Q2 2021 Herc Holdings Inc Earnings Call
Good day and welcome to the Herrick Holdings second quarter 2021, and earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be the opportunity to ask questions to ask the question you May Press Star then 1. Please note. This event is being recorded.
I'd now like to turn the conference over to Elizabeth Higashi, Vice President of Investor Relations. Please go ahead.
Thank you Carl and thank you all for joining US this morning, and welcome everyone to our second quarter 2021 earnings Conference call earlier today, our press release presentation slides and 10-Q were filed with the SEC and.
Are all posted on our IR website at IR, Dr. Curt rental dot com.
This morning, I'm joined by Larry Silber, President and Chief Executive Officer, Aaron Birnbaum, Senior Vice President and Chief operating Officer, and Mark <unk> Senior Vice President and Chief Financial Officer will review, the second quarter, our view of the industry and the strategic outlook and <unk>.
Paired remarks will be followed by an open the Q&A.
Before I turn the call over to Larry There are a few items I'd like to cover for.
First today's conference call will include forward looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.
The caution you that are and these are actual results could differ materially from net forward looking statements made on this call.
Refer to slide 3 of the presentation for our complete safe Harbor statement as well as the risk factors section of our annual report on form 10-K for the year ended December 31 and 2020.
In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.
Reconciliations for these non-GAAP measures to the closest GAAP equivalents can be found and the conference commentary.
Finally, a replay of this call can be accessed via dial and arterial web cast on our website replay instructions were included in our earnings release. This morning, we have not given permission for any other recording of this call and do not approve of sanction and he just transcribing of the call I'll now turn the call over to Larry.
Thank you and the best and good morning, everyone. Our quarter results continued to demonstrate outstanding operational execution.
Our industry, leading great management delivered strong results and a favorable operating environment, which benefited from tight equipment supply and steady rental demand.
Given the current operating environment.
It gives me, we also decided to invest and additional fleet before the end of the year and have raised our 2021 net fleet capital expenditure guidance by $100 million to $500 million to $550 million our year to date momentum is expected to drive a year of record performance.
Given the indications for the rest of the year, we have raised full year adjusted EBITDA guidance for the second time this year to $840 million to $870 million now please turn to slide number 5.
We recently celebrated our fifth anniversary as a public company on July 1.
For the history of over 56 years, and the equipment rental and districts are 4800, plus member team works hard to ensure our customers achieve optimal performance safely and efficiently and effectively every day.
And our employees spoke of our vision and values and mission and our recently produced 50 year anniversary of video, which was posted on our corporate website.
Everything we do is built on our promise and commitment to help our customers and communities and build a brighter future.
And the fall on September 20th we are hosting and in person Investor meeting in New York City, we will be sending out more details closer to the event date, but please mark your calendars to attend either in the person or virtually now that we have successfully executed our first 5 years, we will be sharing with you. The next stages of our journey.
Of that event.
We integrated 6 branches via acquisitions and opened 3 greenfield locations and our network this year.
As of today, we are now operating 280 locations across the United States, and Canada, and 39 States and 5 Canadian provinces. We're excited about the momentum, we are generating and and developing our M&A pipeline.
Now please turn to slide number 6 for a brief overview of our second quarter financial results.
Given the unusual performance and 2020 and due to the impact of COVID-19, we share of comparison with not only 2020, but 2019.
As you can see our performance in 2021, clearly returned to a trajectory of growth over the last 2 years the.
Equipment rental revenue was $448 million and the second quarter and increase of 36, 8% or $124 million compared to the prior year and 9.9% over 2019.
This increase was driven by solid performance from our core business growing market share from our <unk> solutions business and investments for our entertainment business, which are now outpacing where pre pandemic performance and 2019.
Adjusted EBITDA grew by 39% over the prior year and 18, 8% over 2019, our focus on operating leverage improved year over year adjusted EBITDA margin of 170 basis points to 42, 3% and the second quarter of 2021.
We reported net income of $47.1 million or $1.55 per diluted share and the second quarter compared with $2 million or <unk> <unk>.
And per diluted share last year as you can see from our results. We are indeed off to a strong start in 2021 and this is an exciting time for teamwork and we look forward to breaking more records as the year progresses now please turn to slide number 7.
We recently published our 2021 corporate citizens the report.
Which aligns to the global reporting initiative standards for the first time located on our Investor Relations website, and we hope you find the additional transparency of interest.
We established 3 major goals for 'twenty, starting using 2019 as the base year first reducing our greenhouse gas emissions intensity by 20%, 25% second and reducing our non toxic waste to landfill by 25% and finally continuing to improve our sales.
For the annually with the target T. Our IR of <unk> for 9 or lower.
We intend to report annually on our progress and look forward to discussing our ESG program with you now for more about the details of our operations and the quarter, Here's our and Birnbaum, our chief operating officer earn thank you Larry our second quarter results reflect the exceptional professionalism and commitment of our entire of FERC rentals team.
The team deserves a huge thank you and congratulations for a job well done common coming off of really tough 2020, we greatly appreciate the contributions of each and every 1 of our team members and I would like to personally. Thank all of you. Congratulations team hurt now please turn to slide 9 our Q2 results showed exceptional performance compared to 2002.
'twenty, but also compared to the strong second quarter of 2019.
The business activity was solid and all of our end markets are showing positive momentum the strategic investments, we made the diversify our customer base and our industry verticals provided a solid foundation for growth as we successfully built upon our urban market strategy and deepened and widened our market segments throughout the North America.
And <unk> solutions business increased year over year by approximately 30% and the second quarter of 2021, as we continued to expand our market share our focus on the power generation climate control and remediation needs of our customers has contributed to the double digit annual revenue growth and pro solutions over the last for years and the second quarter average.
The attainment of business continued to benefit from the tailwind of demand for entertainment content and the investments. We made in 2020, our entertainment business was practically zero and last year's second quarter. So the returned to production activity contributed meaningfully to this year's results our entertainment strategy and operating leverage will continue to contribute.
The rental activity of this summer and fall for.
Particularly as the activity from live music and sporting events continues to recover.
Our core business showed the normal upturn of demand and the second quarter and we benefited from solid operating performance of our regional operations.
The integration of our acquisitions is on track and we are developing and M&A pipeline.
First the operating model continued to drive operational performance and fleet efficiencies and margin improvement offsetting increases and year over year personnel related costs and the quarter, our scale and leverage will support further margin improvement during the year as our revenue growth remains robust and now please turn to slide 10.
As a provider of essential services, our most important commitment and focus on health and safety.
We will continue to enhance the well being of our team by investing and training and operating a safe environment for our employees customers and communities. We have also implemented a new health and safety management system. This year, which will help contribute to our ability to work safely the new management system helps us improve the way we approach working safely by providing a solid.
And easy to understand the foundation of our system programs and processes. It also provides a methodology to correct any safety issues and streamlines, our external reviews and safety audits as you've heard us talk in the past on various safety initiatives 1 of our major of internal safety program focuses on the perfect days that is days with no osha.
Our recordable incidents no at fault motor vehicle accidents, and no dot violations and the second quarter on a branch by branch measurement of our branch operations achieved 98% of days is perfect.
We are always striving for 100% perfect days and our commitment to safety means continuous focus through communications and training. It also means deploying of team with the equipment that will help them perform efficiently and safely, particularly and theyre driving and daily equipment servicing and maintenance activities at all of our branches.
Our rental of these are best when Theyre done safely 7 days a week now.
Now please turn to slide 11, our.
And our fleet composition at OFC is on the left hand side of this slide total fleet was $3.76 billion as of the end of the second quarter about 3% higher than we see at the end of Q2.2020.
We continue to invest and our specialty fleet, which includes pro solutions and pro contractor and now accounts for about 24% of our total fleet as of the end of Q2.2021 on.
And on the right hand chart, you can see OCC fleet expenditures in Q2.2021.
$188 million.
And the increase from our second quarter, and 2020 fleet disposals were $71 million and the second quarter compared to the $83 million of OTC sold and last years comparable period.
Police Department has done a great job getting in front of what looks to be a tight supply market for new construction equipment from the Oems, we have added $100 million to our 2021 net fleet capex have not experienced any material increases and cost this year the.
The average age of our disposals was 86 months and second quarter equipment sales proceeds as a percentage of OCC returned to pre pandemic levels of approximately 41%, we benefited from tight supplies of equipment and higher pricing for used equipment as well as a higher percentage contribution of the total from retail and wholesale channel.
The disposal.
Now please turn to slide 12, our.
Our diverse customer mix with our base of large national customers operating and essential business sectors and our expanded specialty business continues to drive our sales strategy specialty continues to be the growth driver in Q2, our other verticals of major industrial customers and utilities, and energy healthcare and warehousing and manufacturing and general construct.
And of our gearing up and look to support growth and the upcoming quarter, where we experienced strong seasonal demand.
We are also focused on high growth segments of the economy, and our end markets of showing the momentum to generate a strong recovery in 2021, we expect to drive additional fleet efficiencies and operating a lean cost structure to continue margin expansion and I will pass the call onto Mark.
Thanks, Erin and good morning, everyone.
We continue to be really pleased with the outperformance and delivered another excellent quarter and Q2.
We took a positive handoff from Q1 and build momentum and volume and rate throughout Q2 the.
The seasonality of the business as such the Q3 is better than Q2, and almost all circumstances. So the positive momentum out of Q2 into the back half of 2021 sets us up for a record year and we've raised guidance for the sake of time this year.
We continue to expand our margins and our fleet utilization and we are executing on our strategy to provide excellent customer service and premium equipment to our customers throughout North America for both large and small projects.
As we continue to progress through the next day for the economic cycle, we of the capital available to accelerate growth and have a track record of utilizing operating leverage to accelerate profitability.
Slide 14 shows the summary of our second quarter results compared with 2020 and 2019.
The comps of 2020 are obviously impacted by a weak base quarter with Q2.2020 being the depth of the Covid economic shutdown.
I will refer to them occasionally, but the real comparison and the real measurement of asset sales in Q2 of 2021 and of the comparisons for the second quarter of 2019.
2019 was the peak of the last cycle and our previous record year and a decent comparisons. The fact that we are beating all of our Q2.2019 comps and Q2.2021 on the a couple of quarters away from Covid shutdowns speaks to the resilience of our business model and our ability to adapt and execute and all sorts of operating environment.
Sure.
Equipment rental revenue increased 36, 8% from 327.6.002 million $20 million to $448 million and the second quarter of 2021.
Primarily due to improved volume and continued momentum and pricing.
Compared with 2019 equipment rental revenue increased 9.9%.
We continued to deliver solid profitability with adjusted net income and the second quarter of 2021 of $47.6 million.
For $1.57 per diluted share.
With adjusted net income of 16 million for 55 cents per diluted share in 2019.
Adjusted EBITDA increased 39% and comparison to Q2.2020 and was up by 18, 8% and comparison to our previous cycle peak second quarter and 2019.
Adjusted EBITDA margins were also a record for the second quarter at 42, 3% and 2021, improving from 46% of 2020 and by 550 basis points from 36, 8% and 2019.
As we have previously discussed rolling over the low base effect of the cost side of the business and the Covid impacted quarters of 2020 was likely to impact our ability to maintain our historic flow through and would slow down our margin expansion.
Where EBITDA margins for Q2, 2021 remained strong at 44% down by 20 basis points from 2020, but up by 240 basis points from 41, 6% and 2019.
The flow through of 43, 4% was in line with our expectations and should return to our targeted range of 60% to 70% and 2022.
On slide 15, we highlight pricing and utilization trends by quarter.
The graph on the upper left illustrates our 2021 year over year pricing with the latest quarter, reflecting average rates up 190 basis points compared to last year.
We continue to be happy with their rate of execution and have decent momentum building for 2021.
The current market environment of tight equipment supplies and steady demand have supported our focus on rate and our team continues to deliver right lift. We believe we are leading the market as we continue to benefit from our excellent pricing tools and the discipline and professionalism of our sales team.
We've got momentum back into our pricing and you can see from our 2019 results. The performance, we can deliver and a favorable environment.
Dollar utilization was a post spin record 42, 1% and the second quarter of solid improvement of 410 basis points from pre pandemic 2019.
You can see from the chart that we have real momentum and dollar utilization and Q1 and Q2 and this positive momentum changes of fleet efficiency going forward and see its up a record year in terms of fleet utilization and returns.
Fleet size remains down year over year and in comparison to 2019, we.
We have about 2021 purchase is rolling in and should begin to see flow fleet growth and the third quarter.
<unk> 2020 rental volume was up by 19, 7% and rates were up by 1.9%.
Rental revenue grew 36, 8%. So we had a big contribution from mix of 12, 7% in the quarter.
Approximately 3 quarters of this mix change came from the entertainment business, which has a lot of bulk fleet assets as part of the rental mix.
And the risk came from improved fleet mix and customer mix, which are also improved from the depths of Covid shutdowns.
In addition, we go to 2.5% revenue growth from improved ancillary revenues.
This outsized contribution to revenue growth from mix will reduce and Q3 and Q4 as we rollover the risks of the Covid impacted quarters from 2020.
Please turn to slide 16.
Adjusted EBITDA for the second quarter was $207.7 million and.
And the increase of 39% to $58.3 million compared to $149.4.002 million 20, and an increase of 18, 8% compared with 2019.
And the keen focus on operating leverage and improved profits on the sale of rental equipment contributed to the improvement.
Adjusted EBITDA margin was a record for the second quarter of 42, 3% and increase of 170 basis points year over year.
The Boe increased $58.3 million compared with the second quarter of 2020, Inc.
Increases in personnel related expenses freight and delivery maintenance and re range costs related to higher volume were the primary contributors.
The cost comparisons of <unk>.
Mostly skewed by the cost controls in place during the Covid shutdowns, such as furloughs and overtime controls.
At 2021 day.
And we're at a more normal level for the volume of of the business. We are currently transacting and should run at a similar percentage of rental revenues and the next couple of quarters to what we ran and the back half of 2019.
Second quarter, SG&A expenses increased by $17.2 million and compete with 2020.
Primarily due to higher sales expense, including commissions and bonus incentives management stock incentives and travel expenses offset by lower bad debt related to improved collections.
Similarly to do <unk>.
SG&A comps to 2020 of skewed by Covid and back half of 19 percentages of rental revenues are a bit of way to think about how these costs will run out for the rest of 2021.
This chart highlights and increased from <unk>.
Chris the change to our margin profile over the last few years, we made big strides in terms of margin of 2020 during COVID-19 and of <unk>.
Holding on to those margins in 2021, despite the base of fee comparisons from the unusual level of cost controls in place last year.
On slide 17, we generated $141 million of free cash flow with net rental capex of $168 million and the first half.
We are guiding to 5 hundreds of $550 million of net fleet capex for the full year. So the second quarter is not fully reflective of the cash expenditures that we will incur and the student and the fourth quarters. When we pay for much of the fleet received in Q2.
Strong results from operations also contributed to the reduction of net leverage which decreased to 1.9 times as of June 32021, compared with $2.6 times a year ago.
We are now below our targeted net leverage range of 2 times to 3 times.
Total day. It was 1.5 billion as of June 32021, and reduction of about $114 million from December 31, and 2020.
We had total liquidity of over $1.5 billion as of June 32021 comprised primarily of availability on our ABL credit facility and cash and cash equivalents of 36.
The $6 million.
With no near term maturities, we have ample liquidity for 2021 and into the future and ample capital to invest and our business to support future fleet growth into the new cycle.
On slide 18, we share the latest industry forecast looking at the macro market forecasts theres not been a lot of change year to date.
<unk> is still forecasting the north American rental market to grow by only 4.1% and 2021 and does not forecast the returns of 2019 levels until 2023.
Our actual rental revenues are up year to date on 2020 by 18, 8% and our.
Year to date on 2019 by 8%.
Our growth rates and play we are either gaining share or the forecasts are off and I think it's likely to be a combination of the 2.
This is consistent with past experience rental companies of scale with broad rental fleets and a well diversified customer base of consistently growing classes and the rental industry in general and as we have seen in 2021.
The company of scale with a well diversified mix of customers.
We are clearly and the early stages of the Knicks construction up cycle with steady demand the even before we get into any potential benefit from any future boost to FERC infrastructure spending.
Equipment suppliers, the tight with our OEM struggling to manufacture and deliver new equipment due to worldwide supply chain bottlenecks.
This is a very favorable environments and $3.8 billion of rental fleet as our customers really appreciate of fleet availability and commitment to service.
That should also remain a favorable environment for increasing rights as everyone is facing and cost inflation to a suite and <unk>.
In addition, and the majority of our business is not directly connected to nonresidential construction and our pro solutions business is a real strategic benefit and we will look to continue to gain share and grow that business.
Entertainment looks to be a growth engine for at least the next couple of years with our investments and supporting content production paying dividends and the live event business likely to rebound later this year.
There is pent up demand for maintenance and turnarounds and a lot of our industrial plants and the stigma should also rebound in 2021.
There is plenty of demand and most of our end markets to support growth for the remainder of 2021 and into 2022, and we have the balance sheet and liquidity to be able to fuel that growth by investing in our fleet and our market share and net is what we intend to do.
Turning to slide 19 for our updated guidance.
The <unk> team continues to execute on our strategy and to exceed our own expectations with strong momentum out of Q2 hitting into the seasonally strongest demand quarter and Q3.
And now forecasting of record year.
And of taking our guidance for fiscal year 2021, adjusted EBITDA up to a range of $840 million to $850 million.
And our purchasing department continues to excel and us being able to source additional fleet and and incredibly tight market for new equipment.
As a result, we are taking up and net rental equipment capex guidance to $500 million to $550 million.
We are pleased with the performance we have reported for the quarter and are excited about the performance. We anticipate over the next couple of years and as we take advantage of the hotspot and to what looks to be and exciting new industry up cycle.
With that I will turn the call back for Larry.
Thanks Mark.
Hi, everyone and please turn to slide number 20.
And the Sox slide shows how far we've come over the last 5 years and closing the gap and of our industry peers are.
Our latest 12 months of results show adjusted EBITDA margin has increased to 48% for the period ending June 32021, and our second quarter. Adjusted EBITDA margin was 42, 3% and 2021 with expectations for improvement in Q3 and.
<unk> of customers geographic regions and end markets will drive solid market opportunities where.
And we're focused on increased scale and high growth urban markets through new Greenfields and M&A opportunities.
Operating leverage is expected to improve margins longer term.
<unk> 2021 is likely to be a record year and revenues and net income as implied by our updated adjusted EBITDA guidance.
And our strong free cash flow and provides liquidity for long term growth initiatives and the foundation for a review of our capital allocation plan over the long term.
We plan to discuss those future plans with you at our upcoming Investor meeting on September 20th. So again, please mark your calendars and now operator, please open the lines.
Thank you and we will now begin the question and answer session.
The ask a question you May press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
And the first question today will come from Ross Gilardi with Bank of America. Please go ahead.
Good morning.
Good morning, Ross how are you.
Okay, great Mark Thank you.
So not to steal any of your Thunder from September 20th, but you just talked about you just alluded to the.
The changes and your thoughts on capital allocation I mean, certainly parks.
Approach for the last 5 years theres been about kind of.
Turning the company around sustaining fleet on the OE you see getting the debt down you're now below your leverage target. So what should we expect the company to grow fleet more in line with the market going forward and just 1 of your thoughts on on M&A and and.
And the appetite for a larger transaction if 1 presented itself that made sense, yes, great great question Ross.
I'll I'll answer as much of that and I can again without stealing Thunder from September we are.
And discussions with our board about.
What we do considering where we are relative to our performance and our liquidity and our balance sheet that exist. Today. Obviously, we will continue with our first priority of investments and the business investments and fleet investments and Greenfield investments and our people and training and technology and then we will.
Certainly.
<unk> to look and we are developing.
Fairly strong M&A pipeline, which will be.
Our greater focus certainly than it's been in the past, but we've been on that track now for better than 6 or 7 months, beginning with our acquisition and late December and and Wall then.
Meet with our board and discuss what we might do.
Around either a dividend or buybacks or other things relative to capital allocation.
Got it. Thank you and then can you provide any grant.
And the 9% rate on how long the broken down.
Non rent versus your specialty business and the beta quantified the Baidu <unk> and can you say, which.
Each side it was more.
The.
No.
I think we're also was pretty much across the board. So it's coming from all layers of the business.
We had obviously strong.
The sequential momentum and the stock market and the spot rates that tends to be a little bit more volatile than the contract rate, so getting really good results and spot and and.
Working on the contract rates to sort of build momentum up through that channel.
Okay, and just lastly, mark if you assume normal seasonality for the rest of the R&D and fees for me were pretty sound pretty confident of the rate environment remained favorable for the receivable futures.
And what would you expect the exit rate time from year on year perspective to be by the end of the year.
It should continue to build.
So it's a favorable environment as I've mentioned type of equipment supply and steady demand. We are running at high utilization levels. So everything is in place for a favorable rate environment and we will continue to stay focused and look to continue to build on the momentum that we've got going and the first half of the year.
Okay, great. Thanks.
Thanks, so much.
Thanks from us.
And our next question will come from Jerry Revich with Goldman Sachs. Please go ahead.
Morning, Jerry.
Yes, hi, good morning, everyone.
I'm wondering if you could just talk about.
How youre thinking about your pricing philosophy at this point between long term.
<unk> and <unk>.
Relative to short term opportunities I mean, this is the strongest rate environment.
As a management team have seen and I'm wondering what's your approach going to be.
Over the next couple of quarters, and how that might differ versus.
The way your predecessors and ran the business previously.
Can you give us a bit of context.
And the decision that you just alluded to market and 1.
And when you go on the difference between spot versus longer term.
Thanks.
Yes, I think it's the same or similar response to the Jerry so when contracts come up annually.
They provided us with protection last year less volatile than the local.
Spot market and I think the particular us from from rate decreases last year and this year it takes a little bit more time and.
And this environment to get them tuned around and start getting lift so we're working the spot market.
And as aggressively as we can we've got the tools in place to really take advantage and get pricing.
As we sort of face the slight sort of equipment supply environment and.
And we're executing on that and also focused on on just <unk>.
Managing our contracts and getting the lift that we need.
Out of that segment of the business also.
And in terms of the sequential cadence of pricing can you talk to that and how did pricing evolve over the course of the.
The quarter sequentially and then.
And to July.
It was up sequentially throughout the quarter.
So thats, what wed expect and Thats, what we would expect to see guidance for everyone to and to the Q3 and Q4.
Yes.
And in terms of the 60% to 70% incremental margin targets.
Mark.
Spoke about can you just expand on that.
The drivers of that level of operating leverage because looking at of our own estimates and consensus estimates were all well below those.
And those numbers for 2022, so can you just build our comfort level of what's driving that level of operating leverage.
And in terms of the existing investments.
You could build on that for us.
I mean, I think we've been very consistent in terms of the operating leverage and we've exceeded.
And that range pretty consistently for the last couple of years 2021 as.
And as we expect net is a bit we had just given the COVID-19 based the fit and the comps.
But as we run into 2022 and <unk> off of that just due to the growth of rental revenues and it becomes easy to flow through the more volume and <unk> got and the more growth and the sort of actual dollars of rates the revenue flow through so kind of becomes a little bit easier.
Into 2022 than it was back in 2019 and 2018 when dealing with the same level of <unk>.
Rental revenue growth that we anticipate in 2022.
And so it sounds like you're comfortable with that range, even if capex flexes to the high end of expectations and in 'twenty, 2 and you have greater allocation of growth driven by volume versus price and Youre still.
The comfortable of being well within that range of it sounds like.
Yes, I mean capex is almost neutral.
In terms of the.
Flow for the REIT is not reflected in EBITDA.
But the.
And you get 67% from fleet growth and.
Time utilization improvement, obviously writes a lot higher than that but thats not really been the key driver here.
And 2021, and we'll be able to run 60% to 70% and 2022 with fleet growth.
And utilization of improvement.
Okay.
And the discussion thanks.
Thanks, Joe and thanks Gerry.
And.
And our next question will come from Steven Ramsey with Thompson Research Group. Please go ahead good morning, Steve.
Good morning, everyone.
I have some questions focus for all Capex, you talked about the equipment shortage seem that and channel checks and youre able to raise the net capex guidance significantly how are you able to do this given the the manufacturing challenges of equipment makers and would you prefer to take it up even higher than this if you could.
Stephen This is Aaron.
Got in.
Earlier towards the end of last year and got our fleet plan and for this year, the suspect and there might be some some supply chain.
Delays and as we.
Got into the first second quarter, we our business was strong enough. We liked our revenue trends and we went out and got some more capital as we alluded to and the call and.
We feel pretty confident with our net capex as it sits right now.
The equipment does.
So up a little bit later than we typically would see in a normal year, maybe up to 2 months late.
And we've got a pretty good cadence right now of equipment and new equipment, showing up every single day and our business and we'll continue to have that experience the rest of this year and.
Our fleet the apartment.
Excellent job and communicating with our key vendors on availability of manufacturing slots and that's really what's enabled our decision and addition of capital for this year and working very closely with our vendors. So kudos to our fleet Department for excellence.
Excellent work and generating the opportunities for us.
Okay, and then thinking about.
This capex range and the delayed the lead times versus normal.
Signal of positive outlook on 2022, both demand and the fleet shortage.
And last thing to that time, and you guys investing behind.
The ongoing opportunity beyond this calendar year.
Yes, it does signal our confidence.
Going into 2022 on.
And the supply and demand dynamics of the business and our ability to capture more share and the marketplace.
Great. Thank you.
And thank you.
And our next question will come from Mig <unk> with Baird. Please go ahead.
Hey, good morning so.
Yes, good morning, everyone. So on this capex point.
And so it's a material increase and its coming halfway through the year. We had this discussion.
Last quarter, and as well growth and some of your some of your peers, we're doing the I think of.
A little more.
Aggressive and raising capex during the year and the year.
So I guess from my perspective, I'm trying to understand what changed in terms of what youre seeing and a market or how youre thinking about the business through the year to meet the this decision to increase Capex is at that.
You were you were trying to manage the pricing dynamic more more more carefully and maybe than in prior cycles.
Is it that you you would simply seeing the end markets progressed differently than maybe your original planning assumptions were.
Something is different right. So I want to make sure that we understand exactly kind of how your strategy has evolved through the year.
And this is Aaron again, Mig I think it's kind of a mixed bag of all of the above we do participate and a lot of different end markets a lot of different segments, we mentioned them.
And our and our notes on the call.
And they are all performing very well and even.
And I like and industrial which has really been kind of kind of.
Still steady off of last year's levels. They haven't really picked up yet so we do see that picking up and the back half of this year and the first half of next year quite a bit with scheduled turnarounds. So and then you also have just the it is a tight equipment of.
The marketplace so.
And we want to make sure that we've got the fleet available for our customers as our entire sales strategy with our customers is maturing and we're developing our relationships further further and and touching more and more customers. So we're real confident about what we're doing with the with the net fleet Capex and I think the combination of <unk>.
<unk> demand Meg as well as market share gains and.
And we're feeding those hot hands and our organization to take advantage of bolt on activity as it develops.
Yes, and Thats, what I was trying to get at.
Youre not getting the sense that given that you've been maybe a little more careful with Capex then than some of your peers. There would've been some share loss you are still thinking that you're you've managed to gain share and youre going to do so this year.
Yes, no and we looked at our growth rate, it's pretty clear that we are growing well and exists and the market.
Sure.
Play out over the next couple of weeks.
I see.
And then I'm wondering based on the updated outlook here, how youre thinking about the.
Exit rate on an OE C relative to say <unk>.
2019, so exit rate in 2021 relative to 2019 based on your updated Capex plan.
I think look generally and we're going to grow our fleet over the back half of the year and live.
Higher level of fleet exiting 2021, and then we did certainly 2020 in 2019.
The fleet will grow and the back half of the year.
Okay, and lastly for me.
And recognizing that you're not providing 2022 guidance, but I'm sort of wondering here.
Obviously, the set up here and for 2022 to be a decent year or better.
Where are you in terms of conversations with suppliers for 2022 Capex are you of securing production slots now.
What are you seeing on the pricing side and are there any.
[noise] limitation vis vis the as to what's available.
In 2022, thank you.
Yes, it's a lot of the Oems are big the is there and again a lot of Oems actually are sold out until next year, but we have secured.
A good portion call it the at least <unk>.
60%, 70% of our planned buys for 2022 of already secured those.
So they are scheduled to come in next year and as far as the pricing element.
Mentioned that this year and the second quarter not material price increases but.
Nearly all of the Oems are looking for some price improvement just from what you what we all know that that's going on and the marketplace pretty much all of them are looking for some price increases next year. So we're negotiating with all of them.
At the moment.
But we have secured our slots.
Thanks for the call.
And our next question will come from Neil Tyler with Redburn. Please go ahead.
Good morning, Neil.
Yes, good morning.
1 last for me really.
The well and so Rob.
And the capital allocation of again, but.
Away from Capex and towards the end of the.
The M&A pipeline that you referred to in your introductory comments of.
Is the tight market conditions make it any more difficult to know.
2.
I will translate the pipeline into inter executed deals or do you still see that as marriage.
And that's.
It's still fairly optimistic in terms of what's coming through there and what you would like you to be able to skew.
Yes look I think.
And the tight supply actually has probably helped encourage some M&A activity.
Some of the smaller.
The regional players or <unk>.
Geographic players.
Or may not have the ability as we do to go out and secure fleet.
And in advance and they may not want to make those investments coming off of the difficult Covid year. So in fact, I think 1 of its dawn is and it's probably encouraged of few players to consider teaming up with someone like <unk> to carry out there and their strategy and their business plan and invest in there.
Business going forward.
Excellent. Thank you, so I mean and <unk>.
Terms of cadence for the second half versus the us often and so the 'twenty to 'twenty 1.
A reasonably.
And obviously M&A.
M&A spiked by nature lumpy, but I would expect those numbers for step up as we move forward.
All of this year and into next.
Yes, that's our expectation and obviously as you said.
M&A is unpredictable and.
And.
Generally takes some time to consummate the deal and does come in lumps, but when.
And we are certainly optimistic about stepping up.
Excellent thanks Mark.
And our next question will come from Ken Newman with Keybanc capital markets. Please go ahead.
Hey, good morning, everyone.
Good morning, our income.
Doing well thanks.
And just curious if you can give us any sense of how you look at the progression of the dollar utilization and to the back half.
You mentioned and expectation for more normalized mix into the third quarter and I imagine you're still planning to take on a decent amount of fleets.
And from your Capex plans as well so.
And with all that said I mean would you expect of similar magnitude of seasonal increase from second quarter, the third quarter here.
Yes, I think youll see the the <unk>.
Normal sort of sequential improvement I mean, Q3 is the strongest quarter.
We're rolling into it with tight utilization so everything set up.
And for a good third quarter.
The the improvements you've seen and all of the.
And are baked in so there is no just because we've had outstanding performance and the first couple of quarters that doesn't mean, we're not going to continue that momentum and move on through the.
The normal seasonality should should apply.
Right.
And I know you don't want to give guidance on 'twenty 2 yet.
And obviously the dollar utilization and the fleet has improved pretty linearly since you've become a standalone company.
How do you expect fleet utilization changes.
And look like into 2022 and into the out years I mean is that in the 40% low 40% type of utilization rate kind of a good run rate you think going forward if the.
The market and the the industry kind of progressing the way you think.
Since we've been a standalone company, we've been chasing mid forties and.
And dollar utilization and that's still it's still our goal.
Okay.
Alright, and then 1 more from me similarly for equipment rental and gross margins.
Help us think about the cadence of margin expansion and into the back half of the year and and then.
And I think you mentioned, the 60% to 70% incremental margin target into 2022.
And he puts and takes years and we kind of think about just segment gross margins and the back half and we should be aware of.
So I mean, I think that that flow through guidance for 2022 and off the 2021. So for the back half of 'twenty..1 was still hampered by the base of fix of of 2020.
So we're looking for.
EBITDA margin and EBITDA margin growth.
For the full year of 2021 over 2020, but thats going to be leased and what we've seen in previous years, just given that price of fees, but we should we should see an increase at.
At the end of the year over 2029 the lease.
Got it thanks.
Thank you.
And once again, if you'd like to ask a question. Please press Star then 1 of our next question is the follow up from Ross Gilardi with Bank of America. Please go ahead.
Thanks, guys for.
For squeeze myths and.
I just wanted to get your perspective on this terrible building collapse that happened and and.
In Florida and.
And.
Potential for.
Much more in a much stricter of building codes and just the whole sorts of regulation on the back of that what's what's your take and could that be a driver of any particular parts of Europe you are.
Business.
Yeah, Ross I mean, I live in the condo and South Florida. So I appreciate the question I think.
I think building codes have improved.
The building went up and the <unk> there was a significant increase in south, Florida or at least and.
Post 90, and 92 with Andrew So I think the has been a steady improvement and building codes across Florida, and even northern Florida, I think increased off the they got exposed to some some storms.
And the last couple of years, so theres been a steady improvement and building codes and.
And commitment to structural integrity and safety.
The through the use of the state building went up.
I think youre going to see of continued youre going to see a refocus on those older buildings and terms of how they are <unk>.
Engineered and the of 40 years of certifications, but the the recent construction and I think that that were involved with has significantly improved from from those years and certainly sense.
I would say the.
The early nineties.
From the 2000 and the Hurricanes sort.
The became more prevalent and came through the region.
Full golf area, certainly there has been improvement dramatic improvements and building codes as it relates to the Hurricane protection and.
And the type of structures and requirements.
Properly build.
And any kind of structure, whether it's a high rise condominium more.
We're a commercial facility or residential housing.
And with span 170 mile per hour winds and maintenance went through and so.
And just what about this drought and you know these forest fires out in California, and you've got elements of your specialty.
Rental business that are that are for.
<unk> disaster relief and that type of thing.
Is that.
These are terrible things that are happening, but it is actually.
Driving business for for you guys.
And what seems like a more sustainable fashion.
Yes, the processes are in and before I move to Florida, and California. So.
And the cadence of those <unk>.
Wildfire is definitely has increased and whatever those happen.
We're always there to respond our industry actually there to respond, but we always respond some of it's contractual business. Some of it's just spot needs of the emergency equipment.
And that seems to be and annual part of the business I think over.
And when you look out over the future too.
And maybe change the way they are infrastructure as some of those big power lines that are up and the forests.
And might have to go underground and if thats the case out of trade a lot of <unk>.
Rental equipment demand.
So as it goes along with it so we're on the West coast up and down the coast, we're really situated well with a lot of locations and our network. So we're able to respond to those.
Forest fires pretty regularly and in fact, the PGA yesterday announced that they are.
Kind of be spending over the next 10 years $30 billion to bearing and power lines and all along the California coast.
Yes, you need a lot of digging and trenching and a lot of other stuff.
Shipment to carry that that task out and so.
Yes.
Really interesting, but thanks, thanks very much I appreciate it guys. Thank you. Thanks Ross.
And our next question will come from David Raso with Evercore ISI. Please go ahead hi, thank.
And for squeezing me in and can you clarify again what percent of your next year equipment needs that you have secured I think you've stated that earlier and maybe compare that percentage of versus normally where you are at this time of year for next year's equipment needs.
And I said about 60% and that's about normal puts a normal year.
And that's about normal okay, yes.
And then on the used equipment channel selling the channels that youre going through given the strength and used equipment can you give us a sense of how you see that mix going forward.
Just thinking about the strength of the market and maybe lack of need to use auction versus other channels.
Strategically, we really want to sell more through the retail wholesale channel and we've been able to do that over the past.
12, 15 months, so we want to continue to.
And to focus on those channels will use auction if we have.
The fundamentals of the marketplace changed dramatically.
But really the retail wholesale and where you want to spend most of our time.
But can you help quantify that a little bit what youre seeing and the marketplace. How much of a shift can you see retail selling versus the the lower lower more at least historically lower margin channels.
Well today, and where we're probably close to 80% of our activity through our wholesale and retail channels and 20% of our auction.
I would say if you go back 12 to 18 months, we were probably in excess of 60% through auction and 40% through the wholesale and retail channels more or less.
Okay very helpful. Thank you so much for the time.
Yes.
And this will conclude our question and answer session I would like to turn the conference back of Elizabeth for any closing remarks.
Thank you Paul and thank you all for joining US today, we will be sending out details of our investor meeting Tls shortly but obviously if you have any further questions as always please don't hesitate to reach out and we look forward to seeing you in person and very soon thanks, a lot bye bye.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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