Q1 2024 Herc Holdings Inc Earnings Call

Dennis: Good morning, my name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings first quarter 2024 earnings call and webcast. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Dennis and I will be your conference operator today.

Dennis: This time I would like to welcome everyone to the her holdings first quarter 'twenty 'twenty four earnings call and the webcast all lines have been placed on mute to prevent any background noise.

Dennis: After the speaker's remarks, there will be a question and answer session. To ask a question, simply press star followed by the number one on your telephone keypad to withdraw your question. Press star one again. I would now like to turn the conference over to Leslie Hunziker, Head of Investor Relations. Please go ahead.

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

Dennis: Ask a question simply press star followed by the number one onto a telephone keypad to withdraw your question Press Star one again.

Dennis: I would now like to turn the conference over to Leslie Hunziker head of Investor Relations. Please go ahead.

Leslie Hunziker: Thank you, operator, and good morning, everyone. Welcome to Herc Rentals' first quarter 2024 earnings conference call and webcast. Earlier today, our press release and presentation slides were distributed, and our TANQ was filed with the SEC. All are posted on the events page of our IR website.

Leslie Hunziker: Thank you operator, and good morning, everyone. Welcome to her parental first quarter 2024 earnings conference call and webcast earlier today, our press release and presentation slides for furniture, and our 10-Q was filed with the SEC all are posted on the events page of our IR website.

Leslie Hunziker: Today, we're reviewing our first quarter 2024 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 are included in today's call. These statements are based on the environment as we see it today and therefore involve risks and uncertainties.

Leslie Hunziker: They were reviewing our first quarter 2024 results with comments on operations and our financial including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A.

Leslie Hunziker: Now, let's move onto our safe harboring 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 the call.

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

Leslie Hunziker: You should refer to the risk factors section of our annual report on Form 10-K for the year ended December 31 2023.

Leslie Hunziker: 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 them through our webcast on our website.

Leslie Hunziker: A replay of this call can be accessed via dial-in through our 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 Hunziker: 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 Hunziker: Finally, please mark your calendars to join our management team at three industrial conferences this quarter. We'll be at Bank of America's conference on May 14th in New York, KeyBank's conference in Boston on May 30th, and Wells Fargo's conference in Chicago on June 11th. This morning I'm joined by Larry Silber, President and Chief Executive Officer, Aaron Birnbaum, Senior Vice President and Chief Operating Officer, and Mar Comfrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Leslie Hunziker: Finally, please mark your calendars to join our management team and three industrial conferences. This quarter will be a bank of America's conference on May 14th in New York Keybanc Conference in Boston on May 30th and Wells Fargo's Chicago Conference on June 11th.

Leslie Hunziker: 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.

Lawrence H. Silber: Thank you, Leslie, and good morning, everyone. Let's turn to slide number four.

Lawrence H. Silber: Thank you Leslie and good morning, everyone, let's turn to slide number four.

Lawrence H. Silber: We're off to a solid start in 2024. Revenue and adjusted EBITDA were first quarter record highs, driven by continued strong volume growth and a 5% increase in rental rates year over year. These results reflect total company performance, including our Central East business. Our flexible business model, diverse customer base, and broad equipment portfolio enabled us to generate top-line growth in the first quarter across both core and specialty categories and local and national accounts.

Lawrence H. Silber: We're off to a solid start in 2020 for revenue and adjusted EBITDA were first quarter record highs driven by continued strong volume growth and <unk>.

Lawrence H. Silber: 5% increase in rental rate year over year. These results reflect total company performance, including our <unk> business.

Lawrence H. Silber: Our flexible business model diverse customer base and broad equipment portfolio enabled us to generate top line growth in the first quarter across both core and specialty categories and local and national accounts.

Lawrence H. Silber: By capturing an outsized share of market volume, generating rate growth to offset fleet inflation, and delivering operating efficiencies, adjusted EBITDA increased 10% over the prior year. Reported adjusted EBITDA margin in the first quarter benefited from operating leverage and the early stages of recovery in the studio entertainment market after last year's labor strike. Mark will take you through the core business performance, excluding Sinalese, in just a minute.

Lawrence H. Silber: By capturing an outsized share of market volume generating rate growth to offset fleet inflation and delivering operating efficiencies adjusted EBITDA increased 10% over the prior year ripped.

Lawrence H. Silber: We reported adjusted EBITDA margin in the first quarter benefited from operating leverage in the early stages of recovery in the studio entertainment market after last year's labor strikes.

Lawrence H. Silber: Mark will take you through the core business performance.

Mark: Excluding <unk> in just a minute the core business is where we align with our full year guidance.

Lawrence H. Silber: The core business is where we align with our full-year guidance. Moving to slide five, you can see that the successful execution of our strategies is driving our continued improved performance. As we scale our business for sustainable growth, we are investing in expanding our branch network. In the first quarter, we completed four strategic acquisitions and opened for greenfield locations in key markets. We have also invested in our high-margin ProSolutions fleet to address growing demand, capture cross-selling synergies, and support new specialty locations.

Mark: Moving to slide five you can see that the successful execution of our strategies is driving our continued improved performance.

As we scale our business for sustainable growth, we are investing in expanding our branch network in the first quarter, we completed four strategic acquisitions and opened four greenfield locations in key markets.

Mark: We also invested in our high margin Pro solutions fleet to address growing demand capture cross selling synergies and support new specialty locations. Our specialty offering is expanding with our investments in trench shoring over the last two years in fact in the first quarter, we acquired our largest <unk>.

Lawrence H. Silber: Our specialty offering is expanding with our investments in trench rearing over the last two years. In fact, in the first quarter, we acquired our largest trench rearing business to date, bolstering our expert solutions offerings for our customers.

Mark: Business today, bolstering our expert solutions offerings for our customers.

Lawrence H. Silber: Our innovative customer-facing digital capabilities are also improving the customer experience, while streamlining trend actions and enhancing productivity. When it comes to capital allocation, our current strategy reflects where we are in terms of our opportunity to grow the business. With all of the capabilities we've built over the last eight years, from systems, to procurement, to logistics, to product, and then market expertise, and at a time in the cycle where federally funded megaprojects and manufacturing and reshoring are setting the stage for multi-year foundational growth, investments in fleet and M&A continue to be priorities of our capital allocation framework.

Mark: Our innovative customer facing digital capabilities are also improving the customer experience, while streamlining trends actions and enhancing productivity.

Mark: When it comes to capital allocation. Our current strategy reflects where we are in terms of our opportunity to grow the business with all of the capabilities. We've built over the last eight years from systems to procurement to logistics to product and end market expertise.

And at a time in the cycle, where federally funded mega projects and manufacturing reassuring are setting the stage for a multiyear foundational growth investments in fleet and M&A continue to be priorities of our capital allocation framework.

Lawrence H. Silber: We view capital allocation as a strategic lever for us to generate value, and we feel really good about our progress on that front. One of the ways we're ensuring we create value from those investments is through the rollout of our business operating system, E3OS. Through standardized processes and a continuous improvement mindset, E3OS touches every aspect of our business with a goal of ensuring Herc Rentals is easy to do business with, expert at what we do, and efficient in serving our customers.

Mark: We view capital allocation is a strategic lever for us to generate value and we feel really good about our progress on that front.

Mark: One of the ways, we're ensuring we create value from those investments is through the rollout of our business operating system E. Three OS through standardized processes and continuous improvement mindset Easter AOS touches every aspect of our business with the goal of ensuring hersey rentals is easier to do.

Business with expert at what we do and attrition and serving our customers.

Lawrence H. Silber: E3OS initiatives are already being put in place across the organization, and incremental progress will go a long way toward delivering a superior experience for our customers and greater operating leverage for our business. With that, I'll turn it over to Aaron to take you through the first quarter operating details and provide some color on market trends. And then Mark will walk you through a more detailed financial review both with and without Cinalese. Aaron

Mark: E <unk> initiatives are already being put in place across the organization and incremental progress will go a long way toward delivering a superior experience for our customers.

Mark: And.

Greater operating leverage for our business with that I'll turn it over to Aaron to take you through the first quarter operating details and provide some color on market trends and then Mark will walk you through a more detailed financial review, both with and without <unk> earn thanks.

Aaron D. Birnbaum: Thanks Larry, and good morning everyone. There is a lot to like about how our teams are delivering for our customers. Everyone is laser focused on leveraging our scale, go-to-market approach, pro control, next-gen technology, and one-stop shop equipment offering to support our customer success. In the first quarter, new accounts are up year over year, and contributions to revenue growth are being delivered across the board. I'm really proud of the way our team continues to focus on delivering a superior customer experience while executing well against our strategic growth initiatives.

Aaron D. Birnbaum: Thanks, Larry and good morning, everyone.

Aaron D. Birnbaum: There is a lot to like about how our teams are delivering for our customers.

Aaron D. Birnbaum: Everyone is laser focused on leveraging our scale go to market approach broke controlling nextgen technology.

Aaron D. Birnbaum: One stop shop equipment offering to support our customers' success.

Aaron D. Birnbaum: In the first quarter, new accounts are up year over year and contributions to revenue growth are being delivered across the board I'm really proud of the way our team continues to focus on delivering a superior customer experience, while executing well against our strategic growth initiatives.

Aaron D. Birnbaum: Execution starts with safety and of course safety is always at the core of everything we do as you can see on slide seven our major internal safety program focuses on perfect days and we strive for 100% perfect days throughout the organization in the first quarter on a branch by branch measurement all of our operations achieved at least 97%.

Aaron D. Birnbaum: And, of course, safety is always at the core of everything we do. As you can see on slide seven, our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization.

Aaron D. Birnbaum: In the first quarter, on a branch by branch measurement, all of our operations achieved at least 97% 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 our customers. On slide eight, you can see that we are making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions in the top 100 metropolitan markets.

Aaron D. Birnbaum: Dave's is perfect.

Aaron D. Birnbaum: Equally notable our total recordable incident rate remains better than the industry benchmark of one point.

Aaron D. Birnbaum: Reflecting our high standards and commitment to the safety of our people and our customers.

Aaron D. Birnbaum: On slide eight you can see that we are making great progress on our urban market growth strategy by expanding through Greenfield locations and acquisitions in the top 100 metropolitan markets.

Aaron D. Birnbaum: In the first quarter, we spent $148 million in net cash on four acquisitions in the West and in the Northeast, adding a total of 11 locations to our network. We also opened four greenfield locations in the first three months of the year, bringing our total over the last 12 months to 22, which is nearly a 50% increase over the comparable trailing 12 month period.

Aaron D. Birnbaum: In the first quarter, we spent $148 million of net cash on four acquisitions in the west and in the northeast, adding a total of 11 locations to our network. We also opened four greenfield locations in the first three months of the year, bringing our total over the last 12 months to 22, which is nearly a 50% increase.

Aaron D. Birnbaum: Over the comparable trailing 12 month period.

Aaron D. Birnbaum: 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 and manufacturing reshoring projects being announced are in the geographies where we have focused our acquisitions and greenfield additions, like Texas, Ohio, Arizona, and along the eastern seaboard of the United States. Our acquisition process is now a core competency, having successfully integrated 46 businesses with 98 locations into the Herc network since initiating the strategy in late 2020. As a result of revenue efficiencies, we've been generating synergized multiples of approximately 3.5 to 4.5 times.

Aaron D. Birnbaum: 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 and manufacturing re shoring projects being announced or in the geographies, where we have focused our acquisitions and greenfield additions like <unk>.

Aaron D. Birnbaum: <unk>, Ohio, Arizona, and along the eastern Seaboard of the United States.

Aaron D. Birnbaum: Our acquisition process is now a core competency having successfully integrated 46 businesses with 98 locations into the FERC network since initiating the strategy in late 2020.

Aaron D. Birnbaum: As a result of revenue efficiencies, we've been generating synergize multiples of approximately three 5% to four five times.

Aaron D. Birnbaum: New acquisition opportunities are as robust as ever, and we are actively focused on those that make the most strategic sense for a business in the top MSAs. On slide 9, 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. Our fleet composition at OEC is on the right side of the page. The total fleet is now a record $6.4 billion as of March 31, 2024. The Sinalese fleet represents about 5% of the total. So when you exclude the Sinalese assets held for sale, our base fleet would have been about $6.1 billion.

Aaron D. Birnbaum: New acquisition opportunities are as robust as ever and we are actively focused on those that make the most strategic sense for our business and the top msas.

Aaron D. Birnbaum: On slide nine 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.

Aaron D. Birnbaum: Our fleet composition, Ed always see is on the right side of the page total fleet is now a record $6 $4 billion as of March 31 2024.

Aaron D. Birnbaum: Suddenly fleet represents about 5% of the total so when you exclude the <unk> assets held for sale our base fleet would have been about $6 1 billion.

Aaron D. Birnbaum: You'll note that the higher-margin specialty fleet represents approximately 24% of the total today; excluding the Sinalese fleet, specialty makes up about 20% of the total with plenty of room to continue to grow. When it comes to fleet investments, you can see we've slowed our intake to a more seasonal level in the first quarter of this year versus last year, when the recovery in the supply chain meant we were onboarding a high level of backorder deliveries of 2021 and 2022 fleet out of season. For the full year, we still expect to spend in the range of $750 million to $1 billion on new fleet purchases.

Aaron D. Birnbaum: Youll note that higher margin specialty fleet represents approximately 24% of the total today, excluding the suddenly sleep, especially makes up about 20% of the total with plenty of room to continue to grow.

Aaron D. Birnbaum: When it comes to fleet investments you can see we slowed our intake to a more seasonal level in the first quarter of this year versus last year when the recovery in the supply chain that we're onboarding a high level of back order deliveries of 2021, and 2022 fleet out of season.

Aaron D. Birnbaum: For the full year, we still expect to spend in the range of $750 million to $1 billion of new fleet purchases.

Aaron D. Birnbaum: That gross amount, along with last year's growth fleet purchases, should provide for incremental demand from general market expansion, greenfields, and the megaprojects that are either underway or that we have a high probability line of sight to. Our level of fleet investment this year also reflects our goal to improve fleet efficiency. Now that we have more confidence in delivery timing, disciplined investment will support that goal as we head into the peak season.

Aaron D. Birnbaum: That gross amount along with last year's growth fleet purchases should provide for incremental demand from general market expansion Greenfields and the Mega projects that are either underway or that we have a high probability of line of sight too.

Aaron D. Birnbaum: Our level of fleet investment. This year also reflects our goal to improve fleet efficiency.

Aaron D. Birnbaum: Now that we have more confidence in delivery timing disciplined investment will support that goal as we head into the peak season.

Aaron D. Birnbaum: Finally, we are planning for a lower level of replacement fleet compared to last year when we worked aggressively to get caught up on deferred fleet disposals as the supply chain recovered. This year, you should expect to see a more normal seasonal cadence of dispositions, where first quarter and fourth quarter are the highest levels of fleet sales, and second quarter and third quarter are lower as we focus on bringing in new equipment. You can see that last year's trend was unusual, with dispositions peaking in the third quarter.

Aaron D. Birnbaum: Finally, we are planning for a lower level of replacement fleet compared to last year. When we worked aggressively to get caught up on deferred fleet disposals.

Aaron D. Birnbaum: As the supply chain recovered. This year, you should expect to see a more normal seasonal cadence of dispositions were first quarter and fourth quarter for the highest levels of fleet sales in second quarter and third quarter are lower as we focus on bringing in new equipment.

Aaron D. Birnbaum: You can see the last year's trend was unusual with dispositions, peaking in the third quarter.

Aaron D. Birnbaum: In the 2024 first quarter, fleet disposals at OEC were essentially flat compared to last year, but we continue to gain traction on our retail channel capabilities, utilizing technology, training, and salesforce incentives to participate more in this higher-return channel. The amount of fleet at OEC that we sold to retail and wholesale customers increased 900 basis points from last year. However, proceeds at 50% of OEC were slightly lower year over year despite the successful channel shift.

Aaron D. Birnbaum: And the 2024 first quarter fleet disposals at OFC were essentially flat compared with last year, while we continued to gain traction on our retail channel capabilities utilizing technology training and sales force incentives to participate more in this higher return channel <unk>.

Aaron D. Birnbaum: The amount of fleet at OFC that we sold to retail and wholesale customers increased 900 basis points from last year.

Aaron D. Birnbaum: Proceeds at 50% of OFC or slightly lower year over year. Despite the successful channel shift due.

Aaron D. Birnbaum: Due to a more favorable mix of equipment being sold in the first quarter of last year, so a bit of a tougher comp year over year, but overall, we have a nice opportunity ahead as we execute our more profitable channel shift strategy. We are still planning for about $550 to $650 million of planned fleet disposals at OEC in 2024. Turning to slide 10, today, our fleet is well-positioned to address the needs of large national accounts on local contractors operating in North America.

Aaron D. Birnbaum: Due to the more favorable mix of equipment being sold in the first quarter last year, so a bit of a tougher comp year over year, but overall, we have a nice opportunity ahead as we execute our more profitable channel shift strategy.

Aaron D. Birnbaum: We are still planning for about $550 to $650 million of planned fleet disposals that we see in 2024.

Aaron D. Birnbaum: Turning to slide 10 today, our fleet is well positioned to address the needs of large national accounts on local contractors operating in North America.

Aaron D. Birnbaum: Local accounts, which represented 55% of rental revenue in the first quarter, are growing due to burst penetration through our acquisition and greenfield strategy, as well as regional growth in infrastructure, education, local utilities, and facility maintenance and repair. Meanwhile, our national accounts are capitalizing on new projects for battery and EV utility maintenance, renewables, semiconductor plants, and data centers. Long term, we'll continue to target a 60-40 revenue split between local and national accounts. Turning to slide 11, overall, we are continuing to see solid demand across a variety of end markets, customer segments, and geographies in 2024.

Aaron D. Birnbaum: Local accounts, which represented 55% of rental revenue in the first quarter are growing due to harsh penetration through our acquisition and Greenfield strategy as well as regional growth in infrastructure education, local utilities and facility maintenance and repair.

Aaron D. Birnbaum: Our national accounts are capitalizing on new projects for battery and EV utility maintenance renewables semi conductor plants and data centers.

Aaron D. Birnbaum: Long term, we will continue to target a 60 40 revenue split between local and national accounts.

Aaron D. Birnbaum: Turning to slide 11 overall, we are continuing to see solid demand across a variety of end markets customer segments and geographies in 2024.

Aaron D. Birnbaum: This diversification provides for growth and resiliency. Based on the timing of our mega projects this year, revenue growth will be more weighted toward the third and fourth quarters, and our disciplined fleet onboarding, which starts building through the second quarter, is aligned with the expected seasonal ramp in demand to October's peak. Team HERC is already gearing up, and I want to thank them for their commitment to operational excellence and safety. Their professionalism shows up in the execution of our services to our customers every single day. It's a big reason for the long tenure of our national account customers and for the new business we're winning on local and mega projects. Now, I'll pass the call on to Mark.

Aaron D. Birnbaum: This diversification provides for growth and resiliency.

Aaron D. Birnbaum: Based on the timing of our Mega projects. This year revenue growth will be more weighted towards the third and fourth quarters, and our disciplined fleet Onboarding, which starts building through the second quarter is aligned with the expected seasonal ramp in demand to October's peak team.

Aaron D. Birnbaum: <unk> is already gearing up and I want to thank them for their commitment to operational excellence and safety their professionalism shows up in the execution of our services to our customers every single day, It's a big reason for the long tenure of our national account customers and for the new business, we're winning a local and mega projects now.

Aaron D. Birnbaum: Now I will pass the call onto Mark.

Mark Comfrey: Thanks, Aaron, and good morning, everyone. I'm starting on slide 13 with a summary of our key metrics for the first quarter. For clarification, these are our GAAP results and include the Sentinelese performance. Rental revenue increased 10% year-over-year; DOE and SG&A as a percent of rental revenue improved 50 basis points in the quarter, supporting a 12% improvement in adjusted rebid dot. The adjusted rebid dot margin of 43.1% was a 70 basis point increase year-over-year, and adjusted rebid dot flow-through was roughly 51%.

Mark: Thanks, Aaron and good morning, everyone I'm, starting on slide 13, with a summary of our key metrics for the first quarter for.

Mark: For clarification. These are our GAAP results and include the <unk> performance rental revenue increased 10% year over year.

Mark: Doe and SG&A as a percent of rental revenue improved 50 basis points in the quarter supporting a 12% improvement in adjusted EBITDA. The adjusted EBITDA margin of 43, 1% with a 70 basis point increase year over year and adjusted EBITDA flow through was roughly 51%.

Mark Comfrey: Net income reflected 27% higher interest expense year over year from increased borrowings on our ABL revolver to fund acquisitions and a 75 basis point increase in the Fed funds rate. Additionally, our effective tax rate increased by 910 basis points in the latest quarter, primarily as a result of a reduced benefit related to stock-based compensation specific to the first quarter. Let's walk through some of the other key performance drivers on slide 14.

Mark: Net income reflected 27% higher interest expense year over year from increased borrowings on our ABL revolver to fund acquisitions at a 75 basis point increase in the fed funds rate.

Additionally, our effective tax rate increased by 910 basis points in the latest quarter, primarily as a result of a reduced benefit related to stock based compensation specific to the first quarter.

Speaker Change: Let's walk through some of the other key performance drivers on slide 14.

Mark Comfrey: Here you can see the rental revenue and adjusted EBITDA walks from the first quarter 2023 to the first quarter 2024. In the revenue chart, the roughly 10% increase year over year was made up of a 5.1% increase in rate and an 8% increase in OEC fleet on rent. Mix was an offset of about 3%, reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent.

Speaker Change: Here you can see the rental revenue and adjusted EBITDA walk from the first quarter 2023, the first quarter 2024.

And the revenue chart, the roughly 10% increase year over year was made up of a five 1% increase in rate and an 8% increase in OCC fleet on rent.

Speaker Change: <unk> was an offset of about 3%, reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent.

Mark Comfrey: For clarification, when it comes to revenue, fleet inflation is included in the mix to adjust the volume measured at OEC dollars to a unit metric. Adjusted EBITDA benefited from higher rental revenue and lower operating expenses as a percent of revenue. Adjusted EBITDA margin was 60 basis points higher year-over-year, driven by a $10 million, or 53 percent, increase in cent-a-lease revenue in the 2024 first quarter, partially offset by last year's higher fleet disposition process. Our core financial results on slide 15 exclude studio entertainment from both periods in order to give you a better sense of how the base business performed in the quarter.

Speaker Change: Clarification when it comes to revenue fleet inflation is included in the mix to adjust the volume measured at OFC dollars to a unit metrics.

Speaker Change: Adjusted EBITDA benefited from higher rental revenue and lower operating expenses as a percentage of revenue adjusted EBITDA margin was 60 basis points higher year over year, driven by a $10 million or 53% increase in federal lease revenue in the 2024 first quarter, partially offset by last year's higher fleet there.

Speaker Change: Position proceeds.

Speaker Change: Our core financial results on Slide 15 excludes studio entertainment from both periods in order to give you a better sense of how the base business performed in the quarter.

Mark Comfrey: A full reconciliation of quarterly performance metrics excluding studio entertainment can be found on slide 25 in the appendix of our presentation. Fleet efficiency ratio, rental revenue growth divided by fleet growth, improves sequentially from 0.65 in the fourth quarter of 2023 to 0.86 in the first quarter of 2024, with average fleet growth in the first quarter of 11%, as our fleet rotation returns to a normal cadence. Strong rental revenue growth of 9% translated into a 20 basis point improvement in adjusted rebate margin as a result of favorable operating leverage. However, core Revit dot flow-through declined to 46.4% in the first quarter of 2024.

Speaker Change: A full reconciliation of quarterly performance metrics, excluding studio entertainment can be found on slide 25 in the appendix of our presentation.

Speaker Change: Fleet efficiency ratio rental revenue growth divided by fleet growth improved sequentially from <unk> 65 in the fourth quarter of 2023 to <unk> eight.

Speaker Change: <unk> 86 in the first quarter of 2024 on average fleet growth in the first quarter of 11% as our fleet rotation returns to a normal cadence.

Speaker Change: Strong rental revenue growth of 9% translated into a 20 basis point improvement in adjusted EBITDA margin as a result of favorable operating leverage.

Speaker Change: Core EBITDA flowed through declined to 46, 4% in the first quarter of 2024 to preserve EBITDA flow through in the first quarter of 2023 level, we would have only needed to generate an additional $1 million of EBITDA in Q1 2024 affecting.

Mark Comfrey: To preserve Revit dot flow-through at the first quarter 2023 level, we would have only needed to generate an additional $1 million of Revit dot in Q1 2024. Affecting the flow-through on a year-over-year basis is the transition in 2024 to a normalizing macro environment on the higher-cost basis of our new greenfields and acquisitions, compared with the post-COVID hyper-demand environment, which These locations are strategic investments in expanding network coverage and scale benefits but can initially put pressure on efficiency for approximately 24 months until we can get them up to speed.

Speaker Change: Reflecting the flow through on a year over year basis is the transition in 2024 to a normalized macro environment on the higher cost basis of our new greenfields and acquisitions compared with the post COVID-19 hyper demand environment, which more easily absorb these pre synergize the expenses.

Speaker Change: These locations are strategic investments in expanding network coverage and scale benefits, but initially can put pressure on efficiency for approximately 24 months until we can get them up to speed that impact is amplified as growth adjusts to more historic average annual rates and shows up in flowed through <unk>.

Mark Comfrey: That impact is amplified as growth adjusts to more historic average annual rates and shows up in floats. Despite the timing differential of the normalizing demand and the synergy realization, we expect our flow through for the full year to be at or above 50%, which is still in scope with our 2026 plan as we deliver on the higher targeted 10 to 14% rental revenue kick. Trailing 12-month ROIC for the core business declined 30 basis points to 10.9% at the end of the quarter.

Speaker Change: Despite the timing differential of the normalizing demand and the synergy realization, we expect our flow through for the full year to be at or above 50%, which is still in scope with our 2026 plan as we deliver on the higher targeted 10% to 14% rental revenue CAGR.

Speaker Change: Trailing 12 month ROIC, Steve for the core business declined 30 basis points to 10, 9% at the end of the quarter.

Mark Comfrey: Absorbing all of the back orders in an out-of-season fleet that was delivered throughout 2023 had a negative impact on ROIC. However, with the prudent onboarding of the fleet in the first quarter of 2024 and the focus on improving fleet efficiency, we expect to see improvement in the coming quarter. Moving to capital management on slide 16, you can see we have no near-term maturities and ample liquidity to fund our growth goals as we continue to allocate capital to invest in our business and drive fleet growth into this cycle. Higher operating cash flow and significantly lower net capital expenditures resulted in $92 million of free cash flow in the first quarter.

Speaker Change: Absorbing all of the back order in or out of season fleet that was delivered throughout 2023 had a negative impact on ROIC.

Speaker Change: However, with the prudent Onboarding of fleet in the 2020 for first quarter and the focus on improving fleet efficiency, we expect to see improvement in the coming quarters.

Speaker Change: Shifting to capital management on Slide 16, you can see we have no near term maturities and ample liquidity to fund our growth goals as we continue to allocate capital to invest in our business and drive fleet growth into this cycle.

Speaker Change: Higher operating cash flow and significantly lower net capital expenditures resulted in $92 million of free cash flow in the first quarter. Our current leverage ratio of two five times is well within our 2% to three times target range and in line with our expectations as we invest in growth.

Mark Comfrey: 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. We remain confident in our business model and are committed to increasing shareholder value. In the first quarter, we announced a 5% increase in our quarterly dividend for 2024 to $0.665, which represents $2.66 per share for the year. Finally, we're pleased to report that S&P upgraded our corporate credit rating to double B earlier this month, while also raising the rating on our senior unsecured notes to double B minus.

Speaker Change: We remain confident in our business model and are committed to increasing shareholder value in the first quarter, we announced a 5% increase in our quarterly dividend for 2024 to <unk> 66, and a half.

Speaker Change: Which represents $2 66 per share for the year.

Speaker Change: Finally, we're pleased to report that S&P upgraded our corporate credit rating to double B earlier. This month, while also raising the rating on our senior unsecured notes to double B minus.

Speaker Change: This stable stock this stable outlook reflects S&P's view that the U S equipment rental industry is poised for continued growth and that hurt will benefit from our position as one of the largest industry players with the sizable and diverse fleet.

Mark Comfrey: This stable outlook reflects S&P's view that the U.S. equipment rental industry is poised for continued growth and that Herc will benefit from our position as one of the largest industry players with a sizable and diverse fleet. On slide 17, you can see that continued strength in our primary end mark. To the upper left, the ARA estimate for 2024 North American rental industry revenue is $83 billion. On the bottom left is the Architectural Billing Index, which recorded a score of 49.5 in the March release, up significantly from February's 46.2. Inquiries into new projects grew at their fastest pace since November, and the value of design contracts increased at their fastest pace since last summer.

Speaker Change: On Slide 17, you can see that continued strength in our primary end markets in the upper left the estimate for 2024, North American rental industry revenue is 83 billion.

Speaker Change: On the bottom left is the architectural billing index that recorded a score of $49 five in the March release of significantly from February 46, two.

Speaker Change: Inquiries into new projects grew at their fastest pace since November and the value of design contracts increased at their fastest pace since last summer. These are positive signs for future growth According to Abi.

Speaker Change: Taking a look at the industrial spending forecast on the top right.

Speaker Change: <unk> resources is projecting 2024 to be the second highest level on record at 436 billion on top of last year's peak $442 billion spend.

Mark Comfrey: These are positive signs for future growth, according to API. Taking a look at the industrial spending forecast on the top right, Industrial Info Resources is projecting 2024 to be the second highest level on record at $436 billion on top of last year's peak $442 billion spend. In the lower right quadrant is Dodge's forecast for non-residential construction starts. 2024 starts are estimated to increase 4% to $441 billion. The dotted line on both of these charts reflects growth over pre-pandemic peak levels.

Speaker Change: In the lower right quadrant as dodge's forecast on nonresidential construction starts 2024 starts are estimated to increase 4% to 441 billion.

The dotted line on both of these charts reflects growth over pre pandemic peak 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.

Speaker Change: Additionally, there is another $333 billion in infrastructure projects slated for 2024, Thats, a 10% increase over 2023.

Mark Comfrey: 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 $333 billion in infrastructure projects slated for 2024. That's a 10% increase over 2023. Two of our key end markets are industrial and non-residential construction. Combined, these end 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. If you flip to slide 18, you can see that we are affirming the 2024 guidance that was set in February. As noted, our guidance excludes the performance of Sinalese, which is held for sale.

Speaker Change: Two of our key end markets, our industrial and nonresidential construction combined these end markets reflected 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 then the re shoring of U S manufacturing capacity continues to gather steam.

Speaker Change: If you flip to slide 18, you can see that we are affirming the 2024 guidance that was set in February as noted our guidance excludes the performance of center lease which is held for sale.

Speaker Change: We feel good about the 7% to 10% rental revenue growth range for the full year based on current visibility more experience with the pace of the Mega project rollout the normalizing growth trends in the local market and of course feedback from our team in the field when it comes to the quarterly rental revenue cadence or lower fleet.

Mark Comfrey: We feel good about the 7 to 10% rental revenue growth range for the full year based on current visibility, more experience with the pace of the mega project rollout, the normalizing growth trends in the local market, and, of course, feedback from our team in the field. When it comes to the quarterly rental revenue cadence, our lower fleet investment in the first 3 months of the year will result in a sequential moderation of second quarter year over year top line growth compared with the first quarter's 9%.

Speaker Change: Investment in the first three months of the year will result in a sequential moderation of second quarter year over year top line growth compared with the first quarter is 9%.

Speaker Change: But as the bulk of our net fleet investment comes in in the second and third quarters that will drive higher sequential year over year revenue growth in the third and fourth quarters.

Speaker Change: So should we expect to exit the year above the average rental revenue growth rate for 2024.

Speaker Change: With improved fleet efficiency and operating leverage we estimate adjusted EBITDA will be between $1 55, and $1 6 billion.

Mark Comfrey: But as the bulk of our net fleet investment comes in during the second and third quarters, that will drive higher sequential year-over-year revenue growth in the third and fourth quarters, such that we expect to exit the year above the average rental revenue growth rate for 2024. With improved fleet efficiency and operating leverage, we estimate adjusted EBITDA will be between $1.55 and $1.6 billion, representing another year of profitable growth ranging from six to nine percent.

Speaker Change: Representing another year of profitable growth ranging from 6% to 9% when comparing the adjusted EBIT growth EBITDA growth rate with the equipment rental revenue growth rate. The roughly 100 basis point difference is our expectation for a lower amount of used equipment sales versus 2023.

Speaker Change: 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 project is consistent when an industry in an up cycle and our guidance reflects that we intend to continue to deliver strong financial metrics as we execute on.

Mark Comfrey: When comparing the adjusted EBITDA growth rate with the Equipment Rental Revenue growth rate, the roughly 100 basis point difference is our expectation for a lower amount of used equipment sales versus 2023. 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, Operator, we'll take our first question.

Speaker Change: Our proven growth strategy with that operator, we will take our first question.

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one the under telephone keypad.

Speaker Change: As a reminder, please ask one question and one follow up question.

Speaker Change: Your first question is from the line of Rob Wertheimer with Melius Research. Please go ahead.

Thank you good morning, everybody.

Robert Cameron Wertheimer: So Mike.

Robert Cameron Wertheimer: So my question is going to be basically on supply demand in the industry and trying to square up a few numbers that are pointing in different directions, and so specifically rental PPI kind of released by the government is in theory, a broad metric was basically zero for March and February you had really strong rate upsides and I am curious.

Dennis: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number 1 on your telephone keypad. As a reminder, please ask one question and one follow-up. Your first question from the line of Rob Wertheimer with Amelius Research, please.

Robert Cameron Wertheimer: You guys see the numbers and we don't but does the rental PPI tend to track what you think of as being the rate environment, sometimes it looks like it's sometimes a divergence I am curious if you think there's any signal in that week number.

Robert Cameron Wertheimer: Thank you. Good morning, everybody.

Robert Cameron Wertheimer: My question is going to be basically on supply and demand in the industry and trying to square up a few numbers that are pointing in different directions. Specifically, the rental PPI released by the government, which is, in theory, a broad metric, was basically zero for March and February. You had a really strong rate up five. I'm curious, you guys see the numbers, and we don't, but does the rental PPI tend to track what you think of as being the rate environment? Sometimes it looks like it, sometimes it diverges. I'm curious if you think there's any signal in that weak number.

Speaker Change: No we don't Thats not one of the metrics, we actually focus on it's got a lot of volatility in it and it isn't representative of what's going on at the local markets on rates and pricing.

Speaker Change: It is our experience on that perfect.

Speaker Change: And then so if I got it right.

Speaker Change: Average fleet in new and total average fleet was up 10 year rate was up 5% implied time units down I know, it's <unk> their seasonal there is weather is there any kind of weakness in the market are you, losing any business on having two are choosing their pushed aside any business I'll have on higher rates or how would you characterize the.

Unknown Executive: No, we don't. That's not one of the metrics we actually focus on. It's got a lot of volatility in it, and it isn't representative of what's going on in the local markets on rates and prices. That's our experience with that.

Unknown Executive: Yep. And then, so if I got it right, your average fleet, I'm doing a total average, fleet was up 10, your rate was up 5, implied time mute is down, I know it's 1Q, there's seasonality, there's weather. Is there any kind of weakness in the market? Are you losing any business on having to, or choosing to push aside any business on having higher rates? Or how would you characterize the, I guess, the time mute market if you could? Yeah, look.

I guess the timing of marketing you can yes.

Speaker Change: Yes look Rob there is always weather and every year at every time and we don't really sort of report out weather as being any kind of a significant factor unless of course, there is a major hurricane or something like that that.

Speaker Change: That has a significant impact so we wouldn't even turn to weather, but no. We don't believe we are losing.

Speaker Change: Any business on the basis of rate or any kind of.

Speaker Change: Pricing, we do see a normalizing of the.

Unknown Executive: Yeah, look, Rob, you know, there's always weather every year at every time, and we don't really sort of report weather as being any kind of a significant factor unless, of course, there's a major hurricane or something, you know, like that, that has a significant impact. So we wouldn't even turn to weather.

Speaker Change: The seasonality of the business more back to pre COVID-19 levels.

Speaker Change: And.

Speaker Change: Thats what were experiencing and that's what we'll continue to see.

Speaker Change: Great I'll stop there. Thank you.

Speaker Change: Your next question is from the line of Steve Ramsey with Thompson Research Group. Please go ahead.

Speaker Change: Hey, Good morning. This is actually Brian Biros on for Steven Thank you for taking my questions.

Unknown Executive: But no, we don't believe we are losing any business on the basis of rate or any kind of, you know, pricing. We do see a normalizing of the seasonality of the business, more back to pre-COVID levels. And, you know, I think that's what we're experiencing, and that's what we'll continue to see.

Brian Biros: Good morning, Brian.

Brian Biros: Good morning.

Brian Biros: On the large trench shoring acquisition can you give us talk about one the quality of that business, there and maybe to the evaluation of that deal versus your usual multiples paid.

Robert Cameron Wertheimer: Great, I'll stop there. Thank you.

Speaker Change: Yes, I mean from a from an overall multiples perspective, obviously, it's more viewed in a specialty light. So it would it would trade at a higher multiple than your gen rents.

Dennis: Your next question is from the line of Steve Ramsey with Thompson Research Group. Please go ahead.

Brian Barros: Hey, good morning. This is actually Brian Barros on for Steven. Thank you for taking my question. On the large trench shoring acquisition, can you maybe just talk about, one, the qualities of that business there, and maybe, two, the valuation of that deal versus your usual multiples paid?

Speaker Change: Business, but we won't publicly disclosed that multiple.

Speaker Change: In terms of the overall business.

Speaker Change: We're really excited about.

Speaker Change: That opportunity right I mean trenches has been an area, where we have been trying to develop and we've had a few M&A.

Unknown Executive: Yeah, I mean, from an overall multiples perspective, obviously, it's more viewed in a specialty light. So it would trade at a higher multiple than your gen rents business. But, you know, we won't publicly disclose that multiple. In terms of the overall business, we're really excited about that opportunity, right? I mean, trench has been an area where, you know, we have been trying to develop, and we've had a few M&A activities over the last couple of years. And this is just another step in that process.

Speaker Change: M&A activities over the last couple of years and this is just another in that step.

Speaker Change: Got you and then maybe on a follow up.

Speaker Change: Do you still have a.

Speaker Change: Positive growth outlook from your local customers.

Speaker Change: We heard a large peer of couple of months ago kind of stating mid single digit growth our channel checks kind of align with that so just wanted to kind of reconcile how that is maybe a little bit below your 7% to 10% growth outlook and just kind of.

Speaker Change: To connect the dots there. Thank you, yes, Brian that's how we see the local markets. It's a mid single digit.

Unknown Executive: Gotcha. And then maybe on a follow-up, just do you still have a, I guess, positive growth outlook from your local customers? We heard a large peer a couple of months ago kind of stating mid single-digit growth, and our channel checks kind of align with that. So just wanted to kind of reconcile how that is a little bit below your 7 to 10% growth outlook and just kind of connect the dots there. Yeah, Brian, that's how we see the local market.

Speaker Change: Activity no inflation interest rates have had some effect on the local markets, but they are stable. We think the fundamentals are really good in the market and then the large re shoring and Mega projects really is added.

Speaker Change: That extra balanced for the business and the industry to continue the growth story.

Speaker Change: Your next question is from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Jerry David Revich: Gerry good morning Gerry.

Unknown Executive: Yeah, Brian, that's how we see the local markets. It's a mid single-digit activity, inflation interest rates have had some effect on the local markets, but they're stable. We think the fundamentals are really good in the market. And then the large reshoring and mega projects really add that extra balance for the business and the industry to continue the growth story.

Speaker Change: Hey, this is clay on on for Jerry.

Jerry David Revich:

Clay: Can you update us on the capital allocation plan for the year I know, specifically any changes and equipment availability from last year I know, particularly there was some constraint in booms previously I'm curious how that equipment by market has changed.

Dennis: Your next question is from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Speaker Change: Yes. So we've commented on what categories are constrained over the last several updates here I'd say over that time has gotten better and better there are still a few very specific areas.

Jerry David Revich: Morning, Jerry. Morning, Jerry. Hey, this is Clay on behalf of Jerry.

Clay: Can you, you know, update us on the capital allocation plan for the year, you know, specifically any changes in equipment availability from last year? I know, particularly, there were some constraints and booms previously. We're curious how the equipment supply market has changed.

Speaker Change: Aerial access type categories that are in high demand, but for the most part.

Speaker Change: Can you really corrected itself.

Speaker Change: We feel like we can get most of the fleet that we plan to deliver this year on schedule when we want it and if we have incremental situations.

Speaker Change: Situations 90 day lead time, we can usually get that fleet.

Unknown Executive: Yeah, so we've commented on what categories are constrained over the last several updates here. I'd say over that time, it's gotten better and better. There are still a few very specific, you know, aerial access type categories that are in high demand.

Speaker Change: Thanks, and as a follow up on the <unk> lease.

Speaker Change: Business is I mean can you update us on the anticipated timeline around that decision.

Speaker Change: Potential use of those proceeds.

Unknown Executive: But for the most part, things have really corrected themselves. And, you know, we feel like we could get most of the fleet that we've planned to deliver this year on schedule when we want it. And if we have incremental situations, you know, 90 day lead time, we can usually get that fleet.

Speaker Change: Yes.

Speaker Change: Look we're really not going to comment much on the <unk> business during the call because we're in the middle of negotiations and due diligence with several parties, both strategic and financial sponsors in the business. We cited the assets.

Unknown Executive: Thanks. And as a follow-up, on the Sinalese business, can you update us on the anticipated timeline around that decision and the potential use of those proceeds?

Speaker Change: Should be disposed of within the year and and as far as any proceeds that we obtained from the business that will go to reduce our our ABL enrolled back into our.

Unknown Executive: Yeah, look, we're really not.

Unknown Executive: Yeah, look, we're really not going to comment much on the Sinalese business during the call because we're in the middle of negotiations and due diligence with several parties, both strategic and financial sponsors, in the business. We said the assets should be disposed of within the year, and as far as any proceeds that we obtain from the business, they'll go to reduce our ABL and roll back into our capital allocation strategy and determine what's the best appropriate use of that on a go-forward.

Speaker Change: Capital allocation strategy and determining whats the best appropriate use of that on a go forward basis.

Speaker Change: Thanks, I'll pass it on.

Speaker Change: Once again, if you would like to ask a question simply press Star then the number one on your telephone keypad.

Dennis: Once again, if you would like to ask a question, simply press star and then the number one on your telephone keypad. Your next question is from the line of Ken Newman with KeyBank Capital Markets. Please go ahead.

Speaker Change: Your next question is from the line of Ken Newman with Keybanc capital markets.

Please go ahead.

Ken Newman: Good morning, guys.

Ken Newman: Good morning, good morning, Glenn.

Ken Newman: Yes.

Ken Newman: So just wanted to.

Ken Newman: [inaudible] So I just wanted to back into the core fleet utilization. I think, accidentally, it's probably somewhere in that low 40% range.

Ken Newman: Back into the core fleet utilization I think accidentally.

Ken Newman: Somewhere in that low 40% range. One just wanted to confirm if that's the right way to think about it.

Ken Newman: One, just wanted to confirm if that's the right way to think about it. And then, and then two, you know. I think you mentioned expectations for rental revenue to step down sequentially 1Q to 2Q. Just curious how we should think core dollar use for the fleet still stays in this 40% range throughout the year and improves in the back half or just any other color there.

Ken Newman: And then and then two.

Ken Newman: I think you mentioned expectations for <unk>.

Ken Newman: Rental revenue step down sequentially <unk> to <unk>.

Ken Newman: Just curious how should.

Ken Newman: Should we think core dollar you for the fleet.

Ken Newman: Stays in this 40% range throughout the year and improved in the back half or just any other color there.

Speaker Change: Yes, good questions, Ken just take the dollar you first and foremost.

Unknown Executive: Yeah, good questions, Ken. Just take the dollar you want first and foremost.

Unknown Executive: Yeah, it was right about 40 in Q1. And I think, you know, our anticipation is that the dollar utilization cadence should follow that of any other sort of annual view you want to take. I think you'll see a run, it'll increase into two, it will top in Q3 and then slightly come off of that for Q4 just based on seasonality.

Ken Newman: Yes, it was right about 40% in Q1 and I think.

Speaker Change: Our anticipation is dollar utilization cadence should follow that of any other sort of annual view you want to take I think youll see a run.

Speaker Change: It'll increase ended two it will top in Q3, and then slightly come off of that.

Speaker Change: For Q4, just based on <unk>.

Speaker Change: Seasonality.

Ken Newman: The second part of that was what, Ken?

Speaker Change: Second part of that was what Kent.

Speaker Change: Yes.

Ken Newman: Yeah, I guess that I mean, you pretty much answered it, which was how to think about dollar you for the rest. I think we stay above this 40% rate. Yeah.

Kent: You've pretty much answered it which was.

Kent: How to think about dollar U for the rest of the year. If we think about this 40% range.

Unknown Executive: Yeah, I think so. And then your second question was about sort of the cadence of revenue growth and fleet growth as you sort of work your way through the year. You know, prepared remarks. I mean, if you just look at sort of fleet, year over year, right, fleet growth is slowing as we move into Q2, just based on the planned actions, the goal of fleet efficiency here. And so you'll see fleet growth slowing in Q2 as compared to Q1. And then as those fleet actions take place and we buy our gear in the second and third quarter, as Aaron talked about, you'll see fleet growth in three and four, and revenue should follow that.

Kent: Yes, I think so.

Kent: Your second question was on sort of the cadence of Av.

Kent: Revenue growth fleet growth as you sort of work your way through the year.

Kent: <unk> remarks, I mean, if you just look at sort of in fleet.

Kent: Year over year rate the.

Kent: Fleet growth is slowing as we move into Q2, just based on the planned actions the goal of fleet efficiency here and so youll see fleet growth slowing.

Kent: Q2, as compared to Q1, and then as those fleet actions take place and we buy our gear in second and third quarter as Erin.

Kent: Talk about Youll see fleet growth in three and four and the revenue should follow that.

Speaker Change: Got it.

Ken Newman: Got it. And then just a follow-up here, just going back to a prior question about the visibility of these new projects. I know you mentioned inquiry levels are very strong. Sounds like you're expecting a stronger back half with some of these megaprojects breaking ground. Where is the confidence, or how confident are you in terms of the timing of those projects coming through? Because obviously, you do have a larger peer who mentioned some pushouts with some of these larger projects out into 25 versus 24. And how much risk is there in the guidance as we think about potential timing issues? Not necessarily that these don't actually happen, but more so just a pushout rather than a pull-in.

Speaker Change: And then just a follow up here.

Speaker Change: Just going back about.

Speaker Change: To a prior question about the visibility for these new projects I know you mentioned new inquiry levels are very strong.

Speaker Change: Sounds like Youre expecting a strong.

A stronger back half with some of these.

Speaker Change: Ah projects breaking ground.

Speaker Change: Where is the confidence or how confident are you in terms of the timing of those projects coming through because obviously you do have a larger peer mentioned some push outs of some of the larger projects out of the $25 24.

Speaker Change: <unk>.

Speaker Change: How much risk is there in the guidance as we think about potential timing issues not necessarily that these don't actually happen, but more so just the push out rather than a pull in.

Unknown Executive: Yeah, Ken, right, there's a lot of announcements about projects that come out on a daily basis. You have to wade through, you know, when those are actually going to start and track the projects. You really have to have a beat on the projects that you think you could service well and have a beat on when those things are really starting. And they have had, as all projects always have over time, not just in this current modern time, you know; they get delayed. There are things that cause them to delay.

Speaker Change: Yes, Ken right. There is a lot of announcements of projects that come out on a daily basis, you can have to you have to weed through.

Windows are actually going to start and track. The projects you really have to have a data on the projects that you think you would conserve as well and have a beat on when those things are really starting and they have had as all project has always had over time not just this current modern time, they get delayed theres things like that causing delay sometimes its funding sometimes it's.

Unknown Executive: Sometimes it's funding, sometimes it's labor, sometimes it's permits. So when you have this many big projects out there, there's going to be a lot of ebb and flow going on. But we feel like our line of sight on what's going on for us, particularly, is pretty clear. We track all these projects, we communicate with our sales team, and we really, that's how we demand plan the fleet that's coming in and where it's going to go in this environment.

Speaker Change: Labour sometimes is permitting so when you have this many big projects out there there's going to be a lot of ebb and flow going on but we feel like our line of sight on what's going on for us, particularly.

Speaker Change: It's pretty clear we track all of these projects, we communicate with our sales team and we really that's how we demand plan to fleet thats coming in and where it's going to go in this environment. So we believe our line of sights really good and we have I'd say a strong confidence level on what were.

Unknown Executive: So we believe our line of sight is really good, and we have a, I'd say, a strong confidence level on what we're giving as guidance as it relates to where we see the project flow coming in for our business. Yeah, and Ken, remember, we're not trying to be Benjamin's.

Speaker Change: Giving as guidance as it relates to where we see the project flow coming in for our business and Kevin remember, we're not trying to be Benjamin Moore and cover the Earth's here, we're only focused on a.

Unknown Executive: Yeah, and Ken, remember, we're not trying to be Benjamin Moore and cover the earth here. We're only focused on a, you know, I would call a segment of those megaprojects and not, you know, 10 to 15 percent of the total that's out there. So, as Aaron said, we're pretty confident that our line of sight is good and that we don't really see any risk at this point in what we're doing, what we're, you know, what we've talked about.

Speaker Change: I would call a segment of those mega projects in that.

Speaker Change: 10, 15% of the total that's out there so as Ernie said, where we are.

Speaker Change: We're pretty confident that our line of sight is good and.

Speaker Change: And that we don't really see any risk at this point on.

Speaker Change: What we are.

What we've talked about.

Speaker Change: Helpful. Thanks, guys.

Speaker Change: Thank you Shannon.

Speaker Change: Your next question is from the line of Brian <unk> with Gabelli. Please go ahead.

Dennis: Your next question is from the line of Brian Sponheimer with Gabelli. Please go ahead.

Brian C. Sponheimer: Hey, good morning, everyone. Just one question on the balance sheet. Obviously, a pretty concentrated debt stack for a few years out. You know, as you think about capital allocation, Mark, maybe talk about some optionality, the current rate environment, etc., and what you want to do regarding the balance sheet.

Brian Biros: Hey, good morning, everyone.

Brian Biros: One question on the balance sheet, obviously a pretty.

Brian Biros: Concentrated debt stack for a few years out.

Brian Biros: As you think about capital allocation, Mark maybe talk about some optionality.

Brian Biros: The current rate environment et cetera, and what you want to do.

Brian Biros: Regarding <unk>.

Brian Biros: Regarding the balance sheet.

Mark Comfrey: Great, great question, Brian. You know, as we sit here today, right? We're sort of 65, 35, floating to fixed. The reality of that is I'd rather it be the inverse. I'd rather it be about 70% fixed, 30% floating. And so, you know, with that, we've got a big stack in 2027. You know, so nothing necessarily overly pressing today, but we would like to be opportunistic in that market, right? Obviously, the markets and the 10-year Treasury need to play along at some level for us to begin to sort of make that move from, you know, fixed to floating or floating to fixed. But absolutely, it's an opportunistic play, and we are keeping our eye on it every day.

Great Great question Brian.

Mark: We sit here today right, we're sort of.

Mark: 65, 35 floating to fixed.

Mark: And.

Mark: The reality of that is is I'd, rather it would be the inverse.

Mark: I'd, rather be about 70% fixed floaty 30 floating and so with that we've got a big stack in.

Mark: In 2027.

Speaker Change: So nothing necessarily overly pressing today.

Speaker Change: While we would like to be opportunistic into that market rate obviously the markets.

Speaker Change: And the 10 year treasury needs to play along.

Speaker Change: At some level for us to begin to sort of make that move.

Speaker Change: From <unk>.

Speaker Change: Fixed to floating our floating to fixed.

Speaker Change: But absolutely it's an opportunistic play and we are.

Speaker Change: Keeping our eye on it every day.

Speaker Change: And I appreciate that.

Brian C. Sponheimer: and I appreciate that, and you know, assuming you can get [inaudible] use of proceeds, it would simply be X. Talk about that. Yeah.

Speaker Change: And assuming.

Speaker Change: You all can get.

Speaker Change: A reasonable value for center lease.

Speaker Change: Use of proceeds would simply be ex talk about that.

Unknown Executive: Yeah, we just pay down the ABL at this point, and it will go into our general funds, and then we go back to our capital allocation strategy and follow that path.

Speaker Change: Yes, we just pay down the ABL at this point and I know it would go into our general funds and then we go back to our capital allocation strategy and followed that path.

Speaker Change: Understood.

Brian C. Sponheimer: understood. Well, I appreciate that, and best of luck with continuing.

Speaker Change: I appreciate that and best of luck for continued success.

Brian C. Sponheimer: Thank you.

Thank you.

Speaker Change: Your next question is from the line of Mig <unk> with Baird. Please go ahead.

Dennis: Your next question is from the line of Meg Dobre with Baird. Please go ahead. Yes, thank you.

Mig: Yes, Thank you Jim.

Mircea Dobre: Yes, thank you. Just back to the megaproject discussion. Can you maybe frame for us what percentage of the fleet or what percentage of your 24 revenue is associated with what you internally define as a megaproject? And how do you see this component of the business growing over the next couple years?

Mig: Back to the Mega project discussion.

Mig: You maybe frame for us what percentage of the speed or what percentage of your revenue is associated with what you're internally define as a mega project.

Mig: Maybe how you see this component of the business growing over the next couple of years.

Speaker Change: Yes, we don't.

Unknown Executive: Disclose that piece of the mega-piece of our revenue MIG. But, you know, the visibility is, looks like it's a three-year run, right? These things continue to get released; the DODGE data, you can track the progress on them. And, you know, I think.

Speaker Change: Great display.

Speaker Change: Disclose.

Speaker Change: That piece of the Mega piece of our revenue mix.

Speaker Change: The visibility is it looks like it's a three year run rate. These things continue to get released the Dodge data you can track the progress on them and.

Speaker Change: I think clearly the re shoring the mega the investment in.

Unknown Executive: Clearly, the reshoring, the MAGA, the investment in, you know... The chip manufacturing here, the data centers, these are happening now. Those are some of the biggest projects going on in North America, and there are more plans. So, you know, that's a real activity that's going on in the marketplace.

Speaker Change: Yes.

Speaker Change: Chip manufacturing here the data centers.

Speaker Change: These are happening now those are some of the biggest projects going on in North America and Theres more plan. So that's a real activity that's going on in the marketplace.

Unknown Executive: In the way you report, do you have this business as part of your national or as part of part of the local component of the recording? Yeah.

Speaker Change: And the way you report do you have this business as part of your national or as BARDA.

Speaker Change: Alright at the local component.

Speaker Change: The recording.

Unknown Executive: Yeah, these revenue streams that come from the MEGAs are almost 85% always national type revenue relationships. These are the, you know, the larger contractors, specialty contractors that are performing that work in any geography.

Speaker Change: Yes.

Speaker Change: The revenue streams that come from the Mega as our almost 85% always national type.

Speaker Change: Revenue relationships.

Speaker Change: The larger.

Speaker Change: Contractor specialty contractors that are performing that work.

Speaker Change: And any any geography.

Speaker Change: Understood final question.

Mircea Dobre: Okay. Final question. We talked a little bit about rental rates, but I'm wondering if you can sort of give us an update as to how you think about the full year relative to what you've been able to put up in Q1. Thank you. Yeah, I mean, good question, Meg.

Speaker Change: We talked a little bit about rental rates, but I'm wondering if you can sort of give us an update as to how you think about the full year relative to what you've been able to put up in Q1. Thank you.

Speaker Change: Yes.

Unknown Executive: Yeah, I mean, good question, Meg. I think, as a reminder, right, we sort of entered the year fairly balanced between contract and non-contract, you know, with an overarching goal to sort of negate the inflationary impact of 2024, which sort of began the year in this 5% range. And I don't think anything has changed there. Obviously, we posted a really good, strong Q1 and with sequential improvement during the quarter. And so that will continue to be our focus, goal, and strategy as we move forward throughout the year.

Speaker Change: Good question Mig I mean, I think as a reminder, right we sort of entered the year.

Early balanced between contract non contract.

Speaker Change: With an overarching goal to sort of negate the inflationary impacts.

Speaker Change: 2024, which sort of began the year in this 5% range and I don't think anything has changed there obviously we posted.

Speaker Change: A really good strong Q1 and with sequential improvement.

Speaker Change: Inside the quarter and so that will continue to be.

Speaker Change: Our focus Angola and strategy as we move forward throughout the year.

Leslie Hunziker: At this time, I would like to turn the call back over to Leslie Hunziker for closing remarks.

Speaker Change: Alright, good luck.

Speaker Change: Thank you. Thank you.

Speaker Change: At this time I would like to turn the call back over to Leslie Hunziker for closing remarks.

Leslie Hunziker: 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 questions, please don't hesitate to reach out to us. Have a great day.

Leslie Hunziker: 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 questions. Please don't hesitate to reach out to us have a great day.

Dennis: This concludes Herc Holdings' first quarter 2024 earnings call and webcast. Thank you for your participation. You may now disconnect.

Leslie Hunziker: This concludes the <unk> holdings first quarter 2024 earnings call and webcast. Thank you for your participation you may now disconnect.

Leslie Hunziker: Okay.

Leslie Hunziker: Yes.