that initially that down 15 to 20% was down greater amount and now it's it's it's only down 15 to 20% or are you run rating down something less than 15 to 20% off?

As we sit here today.

I mean, I realize this is like day-to-day and I think initially initially, you know, it started out, you know with the major Metropolitan markets things coming off rent and has been traveling and been holding at that level that we we talked about, you know in that 15 to 20% now for a couple of weeks. So that's why we say we think we've we met of you know, hit a a point and which which it's you know, somewhat near or at the bottom and and we're optimistic that businesses and customers open up over the next several weeks and months that we can impact that in a positive direction.

And that's detrimental margin range that you mentioned for the rental business. I I'm assuming that that assumes you don't have any material price degradation, which I I totally understand the reasons to believe that in the in the immediate term, but I just wanted to clarify that and off at what point Larry do you or any members of the team? Do you think the pricing conversation changes like when when does the industry maybe have to home link? Like if this goes on for another if you're sitting here at you know, low-to-mid 50s or even something below 60 time utilization, you know getting back to you know Midsummer is that kind of the point where the pricing environment starts to get more difficult or any any thoughts on that is the how long

On this remains just a Time Youth Event versus something with potentially more severe pricing pressure. So so two things there was an assumption of of mom pricing decline in in that 20 to 25% number, you know, like I mentioned certain statements that have been affected our our sort of Premium premium price off but not dramatic as you say it's not material and then it's pure speculation as to what happens on the way out. So just my gut would say that if it's a slow creeping role in that gives more opportunity for pricing negotiations and sort of you know, a supply-demand imbalance and have things open up pretty quickly, you know the same way that took a shutdown then I would think it's more of a just get back to work and get the fleet on rent and and less of a off a sort of price, you know birth

To get a price environment. Yeah. Remember look you can't generate Demand with pricing demand is going to be what the manned is and you know, generally our customers that. We've been fortunate enough to supply in the past are valuing the service and the reliability that we provide them and you know, we we would expect that to continue and will continue to try to maintain our pricing structure that we had going into this coming out of it.

Got it. Just just the last one I wanted to ask was just on the you know, turn over the free cash flow. I mean, I understand you're saying you you expect to be positively charged with the comments sounded a little bit tentative. I I I would think given the the cap tax reductions and you know, what you're doing on the cost side that you know positive free cash generation wage. Um, essentially pretty significant CCAP generation would be kind of a given and and you're one of a downturn all this is a a very unique downturn. Can you elaborate on that a little bit and that's what I don't know if I heard that wrong but what are the variables that you're considering like is this is a matter of whether or not you have sizable cast restructuring charges, or why wouldn't it be kind of a a slam dunk that that the company is going to be, you know, very helpfully very comfortably freak out positive this year.

I just I mean, it's just not a lot of slam dunks out there where we sit today so that the variability is just how long we're Sheltering in place and and what the you know, the extent of shut down is assuming that you know, this is a couple of months of shut down and we start opening up in the summer then years. We should be free cash flow positive. But if this was to be gone for the whole year and that starts, you know becoming a little bit more of a challenging scenario and I would I would add to that Ross, you know, the used equipment Market has tightened up and so we're going to be not selling used equipment which generates cash we're going to be aging our Fleet sweating it a bit and not generating cash from the sale of used equipment, which is another variable. Okay? Slam dunk was it was a inappropriate term. So sorry. Sorry. I used that. Obviously a lot of day here, but the DMV is still off.

As possible. Thanks so much. Thanks for asking.

Our next question is from Rob with Abner from Middle East research. Go ahead. Hey Rob. Hey good. I got a good job everyone. So thanks for the clarity on April. It's obviously very helpful in an uncertain world and they'll how far things are down if I can ask for just a bit more life and I understand it. Maybe maybe too much but I mean, is there a wide variation In the End Market? So if you were to take California or the East Coast was that down like 30 and that's the the true bottom and an actual shut down, you know parts of the states not being I don't know if you have any color on that or on, you know declines on your, you know, contractor versus infrastructure versus government kind of kind of yeah, let Aaron pick that up for us off. Yeah. Sure. Thank you. The we do have sectors that are performing as usual. A lot of the government's infrastructure sectors are still performing dead.

Very well as we mentioned are.

Especially business is performing well, and then when you look at geography, you know tends to be a lot of the more rural markets have had less of an impact and then the Boston Market has really been dependent upon the actions the stay-at-home actions and the severity that the government is the governor's have put in place. So there is some variation wage there for sure in our entire network.

Okay. Okay, that's helpful. And then maybe this is just for you Larry and it's early. I understand that in a very uncertain environment, but you talk about sweating and Fleet and aging out the fleet when you look at the Ford indicators, we you know, we have a construction slowed down for a year or two, you know, who knows? What do you think about sort of shrinking asleep, you know, just just allowing, you know some sales and and shrinking it down is maybe the right thing the industry should do. I don't know the answer to that to the right thing for you to do. Well, you know at the moment, you know, we're we're at a point where we we aren't really considering that they'll be some natural attrition on some sell retail sale of used equipment out of our branches, but we're not going to really focus on the the wholesale or the auction activity of the fleet out of branches. Our Fleet age is about 46 months going into this covid-19. We can easily age this this Fleet to the mid-50s. Yep.

About too much additional cost on r&m, you know pick up a couple of percent on r&m over the next year year and half and we can age the fleet but I don't think at the moment unless I'm industry is absolutely, you know, dry up and go away. I don't see us shrinking our Fleet at the moment. We were planning to grow our Fleet, you know modestly this year we have, you know a number we we said earlier in the year. We're going to have six to ten Branch openings this year so we can walk instead of buying capital for that Fleet moved Capital around into those locations and consume that Fleet in those new markets.

That's very helpful. Thank you. Thanks for calling.

Our next question is from Brian sponheimer from go ahead.

Good morning, everyone. Hey, good morning. Brian my best to all of you and also to everybody else that's on the call. I just had one question. I think they've been a lot of good ones that I've been asked but if you are putting Fleet to work in what would typically be thought of this kind of temporary support for for this relief effort just any part of that seemed like a like it could be a permanent sort of rent. And could you maybe quantify what what that might look like on a on an annual basis. Can you pick that up? Yes. Yes. Definitely. There's been quite a bit of activity in what we call HealthCARE Hospital pop-up tents drive-thru testing cans and even bought some activity with the the federal government specifically the military across different geographies in our business a lot of it, uh on the Eastern Seaboard and down the South Central Park.

part of the country and on the west coast, so

A lot of that still being put in place even right now. And as far as how long it'll be input in place. It's hard to know some are being advised that will be for the rest of the year off. Some of it is just hey, you know, we don't know how long it might last but can't really clearly defined how long but there is a lot of activity in that place and that segment absolutely

Okay, and what is what are you seeing as far as the the auction Market when when you see a song there just from a Catholic perspective to be able to to potentially if you wanted to use that as an outlet to dispose of equipment. Yeah, good question. You know right now, I think all of the major auction companies have reverted to online auction events, you know, and I think that's the dominant activity going on to that today would be when you know, when when the lifting of a gathering with thousands of people in a location, you know, a live auction off ground is no different than a sporting event Brian. You got lots of people gathered close together lots of frenzied activity and you know, that'll be you know, I think

Can the one you see sporting activities and related type of activities open up? So for the moment, you know, the online activity is not as attractive to us. We saw some money, you know degradation and in returns at the end of March, you know, it's probably 10% maybe as much as 15% below where we would expect it and wanted to be and not changed our mindset in terms of what we're going to do with our Fleet and we obviously we cut back capex for New Gear Thursday. We knew we could you know, we have been working towards reducing the age of this Fleet over the last four or five years and we got it to a point where we can Agent so and we're comfortable with George comfortable in the type of expense. We might experience in aging itself. Look, I think the the live auction activity log

Is probably Akin do when when Major League Baseball opens up again, and they're putting people in stadiums. Okay, and I guess it's just last month for me. Just thinking about this longer-term. I would imagine that you are potentially looking at this as a way to show your value proposition to customers where you could end up gaining some some shares not only because you from your competitors, but also just more of a secular shift to the rent vs. Own you talk about that. Yes, for sure. Look, I think any time you have uncertainty like we have today in terms of the economic environment when customers get worked there going to be a little a little trepid in terms of investing in ownership cap, and it'll it'll naturally create a shift to rental and we'll certainly expect that, you know coming out of this until there's a regular and and more certain wage.

certainty about the economic environment in the future

Sure, I think we'll see more shift. I think we're will pick up, you know share versus you know, our competitors is probably more around the Mom and Pops that sort of took you out and don't survive this and and those customers that may have traditionally gone to a you know, an alternative or smaller tunnel walk over to those that are around and providing the type of customer support and and operating the way we're operating in the safe and healthy environment.

All right, great. Well, that's lucky to all of you. Thanks, Brian.

Our next question is from Steve and Randy from Thompson. Go ahead.

Good morning. Good morning. Good morning. A few questions. I guess centered around the local customers versus National customers and and clubs, I guess to start with the clustering strategy and since that naturally aligns around the Metro areas. I guess maybe talk about the if there is any near-term magnified headwind from the clustering in Metro areas where it's slowed down sooner maybe how that gives you flexibility in the near-term. But then is this accelerated is there an accelerated push out of this once things pick up because of the clustering strategy?

N yes, Steven, I would say in our Urban strategy typically in our Urban Network. We have a very very diverse amount of Fleet all of our life strategies or add play in those Urban settings and to a lesser degree in our you know, more rural or non Urban settings. So I think that's allowed us to change settings kind of weather this storm because we're very very Diversified with products and customers and I believe and that's and foremost markets. They've remained to be allowing essential activity to go on. So, I believe that once activity gradually starts to come back. Let's say through the month of May and April that those markets well accelerate more rapidly so I can we we like our strategy we've been deploying for a number of years.

Great. And then in the April decline of rental volumes, can you maybe discuss maybe on a range of fact, we're local accounts down, you know 20% in national accounts down, you know low double-digits. I mean, maybe just kind of the dichotomy of the drivers and local National Rental Revenue declines. Yeah. Sure. I think we want to get specific segment by segment and you know, it does vary a lot. It's probably not a lot of points off but the local business has obviously contracted a little bit more than the national account business that Nestle account business is bigger customers focused on essential service office so had been a much more resilient portion of our of our Revenue makes than than the local customers.

Great. Can you even talk to when you talk about resiliency? Is that like holding up at Flatbush? I mean or just any any order of magnitude to think about what you mean by Reserve so, you know, maybe the national account business is off 5% you know, and that's 40% of our of our book. So, you know the other the other segments of sort of take off as slightly bigger drop.

Excellent and and in conversations with lower local accounts and is there any concern maybe it's too early to tell but concern on survivability of local accounts or wage being revenue receivables from from local accounts.

So yeah, I mean in terms of survivability know I mean, it's just it's too soon to see we're right in the middle of this thing. And there's there's not a lot of visibility to the other side. You understandably collections are challenging in this environment. Some of the local accounts have been shut out of their office and you know some of their with their business shut down and puts puts pressure on their cash flow. So we have seen a Slowdown in collections and do anticipate that that out there so it's going to be impacted through through this environment.

Thanks for the color guys. Thank you, too.

Our next question is from see South Weber from RBC. Go ahead.

Morning morning everybody. Hey, most of my questions have been asked but you know, maybe you know, maybe this is for them. But you know in your conversations with customers, um, you know, are they of the mindset that these projects that are being delayed that are or that are not occurring are they just being postponed or dead is that the is that the view that these projects will happen or or projects? Just getting canceled out, right? Can you just shut any color on discussions even have it around that thanks, I mean going into this the market was very very strong very solid and I think once people get back to work on a regular, I don't know regular the right word. They go through Thursdays. We see markets and job sites kind of pop back up. I think will be a you know, a surge to finish the existing projects that were already broke ground and finish that up. The question is what does it look like dead?

Later on with you know pipeline work down the down the road with new projects opening up, but I think that there's going to be a fair amount of brisk return to work and and volumes once we see a little bit more Sunshine here in the hopefully in the near future.

Okay, okay, and then you know on the the entertainment and the event business, I apologize if you've broken this out, but can you talk to how big that business is? You know, what is it represented a percentage of your Revenue at this point. I think it's it's kind of unique to what what hurts does versus some of the other peers out there. Thanks. Yeah, it's like mid single-digits.

Yeah.

Okay, that's actually all I had. Thank you very much guys. Thank you.

This will probably be our last question.

Our next question is from David Russell from evercore. Go ahead. Hi. Good morning. Thanks for squeezing me in on the outside. I'm curious of the jobs that were temporarily shut down to government actions with the Assumption when the economy's reopen how ever uneven at is. It would see an immediate return to work. Can you give us some sense of what percent of your Fleet is currently idled on those type of jobs while then the assumption is the rest is just truly, you know weaker and demand broadly. Can you give me a sense of that that percentage off? Yeah, I could take that one. This is Aaron David about 5% of our Fleet is Idle right now. It's on a job site ready to go back to work.

But that was my follow-up. So they are still sitting idle just turned off payment turned off, but they can start immediately. Once those jobs are you know reopen from the government? Correct? We met at work with our customers to post date a return to starting the rental agreement back up. So once they get back to work that amount of people will automatically go back to work.

And then on the net capex Cuts obviously, there's some assumption how you manage your Fleet with a time you that that would produce can you give us some framework with how he thought about those capex cuts gross and net because you're assuming X percent kind of time you with that level of of Fleet size.

No, I mean it's it's not that it's not really that direct. So we just kept everything really 2 a.m. Except for specially business. And and like I said some you know classes that are still in demand. So really it was a matter of just chopping it back presuming off accessibility in terms of our free cash flow and and just preserving cash. So and as we open back up, there's a lot of Fleet available to go back on rent just with the stuffing come off brand and we'll just managed to mind on the on the other side as we see it. We've got capability to adjust to that but we really just took out everything that was considered non-essential and it was supposed to be active through the through the slow doubt.

That's helpful. That was a Genesis. The question was the capex cut focused on a cash flow priority, or was it focused on V assume at this Fleet size. We should get this relative time you and not the implications of all right. So the cuts were a little more of a cash flow Centric decision is is their schedule everything everything on a stage show with the the focus just to maximize flexibility on on the way out. All right, I appreciate it. Thank you so much. Good luck. Thank you.

this concludes

Who's a question-and-answer session I would now like to turn the conference over to Elizabeth Hibachi for closing remarks.

Thank you everyone and of course as always, if you have any further questions, please feel free to give me a call. Talk to you all later. Stay safe and say well, bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.