Q2 2020 United Rentals Inc Earnings Call

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Welcome to the United Rentals Investor Conference call. Please be advised that this call is being recorded before we begin note that the company's press release comments made on today's call. It responses to your question contain forward looking statements.

Company's business in 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 Companys annual report on form 10-K for the year ended December 31st 2019, as well as two subsequent filings get D.C.

You can access these filings on the company's website at Www Dot United Rentals Dotcom.

Please note that United Rentals has no obligation and makes no commitment to update publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectation you should also note that accompanies press release in today's call.

Include references to non-GAAP terms, such as free cash flow adjusted EPS EBITDA and adjusted EBITDA. Please refer to the back of the company's recent Investor presentation, you see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure speaking.

Dave for United Rentals, [laughter], Matt Wintery, President and Chief Executive Officer, and Jessica Graziano, Chief Financial Officer, I will now turn the call over to Mr. pottery Splintery you may begin.

Thanks, Jonathan and good morning, everyone. Thanks for joining our call.

I'll begin with a statement that sums up our position on 2020.

We believe we weathered the worst to the economic impact from the pandemic.

And while the shape of the recovery remains unclear wholesale shutdown of the macro it started to let.

Visibility still somewhat limited.

But near term indicators suggest that activity in the second half of 2020 may continue to track with seasonal pattern.

Just something that we saw in June and July.

The Cobrand response plan, we shared with you in April is work.

We can point to tangible gains from executing that plan, most notably strong second quarter performance.

More than anything our results confirmed the flexibility and resiliency of our operating model. It's one of the reasons, we feel comfortable reintroducing full year guidance.

I want to start with a few metrics from the second quarter and after that Jeff will take you through the results on the guidance in detail and then we'll go anyway.

One highlight of the quarter, it's always young Ray I'm happy to report that rental volumes in all of our geographic regions finished the quarter above the trough they had in April.

Company has a whole that low point came on April nine.

From that hate through June Thirtyth fleet on rent show fairly steady improvement rebounding by almost 14%.

This translates to over $1 billion or incremental fleet on rent.

The biggest takeaways from the quarter have to deal with the five work streams. We introduced in April and to remind you. They are ensuring employee safety supporting the needs of our customers showing disciplined with both capex and our operating expenditures and proactively managing our balance sheet.

I'll first speak to the cost management.

This was very evident in our results, we aggressively flex our operating expenses to mitigate the revenue loss, resulting in a decline of just 50 basis points and adjusted EBITDA margin.

Our margin in the quarter was 46.4%, implying a strong flow through of about 50%.

I see proof of our cost vigilant everyday in our spend on things like third party services and overtime.

And while certain costs will return with volume the team has gone above and beyond to run a lean shift.

Turning to Capex, we're now guiding to a range of $800 million to $900 million for 2020.

This is significantly lower than the 2.1 billion of gross Capex, we spent last year.

Our primary focus this year is to serve customers with the fleet that we already know.

And when we do make selective investments you are targeted to specific opportunity.

And that's a result of this cost and capital discipline, our free cash flow generation in the quarter was a very strong $817 million.

This is a year over year increase of almost 300%.

I'm, particularly pleased we achieved these numbers.

Now compromising our capacity for the future.

This means no branch closures no coated related layoffs.

We thought long and hard about this playbook for years and it came together quickly in March.

We're taking a measured response it serves the near and long term interest for the company.

Just a lot more to say about the financial impact of the work streams, but I wanted you to understand just how well our field organization is rising to challenge.

And it was a huge ask of them to provide essential services during such a difficult time.

They're doing a great job.

Not only did the team embrace the health and safety protocols, and our cold and plan, but they did it safely with another recordable rate below one.

Well work streams also gives you a bird's eye view of how we're maintaining our competitive advantages.

In short, we're managing the business in a way that leverages our value proposition.

Customer she us as a business partner capable of delivering value across all of their needs and under all condition.

Throughout this pandemic, we've been determined to meet this expectation and I'm happy to say we're succeeding.

Now a few comments on the operating environment. It's certainly been a turbulent few months industrial activity has deteriorated more to construction and that's not surprising given the domino effect of coven on different parts of the industrial economy.

For example, as people stayed at home the decline in demand for gasoline and jet fuel significantly impacted our petrochem customers.

And on the construction site Nonres is a very broad category that covers a lot of different market dynamics in some of the verticals to stay busy throughout the pandemic like powered data center belts and others are obviously more challenge like retail hospitality.

And now what states reopening we see the same covert news you do about areas that are struggling to avoid spikes in the infection rates.

So far it hasn't had any additional impact on our business.

Our focus is on monitoring market conditions that could be triggered by infection rates like state provincial construction restrictions. So we'll continue to keep a close eye on.

We're also seeing demand continue for specialty segment, which is holding up very well our strategic investments in specialty or making helpful contributions to the segment revenue this year.

Another positive has been the strength of the used equipment market.

So for retail demand has remained solid we view this as a leading indicator meaning contract as expected need equipment for their upcoming projects.

And we've been able to leverage that demand to recover more than half of our original investment on equipment. So for seven years old.

Big picture, we know that our end markets will recover at different speeds in different areas.

Fluctuations like this allow us to leverage our strengths of flexibility diversification and scale.

We have a deep fleet, a fungible assets that we can shift between construction and industrial sectors and across geographies in verticals.

Even in this environment, our flexibility helps to mitigate the pressure on revenue.

We could also pivot to new opportunities that may arise from cold.

For example, the idea of repurchasing large commercial properties has been floated by some construction analysts this could create some incremental demand into construction space.

So that gives you some color our customers are still working their way out of the tunnel and.

And it's our job to be the partner that helps them get there.

And what we're hearing from our customers is that they have the same feeling we do about 2020.

Reasonable near term visibility with current work and backlogs and less visibility in late 2021.

In the meantime, we're on course with our plan and making good progress.

All things considered we delivered a strong second quarter with solid fundamentals for profitability.

The things that we told you we could control we did control.

And we move fast and a very volatile environment.

The guidance, we provided reflects our best estimates on what we can achieve barring some significant change to the operating environment.

The ranges are a bit broader than we typically provide at mid year, but that's the reality of the times we're operating in.

And under any scenario, we expect to generate significant free cash flow this year.

And if the economic impacts cope with linger on we have additional flexibility and we can leverage in our business model to remain resilient.

I'll wrap up with something I talked about last quarter. When I stated that the value. We preserve now will be the foundation for the value, we create and the future.

A big part of that value is our commitment to being first call for customers under all market conditions.

We've been putting our best efforts and delivering on that commitment.

Q2 results show that our best efforts.

And our business model on more than up to the task.

Not only we preserving value we're doing it strategically in ways that will drive returns today and in the future.

Now with that I'll hand, the call over to just to cover the numbers Jeff.

Thanks, Matt and good morning, everyone.

Ill cover the highlight of the second quarter, which were of course significantly impacted by trophic 19.

Oh share an update to our debt structure and finish with some comments on our 2020 guided before we move to Q in a as last quarter. So lets jump in.

That's a revenue for the second quarter was 1.64 billion, which is down 318 million or 16.2% year over year.

Within rental revenue Oh, we are decreased 264 million or 15.8%.

In that fleet productivity was down 13.6% or 226 million, that's primarily reflecting the decline in volume we experienced during the quarter due to the pandemic.

Inflation of about one of the half percent cost us another 26 million any 0.7% drop in the average size of the fleet was a $12 million headwind to revenue.

Rounding out the decline in rental revenue for the quarter was 46 million in lower ancillary revenues and 8 million in lower re rent, which together were a 40 basis point headwind to revenue.

Let's move to used sales.

Sales revenue was down 10.7% or 21 million year over year, which is almost entirely due to less used fleet sold to Oems in trade packages.

Retail used market remains quite strong.

We see sold at retail was up 17% year over year. Despite a slow start at the beginning of the quarter.

Used margins in the quarter for healthy as well adjusted gross margin on new sales was 46% as well that's down from 49.2% in Q2 last year, it's up 30 basis points sequentially from Q1.

Retail pricing was down about 6% off last year's peak, but consistent with what we saw in the first quarter. This year.

Finally proceeds as a percentage of always see where a robust 54% and that's on we sold that was on average over seven years old.

Taking a look at EBITDA.

Adjusted EBITDA for the quarter was 899 million down 174 million or 16.2% year over year.

Here's the bridge on the dollar change.

Impact from rental was a drag of 197 million.

We are with the headwind of 179 million ancillary and we ran down the combined 18 million.

Do you feel impact on EBITDA was a headwind of 16 million.

Year over year, SGN aim was better by 48 million with the majority of that benefit coming from lower discretionary costs, including teeny.

Lesser extent, we also had lower commissions and bonus accruals versus Q2 last year.

Our adjusted EBITDA margin was a highlight in the quarter coming in at 46.4%, while that's down 50 basis points year over year, our margin clearly reflected our commitment to aggressively manage costs, particularly in the early part of the second quarter. When volumes were most depressed and restrictions were still in it.

Correct.

Our focus on cost is also evident in adjusted EBITDA flow through a 50%.

The second quarter, we continue to action reduced overtime.

In house to reduce the use of third parties.

Canceled or delayed discretionary spend mostly in gionee.

The second quarter flow through benefited from the flexibility we have in our business model to respond quickly on cost.

Cost control remains a major focus for us, especially for discretionary spending but a good portion of our cost will continue to flex with volume for example spend on delivering if necessary as volume increases to the season, and we need to reposition fleet to service our customers and those expectations are included in our guidance.

After the second quarter results and adjusted EPS, which was $3.68 and includes 30 cents a benefit from discrete tax item.

Compares with $4 in 74 cents in Q2 last year and the year over year decline is primarily due to lower net income from lower revenue in Q2 this year.

Let's move to Capex.

Year to date through the end of Q2, we brought in 353 million in gross rental capex, while proceeds from sales of used equipment had been 384 million, resulting in negative net capex of 31 million.

Together these results reflect our continuing focus on capital discipline.

Turning to free cash flow another highlight for the ended the quarter.

We generated over 1.4 billion in the first half of the year, an increase of $643 million.

Our ROI remains strong coming in at 9.6% for the second quarter that continues to meaningfully exceed our weighted average cost of capital, which continues to run south of 8%.

Year over year break was down 120 basis points due in large part to the decline in revenue this year.

Looking at the balance sheet and our capital structure.

Our balance sheet continues to be a strongest it's ever been.

Debt at June 30 was 10.3 billion, which is down 1.3 billion year over year end down 800 million quarter over quarter.

Leverage at June 30 was just under 2.5 times, which is flat sequentially and down three tenths of a turn versus the second quarter of 2019.

Our current 500 million dollar share repurchase program is still on pause.

As a reminder, we had purchased $257 million of stock on that program before we paused in March.

Liquidity remains extremely strong.

We finished the second quarter with over $3.8 billion and total liquidity.

That's made up of 80 out capacity of just over 3.6 billion and availability on our a our facility of 56 million.

We also had $127 million in cash.

Yesterday, we announced we will redeem our 800 million dollar 5.5% senior notes due 2025.

Our decision to do so includes our views of continuing strength in liquidity, given our expectations of free cash flow for the here, which is reflected in our guidance.

And speaking of our guidance I'll close with a few comments.

Of course, no one knows the ultimate impact from the pandemic on 2020 or behind.

We continue to run numerous scenarios each with varying levels of revenue expectation and related actions to arrive at adjusted EBITDA, taking into consideration the six months behind us and the visibility we have to the rest of the year.

Our guidance represents what we think of as are most likely range of possibilities.

And to be clear this guidance does not contemplate a shutdown of the economy like we experienced earlier in here.

Our capex guidance has been refined as we balance our fleet mix in response to customer demand and continue to focus on fleet productivity and better fleet absorption.

Finally, and notably our free cash flow update is a clear indicator of the strength and resiliency of our business model as we plan to generate over $2 billion in free cash flow this year paying down debt with the vast majority of it I.

With that let's move onto your questions. Jonathan would you. Please open the line.

Certainly ladies and gentlemen, if you do have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and you'd like to move yourself from the Q. Please press the pound key <unk>. Our first question comes from the line of David Raso from Evercore ISI. Your question. Please.

Hi, Good morning, a chance you just mentioned the outlook the potential ranges does not include a shutdown of the entire economy, but can you help us we've done the lower end.

Hi, how are your thinking about some of the key states, Florida is a Texas in parts of Southern California. A are you seeing any reaction negatively by customers for projects equipment demand related to the uptick in the virus and again sort of what's baked into the low end of the ranges we have a sense of if there's any cash cushion.

At all from from the virus or is it just pure assuming no no virus impact the rest of the year.

Sure. David This is Matt So first to answer your question about the states kind of tried to cover that in the script. We're we're seeing all the spike up specifically in in four or five pretty large states and large for us as well when we went back to look at the data it's not impacting our business at this point so what.

I would would be would be closures construction restrictions that that hasnt manifested similar to what happened early on and in Boston area. The New York area and in the Bay area, where the most specific ones back in the beginning so we're not seeing that what's embedded in our guidance is more of a normal seasonal bill that we would expect although we're not going to.

Well plan on Backfilling the gap that was created from Covidien in the beginning of the end of the first quarter in the beginning of the second quarter. We do we do expect to see normal seasonal built.

As far as cushion.

The fourth quarter is a little bit less clear today and what we see in Q3, we think the backlogs in the work its ongoing in Q3.

It is much more predictable smart perspective, and then where we fall within that range that we gave really depends on.

Do we get any acceleration or deceleration of the demand in Q4, and that's how we're thinking about it none of it comprehends.

All five of those states you want to major shutdown right I don't that's not really the way we ran about nor do we think thats going to happen I think thats.

People have been pretty obvious their intent to continue to make sure the drive the economy and Thats kind of how we're planning a and how we how we guide.

Any change in tone on this coming year, you have some visibility to the following year larger projects.

Have you heard any time in those customers about 21, or even just the stuff and the where you you're.

The size of booked backlog is today.

Sure.

Last year for 20.

So what we're thinking about the macro data that everybody looks at that we look at as well you could see that incrementally some of the negatives got less negative if you want to pick about that as a positive momentum whether its backlogs though.

The ABCD can contracted backlog is down about it it's up to about eight months now right HDL Avi I, rather is not quite as bad as it was but still dozens and broke so I'd call those indicators.

Now turn off the bottom, but I wouldn't call them positive, yet and I think even our own customer carpets index improved sequentially, but still not to the levels of what we'd expect and I think it's because the lack of visibility that we talked about was just it's just not there right now for people to get comfort you experience of being better today than we were in April has given.

Everybody somewhat confidence, but just not enough to predict 21 yet.

And last question, obviously, just mathematically if you get back onto the normal seasonal trend, though from a lower level that April obviously got hit.

Time, you want to improve again until April merges the mental map of its time, you would schools they stay negative.

Well, yeah, what about that normal seasonal so please open up for Capex question related.

Do you ever comment about the season I don't know please no. Please go ahead sorry there.

Well, that's the math I'm just curious when we think about cash flow and I know it's been it's been took was strong but.

For Capex next year, if I told you the seasonal trends just gonna continue.

No no catch up but no no dip.

How should we just I know just isn't going to want to give a capex number for next year, yet, but but just when we give some sense of the spending below replacement this year, but if you're back on a seasonal pattern just to gauge of bit the cash flow impact from Capex changes can you just give us a with a framework to think about if we're back on seasonal pattern.

Oh, so it would it would really depend on two issues how how this exit rate. This year comes out right. So how do we do with the absorption of the fleet and how much this fleet productivity.

Improve.

Sequentially throughout throughout the balance of this year to give us our exit rate and then what does the demand looks like going forward.

If you thought that demand would return to 19 like levels. That's what you mean by normal seasonality than you can think about 19, capex I'm not sure that thats visibility that anybody or in anybody's calculus quite yet, but if we get if we get a vaccine if the world sites open it up people start travel and again certainly that would be.

A thought that we'd be looking towards but there's way early for us to even get close to thinking thinking definitively and by the end of the year, we'll try to get there to what our guide would be but the reality is we will really have to make those capex decisions until we start building in the spring of 21 is when we really expect spending money.

All right. Thank you for the time I appreciate it.

Thanks, Dave.

Jonathan.

And our next question comes from the line of the Joe O'dea from vertical research.

Hi, Good morning, everyone Hi, Joe.

Just on the implied in a back half of the year guide when you look at equipment rental revenue.

Was down 16% in the second quarter.

In the guide implies something similar in the back half for the year.

So even as you go through the second quarter and you see parts of the country that were shut down and coming back online.

Well, we don't see sequential improvement due to the back half a year on the decline rate.

Can you talk about what's gotten better and maybe what softened a little bit.

And then the degree to which it's just you know there's little visibility in Q4.

Yeah, I think your last comment hit out at the most Joe is that lack of visibility in Q4.

So when we think about our GAAP on a year over year perspective, we think it's gonna crews slightly and that's that 15% versus 16% rent revenue decline in Q2, but we don't think that that's going to compress right now.

That pipeline of demand.

Starts to increase if work if pent up demand for some work to get done or or people get through better for Q3 than we expected that will accelerate that but when we think about places that we just really don't see.

Changing for the better in the back half it would be first and foremost upstream we're not counting on upstream and I don't think it I don't even pick the folks in that space are counting on improvement there Oh, we think about the one big variable that we didnt expect in a normal recession that we are seeing in this pandemic is the petrochem right specifically the downstream business.

Just nobody needs a product so.

People start traveling again that would be a pick up that's probably more of a 2021 event in Q4 vessels. These are the reasons why we think and then nonresident be choppy. So we think that the steady.

I just want to anchor too much on the midpoint of the steady about 15% down year over year would imply a standard seasonal build off the whole that was already created that's the way we're thinking about.

Got it.

And then on the replacement Capex Ron.

Pretty cool that you were talking about roughly 1.9 billion and you are shrinking the fleet. This year, so that goes down a little bit.

But the question is the cushion to continue aging the fleet, if you find yourself and sort of a protracted slow demand kind of environment. So.

Can you talk about where you are.

Age, where you're comfortable going how much cushion that gives you to continue buying at this kind of pace versus navigating back to replacement.

Taking a lot all I'll start on that one so you know based on what we're seeing kind going out to the ended the year.

We'll likely age the fleet somewhere between five and six months.

Right and so we've talked a lot with you guys Im with investors about having you know at least a year of head room in our cat classes to be able to age out the fleet and you know down.

Cycles like this one and and not have any real discernible impact on increased arnab or had any you know urgent need to to replace so as we even think forward into 2021, there's still some opportunity in some headwind if we needed to age that lead out a little bit more we could without any.

Real impact.

That's great not that we're trying to speak that into our future in any way, yes, yes, no not at all no.

I appreciate it thank you.

Thanks, Jeff Thanks.

Thank you. Our next question comes from the line make or break from Baird. Your question. Please.

Yes, Thanks for taking my question good morning, Matt Jessica.

Yes, I guess I'm going back to the Q1 call and I think at the time you provided some oh good insight on April you. My recollection is that you called out we don't run being down 15% and obviously you told us that.

The improvement here was a pretty significant you're up 14% from from that level.

I'm trying to juxtapose that again, the 4% decline in lead in the quarter.

What I'm getting out here I'm trying to understand as you were getting to the third quarters here.

Where are you on a year over year basis in terms of fleet on rent and what does the implication here for the lead productivity metric.

Sure. So we don't give that fleet on rent number, but you see where we're guiding to when we when we talked about 15% that were down in Q1 now what you're seeing is just the normal seasonal build.

Off of that so even though were sequentially ended for Q1 sequentially saw improvement you have to think about the fleet productivity as measured in that year over year gap and you know we don't talk about the individual components, but we certainly shared color that coming into the year. We thought our biggest opportunity was absorption you can imagine that was exacerbated by cope.

So as we continue to.

Manage the denominator that calculation, we are expecting to see sequential improvement, but we're not expecting to see positive fleet productivity. Unfortunately until we get passed these comps probably in the in the Q2 to second half of 21, and we'll continue to depending on what kind of.

Demand environment or is manage that inflow right, we'll manage the denominator as well as enumerated depending on what what demand says so that's the way we're looking at it and that's that's how we're going to focus on driving higher fleet productive.

I I appreciate that thank you and I guess my my follow up maybe trying to get a little bit of color from your perspective in terms of how this downturn compares to some of the prior ones that you've seen.

Obviously youre your cost flexibility is than it's been evident, but I'm more thinking from the standpoint of competitive dynamics in the industry the way you're seeing customers react and.

Frankly, maybe some opportunities that you see for the industry coming out of Oh cobot. Thank you.

Sure. So this was certainly in the and the handful of downturns I've seen in my now in my 30 here in this business. This was unique like anybody who didn't listen the Spanish flu right. So this is this is a very very unique creation of this this dislocation and it made us move really fast it made our customers move really fast.

So it went from almost panic when you really think about it out there to now people starting to feel a little bit better, but still very cautious. So that's how people are managing their business as well I mean, when you see that flow through that we had Q2. It was part of that things immediately shut down so that gave us a bit about a cost advantage and it was I think is.

All that in a lot of businesses now people are starting to think about what the future brings some other things that we're learning at a post cobot environment or what end markets are going as you bet, we believe it or not it's hard to see an order within our numbers, but even within our current fleet productivity, we actually have some asset classes that are up year over year.

And it's hard to imagine, but that's about shifting to where the opportunities are and that's always was our business model it's been about.

That flexibility and fungibility of our assets. So that we can move them to where we need to move into so that's the way we're moving I'm sure. Many customers are doing the same customer is going to need to find different ways to drive revenue different ways to create value for their clients and we'll continue to do that we also think.

Technology and safety or both going do.

They were important already pick they're going to be more top of mind in our space and for our customers and we think that's inherent to the large players that have the scale to invest in some of these and we'll continue to use that as a future post covert opportunity as well.

Just to clarify our you HM better industry discipline around a both we and core pricing.

Yeah, I think you'll hear it right. So many of the Oems reporting this week as well I think you'll see and you already has seen what their needs to do to react too.

Oh rental industry is very positive reaction of shutting off the capex ticket as obviously, you're seeing it not just play through a notion report that you're seeing a play through in the OEM.

Production and or lack thereof. So we think thats the right way to manage through this and I'm very pleased with the data that we see the industry remains disciplined.

Thank you could look like.

Thank you.

Thank you. Our next question comes from the line, though Rob Wertheimer from the least research your question. Please.

Hey, good morning, everybody.

Hey, Rob.

So you're downside.

Volatility to earnings has been less than or some of the rest of the group and I think that probably speaks more to natural variability in the cost structure than it does to any any strong one off actions. You took so could you just kind of outline whether its reruns or outside hall or what are kind of the improvements that allowed you know cost to flex down. So abruptly I don't think you did a bunch of big cell.

Every custard layoffs or closures and then I suppose some of those things are still in reserve uptick as the economy does get a whole lot worse, but can you just sort of talk about that that's variable the cost structure. Thanks.

Sure Hey, Bob It's Jeff.

So yeah, obviously the team did a great job in managing through the second quarter.

The some of the cost that we've called out has been focus on reducing overtime right and really focusing on the capacity that we have a in house by insourcing delivery and repair and maintenance that you know in part had been a outsourced to third.

Parties, right, bringing that and using our capacity and and saving whats premium cost right in using those third party services.

We've also as Matt mentioned, you know the beginning the second quarter, especially as as we were all adjusting to restrict some place you know we very quickly shut down our discretionary cost I you saw that in the as seen a year over year benefit that we called out this quarter where.

He any of course right. That's an easy one to kind of think Suez and both stop traveling immediately but also discretionary cost that we were able to cancel or delay as a result of you know trying to keep only business critical needs in the cost structure.

Okay. Thank you and I wonder sometime if you ever quantify some of that some of the some of the alcohol and somebody other things get a little bit excuse you how big an impact each was but it's it's competitive issues. Just how do you have a lot of cash flow going through the company right now as you as you reduce fleet and so forth can you just give us the guide points on when.

You might you know what you know what do you intend to do with that as the year progresses, if nothing really dramatically bad happens to be economy.

You will have a lot of cash to do something that's.

You know what drives the decisions there. Thank you all stuff.

Sure No great question. Thank you.

Yes, our focus right now is to use that free cash flow to pay down debt.

Right, we're not out of the woods, yet as far as a tool that impact and liquidity is going to continue to be a major focus for us. So we'll use that excess free cash flow.

To pay down debt.

And well happened just kind of in the normal course, right and as we do our 2021 plan and we look at the kind of cash that we expect to generate next year as well well have that conversation with our board and make a decision as to whether or not we want to use some of the excess cash to finish share repurchase program for example, but Ah, but right now it's steady on.

I'm continuing to reduce leverage and take out the debt.

Thanks, just.

Sure thank backdrop.

Thank you. Our next question comes in the line of Seth Weber from RBC capital markets. Your question. Please.

Hi, good morning, everybody.

They say.

Hey, just I just wanted to follow up on Rob's question. You know I know, it's you guys always discouraged kind of using the midpoint anchors for for the guidance for the Decrementals, but.

You know just kind of going back to the cost discussion I mean, your your second half decremental does.

Guidance does suggest a the decrementals are worse than you know higher than what they were in the second quarter. So can you just kind of walk through a little bit more detailed like what what's coming back on I know, there's variable you know a commission and things like that but is there anything else that we should be thinking about there. Thanks.

Hey, Thanks, Seth Yeah, I think the first thing that I would do before I get it to some detail is a is that caution on the midpoint.

Right I mean, we're really thinking about this guidance as a range of possibilities and so probably easier for me to frame that in terms of flow through the back half right, where it where we land is really going to depend on how the revenues that's up first and foremost right and then if you think about it from a cost perspective.

As I mentioned in my prepared remarks, there maybe some variable cost they come back into the business as we Ah you know the flex with the volume myself, even just think of the seasonal trend as we work out to the October peak you may have some we may see some additional delivery costs right in repositioning even overtime right where.

We normally will use overtime to flex for labor needs instead of waiting in full time had so we could see some of that come back and depending on how the volume trends.

Discretionary costs were going to continue to keep a tight handle on but we could see a situation where if things do start to open up would you start to have folks.

Thanks, and T. any meeting with customers right some of those costs to come back into the business as well yeah moderate a little higher than the way, we were able to pull back on them in the second quarter.

Okay, but structurally is like a 60% remembered the right way to think about Decrementals do but just in general for crude United.

Yeah, I'm I'm skittish to give a number because again for us it's extremely fluid based on the way that the you know the third quarter and really the fourth quarter right, where it where we have a little less visibility plays out.

So I'll, let you do the math on what do you think is the right number how's that.

Okay, and then just I'm really really could you just you know the specialty business continues to perform really well can you just talked about you know cold starts bearing.

Hi, just thinking about allocating capital to the specialty business. Thanks.

Sure SAP, we you're right we continue to be very pleased and even with lower revenue specialty did a good job.

Of driving even in increased margins based on some of the in sourcing getting rid of third party services in really good team effort across across the board. So we'll continue to invest in those we've done about 10 cold starts year to date and we plan on doing another five in the back half of the year. So we're we're still leaning into specialty.

We'll continue to put capital in there and our power segment. At for example is one of the regions that actually is up year over year. So there is there are opportunities during covert that we'll continue to fund.

Okay. Thank you very much goes space it.

Thanks.

Thank you. Our next question comes in the line of Steven Fisher from you'd be US your question. Please.

Thanks, Good morning, just to follow up on the other cost question.

Again, it sounds like for the most part of the efforts have really been focused on the third party services and overtime and.

Just saying that some of the variable costs might come back in but let's say.

You wanted to look for the next area of costs to actually take out if things were to be a little bit softer in the demand side.

What are those next areas of cost that you would you would look to tackle I think Matt you said in your prepared remarks are there haven't been any could lay offs yet is that where we would go would you start looking at actual kind of.

Whole branch closures or how would you think about a hierarchy of where we go in the cost structure that.

The next round out.

Sure Steve and this is something that we've thought about Latin are very intentional about how we've responded so far so let me just talk about will forget about the numerical values as it was covered that strategically you know coming out of Onein.

And had an experience that downturn and what we did and had to do and what I would want to do differently, what we'd want to do differently. We built a strategy to make sure. We didn't have to do a couple of things number one.

We didn't want to unnecessarily takeout or damage our capacity to get ready when we got through the other side and that's a weve structurally work towards that during this pandemic, which is why we're very pleased that we use in sourcing to keep our labor force busy as opposed to light and that was very intentional on it and you could see from a flow through that work.

When we think about store closures, we intentionally did not want to go there now we went this into a full recession 2009 type recession, which I don't think anybody's predicting right now, but if it happens we had that playbook, we know what to do but there's a couple of things that we're going to limit we're not going to fire sale equipment, we don't need to we have great liquidity strong balance sheet.

Maturities out to what yes, 2025, five right. So we don't have that anvil hanging over us. So we don't need to buy sell equipment, and we don't need to make rash decisions to.

Make sure we make payroll I will have liquidity issues. So this balance sheets allows us to react a little bit differently, what's still protest margin I think we just crews that but we're not going to damage the business long term, but there's more flexibility to make sure we remain resilient and we'll utilize.

Okay. That's helpful and maybe on the flip side of that I'm. Just curious how you think about potentially going on often I mean as an industry leader. When you go through downturn might expect that you should be able to gain some share. When do you think is the right time too.

I will start being more active in in trying to gain some share and where would you look to do it and then how would you go about it.

So that's something that were we talk about actively right. There's there's that balance sheet can be used defensively and it can be used office when we want to make sure. We've used the defensively and appropriately so and we are turning our mind often so when we think about where are these other opportunities. Some some could ask why do you guys spending another.

The midpoint about $500 million capex, because it is offensive opportunities, there's products and end markets and verticals that we're still got a support and that's the way we're looking at it and Thats more post covert opportunities arise we will use that balance he will will use our scale in our leverage to make sure that we can.

Placemark.

So I can just add one thing you know the flexibility that we had is also something that will lead into as opportunity presents itself and we can lead into a recovery and into the market right. So we'll be ready to spend when we need to based on being able to flex that model as Matt.

Sorry.

Great. Thank you.

Thanks, Steve.

Thank you next question comes from a line of Jerry Revich from Goldman Sachs. Your question. Please.

Hi, good morning, everyone.

You know you folks have been on on a continual journey to improve the logistics and.

Turning some of that with the in sourcing here I'm wondering based on your experience.

Going through this environment is there an opportunity to.

The other side of it they're up higher.

Fleet availability.

The <unk> an opportunity through no touch was pick ups and or.

Having standard process in place can we come out of those.

Our fleet available across your business.

Thanks, Jerry for the question absolutely. So I had a note from a customer early on during covert when we created this touchless system that they they send a nice very nice no. Thank enough that they had the best rental experience ever they pulled their truck up.

Everything was done digitally about ordering equipment and confirmation and when they pulled up we hope to trailer up had a skid steer behind it and he went off this way said it was the fastest most painless transaction has ever had no rental business. So there you go necessity is the mother of invention once again and we'll continue to.

Take those learnings and when we when we think about or labor head count models and one thing one of the ways that we did retain our labor as we talked about earlier was insourced when we get to the flex upside in a more stable environment not necessarily back. After this year I don't think adding heads right now makes sense, but maybe having.

Our heads and eliminating some of the more expensive variable cost we have like overtime like outsourcing logistics.

When we when we meet capacity or some of the things that will be investigating to make sure that we can continue to drive efficiency in our model.

And then from an end market standpoint.

Lot of folks all from Twod are concerned about non resin to make sure fruit proved the reason, but on the flip side you know a lot of your industrial markets are really the only early stages of recovery to can you just talk about your fleet on rent for some of your industrial verticals I know, you're not going to want to provide at some supposed to city, but just a broad range color on.

Where we are in the restart and fleet on rent to those deployments, where it would be helpful.

So I I won't give you the fleet on rent steps, but you know I will share with you and as I did my prepared remarks, Petrochem industry is really challenged yeah that market for us down 35%. That's a big portion of Oh, what we've had to endure in post cobot you could look at both sides that you could look it as the world open stack up that's one of the opportunity.

These are get back to normal type volumes. So we think that top and an opportunity for us industrial overall, if you take that out if you take out petrochemical after all the pull more like construction overall right not really a big deal, but when you look at data centers.

Towers the segment infrastructure.

There are opportunities that we we can lean into and whether we add additional products to the mix, which we've been doing or whether we just.

Enhance some of the offerings that we already have to make sure we're being up a one stop shop solution for all these end markets. That's really how were how we're looking going forward and can you know I think I think the industrial markets will recover at the same pace and maybe even a little faster because of the petrochem drop once we get on the other side because.

[laughter] amounted your prepared remarks, you you said you're monitoring CRO to buyers.

Sure, but you haven't seen any impact so far so is it fair to say that the fleet on rent momentum has continued into July but by those comments because or concerns by one of your suppliers brought up today, but.

There was some slowdown in parts of the country in July and getting fleet backup rent.

Because of program suit to just comment on that please.

I want to and what I referred to so we are seeing the seasonal build to what I referred to specifically is because we went look you're saying Wow look at these spikes and in these states that we all see all over the news. So we went left at the state our volume in southern or fixed exports and we're not seeing so that that is not showing a correlation so our fleet on rent already.

Our our activity in those states that would match a negative correlation to the infection rates and that's really what we mentioned, we'll keep an eye on effectiveness as always we'll we'll let everybody know, but where we actually haven't seen that night I think that's commitment a lot of these communities if they got to keep running right. The world's got to keep people. So we will continue to see.

The the seasonal build.

You know that's what our guidance implies.

And that's a common through July just for clarification.

Yes.

Thank you.

Thank you. Our next question comes from the line of Receptacle already from Bank of America. Your question. Please.

Hi, good morning, guys.

Hi.

I just had a question on on specialty I mean, you had.

Strong margin performance 80 basis point increase the revenue was down 11%.

And you know always hard to know if this is all apples to apples. It just feels like some of your competitors are posting stronger growth in what they label as a specialty rental businesses.

I'm just wondering are you seeing increased competition in any those specialty markets, particularly in areas like climate control parts of power Gen, which had been very very hot market as as a core general rental markets or are depressed.

Yeah, no wait we aren't Sina any competitive change in the landscape and you hit on the right. One power has been growing for us and I'm sure others have been growing it's it's part of an emergency response, when you think about all the temporary.

Whether its shelters businesses people, putting tense out in their parking lots. So that they can feed people outdoors right. There's there's so much opportunity for power to grow so we've been seen that growth as well, but I don't think we're losing share there in any way shape or form we're pleased with what we're doing there as far as specialty of some of our competitors.

We all.

Different companies categorize it differently for us how we look at our specialty business its products that have more of a unique fully embedded.

Engineered solutions, so to speak right. So it's not just dropping off the generator. It's cable laying is putting stepped down transform is making sure we're creating a solution and that's how we looked at our specialty and.

I won't comment on others, it's just I understand or some products that are in other specialties that are not much. So.

We're not seen any change in a competitive dynamic there.

So then that could you just talk little bit more about why your revenues down 11% then.

And I suspect some of its in the fluid solutions business I'd be I'd be curious what kind of growth you're seeing.

X fluid solutions, which was trench up this quarter or did it.

Hey, more like a you know what a gen ran type business at least in terms of demand trajectory. Thanks.

Sure thing, we don't we don't originally get down to breaking all those segments down, but you're you're hitting on the head here right to think about Thompson tanks, and how much in the Petrochem space.

We are penetrated with those products and work even with the Baker acquisition right. So there certainly fairing worse.

More in line with how our Gen rent areas are faring in those marketplaces, so that would be a drag on the overall specialty growth trends just slightly better than the average, but not a positive we're calling out power because power is unique I don't think people would think that any business unit would be positive. So power are reliable onsite business, although small is.

Seen positives as well, but I think you're not had just that fluids certainly is having challenges as as we're going through covert here not big part of what's driving the negative growth.

Got it okay. Thank you.

That's right.

Thank you. Our next question comes in the liner companies from Morgan Stanley. Your question. Please.

Hi, Good morning, guys I'm like point.

Just curious you guys have kind of during the upturn talked a lot about the outsourcing, but you did and that was kind of.

Pressuring margins can you just quantify maybe how much of your repair and maintenance was with outsourced and it's kind of help us understand how much the opportunity is and you know kind of.

You know at what point would you have to start outsourcing again as I failed to recover and then maybe just your same quantification on overtime, how much overtime. If you added over the past couple of years and when would be expected Forgotten Creek.

So I don't have the numbers handy for the past couple of years, but when you think about with just the speaking earlier about what's inferred in the flow through the midpoint of our.

Second half times, you'll see some of the coffee you'll see the magnitude of some of what I'll start creeping in with whether its overtime, which were leaning more towards overtime you want to keep our people busy first and that's been a big big part of our covert response.

And then maybe some logistics for third party as far as third party repairs were not expecting a lot of that some of that was for stuff that was really beat up out in the oilfield last year stuff that needed major repairs and we were already utilizing our capacity. So we outsourced it and that is always an opportunity and area to flat.

But I think in his post one of the post covert learnings as I talked about earlier, maybe we will in source more going forward in a more stable environment. So I don't have a numbers for you on what's that historical trend is but but it's certainly an opportunity for us going forward.

Okay got it and I just last quarter, you talked about 1.5 billion and you know we see on rent that had come offline. It sounds like theres been a seasonal build up about a billion said about 500 million. It that's still kind of that whole you were talking about.

We've also been kind of characterizing it as you know very typical seasonal build that's been happening offers that also can you just help us understand that whole all petrochem and the retail and hospitality and special events and those projects. It never came back online or is it just.

You know just this seasonal build.

You are seeing those projects come back online and it is typical but just awful or basis, just trying to understand what if there have been projects that just kind of in permanently to lay that you just don't seem to come back.

Sorry, not with the comments about the Super Bowl.

Yeah, you hit on the main point at the end of your statement there about the lower Matrinch was really just talk a lower base, but unlike what we've talked about this past few years, we are seeing project delays and cancellations, but more delays for US right now with the lack of visibility we're just counting on the delays as.

They're not there until they come back and it's very spotty is just think about the major airports <unk> last year were traveling around back when we were traveling you felt work at just about every major airports that you flew into on behalf of those are continuing on and then half for quote unquote paused or delayed and when those and what would cause.

Great those coming back is something that will be part of the recovery, but but we don't have the visibility to that right now and it's really not even by geography right here in the New York Metropolitan area, you have Laguardia, that's going full steam ahead, yet JFK, that's that slowed down and delayed many phases of that project. So we see this is future opportunity, but the difference between now.

And what we've talked about for the past.

12 quarters is we are seeing project delays and and we do believe we'll continue to have a seasonal build off this lower base, but those would all let's come back on line for us to raise that basin to start to fill that gap.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line.

We've been Ramsey from Thompson Research your question. Please.

Everyone I'm trying to dig a little deeper on delays versus cancellation.

Or delays happening more on the side of projects that are going are going to go slower going forward or is it projects that you expected to start are now being.

Pushed out and then on the cancellations, even though there you're not seeing many of them is there a trend and what types of projects are being canceled.

Yes, so as far as the cancellations and just to clarify.

There's not as many cancellations or they are delayed but in our minds with the uncertainty going on right now we're going to treat them fairly simple.

Because the cancellation could be brought back up as well. So just think about the industries that have been most challenged to covert certainly anything petrochem related has been shall delayed whatever term you want to use a travel right. It's just a its two different thought there. There are some airports are saying, we don't have a lot of activity right now ethylene it.

And there are others that are delaying I would imagine that has to do with their funding and there and their confidence going forward on how much volume they'll do in those locations. When you think about entertainment stadium.

Those types of jobs, you can imagine little bit of uncertainty or what future is going to look like so some of those are being shelf. So.

Then certainly anything in hospitality REIT travel and hospitality, we're seeing a lot of it. So just thinking about the industries that are more uncertain and others then you're seeing other things even powered built I talked about earlier, our segments growing for us whether its standard power alternative power when you think about data centers.

Those are growing that's a growing opportunity and then for those you live here in the northeast as I travel around the northeast here by car.

I see roadwork everywhere. So we expect infrastructure to continue to gain momentum that's one of the values of less traffic as people can get this work done more efficiently. So those are some of the puts and takes that we're seeing that and.

That really a inform how we view the balance issue.

Great and then just be curious your perspective on how secular shift to rental you didn't really accelerates through challenged markets does the secular shift or potentially comes from this current downturn does it look different does it look better with your readers.

Specialty equipment asset base.

Absolutely I think really for the industry broad based offering of which were leading and penetration overall, there and all the downturns in my career people that had to turn to rental when they previously weren't looking at it as there there are number one priority in channel.

Very rarely almost never go away right take once they get to what they realize we can they can rely on us at the product will be there and they'll have the right equipment at the right time. So we do expect secular penetration on the other side of this and I think it'll be broader to your point, because we have a broader offering so I think it'll be across the board specialty new products in general and people weren't rents.

Before I think it'll be a good good thing for the industry overall.

Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. plenary for any further remarks.

Thanks, operator.

You know appreciate conversation today. This is certainly turning out to be an interesting here to say the leaf and as always we'll keep you updated as things evolve in the meantime, our Q2 investor deck is available online and as always Ted's available to answer your questions with that.

Please everyone stay safe and operator, you can now in the call.

Thank you and thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.

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Welcome to the United Rentals Investor Conference call. Please be advised that this call is being recorded.

Before we begin note that the company's press release comments made on today's call. It responses to your question contain forward looking statements.

Companies business and operations are subject to a variety of risks and uncertainties many of which beyond its control right and consequently actual results may differ materially from those projected.

Emory up these uncertainties included in the Safe Harbor statement contained in the company's press release.

More complete description of these and other possible risks. Please refer to the company <unk> annual report on form 10-K for the year ended December 31st 2000, Nike as well as two subsequent filings good yet we see.

You can access these filings on the company's website at Www Dot United Rentals Dotcom.

Please note that United Rentals has no obligation and makes no commitment to update publicly released any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectation you should also note that accompanies press release that today's call.

Include references to non-GAAP terms, such as free cash flow adjusted.

EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to feed the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure speaking today for United rentals.

Wintery, President and Chief Executive Officer, and Jessica Graziano, Chief Financial Officer, I will now turn the call over to Mr. Flattery <unk> you may begin.

Thanks, Jonathan and good morning, everyone. Thanks for joining our call.

I'll begin with a statement that sums up our position on 2020.

We believe we weathered the worst to the economic impact from the pandemic.

And while the shape of the recovery remains unclear wholesale shutdown of the macro it started to let.

The visibility is still somewhat limited, but near term indicator suggested activity in the second half of 2020 may continue to track what she's all Pat.

Which is something that we saw in June and July.

The Coburn response plan, we shared with you in April is working.

We can point the tangible gains from executing that plan, most notably strong second quarter performance.

More than anything our results confirmed the flexibility and resiliency of our operating model. It's one of the reasons, we felt comfortable reintroducing full year guidance.

I want to start with a few metrics for the second quarter and after that Jeff will take you through the results on the guidance in detail and then we'll go to kill today.

One highlight of the quarter, it's always see on rent.

Happy to report that rental volumes in all of our geographic region finished the quarter above the trough they had in April.

Company has a whole that low point came on April nine.

From that date through June Thirtyth fleet on rent show fairly steady improvement rebounded by almost 14%.

This translates to over $1 billion or incremental fleet on rent.

The biggest takeaways for the quarter have to deal with the five work streams. We introduced in April and to remind you. They are ensuring employee safety supporting the needs of our customers showing disciplined with both like Capex and our operating expenditures and proactively managing our balance sheet.

I'll first speak to the cost management.

This was very evident in our results.

We aggressively flex our operating expenses to mitigate the revenue loss, resulting in a decline of just 50 basis points and adjusted EBITDA margin.

Our margin in the quarter was 46.4%, implying a strong flow through of about 50%.

I see proof of our cost vigilant everyday and our spend on things like third party services and overtime.

And while certain costs will return with volume the team has gone above and beyond to run a lean ship.

Turning to Capex, we're now guiding to a range of $800 million to $900 million for 2020.

This is significantly lower than the $2.1 billion gross capex, we spent last year.

Our primary focus this year is to serve customers with the fleet that we already know.

Well, we do make selective investments targeted to specific opportunities.

And that's a result of this cost and capital discipline, our free cash flow generation in the quarter was a very strong $817 million.

This is a year over year increase of almost 300%.

I'm, particularly pleased we achieved these numbers.

Now compromising our capacity for the future.

This means no branch closures no kobin related layoffs.

We thought long and hard about this playbook for years and it came together quickly in March.

We're taking a measured response it serves the near and long term interest of the company.

Just a lot more to say about the financial impact to the work streams, but I wanted you to understand just how well our field organization is rising it's a challenge.

And it was a huge ask of them to provide essential services during such a difficult time.

They're doing a great job.

Not only that the team embrace the health and safety protocols that are Kogan plan, but they did it shapely with another recordable rate below one.

Well work streams also gives you a bird's eye view of how we're maintaining our competitive advantages.

In short, we're managing the business in a way that leverages our value proposition.

Customer see us as a business partner capable of delivering value across all of their needs and under all conditions. Throughout this pandemic, we've been determined to meet this expectation and I'm happy to say we're succeeding.

Now a few comments on the operating environment.

It's certainly been a turbulent few months industrial activity has deteriorated more than construction and that's not surprising given the domino effect of cold on different parts of the industrial economy.

For example, as people stayed at home the decline in demand for gasoline and jet fuel significantly impacted our petrochem customers.

And on the construction site Nonres is a very broad category that covers a lot of different market dynamics in some of the verticals or stay busy throughout the pandemic.

Power and data center belts, and others, obviously more challenge like retail hospitality.

Now what state reopening we see the same covert news you do about areas that are struggling to avoid spikes in the infection rates.

So far.

At any additional impact our business.

Our focus is on monitoring market conditions that could be triggered by infection rates like state provincial construction restrictions. So we'll continue to keep a close eye on.

We're also seeing demand continue for specialty segment, which is holding up very well our strategic investments in specialty or making helpful contributions to the segment revenue this year.

Another positive has been the strength of the used equipment market.

So far retail demand has remained solid we view this as a leading indicator meaning contract as expected need equipment for their upcoming projects.

And we've been able to leverage that demand to recover more than half of our original investment on equipment. So for seven years old.

Big picture, we know that our end markets will recover at different speeds in different areas.

Fluctuations like this allow us to leverage our strength of flexibility diversification and scale.

We have a deeply to fungible assets that we can shift between construction and industrial sectors and across geographies and verticals.

Even in this environment, our flexibility helps to mitigate the pressure on revenue.

We could also pivot to new opportunities that may arise from cold.

For example, the idea of repurchasing large commercial properties has been floated by some construction analysts this could create some incremental demands in the construction space.

So that gives you some color our customers are still working their way out of the title.

And it's our job to be the partner that helps and get there.

And what we're hearing from our customers is that they have the same feeling we do about 2020.

Reasonable near term visibility with current work and backlogs and less visibility in late 2021.

In the meantime, we're on course with our plan and making good progress.

All things considered we delivered a strong second quarter with solid fundamentals for profitability.

The things that we told you we could control we did control.

And we move fast and a very volatile environment.

The guidance, we provided reflects our best estimates on what we can achieve barring some significant change to the operating environment.

Well the ranges are a bit broader than we typically provide at mid year, but that's the reality of the times we're operating in.

And under any scenario, we expect to generate significant free cash flow this year.

And if the economic impacts co with linger on we have additional flexibility and we can leverage in our business model to remain resilient.

I'll wrap up with something I talked about last quarter. When I stated that the value. We preserve now will be the foundation for the value we create in the future.

A big part of that value is our commitment to being first call for customers under all market conditions.

We've been putting our best efforts and delivering on that commitment.

Q2 results show that our best efforts.

And our business model on more than up to the task.

Not only we preserving value we're doing it strategically in ways that will drive returns today and in the future.

Now with that I'll hand, the call over to Jeff to cover the numbers Jeff.

Thanks, Matt and good morning, everyone.

Ill cover the highlights for the second quarter, which were of course significantly impacted by Kozik 19.

Ill share an update to our debt structure and finish with some comments on our 2020 guided before we move to Q and there's a lot the copper so lets jump in.

That's a revenue for the second quarter was 1.64 billion, which is down 318 million or 16.2% year over year.

Within rental revenue or we are decreased 264 million or 15.8%.

In that fleet productivity was down 13.6% or 226 million, primarily reflecting the decline in volume we experienced during the quarter due to the pandemic.

Inflation of about one of the half percent cost us another 26 million and 8.7% drop in the average size of the fleet was a $12 million headwind to revenue.

Rounding out the decline in rental revenues for the quarter was 46 million in lower ancillary revenues and 8 million in lower Rerent, which together were up 40 basis point headwind to revenue.

Let's move to use sales.

Sales revenue was down 10.7% or 21 million year over year, which is almost entirely due to less than used fleet sold to Oems in trade packages.

Retail used market remained quite strong we see sold at retail was up 17% year over year. Despite a slow start at the beginning of the quarter.

Used margins in the quarter were healthy as well adjusted gross margin on new sales with 46% al while that's down from 49.2% in Q2 last year, it's up 30 basis points sequentially from Q1.

Retail pricing was down about 6% off last year's peak, but consistent with what we saw in the first quarter. This year.

Finally proceeds as a percentage of or we see where a robust 54% and that's obviously so that was on average over seven years old.

Taking a look at EBITDA adjusted EBITDA for the quarter was 899 million down 174 million or 16.2% year over year.

The bridge on the dollar change.

The impact of rental was a drag of 197 million.

Well, we are with the headwind of $179 million ancillary and we run down the combined $18 million.

You still impact on EBITDA was a headwind of 16 million.

Year over year SGN, a was better 48 million with the majority of that benefit coming from lower discretionary costs, including teeny.

Lesser extent, we also had lower commissions and bonus accruals versus Q2 last year.

Our adjusted EBITDA margin will highlight in the quarter coming in at 46.4%, a while back down 50 basis points year over year, our margin clearly reflected our commitment to aggressively manage costs, particularly in the early part of the second quarter. When volumes were most depressed and restrictions were still on it.

Correct.

Our focus on cost is also evident in adjusted EBITDA flow through a 50%.

The second quarter, we continue to action reduced overtime.

In house to reduce the use of third parties and canceled or delayed discretionary spend mostly in gionee.

The second quarter flowed through benefited from the flexibility we have in our business model to respond quickly on cost.

Cost control remains a major focus for us, especially for discretionary spending but a good portion of our costs will continue to flex with volume for example spend on delivering it necessary as volume increases through the season, and we need to reposition fleet to service our customers and those expectations are included in our guidance.

Back to the second quarter results and adjusted EPS, which was $3.68 and includes 30 cents a benefit from discrete tax items.

That compares with $4 in 74 cents in Q2 last year and the year over year decline is primarily due to lower net income lower revenue in Q2 this year.

Let's move to Capex.

Year to date through the end of Q2, we brought in 353 million in gross rental capex, while proceeds from sales of used equipment had been $384 million, resulting in negative net capex 31 million.

Together these results reflect our continuing focus on capital discipline.

Turning to free cash flow another highlight for the ended the quarter.

We generated over 1.4 billion in the first half of the year, an increase of $643 million.

Our ROI remains strong coming in at 9.6% for the second quarter as that continues to meaningfully exceed our weighted average cost of capital, which continues to run south of 8%.

Year over year Lake was down 120 basis points due in large part to the decline in revenue this year.

Looking at the balance sheet and our capital structure.

Our balance sheet continues to be a strongest it's ever been.

Net debt at June 30 was 10.3 billion, which is down 1.3 billion a year over year and down 800 million quarter over quarter.

Leverage at June 30 was just under 2.5 times, which is flat sequentially and down three tenths of a churn versus the second quarter of 2019.

Our current 500 million dollar share repurchase program, it's still on pause.

A reminder, we had purchased $257 million of stock on that program before we plaza in March.

Liquidity remains extremely strong.

We finished the second quarter with over $3.8 billion in total liquidity.

That's made up of ABL capacity of just over 3.6 billion and availability on our eight our facility of 56 million.

We also had $127 million in cash.

Yesterday, we announced we will redeem our 800 million dollar 5.5% senior note do 2025.

Our decision to do so includes our views of continuing strength in liquidity, given our expectations of free cash flow for the year, which is reflected in our guidance.

And speaking of our guidance I'll close with a few comments.

Of course, no one knows the ultimate impact from the pandemic on 2020 or beyond.

Continue to run numerous scenarios each with varying levels of revenue expectations and related actions to arrive at adjusted EBITDA, taking into consideration the six months behind us and the visibility we have to the rest of the year.

Our guidance represents what we think of as are most likely range of possibilities.

And to be clear this guidance does not contemplate a shutdown of the economy like we experienced earlier in the year.

Our capex guidance has been refined as we balance our fleet mix in response to customer demand and continue to focus on fleet productivity and better flea absorption.

Finally, and notably our free cash flow update is a clear indicator of the strength and resiliency of our business model as we plan to generate over $2 billion in free cash flow this year paying down debt with the vast majority of it.

And with that let's move onto your question Jonathan would you. Please open the line.

Certainly ladies and gentlemen, if you do have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and you'd like to move yourself from the Q. Please press the pound key.

First question comes the line David Raso from Evercore ISI Your question. Please.

Hi, Good morning, Jess you just mentioned the outlook the potential ranges does not include a shutdown of the entire economy, but can you help us lease on the lower end.

Kind of how you're thinking about some of the key states the Florida is a Texas.

Southern California, a are you seeing any reaction negatively by customers for projects equipment demand related to the uptick in the virus and again sort of what's baked into the low end of the ranges we have a sense of if there's any kept cushion at all.

On the virus or is it just pure assuming no no virus impact the rest of the year.

Sure David This is Matt so.

First to answer your question about the states kind of tried to cover that in the script, where we're seeing all the spike up specifically and and four or five pretty large states and large for us as well when we went back to look at the data it's not impacting our business at this point, so what would would be would be closures construction restrictions.

That hasnt manifested similar to what happened early on in Boston area, The New York area and the Bay area, where the most specific ones back in the beginning so we're not seeing that what's embedded in our guidance is more of a normal seasonal bill that we would expect although we're not going to well plan on backfilling. The gap that was created.

Coven in the beginning of the end of the first quarter in the beginning of the second quarter. We do we do expect to see normal seasonal bill.

As far as question.

The fourth quarter is a little bit less clear today than what we see in Q3, we think the backlogs in the work is ongoing and Q3.

It is much more predictable from our perspective, and then where we fall within that range that we gave really depends on.

Do we get any acceleration or deceleration of the demand in Q4, and that's how we're thinking about it none of it comprehend.

All five of those states you want to major shutdown right I don't that's not really the way we ran about nor do we think thats going to happen I think that.

People have been pretty obvious their intent to continue to make sure the drive the economy and Thats kind of how we're planning and how we how we guided.

Any change in tone on this coming year, you have some visibility to the following year with larger projects.

Have you heard any talk.

Customers about 21, or even just suspect and where you're.

The size of book backlog is today.

Last year for 20.

So what you're thinking about the macro data that everybody looks at that we look at as well you could see that incrementally some of the negatives got less negative if you want to pick about that as a positive momentum whether its backlogs of.

The ABCD can contracted backlog is down about it it's up to about eight months now right Abdel Abby I, rather it's not quite as bad as it was still doesn't that broke so I'd call those indicators.

Now turn off the bottom, but I wouldn't call the positive yet and I think even oral customer carpets index improve sequentially, but still lots and levels of what we'd expect and I think it's because lack of visibility that we talked about is just it's just not there right now for people to get comfort the experience of being better today than we were in April has given us.

Everybody somewhat confidence, but just not enough to predict 21 yet.

And last question, obviously, just mathematically if you get back onto the normal seasonal trend, though from a lower level that April obviously got hit.

Time, you want to improve again until April might just the natural map of its Tom you would schools they say negative.

Well, yes, what about that normal seasonal so please open up for Capex question related.

Do you ever comment about the season I don't know please no. Please go ahead sorry there.

The thats the math I'm just curious when we think about cash flow and I know it's been it's been took was strong but.

For Capex next year, if I told you the seasonal trends just going to continue.

All right no no catch up but no no dip.

How should we just I know Jess isn't going to want to give a capex number for next year, yet, but but just when we get some sense of the spending below replacement this year, but if your background of seasonal pattern just to gauge of that the cash flow impact from Capex changes can you just give us a leased a framework to think about if we're back on seasonal pattern.

So it would it would really depend on two issues. How this exit rate of this year comes out right. So how do we do with the absorption of the fleet and how much this fleet productivity.

Improve.

Sequentially throughout throughout the balance of this year to give us our exit rate and then what does the demand looks like going forward.

If you thought that demand would return to 19 like level.

Thats, what you mean by normal seasonality than you can think about 19, capex I'm not sure that thats visibility that anybody or in anybody's calculus quite yet but.

But if we get if we get a vaccine if the world starts open it up people start traveling again, certainly that would be.

A thought that we'd be looking towards by the way early for us to even get close to thinking thinking definitively and by the end of the year, we'll try to get there to what our guide would be but the reality is we will really have to make those capex decisions until we start building in the spring of 21 is when we really expect spending.

All right. Thank you for the time I appreciate it.

Thanks.

Jonathan.

And our next question comes from the line of Joe O'dea from vertical research.

Hi, Good morning, everyone Hi, Joe.

First on the implied kind of back half of the year guide when we look at equipment rental revenue.

That was down 16% in the second quarter.

In the guide implies something similar in the back half for the year.

So even as you go through the second quarter and you see parts of the country that were shut down and coming back online.

But we don't see sequential improvement in the back half of the year on the decline rate.

Can you talk about what's gotten better and maybe what softened a little bit.

And then the degree to which it's just there's little visibility in Q4.

Yeah, I think your last comment hit out at the most Joe is that lack of visibility in Q4.

So when we think about our GAAP on a year over year perspective, we think it's going to crews slightly and that's that 15% versus 16% rent revenue decline in Q2, but we don't think thats going to compress right now.

That pipeline of demand.

Starts to increase it work if pent up demand for some work to get done or or people get through better for Q3 than we expected that will accelerate that but when we think about places that we just really don't see.

Changing for the better in the back half it would be first and foremost upstream we're not counting on upstream and I don't think I don't even pick the folks in that space are counting on improvement there.

Well, we think about the one big variable that we didnt expect in a normal recession that we are seeing in this pandemic is the petrochem right specifically the downstream business that just nobody needs a product. So people start travel and again that will be a pick up that's probably more of a 2021 event than a Q4 events. So these are the reasons why we think.

And then Nonresi will be choppy. So we think that this steady.

I want to anchor too much on the midpoint, but the steady about 15% down year over year would imply a standard seasonal build up the whole that was already created that's the way we're thinking about.

Got it.

And then on the replacement Capex fronts.

Pre coal that you were talking about roughly 1.9 billion and you are shrinking the fleet this year so.

It goes down a little bit.

But the question is cushion to continue aging the fleet. If you find yourself in sort of a protracted slow demand kind of environment. So can you talk about where you are on lead age where you're comfortable going how much cushion that gives you to continue buying at this kind of pace versus naveen.

Getting back to replacement.

Hey, Joe I'll I'll start on that one.

So.

It's on what we're seeing can going out to the ended the year.

We'll likely age the fleet somewhere between five and six months.

All right and so we've talked a lot with you guys them with investors about having at least a year of head room in our cat classes to be able to age out the fleet.

Down.

Cycles like this one and and not have any real discernible impact on increased arnab or have any urgent need to until replaced so as we even think forward into 2021, there are still in some opportunity and some headwind if we needed to age the fleet out a little bit more we could without any.

We will impact.

That's great not that we're trying to speak that into our future at anyway, Yes, yes, no not at all no.

I appreciate it thank you.

Thanks, guys.

Thank you. Our next question comes from the line make or break from Baird. Your question. Please.

Yes, Thanks for taking my question good morning that Jessica.

Yes.

I guess.

Going back to the Q1 call and I think at the time you provided some good insight on April you. My recollection is that you called out fleet on rent being down 15%.

And obviously you told us that.

Improvement here it was pretty significant you're up 14%.

From that level.

I'm trying to juxtapose that again, the 4% decline in the fleet in the quarter.

What I'm getting out here I'm trying to understand is you're getting to the third quarters here.

Where are you on a year over year basis in terms of fleet on rent and what is the implication here for the productivity metric.

Sure. So we don't give that fleet on rent number, but you see where we're guiding to when we when we talked about 15% that were down in Q1.

Now what you're seeing is just the normal seasonal build.

Off of that so even though were sequentially ended after Q1 sequentially saw improvement you have to think about the fleet productivity as measured in that year over year gap.

And we don't talk about the individual components, but we certainly shared color that coming into the year. We thought our biggest opportunity was absorption you can imagine that was exacerbated by copel. So as we continue to.

Manage the denominator that calculation, we are expecting to see sequential improvement, but we're not expecting to see positive fleet productivity. Unfortunately until we get passed these comps probably in the in the Q2 to second half of 21, and we'll continue to depending on what kind.

Demand environment, or Ed manage that inflow right, well managed denominator as well as enumerate or depending on what what demand sets. So that's the way we're looking at it and that's that's how we're going to focus on driving higher fleet productivity.

I I appreciate that thank you and I guess my my follow up.

Maybe trying to get a little bit of color from your perspective in terms of how this downturn compares to some of the prior ones that you've seen.

Obviously youre your cost flexibility has been has been evident but I'm more thinking from that standpoint of competitive dynamics in the industry the way you're seeing customers react and.

Frankly, maybe some opportunities that you think or the industry coming out of.

Thank you.

Sure. So this was certainly in the in the handful of downturns I've seen in my now my Thirtyth here in this business. This was unique like anybody I didn't listen the Spanish flu right. So this is this is a very very unique.

Creation of this.

Dislocation and it made us move really fascinate, our customers move really fast. So it went from almost panic. When you really think about it out there to now people starting to feel a little bit better, but still very cautious. So that's how people are managing their business as well I mean, when you see that flow through that we had Q2 it was part of that.

Things immediately shutdown, so that gave us a bit about a cost advantage and it was I think you saw that in a lot of businesses now people are starting to think about what the future brings some other things that we're learning at a postcode environment are what end markets are going to do better I mean believe it or not it's hard to see an art within our numbers, but even within our current.

Fleet productivity, we actually have some asset classes that are up year over year.

And it's so hard to imagine, but that's about shifting to where the opportunities are and that's always what our business model it's been about.

That flexibility at Fungibility of our assets. So that we can move them to where we need to moving too. So that's the way we're moving im sure. Many customers are doing the same customers are going to need to find different ways to drive revenue different ways to create value for their clients and we'll continue to do that we also think.

Technology and Shacey are both going do.

They were important already picked they're going to be more top of mind in our spacing for our customers and we think thats inherent to the large players that have the scale to invest in some of these and we'll continue to use out of the future postcode opportunity as well.

Just to clarify are you seeing better industry discipline around a both we and color pricing.

Yeah, I think you'll hear it right. So many of the Oems reporting this week as well I think you'll see and you already have seen what their needs to do to react too.

Our rental industry is very positive reaction of shutting off the capex ticket as obviously, you're seeing it not just play through when those report that you're seeing it play through in the Oems.

Production or lack thereof, so we think thats the right way to manage through this and I'm very pleased with the data that we see the industry remains disciplined.

Thank you good luck.

Thank you.

Thank you. Our next question comes from the line, though Rob Wertheimer from newly this research your question. Please.

Hey, good morning, everybody.

Right.

So you're downside.

Volatility to earnings has been less than some of the rest of the group.

And I think that probably speaks more to natural variability in the cost structure than it does any any strong one off actions you took so could you just kind of outline whether its reruns or outside hall or one of the kind of the improvements that allowed cost to flex down. So abruptly I don't think you did a bunch of big salary cuts or layoffs or closures and then I suppose some of those things are still in reserve.

Dick as the economy does get a whole lot worse, but can you just sort of talk about that that variable the cost structure. Thanks.

Sure Hey, Rob as Jeff.

So yes his team did a great job in managing through the second quarter.

The some of the cost that we've called out has been.

Good on reducing overtime, right and really focusing on the capacity that we have.

How by insourcing delivery and repair and maintenance that in part had been outsource to third parties right, bringing that end use in our capacity and and saving whats premium costs by in using those third party services.

We've also as Matt mentioned.

Beginning the second quarter, especially as as we were all adjusting to restrictions in place we very quickly shut down our discretionary costs are you saw that in the SGN a year over year benefit that we called out this quarter, where any of course right. That's an easy one to kind of thanks.

As as both stop traveling immediately but also discretionary cost that we were able to cancel or delay as a result of.

Trying to keep only business critical needs in the cost structure.

Okay. Thank you and I wonder sometime if you ever quantify some of that some of the some of the outside hall and some of the other things being a little bit excuse you how big an impact each was but.

As competitive issues.

You have a lot of cash flow going through the company right now as you as you reduced fleet and so forth can you just give us the guys points on when you might.

You know what.

What do you intend to do with that as the or progressed as if nothing really dramatically bad happens in the economy.

You'll have a lot of cash to do something.

What drives the decisions there. Thank you all stuff.

Sure No great question. Thank you.

Yes, our focus right now is to use that free cash flow to pay down debt.

Right.

We're not out of the woods, yet as far as the could impact and liquidity is going to continue to be a major focus for us. So we'll use that excess free cash flow.

To pay down debt.

And well it happened just kind of in the normal course, right as we do our 2021 plan and we look at the kind of cash that we expect to generate next year as well well have that conversation with our board and make a decision as to whether or not we want to use some of the excess cash to finish share repurchase program for example, but but right now it's steady on.

On continuing to reduce leverage and take out the debt.

Thanks, guys.

Sure. Thanks, Rob.

Thank you. Our next question comes in the line of Seth Weber from RBC capital markets. Your question. Please.

Hi, good morning, everybody.

Hey, Jeff I just wanted to follow up on Rob's question, you know I know, it's you guys always discouraged kind of using the midpoint anchors for for the guidance for the Decrementals, but.

Just kind of going back to the cost discussion I mean, your your second half decremental does.

Guidance does suggest the decrementals are worse than or higher than what they were in the second quarter. So can you just kind of walk through a little bit more detail like what what's coming back on I know there is variable.

Commissions and things like that but is there anything else. So we should be thinking about there. Thanks.

Thanks Seth.

Yes, I think the first thing that I would do we'll probably get in to some detail is.

Is that caution on the midpoint I mean, we're really thinking about this guidance as a range of possibilities and so probably is for me to frame that in terms of flow through for the back half right where it.

Where we land is really going to depend on how revenues that's up first and foremost.

And then if you think about it from a cost perspective.

As I mentioned in my prepared remarks, there may be some variable cost they come back into the business as we.

The flex with the volume MISO, even just think of the seasonal trend as we work out to the October peak you may have we may see some additional delivery cost right and repositioning even overtime right, where we normally will use over time to flex for labor needs instead of bringing in full time head. So we could see some of.

That come back and depending on how the volume trends.

Discretionary costs were going to continue to keep a tight handle on.

But we could see a situation where if thing you'll start to open up we do start to have folks.

Thanks, and see any meeting with customers right some of those costs to come back into the business as well, yes moderate a little higher than the way, we were able to pull back on them in the second quarter.

Okay.

Structurally is like a 60% numbered the right way to think about Decrementals give me just in general for crude United.

Yes.

It is to give a number because again for us it's extremely fluid based on the way that the.

Third quarter, and really the fourth quarter, right, where it where we have a little less visibility plays out.

So I'll, let can do the math on what do you think is the right number how's that.

Okay and then just.

Really could you just you know the specialty business continues to perform really well can you just talked about cold starts there.

How you're thinking about allocating capital to the specialty but most banks.

Sure Seth we you're right we continue to be very pleased and even with lower revenue specialty did a good job.

Of driving even increased margins based on some of the in sourcing getting rid of third party services in really good team effort across across the board. So we'll continue to invest in those we've done about 10 cold starts year to date and we plan on doing another five in the back half of the year. So we're we're still landed into specialty.

We'll continue to put capital in there and our power segment. At for example is one of the reasons that actually is up year over year. So there is there are opportunities during covert that we'll continue to fund.

Okay. Thank you very much guys specific.

Thanks.

Thank you. Our next question comes on the line of Steven Fisher from you'd be US your question. Please.

Thanks, Good morning, just to follow up on the other cost question.

Again, it sounds like for the most part.

The efforts have really been focused on the third party services.

And over time, and you're just saying that some of the variable costs might come back in but let's say.

You want it to look for the next area of costs to actually take out if things were to be a little bit softer in the demand side.

What are those next areas of costs that you would you would look to tackle I think Matt you said in your prepared remarks are there haven't been any could lay offs yet.

Is that where we would go would you start looking at actual kind of.

Whole branch closures, how would you think about the hierarchy of where we go in the cost structure to take the next round out.

Sure, Steve and this is something that weve.

What about Latin are very intentional about how we responded so far so let me just talk about will forget about the numerical values I think we've covered that strategically coming out of onein.

And have an experience that downturn and what we did and had to do and what I would want to do differently, what we'd want to do differently. We built a strategy to make sure. We didn't have to do a couple of things number one.

We didnt want to unnecessarily takeout or damage our capacity to get ready when we got through the other side and that so weve structurally work towards that during this pandemic, which is why we're very pleased that we used in sourcing to keep our labor force busy as opposed to layoffs and that was very intentional in it and you could see from the flow through that work.

When we think about store closures, we intentionally did not want to go there now we wet this into a full recession 2009 type recession, which I don't think anybody's predicting right now, but if it happens we had that playbook, we know what to do but there's a couple of things that we're going to limit we're not going to fire sale equipment, we don't need to we have great liquidity strong balance sheet.

Maturities out to what yes, 2025 spot right. So we don't have that anvil hanging over us. So we don't need to five sell equipment, and we don't need to make rash decisions to.

Make sure we make payroll I will have liquidity issues. So this balance sheets allows us to react a little bit differently, well still protect margins I think we just crews that but we're not going to damage the business long term, but there is more flexibility to make sure we remain resilient and we'll utilize.

Okay. Thats helpful. Then maybe on the flip side than that and just curious how you think about potentially going on often.

Industry leader when you go through downturn might expect but you should be able to gain some share. When do you think is the right time too.

I will start being more active in in trying to gain some share and.

Where would you look to do it and then how would you go about it.

So that's something that were we talk about actively rikers theres that balance sheet can be used defensively and it can be used office when we want to make sure we view the defensively and appropriately so and we are turning our mind. The offense. So when we think about where are these other opportunities. Some some could ask why do you guys spend at another.

The midpoint about $500 million capex, because it is offensive opportunities, there's products and end markets and verticals that we're still got a support and that's the way we're looking at it and as more post covert opportunities arise. We will use that balance sheet will will use our scale of our leverage to make sure that we.

Can play small.

So I can just add one thing the flexibility that we have is also something that will lead into as opportunity presents itself.

We can lead into a recovery and into the market right. So we'll be ready to spend when we need to based on being able to flex that model as necessary.

Great. Thank you.

Thanks, Steve.

Thank you aren't next question comes from the line Jerry Revich from Goldman Sachs. Your question. Please.

Hi, good morning, everyone.

You folks have been on on a continual journey to improve the logistics.

Seeing some of that with the in sourcing here Im wondering based on your experience.

Going through this environment isn't an opportunity to.

The other side a bit higher.

Fleet availability.

The.

An opportunity through touch was pickups and all recovering standard processes in place can we come out of those.

Higher fleet available across your business.

Thanks, Jerry for the question absolutely. So I had a note from a customer early on during October when we created this touchless system that they they sent a nice very nice note. Thank enough that they had the best rental experienced setter they pull their truck up.

Everything we saw digitally about ordering the equipment and confirmation and when they pulled up we hope to trailer up had a skid steer behind it and they went off this way said it was the fastest most painless transaction has ever had no rental business. So there you go necessity is the mother of invention once again and we'll continue to.

Take those learnings and when we when we think about.

Our labor head count models, and one thing one of the ways that we did retain our labor as we talked about earlier was in source or we get to the flex upside in a more stable environment not necessarily back. After this year I don't think adding heads right now makes sense, but maybe having morehead and eliminating some of the more expensive.

Variable cost, we have like overtime like outsourcing logistics.

When we when we meet capacity our some of the things that will be investigating to make sure that we can continue to drive efficiency in our model.

And then from an end market standpoint.

A lot of folks from Twod are concerned about non resin to make sure fruit for good reason, but on the flip side.

A lot of your industrial markets are really the only early stages of recovery. Today can you just talk about your fleet on rent for some of your industrial verticals I know, you're not going to want to provide to Tom's was from city, but just the broadridge color on where we are in the restart and fleet on rent to those deployments where it would be helpful.

So all I won't give you the fleet on rent Thats, but I will share with you and as I did my prepared remarks, Petrochem industry is really chow, yeah that market for us down 35%. That's a big portion of what we've had to endure and post cobot you could look at both sides of that you could look at as the World Open stack up that's one of the opportunity.

That is to get back to normal type volumes. So we think thats happened opportunity for us.

Upstream overall, if you take that out if you take out petrochemical show a little more like construction overall right not really a big deal, but when you look at data centers.

However, as a segment infrastructure.

There are opportunities that we can lean into and whether we.

Add additional products to the metrics, we've been doing or whether we just enhance some of the offerings that we already have to make sure we're being up a one stop shop solution for all these end markets. That's really how were how we're looking going forward and can.

I think I think the industrial markets will recover at the same pace and maybe even a little faster because of the petrochem drop once we get on the other side of code.

And Matt in your prepared remarks, you said you're monitoring quarter buyers.

Here, but you haven't seen any impact so far so is it fair to say that the fleet on rent momentum has continued into July but by those comments is or concerns by one of your suppliers put up today, but.

It was some slowdown in parts of the country in July and getting fleet backup rent.

Because of program due to just comment on that please.

I want to and what I referred to so we are seeing the seasonal build what I referred to specifically is.

Because we went look you're saying Wow look at these spikes and in these states that we all see all over the new So we went and looked at those state our volume and seller fixed exports and we're not seeing so that that is not showing a correlation so our fleet on rent our revenues are our activity in those states that would match a negative correlation.

To the infection rates and that's really what we.

We'll keep an eye on tibbets as always we'll let everybody know, but where we actually haven't seen that night I think thats commitment a lot of these communities that they got to keep running right. The world's got to keep people. So we'll continue to see that the seasonal bill.

That's what our guidance implies.

And that's a common through July just for clarification.

Yes.

Thank you.

[music].

Thank you. Our next question comes from the line of Rust clarity from Bank of America. Your question. Please.

Hi, good morning, guys.

Yes.

I just had a question on on specialty I mean, you had.

Strong margin performance 80 basis point increase the revenue was down 11%.

And I always hard to know if this is all apples to apples, but it just feels like some of your competitors are posting stronger growth in what they label as a specialty rental businesses.

Just wondering are you seeing increased competition and any those specialty markets, particularly in areas like climate control parts of power Gen, which have been very very hot market as has the core general rental markets are are depressed.

Yes, no wait we aren't seeing.

Competitive change in the landscape and you hit on the right. One power has been growing for us and I'm sure others have been growing it's it's part of an emergency response, when you think about all the temporary.

Whether its shelters businesses people, putting tense out in their parking lots. So that they can feed people outdoors right theres theres, so much opportunity up for power to grow so we've been seeing that growth as well, but I don't think we're losing share there in any way shape or form we're pleased with what we're doing there as far as specialty of some of our competitors.

We all.

Different companies categorize it differently for us how we look at our specialty business its products that have more of a unique fully embedded.

Engineered solutions, so to speak retro, it's not just dropping off a generator. It's cable laying is putting stepped down transformers is making sure we're creating a solution and that's how we looked at our specialty and.

I will comment on others, it's just I understand or some products that are and other specialties that are not in March so.

We're not seeing any change in a competitive dynamic there.

So then Matt can you just talked little bit more about why your revenues down 11% then.

And I suspect some of its in the fluid solutions business I'd be I'd be curious what kind of growth you're seeing.

Next we would solution, which was trench up.

Quarter or did it behaves more like.

Gen ran.

Type business at least in terms of demand trajectory. Thanks.

Sure thing, we don't we don't originally get down to breaking all those segments down, but you're hitting on the head here right to think about pumps and tanks and how much in the petrochem space.

We are penetrated with those products and work even with the Baker acquisition right. So there certainly fairing worse more in line with how our Gen rent areas are faring in those marketplaces, so that would be a drag on the overall specialty growth trends just slightly better than the average, but not a positive we're calling out power because power is unique I don't think people would think.

Hey business unit would be positive. So power are reliable onsite business, although small is seeing positives as well, but I think you that had the.

Fluid certainly is having challenges.

As we are going through cobot here, that's a big part of what's driving the negative growth.

Got it okay. Thank you.

Thanks, Rob.

Thank you. Our next question comes from the line.

That is from Morgan Stanley Your question. Please.

Hi, good morning, guys.

Hey, good morning.

Just curious you guys have kind of during the upturn talked a lot about the outsourcing that you did and that was kind of.

Pressuring margins can you just quantify maybe how much of your repair and maintenance was without for kind of help us understand how much the opportunity is.

And you know kind of.

At what point would you have to start outsourced and again as as sales to recover and then maybe just your same quantification on overtime how much over time as you added over the past couple of years and when would we expect to see that increase.

So I don't have the numbers handy for the past couple of years, but when you think about what Jeff so to speak in earlier about.

What's inferred in the flow through the midpoint of our second half guidance, you'll see some of the coffee you'll see the magnitude of some of what I'll start creeping in with whether its overtime, which were leaning more towards overtime you want to keep our people busy first and thats been a big big part of our forward response.

Then maybe some logistics of third party as for third party repairs were not expecting a lot of that some of that was for stuff that was really beat up out of the oilfield last year stuff that needed major repairs and we were already utilizing our capacity. So we outsourced it and that is always an opportunity in area to flash.

I think in its poke one of the post coven learnings as I talked about earlier, maybe we will in source more going forward and a more stable environment. So I don't have a numbers for you on what that historical trend is.

But it's certainly an opportunity for us going forward.

Okay got it and I just last quarter, you had talked about 1.5 billion.

Tim Brandt that'd come offline it sounds like Theres been a seasonal build of about a billion to about 500 million that's still.

At that whole you were talking about.

And you've also been kind of characterizing it as.

Very typical seasonal build thats been happening offer backhaul to can you just help us understand that whole all petrochem and the retail in hospitality and special events and those projects chip.

Ever came back online or is it John.

Just the seasonal belt.

You know that that you are seeing those projects come back online and its typical but thoughtful or basis, just trying to understand what if there have been projects I just kind of in permanently delay that you just don't seem to come back.

Sorry, not with the comments obviously propelled.

You hit on the main point at the end of your statement there about the lower paying tried so it's really just off the lower base, but unlike what we've talked about for the past few years, we are seeing project delays and cancellations, but more delays for US right now with the lack of visibility we're just counting on the delays as.

They're not there until they come back and it's very spotty just thinking about the major airports last year were traveling around back when we were traveling if all work at just about any major airports that you flew into on behalf of those are continuing on and then haffar quote unquote paused or delayed and when those and what would create.

Those coming back is something that will be part of the recovery, but we don't have the visibility for that right now and it's really not even by geography right here in the New York Metropolitan area, you have Laguardia, that's going full steam ahead, yet JFK, that's that slowed down and delayed many phases of that project. So we see this future opportunity, but the difference between now and.

What we've talked about for the past.

Well quarters is we are seeing project delays and and we do believe we'll continue to have a seasonal build off this lower base, but those would all let's come back online for us to raise that basin to start to fill that gap.

Okay. Thank you.

Thank you thanks.

Thank you. Our next question comes from the line.

Even Ramsey from Thompson Research your question. Please.

Everyone.

To do a little deeper on delays versus cancellation.

Our due to delays happening more on the side of projects that are going are going to go slower going forward or is it projects that you expected to start are now being pushed out and then on the cancellation, even though there you're not seeing many of them is there a trend and what types of projects are being canceled.

Yes, so as far as the cancellations and just to clarify.

There's not as many cancellations or they are delayed but in our mind with the uncertainty going on right now we're going to treat the fairly similar.

I got the cancellation could be brought back up as well. So just think about the industries that have been most challenged to covert certainly anything petrochem related has been shell delayed whatever term you want to use.

Travel right. It's just it's two different thoughts there there are some airport to the saying we don't have a lot of activity right now ethylene it and there are others that are delaying I would imagine that has to do with their funding and there and their confidence going forward on how much volume they will do in those locations. When you think about entertainment stadium.

Those types of jobs as you can imagine little bit of uncertainty or what the future is going to look like so some of those are being shelf. So.

Then certainly anything in hospitality rise travel and hospitality, we're seeing a lot of it. So just think about the industries that are more uncertain and others then you're seeing other things even power built I talked about earlier power segments growing for us whether its standard power alternative power when you think about data centers.

Those are growing that's a growing opportunity and then for those a live here in the northeast as I travel around the northeast here by car.

I see wrote worth everywhere. So we expect infrastructure to continue to gain momentum. That's one of the values are less traffic is people can get this worked up more efficiently. So those are some of the puts and takes that we're seeing that and.

That really inform how we view the balance of this year.

Great and then just be curious to your perspective on how secular shift to rental generally accelerates during challenged markets does the secular shift.

Essentially comes from this current downturn does it look different does it look better with your greater specialty equipment asset base.

Absolutely I think really for the industry broad based offering of which were leading and penetration overall, there and all the downturn in my career people that had to turn to rental when they previously weren't looking at it as they're there.

Number one priority in channel.

Very rarely almost never go away I think once they get to what they realize we can they can rely on us at the product will be there. It will have the right equipment at the right time. So we do expect secular penetration on the other side of this and I think it'll be broader to your point, because we have a broader offering so I think it'll be across the board specialty new products in general that people weren't rent.

I think before.

I think it'll be a good good thing for the industry overall.

Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. plenary for any further remarks.

Thanks, operator.

I appreciate the conversation today. This is certainly turning out to be an interesting year to say the lease and as always we'll keep you updated as things evolve in the meantime, our Q2 investor deck is available online and as always Ted's available to answer your questions with that.

Please everyone stay safe and operator, you can now in the call.

Thank you in thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.