Q3 2023 Herc Holdings Inc Earnings Call
Good morning, My name is Audrey and I will be your conference operator today.
At this time I would like to remind everyone excuse me I would like to welcome everyone to the her Holdings, Inc. Third quarter 2023 earnings call.
Today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
At this time I would like to turn the conference over to Leslie Hunziker Senior Vice President Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Welcome to her rentals third quarter 2023 earnings conference call and webcast earlier.
Earlier today, our press release and presentation slides were furnished in our 10-Q as filed with the SEC. All are posted on the events page of our IR website at IR Dot hurt rentals dot com today, we're reviewing our third quarter 2023 results with comments on operations and our financials, including a view of the industry and our strategic.
Outlook the prepared remarks will be followed by an open Q&A.
Now, let's move to our safe Harbor and GAAP reconciliations on slide three today's call will include forward looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.
Caution you that our actual results could differ material materially from the forward looking statements made on this call you should also refer to the risk factors section of our annual report on Form 10-K for the year ended December 31, 2022, and our quarterly report on Form 10-Q for the period ended September 32023.
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 equivalent can be found in the conference call materials.
A replay of this call can be accessed via dial in or through the webcast on our website replay instructions were included in our earnings release. This morning.
We have not given permission for any other recording of this call and do not approve or sanction any transcribing of the call.
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, I'll now turn the call over to Larry.
Thank you Leslie and good morning, everyone. Please turn to slide number four.
Our third quarter results were driven by our strong business base improved operating leverage and continued M&A initiatives.
Total revenue and adjusted EBITDA were third quarter records, driven by a six 9% increase in rental rate.
Above market volume growth. Additionally, we ramped up fleet dispositions in the quarter to adjust to higher OEM shipments in the first half of the year and to take advantage of the healthy used equipment market.
Used fleet sales carry a lower margin than rental revenue, but if we exclude fleet sales from the equation rental EBITA or rebid as we call. It generated a significant margin flow through improvement in the quarter.
So as expected and as noted on the slide EBITDA margin in the quarter was impacted by the sale of nearly three times more fleet I'd always say and continued disruptions from labor strikes in the studio entertainment industry.
In the third quarter, our capital allocation strategy focused on profitable growth investments.
Ported an incremental increase in ROIC compared with last year.
On slide number five we're working in a favorable operating environment and the equipment rental market continues to benefit from strong demand across a variety of end markets and geographies and we continue to outpace market growth as a result of our premium assets national footprint broad based capabilities.
Expert services.
Our third quarter rental revenue grew another 8% on top of the 35% growth last year, excluding studio entertainment rental revenues increased 13% over the prior year quarter.
The studio shutdowns continued into the fall as the actors Guild joined the strict scheme screen writers on strike <unk>.
Making the first time in 63 years that the Hollywood writers and actors were striking at the same time.
While the writer is finally resolved our dispute the actors remain on strike keeping most productions Idaho.
Total revenue got a boost in the latest quarter as we significantly increased sales of used fleet.
The supply chain recovery in certain equipment categories allowed us to begin addressing the pent up rotations from the last two years.
We headed into the fourth quarter with our fleet better matched to demand after successfully managing through a wave of equipment deliveries in the first half of the year.
If you turn to slide number six in addition to leveraging our scale as a market leader the successful execution of our growth strategies also contributed to our outsized performance relative to the overall industry.
We are increasing revenue in our core categories through fleet investments as well as acquisitions and new Greenfield facilities that support branch network optimization.
Revenue from our high margin Pro solutions specialty business grew double digits again in the third quarter incrementally benefiting from cross selling synergies customer wins, and expanding fleet new products like <unk>.
And our innovative customer facing digital capability called pro control Nextgen.
<unk> as a catalyst to new project wins, especially at the National account level.
As always we're committed to responsible operating practices built on our strong cultural foundation of safety <unk> protocol and a pledge to continue to work hard to do more for our employees customers and suppliers in the third quarter. We were a recipient of the 2023 higher.
Medallion award that recognizes employers to successfully recruit hire and retain veterans.
Also named among the best and brightest companies to work for by the National Association for business resources.
Honored to be recognized for these awards as a brand is a testament to our unwavering dedication to our team members and the importance we place on having a best in class culture.
Finally between fleet investments strategic M&A dividends and opportunistic share repurchases, we are strategically allocating capital to drive long term growth and higher returns.
Now before I turn it over to earn let's move onto slide number seven where I'll give you some background on our plans to explore strategic alternatives for our studio Entertainment business, which we announced in the press release let.
Let me start by clarifying that our studio management and lighting and grip offering is branded in the TV and film industry as Sinhalese in January 2012, we acquired <unk> to expand our product offering and our footprint in another fast growing specialty rental market.
<unk> is one of the largest lighting and grip rental companies in the United States with a scaled studio platform.
Over the past few years, the industry for renting lighting and grip equipment to studios as involved as investment firms began purchasing stock sound stages, and physical studios as attractive ways to diversify their real estate portfolios.
New owners want to offer a single point of contact for studios studio management, and lighting and grip equipment, thereby making it.
Less of a rental model and more a permanent part of their in house business.
As a result in order for us to continue to grow that suddenly studio management, and lighting and grip business hurt would need to add fixed cost studio real estate to our portfolio offering and.
And that capital acquired requirement will be a departure from our core rental business model. So at the beginning of the year. We began discussing strategic options facilities that will enable us to continue to maximize its potential either with merck or on its own we determined that exploring external opportunities was prudent.
And so that process has begun as you can see on the slide are hurt to entertainment service this business.
Live entertainment venues Mark will share you share with you our financial performance year to date, excluding facilities to give you some perspective on the very strong performance of the go forward business space.
I'll, just say that <unk> has been a great business for us it's a high margin seasonally steady growing platform business with a loyal team of product and service experts and it has opened doors for Hurricane Entertainment services to continue to flourish in this robust and exciting end market. We are confident that the strategic actions.
We are announcing today will help ensure that its been a lease and the incredibly strong and dedicated group of colleagues that comprise it around the best possible trajectory moving forward and that hurts resources and focus remain on its core strategies for profitable long term growth.
With that I'll turn it over to Eric to share the high level operational drivers in the third quarter Erin.
Thanks, Larry and good morning, everyone. The solid performance of our operations and field support teams combined with steady demand across our end markets continue to provide a favorable environment for us. Thanks to the hard work of team hurt we have demonstrated continued progress in our journey to build scale and market leadership through flexibility efficiency.
These strategic network and a customer first mindset.
Turning to slide nine our day starts with safety, which is at the core of everything we do.
As you know our major internal safety program focuses on perfect days that is days with no Osha recordable incidents no at fault motor vehicle accidents, and no DLT violations, we strive for 100% perfect days throughout the organization.
In the third quarter on a branch by branch measure all our branch operations achieved at least 97% of days has perfect.
Equally notable our total recordable incident rate remained better than the industry benchmark of one point up reflecting our high standards and commitment to the safety of our people and customers.
On Slide 10, let me shift to a progress update on our growth strategies, one of the key initiatives of our urban market growth strategy is expansion through greenfield locations and acquisitions.
In the third quarter, we added eight locations to our network four greenfield locations in four locations from two new acquisitions.
As you know we focus on acquisition opportunities in high growth markets that complement our current branch network and fit our strategic financial and cultural filters of the acquisitions in the quarter both of our general rental companies. One was in southern California, which includes the largest metropolitan markets in the U S and the other was Houston, a top 10 market.
These acquisitions support our strategic goal of increased density and resilient urban markets. Moreover, many of the mega projects being announced or in the geographies, where we have focused our acquisitions in greenfield additions like Phoenix, Houston, Austin, Detroit and the Midwest.
Through September 30, we've invested $332 million of net cash on acquisitions multiples remained steady as we pay a little less for general rental companies and a little more for specialty rental companies.
Targeted up to $500 million of that.
Four acquisitions this year and have a strong pipeline of prospects as always we're being disciplined to ensure acquisitions meet our criteria and can add strategic and cultural value.
Our acquisition process is now a core competency for US we are quickly integrating these new businesses and are excited to welcome their teams to earth, while trading value for our people and our customers.
On Slide 11 in addition to acquisitions growing our core and specialty fleet through new equipment investments is a key strategy to expanding our share in keeping up with the increasing demand opportunities. Let me start with demand drivers revenue growth from both local and national accounts remained strong in the first three quarters of 2023 opportunities.
Across end markets continue to increase we are seeing is throughout our network and it's supported by third party data. The exception of course is suddenly for the duration of the labor strikes Couldnt have been predicted this weighed on our performance masking the underlying strength of our core business this year still.
Studio Entertainment represented just 1% of our rental revenue in the third quarter compared with about 5% a year ago.
While the only fleet truly dedicated those types of projects, especially lighting a grip equipment. We also rent power generation, some HVAC equipment and material handling and equipment.
In July we started moving that fungible fleet from the studio operations to other local customers.
Although the writer's strike is over we don't expect that to move the needle much in the fourth quarter since the <unk> strike is ongoing.
Moving on to fleet investments as we told you on our call in July our goal for the third quarter was to absorb the unusual wave of fleet deliveries. We received in the fourth quarter of 2022, and the first half of this year I couldnt be more proud of what the team delivered by the end of September we significantly close the gap between fleet growth and revenue growth by capitalizing.
On seasonal volume and generating $124 million and sales of used fleet.
The team did in an expanding job of rapidly adjusting to the supply chain recovery.
On Slide 12, you can see how fleet expenditures and disposals have been trending our fleet expenditures at OFC totaled $274 million in the third quarter about 12% lower compared to last year. Most of it had to do with the fact that supply is still extremely tight for the highest demand equipment classes like <unk> and reach forklifts for <unk>.
Sample, which cause our suppliers would push out some of those 2023 orders into 2024.
On the flip side, we disposed of $309 million fleet would always see from an OCC standpoint, that's almost three times more than in last year's similar period.
The substantial amount of dispositions in a single quarter had us utilizing the auction channels more than we typically would and that's reflected in the proceeds and sales margin.
At the same time the amount of fleet at OFC that was sold to retail and wholesale customers was a quarterly record for the company. So we are continuing to gain traction on our capabilities in those channels.
Where are we originally planned for fleet rotation of about $600 million would always see for this year, we will probably sell about $800 million by year end based on the amount of new fleet deliveries, we received year to date and a typical seasonal de fleeting will be able to do in the fourth quarter from our 2024 fleet planning discussions with vendors we believe deliver.
We'll return to a more normal seasonal schedule now that supply chain inventories and capabilities are improving but I will reiterate that the tightest category classes for supply continue to be those with the highest customer demand. So while availability in many classes has improved it's clear we're going to have another challenging year.
Getting all the gear, we'd like for certain categories.
Please planning considerations for 2020 for Capex include incremental demand from Mega projects infrastructure and manufacturing re shoring as well as local market growth and replacement fleet needs.
In addition to building a best in class fleet, you can see on slide 13 that we have a diverse well balanced customer mix.
Made up of large national accounts and local contractors operating in North America with a wide range of equipment needs across a variety of end markets.
About 36% of our revenue is tied to nonresidential construction with 26% related to our industrial customers to 15% coming from infrastructure and municipal projects.
Local accounts, which represented 58% of rental revenue in the third quarter are growing due to <unk> penetration through our acquisition and Greenfield strategy as.
As well as regional growth in infrastructure education, maintenance and repair and local utilities.
For National accounts, we're capitalizing on what we see is assuming large project pipeline with the federal.
Funded mega projects large infrastructure jobs and manufacturing facilities.
These mega projects represent the beginning of a multiyear flow of dollars into the industrial and restructure space as one of the largest players in the rental industry. Our fleet capacity digital capabilities onsite management expertise and broad location network sets us up to win substantially more than our fair share of the market growth.
Want to thank team their commitment to operational excellence and safety their professionalism shows up in the execution of our services to our customers every single day.
The valuable differentiator for FERC now I'll pass the call onto Mark.
Thanks, Darren and good morning, everyone I'm, starting on slide 15, with a summary of our key metrics for the third quarter.
Larry and Eric touched on many of these line items. So I'm just going to provide some additional color for rental revenue about two thirds of the growth was organic and a third came from acquisitions Boe.
And SG&A as a percent of rental revenue improved 250 basis points in the quarter supporting improvements in adjusted EBITDA margin and flow through of more than 76%.
Adjusted EBITDA margin of 49, 3% was a record exceeding our previous peak margin by 200 basis points. Additionally, net income grew 12% while diluted EPS grew 18% to $3 96 per share.
Let's walk through some of the other performance drivers on slide 16.
Here, you can see the rental revenue and adjusted EBITDA walks year over year.
And the revenue chart rental rate was up six 9% fleet on rent increased 11, 5% and mix and lower re rent revenue was unfavorable by nine 9% compared with the third quarter a year ago.
The decline in studio Entertainment revenue is calculated in mix as it is inflation, which together accounted for approximately 90% of the mix impact. Additionally, ancillary revenue was impacted by reduced re rent revenue in the quarter, primarily reflecting better fleet availability, which positively impacts adjusted EBITDA.
And <unk> margins.
Catch up in supply deliveries and the out of season mix of fleet received in the first half combined with the drop off in studio Entertainment revenue resulted in dollar utilization of 42, 1% in the third quarter versus 45, 3% last year as Aaron mentioned, we worked through the quarter to right size the fleet.
And feel good about where we are heading into the fourth quarter. Additionally, we saw sequential improvement in dollar utilization every month this quarter following the seasonal demand trends move.
Moving to the adjusted EBITDA Waterfall chart on the right profit benefited from higher rental revenue and significant leverage from lower operating expenses as a percent of revenue, but the studio entertainment topline weakness on its fixed cost base was a partial offset adjusted.
Adjusted EBITDA margin was impacted by the higher sales of used equipment at OFC and the higher use of the auction sales channel in the recent quarter.
On slide 17, we've added a summary, P&L to the deck that excludes studio entertainment in order to give you a better sense of how well the base business has performed in the recent quarter and year to date.
From this table you can see the strength of our core rental business. When we exclude studio entertainment from both periods. For example, rental revenue growth would've been approximately 500 basis points higher than the third quarter at 13, 2% and adjusted EBITDA would have grown 26, 2% at a margin of 46.
5% or 130 basis point improvement.
Also our already record level <unk> margin was stronger by another 170 basis points at 51% with flowed through at 73% a more than 2000 basis point increase over the prior year. The base business results reflect strong demand favorable pricing benefits from operator.
Leverage and record margin performance.
A full reconciliation of performance metrics, excluding studio entertainment can be found on slide 28, and 29 in the appendix of our presentation.
Shifting to capital management on Slide 18, you can see we have no near term maturities and ample liquidity to fund our growth goals as we continue to allocate capital to invest in our business and drive fleet growth into this cycle.
We remain confident in our business model and are committed to increasing shareholder value in the third quarter, we declared a quarterly dividend of <unk> 63, and a quarter cents.
Which represents $2 53 per share for the year.
Net capital expenditures exceeded cash flow from operations in the nine months ended September 30, with cash outflows of $196 million before acquisitions.
Our current leverage ratio of two five times is well within our two to three times target range and in line with our expectations as we invest in growth.
Moving on to Slide 19, you can see the continued strength in our primary end markets in the upper left the estimate for 2023, North American rental industry revenue is growing to $76 billion based on <unk> recently revised estimates and is forecasted to grow at a 4% CAGR over the next three years.
Due to its diversified end markets.
On the bottom left is the architectural billing index, which reported below 50 in September it's not unusual to see the billing index along with its counterparts inquiries and design contracts be choppy in the back half of the year, we saw a similar trend in 2022.
<unk> is just one indicator of future construction activity, we will continue to monitor it in conjunction with other data points over the next 12 months.
Two of our key end markets, our industrial and nonresidential construction, both continue to show strength for 2023.
Combined these end markets reflects about two thirds of our customer base and both are likely to outperform other consumer driven end markets due to new Mega project construction as the re shoring of U S manufacturing capacity continues to gather steam.
Taking a look at the industrial spending forecast on the top right industrial info resources is projecting $409 billion of spend in 2023, the highest level on record and a 16% increase over 2022.
In the lower right quadrant as dodge's forecast for nonresidential construction starts you can see in 2023 starts are estimated to be another $429 billion on top of last year's peak 445 billion.
Of course. These are also just start of new projects of multiyear construction builds that will continue into 'twenty four 'twenty five and beyond the dotted line on both of these charts reflects growth over pre pandemic levels. You can see that last year in the next three years are projected to be the strongest periods of activity that this industry is.
As ever seen.
Additionally, there's another $306 billion in nonresidential non buildings or infrastructure projects slated for 2023.
That's a 20% increase over 2022. These projects are supported by federal funds approved in the infrastructure package, the chips and science Zac and the inflation reduction act. The current strength in Mega projects in infrastructure activity is not particularly sensitive to short term interest rates and clearly has a structural tailwind.
Large projects benefit rental companies of scale.
With larger more diverse rental fleet and is one of the leading north American rental companies hurt stands to benefit more favorably from this trend we expect to continue to outpace market growth at a rate greater than two times.
As we head into the last quarter of the year, we are fine tuning our guidance for 2023. This is on slide 20.
We've narrowed our adjusted EBITDA forecast range to 145 to $1 5 billion, which represents growth of 18% to 22%. This is on top of 37% growth in 2022.
However, while the pipeline for M&A remains robust.
<unk> for the closing activities is extending into Q4 and Q1 of 2024.
<unk>.
And our target for full year 2023 re EBITDA flow through tightened to the mid fifties, which represents continued benefits from operating leverage year over year. We have also tightened our net fleet capex range to one to $1 1 billion to reflect the lower end of our original guidance as noted last quarter. The revision is based on a roughly.
<unk>, 33% increase in our original plan for used equipment sales at OFC and the fact that some of our planned 2023 gross capex was pushed into 2024 to account for Oems supply constraints in certain categories.
Interest expense was up 82% in the third quarter year over year, reflecting the accumulation of fed rate increases and our M&A funding.
Finally, we expect our leverage ratio to be at the midpoint of our two to three times target range at year end, we are experiencing all the trends consistent with an industry in an up cycle and intend to continue to address the needs of our customers as we execute on our growth strategy with that I will turn the call back to Larry.
Thanks, Mark now please turn to slide 21.
We do starts with our vision mission and values and our purpose statement that focuses on equipping our customers and communities to build a brighter future. We do what's right, whereas as together we take responsibility we achieve results and we prove ourselves every day now.
Now before moving on to Q&A I want to remind you that we'll be hosting our next investor day on November the second the event will take place here in Bonita Springs, Florida, and we will be available via webcast with market opportunity significantly growing for her and having already achieved nearly all of our three.
Year targets that we set back in 2021, this will be an opportunity to set new guideposts for the future of our drove growth trajectory I hope youll be able to join us with that operator, we'll take our first question.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will.
We will take our first question from Ron Rob Wertheimer with Melius research.
Hi, Thanks, and good morning, everybody.
Good morning, Ralph on demand.
Yes.
So my question is mainly on demand and I think you were pretty clear on the on the big picture outlook, but I want to narrow it down into I guess this quarter and last where you sort of saw rental.
Revenue grow.
At a slower pace than the fleet.
I wanted to ask if that's because you didn't see the pockets of demand you thought you would have that fleet it was coming in or whether it's largely an effect of the fact that you've got more fleet transition as youre selling more and bring in bringing more than any seasonal patterns.
It really is a demand and quite show up like you thought or is it just transition costs.
Yes, Rob the demand landscape still really good.
Even as we look out over the next couple of quarters looks good.
The fleet revenue balance and what we did in Q3 really was to kind of reset that balance because of the fleet as I put in my remarks that came in last year and then the first part of this year with this joint venture of the supply chain. It got corrected and so we wanted to correct our balance and Thats, what we did in Q3, but the demand outlook.
Is still good.
And I think you're pretty clear on that mix too and so does that imply then that as you get to a more normal seasonal or a more normal pattern of fleet coming in and fleet going out there.
Transitional drag goes away in the.
Horizontal.
Some of the timing.
Yes, precisely and we will continue to get the operator operating leverage out of the business as that equation with fleet our revenue stays balanced and that's how we'll plan for next year's slate ads and that's the visibility we see going forward for the next several quarters.
Perfect. Thank you.
Thank you.
We will go next to Jerry Revich at Goldman Sachs.
Yes, hi, good morning, everyone.
I'm wondering if you.
I'm wondering if you could just talk about the.
Pricing environment.
October is nice to see a positive variance in pricing in the quarter I think versus most expectations even with <unk>.
Utilization softer.
Would you attribute that to the interest rate environment and any context, you can provide on how the leading edges.
Tracking in October if you don't mind.
Yes, I mean, I think the way I would answer that Jerry is one I think that the industry has remained extremely disciplined.
Throughout the first three quarters of this year and then I think secondarily right.
Also an extremely healthy environment.
And so.
Think we've posted.
Seven two.
Through the first nine months of the year and I think that I would direct you as you sort of look into October in fourth quarter.
That would be a mid single digit sort of pricing lift for fourth quarter.
And Mark maybe just to put a final point on that I mean normally seasonally pricing is up 50 basis points sequentially October versus September are we on pace with that normal seasonality.
Yes, I would say that all seasonal trends are being followed.
Okay Super and then Larry in your prepared remarks, you spoke to just the cadence of Capex this year versus normal seasonality as we think about that cadence continuing into the early part of 'twenty. Four is it fair to expect capex to be down year over year in that 15% to 20% range in the first half just give.
The timing of the deliveries or any comments that you would make about the capital budget for 'twenty four.
Well look in total we're still fine tuning the capital.
Plans for 'twenty four I think we'll have a better look on November <unk> for the next three years in terms of what our Capex spend will look like and we better be prepared to give.
Give you a better guidance and more guidance on that but I think youll see us revert to a normal.
Is it all in.
Inflow pattern.
As the manufacturers continue to improve and I would say.
We will revert to that with the exception of a couple of categories that we mentioned and look the aerial work platform access related manufacturers are still struggling.
And not achieving.
Their promise dates and their deliveries as we would like to see them in as are our requirements continue to grow in those areas. So we'll take that equipment when it becomes available.
But but outside of that Youll see us revert to a more seasonal flow of material coming in at.
To match our demand requirements.
Super I appreciate the discussion thanks.
We'll move next to Ken Newman at Keybanc capital markets.
Hi, good morning, guys.
Thanks, Ken Good morning Curt.
Good morning.
Maybe just to start with.
The demand outlook, obviously, it seems like demand across both our national and local accounts, though remains pretty strong here, but I am curious if you could just maybe give a little bit more color.
From what Youre seeing both on a project visibility and maybe to tack onto to Jeremy's question on the pricing if you've seen a big or a wider divergence in pricing between the local and national accounts.
The divergence no they are still in that.
Good appetite for equipment, whether youre in the local or the national.
National Ams landscape the demand as I said is good the megaproject landscape.
So many projects out there and.
There is plenty of work out there and as I mentioned the high high demand for the fleet.
We were pretty positive on the entire local and the National Big project landscape.
Yes, okay.
And then for my follow up here just on <unk>.
Thank you.
Interesting that you guys are looking to potentially divest that business and I know, it's early and be.
And the negotiations here budgets.
Any thought or color on how you think about.
Just how tough the environment could be for sale in the near term if that's even possible with the funding rate environment.
And also just if I think about the prior guide I think we try to take out all the impact from studio rental revenue and EBITDA from last year last quarter. So maybe just a little bit more detail on what drove the negative surprise this quarter.
Yeah, I'll take the first part of that and then ill, let mark address the financial side.
That gives us some more detail Ken Fuller.
The <unk> business as the premier business in the industry.
It's a gold star business that is well recognized well known for its capability.
And is it service excellence within the TV and film industry.
While it is early in the process and we just announced it last evening.
The real estate consolidators that are going that are developing and continuing to grow in that industry and we expect down are very good and strong process for that business.
I said it is the premier business in the industry and something that.
We are very.
Very much.
It'll be it'll be strong for us.
Mark do you want to gear and then Ken in terms of sort of the.
The midpoint guide move down.
I tried to cover that off in my prepared remarks, but really there was sort of three.
Three driving factors there one.
Said in Q2 right.
We anticipated that M&A activity would hold.
Help fill that.
The impact that we were feeling from from center lease and I think that the reality is is that the M&A.
Is opportunistic and just from the cadence of the closes particularly year over year.
Those have been pushed out further.
Further into.
Q3 really the activity that we had in Q3 was done three days before quarter end and so that activity is pushing out into Q4, and even possibly into Q1. So that was the big driver there I think that the cuts.
And the impact from certain lease.
His deep.
And I think lastly.
No storm activity.
In 2003, particularly Comped up against 22 is also an impact that we had to take into consideration and we've got visibility now here in October that it's not going to happen.
Very helpful. Thanks.
Thank you.
We will take our next question from Seth Weber at Wells Fargo.
Yes.
Hey, good morning.
I just I wanted to just clarify make sure I am understanding the capex message for this year was there.
And has there been any change to your gross capex number for 2023 or.
Or is it just.
I think I heard some comments about some growth capex getting pushed to 'twenty four versus <unk> I'm just trying to understand.
Your new Capex range does that.
And incorporate any changes on the on the what you were planning to buy side are taken for 2023.
Hey, Seth it's Mark Good question I think.
Really we tried to.
This in prepared remarks, but really it's an impact in a combination of two things right we had.
Some 2023 orders pushed out.
And then obviously, we're disposing of a bit more gear than than we.
Had originally guided to when we mentioned that in the prepared remarks as well I think the only other thing I would say to you is that in Q2 right.
We guided to the low end of the range and so really this is just a tightening that range up for you, but there is no difference or variance to really our messaging from Q2.
Okay and is the push out something that happened.
During this that you observe during the third quarter, because I think I feel like you had sort of in the second quarter, you had talked about some deliveries of stuff moving around as well is this incremental.
Update.
More stuff is getting pushed.
And to top 24, or its kind of assessment in previous yes.
Some remarks, Larry mentioned some of the product types like access equipment, which is.
We call them.
Some material handling and some.
Some aerial booms theyre getting pushed out just like they did it in 'twenty two.
You kind of roll into 'twenty three some of the stuff. We wanted to 'twenty three is rolling into 'twenty four now we're getting some of that product, but we're not getting as much of the product as we've as we desire to have so thats really the sequence that's happening the other parts of the supply chain are working better they have in the last three years, but there are <unk>.
Access equipment that is kind of rolling over into the next year and as I mentioned also some of those.
<unk> types and asset access equipment part of the types of equipment that are the highest demand in the marketplace. So.
We'd like to get more of that but we're not able to in some of our expectations of receiving it. This year is kind of rolling over to 'twenty four.
Got it okay. So it's not you wouldn't characterize it as a change in your demand for equipment.
No if we could get more access equipment, we would take it.
Okay and then just.
Yes, just.
And then just a follow up.
Used sales margin I guess, how would you characterize your channel mix going forward. It sounds like you sold more SaaS through auction.
This quarter margins were a little bit light.
Year over year or sequentially I mean is that just the mix that we should contemplate going forward or do you think.
Now more towards retail and margins get better going forward no. Our focus going forward is a more heavily weighted retail wholesale channel for disposals.
And we were making a lot of progress on that over the last.
Three or four quarters.
Just in this recent quarter in Q3, we wanted to really focus on rebalancing the fleet to the rather and so we had to use auction more than we wanted but mission accomplished right. We got done what we needed to get done and we're back to.
<unk>.
Disposal through the retail wholesale which is a bit of a journey for us right we have to.
Get that activity going through our entire sales force and marketing efforts, but that's where we're going that will help drive more proceeds to our bottom line.
Subsequent orders.
Okay. So you would think fourth quarter used sale margin showed more reflect what you guys were putting up prior guests third quarter from work.
More of what you saw on our previous quarters. This year in Q4 last year.
Okay. That's super helpful. Thank you guys.
We will go next to John Healy with Northcoast research.
Larry just wanted ask a big picture question I think the Ara came out this summer and you talked about the year beyond kind of high single digit growth year for the industry in next year being I don't know somewhere around three or 4% I want to say.
Just your big picture thoughts about those forecasts and as you look at those forecasts defined unreasonable and reflective of the market as you see it in.
How do you think.
Kirk should perform relative to maybe those industry benchmarks.
Yes look I think.
For the most part.
AIA is maybe even a little light on what we think the growth possibly could be.
<unk>.
The growth in 'twenty three is more like 10, five and in 'twenty four is going to be mid single digits.
And so.
So I think as.
As we mentioned in the prepared remarks, we think we're going to outperform the market.
I have maybe a factor of two and I think that's really being driven by the onshoring the mega projects the infrastructure projects.
Well as our growth in the local market with the M&A and Greenfield activity that we're doing so.
We're fairly bullish on what we see going forward.
Great.
And then just wanted to ask your thoughts about capital allocation going into next year. I know you guys have taken a balanced approach between the dividend buyback and M&A, but when I look at the company.
I think you had something in your slides today, we talk about acquisition multiples were around five five and get into a synergize multiple around four or so.
The company itself today is probably trading below those acquisition multiple so.
Do you think about that.
Do you think about pivoting more towards the buyback as you look to next year.
Or how do you think about that for going forward.
Yes look I think as we've said before we will reevaluate.
Our strategy around capital allocation as we go into next year with our board and determine what's in the best interest of the shareholders.
Continued.
Positioning and growth of this company so.
All of those are our long term view is that we're going to take on it. So it's really not what I would call a short term.
Decision around where that is.
Got it thanks guys.
And we'll move next to Magna O'brien at Baird.
Yes. Thanks, good morning, just to follow up on that last statement, Larry So <unk>.
Industry growing maybe mid single digit youre aiming for twice that so call it high single or maybe 10%.
That's obviously, great I'm curious kind of how you think about the moving pieces in terms of what gets you there.
Pricing versus fleet growth versus utilization.
If you can provide some context around that.
Yes look I think it's all of that I think you'll see a mixture of pricing of fleet growth and utilization.
As well as M&A activity that will allow us.
Continue to have that kind of trajectory, we do not say a recession.
At all.
<unk>.
Regardless of what the what the.
Folks in your World Mike.
While we're not ready to disclose what we're thinking about capex for next year as Aaron mentioned in the prepared remarks.
Adequacy of the supply chain over the last three years.
That allowed us to then have a higher level of disposals going into the fourth quarter of this year, we're still evaluating our Capex plan for next year and the following two years and we will be able to share more of that with you on November 2nd that our Investor day.
Alright sounds good thanks.
Thanks Meg.
And at this time, we have no further questions I will turn the conference back over to Leslie for closing remarks.
Thank you for joining us on the call today, we look forward to updating you on our progress in the quarters to come of course, if you have any further questions. Please don't hesitate to reach out to have a great day.
And that does conclude today's conference call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Yes.
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