Q2 2024 Herc Holdings Inc Earnings Call

Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Herc Holdings second quarter 2024 earnings column webcast. All lines being placed on mute to prevent any background noise.

Operator: At this time, I'd like to welcome everyone to the Herc Holdings second quarter 2024 earnings call and webcast. All lines are being placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

If you'd like to withdraw your question, press star 1 again.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Leslie Hunziker, Investor Relations. You may begin.

Thank you.

I would now like to turn the call over to Leslie Hunziker, Investor Relations. You may begin.

Leslie Hunziker: Thank you, Operator, and good morning, everyone. Welcome to Herc Rental's second quarter 2024 earnings conference call and webcast. Earlier today, our press release and presentation slides were distributed, and our 10Q 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 Herc Rental's second quarter 2024 earnings conference call and webcast.

Leslie Hunziker: Earlier today, our press release and presentation slides were furnished, 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 second 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 to our Safe Harbor and Gap Reconciliation on slide 3. 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.

Speaker Change: Today, we're reviewing our second 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.

Speaker Change: Now let's move to our Safe Harbor and Gap Reconciliation on slide 3.

Leslie Hunziker: I'd like to caution you that actual results could differ materially from the forward-looking statements made on this call. You should also refer to the risk factors section of our annual report on Form 10-K for the year ended December 31, 2023. In addition to the financial results presented on a gap basis, we will be discussing non-gap information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-gap measures to the closest gap equivalent can be found in the conference call materials.

Speaker Change: 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'd like to caution you that the actual results could differ materially from the forward-looking statements made on this call.

Speaker Change: You should also refer to the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2023.

Speaker Change: 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 material.

Leslie Hunziker: 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. Finally, please mark your calendars to join our management meetings at Morgan Stanley's 12th Annual Laguna Conference on September 11th. 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.

Speaker Change: 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.

Speaker Change: Finally, please mark your calendars to join our management meetings at Morgan Stanley 's 12th Annual Laguna Conference on September 11th.

Speaker Change: 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.

Lawrence H. Silber: Thank you, Leslie, and good morning, everyone. Let's turn to slide number four. In the second quarter, we continued to deliver on our long-term growth strategies, focusing on the fundamentals of increasing market share and geographic density for scale, optimizing fleet mix with greater penetration of our specialty equipment offering, and leveraging proprietary and industry data and technologies to enhance our competitive position and customer satisfaction. We're continuing to make good progress on all of these initiatives.

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

Speaker Change: In the second quarter, we continue to deliver on our long-term growth strategies, focusing on the fundamentals of increasing market share and geographic density for scale, optimizing fleet mix with greater penetration of our specialty equipment, offering,

Speaker Change: and Leveraging Proprietary and Industry Data and Technologies to Enhance our Competitive Position and Customer Satisfaction.

Speaker Change: We're continuing to make good progress on all of these initiatives.

Lawrence H. Silber: How we manage fleet logistics is another important driver of profitable growth for us, especially as we set ourselves up to incrementally benefit from the substantial infrastructure and mega project opportunities. Our fleet management team has done an outstanding job this year, pacing the investment in new equipment to align with dynamic demand trends while also redeploying existing fleet to our highest demand regions to drive greater asset utilization. As a result, in the second quarter, fleet efficiency improved on a sequential monthly basis, and June turned the corner with revenue growth year-over-year outpacing fleet growth heading into the peak season. Moving to slide five.

Speaker Change: How we manage fleet logistics is another important driver of profitable growth for us.

Speaker Change: especially as we set ourselves up to incrementally benefit from the substantial infrastructure and megaproject opportunities.

Speaker Change: Our fleet management team has done an outstanding job this year, pacing the investment in new equipment to align with dynamic demand trends, while also redeploying existing fleet to our highest demand regions to drive greater asset utilization.

Speaker Change: As a result, in the second quarter, fleet efficiency improved on a sequential monthly basis, and June turned the corner with revenue growth year-over-year outpacing fleet growth heading into the peak season.

Lawrence H. Silber: This is our year-to-date financial scorecard. After the first quarter, we told you that the second quarter would be our slowest growth quarter for 2024, ahead of more robust rental activity in the back half of the year. As you saw from comments in our press release this morning, second quarter revenue tracked to our plan and highlighted a lot of continuing positive trends. For example, rental rates were up three and a half percent year over year on top of our toughest comp of 7.8% last year and a 5.5% rate increase in the second quarter of 2022. That's a nearly 17% increase in just two and a half years.

Speaker Change: Moving to slide 5. This is our year-to-date financial scorecard. After the first quarter, we told you that the second quarter would be our slowest growth quarter for 2024, ahead of more robust rental activity in the back half of the year.

Speaker Change: As you saw from comments in our press release this morning, second quarter revenue tracked to our plan and highlighted a lot of continuing positive trends.

Speaker Change: For example,

Speaker Change: Rental rate was up 3.5% year over year on top of our toughest comp of 7.8% last year and a 5.5% rate increase in the second quarter of 2022. That's nearly 17% increase in just 2.5 years.

Lawrence H. Silber: In addition, pricing is improving on a sequential basis, reflecting our leadership as well as ongoing industry discipline. And based on benchmark data, Herc Volumes continues to significantly outpace overall rental market growth, with the biggest competitive differentiators being our participation in the expanding megaproject pipeline and the diversification of our branch locations, fleet mix, and end market. Finally, our execution on strategic acquisitions and greenfield openings remains strong, with 17 locations added in the recent quarter, which aligns with our goals for building our brand geographically, cross-selling our specialty product lines, and driving efficiencies through scale.

Speaker Change: Further, pricing is improving on a sequential basis, reflecting our leadership as well as ongoing industry discipline.

Speaker Change: And based on benchmark data, Herc Volumes continues to significantly outpace overall rental market growth, with the biggest competitive differentiators being our participation in the expanding megaproject pipeline and the diversification of our branch locations, fleet mix, and end markets.

Speaker Change: Finally, our execution on strategic acquisitions and greenfield openings remains strong, with 17 locations added in the recent quarter, which aligns with our goals for building our brand geographically,

Speaker Change: cross-selling our specialty product lines and driving efficiencies through scale.

Lawrence H. Silber: Of course, as you also know from our press release, revenue growth in the local market is tracking a bit slower than we had originally thought. Although recent acquisitions are offsetting the deficit for Herc after three consecutive double-digit increases in local revenues, we expect same-store growth to normalize in 2024 to more of a mid-single-digit rate similar to what we experienced in 2019. Our forecast assumes some moderation in interest rates to support the local contractors' continued willingness to fund new projects. Those expectations have been continually deferred, and every month the Fed leaves interest rates steady, it causes more uncertainty for local contractors.

Speaker Change: Of course, as you also know from our press release, revenue growth in the local market is tracking a bit slower than we had originally thought. Although, recent acquisitions are offsetting the deficit for Herc after three consecutive

Speaker Change: Double-digit increases in local revenues, we expect same-store growth to normalize in 2024 to more of a mid-single-digit rate similar to what we experienced in 2019.

Speaker Change: Our forecast assumes some moderation in interest rates to support the local contractors' continued willingness to fund new projects.

Speaker Change: Those expectations have been continually deferred and every month the Fed leaves interest rates steady. It caused more uncertainty for local contractors.

Lawrence H. Silber: That's put increasing pressure on industry volumes, and as a result, we now expect same store local market growth at more of a low single-digit rate for 2024. Adjusted EBITDA margin primarily was impacted by challenging fixed cost absorption, given this was our lowest revenue growth quarter, as well as an unfavorable trade-off in profitability as contributions from our 2024 acquisitions and greenfields initially generate lower incremental margins than our established local account business.

Speaker Change: That's put increasing pressure on industry volumes, and as a result, we now expect same-store local market growth at more of a low single-digit rate for 2024.

Speaker Change: Adjusted EBITDA margin primarily was impacted by challenging fixed cost absorption, given this was our lowest revenue growth quarter.

Speaker Change: As well as an unfavorable trade-off in profitability as contributions from our 2024 acquisitions and greenfields initially generate lower incremental margins than our established local account business.

Lawrence H. Silber: Additionally, we had a few expense categories like freight and insurance that were higher year over year, which Mark will talk about. With six months behind us and early visibility into the summer season, let me jump to slide number six to give you a sense of how we're thinking about the second half of the year and what that means for full year guidance. Of course, our guidance is always based on our current view of the operating environment.

Speaker Change: Additionally, we had a few expense categories like freight and insurance that were higher year over year, which Mark will talk about.

Mark Humphrey: With six months behind us and early visibility into the summer season, let me jump to slide number six to give you a sense of how we're thinking about the second half of the year and what that means to full year guidance.

Mark Humphrey: Of course, our guidance is always based on our current view of the operating environment.

Lawrence H. Silber: So both local market challenges and 2024 acquisitions completed as of today are factored into our latest expectations as we reaffirm our original guidance for rental revenue, adjusted EBITDA, and net sleep CapEx. For megaprojects, activity on our largest job sites is tracking right where we expected, and we're capturing our targeted 10 to 15% share across a variety of end markets, from chips, battery, and LNG facilities to data centers and renewable energy plants.

Mark Humphrey: So both local market challenges and 2024 acquisitions completed as of today are factored into our latest expectations as we reaffirm our original guidance for rental revenue, adjusted EBITDA, and net sleep CapEx.

Mark Humphrey: For megaprojects, activity on our largest job sites is tracking right where we expected, and we're capturing our targeted 10 to 15 percent share across a variety of end markets, from chips, battery, and LNG facilities to data centers and renewable energy plants.

Lawrence H. Silber: We told you that our guidance was back half loaded this year with megaprojects being the catalyst to accelerating revenue growth in the third and fourth quarters, and targeted fleet additions from the second and third quarters supporting that outcome. This is still the case.

Mark Humphrey: We told you that our guidance was back half-loaded this year, with megaprojects being the catalyst to accelerating revenue growth in the 3rd and 4th quarters, and targeted fleet additions from 2nd and 3rd quarters supporting that outcome. This is still the case.

Lawrence H. Silber: When it comes to maintaining our EBITDA guidance range, this is also a tale of two halves. We expect operating leverage from seasonal revenue growth and the adjustments to our cost structure in the second quarter to put us within our targeted profit range, supporting EBITDA flow-through improvements, the third and fourth quarters averaging roughly 50% for the second half of the year. For NetFleetCapX, the guidance also remains intact.

Mark Humphrey: When it comes to maintaining our EBITDA guidance range, this is also a tale of two halves. We expect operating leverage from seasonal revenue growth and the adjustments to our cost structure in the second quarter to put us within our targeted profit range.

Mark Humphrey: Supporting Revital flow-through improvements, the third and fourth quarters averaging roughly 50% for the second half of the year.

Mark Humphrey: For NetFleetCapX, the guide also remains intact. The breadth of the range provides us with optionality as we deploy fleet into the peak season, and a healthy supply chain gives us further flexibility.

Lawrence H. Silber: The breadth of the range provides us with optionality as we deploy fleet into the peak season, and a healthy supply chain gives us further flexibility. As I mentioned, our fleet group is being very disciplined and agile in how they're approaching the timing and regional allocation of investments in new equipment. And our entire operations team is focused on fleet efficiency as a priority. From what we're seeing in our Rouse data, the overall industry is being equally disciplined when it comes to fleet growth.

Mark Humphrey: As I mentioned, our fleet group is being very disciplined and agile in how they're approaching the timing and regional allocation of investments and new equipment.

Mark Humphrey: And our entire operations team is focused on fleet efficiency as a priority. From what we're seeing in our Rouse data, the overall industry is being equally disciplined when it comes to fleet growth.

Lawrence H. Silber: Today, volume trends are dynamic. The good news is that we have a fungible, expansive product line, national account capabilities, and a diversified operating model. With the actions taken in the second quarter to move our fleet to our highest growth regions and align our cost structure with demand trends, we feel good about our position heading into the peak season and over the long term. Aaron will talk a little bit more about our current operating trends, and then Mark will take you through the core business performance and more specific puts and takes that support our full year guidance range. Aaron. Thanks, Larry.

Mark Humphrey: Today, volume trends are dynamic. The good news is that we have a fungible, expansive product line, national account capabilities, and a diversified operating model.

Mark Humphrey: With the actions taken in the second quarter to move our fleet to our highest growth regions and align our cost structure with demand trends, we feel good about our position heading into the peak season and over the long term.

Mark Humphrey: Aaron will talk a little bit more about our current operating trends, and then Mark will take you through the core business performance and more specific puts and takes that support our full year guidance range. Aaron?

Aaron D. Birnbaum: Thanks, Larry, and good morning, everyone. As we navigate the transition into a normalizing operating environment, our teams across the organization are staying focused on serving our customers, capitalizing on macro trends, and driving fleet efficiencies and productivity initiatives to support growth momentum long-term. 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, and we strive for 100% perfect days throughout the organization.

Aaron D. Birnbaum: Thanks, Larry. And good morning, everyone. As we navigate the transition into a normalizing operating environment, our teams across the organization are staying focused on serving our customers,

Mark Humphrey: Capitalizing on macro trends and driving fleet efficiencies and productivity initiatives to support growth momentum long-term.

Speaker Change: And as an industry consolidator, market leader, and agile operator, we are well positioned to continue to drive profit expansion in 2024, despite some solid third local markets.

Speaker Change: 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 and we strive for 100% perfect days throughout the organization.

Aaron D. Birnbaum: In the second quarter, on our 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 nine, you can see that we're making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions in the top 100 metropolitan markets.

Mark Humphrey: In the second quarter, on a branch-by-branch measurement, all of our operations achieved at least 97% of days as perfect.

Mark Humphrey: 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.

Mark Humphrey: 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 the top 100 metropolitan markets.

Aaron D. Birnbaum: In the second quarter, we spent $142 million in net cash on two acquisitions in the Northeast and Southeast regions, adding a total of 10 locations to our network. We also opened seven greenfield locations in the quarter, bringing our total over the last 12 months to 23, which is nearly a 15% increase in greenfield openings over the comparable trailing 12-month period.

Mark Humphrey: In the second quarter, we spent $142 million in net cash on two acquisitions in the Northeast and Southeast regions, adding a total of 10 locations to our network.

Mark Humphrey: We also opened seven greenfield locations in the quarter, bringing our total over the last 12 months to 23, which is nearly a 15% increase in greenfield openings 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 manufacturing reshoring projects being announced are in the geographies where we have targeted our acquisitions and greenfield additions, like Texas, Ohio, Arizona, and along the eastern seaboard of the United States. Along those lines, last week, we completed our largest acquisition to date with four locations serving construction and industrial customers in Phoenix and Yuma, Arizona, and San Diego, California.

Mark Humphrey: 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.

Mark Humphrey: Moreover, many of the mega-industrial manufacturing reshoring projects being announced are in the geographies where we have targeted our acquisitions and greenfield additions, like Texas, Ohio, Arizona, and along the eastern seaboard of the United States.

Mark Humphrey: Along those lines, last week we completed our largest acquisition to date, with four locations serving construction and industrial customers in Phoenix and Yuma, Arizona, and San Diego, California. These locations are classic Generent businesses, providing us with a significant opportunity to cross-sell our specialty products and services.

Aaron D. Birnbaum: These locations are classic Generent businesses, providing us with a significant opportunity to cross-sell our specialty products and services. The multiple for this transaction was at the higher end of our average for gen-rent acquisitions due to the desirable locations and leading market share. While Arizona is a top 10 market and a mega project hotspot, the two San Diego locations substantially expand our share and now position us as a leader in this top 25 market.

Speaker Change: The multiple for this transaction was at the higher end of our average for gen rent acquisitions due to the desirable locations and leading market share.

Speaker Change: While Arizona is a top 10 market and mega project hotspot, the two San Diego locations substantially expand our share and now position us as a leader in this top 25 market.

Aaron D. Birnbaum: We have successfully integrated 49 businesses with 112 locations into the Herc Network since initiating our M&A strategy in late 2020. As a result of revenue efficiencies, we've been generating synergized multiples of approximately 3.5 to 4.5 times. New acquisition opportunities remain robust, and we are actively focused on those that make the most strategic sense for our business. 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 increasing demand opportunities. Our fleet composition at OAC is on the right side of the page.

Speaker Change: We have successfully integrated 49 businesses with 112 locations into the HRSA network since initiating our M&A strategy in late 2020.

Speaker Change: As a result of revenue efficiencies, we've been generating synergized multiples of approximately 3.5 to 4.5 times.

Speaker Change: New acquisition opportunities remain robust, and we are actively focused on those that make the most strategic sense for our business.

Speaker Change: 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 increasing demand opportunities.

Speaker Change: Our fleet composition at OEC is on the right side of the page. Total fleet is now a record $6.7 billion as of June 30, 2024.

Aaron D. Birnbaum: The total fleet is now a record $6.7 billion as of June 30, 2024. The Central East Fleet represents about 5% of the total, so when you exclude the Central East assets held for sale, our base fleet is about $6.4 billion. You'll note that higher-margin specialty fleet represents approximately 23% 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 this year versus last year, when the recovery in the supply chain meant we were onboarding a high level of back order deliveries of 20 For the full year, we still expect to spend in the range of $750 million to $1 billion on new fleet purchases.

Speaker Change: The Sinalese fleet represents about 5% of the total, so when you exclude the Sinalese assets held for sale, our base fleet is about $6.4 billion.

Speaker Change: You'll note that higher margin specialty fleet represents approximately 23% of the total today, excluding the Central East Fleet, specialty makes up about 20% of the total, with plenty of room to continue to grow.

Speaker Change: When it comes to fleet investments, you can see we've slowed our intake to a more seasonal level this year versus last year, when the recovery in the supply chain meant we were onboarding a high level of back-order deliveries of 2021 and 2022 fleet out of season.

Speaker Change: 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: That gross amount, along with last year's growth fleet purchases, should support the incremental demand from general market expansion in the peak season, new green fields, 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. Finally, as we mentioned, 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. In the 2024 second quarter, fleet disposals at OEC were 25% lower than last year.

Speaker Change: That gross amount, along with last year's growth fleet purchases, should support the incremental demand from general market expansion in the peak season, new green fields, and the megaprojects that are either underway or that we have high probability line of sight to.

Speaker Change: Our level of fleet investment this year also reflects our goal to improve fleet efficiency.

Speaker Change: Finally, as we mentioned, 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.

Speaker Change: In the 2024 second quarter, fleet disposals at OEC were 25% lower than last year.

Aaron D. Birnbaum: This is in keeping with our plan for about $550 to $650 million of fleet disposals at OEC in 2024. This year, you'll also see a more normal seasonal cadence of dispositions. In the second quarter, we continued 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 and OEC that we sold to retail and wholesale customers increased 300 basis points from last year. Proceeds at 48% of OEC were even with last year, with the successful channel shift offsetting lower residuals as the used market moderates from peak levels.

Speaker Change: This is in keeping with our plan for about $550 to $650 million of fleet disposals at OEC in 2024.

Speaker Change: This year, you'll also see a more normal seasonal cadence of dispositions.

Speaker Change: In the second quarter, we continued to gain traction on our retail channel capabilities, utilizing technology, training, and Salesforce incentives to participate more in this higher return channel.

Speaker Change: The amount of fleet and OEC that we sold to retail and wholesale customers increased 300 basis points from last year.

Speaker Change: Proceeds at 48% of OEC were even with last year with the successful channel shift offsetting lower residuals as the use market moderates from peak levels.

Aaron D. Birnbaum: We still have a nice opportunity ahead as we continue to execute our more profitable channel shift strategy. Turning to slide 11, after redeploying our existing fleet to our highest growth regions and ensuring that new equipment is delivered where it's needed most, we are well positioned to address the needs of large national accounts and local contractors operating in North America heading into the peak season. Local accounts, which represented 56% of rental revenue in the second quarter, are growing due to same-store growth in select regions where infrastructure, education, local utilities, and facility maintenance and repair projects are underway, as well as search penetration through our acquisition and greenfield strategies.

Speaker Change: We still have a nice opportunity ahead as we continue to execute our more profitable channel shift strategy.

Speaker Change: Turning to slide 11, after redeploying existing fleet to our highest growth regions and ensuring that new equipment is delivered where it's needed most, we are well positioned to address the needs of large national accounts and local contractors operating in North America heading into the peak season.

Speaker Change: Local accounts, which represented 56% of rental revenue in the second quarter, are growing due to same-store growth in select regions where infrastructure, education, local utilities, and facility maintenance and repair projects are underway, as well as search penetration through our acquisition and greenfield strategy.

Aaron D. Birnbaum: Based on what we're hearing, we view this more pronounced slowdown and local project starts as a timing issue. The view is that once lending rates ease, project funding can be put in place, and then new construction projects should pick up again. Of course, our national accounts are capitalizing on continued government and private funding for new projects in areas like battery storage, utility projects and maintenance, renewables, semiconductor, LNG plants, and data centers.

Speaker Change: Based on what we're hearing, we view this more pronounced slowdown in local project starts as a timing issue. The view is that once lending rates ease, project funding can be put in place and then new construction projects should pick up again.

Speaker Change: Of course, our national accounts are capitalizing on continued government and private funding for new projects in areas like battery storage, utility projects and maintenance, renewables, semiconductor, LNG plants, and data centers.

Aaron D. Birnbaum: Long term, we'll continue to target a 60-40 revenue split between local and national accounts. Turning to slide 12, overall, we expect to continue to see solid demand across a variety of end markets, customer segments, and geographies in 2024. This diversification provides for growth and resiliency, and the secular trend of renting over ownership provides for incremental industry growth in the long-term. Based on the timing of our mega projects this year, revenue growth accelerates into the third and fourth quarters.

Speaker Change: Long term, we'll continue to target a 60-40 revenue split between local and national accounts.

Speaker Change: Turning to slide 12, overall, we're continuing to see solid demand across a variety of end markets, customer segments, and geographies in 2024.

Speaker Change: This diversification provides for growth and resiliency, and the secular trend of renting over ownership provides for incremental industry growth long term.

Speaker Change: Based on the timing of our megaprojects this year, revenue growth accelerates into the third and fourth quarters, and our disciplined fleet onboarding, which started building late in the second quarter, is aligned with the expected seasonal ramp in demand to October's peak.

Aaron D. Birnbaum: And our disciplined fleet onboarding, which started building late in the second quarter, is aligned with the expected seasonal ramp-up 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. Thanks.

Speaker Change: Team HERC is already gearing up and I want to thank them for their commitment to operational excellence and safety.

Speaker Change: Their professionalism shows up in the execution of our services to our customers every single day.

Speaker Change: 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.

Mark Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on slide 14 with a summary of our key metrics for the second quarter. For clarification, these are our GAAP results. I'll just make a couple of quick points here before turning the focus to the core results. In the second quarter, rental revenue increased 9%, and adjusted EBITDA increased 2.3%. These results include Centrelise, which rebounded from last year when both the film and TV writers and actors were on strike and essentially shut down production studios.

Mark Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on slide 14 with a summary of our key metrics for the second quarter.

Mark Humphrey: For clarification, these are our GAAP results. I'll just make a couple of quick points here before turning the focus to the core results.

Mark Humphrey: In the second quarter, rental revenue increased 9% and adjusted EBITDA increased 2.3%.

Mark Humphrey: These results include Sinalese, which rebounded over last year from both the film and TV writers and actors were on strike and essentially shut down production studios.

Mark Humphrey: One year later, that industry continues to recover, and we expect full acceleration now that the last of the union contract negotiations, this one for crew members, is being finalized. As you know, Centrelise is currently an asset held for sale, and we still anticipate a transaction within the year.

Mark Humphrey: One year later, that industry continues to recover, and we expect full acceleration now that the last of the union contract negotiations, this one for crew members, is being finalized. As you know, Sentinelese is currently an asset held for sale, and we still anticipate a transaction within the year. Let's move to slide 15.

Mark Humphrey: Here we outline our core financial results, which exclude studio entertainment from both periods in order to give you a better sense of how the base business performed in the quarter. A full reconciliation of quarterly performance metrics excluding studio entertainment can be found on slides 26 and 27 in the appendix of our presentation. The bottom line is that the moderation in local market growth in the quarter versus our plan impacted the P&L from a revenue growth perspective, thereby impacting margins and flow through.

Mark Humphrey: Here we outline our core financial results, which exclude studio entertainment from both periods in order to give you a better sense of how the base business performed in the quarter. A full reconciliation of quarterly performance metrics excluding studio entertainment can be found on slides 26 and 27 in the appendix of our presentation.

Mark Humphrey: The bottom line is that the moderation in local market growth in the quarter versus our plan impacted the P&L from a revenue growth perspective, thereby impacting margins and flow-through.

Mark Humphrey: We were already planning for the second quarter to be our slowest revenue growth period this year, and therefore, we were prepared to weather the short-term impact of the fixed cost base on margins and flow-through as we looked ahead to a more robust second half of 2024. But in May, when the local market slowdown started to become a bit more pronounced than we expected, it further exacerbated the profit impact, even as megaprojects remained on track.

Mark Humphrey: We were already planning for the second quarter to be our slowest revenue growth period this year, and therefore we were prepared to weather the short-term impact of the fixed-cost base on margins and flow-through as we looked ahead to a more robust back half of 2024.

Mark Humphrey: But in May, when the local market slowdown started to become a bit more pronounced than we expected, it further exacerbated the profit impact, even as megaprojects remained on track.

Mark Humphrey: We took actions in the most impacted markets in the quarter to right-size our cost structure and also move less efficient fleets out of slower growth regions and into regions with stronger demand and more diverse end markets. Our fleet actions, which also included deliveries of new fleet into high demand markets, had the desired effect of improving fleet efficiency on a sequential monthly basis, such that June was positive. Likewise, dollar utilization, which was flat compared with a year ago, trended up through the second quarter as fleet utilization improved.

Mark Humphrey: We took actions in the most impacted markets in the quarter to right-size our cost structure and also move less efficient fleet out of slower growth regions and into regions with stronger demand and more diverse end markets.

Mark Humphrey: Our fleet actions, which also included deliveries of new fleet into high-demand markets, had the desired effect of improving fleet efficiency on a sequential monthly basis such that June was positive.

Mark Humphrey: Likewise, dollar utilization, which was flat compared with a year ago, trended up through the second quarter as fleet utilization improved.

Mark Humphrey: But repositioning the fleet came at a cost with higher transportation expenses for internal fleet transport. Additionally, prior to right-sizing our variable expenses, inefficiencies in the cost structure from slowing same-store revenue growth represented another headwind in the quarter. On top of that, insurance expense increased year over year, primarily related to increased self-insurance reserves due to claims development attributable to unsettled cases.

Mark Humphrey: But repositioning the fleet came at a cost with higher transportation expenses for the internal fleet transfers.

Mark Humphrey: Additionally, prior to right-sizing our variable expenses, the inefficiencies in the cost structure from slowing same-store revenue growth represented another headwind in the quarter.

Mark Humphrey: On top of that, insurance expense increased year over year, primarily related to increased self-insurance reserves due to claims development attributable to unsettled cases.

Mark Humphrey: All of that represented roughly $14 million of incremental expense headwind that reduced our expected flow through by 40% in the quarter to 14.5%. The good news is that the cost actions and fleet redeployment initiatives we took in the second quarter set us up well to leverage the accelerating demand in the back half. As a result, we expect to return to stronger margins and flow through in the third and fourth quarters. Net income was also impacted by higher interest expense year over year from slightly higher interest rates and increased borrowings on our ABL revolver to fund acquisitions. Trailing 12-month ROIC for the core business declined 100 basis points to 10.3% at the end of the quarter.

Mark Humphrey: All of that represented roughly $14 million of incremental expense headwind that reduced our expected flow through a 40% in the quarter to 14.5%.

Mark Humphrey: The good news is that the cost actions and fleet redeployment initiatives we took in the second quarter set us up well to leverage the accelerating demand in the back half. As a result, we expect to return to stronger margins and flow through in the third and fourth quarters.

Mark Humphrey: Net income was also impacted by higher interest expense year over year from slightly higher interest rates and increased borrowings on our ABL revolver to fund acquisitions.

Mark Humphrey: Trailing 12-month ROIC for the core business declined 100 basis points to 10.3% at the end of the quarter.

Mark Humphrey: Our prudent onboarding of fleet this year and the benefits of rising fleet efficiency will support improving ROIC as we exit 2024. Let's turn to slide 16, and I'll walk you through the rental revenue and adjusted EBITDA. In the revenue chart, the roughly 8% increase year over year was made up of a 3.5% increase in rates and a 6.4% increase in OEC fleet on rent. Mix was an offset of 2.2%, reflecting the net effect of higher equipment inflation and a more favorable mix of equipment on rent.

Mark Humphrey: Our prudent onboarding of fleet this year and the benefits of rising fleet efficiency will support improving ROIC as we exit 2024.

Speaker Change: Let's turn to slide 16 and I'll walk you through the rental revenue and adjusted EBITDA bridges from second quarter 2023 to second quarter 2024 to give you a visual reconciliation.

Speaker Change: In the revenue chart, the roughly 8% increase year over year was made up of a 3.5% increase in rates and a 6.4% increase in OEC fleet on rent.

Speaker Change: Mix was an offset of 2.2% reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent. For clarification, when it comes to revenue, fleet inflation is in the mix to adjust the volume measured at OEC dollars to a unit metric.

Mark Humphrey: For clarification, when it comes to revenue, fleet inflation is in the mix to adjust the volume measured at OEC dollars to a unit metric. 2024 acquisitions contributed 160 basis points of the rental revenue growth in the quarter and roughly 100 basis points year to date. Adjusted EBITDA was essentially flat, primarily as a result of the incremental $14 million of expense incurred in the quarter.

Speaker Change: 2024 acquisitions contributed 160 basis points of the rental revenue growth in the quarter and roughly 100 basis points year-to-date.

Speaker Change: Adjusted EBITDA was essentially flat, primarily as a result of the incremental $14 million of expense incurred in the quarter.

Mark Humphrey: Moving to capital management on slide 17, 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 net capital expenditures resulted in $148 million of free cash flow in the first half. Our current leverage ratio, at 2.6 times, is well within our 2 to 3 times target range and in line with our expectations as we invest and grow. We remain confident in our business model and are committed to increasing shareholder value. In the second quarter, we declared a quarterly dividend of $0.665, which represents $2.66 per share for the year.

Speaker Change: Shifting to capital management on slide 17, 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 net capital expenditures resulted in $148 million of free cash flow in the first half. Our current leverage ratio at 2.6 times is well within our 2 to 3 times target range and in line with our expectations as we invest and grow.

Speaker Change: We remain confident in our business model and are committed to increasing shareholder values. In the second quarter, we declared a quarterly dividend of $0.665, which represents $2.66 per share for the year.

Mark Humphrey: Finally, in early June, we completed an upsized offering of $800 million of new senior unsecured notes that mature in 2029 and increase our fixed to floating mix. Nearly all of the net proceeds were used to repay a portion of our ABL, increasing optionality for acquisition funding. The notes were favorably priced at 6.625% for a total estimated annual savings of $3 million.

Speaker Change: Finally, in early June , we completed an upsized offering of $800 million of new senior unsecured notes to mature in 2029.

Speaker Change: and increase our fixed to floating mix. Nearly all of the net proceeds were used to repay a portion of our ABL, increasing optionality for acquisition funding. The notes were favorably priced at 6.625 percent, the total estimated annual savings of three million dollars.

Mark Humphrey: On slide 18, you can see the continued strength in our primary and secondary markets. To the left is the ARA estimate for 2024 North American rental industry revenue. We operate in a growing industry with a total addressable market of $85 billion today. On the bottom left is the Architectural Billing Index that reported a score of 42.4 in the May release. According to AIA's chief economist, elevated construction costs, coupled with prolonged high interest rates, continue to discourage new project activities. Overall, the survey shows that the majority of architecture firms reporting have little experience with megaprojects as a lever to offset regional weakness.

Speaker Change: On slide 18 you can see the continued strength in our primary and markets. In the upper left is the ARA estimate for 2024 North American rental industry revenue. We operate in a growing industry with a total addressable market of 85 billion dollars today.

Speaker Change: On the bottom left is the Architectural Billing Index that reported a score of 42.4 in the May release.

Speaker Change: According to AIA's Chief Economist, elevated construction costs coupled with prolonged high interest rates continue to discourage new project activity.

Speaker Change: Overall, the survey shows that the majority of architecture firms reporting have little experience with megaprojects as a lever to offset regional weakness.

Mark Humphrey: Taking a look at the updated industrial spending forecast in the top right, Industrial Info Resources is projecting 2024 to be the highest level on record at $372 billion, on top of last year's elevated $368 billion spend. In the lower right quadrant is Dodge's forecast for non-residential construction starts. In 2024, starts are estimated to increase approximately 7% to $449 billion. The dotted line on both of these charts reflects growth over pre-pandemic peak levels.

Speaker Change: Taking a look at the updated industrial spending forecast in the top right, Industrial Info Resources is projecting 2024 to be the highest level on record at $372 billion, a top of last year's elevated $368 billion spend.

Speaker Change: In the lower right quadrant is DODGE's forecast for non-residential construction starts. 2024 starts are estimated to increase approximately 7% to $449 billion.

Speaker Change: The dotted line on both of these charts reflects growth over pre-pandemic peak levels. You can see that last year and the next three years are projected to be the strongest periods of activity that the industry has ever seen.

Mark Humphrey: You can see that last year and the next three years are projected to be the strongest periods of activity that the industry has ever seen. Additionally, there's another 347 billion in infrastructure projects planned for 2024. That's a 15% increase over 2023.

Speaker Change: Additionally, there's another $347 billion in infrastructure projects plated for 2024. That's a 15% increase over 2023.

Mark Humphrey: 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 are both likely to outperform our consumer-driven end markets due to incremental rental penetration, new megaproject construction, and as the reshoring of U.S. manufacturing capacity continues to gather. If you flip to slide 19, you can see that we are reaffirming the 2024 guidance that was set in February. As noted, our guidance excludes the performance of Stenolese, which is held for sale.

Speaker Change: Two of our key end markets are industrial and non-residential construction.

Speaker Change: Combined, these end markets reflect about two-thirds of our customer base.

Speaker Change: and are both likely to outperform our consumer driven end markets due to incremental rental penetration, new megaproject construction, and as the reshoring of U.S. manufacturing capacity continues to gather steam.

Speaker Change: If you flip to slide 19, you can see that we are reaffirming the 2024 guidance that was set in February .

Speaker Change: As noted, our guidance excludes the performance of Stenolase, which is held for sale.

Mark Humphrey: We still feel good about the 7-10% rental revenue growth range for the full year based on current visibility, more experience with the pace of the mega-project rollout, and the contribution from acquisitions offsetting the more pronounced slowdown in the local market. The bulk of our net fleet investment in the second and third quarters drove higher sequential year-over-year revenue growth in the third and fourth quarters. We still expect to exit the year above the average rental revenue growth rate for 2024.

Speaker Change: We still feel good about the 7-10% rental revenue growth range for the full year based on current visibility, more experience with the pace of the mega project rollout, and the contribution from acquisitions offsetting the more pronounced slowdown in the local market.

Speaker Change: With the bulk of our net fleet investment in the second and third quarters driving higher sequential year-over-year revenue growth in the third and fourth quarters, we still expect to exit the year above the average rental revenue growth rate for 2024.

Mark Humphrey: With our improving fleet efficiency, benefits from adjustments to the cost structure, and operating leverage in the back half, we estimate full-year adjusted EBITDA will be between $1.55 and $1.6 billion, representing another year of profitable growth ranging from 6% to 9%. When comparing the projected adjusted EBITDA growth rate with the equivalent rental revenue growth rate, the roughly 100 basis point difference is our expectation for the lower amount of used equipment sales versus 2020.

Speaker Change: With our improving fleet efficiency, benefits from adjustments to the cost structure, and operating leverage in the back half, we estimate full-year adjusted EBITDA will be between $1.55 and $1.6 billion, representing another year of profitable growth ranging from 6% to 9%.

Speaker Change: When comparing the projected Adjusted EBITDA growth rate with the Equipment Rental Revenue growth rate, the roughly 100 basis point difference is our expectation for the lower amount of used equipment sales versus 2023.

Mark Humphrey: Now, before we open it up to Q&A, let me leave you with this. While the broader macro environment is clearly transitioning in 2024 from the outsized growth of the last three years, today's demand drivers are multidimensional for the largest, most diversified companies. Even in the challenging second quarter, Herc outpaced market growth by capitalizing on its increasing market share, pricing leadership, broad product and services portfolio, and expanding branch network. As we continue to gain a foothold in the fast-growing megaproject environment, roll out our E3OS Continuous Improvement Program, and improve our fleet efficiency, we are further enhancing our competitive advantages, solidifying our path for sustainable long-term growth. With that, Operator, we'll take our first question.

Speaker Change: Now before we open it up to Q&A, let me leave you with this. While the broader macro environment is clearly transitioning in 2024 from the outsized growth of the last three years, today's demand drivers are multidimensional for the largest, most diversified companies.

Speaker Change: Even in the challenging second quarter, Herc outpaced market growth by capitalizing on our increasing market share, pricing leadership, broad product and services portfolio, and expanding branch network.

Speaker Change: And as we continue to gain a foothold in the fast-growing megaproject environment, roll out our E3OS Continuous Improvement Program, and improve our fleet efficiency, we are further elevating our competitive advantages, solidifying our path for sustainable, long-term growth.

Speaker Change: With that, Operator, we'll take our first question.

Operator: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star 1 on your telephone keypad, raise your hand, and join the queue. If you'd like to withdraw your question, simply press star 1 again.

Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: We do request for today's session that you please limit to one question and one follow-up. Again, press star one to join the queue. Our first question comes from the line of Rob Wertheimer with Melius Research. Please go ahead.

Speaker Change: We do request for today's session that you please limit to one question and one follow up. Again, press star 1 to join the queue.

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

Robert Cameron Wertheimer: Thanks, and good morning, everybody. So I appreciate the color you gave around, you know, the actions you took in the quarter, and I just wanted to understand it slightly better. You saw weakening in June; I think you moved the fleet strategically at a one-time small cost. Is that fleet kind of spoken for? You mentioned in your comments that it's going to good places, but is it spoken for? Is it positioned in anticipation of getting business?

Robert Cameron Wertheimer: Thanks and good morning everybody. So I appreciate the color you gave around, you know, the actions you took in the quarter and I just wanted to understand it slightly better.

Speaker Change: You saw a weakening in June . I think you moved fleet strategically at a one-time small cost.

Robert Cameron Wertheimer: Is that fleet kind of spoken for? You mentioned in your comments it's going to good places, but is it spoken for or is it positioned in anticipation of getting business?

Speaker Change: And then, you know, I guess if things weaken more towards the latter half of the quarter.

Speaker Change: Do you know if that process of moving fleet around is over? Do you have more to do if things weaken further? And I'll stop there for now.

Robert Cameron Wertheimer: And then, you know, I guess if things weaken more towards the latter half of the quarter, do you know if that process of moving the fleet around is over? Do you have more to do if things weaken further? I'll stop there for now.

Aaron D. Birnbaum: Hi Rob, it's Aaron. We moved the fleet as a normal course of business as we focused on our fleet efficiency, as we've talked about before, right? We're moving the fleet to the markets and the opportunities where they get on rent the quickest. And also, you know, filtering any new CapEx that's coming in the same way. But that's kind of a normal course of business.

Aaron D. Birnbaum: Hi Rob, it's Aaron.

Robert Cameron Wertheimer: We move the fleet as normal course of business, as we focus on our fleet efficiency, as we've talked about before. We're moving the fleet to the markets and the opportunities where it can get on rent the quickest.

Aaron D. Birnbaum: and also, you know, filtering any new CapEx that's coming in the same way, but that's kind of a normal course of business. We did more of that through Q2 just to really focus on getting our fleet efficient.

Aaron D. Birnbaum: We did more of that through Q2, just to really focus on getting our fleet efficient. And, you know, going forward, I'd say that's something we'll continue to do. We just did a lot more of it, probably through the March, April, May period to kind of get things balanced. And as we mentioned in the comments, you know, as we did June, we were fleet efficient, which is a goal for us to continue that, you know, the rest of 2024 for sure.

Aaron D. Birnbaum: And, you know, going forward, I'd say that's something we'll continue to do. We just did a lot more of it, probably through the March, April , May period, to kind of get things balanced in this.

Aaron D. Birnbaum: As we mentioned in the comments, you know, as we exited June , we were fleet efficient, which is a goal for us to continue that, you know, the rest of 2024 for sure.

Robert Cameron Wertheimer: And then how do you think about CapEx? You know, if the smaller stuff stays weak, and the industry does pretty well, just because of the megas and so forth, but would you do less organic CapEx? Would you do more, you know, small acquisitions? And how do your small, you know, potential acquisition targets, for lack of a better word?

Speaker Change: And then how do you think about CapEx, you know, if the smaller stuff stays weak, I understand the industry pretty well just because of the megas and so forth, but...

Speaker Change: Would you do less organic CapEx? Would you do more, you know, small acquisitions? And how do your small, you know, potential acquisition targets, for lack of a better word, how are they feeling in this environment? And I'll end there. Thank you.

Mark Humphrey: How are they feeling in this environment? And I'll end there. Yeah, Rob, it's Mark. It's a good question. I think

Mark Humphrey: Yeah, Rob, it's Mark. It's a good question. I think that, you know, essentially, if you sort of break it into first half and second half, you have about, you know, $250 to $500 million of gross capex sort of to play with from the guide. And so I think what it really does is it aligns us and gives us a ton of optionality as we work our way through the back half of the year, you know, and we'll sort of, and given the health of the OEMs, sort of that adds to that optionality.

Speaker Change: Yeah, Rob, it's Mark. It's a good question. I think that, you know, essentially, if you sort of break it into first half, second half,

Speaker Change: You have about, you know, $250 to $500 million.

Speaker Change: of gross CapEx sort of to play here from the guide. And so I think what it really does is it aligns us.

Speaker Change: And gives us a ton of optionality as we work our way through the back half of the year, you know, and we'll sort of.

Speaker Change: And given the health of the OEMs, sort of that adds to that optionality, and so we'll just play it, we'll play it as it comes, you know, I think, you know, like, like we said, we, we reiterated that, reaffirmed that guidance, and so I think, you know, we'll just take it as it comes, given the optionality and,

Mark Humphrey: And so we'll just play it; we'll play it as it comes. You know, I think, you know, like we said, we reiterated that, reaffirmed that guidance. And so I think, you know, we'll just take it as it comes, given the optionality and availability of the fleet going forward.

Speaker Change: Availability of the fleet going forward.

Speaker Change: Thank you.

Steven Ramsey: Our next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.

Speaker Change: Our next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.

Steven Ramsey: Good morning. Wanted to hear a bit more about blowing up local markets and if that is making mega projects more competitive. Are you shifting your fleet from more local projects to more mega projects? And then is that reducing or pressuring KPIs on the mega projects? Yeah.

Steven Ramsey: Good morning. I wanted to hear a bit more about blowing local markets and if that is making megaprojects more competitive. Are you shifting fleet from more local projects to the more megaprojects? And then is that reducing or pressuring KPIs on the megaprojects?

Lawrence H. Silber: Yeah, thanks, Steve. Good morning. This is Larry.

Steven Ramsey: Yeah, thanks, Steve. Good morning. This is Larry.

Lawrence H. Silber: Look, the local market, you know, slowdown that we saw through the second quarter was primarily in our western regions; the balance of our markets remains sort of intact. And that slowdown and growth really from mid single digits below single digits is sort of like a, you know, a five to a three or five to a two. So it's not, you know, that type of situation. So we're not seeing an impact per se, relative to, you know, pricing, either in the local market or on megaprojects.

Steven Ramsey: Look, the local market, you know, slowdown that we saw, you know, through the second quarter was primarily in our western regions.

Steven Ramsey: The balance of our markets remains sort of intact, and that slowdown in growth really from mid-single digits to low-single digits is sort of like a 5 to a 3 or a 5 to a 2, so it's not...

Lawrence H. Silber: I think they are operating as, as they've been, the market has been disciplined, and we'll continue to try and push prices in the third and fourth quarters and continue to be a price leader where we can.

Steven Ramsey: You know, that type of a situation. So we're not seeing an impact.

Steven Ramsey: Relative to, you know, pricing.

Speaker Change: either in the local market or on megaprojects. I think those are operating as they've been. The market has been disciplined.

Speaker Change: And we'll continue to try and push price in the third and fourth quarter and continue to be a price leader where we can.

Lawrence H. Silber: That's helpful. And then I'm thinking about the non-studio entertainment vertical that you play in. Can you talk about results there in the quarter and maybe how it compared to the construction and industrial market?

Speaker Change: That's helpful. And then I'm thinking about the non-studio entertainment vertical that you play in. Can you talk about results there in the quarter and maybe how it compared to the construction and industrial markets?

Lawrence H. Silber: Yeah, the, uh, the... entertainment piece that's not Sentinelese. We call that Herc Entertainment Services.

Lawrence H. Silber: That popped pretty good in the quarter. There's still more room there because there was a hangover from some pending negotiations in the industry. But no, we saw a good pop there.

Speaker Change: Yeah, the, uh, the...

Speaker Change: Entertainment piece that's not Sentinelese.

Speaker Change: We call that Herc Entertainment Services. That popped pretty good in the quarter. There's still more room there because...

Speaker Change: There was the hangover of some...

Speaker Change: Pending negotiations in the industry, but no, we saw a good pop there. The industrial side is pretty steady.

Lawrence H. Silber: The industrial side is pretty steady. Usually, the big activity and industrial activity is kind of in the fourth quarter, but that's been pretty steady. And then you see new projects kind of in the L&G space and the industrial side happening as well. So the industrial side is growing. Herc Entertainment is growing through the second quarter. So could you have one other market there, Steven, besides those two?

Speaker Change: Usually the big activity and industrial activity is kind of in the fourth quarter, but that's been pretty steady. And then you see new projects, you know, kind of in the L&G space and the industrial side happening as well. So industrial is growing. Herc Entertainment.

Steven Ramsey: is growing through the quarter of the second quarter. So could you ask about one other market there, Steven, besides those two?

Steven Ramsey: No, I was really just trying to get a sense for how the entertainment vertical was driving any better performance for the quarter. Okay, so

Steven Ramsey: No, it was really just trying to get a sense for how the entertainment vertical, if it was driving any better performance for the quarter.

Lawrence H. Silber: So I covered it. Thank you.

Steven Ramsey: Okay, so I covered it. Thank you.

Neil Christopher Tyler: Our next question comes from the line of Neil Tyler with Redfern Atlantic. Please go ahead.

Speaker Change: Our next question comes from the line of Neil Tyler with Redburn Atlantic. Please go ahead.

Neil Christopher Tyler: Thank you. Good morning. A couple from me, please. And just going back to the pricing, Larry, you started to answer my question, but I wanted to pick apart the pricing dynamic a little bit. In the past, I think you've helped us understand the different dynamics in the local market versus the rolling over of longer term contracts like pricing. So within the 3.5%, can you shed any more light on whether there are, Transcription by https://otter.ai

Neil Christopher Tyler: Thank you. Good morning.

Neil Christopher Tyler: A couple from me please. Just going back to the pricing, Larry you started to answer my question but I wanted to pick apart the pricing dynamic a little bit. In the past

Speaker Change: I think you've helped us understand the different dynamics in the local market versus the rolling over of longer term contract like pricing. So within the three and a half percent, can you shed any more light on whether there are

Speaker Change: Aaron Silber, Aaron Birnbaum, Leslie Hunziker

Speaker Change: Have you had to, or are you prepared to kind of cede volume to, you know, to lead on price as you just mentioned that you would, you would try to, has that started to happen yet or, you know, things haven't become that aggressive? Thank you.

Lawrence H. Silber: Yeah, Neil, all good questions. I think from a, you know, from a pricing perspective, I would tell you that the contract versus the non-contract has sort of behaved exactly like we thought they would. I think that, you know, the spot market had a really tough comp in the front half of the year. And I would also say that, you know, contract negotiations and renegotiations are also going as we would have expected them to.

Speaker Change: Yeah, Neil, all good questions. I think from a, you know, from a pricing perspective, I would tell you that sort of the

Speaker Change: The contract versus the non-contract has sort of behaved exactly like...

Speaker Change: We thought they would. I think that...

Speaker Change: You know, the spot market had a really tough comp in the front half of the year, and I would also say that, you know, contract negotiations and renegotiations are also going as we would have expected them to.

Lawrence H. Silber: You know, I think that we had about 60 basis points of sequential price improvement in the quarter, fairly reasonably mirroring that of Q1. The expectation is that, you know, as we move through the back half of the year, we'll continue to gain sequential pricing improvement. You know, on your second question, I don't think we necessarily think about it the way you asked the question. I think that, you know, we think about it as, you know, fleet efficiency and our differentiation in the marketplace is a better strategy to provide disciplined revenue growth and so not get into pricing wars. Okay.

Speaker Change: You know, I think that, you know, we had about, you know, 60 basis points of sequential price improvement in the quarter, you know, fairly reasonably mirroring that of Q1. The expectation is, is that, you know, as we move through the back half of the year, we'll continue to gain sequential pricing improvement.

Speaker Change: You know, on your second question, I don't think we necessarily think about it the way that you asked the question. I think that, you know, we think about it as, you know, fleet efficiency and our differentiation in the marketplace.

Speaker Change: It's a better strategy to provide discipline, revenue growth, and so not to get into pricing wars.

Neil Christopher Tyler: Okay, that's understood. Thank you.

Speaker Change: Okay, that's understood. Thank you.

Jerry David Revich: Our next question comes from a line from Jerry Revich with Goldman Sachs. Please go ahead.

Speaker Change: Our next question comes from a line of Jerry Revich with Goldman Sachs. Please go ahead.

Jerry David Revich: Yes, hi. Good morning, everyone. Unknown Speaker Hi, Larry, I'm wondering if you could provide an update on expected timing for the Sinalese sale, how the process is going, and any..., parameters that you'd be willing to share on what the realization might look like. Yeah, look.

Jerry David Revich: Yes, hi, good morning, everyone.

Jerry David Revich: Larry, I'm wondering if you could provide an update on expected timing on the Sinalese sale, how's the process going, and any parameters that you'd be willing to share on what the realization might look like.

Lawrence H. Silber: Yeah, look, it's an ongoing process. It's continuing, and we still expect that we'll be able to, you know, have a transaction completed this year.

Speaker Change: Yeah, look, it's an ongoing process. It's continuing and we still expect that we'll be able to, you know, have a transaction completed this year.

Jerry David Revich: Okay. And then I'm wondering if we should just go back to the rental rate discussion. Mark, the utilization headwinds that the industry is seeing. Can you talk about that, or do you continue to see rental momentum into July? And the other part of it that's interesting is the momentum that you're seeing in rental rates is even net of losing what I think is some of your higher rental rate business when you're talking about local business.

Speaker Change: And then I'm wondering if we just go back to the rental rate discussion, Mark, thank you for sharing the sequential performance. That's pretty good performance considering the utilization had wins at the industry.

Speaker Change: is seeing. Can you talk about or you continue to see rental momentum into July and the other part of it that's interesting is the momentum that you're seeing in rental rate is even net of...

Speaker Change: Losing what I think is some of your higher rental rate business when you're talking about the local business. So I'm wondering if you can comment what price would have been like on a like-for-like basis if that 60 basis point comment was on a net basis.

Jerry David Revich: So I'm wondering if you can comment on what the price would have been on a like for like basis if that 60 basis point comment was on a net basis. Yeah, no comment on a like for like basis.

Mark Humphrey: Yeah, no comment on the like for like basis. I actually think you summed it up pretty well, right? I mean, I think our focus has and will always be, you know, to be a pricing leader. And so I think, you know, gaining 60 basis points on top of, you know, somewhere in that same vicinity in Q1 is the goal as we work our way through the back half of the year sequentially improving prices. Terrific, thanks. Our next question comes from the line of Sheriff Al Sabahi with Bank of America. Please go ahead.

Speaker Change: Yeah, no comment on the like for like basis. I actually think you summed it up pretty well, right? I mean, I think, you know, our focus

Speaker Change: has and will always be, you know, to be a pricing leader. And so I think, you know, gaining 60 basis points on top of.

Speaker Change: You know, somewhere in that same vicinity in Q1 is the goal as we work our way through the back half of the year sequentially improving price.

Speaker Change: Perfect, thanks.

Speaker Change: Our next question comes from the line of Sheriff Al Sabahi with Bank of America. Please go ahead.

Sherif Abdul: Good morning, Sheriff.

Sharif: Morning, Sherif. Morning.

Speaker Change: So I just wanted to touch on the megaprojects.

Speaker Change: Given just your line of sight on those projects, what is that like currently? Are they starting to get underway, at least for what you have planned for the second half?

Speaker Change: I've heard some commentary from others around delays or pushing out of some of the megaprojects. So if you could speak to that pipeline and how confident you are that they break ground in the second half.

Aaron D. Birnbaum: Yeah, confident. We view it as a tailwind for us going into the rest of the year. And we saw several that we're planning on being part of starting up in the second quarter. You know, these projects are big. Once they start breaking ground, that's when the momentum starts to get going. And You know, there are a lot of phases of construction going on in those projects, but those have been pretty constant for us in our viewpoint, really, as we exited last year and go through this whole year.

Speaker Change: Yeah, confident.

Speaker Change: We view it as a tailwind.

Speaker Change: For us going in through the rest of the year.

Speaker Change: And we saw several that we're planning on being part of start up in the second quarter. You know, these projects are big. Once they start breaking ground, that's when the momentum starts to get going. And.

Speaker Change: You know, there's a lot of phases of constructions going on in those projects, but those have been pretty constant for us in our viewpoint, really, as we exited last year and going through this whole year, and we knew that the second half of this year would be stronger than the first half, but we're

Aaron D. Birnbaum: And we knew that the second half of this year would be stronger than the first half, but we're certainly happy with how we performed on the mega project activity in the first half as well. Yeah, you're right, Sherif; there has been.

Sherif: I'm certainly happy with how we performed on the mega project activity in the first half as well. Yeah, you're right, Sherif. There has been, you know, some announcements of some projects either slowed or delayed, and in fact...

Aaron D. Birnbaum: Yeah, you're right, Sherif. There have been, you know, some announcements of some projects either slowed or delayed. There was really only one that we were on that had been delayed, but that has since restarted. So, you know, some of the other ones we were not on and not part of. Remember, we said we're only going to get and participate in about 10 to 15 percent of the megaprojects, and we're very selective in the ones that we go after. So we haven't felt, you know, anything from any kind of delays or slowdowns.

Sherif: There was really only one that we were on that had been delayed, but that has since restarted so

Speaker Change: You know some of the other ones we were not on and not part of. Remember we said we're only going to get and participate in about 10 to 15 percent of the mega projects and we're very selective on the ones that we go after. So we haven't felt you know anything from any kind of delays or slowdowns.

Speaker Change: Thank you.

Ken Newman: Our next question comes from a line from Ken Newman with KeyBank Capital Markets. Please go ahead.

Speaker Change: Our next question comes from a line of Ken Newman with KeyBank Capital Markets. Please go ahead.

Ken Newman: Morning, Ken. Good morning.

Ken Newman: Hey, good morning, guys.

Mark Humphrey: First question for me, just thinking about the seasonality, obviously a little bit more of a back half to guide now. When I look historically, I think the normal seasonality for equipment rental revenues is up, call it low double digits, maybe mid-teens, 2Q to 3Q sequentially. Just giving all the moving pieces around local accounts, the timing of the mega projects, and these recent acquisitions you've made, is it fair to think that you expect a similar seasonality from the second quarter into the third quarter? And then also, just curious if you are still expecting core dollar utilization to be up sequentially through the back half?

Ken Newman: Morning, Ken.

Ken Newman: Morning. First question for me, just.

Speaker Change: Think about the seasonality obviously a little bit more of a back halfway to guide now when I look historically I think

Speaker Change: The normal seasonality for equipment rental revenues are up, call it low double digits, maybe mid-teens.

Speaker Change: 2Q to 3Q sequentially, just giving all the moving pieces around local accounts,

Speaker Change: These recent acquisitions you've made, is it fair to think that you expect to see a similar seasonality from the second quarter into the third quarter? And then, you know, also just curious if you are still expecting core dollar utilization to be up sequentially through the back half.

Mark Humphrey: Yeah, Ken, I think I think the answer would be yeah, that's, that's the goal. And that's sort of what and I think what you said about two into three, agree with, and then I think your expectation on dollar utilization is also accurate, right? You've got a rising tide into Q3 and then sort of a normalizing three into four. But yeah, I mean, that would be the expectation from our perspective. And as far as I can see,

Speaker Change: Yeah, Ken, I think the answer would be, yeah, that's the goal, and that's sort of what I think what you said about two into three agree with, and then I think your expectation

Speaker Change: on

Speaker Change: $1 Utilization is also accurate, right? You've got a rising tide into Q3 and then sort of a normalizing 3 into 4.

Speaker Change: But yeah, I mean that would be the expectation from our perspective. And as far as the local markets go, Ken, we expect that the benefit from our 24 acquisitions will fill that deficit that we're experiencing on the slowdown in the local markets.

Aaron D. Birnbaum: And as far as the local markets go, Ken, we expect that the benefit from our 24 acquisitions will fill that deficit that we're experiencing due to the slowdown in the local market.

Aaron D. Birnbaum: Right, so you're not expecting that timing issue.

Speaker Change: Right, so you're not expecting that that timing issue to be an impact here in the back half more so maybe a 25 impact.

Ken Newman: Not-for-profit comments on Flint and Cod

Ken Newman: I'm not prepared to comment on 25 yet. I'm not prepared to comment on 25, but yeah.

Mark Humphrey: Fair enough. Yeah. Maybe one more for me. Just the negative impact from the insurance and freight expenses this quarter. Is there any way to quantify, you know, what you expect not to repeat here into the second half?

Ken Newman: Fair enough. Yeah. Maybe one more for me. Just the negative impact from the insurance and freight expenses this quarter. Is there any way to quantify what you expect not to repeat here into the second half?

Mark Humphrey: Well, I mean, I think you know it was impactful to us in a quarter right where you're only sort of growing at this seven and a half to eight percent right, so it was about fourteen million dollars all in. That sort of drove your forty percent expected Float through down to fourteen and a half. I think, you know, as Aaron said, on the freight side, we think we've got the freight in the right places now. Fleet efficiency was achieved in June.

Speaker Change: Well, I mean, I think, you know, it was impactful to us in a quarter, right, where you're only sort of growing in this 7.5% to 8%, right? So it was about $14 million all in, you know, that sort of drove your 40% expected.

Speaker Change: Flow through down to 14 and a half, I think

Speaker Change: You know, as Aaron said on the

Aaron: On the freight side, you know, we think we've got the

Aaron: freight in the right places now. Fleet efficiency obtained in in June and so wouldn't expect that to recur. You know there probably is some lift on the expense side in the back half of the year.

Mark Humphrey: And so we wouldn't expect that to recur. You know, there probably is some lift on the expense side in the back half of the year, probably to the tune of, you know, a million and a half dollars or so a quarter in the back half, just given where and how those cases are ultimately settling out. But we've baked that all into our sort of updated projections, and it's sitting inside the guide.

Aaron: You know, probably to the tune of...

Aaron: You know, a million and a half dollars or so a quarter.

Aaron: In the back half, just given, you know, where and how those cases are ultimately settling out, but we've baked that all into our sort of updated projections and it's sitting inside the guide.

Ken Newman: That's helpful. Thanks, guys.

Tammy Zacharia: Our next question comes from the line of Tammy Zacharia with J.P. Morgan. Please go ahead.

Speaker Change: That's helpful. Thanks, guys.

Speaker Change: Our next question comes from the line of Tammy Zacharia with J.P. Morgan. Please go ahead.

Tammy Zacharia: Hey, good morning. Thank you so much. So my first question is, I think you mentioned the fleet age now is about 47 months. Do you, is that where you want it to be? Or do you need this to come down further? So any thoughts on how you're thinking about the fleet age?

Tammy Zacharia: Hey, good morning. Thank you so much. So, my first question is, I think you mentioned the fleet age now is about 47 months.

Tammy Zacharia: Do you, is that where you want it to be, or do you need this to come down further? Any thoughts on how you're thinking about the Fleet 8?

Lawrence H. Silber: Yeah, no, look, the fleet age is perfect where we have it. You know, we can fluctuate between 45, 46, up to 48, 49, you know, as a normal operating cycle. And then, if we have to during a downturn, we can run the fleet up to 55, 60 months with very minimal incremental repair and maintenance. But, you know, that mid 40s is where we like to keep it. And that's appropriate for us. Remember, we sell the fleet when it gets into that 81, 82, 83 month old age. So we're, we're, in very good shape, and the fleet age is right where we expect it to be.

Speaker Change: Yeah, no, look, the fleeting age is perfect where we have it. You know, we can fluctuate between 45, 46, up to 48, 49.

Tammy Zacharia: Got it. That's very helpful.

Mark Humphrey: And then another quick one from me. Can you talk about the expected accretion in terms of sales and EBITDA from the acquisition you made in July? I think you did an acquisition, OTAE. Any comments on the amount of sales and EBITDA expected from that? Yeah.

Speaker Change: Got it. That's very helpful. And then another quick one from me.

Speaker Change: Can you talk to the expected accretion in terms of sales and EBITDA from the acquisition you made in July ? I think you did an acquisition, OTAY. Any comments on the amount of sales and EBITDA expected from that?

Mark Humphrey: Yeah, Tammy, that's a good question. I think, you know, it should be in our results for five full months in the back half of the year, which would essentially equate to sort of a 2% revenue lift in the back half. And then I think, you know, a reasonable flow-through thought would be somewhere in the overall corporate consolidated margin range. And so that's sort of the expectation as we sort of get our arms around this thing, knowing that we just acquired it last week.

Tammy Zacharia: Yeah, Tammy, that's a good question. I think, you know, it should be in our results for five full months in the back half of the year, which would essentially equate to sort of a 2% revenue lift on the back half.

Tammy Zacharia: And then I think, you know, a reasonable flow-through thought would be somewhere in the overall corporate consolidated margin range.

Tammy Zacharia: And so that's sort of the expectation as we sort of get our arms around this thing, knowing that we just acquired it last week.

Tammy Zacharia: Got it. That's very helpful. Thank you.

Tammy Zacharia: You got it. That's very helpful. Thank you.

Brian C. Sponheimer: Our next question comes from the line of Brian Sponheimer with Gabelli. Please go ahead.

Tammy Zacharia: Our next question comes from the line of Brian Sponheimer with Gabelli. Please go ahead.

Brian C. Sponheimer: Hi, good morning, everyone. Just curious. Unknown, on your acquisition. How long does it typically take for you to get those acquisitions up to corporate? Yeah, generally, we're looking in that 18 to 24-month range, Brian, and they will be at the corporate average. Some of them, you know, come up a little bit quicker, some a little bit slower, depending upon, you know, what type of work, what market they're in, what the fleet looks like when we acquire it, and, you know, how quickly we can rotate that fleet out.

Brian C. Sponheimer: Hi. Good morning, everyone. I'm just curious.

Speaker Change: I am numb.

Brian C. Sponheimer: On your acquisitions.

Brian C. Sponheimer: How long does it typically take for you to get those acquisitions up to corporate average?

Speaker Change: Yeah, generally we're looking in that 18 to 24 month range, Brian , and they will be at corporate average. Some of them, you know,

Speaker Change: Come up a little bit quicker, some a little bit slower, depending upon, you know, what type of work, what market they're in, what the fleet looks like when we acquire it, and, you know, how quickly we can rotate that fleet out.

Brian C. Sponheimer: So, you know, it all depends. I think what Mark just mentioned about the most recent one, we expect that to be probably quicker, closer to the 12-month cycle, maybe even a little less. So, essentially, what are you doing when you make a larger acquisition like this? You probably have a little bit less to do. Transcribed by https://otter.ai. If you're thinking about your yards right now, being fully integrated within the system, how much higher is your EBITDA margin than where the margins are?

Speaker Change: So, you know, it all depends. You know, I think what Mark just mentioned on the most recent one, we expect that to be probably quicker, closer to the 12-month cycle, maybe even a little less.

Speaker Change: So what essentially are you doing when you're, so a larger acquisition like this you probably have a little bit less to do since it seems like it's a really quality asset, but, and I guess a better way to ask that question is if you're thinking about your

Speaker Change: Your yards right now being fully integrated within the system, how much higher is your EBITDA margin than where the margins are right now?

Brian C. Sponheimer: Yeah, I mean, when we bring in these acquisitions, Brian, and really sort of throughout that, you know, that 18 to 24 month period that Larry mentioned, right, they sort of start at or around the consolidated market, right?

Speaker Change: Yeah, I mean, I think, right, like, when we bring in these acquisitions, Brian , and really sort of throughout that,

Speaker Change: you know that 18 to 24 month period that Larry mentioned right they sort of start at or around

Mark Humphrey: And so you're kind of thinking about this, you know, 45 to 47-ish, sort of consolidated. But when you think about sort of a branch margin profile, you know, that's something that starts with a five, generally speaking. It could be higher. It could be in the upper fives.

Speaker Change: Consolidated margins.

Brian C. Sponheimer: Right, and so you're kind of thinking about this, you know, 45 to 47-ish sort of consolidated.

Speaker Change: But, but when you think about sort of a branch margin profile, you know, that's something that starts with a five, generally speaking, you know, it could be upwards. It could be in the upper fives.

Mark Humphrey: And so that's really the list that you're looking for as you sort of, you know, integrate and cross-sell into, sell those pro-solutions gear and the like. Because the reality is, these acquisitions all in all aren't cost savings. Acquisitions, it's really revenue synergies that we're after, and that's how we do that.

Speaker Change: And so that's really the list that you're looking for as you sort of, you know, integrate and cross sell into, sell the ProSolutions gear and the like, because the reality is, is these acquisitions all in aren't cost savings.

Speaker Change: acquisitions, it's really revenue synergies that we're after and that's how we do that.

Brian C. Sponheimer: Okay, I got you. One last one, you know, we mentioned construction costs as being an inhibitor to local markets, at least through the first half of the day. How much is the political environment weighing on local customers' thoughts and any thoughts as it relates to megaprojects there?

Speaker Change: Okay, I got you.

Speaker Change: One last one, you know, we...

Speaker Change: You mentioned construction costs as being an inhibitor to...

Speaker Change: local markets, at least through the first half of it.

Speaker Change: expected for the back half. How much is political environment weighing on local local customers thoughts and any thoughts as it relates to megaprojects there?

Lawrence H. Silber: Yeah, look, I think it's really interest rates, Brian, that are affecting the local market, you know, starts, you know, like strip malls and, you know, and related area things in the local markets. Remember, we're really not in housing.

Speaker Change: Yeah, look, I think it's really interest rates, Brian , that are affecting the local market, you know, starts, you know, like strip malls and, you know, and related area things in the local markets. Remember, we're really not in housing. So, you know, the slowdown in, in housing doesn't impact as much except for the fact that if there's.

Lawrence H. Silber: So, you know, the slowdown in housing doesn't impact as much except for the fact that if there's, you know, a large housing community being built, there's going to be schools, there's going to be hospitals, there's going to be strip malls. And that's what's being affected. And that's where the effect is seen. Certainly, I think the political environment right now. We are in, you know, probably the most tumultuous political environment that I can recollect on in my career. And I think it's certainly having an impact. And we've heard, you know, a fair number of customers in those markets are taking a wait and see approach until the election results come in.

Brian C. Sponheimer: Okay. Yep. As expected. All right.

Speaker Change: You know, a large housing community being built, there's going to be schools, there's going to be hospitals, there's going to be strip malls, and that's what's being impacted. And that's where the effect is seen. Certainly, I think the political environment, right now, we are in a...

Speaker Change: You know, probably the most tumultuous political environment that I can recollect in my

Speaker Change: career. And I think it's certainly having an impact. And we've heard, you know, a fair amount of customers in those markets, you know, taking a wait and see until the election results come in.

Speaker Change: Okay. Yep, as expected. All right. Thank you very much.

Steven Fisher: Our next question comes from the line of Stephen Fisher with UBS. Please go ahead.

Brian C. Sponheimer: Thanks, Brian .

Speaker Change: Our next question comes from a line of Stephen Fisher with UBS. Please go ahead.

Steven Fisher: Thanks. Good morning.

Stephen Fisher: Thanks. Good morning. I wanted to follow up on the interest rate commentary, more of an opinion question. How long do you think it would take for the local markets to react to interest rate cuts and how big do you think the cuts need to be to get more of that local market activity to pick up?

Lawrence H. Silber: I wanted to follow up on the interest rate commentary, more of an opinion question. How long do you think it would take for the local markets to react to interest rate cuts? And how big do you think the cuts need to be to get more of that local market activity to pick up?

Steven Fisher: Yeah, good question, Steve. Generally, what we've seen in the past is that, you know, the interest rate environment just needs to show that it's trending in the right direction, and people will become a little more risk-taking. And we generally see that have like a six-month lag or thereabouts from the time the Fed will signal that it's going to cut and then implement a cut.

Steve: Yeah, good question, Steve.

Speaker Change #100: Generally, what we've seen in the past is that, you know, the interest rate environment just needs to show that it's trending in the right direction and people will become a little more risk-taking, and we generally see that to have like a six-month lag or thereabouts.

Speaker Change #100: From the time the Fed will signal that it's going to cut and then implement a cut, I think you're looking at a six-month lag for shovels to go in the ground. I'm sure there's a lot of projects that are what would be called shovel-ready, but people need to see that the marketplace and the environment is going to be one that they can rent these stores and these strip malls, and people are willing to start up businesses and do that kind of activity. So short answer, about six months.

Steven Fisher: I think, you know, you're looking at a six-month lag for projects to, you know, shovels to go in the ground. I'm sure there are a lot of projects that are what would be called shovel-ready, but people need to see that the marketplace and the environment is going to be one that, you know, they can rent these stores and these strip malls, and people are willing to start up businesses and do that kind of activity.

Lawrence H. Silber: So, the short answer is about six months.

Steven Fisher: And then in terms of overall supply and demand, you mentioned seeing discipline in the market based on some of the industry data. How balanced do you think the market is right now? I mean, I imagine if you expect sequential price for the rest of the year, it can't be much out of balance, but curious what you think.

Speaker Change #101: Perfect. And then in terms of overall supply-demand, you mentioned seeing discipline in the market based on some of the industry data. How balanced do you think the market is right now? I mean, I imagine if you expect sequential price for the rest of the year, it can't be much out of balance, but curious what you think.

Aaron D. Birnbaum: Yeah, that's something we look at regularly. So, because we're really comparing ourselves to what's going on in the market, but we see the market, you know, tightening, you know, the volume and demand are kind of moderated to that low single digital level. We've seen the fleet levels of the industry come down as well. So I think the industry is in a good fleet situation right now.

Speaker Change #101: yeah

Speaker Change #101: Aaron, do you want to take that? Yeah, that's something we look at regularly. So, because we're really comparing ourselves to what's going on in the market. But we see the market, you know, tightening. You know, the volume is...

Aaron: The demand is kind of moderated to that low single-digit level. We've seen the fleet levels of the industry come down as well, so I think the industry is in a good fleet.

Lawrence H. Silber: Yeah, reviewing, you know, the data that we get, you know, the Rouse data, we can see what the fleet level is in the industry. And we think it's a, as Aaron said, you know, a good discipline level. And as we're going into the peak season.

Aaron: situation right now.

Speaker Change #102: Yeah, reviewing, you know, the data that we get, you know, the Rouse data, we can see what the fleet level is in the industry. And we think it's a, as Aaron said, you know, a good discipline level. And as we're going into the peak season.

Steven Fisher: Thanks for taking the questions. Sure. Our next question comes from a line from Eli Lapp with BMO.

Speaker Change #102: Thanks for taking the questions.

Eli Lapp: Our next question comes from the line of Eli Lapp with BMO Capital Markets. Please go ahead. Thank you. As you guys mentioned in your comments,

Speaker Change #102: [inaudible]

Stu: Thanks, Stu.

Speaker Change #104: Our next question comes from the line of Eli Lapp with BMO Capital Markets. Please go ahead.

Eli Lapp: Thank you. So, you guys mentioned in your commentary an impact of interest rates and I was wondering if you could offer

Speaker Change #106: There's some sensitivity analysis to that, so...

Speaker Change #107: You know, perhaps if you view a 50 basis points or 100 basis points, whatever you think is appropriate, and how that impacts the business on a revenue, and ideally, and an EVTA level as well.

Lawrence H. Silber: Yeah, that would be, you know, kind of very hard to sort of give you that kind of metric. What we really operate on is sentiment in the market. And as sentiment in the market feels that interest rates are going to make it more affordable and more responsive to demand for the type of activity that we participate in. That's where, that's where it is. I think, you know, interest rates are more about, you know, mentality and sensitivity to what's going to happen in the future. And I think if the indicators show that rates are going to moderate, I think we'll see a more receptive market for construction starts begin.

Speaker Change #108: Yeah, that would be, you know, kind of very hard to sort of give you that kind of metric.

Speaker Change #108: What we really operate more is on sentiment in the market.

Speaker Change #108: And as sentiment in the market feels that interest rates are going to make it more affordable.

Speaker Change #108: and a more responsive

Speaker Change #108: to demand for the type of activity that we participate in. That's where it is. I think interest rates are more around mentality and sensitivity to what's going to happen in the future. And I think if the indicators show that rates are going to moderate, I think we'll see a more...

Speaker Change #108: Receptive Market to Construction Starts Begin.

Speaker Change #108: Okay, thank you.

Unknown Executive: That concludes our Q and A session.

Operator: That concludes our Q&A session. I will now turn the call back over to Leslie Hunziker for closing remarks.

Leslie Hunziker: I will now turn the call back over to Leslie Hunziker for closing remarks.

Speaker Change #108: That concludes our Q&A session. I will now turn the call back over to Leslie Hunziker for closing remarks.

Leslie Hunziker: All right, everyone. Great. Thank you for joining us on the call today. We look forward to updating you on our progress and the quarters to come. Of course, if you have any further questions, please don't hesitate to reach out to us.

Leslie Hunziker: All right, everyone. Great.

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

Leslie Hunziker: All right, everyone. Great. 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.

Leslie Hunziker: Have a great day.

Unknown Executive: This concludes today's call. You may now disconnect.

Operator: This concludes today's call. You may now disconnect.

Speaker Change #109: This concludes today's call. You may now disconnect.