Q4 2023 Herc Holdings Inc Earnings Call

Operator: The Ultimate Parody Site! Good morning, my name is Brianna, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Herc Holdings Inc. fourth quarter and full year 2023 earnings call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Brianna and I will be your conference operator today at this time I'd like to welcome everyone to the Heck Holdings, Inc, fourth quarter and full year 'twenty twenty-three earnings call.

Please note that this call is being recorded.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, press star 1 again.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

To withdraw your question Press Star one again.

Leslie Hunsaker: I will now turn the call over to Leslie Hunsaker. You may begin your conference. Thank you, operator, and good morning, everyone. Welcome to Herc Rental's fourth quarter 2023 earnings conference call and webcast. Earlier today, our press release and presentation slides were distributed, and our 10K was filed with the SEC. All are posted on the events page of our IR website.

I will now turn the call over to Leslie Hunziker, you may begin your conference.

Thank you operator, and good morning, everyone. Welcome to Hook rentals fourth quarter 2023 earnings conference call and webcast earlier today, our press release and presentation slides were furnished in our 10-K was filed with the SEC all are posted on the events page of our IR website.

Leslie Hunsaker: Today, we're reviewing our fourth quarter and full year 2023 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Now, let's move on to our Safe Harbor and Gap Reconciliation on slide three. Forward-looking statements will be included in today's call. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.

They were reviewing our fourth quarter and full year 2020 through results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A.

Now, let's move on to our Safe Harbor and GAAP reconciliation 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 I would caution you that our actual results could differ materially from the forward looking statements made on this call.

Leslie Hunsaker: I would caution you that our actual results could differ materially from the forward-looking statements made on this call. You should also refer to the risk factor section of our annual report on Form 10-K for the year ended December 31st, 2023. 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.

I'd also refer to the risk factors section of our annual report on Form 10-K for the year ended December 31 2023 in.

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.

Leslie Hunsaker: Finally, please mark your calendars to join our management meetings at three conferences this quarter. J.P. Morgan's High Yield Conference on February 27th in Miami, Evercore's Industrial Conference in New York on March 5th, and Bank of America's Industrial Conference in London on March 20th. This morning, I'm joined by Larry Silber, President and Chief Executive Officer, Aaron Birnbaum, Senior Vice President and Chief Operating Officer, and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry. Thank you, Leslie. And good morning, everyone.

Finally, please mark your calendars to join our management meetings at three conferences this quarter J P. Morgan's high yield conference on February 27th in Miami Evercore as Industrial Conference in New York on March 5th and Bank of America's Industrial Conference in London on March 20th.

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.

Leslie and good morning, everyone. Please turn to slide number four.

Lawrence H. Silber: Please turn to slide number four. 2023 was another year of double-digit growth for Herc Rentals. We delivered record-level financial performance across the board. Equipment rental revenue grew 12% on top of 34% growth in 2022. Strong pricing of nearly 7% supported the record pop line performance and more than offset inflationary pressure.

2023 was another year of double digit growth for her rentals, we delivered record level financial performance across the board.

Equipment rental revenue grew 12% on top of 34% growth in 2022.

Strong pricing of nearly 7% supported the record top line performance and more than offset inflationary pressure.

Lawrence H. Silber: Demand remains resilient, and our diverse end market mix sets us up to take advantage of the most robust sector opportunities like data centers, energy, semiconductors, transportation, health care, and education, to name just a few. This diversification was important in 2023, as the shutdown of the studio entertainment business that resulted from the prolonged writers and actors strikes had an adverse impact on rental revenues. In fact, excluding our Siddeley studio entertainment business, rental revenue would have been up 16% year over year.

Demand remains a resilient and our diverse end market mix sets us up to take advantage of the most robust sector opportunities like data centers energy semiconductors transportation health care and education to name just a few.

The diversification was important in 2023 as the shutdown of the studio entertainment business that resulted from the prolonged writers and actors strikes had an adverse impact on rental revenues. In fact, excluding are subtly studio entertainment business rental revenue would have been up 16%.

Year over year.

Lawrence H. Silber: By capturing an outsized share of market volume and focusing on rate growth and operating efficiencies, adjusted EBITDA hit a record high, increasing 18% over the prior year, or 24% when you exclude CINOLE. However, reported adjusted EBITDA margin in 2023 was impacted by substantially more lower-margin used fleet sales. Fleet disposals at OEC increased more than 150% in 2023 compared with 2022. As the supply chain recovered in the first half of 2023 and back-ordered new fleet became available, we finally were able to begin rotating out of our oldest equipment. If we exclude Sinalese, the adjusted EBITDA margin would have been 10 basis points higher year over year.

By capturing an outsized share of market volume and focusing on rate growth and operating efficiencies adjusted EBITDA at a record high increasing 18% over the prior year or 24% when you exclude <unk>.

Reported adjusted EBITDA margin in 2023 was impacted by substantially more lower margin used fleet sales. Please.

Ladies disposals, I would always say increased more than 150% in 2023 compared with 2022.

The supply chain recovered in the first half of 2023 and back order New fleet became available. We finally were able to begin rotating out of our oldest equipment.

We exclude <unk> adjusted EBITDA margin would have been 10 basis points higher year over year.

Lawrence H. Silber: Similarly, Sinalese represents a drag on ROIC of about 130 basis points in 2023. In October, you'll recall, we announced plans to explore strategic alternatives for Sinaloa. There's not a lot to share until the transaction is complete, but the process is underway and moving along the normal course. Now, on slide number five, you can see that the successful execution of our growth strategies contributed to our outsized performance relative to the overall industry last year. As we continue to scale our business for sustainable growth, we invested in expanding our branch network by completing 12 strategic acquisitions with 21 locations and additionally opening up 21 greenfield locations in key markets in 2023. We also invested in our high-margin ProSolutions fleet to address growing demand, capturing cross-selling synergies, and support new specialty locations, and our innovative customer-facing digital capabilities were the catalyst to several new project wins last year, especially In the fourth quarter, we conducted our annual culture and engagement survey.

Similarly, <unk> represented a drag on ROIC save about 130 basis points in 2023.

In October you will recall, we announced plans to explore strategic alternatives for <unk>.

Not a lot to share until the transaction is complete but the process is underway and moving along the normal course.

Now on slide number five you can say that the successful execution of our growth strategies contributed to our outsized performance relative to the overall industry last year.

As we continue to scale, our business versus sustainable growth, we invested in expanding our branch network by completing 12 strategic acquisitions with 21 locations and Additionally, opening up 21 Greenfield locations in key markets in 2023.

We also invested in our high margin Pro solutions fleet to address growing demand, capturing cross selling synergies and support new specialty locations.

Our innovative customer facing digital capabilities were the catalyst for several new project wins last year, especially at the national account level.

In the fourth quarter, we conducted our annual culture and engagement survey the results reflected an improvement in our employee net promoter score that moves us further into the top tier of benchmark range. This is a metric I look at very closely with our managers, we recognize that our employees are the foundation of our company.

Lawrence H. Silber: The results reflected an improvement in our employee net promoter score that moves us further into the top-tier benchmark range. This is a metric I look at very closely with our managers. We recognize that our employees are the foundation of our company. They drive our success, and high employee satisfaction correlates closely with high customer satisfaction.

Our success and high employee satisfaction correlates closely with high customer satisfaction.

Lawrence H. Silber: Finally, between fleet investments, strategic M&A, dividend growth, and opportunistic share repurchases, I'm confident that Herc is allocating capital in the right areas and at the right time. Now, let me talk a little about 2024 on slide number six and how we're thinking about growth. Today, we're operating from a much stronger position than at any time in our history, with better systems and processes, more diverse end markets, a broader portfolio of products, a growing branch network, economies of scale, and a solid balance sheet. As one of the largest equipment rental providers with coverage across North America, our size, resources, and operational excellence are giving us a significant advantage in the market.

Finally between fleet investments strategic M&A dividend growth and opportunistic share repurchases I am confident that hurt is allocating capital in the right areas.

At the right time.

Now, let me talk a little about 2024 on slide number six and how we're thinking about growth today, we're operating from a much stronger position than any time in our history with better systems and processes more diverse end markets a broader portfolio of products are growing branch network.

The economies of scale and a solid balance sheet as.

As one of the largest equipment rental providers with coverage across North America, our size resources and operational excellence are giving us a significant advantage in the marketplace.

Lawrence H. Silber: Tactically, for 2024, we'll continue to capture megaproject opportunities, focusing on those that A, benefit from our existing customer relationships, B, are opportunistic geographically or with potential new customers, and finally, are manageable within our bandwidth so that we can continue to deliver superior service. We'll also continue to focus on scale and market share growth, expanding our acquisition targets to the top 100 MSAs and opening roughly 30 more greenfield As our strategies accelerate growth, it's imperative that we remain nimble, innovative, and responsive to our customers. Our new operating system, called E3OS, is designed to ensure we're consistently delivering value throughout all areas of the company in a way that differentiates our service in the marketplace.

Tactically for 2024 will continue to capture Mega project opportunities focusing on those that.

Benefit from our existing customer relationships, they are opportunistic geographically or with potential new customers and finally, our manageable within our bandwidth. So that we can continue to deliver superior service.

We'll also continue to focus on scale and market share growth expanding our acquisition targets. So the top 100, Msas and opening roughly 30 more greenfields.

As our strategy to accelerate growth. It is imperative that we remain nimble innovative and responsive for our customers.

Our new operating system called <unk> three O. S is designed to ensure we are consistently delivering value throughout all areas of the company in a way that differentiates our service in the marketplace.

Lawrence H. Silber: A company-wide rollout plan for E3OS is in place, and putting the tools into practice is an important goal for 2024. We'll also continue to shift our channel mix of used equipment sales into the higher-return retail market this year. Aaron will talk a little bit more about our progress on that front. Finally, fleet efficiency is a high priority for 2024 for our field operations team members, who understand the role of continuous improvement in a best-in-class culture. With the disruptions from the film and TV labor strikes and the out-of-season supply chain deliveries behind us, we see a clear path to delivering margin expansion and ROIC improvement in 2024. The foundation we have built is solid, and we're excited for the opportunities in the year ahead.

Companywide rollout plan for <unk> in place and putting the tools into practice is an important goal for 2024.

We will also continue to shift our channel mix of used equipment sales into the higher return retail market. This year, and we'll talk a little bit more about our progress on that front.

Finally fleet efficiency as a high priority for 2024 for our field operations team members, who understand the role of continuous improvement and a best in class culture with the disruptions from the film and television labor strikes and the out of season supply chain deliveries behind us, we see a clear path to.

<unk> margin expansion.

And ROIC improvement in 2024.

The foundation, we have built a solid and we're excited for the opportunities in the year ahead with that I'll turn it over to Aaron to take you through the fourth quarter operating details and provide some of the high level operational drivers for this year and then Mark will walk you through the fourth quarter financial metrics and share our targets for 2024.

Aaron Birnbaum: With that, I'll turn it over to Aaron to take you through the fourth quarter operating details and provide some of the high-level operational drivers for this year. And then, Mark, we'll walk you through the fourth quarter financial metrics and share our targets for 2024.

Aaron Birnbaum: Thanks, Larry. And good morning, everyone. Record fourth-quarter results for revenue and adjusted EBITDA served as a great conclusion to a year marked by agile execution, geographic expansion, and new account wins. I'm really proud of the way our team continues to focus on delivering superior products and services for our customers, while executing well against our strategic growth initiatives. Execution starts with safety, and of course, safety is always at the core of everything we do. As you can see on slide 8, our major internal safety program focuses on perfect days. We strive for 100% perfect days throughout the organization.

Thanks, Larry and good morning, everyone.

Record fourth quarter results for revenue and adjusted EBITDA served as a great conclusion to a year marked by agile execution geographic expansion and new account wins I'm really proud of the way our team continues to focus on delivering superior products and services for our customers, while executing well against our strategic growth.

<unk>.

Execution starts with safety and of course safety is always at the core of everything we do as you can see on slide eight our major internal safety program focuses on perfect days, we strive for 100% perfect days throughout the organization.

In 2023 on a branch by branch measurement all of our operations achieved at least 98% of days as perfect.

Equally notable our total recordable incident rate remains better than the industry as a benchmark of one point.

Aaron Birnbaum: In 2023, on a branch-by-branch measurement, all of our operations achieved at least 98% of days as perfect. Equally notable, our total recordable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and customers. On slide nine, you can see that we're making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions. In 2023, we spent $430 million in net cash last year on 12 acquisitions. Four of those transactions came in the fourth quarter, where we added seven acquired locations to our net worth on top of eight greenfield locations. For all of 2023, 42 new locations were opened or acquired, of which 26 percent were specialty locations, further expanding our high-margin offering and solutions selling capabilities. As you know, we are focused on opportunities in high-growth markets that complement our current branch network and fit our strategic, financial, and cultural filter. Moreover, many of the mega-industrial projects being announced are in the geographies where we have focused our acquisitions in greenfield additions like Texas, Ohio, Arizona, and the southeastern United States.

Reflecting our high standards and commitment to the safety of our people and customers.

On slide nine you can see that we're making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions.

In 2023, we spent $430 million of net cash last year on 12 acquisitions four of those transactions came in the fourth quarter, where we added seven acquired locations to our networks on top of eight greenfield locations.

For all of 2023 42, new locations were opened or acquired of which 26% were specialty locations further expanding our high margin offering and solution selling capabilities.

As you know we are focused on opportunities in high growth markets that complement our current branch network and fit our strategic financial and cultural filters.

Moreover, many of the Mega industrial projects being announced or in the geographies, where we have focused our acquisitions in greenfield additions like Texas, Ohio, Arizona and in the southeastern United States.

Our acquisition process is now a core competency having successfully integrated 43 businesses with 88 locations into the network since initiating the strategy in late 2020, we have efficiently onboard these companies teams equipment operations and customer accounts to rapidly add value to our operations.

As a result of revenue synergies, we've been generating synergize multiples of approximately $3 five to four five times. This gives us confidence as we explore and evaluate new opportunities and a robust pipeline.

Aaron Birnbaum: Our acquisition process is now a core competency, having successfully integrated 43 businesses with 88 locations into the Herc network since initiating the strategy in late 2020. We have efficiently onboarded these companies' teams, equipment, operations, and customer accounts to rapidly add value to our operations. As a result of revenue synergies, we've been generating synergized multiples of approximately 3.5 to 4.5 times. This gives us confidence as we explore and evaluate new opportunities in a robust pipeline.

For 2024, we've earmarked another $500 million for acquisitions.

On Slide 10 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.

You can see our fleet composition that we see on the right side of the page total fleet is now a record $6 3 billion as of December 31, 2023 suddenly fleet represents about 5% of the total so when you exclude the scent of lease assets held for sale. Our base fleet would have been about $6 billion at year end.

Youll note that high margin specialty fleet represents approximately 24% of the total.

Aaron Birnbaum: For 2024, we've earmarked another $500 million for acquisitions. On slide 10, in addition to acquisitions, growing our core and specialty fleet through new equipment investments is a key strategy to expanding our share and keeping up with the increasing demand opportunities. You can see our fleet composition at OEC on the right side of the page. The total fleet is now a record $6.3 billion as of December 31st, 2023. The Centalise fleet represents about 5% of the total.

Excluding the suddenly sleet specialty makes up about 20% of the total with plenty of room to continue to grow.

When it comes to last year's fleet investments after receiving a significant amount of back ordered fleet in the first half of 2023 is the supply chain recovered.

You can see we slowed our intake in the back half spending just 39% of the total annual investment versus 52% in the second half of 2022.

Total fleet expenditures for all of 2023, including deliveries of the 2021 and 2022 backward fleet or in line with overall 2022 spending.

Aaron Birnbaum: So when you exclude the Centalise assets held for sale, our base fleet would have been about $6 billion at year end. You'll note that the high-margin specialty fleet represents approximately 24% of the total fleet today. Excluding the Sinalese fleets, Specialty makes up about 20% of the total, with plenty of room to continue to grow.

Well, we see fleet disposals last year were up 150%, reflecting the supply chain's ability to improve production levels, allowing for more fleet rotation into healthy used equipment market.

The <unk> team did an outstanding job of working to close the timing gap between <unk> growth and revenue growth last year.

Aaron Birnbaum: When it comes to last year's fleet investments, after receiving a significant amount of backordered fleet in the first half of 2023 as the supply chain recovered, you can see we slowed our intake in the back half, spending just 39% of the total annual investment versus 52% in the second half of 2022. Total fleet expenditures for all of 2023, including deliveries of the 2021 and 2022 backorder fleet, were in line with overall 2022 spending. OECD fleet disposals last year were up 150 percent, reflecting the supply chain's ability to improve production levels, allowing for more fleet rotation into a healthy used equipment market.

For used sales, we continued to gain traction on our retail channel capabilities utilizing technology training and sales force incentives to participate more in the higher return channel the amount of fleet at OFC that we sold to retail customers was a record for the company in 2023.

For 2024, we are planning to spend in the range of $750 million to $1 billion on new fleet purchases.

Gross amount along with last year's growth fleet purchases should provide for incremental demand from Greenfields general market expansion and the Mega projects that are either underway or that we have high probability line of site too.

It should also cover about $550 million to $650 million of planned fleet disposals at OFC in 2024 based on our fleet age threshold by category class.

This year's disposals are expected to follow a more typical cadence with used fleet sales weighted more towards the first and fourth quarters.

Aaron Birnbaum: The Herc team did an outstanding job of working to close the timing gap between seed growth and revenue growth last year. For used sales, we continue to gain traction on our retail channel capabilities, utilizing technology training and salesforce incentives to participate more in the higher return channel. The amount of fleet at OEC that we sold to retail customers was a record for the company in 2023. For 2024, we are planning to spend in the range of $750 million to $1 billion on new fleet purchases. That gross amount, along with last year's growth fleet purchases, should provide for incremental demand from greenfields, general market expansion, and the megaprojects that are either underway or that we have high-probability line-of-sight to. It should also cover about 550 to 650 million of planned fleet disposals at OEC in 2024, based on our fleet age threshold by category class. This year's disposals are expected to follow a more typical cadence, with used fleet sales weighted more toward the first and fourth quarters.

We also expect new fleet deliveries to return to a more normal seasonal schedule ramping up in the second and third quarters now the supply chain production capabilities have improved.

Turning to slide 11, our fleet is well positioned to address the needs of large national accounts and local contractors operating in North America.

Local accounts, which represented 57% of rental revenue in the fourth quarter are growing due to <unk> penetration through our acquisition and Greenfield strategy as well as regional growth in infrastructure education facility maintenance and repair and local utilities.

Our national accounts are benefiting from general growth areas like data centers as well as the federally funded opportunities that are ramping up.

Organizing our national sales reps by end market verticals as also elevating our capabilities and enabling us to increase our presence in underpenetrated and markets.

Long term.

We will continue to target a 60 40 revenue split between local and national accounts.

Turning to slide 12, the equipment rental market is continuing to benefit from strong demand across a variety of end markets customer segments and geographies in 2024, and this diversification provides for growth and resiliency.

You can see here that hurt is positioned well for trending opportunities as the federal and privately funded mega projects large infrastructure jobs in the domestic manufacturing build out continues to gather steam.

Aaron Birnbaum: We also expect new fleet deliveries to return to our more normal seasonal schedule, ramping up in the second and third quarters now that supply chain production capabilities have improved. Turning to slide 11, our fleet is well positioned to address the needs of large national accounts and local contractors operating in North America. Local accounts, which represented 57% of rental revenue in the fourth quarter, are growing due to HERC's penetration through our Acquisition and Greenfield Strategy, as well as regional growth in infrastructure, education, facility, maintenance, and repair, and local utilities.

These mega projects represent the beginning of a multiyear flow of dollars into the industrial and different structure space.

And 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 outpace the rental market is projected growth.

Finally on slide 13, our opportunities for driving revenue growth and increasing profit margin in 2024 are broad based.

We expect to continue to capture the ramp up in the Mega project tailwind to expand share.

We are going to leverage proprietary tools industry benchmark data in our value added services to ensure pricing remains resilient.

Aaron Birnbaum: Our national accounts are benefiting from general growth areas like data centers as well as the federally funded opportunities that are ramping up. Organizing our national sales reps by in-market verticals is also elevating our capabilities and enabling us to increase our presence in under-penetrated markets, long term. We'll continue to target a 60-40 revenue split between local and national accounts.

Larry told you that one of our priorities. This year is optimally managing fleet efficiency and that means that we're going to be laser focused by end market project and geography, and allocating our fungible fleet to those locations with the greatest demand.

Of course, we are also going to continue to build scale through greenfields and acquisitions.

Aaron Birnbaum: Turning to slide 12, the equipment rental market is continuing to benefit from strong demand across a variety of markets, customer segments, and geographies in 2024. And this diversification provides for growth and resiliency. You can see here that HERC is positioned well for trending opportunities as the federal and privately funded megaprojects, large infrastructure jobs, and the domestic manufacturing build-out continue to gather steam. These megaprojects represent the beginning of a multi-year flow of dollars into the industrial and infrastructure space.

We have already completed our first acquisition in the new year and the pipeline remains strong.

Several greenfield locations also have been identified for openings in the first quarter.

We will continue to leverage our industry, leading pro control next Gen E Commerce logistics and business management system this year to enhance customer's productivity and overall rental experience.

And <unk> is another opportunity to standardize processes and elevate the customer experience.

Being easy to do business with an expert.

And efficient at what we do we will continue to make us the equipment rental supplier of choice.

Aaron Birnbaum: And as one of the largest players in the rental industry, our fleet capacity, digital capabilities, on-site management expertise, and broad location network set us up to outface the rental market's projected growth. Finally, on slide 13, our opportunities for driving revenue growth and increasing profit margins in 2024 are broad-based. We expect to continue to capture the ramp-up in the megaproject tailwind to expand share. We are going to leverage proprietary tools, industry benchmark data, and our value-added services to ensure pricing remains resilient. Larry told you that one of our priorities this year is optimally managing fleet efficiency.

I want to thank team Eric for their commitment to operational excellence and safety their professionalism shows up in the execution of our services to our customers every single day and they are a valuable differentiator for her now I will pass the call onto Mark.

Thanks, Aaron and good morning, everyone I'm, starting on slide 15, with a summary of our key metrics for the fourth quarter.

<unk> touched on the full year 2023 line items. So I'm just going to provide some color on the fourth quarter for rental revenue about two thirds of the growth was organic and a third came from acquisitions.

And SG&A as a percent of rental revenue improved 80 basis points in the quarter supporting improvements in adjusted EBITDA margin and a flow through of roughly 65%.

Aaron Birnbaum: And that means that we're going to be laser focused on market, project, and geography and allocating our fungible fleet to those locations with the greatest demand. Of course, we are also going to continue to build scale through greenfields and acquisitions. We have already completed our first acquisition in the new year, and the pipeline remains strong. Several Greenfield locations have also been identified for openings in the first quarter.

The adjusted EBITDA margin of 48% was 70 basis point increase year over year.

Let's walk through some of the other key performance drivers on slide 16.

Here you can see the rental revenue and adjusted EBITDA walk from <unk> 2022 to <unk> 2023.

And the revenue chart, the roughly 5% increase year over year was made up of five 8% increase in rate and a nine 4% increase in OCC fleet on rent.

Mix was an offset of about 10%, reflecting the impact of center lease and higher equipment inflation. When it comes to revenue the mix impact for inflation adjust the volume measured in OE C dollars two a unit increase year over year inflation accounted for approximately 50% of the mix impact.

Aaron Birnbaum: We'll continue to leverage our industry-leading Pro Control Next Gen e-commerce, logistics, and business management system this year to enhance customers' productivity and overall rental experience. And E3OS is another opportunity to standardize processes and elevate the customer experience. Being easy to do business with and expert and efficient at what we do will continue to make us the equivalent rental supplier of choice. I want to thank Team Herc for their commitment to operational excellence and safety. Their professionalism shows up in the execution of our services for our customers every single day, and they are a valuable differentiator for Herc. Now, I'll pass the call on to Mark.

As we mentioned in October 2023, fourth quarter had a difficult comp due to hurricane and generating rental revenue in the 2022 fourth quarter that was about two times higher than typical weather related events comparatively 2023 had no major weather catalysts, resulting in a fourth quarter rental revenue headwind of <unk>.

Proximately, 3% year over year.

Similarly, and as expected dollar utilization of 49% in the 2023 fourth quarter was lower than the 43, 5% a year earlier, primarily as a result of the drop off at studio Entertainment revenue, which accounted for 170 basis points of the year over year year over year difference.

Mark Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on slide 15 with a summary of our key metrics for the fourth quarter. Larry touched on the full-year 2023 line items, so I'm just going to provide some color on the fourth quarter. For rental revenue, about two-thirds of the growth was organic, and a third came from acquisition.

As well as the tough weather comps in.

In the fourth quarter. We also continued to right size the fleet with less Onboarding of new fleet and higher rotations as is typical for the off season.

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 especially as we brought back furloughed workers at the end of the strike in November without the associated revenue ramp.

Mark Humphrey: DOE and SG&A, as a percent of rental revenue, improved 80 basis points in the quarter, reporting improvements in adjusted rebid dot margin and a flow-through of roughly 65%. The adjusted rebidout margin of 48% was a 70 basis point increase year over year. Let's walk through some of the other key performance drivers on slide 16.

Also the 2022 fourth quarter benefit from Hurricane and Unadjusted EBITDA was more than double a typical weather related benefit and compares with no benefit in the 2023 fourth quarter.

Adjusted EBITDA margin in the quarter was flat year over year, but up 50 basis points, excluding federal lease. Despite despite the typical drag from lower margin use fleet sales.

Mark Humphrey: Here you can see the rental revenue and adjusted EBITDA walks from 4Q2022 to 4Q2023. In the revenue chart, the roughly 5% increase year over year was made up of a 5.8% increase in rate and a 9.4% increase in OEC fleet on rent. Mix was an offset of about 10%, reflecting the impact of Sinalese and higher equipment inflation. When it comes to revenue, the mixed impact of inflation adjusts the volume measured in OEC dollars to a unit increase year-over-year. Inflation accounted for approximately 50% of the mixed impact.

Our summary financial results on Slide 17 excludes studio entertainment from both periods in order to give you a better sense of how well the base business performed in the recent quarter and full year. For example, rental revenue growth would have been approximately 300 basis points higher in the fourth quarter than the actual results and are already record.

Level EBITDA margin was stronger by 90 basis points at 48, 9% with a flow through of 67%, which is more than 580 basis points better than the prior year.

Full reconciliation of quarterly performance metrics, excluding studio entertainment can be found on slide 28 in the appendix of our presentation.

Mark Humphrey: As we mentioned in October, the 2023 fourth quarter had a difficult comp due to Hurricane Ian generating rental revenue in the 2022 fourth quarter that was about two times higher than typical weather-related events. Comparatively, 2023 had no major weather catalysts, resulting in a fourth quarter rental revenue headwind of approximately 3% year-over-year. Similarly, and as expected, dollar utilization of 40.9% in the 2023 fourth quarter was lower than 43.5% a year earlier, primarily as a result of the drop off at studio entertainment revenue, which accounted for 170 basis points of the year-over-year difference, as well as the tough weather count. In the fourth quarter, we also continued to right-size the fleet with less onboarding of new fleet and higher rotations, as is typical for the off-season.

Shifting to capital management on Slide 18, you can see that 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 fourth quarter, we declared a quarterly dividend of <unk> 63, and a quarter cents.

Which represents $2 53 per share.

For the year last week, we raised our annual dividend, 5% or <unk> 13 per share to $2 66 per share.

Net capital expenditures exceeded cash flow from operations in the year ended December 31, 2023, with cash outflows of $65 million before acquisitions.

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 2024, North American rental industry revenue is 82 billion or six 5% growth over 2023.

On the bottom left is the architectural billing index, which reported below 50 in December it's not unusual to see the billings index be choppy in the back half of the year, we saw a similar trend in 2022.

Mark Humphrey: 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 studio entertainment's top line weakness on its fixed cost base was a partial offset, especially as we brought back furloughed workers at the end of the strike in November without the associated revenue ramp. Also, the 2022 fourth quarter benefit from Hurricane Ian on adjusted EBITDA was more than double a typical weather-related benefit and compares with no benefit in the 2023 fourth quarter. Adjusted EBITDA margin in the quarter was flat year-over-year, but up 50 basis points excluding CENTLYs, despite the typical drag from lower-margin-use fleet sales. Our summary financial results on slide 17 exclude studio entertainment from both periods in order to give you a better sense of how well the base business performed in the recent quarter and full year.

<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 markets are industrial and nonresidential construction.

Combined these markets reflect about two thirds of our customer base and both are likely to outperform other consumer driven end markets due to new Mega project construction and 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 Antero resources is projecting the second highest level on record for 2024 at 408 billion on top of last year's peak $413 billion spend.

In the lower right quadrant as guidance forecast on nonresidential construction starts you can see in 2024 starts are estimated to increase 4% to 458 billion.

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 has ever seen.

Mark Humphrey: For example, rental revenue growth would have been approximately 300 basis points higher in the fourth quarter than the actual result. And our already record-level rebid out margin was stronger by 90 basis points at 48.9%, with a flow through of 60.7%, which is more than 580 basis points better than the prior year. Full reconciliation of quarterly performance metrics excluding studio entertainment can be found on slide 28 in the appendix of our presentation.

Additionally, there is another 342 billion in infrastructure projects slated for 2024, that's a 7% increase over 2023.

If you flip to slide 20, you can see that our guidance highlights our plan to continue to outpace market growth again in 2024 as noted guidance is presented on an organic basis and excludes the performance of sent a lease which is held for sale and is expected to close in 2024.

Our intention is for net fleet capex to be between $5 to $700 million supporting dollar utilization improvement and 7% to 10% organic equipment rental revenue growth used equipment disposals at OFC in 2024 will moderate by 20% to 30% versus the 2023 level last year's <unk>.

Mark Humphrey: Moving to capital management on slide 18, you can see that 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 fourth quarter, we declared a quarterly dividend of $0.6325, which represents $2.53 per share for the year.

Thats up rotations allowed us to optimize our fleet age and we like where we currently are sitting 45 months, our young fleet gives us advantages in the marketplace and flexibility if market conditions change.

Mark Humphrey: Last week, we raised our annual dividend by 5%, or $0.13 per share, to $2.66 per share. However, net capital expenditures exceeded cash flow from operations in the year ended December 31, 2023, with cash outflows of $65 million before acquisition. Our current leverage ratio, at 2.5 times, is well within our 2 to 3 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 market. To the upper left, the ARA estimate for 2024 North American rental industry revenue is $82 billion, or 6.5% growth over 2023. On the bottom left is the Architectural Billing Index, which reported below 50 in December.

Our initiation of rental revenue guidance at 7% to 10% growth is intended to provide a reasonable range based on projected market growth.

Which is about six 5% for 2024 as well as her specific incremental opportunities from Greenfields and the mega projects in our pipeline.

Feel good about this range based on our current visibility more experienced with the pace of the megaproject rollout the return to more normal growth trends in the local market and of course feedback from our team in the field.

While inflation on new equipment purchases for 2024 has moderated it is impacting our total fleet by approximately 5%.

We exited 2023 with a mid single digit price increase for 2024, our goal is for pricing to offset any inflationary pressure.

Benefiting from operating leverage we estimate adjusted EBITDA will be between $1 55 billion and $1 6 billion, representing another year of profitable growth ranging from 6% to 9% when comparing the adjusted EBITDA growth rate with the equipment rental revenue growth rate, the roughly 100 basis points.

<unk> is our expectation for a lower amount of used equipment sales versus 2023.

Mark Humphrey: It's not unusual to see the Billings Index be choppy in the back half of the year. We saw a similar trend in 2022. However, ABI is just one indicator of future construction activity.

Overall, the strong demand, we're experiencing across the manufacturing industrial and infrastructure markets along with the stability that comes from industrial and commercial commercial maintenance projects is consistent with an industry in an up cycle.

Mark Humphrey: We will continue to monitor it in conjunction with other data points over the next 12 months. Two of our key markets are industrial and non-residential construction. Combined, these markets reflect about two-thirds of our customer base, and both are likely to outperform other consumer-driven end markets due to new megaproject construction and as the reshoring of U.S. manufacturing capacity continues to gather steam. Taking a look at the industrial spending forecast on the right, Industrial Info Resources is projecting the second highest level on record for 2024 at $408 billion, on top of last year's peak $413 billion In the lower right quadrant is Dodge's forecast on non-residential construction starts. You can see that in 2024, starts are estimated to increase 4% to $458 billion. The dotted line on both of these charts reflects growth over pre-pandemic levels.

And our guidance reflects that we intend to continue to deliver strong financial metrics as we execute on our proven growth strategy with that I'll turn the call back to Larry.

Thanks, Mark and now please turn to slide 21, everything 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.

We do what's right. We're in this together we take responsibility we achieved results and we prove ourselves every day with that operator, we will take our first question.

Thank you at this time I'd like to remind everyone in order to ask a question. Please press star one.

Your first question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Good morning, maybe to start with on the local business given its 60% revenue split for you guys. It looks like the growth may have slowed to mid single digit range the past couple of quarters.

Mark Humphrey: You can see that last year and the next three years are projected to be the strongest periods of activity that this industry has ever seen. Additionally, there are another $342 billion in infrastructure projects slated for 2024. That's a 7% increase over 2023. If you flip to slide 20, you can see that our guidance highlights our plan to continue to outpace market growth again in 2024. As noted, guidance is presented on an organic basis and excludes the performance of Centelise, which is held for sale and is expected to close in 2024. Our intention is for Net Fleet CapEx to be between $500 million and $700 million, supporting dollar utilization improvement and 7% to 10% organic equipment rental revenue growth. Used equipment disposals at OEC in 2024 will moderate by 20% to 30% versus the 2023 level.

And a peer recently talked about positive local market's growth, but a step down from.

Prior periods, maybe talk to the local market growth assumed.

For 2024 versus the national market growth, and maybe where those two come in versus kind of market outlook of six 5%.

Yes, Stephen this is Erin.

Our investment in Greenfields and the acquisition investments really as.

As our strategy to grow our local market density in those local markets.

We see that as continue to be a growth vehicle for us in 2024, and our sales teams are very focused on acquiring new business.

Mark Humphrey: Last year's catch-up rotations allowed us to optimize our fleet age, and we like where we are sitting at, 45 months. Our young fleet gives us advantages in the marketplace and flexibility if market conditions change. Our initiation of rental revenue guidance at 7% to 10% growth is intended to provide a reasonable range based on projected market growth, which is about 6.5% for 2024, as well as Herc-specific incremental opportunities from greenfields and the megaprojects in our pipeline. We feel good about this range based on our current visibility, more experience with the pace of the megaproject rollout, the return to more normal growth trends in the local market, and, of course While inflation on new equipment purchases for 2024 has moderated, it is impacting our total fleet by approximately 5%.

For all of our branches every week that they are out there in the field talking to customers. So it's a big part of our strategy and we think that will continue throughout the entire year.

Okay helpful. And then just thinking over the past couple of years pricing was strong in both years and you executed on $470 million of acquisitions averaged out.

With a similar kind of pace for this year expected what im getting at is how does the impact of bringing in these new acquired companies contribute to your pricing over the past couple of years and how do you expect that to impact pricing in 2024.

Yes, I mean, I think generally speaking.

Acquisitions are sort of.

Mark Humphrey: We exited 2023 with a mid single-digit price. For 2024, our goal is for pricing to offset any inflationary pressure. Benefiting from operating leverage, we estimate adjusted EBITDA will be between $1.55 billion and $1.6 billion, representing another year of profitable growth ranging from 6% to 9%. When comparing the adjusted EBITDA growth rate with the equipment revenue growth rate, the roughly 100 basis point difference is our expectation for a lower amount of used equipment sales versus 2023.

Revenue based synergies right. So typically time, you pricing et cetera are probably below that of the consolidated numbers and so theres opportunity and thats, what we see as opportunity as we as we think about those acquisitions I think it probably takes.

On hold probably a year or so to get.

Their pricing up to the consolidated sort of hurt pricing.

And Steven.

That's helpful perspective, thank you.

Thanks, Steve.

Your next question comes from Rob Wertheimer with Melius Research. Please go ahead good morning.

Rob.

Rob.

Okay.

So sorry, Larry good morning.

So my first question is just on your ability to get more out of the fleet. Its been there is a lot of going on with <unk> and with Covid equipments coming off schedule and things like that but.

Mark Humphrey: Overall, the strong demand we're experiencing across the manufacturing, industrial, and infrastructure markets, along with the stability that comes from industrial and commercial maintenance projects, is consistent with an industry in an up cycle, and our guidance reflects that. We intend to continue to deliver strong financial metrics as we execute on our proven growth strategy. With that, I'll turn the call back to Larry. Thanks, Mark.

Where are you this year in <unk> and <unk> versus what you thought you could do on time utilization.

And then embedded in the guide and or just in general are you at a normalized level now do you have room to improve that off of the disrupted this year with the equipment coming in at different times and just talk about time Ute for a minute. If you are if you are willing to.

Yes, Great question I think when you think back over the last couple of years right 2022 too hot.

Supply chain dynamics in 2023.

Lawrence H. Silber: Everything we do starts with our vision, mission, and values, and a purpose statement that focuses on equipping our customers and communities to build a brighter future. We do what's right. We're in this together.

If you kind of thing about those is the goalposts.

I think our drive for 2024 is to be somewhere in the middle between those two.

Years, and I think thats sort of where and what Aaron was talking about when we think about fleet efficiency I think the other point that I would make is when you look at our end fleet the average fleet.

Lawrence H. Silber: We take responsibility. We achieve results. And we prove ourselves every day.

For 2023, you really have about 250 or so million dollars of fleet to put to work. So that's embedded in your your fleet by 2023, but we're almost thinking about that more along the lines of 2024 fleet by as we put that fleet more.

Lawrence H. Silber: With that, operator, we'll take our first question. Thank you. At this time, I'd like to remind everyone, in order to ask a question, please press star 1.

Operator: Your first question comes from Stephen Ramsey with Thompson Research Group. Please go ahead. Good morning.

Efficiently to work in 2024.

Okay. That's super helpful. And this one may be a bit of an odd ball, but that inflation factors pretty high and one of the things. We thought was a bit of a positive is that.

Aaron Birnbaum: Maybe to start with on the local business, given it's a 60% revenue split for you guys. Looks like the growth may have slowed to the mid-single-digit range the past couple quarters, and a peer recently talked about positive growth in local markets, but a step down from prior periods. Maybe talk about the local market growth assumed for 2024 versus the national market growth and maybe where those two come in versus kind of the market outlook of six and a half. Yeah, Stephen. This is Aaron.

The industry needs to get price rental rate and.

And then to the larger companies you guys have plenty of cash flow. So you can spend on fleet smaller companies private companies may have lower margins and probably need to price even more in order to grow.

You guys look at a lot of acquisitions, you've done a lot of acquisitions what are you seeing on <unk>.

Regionals and locals on their ability to grow fleet.

In real terms since you've I mean in this kind of <unk>.

Aaron Birnbaum: You know, our investment in Greenfield and the acquisition investments really is our strategy to grow our local market, you know, the density in those local markets. We, we see that it will continue to be a growth vehicle for us in 2024. And our sales teams are very focused on acquiring new business for all of our branches every week that they're out there in the field talking to customers. So it's a big part of our strategy. And we think that'll continue throughout the entire year. Okay, helpful.

Shipment inflation environment.

Yes, Rob it's Aaron again, the acquisitions that we've been.

Involved with it took them a while to get their fleet trades. So the amount of order fleet.

'twenty 2020 one it took them a long time to get the fleet. They finally did start to get their fleet.

The pricing they are pan was very elevated and I think they had sticker shock.

We're slow to adopt the fact that they have to get a higher rental rate, but in most cases, they don't have the systems or the now the diligence to do it. So they are just trying to find that that kind of muscle memory to execute there, but often their customer base was accustomed to a certain type of a price point. So I think it was a challenge for them, but the fleet filings.

Aaron Birnbaum: And then just thinking over the past couple of years, pricing was strong in both years, and you executed on $470 million in acquisitions, averaged out with a similar kind of pace for this year expected. What I'm getting at is how has the impact of bringing in these new acquired companies impacted your pricing over the past couple of years, and how do you expect that to impact pricing in 2024? Yeah, I mean, generally speaking, you know, our acquisitions are sort of revenue-based synergies, right? So typically, you know, time you pricing, etc., are probably below that of the consolidated numbers. And so there's opportunity.

To come in for them, but the pricing dynamics that we are really equipped with <unk>.

They really were struggling with.

Rob I think the other point that sorry the.

The other point I would make there too right is that elevated pricing on their end and then elevated interest rates.

To pay for that elevated pricing.

I think does support.

A.

Disciplined and healthy pricing environment for 2024.

Okay. Thank you.

Aaron Birnbaum: And that's what we see as an opportunity as we think about those acquisitions. I think it probably takes, you know, on hold, probably a year or so to get their pricing up to the consolidated sort of Herc pricing, all in, Stephen. That's Helping Perspectives. Thank you. Thanks, Steve. Your next question comes from Rob Wertheimer with Melius Research. Please go ahead. Good morning, Rob. Rob. I'm so sorry, Larry.

Your next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi, good morning, everyone.

I'm wondering.

I'm wondering if you could just expand the discussion on <unk>, obviously, we're divesting the business the shortfall versus guidance.

For the fourth quarter can you talk about how much of that was <unk> and obviously, we will see what the proceeds are but given the good free cash flow. This year plus the potential proceeds should we be thinking about deleveraging versus M&A, that's higher than the $500 million.

Lawrence H. Silber: Good morning. Um, so my first question is just on your ability to get more out of the fleet. It's been There's a lot going on with Sinalese and with, you know, COVID and equipment coming off schedule and things like that. But, where are you this year in 3Q and 4Q versus what you thought you could do on time utilization? And then embedded in the guide or just in general, are you at a normalized level now? Do you have room to improve that from last year when the equipment came in at different times? Just talk about time for a minute if you're willing to.

And last one I'll glue and theyre on a related basis.

Given the drag on dollar utilization from <unk>.

Got it fair to think about just the natural tailwind to dollar utilization of about a point to point and a half 24 versus <unk> 23.

So it's come out of the fleet.

Alright.

There was a bunch there Jerry I'll try to unpack all of those.

Lawrence H. Silber: Yeah, great question. I think, you know, when you think back over the last couple of years, right, 2022, too hot. You know, supply chain dynamics in 2023. If you kind of think about those as the goalposts, you know, I think our drive for 2024 is to be somewhere in the middle between those two years. And I think that's sort of where and what Aaron was talking about when we think about fleet efficiency. I think the other point that I would make is when you look at our end fleet to average fleet for 2023, you really have about 250 or so million dollars of fleet to put to work. So that's embedded in your, you know, your fleet by 2023. But we're almost thinking about that more along the lines of 2024 as we put that fleet more efficiently to work in 2024. Okay, that's super helpful.

First in terms of sort of the overall impact of <unk> lease.

So the business in four Q. If you just wanted to I guess, maybe first.

Page 28 through 32 in the deck has sort of the split by quarter.

With and without <unk> lease.

But when you just look at <unk> on.

On a standalone basis, there was about just call it $15 million of EBITDA impact year over year.

That sort of fell through the bottom of the business.

From a <unk> perspective, and I think quite honestly when you think about that from a dollar you perspective.

Utilization impact in <unk> was probably 170 basis points give or take.

And I think that.

It is hiding some of the core performance of the business and so that's one of the reasons Jerry that we're going to guidance in 2024 San Center lease.

So may take a little bit of updating our models and the like.

Aaron Birnbaum: And this one may be a bit of an oddball, but you know that inflation is pretty high. And one of the things we thought was a bit of a positive is that The industry needs to get a price or rental rates. And then, for the larger companies, you guys have plenty of cashflow so you can spend on the fleet. Smaller companies, you know, private companies, may have lower margins and probably need the price even more in order to grow.

But we think sort of getting a like for like view at the core level is the right way to look at it so that does mitigate some of your dollar you'd variance when you sort of adjust to the dollar utilization of the core for 2023, there isn't as big a jump there once you take central East.

<unk>.

Utilization.

As far as our utilization of the proceeds from the business. When it's completed will initially go to pay down our ABL and reduce our exposure there.

Aaron Birnbaum: You guys look at a lot of acquisitions, you've done a lot of acquisitions, what are you seeing in your regionals and locals on their ability to grow their fleet in real terms, you see what I mean in this kind of, you know, equipment inflation and, Yeah, Rob, it's Aaron again. The acquisitions that we've been, you know, involved with, it took them a while to get their fleet, right? So they might have ordered their fleet in 2020 or 21, but it took them a long time to get the fleet. They finally did start to get their fleet, but the price they were paying was very elevated. And I think they had sticker shock, and they were slow to adopt the fact that they had to get a higher rental rate. But, in most cases, they didn't have the systems or the diligence to do it.

And then we will it will sort of roll into our normal use of capital.

In the business.

Okay Super Thank you and can I, just ask one more on the pricing cadence.

Normally in the industry October we get a sequential price increase and we give some back in November and December market can you just talk about how would that look this year and what pricing.

Looked like into January if you can comment sequentially. Thank you, yes, no. Good question, Jerry I mean, obviously, we posted a $5 eight for the quarter.

That reflected sequential pricing improvements each month of the fourth quarter.

Aaron Birnbaum: So they're just kind of trying to find that kind of muscle memory to execute there. But, you know, often their customer base was accustomed to a certain type of price point. So I think it was a challenge for them, but the fleet finally started to come in for them. But the pricing dynamics that we're really equipped with, they really were struggling with. You know, Rob, I think the other point, the other point I would make there, too, is that, you know, elevated pricing on their end and then elevated interest rates to pay for that elevated pricing. That, you know, I think does support a, you know, disciplined and healthy pricing environment for 2024. Okay, thank you. Your next question comes from Jerry Revich with Goldman Sachs. Please go ahead. Yes, hi. Good morning, everyone.

And that takes us.

As we exited January will be in the mid single digit range and I think the only other point I would make is.

We've stated that our goal is to negate.

The inflationary impact of the fleet through pricing and that's the goal for 2024.

Thank you.

Your next question comes from Seth Weber with Wells Fargo. Please go ahead.

Hi, guys. This is Larry to discount for Seth. This morning, Thanks for taking the question.

Wanted to ask about your traction into the Mega projects what's.

What's your visibility into the project pipeline.

How does that how does that compare to a couple of years ago.

If you could talk about some of the geographies that these projects are in and the competitive process. If you will.

Mark Humphrey: I'm wondering if you could just expand the discussion on Sinalese. Obviously, we're divesting the business. The shortfall versus guidance at the midpoint for the fourth quarter, can you talk about how much of that was Sinalese and, obviously, we'll see what the proceeds are, but given the good free cash flow this year plus the potential proceeds, should we be thinking about deleveraging versus M&A that's higher than $500 million? And then the last one I'll glue in there on a related basis is, given the drag on dollar utilization from Sin The Bulletproof Executive 2013, All right. There were There was a bunch there, Jerry.

Yes sure Larry.

Magic Arena is still <unk>.

Plenty of starts coming out every month.

<unk> healthy you see kind of.

Sure.

Given takes on start dates sometimes there is challenges with getting the labor some.

Some of the permitting side.

There is plenty of big projects in all the sectors, we talked about coming out and we see that we track that.

On a monthly basis, and I would say it's super healthy.

Environment for that.

It seems as though many of that were kind of talked about over the last.

12 months or are coming that starts right now in the first quarter of this year. So I think it's a very vibrant.

Strong environment for the Mega Arena.

Mark Humphrey: I'll try to unpack all of those first in terms of sort of the overall impact of Sinalese on the business in 4Q. If you just want to, and I guess maybe first, page 28 through 32 in the deck has sort of the splits by quarter, with and without Fentylase. But when you just look at 4Q on a standalone basis, there was about, let's call it, $15 million of EBITDA impact year over year that sort of fell through the bottom of the business from a Fentylase perspective. And I think, you know, quite honestly, when you think about that from a dollar you perspective, the dollar utilization impact in 4Q was probably 170 basis points, give or take. And I think that, you know, it is hiding some of the core performance of the business.

Okay got you.

You guys talked about supply chain loosening up but still some constraints with some AWP pieces can you elaborate a little bit more on that and what your expectations are for 24, and we still expect to see some small docs there.

Yes, great question, I would say by and large vast majority of the supply chain and is back to normal or near normal.

Kind of operating metrics somewhat similar to 2019 in the access area, meaning aerial work platforms in particular.

Reach forklifts.

The major vendors that we deal with.

Still have extended lead times, they've come in a bit.

Are certainly more reliable on when they give us delivery dates, but but we're still not going to be able to get everything we'd certainly like to get.

Mark Humphrey: And so, you know, that's one of the reasons, Jerry, that we're going to guidance in 2024 sans Fentylase. It may take a little bit of updating of models and the like, but we think sort of getting a like-for-like view at the core level is the right way to look at it. So that does mitigate some of your dollar variance when you sort of adjust to the dollar utilization of the core for 2023. There isn't as big a jump there once you take Fentylase out.

For this season. So we're we're somewhat hopeful in our discussions with them that as Theyre, what I'll call.

Those plants, meaning meaning their plan since they've put in place in.

In Latin America, Mexico in particular, we will improve income come back stronger we will have a better supply resource from them.

We're looking forward to that improving but we will operate with some constraints in that area for all of 2024.

Got you thanks for your time guys.

Your next question comes from Neil Tyler with Redburn Atlantic. Please go ahead.

Mark Humphrey: As far as utilization of the proceeds from the business, when it's completed, we'll initially go to pay down our ADL and reduce our exposure there, and then it'll sort of roll into our normal use of capital in the business. Super. Thank you. And can I just ask one more question on the pricing cadence? Normally, in the industry, in October, we get a sequential price increase, and we give some back in November and December. Mark, can you just talk about how that looked this year and what pricing looked like into January, if you can comment? Yeah, no, good, good question, Jerry.

Hey, good morning, Thank you.

One more from me please.

With at least.

The Capex guide for next year, I Wonder, if you could sort of fit that into the.

Medium term framework on Capex that you provided back in September.

Yes.

So the cadence you're anticipating for 2024.

No.

Mark Humphrey: I mean, obviously, we posted a 5.8 for the quarter. But you know, that reflected sequential price pricing improvements each month of the fourth quarter. You know, and that takes us as we exit January; we'll be in the mid single-digit range. And I think the only other point I would make is that we've stated that our goal is to negate the inflationary impact on the fleet through pricing. And that's the goal for 2024. Thank you. Your next question comes from Seth Weber with Wells Fargo. Please go ahead. Hi guys, this is Larry Stavitsky. I'm for Seth this morning.

Yes, I'm trying to drive together sort of your answers to some of the previous questions around.

The end market outlook and the opportunity for a better time, Ute and how all of those things are sort of.

Influenced your thoughts in that.

Intervening four or five months since it since you gave the medium term guidance.

Yes, I mean, I think you start with.

710 rental revenue guide right in sort of that that takes you into your fleet needs for the year, knowing full well that we've got.

Fleet efficiency gains that we're looking for both from the <unk> fleet.

Aaron Birnbaum: Thanks for taking the question. I just want to ask about your traction on the megaprojects. Specifically, what's your visibility into the project pipeline?

As well as from a time utilization perspective, so I think the guide.

Implies that $7 $50 billion to $1 billion of growth Capex spend.

Aaron Birnbaum: You know, how's that compared to a couple years ago? And, you know, if you could talk about some of the geographies that these projects are in and the competitive process, if you would. Thanks. Yeah, sure, Larry. The mega arena is still full of starch coming out every month. It's healthy.

That's not and we're not saying that thats the.

And albeit we will update you.

If things change.

And so the last part of your question Neil was around what.

We're just really I suppose.

Has the kind of has a end market.

Aaron Birnbaum: You see, kind of, given takes on start date, sometimes there's challenges with getting the labor, some of the permitting. But I mean, there are plenty of big projects in all the sectors we talked about coming out. And we see that we track that on a monthly basis, and I would say it's, you know, a super healthy environment for that. It seems as though many that were kind of talked about over the last 12 months are coming as starts right now in the first quarter of this year.

Broadly as you had anticipated it would.

And with the sort of what looks like sort of lower capex expectations.

Reflect more.

Opportunities for efficiency then.

Then the less optimism around there.

Yes, I don't think its I don't think its.

A statement on the end markets I think it's more a statement on us wanting to.

<unk> fleet efficiency I would say demand is normalizing and markets are strong.

Aaron Birnbaum: So I think it's a very vibrant, strong environment for the mega arena. Okay, gotcha. And you guys talked about the supply chain, you know, loosening up, but still some constraints with some AWP pieces. Can you elaborate a little bit more on that? And, you know, what your expectations are for 24? Are we still expected to see some holdups there? Yeah, great question.

And so I don't think its anything more than us being.

Prudent and diligent from.

From a fleet efficiency perspective, yes, and I would add to that Neil with the Oems, becoming more normalize themselves and having shorter lead times.

If there are spikes in demand.

You can always get.

<unk> gear.

A shorter shorter interval of our shorter basis from a lead time perspective, sometimes we can get it within a matter of days or weeks as opposed to.

Aaron Birnbaum: I'd say by and large, the vast majority of the supply chain is back to normal or near normal operating metrics, somewhat similar to 2019. However, in the access area, meaning aerial work platforms, in particular, and reach forklifts, you know, the major vendors that we deal with still have extended lead times. They've come in a bit and are certainly more reliable when they give us delivery dates, but we're still not going to be able to get everything we'd definitely like to get for this season.

Once a year as in the past so.

Ability with a normalized OEM supply chain.

Early helps any sort of moderations.

In the in the.

End user market.

Got it. Thank you and then just to come back to the pricing outlook that you gave.

Okay. Thanks for the.

So the help on the initiatives that youre able to apply to your acquired businesses, but in your experience and I think you talked about sort of stick a shot with some of those.

Aaron Birnbaum: So we're somewhat hopeful in our discussions with them that as they're what I'll call closed plants, meaning their plants that they've put in place in Latin America or Mexico in particular will improve and come back stronger. We'll have a better supply resource from them, and we're looking forward to that improving, but we'll operate with some constraints in that area for all of 2024.

Businesses have faced do you think.

Outside of it.

Is your sense that sort of outside of those businesses you've acquired.

The smaller end of the market.

Yeah.

The broader industry is responding more constructively to to upward cost pressure or.

Aaron Birnbaum: Thanks for your time, guys. Your next question comes from Neil Tyler with Redburn Atlantic. Please go ahead. Good morning, thank you.

Is that only really when you come on board that you see the changes take place.

Mark Humphrey: Around the CapEx guide for next year, I wonder if you could sort of fit that into the medium-term framework on CapEx that you provided back in September. And, you know, the sort of cadence you're anticipating for 2024, trying to drag together sort of your answers to some of the previous questions around, you know, the end market outlook and the, you know, the opportunity for better time you'd, and how all of those things that sort of have influenced your thoughts in the intervening four or five months since you gave the medium-term guidance. Thanks.

No I think good side to every is trying to act in a disciplined manner, thereby understands the cost of capital and as Mark said the markets are normalizing, but theyre healthy and solid but as far as.

Getting the returns on capital I think the entire industry is operating in a disciplined way.

Fantastic. Thank you very much that's really helpful. Thanks, Nick Thanks Neal.

Your next question comes from Ken Newman with Keybanc capital markets. Please go ahead.

Hey, good morning, guys.

Good morning, good morning.

Hi, just wanted to go back.

<unk> you mentioned core dollar you'd is probably the right way to think about modeling the business going forward just given all the moving pieces thats been a lease.

Mark Humphrey: Yeah, I mean, you start with, you know, a seven to 10 rental revenue guide, right? And sort of that takes you into your fleet needs for the year, knowing full well that we've got, you know, fleet efficiency gains that we're looking for both from the end fleet, as well as from a time utilization perspective. So I think, you know, the guide implies, you know, that $750 to $1 billion of gross CapEx spend. You know, that's not, and we're not saying that that's the end all be all; we will update you, you know, if things change. And so the last part of your question, Neil, was around what?

And sorry, if I missed this but is there a way to think about how you think about the cadence for that metric as we move through the year you put up 42% of changed this last quarter that approach a mid 40 number by the end of the year or is that just a little too difficult.

No I mean, I think obviously.

The seasonality or cyclicality of the business within the year rate. Your four Q3 Q4 Q dollar youths.

We will be the high watermark.

For the year. We finished this year at 42.5% sort of dollar you core and I think as we said in sort of anticipated in the guide is an improvement that average 42 five.

Mark Humphrey: Well, just really, I suppose, you know, it has the end market panned out broadly as anticipated it would. And, you know, with the sort of what looks like sort of lower CapEx expectations, you know, reflect more opportunities for efficiency than, you know, less optimism around the end. Yeah, I don't think it's a statement about the end markets. I think it's more a statement about us wanting to obtain fleet efficiency. You know, I would say, demand is normalizing, and end markets are strong. And so I don't think it's anything more than us being prudent and diligent from a fleet efficiency perspective. Yeah, and I would add to that, Neil, with the OEMs becoming more normalized themselves and having shorter lead times, if there are spikes in demand, we can always get gear on a shorter interval or shorter basis from a lead time perspective. Sometimes we can get it, you know, within a matter of days or weeks, as opposed to, you know, months or years in the past.

We will be improved in 2023, just from the fleet efficiency.

The metrics that we're putting in internally.

Okay.

Got it okay. That's that's helpful.

And then for my follow up this is more of I guess more of an accounting question.

Clarifies that we're all kind of level set on the expectation that obviously generally if I know, it's kind of hard to pin down on the timing of when you expect to sell that asset.

I'm curious just to clarify we're not expecting to put that into discontinued ops here in the income statement for 'twenty four correct.

And Thats right I mean, it'll sit out there as available for sale I think.

While GAAP is GAAP and we'll report that way until we.

Move it off our books.

Have.

A more pro forma view of the core business.

As we as we walk into Q1 reporting.

As we're not providing <unk> inside of our guide for 2024.

Aaron Birnbaum: So our ability with a normalized OEM supply chain really helps any sort of moderations in the end user market. And then just to come back to the pricing outlook that you give, thanks for the help with the initiatives that you're able to apply to your acquired businesses. But in your experience, Aaron, I think you talked about the sort of sticker shock that some of those businesses faced. Do you think that, outside of, is your sense that, outside of those businesses you've acquired and at the smaller end of the market, the broader industry is responding more constructively to upward cost pressure? Or is it only really when you come on board that you see the changes take place? No, I think it's everybody trying to act in a disciplined manner.

So we should expect that.

If there was a recovery in dental you would exclude any kind of impact just to make it apples to apples with your guidance that's exactly right. We'll report on apples to apples.

Got it okay. That's very helpful. Thank you.

Thank you.

Your next question comes from Nick del Bright with Baird. Please go ahead.

Good morning, Thank you for taking the question.

I wanted to go back to a question that Neil asked a moment ago on on Capex and kind of trying to wrap my mind around what's.

What's baked into 2024 because.

I remember your target that you set out for it.

26, implying.

A little north of $1 billion per annum of net cabinets.

Obviously, youre guiding for something Thats substantially lower so I guess two questions here.

Aaron Birnbaum: Everybody understands the cost of capital. And, you know, as Mark said, the markets are normalizing, but they're healthy and solid. But as far as getting returns on capital, I think the entire industry is operating in a disciplined way. Fantastic. Thank you very much.

Why is that happening first and then second what are the areas, where you're investing less than you did in 2023.

Yes, I mean I think.

The guide the three year guide right, we're sort of set on a 10% to 14%.

Average growth rate for that three year period rate our guide here is.

Aaron Birnbaum: That's really helpful. Thanks, Neil.

Mark Humphrey: Your next question comes from Ken Newman with KeyBank Capital Markets. Go ahead. Hey, good morning, guys. Good morning.

In that 7% to 10% range based on our current visibility into 2024, and so I think correspondingly if you think back to.

<unk>.

The overall guide from November at Investor Day that was like a three three ish sort of number.

Mark Humphrey: I just wanted to go back, core dollar yield is probably the right way to think about modeling the business going forward, just given all the moving pieces; it's been a lease. Sorry if I missed this, but is there a way to think about how you think about the cadence for that metric as we move through the year? You put up 42% of change this last quarter; is that approaching a mid-40 number by the end of the year, or is that just a little too difficult? No, I mean, obviously, you know, the seasonality or cyclicality of the business within the year, right? Your $3Q and $4Q dollar yields will be the high watermark for the year.

Over the three year period, and this is implying something more along the lines of $6 million to $700 million at the midpoint of the of the fleet guide so.

That's really the difference there make us the 10% to 14 versus seven to 10.

And it is year one.

Okay, Alright, I think the second part of your.

Meg you added a second part of that question about where the areas, we're investing less in and we've mentioned previously.

Previously in the last hour that the access aerial and material handling areas.

You can't get enough of the fleet that we once did.

To.

Factors can provide us as much as we want as Larry mentioned so.

Mark Humphrey: You know, we finished this year at, you know, 42.5% of the dollar yield core. And I think, you know, as we said, and sort of anticipated in the guide is an improvement, that average 42.5% will be improved in 2023, just from the fleet efficiency metrics that we're putting in internally. Got it.

Would take more if we could but those are some of the areas, where we just can't get as much as we want.

So that would imply that maybe earthmoving or some other specialty areas is maybe where the lower investment is coming from.

No no. It's just that if we could obtain.

Mark Humphrey: Okay, that's all. And then for my follow-up question, this is more of a, I guess more of an accounting question, just to clarify so that we're all kind of level set on the expectations. Obviously, Sinalese, I know it's kind of hard to pin down on the timing of when you expect to sell that asset. But I'm curious.

To obtain more aerial access material handling we would invest more there.

Okay I understand.

Then sort of the.

Final question from me is on the business mix itself Theres been obviously a lot of growth last couple of years and we're talking about infrastructure and we're talking about Mega project, but if I sort of look at your mix of national versus local or even within <unk>.

Mark Humphrey: I just want to clarify, we're not expecting to put that into discontinued operations here in the income statement for 24, correct? No, that's right. I mean, it'll sit out there as available for sale.

Contractors versus industrial versus your other verticals there hasnt been much much change that I can.

I can see so I'm sort of curious.

Do you expect the business mix to continue to remain constant or would that change over the next couple of years in any way. Thank you.

Look we are trying to remain diversified and grow all of our verticals.

Mark Humphrey: I think, you know, while the gap is gap, and we'll report that way until we move it off our books, you know, we'll have a more pro forma view of the core business. You know, as we walk into Q1, reporting as we're not providing, you know, Sinalese inside of our guide for 2024. So we should expect that if there was a recovery in St. Elise, you would exclude any kind of impact just to make it apples to apples. That's exactly right.

On a similar pace so that we're not dependent on any one segment of our business.

Relative to if there is ever a downturn wherever some type of an event that causes one to go down we're going to be well balanced across the board in all of our verticals. So I.

I don't think that implies anything other than a very balanced growth business.

It is able to be very nimble and adjust the marketplace dynamics and changes and take advantage of opportunities on hot markets.

I appreciate it.

Your final question comes from David Raso with Evercore ISI. Please go ahead.

Mark Humphrey: We'll report on apples to apples. Got it. OK, that's very helpful.

Mark Humphrey: Thank you. Your next question comes from Nick Dobre with Baird. Please go ahead. I want to go back to a question that I'm trying to wrap my mind around.

Hi, Thank you for the time.

On the net rental capex as a percent of your EBITDA I'm sorry of your rental revenue guide is the lowest we've seen in 10 years, except for the pandemic initial year.

Mark Humphrey: I remember you. The Bulletproof Executive 2013, I'll be lower. Why is that happening?

Mark Humphrey: What are the areas? Yeah, I mean, I think the guide, the three-year guide, was sort of set on a 10 to 14% average growth rate for that three-year period, right? Our guide here is in that 7 to 10% range based on our current visibility into 2024. And so, you know, I think correspondingly if you think back to the overall guidance from November at Investor Day, that was like a 3-3-ish sort of number over the three-year period. And this is implying something more along the lines of 600 to 700 million at the midpoint of the fleet guide. So that's really the difference there, Meg, is the 10 to 14 versus seven to 10, and it is year one.

But when I look at the average over the last four years right, including the guide in the prior three you sort of back to normal you sort of back to call it 2930%.

Net rental capex to your rental revenue.

So just to be clear it sounds like you're saying, yeah, we're just sort of normalizing it and hey, it could go a little higher if we can get more aerials, but when we think about 25% and 26.

Should we still be thinking about net rental capex in that 25% to 30%.

How are you thinking about your rental revenue growth just for framework just to make sure nothing has changed and then also maybe I missed it the used equipment sales the margins for 24 that is baked into the guide just curious how youre looking at those margins, maybe if you can help us on the revenues.

They use sales as a percent of always see being sold thank you.

Yes, so I'll take the second one first.

On the used equipment side Ray we sort of closed out the year with I think about 44.

On every dollar of OCC from a disposal perspective, and I think if you sort of look through the guide.

It's probably slightly north of that in the implied guide for 2024, and I think thats really coming about.

Mark Humphrey: I think the second part of your... Meg, you had the second part of that question about what areas we're investing less in. And we've mentioned, you know, previously in the last hour that the access aerial and material handling areas we really can't get enough of the fleet that we want. The manufacturers, you know, can't provide us with as much as we want, as Larry mentioned. So, you know, we would take more if we could, but those are some of the areas where we can't get as much as we want. So that would imply that maybe Earth is moving.

As we shift out of that auction channel.

Into a more retail and wholesale focused.

Sales mix.

Think thats supportive.

Of a slight.

The increase from I know, we see proceeds perspective.

That makes sense.

Yes did I missed the margin comment on that.

But did the margin assumption.

Yes, I mean, <unk> got <unk> got.

You would have some slight increase in your margin obviously as a percentage of your revenue.

In 2024 that number is going to go down right im selling somewhere between 20 and 30% last year.

Aaron Birnbaum: No, no, just that if we could obtain more aerial access for material handling, we would invest more there. Then sort of the final question... Look, we are trying to remain diversified and grow all of our verticals at a similar pace so that we're not dependent on any one segment of our business relative to, you know, if there's ever a downturn or ever some type of event that causes one to go down, we're going to be well balanced across the board and all of our verticals. So I don't think that implies anything other than a very balanced growth business that is able to be very nimble and adjust to marketplace dynamics and changes and take advantage of opportunities in hot markets. Your final question comes from David Raso with Evercore ISI. Please go ahead. Hi, thank you for the time on the Net Rental Cap Act. I'm sorry. Bye-bye. See you below. When I look at the average... The Ultimate Parody Site!

So youll get some EBITDA lift there just from a mix perspective.

And let me sort of partially take.

The Capex guide Youre, absolutely correct, we are into a more normalized environment.

And our visibility is very good now certainly over the short term.

Our visibility improves.

Some of these mega projects and reassuring projects there.

They are multiyear projects and theyre going to ramp up over time.

And we can always.

Because the supply chain is much healthier than it's been over the last three years, we always have the ability to ramp up.

Top box intake.

As we experience improvements on the on the rental revenue side.

Yes, I'm not trying to have you give it 25 Capex guide.

Making sure I hear from you that this below 20% net rental capex to its expected rental revenues.

Flow trend because you were above trend.

Mark Humphrey: The Bulletproof Executive, 2013, about 25. Yeah, so I'll take the second one first. On the used equipment side, right, we sort of closed out the year with, I think, about $0.44 on every dollar of OEC from a disposal perspective. And I think if you sort of look through the guide, it's probably slightly north of that in the implied guide for 2024. And I think that's really coming about, you know, as we shift out of that auction channel into a more retail and wholesale focused sales mix. I think that's supportive of a slight increase from an OEC perspective. Does that make sense?

But if I think about 25% and 26 just to get a sense of your confidence in the growth beyond 'twenty. Four I was just curious if youre willing to say no you should expect net rental capex in 'twenty, five and that normal 25% to 30% of whatever you think the rental revenue base yes.

Yes.

David I don't think Thats unreasonable I think I think that's a reasonable assumption.

Appreciate it alright, thank you for the time.

Thank you.

There are no further questions at this time I will now turn the call back over to Leslie for any closing remarks.

Thank you for joining us on the call today, we look forward to updating you on our progress in Aquarius to come of course, if you have any further questions. Please don't hesitate to reach out recapture that have a great day.

This concludes today's conference you may now disconnect.

Mark Humphrey: to be over. Yeah, I mean, you've got you've got, You would have some slight increase in your margin, obviously, as a percentage of your revenue in 2024, that number is going to go down, right? I'm selling somewhere between 20 and 30% less gear. So you'll get some EBIT.LIFT there just from a mixed perspective.

Aaron Birnbaum: And let me sort of partially take the CAPEX guide. You're absolutely correct, we're into a more normalized environment, and our visibility is very good now, certainly over the short term. And as our visibility improves, and some of these mega projects and reshoring projects, they're multi-year projects, and they're gonna ramp up over time.

Sure.

Aaron Birnbaum: And we could always, because the supply chain is much healthier than it's been over the last three years, we always have the ability to ramp up that CAPEX intake as we experience improvements on the rental revenue side, below trend. All right. But if I- Yeah, David, I don't think that's unreasonable. I think that I think that's a reasonable assumption.

[music].

Okay.

Mark Humphrey: All right. Thank you. There are no further questions at this time. I will now turn the call back over to Leslie for any 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 us. Have a great day! This concludes today's conference. You may now disconnect.

Okay.

Yes.

Yes.