Q3 2024 Herc Holdings Inc Earnings Call

John: Thank you for standing by. My name is John and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Hercolving Sturquater in 2004, or any school at WebGas.

John: All lives of the place you need to prevent any background noise.

John: After this speaker's remarks, there will be a question in answer session.

John: If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. To withdraw your question, please press star run again. Thank you. I would now like to turn the call over to Leslie Hunziker. Head of Investor Relations. Please go ahead.

Leslie Hunziker: Thank you, operator, and good morning, everyone. Welcome to Herc Rentals, third quarter, twenty-twenty-four, earnings conference call and webcast. Earlier today our press release and presentation slides were furnished and our KENQ was filed with the SEC. All are posted on the events page of our IR website.

Speaker Change: Today, we're reviewing our third quarter 2021 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks was followed by an open Q&A.

Speaker Change: Now, let's move to our State Harbor and GAAP reconciliation on slide 3. Today's column, clues forward looking statement. These statements are based on the environment as we see today, and therefore involve risks and uncertainties. I would caution you that our actual results could just from a carefully from the forward looking statements made on this call.

Speaker Change: She should also refer to the risk factor section of our annual foreign and foreign 10K for the year ended December 31, 2023. In addition to the financial results presented on a gap basis, we'll be discussing non-gap information that we believe is useful in evaluating the company's operating performance.

Speaker Change: Reconciliation for these non-gap measures and to the closest gap of quibbling can be found in the conference called material.

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 as the Beard Global Industrial Conference in Chicago on November 12th. North Coast Research's Virtual Management Access Forum on November 13th, right-burn at Lantic Virtual CEO Conference on December 3rd, and the Nellian Research Conference in New York on December 11th. We hope to see you there.

Leslie Hunziker: This morning, I'm joined by Larry Silver, 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.

Larry Silver: Thank you, Leslie, and good morning, everyone. Let's turn to slide number four.

Larry Silver: In the third 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 and leveraging proprietary and industry data and technologies to enhance our competitive position and customer satisfaction.

Larry Silver: We're continuing to make good progress on all of these initiatives.

Larry Silver: You're today, we require 26 locations, an open 16-green-filled branches that will drive market share and revenue efficiencies in key metropolitan areas, in line with our urban market growth strategy.

Larry Silver: In addition to desirable locations, the acquisition spring complementary fleet categories, valuable new team members with a strong cultural fit and new local account opportunities.

Larry Silver: Our enhanced fleet mix allows us to cross-seller specialty products in these typically general-rank customers.

Larry Silver: We've increased our specialty fleet catbecks this year to support share of wallet opportunities as well as the incremental demand from mega projects and potential business with customers in newer and market verticals where we're capturing greater penetration.

Larry Silver: Now moving to slide five, this is our year-to-date financial scorecard which includes the Sinaly's business. With the softness in the local market continuing as developers await further interest rate cuts, this year's operating performance really emphasizes the advantage of Hercs

Larry Silver: Mega Project Participation, Customer, Project and Geographic Diversity, specialty equipment and services, strategic acquisitions, and of course, pricing discipline.

Larry Silver: Rental rate was up 2.3% year over year in the quarter, and 3.5% year date. That's on top of the top comp of 7.2% over the same 9 month period last year, and a 5.4% rate increase in the first 3 quarters of 2022.

Larry Silver: Further pricing is improving on a sequential basis reflecting our leadership as well as ongoing industry discipline.

Larry Silver: And based on benchmark data, hurt volume continues to significantly outpace overall, run a market growth on both an organic and total revenue-based.

Larry Silver: Adjusted EBITDA margin is running slightly ahead of last year to date results, despite an unfavorable trade-off and profitability, as 2024 acquisitions and greenfields initially generate lower incremental margins than our established local account business.

Larry Silver: Ultimately, over an 18-24 month period, these new locations will be completely accretive and will further help drive scale efficiencies that make them a valuable component of our long-term profitability plan.

Larry Silver: Year to date, our OIC is being impacted by some near-term inefficiencies, including those from news locations which will improve over time.

Larry Silver: Mark will walk you through the year over your comparison in detail in just a minute.

Larry Silver: But on a favorable note, fleet efficiency on an organic basis is positive for the nine months year to date, and that's due to a strong execution by our fleet, sales, and operations team. In such a dynamic market, they say focus on fleet productivity and its paid off.

Larry Silver: As we think about the remainder of the year, let me jump to slide number six to share some thoughts. We expect once again.

Larry Silver: Generate record rental revenue in the fourth quarter as mega-projects accelerate, new acquisitions provide incremental contributions and a revenue related to our support of the recovery efforts for the two recent hurricanes are captured.

Larry Silver: When it comes to margin,

Larry Silver: We're going to continually, to carefully manage the cost structure and fleet utilization to address this near-term disparity of demand we're seeing between certain regions, customer and project types. We'll also continue our efforts to full synergies from recent acquisitions as quickly as possible to enhance profitability. Experience, agility and discipline will help navigate this timing issue in the local market. We'll continue our efforts to full synergies in the local market.

Larry Silver: For Netfleet CapEx, we've taken in most of our new fleet at this point and will ramp up seasonal dispositions over the next two months. Our fleet group has done an excellent job in managing the timing and allocation of investments in new equipment and adjusting the amounts of new fleet against fleet dispositions based on regional demand trends.

Speaker Change: From what we're continuing to see in the industry data, the overall market is being equally disciplined when it comes to flee growth. As always, we'll manage our costs and assets carefully while we continue to support the growth of our business.

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

Aaron Birnbaum: Thanks Larry, and good morning everyone.

Aaron Birnbaum: The underlying long-term fundamentals supporting equipment rental demand remains strong.

Aaron Birnbaum: The trends of rental over ownership, reshoring manufacturing, fortifying North America's infrastructure, modernizing the electrical grid, rapid growth in AI and data centers, and the move toward clean energy, all represent significant future opportunities for Herc as a leading equivalent rental company with a full suite of capabilities, products and investment class services. [inaudible]

Aaron Birnbaum: While the current period of transition from the post-COVID-T to a more normal local operating environment was challenged this year with the higher interest rates and some macroeconomic uncertainty, our much more diversified position today provides the resiliency to continue to drive revenue growth and deliver strong operating margins. Of course, the secret sauce is Team Herk's unwavering dedication to the success of our customers and their critical projects. Thanks.

Speaker Change: Success starts with safety and safety is at the core of everything we do. As you can see on slide eight, our major internal safety program focuses on perfect days. We strive for 100% perfect day throughout the organization.

Speaker Change: In the third quarter on a branch by branch measurement, all of our operations achieve the least 97% of days as perfect.

Speaker Change: 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.

Speaker Change: On Slide 9, you can see that we are making great progress on our urban market growth strategy by expanding through dream field locations and acquisitions in the top 100 metropolitan markets.

Speaker Change: In the third quarter, we spent $277 million in that cash on two acquisitions, adding a total of five locations to our network, some Florida, Arizona and California.

Speaker Change: The acquisition of West was our largest since launching our M&A strategy at the end of 2020. We completed the transaction in July, and as I mentioned on our last call, this premium business brings four locations serving construction and industrial customers in Phoenix, the San Diego.

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

Speaker Change: We also opened five green-filled locations in the corridor, bringing our total over the last 12 months to 24, which is nearly a 41% increase in green-filled openings over the comparable trailing 12-month period.

Speaker Change: 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.

Speaker Change: Moreover, many of the mega industrial manufacturing projects being announced are in the geographies where we have targeted our acquisitions in greenfield additions like Texas, Southern California, Arizona and along the Eastern Seaboard [inaudible]

Speaker Change: We have successfully integrated 51 businesses with 115 locations into the Hark Network since late 2020. As a result of revenue efficiencies, we've been generating synergized multiples at maturity of approximately 3.5 to 4.5 times.

Speaker Change: While new acquisition opportunities remain robust, in fact we just closed on another last week. We are equally focused on ensuring we are capturing the cross-selling and fleet productivity synergies from acquisitions completed over the last 24 months.

Speaker Change: On slide 10, in addition to acquisitions, growing our core especially fleet through new equipment investments is a key strategy to expanding our share and keeping up with our increasing demand opportunities.

Speaker Change: Our fleet top position at OEC is on the right side of the page.

Speaker Change: Total fleet is now a record 7.1 billion as of September 30, 2024. Siddly fleet represents roughly 4% of the total, so when you exclude the Siddly Satsets held for sale, our base fleet is about $6.8 billion.

Speaker Change: You'll note that higher margins, especially fleet, represents approximately 23% of the total today. Excluding Senalies, especially makes up about 20% of the total with plenty of room to continue to grow.

Speaker Change: When it comes to fleet investments in the quarter, the 34% increase year every year is more reflective that they return to normal season of delivery patterns this year with the supply chains recovery.

Speaker Change: In fact, your to date fleet investments at OEC are down about 14%. We manage our fleet efficiency while supporting the incremental demand from general market expansion of the peak season, new green fields and the mega projects that significantly accelerated into the back after the year. [inaudible]

Speaker Change: For the full year, we expect to spend around $1 billion on new fleet purchases.

Speaker Change: In the 2024 third quarter, fleet disposal that we see were 36% lower than last year. Again, this is in keeping with our plan for a more normal seasonal cadence than this position this year.

Speaker Change: Year-to-date, Disposals at OEC are down 24% compared with the year earlier when we were both right-sizing and refreshing our fleet. For the full year, we have increased our planned OEC dispositions to approximately $700 million to update some of the acquisition fleet and to adjust for the slower local market demand in certain regions for transportation costs to move existing fleet or less economically efficient.

Speaker Change: In the third quarter, we continue to gain traction on improving our youth fleet sales capabilities, utilizing technology, training and sales force incentives to participate more in the higher return retail and wholesale channels.

Speaker Change: As a result of our now more favorable channel mix, and despite the used equipment market moderating from peak levels, our proceeds at 42% of always seeing on the quarter, or 300 basis points higher than last year.

Speaker Change: During the slide 11, we are successfully addressing the needs of both large national accounts and local contractors.

Speaker Change: Local accounts represent a 56% of rental revenue in the third quarter, and are expanding through shared gains from acquisition and green-filled locations, as well as organic growth and split regions where infrastructure, education, local utilities and facility maintenance repair projects are underway.

Speaker Change: We continue to view the slowdown on local projects starts primarily as an interest rate timing issue based on everything we're hearing.

Speaker Change: On the National Accountside, we're capitalizing on continued government and private funding for new projects and areas like battery storage, energy, infrastructure, semiconductor, LNG plants and data centers.

Speaker Change: will continue to target a 64 revenue split between local and national accounts. This difference of occasion provides for growth and resiliency.

Speaker Change: During this like 12 overall, we're continuing to see solid demand across a variety of in-market geographies and project types in 2024. Mega Projects continue to represent incremental new opportunities for us as our especially offering expanded market coverage, technology advancements and service and logistics expertise distinguishes us as a top-free solutions provider from most Indian market vertical.

Speaker Change: and team hurt is already gear and up. Their professionalism shows up in the execution of our services to our customers every single day. Our growth is attributable to our people in our culture.

Speaker Change: They're the 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 third quarter.

Mark Humphrey: For clarification, these are our gap results that include the Sennelie Studio Entertainment Business, which, as we've discussed previously, is classified as assets held for sale. I'll just make a couple of quick points here before turning the focus to the core results.

Mark Humphrey: In the third quarter, rental revenue increased 13.2%, and adjusted EBITDA increased 8.8% to a record 446 million. EBITDA margin expanded a hundred basis points and dollar utilization was up slightly.

Mark Humphrey: Let's move to slide 15

Mark Humphrey: Here we outline our core financial results, which excludes Senalese from both periods in order to give you a better sense of how the base business performed in the quarter.

Mark Humphrey: A full reconciliation of quarterly performance metrics, excluding scenolese can be found on slide 26 and 27 in the appendix of our presentation.

Mark Humphrey: For the third quarter at nearly 12% are rental revenues significantly outpaced the overall industry's performance.

Mark Humphrey: Brentyl Revenue came from a variety of sources which speaks to the strong execution of our sales force, fleeting, and branch operators, as well as the depursification of our business and fleet offerings, reinforcing that our capital allocation strategy is working.

Mark Humphrey: Mega projects flood national account business, the double digit growth in line with our expectations, while our local rental business also grew as a result of contributions from recent acquisitions, as well as organic growth from healthcare, education, municipal, and MRO projects.

Mark Humphrey: Pricing came in at 2.3% in the quarter, and Pricing discipline across the industry as evident as companies continue working to align fleet with the mantras, especially in the local markets.

Mark Humphrey: For her, in addition to moving or disposing of fleet and softer regions of the country, we're also working through the newly acquired fleet to upgrade quality, refresh for age, or right size, we're necessary.

Mark Humphrey: While acquisition fleet weighs on fleet efficiency and dollar utilization, we have seen improvements in both metrics sequentially versus the second quarter of this year, and we expect to continue to see improvements as acquisitions mature under our ownership. Organic fleet efficiency was positive in the quarter.

Mark Humphrey: Net income was impacted by higher interest expense related to increased borrowing to fund acquisitions, and invest in rental equipment, and higher non rental amortization expense associated with acquisition and tangibles.

Mark Humphrey: Partially offsetting these impacts was operating leverage gained in our SCNA, from our cost disciplines as revenues expand.

Mark Humphrey: Reba died during the third quarter was a record, and Margin was strong at nearly 50%.

Mark Humphrey: Revadot flowed through a 40% was a bit lower than the 45% we expected when we updated in Q2, but for perspective only 5 million of additional Revadot in the quarter would have gotten us to our expectations.

Mark Humphrey: We are still being impacted on the revenue side by the slowdown and the local market project starts as Aaron mentioned, which also creates a short-term imbalance with gaining full leverage on our fixed direct operating costs, particularly as we bring on acquisition and green field locations.

Mark Humphrey: We believe these investments are necessary to gain scale through expanding our branch network during this growth phase and positions us for long-term success.

Mark Humphrey: Trailing 12-month ROIC on the core business declined 160 basis points to 10% at the end of the quarter. The prior year period benefited from accelerated fleet dispositions, driving an approximate 50 basis point impact.

Mark Humphrey: The remaining 100 basis point variants relates to the impact associated with the acquisitions and green fields and as new locations mature and are prudent onboarding of new fleet supports fleet efficiency we expect to drive ROIC improvement.

Mark Humphrey: Let's turn to slide 16 and I'll walk you through the rental revenue and adjusted EBITDA bridges from 3rd quarter 2023 to 3rd quarter 2024 to give you a visual reconciliation.

Mark Humphrey: In the revenue chart, the roughly 12% increase year over year was made up of 2.38% increase in rate and at 10.7% increase in OEC on fleet on rent. Mix was an offset of 1.2% reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent.

Speaker Change: 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.

Speaker Change: Of the 12% growth in the quarter, 7.3 points came from organic rental revenue, and 4.6 points came from 2024 acquisitions.

Speaker Change: Have the 9.5% rental revenue growth year-to-date, the contributing split was roughly 7.2 points of organic growth and 2.3 points from 2024 acquisitions.

Speaker Change: Adjusted EBITDA increased 6.2% year-over-year, benefiting from higher overall rental revenue. Adjusted EBITDA margin was strong in the quarter, primarily due to favorable SDNA expense management and higher proceeds at OEC on fleet disposal's year-over-year, as we shift our mix of sales channel to retail and wholesale and reduce our exposure to lower margin auction sales.

Speaker Change: Chifting the capital management on slide 17, you can see we have no near-term maturity, the 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 discipline net capital expenditures resulted in $219 million of free cash flow year-to-date. Our current leverage ratio at 2.7 times is well within our two to three times target range and in line with our expectations as we invest in growth. We remain confident in our business model and are committed to increasing shareholder value. In the third quarter we declared a quarterly dividend of $66.5, which represents $2.66. It's a big sense per share for the year. It's a big sense per share for the year.

Speaker Change: On slide 18, you can see the continued strength in our primary in-market, and 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 $84 billion today.

Speaker Change: On the bottom left is the architectural billing index that recorded a score of 45.7 in the August release.

Speaker Change: Surveyed respondents agreed that prolonged high interest rates continued to discourage new project activity.

Speaker Change: Also, the survey showed that the majority of architecture firms reported having little experience with mega projects as a lever to offset regional weakness.

Speaker Change: Taking a look at the updated industrial spending forecast on 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 spent.

Speaker Change: And the lower right quadrant is that is forecast for non-residential construction starts. 2024 starts are estimated to increase 6% to 442 billion.

Speaker Change: The dotted line on both of these charts reflects growth over pre-pandemic peak levels.

Speaker Change: You can see that this year in the next three years, projected to be some of the strongest periods of activity that this industry has ever seen.

Speaker Change: Additionally, there's another 342 billion in infrastructure projects later for 2024. That's a 13% increase over 2023.

Speaker Change: If you flip the slide 19, you can see that we're updating the 2024 guidance that was set in February.

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

Speaker Change: We are now expecting rental revenue growth of 9.9.

Speaker Change: 5% to 11% for the full year based on organic growth continuing to significantly outpace the overall industry's performance, which includes our, which includes our outside share of mega project activity and the contribution from the 2024 acquisitions.

Speaker Change: Our four-year adjusted EBITDA guidance ranges unchanged at 1.55 billion to 1.6 billion, reflecting another year a profitable growth ranging from 6 to 9% over prior year.

Speaker Change: Rental Equipment CapEx is expected to come in near the high end of both our net and gross CapEx ranges.

Speaker Change: Now, before we open it up for Q&A, let me leave you with this while the broader macro environment is clearly transitioning in 2024 from the outside's growth of the last three years. Today's demand drivers are multi-dimensional for the largest, most diversified companies. And team members dedicated to our company's purpose.

Speaker Change: and as we continue to gain its foothold in the fast growing mega project environment, roll out our operating system called E3OS and improve our fleet efficiency. We are further elevating our competitive advantages, solidifying our path for sustainable long-term growth. With that operator, we'll take our first question.

Speaker Change: Thank you. We will now begin our question and answer a session. If you have dialed in and would like to ask a question please press bar, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press bar again. As a reminder, please send yourself the one question and one follow up only. Your first question comes from the line of Terry, your ravage from Goldman Sachs. Please go ahead.

Speaker Change: Good morning, everyone. Good morning, we're very hurrying.

Speaker Change: Good, good, thanks for hoping you're doing well to Larry and Team. I went to ask the performance that you guys had in terms of fleet on rent was generally in line.

Speaker Change: with OEC growth, so essentially time utilization, flatish year over year. Can you just talk about with the dynamic of the hurricane that you mentioned in the fourth quarter? Or are we at a point where time utilization should be improving year over year in for you and entering 25 just given that cadence mark. [inaudible]

Larry Silver: You know, good question, Jerry. I mean, there's a lot to unpack there, there's a lot to unpack really in the quarter and even as we sort of roll into four two, I think that, you know, we certainly will expect some uplift.

Larry Silver: from the hurricane, but I also think it's probably too early to sort of begin to pinpoint what that impact is in the quarter, and that's not necessarily avoiding your question, but the reality is we know where we are today, but the storms impacted three of our regions.

Larry Silver: and additionally, the duration, there were two different storms really involved here and they were very different and so I think as we sort of unpack and work our way through we'll have a better feel for sort of the impacts on the uplift of time you and the mix really there's a large specialty component to that as well.

Larry Silver: But I think your first part of your question was reasonably in line, I think from a core perspective, you know, we achieved, um, lead efficiency. It's really the overhang from the M&A activity, which was heavily weighted into the back end of Q2 and really into the front side of Q3. And so that was weighing on it's in the quarter where about half the fleet growth in the quarter came from M&A.

Speaker Change: Super appreciate the color. And then from a rate standpoint, it looks like normally you folks have pricing that's up 4Q versus 3Q. So should we be thinking about the exit rate for pricing essentially in that load who's range and you know at that level of pricing and wondering if you folks are in a position given the constructor to deliver stable margins as we think about what that means heading into 25.

Speaker Change: Yeah, I mean, again, I think it's...

Speaker Change: It's sort of a marketplace that's sort of performing as we would expect it to.

Speaker Change: You know, I think, you know, the sequential improvement that we gained in Q3 was right in line with where we thought it was going to be and that sort of aligned to Q2's sequential. As you work your way through Q4, you know, that movement generally historically speaking has been a bit less than 3 and 2 really respectively, but I don't think directionally, Jerry not trying to get to pinpoint here. Directionally, I don't think you're too far off in terms of the exit point out of 4Q and into Q1 of 2025.

Speaker Change: It's our mark the cost part of that conversation that is at level of rate enough to get you to stay able to up margins given the inflationary picture.

Speaker Change: Yeah, I mean again, right? I mean everything is sort of driven by the demand side of this right sort of driving into the fixed cost structure of our business, but again, all else being equal, that's accurate.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Robert Timer from Middle East Research. Please go ahead.

Robert Timer: Thanks. Morning, guys. There's a lot of cross-currents here, progress on margin, fleet efficiency team is improving and better. The thing that surprised me a bit was the CAPEX increased, where I know you guys can grow, and I know you got green fields when they got acquisitions and there's opportunity there. But I'm wondering, is that a signal that the megaprojects are rising enough to really absorb the fleet? Is that a signal that you see the industry being constrained by cost and can't raise CAPEX? I'm just a little bit curious about that, because I might have guessed a slight trim as opposed to an increase.

Robert Timer: Good question, this is Aaron.

Aaron Birnbaum: You know.

Aaron Birnbaum: As you saw, we raised the guidance on the revenue, so our revenue view for the years is stronger than it was.

Aaron Birnbaum: Um...

Aaron Birnbaum: Through three quarters, we have to go less late than we did a year ago, and that'll be the case when we finish the year. But it's really matching up the fleet mix and needs of our customers.

Speaker Change: Primarily in the Meg Arena, where we need to kind of go to the high end of that guidance and that's kind of what our view is on our our CapEx for the end of the year. So it's really fleet that's still going to come in the remaining of the year, but it's really revenue that will be generated as we go through the quarter and into the first part of next year. And I think Rob maybe just to add on to that, right? I think we have a different conversation. If we haven't achieved fleet efficiency through the first nine months of the year, I don't think we'd be having the conversation. So, you know, I think at the end of the day, right? It customer demand is sort of driving this and we're meeting those demands.

Speaker Change: Okay, that's helpful, and I'm sorry for this basic question, but could you just give us the exact definition on flea deficiency? I'm not sure we're Sinalycer or anything else, all that. Yeah, no completely fair. It's really just our challenge to get revenue growth ahead of flea growth. So when you unpack that accidentally, right? So you unpack that in the quarter top level, it looks like you are fleet inefficient, right? Because you grew at 11, 8 versus fleet growth at 12, 3. If you unpack that to the M&A piece, the M&A piece was inefficient while the organic piece was efficient.

Speaker Change: Your next question comes from the line of Steven Ramsi from Thompson Research Group. Please go ahead.

Steven Ramsi: Good morning. On the mega projects as you make progress capturing that opportunity with market share that's well above your total rental market share. What have you learned as you've gotten into this as far as the competitive nature of these jobs as they ramp activity? It seems like more fleet types are being used at this point in the opportunity as they mature. Just cherish your learning and if you think the market share you've achieved if there's even an upside to that.

Speaker Change: The market share that we have achieved kind of what we set out to achieve, you know, a multiple of our current market share of, you know, three or four times.

Speaker Change: So we're happy where we are, you know, it remains to be seen if that expands but that's kind of how we strategically go on after the opportunities.

Speaker Change: You know, in the Meg Arena, what you find is that, you know, they end up going into a variety of markets and the local players, you know, they get pieces of that because they're there, they've got to be able to feed, but what the contractors really want is they want copies that have scale enough to deliver large volumes of fleet. They want technology, they want a, you know, young fleet, and they want a safety program so that our employees and their employees are in a safe environment. So those are the three or four critical pieces that is required by the large customers.

Speaker Change: Yeah, additionally, I think it's important for any of the people that are really sort of in the mix in a big way to have a strong specialty offering of fleet that they can supplement the core fleet with and I think that is certainly helping us in maximizing our capability and our penetration with these accounts.

Speaker Change: Okay, that's helpful. And then on the improved use channel.

Speaker Change: Day of next.

Speaker Change: So what ending are we in on volume moving through these candles and then secondly?

Speaker Change: What inning are you in on the operating efficiency of this activity just as you learn how to operate better in a scale? Thanks. Yeah, we're definitely in the early innings of kind of transitioning to the retail wholesale channel mix for us. It's really this is the first full year we've been delivering on that and we're getting the you know our teams focused on it from our sales force and our marketing team. So it's early for us and we think that you know over the next two or three years that that mix of the equipment sales will just continue to come in higher and we like that because we know that'll give us a higher proceeds as we actually each quarter.

Speaker Change: That's what, thank you.

Speaker Change: Next question comes from the line of fuel pilot from Redburn, Atlantic. Please go ahead.

Speaker Change: First question, just on the rate increase, I think previously once or twice you've given us a bit of a sort of breakout of differing trends within the number that you report between, you know, some of the short term, you know, rate trends and longer term or sort of local and national. So, you know, so order if you could do that and within that perhaps.

Speaker Change: discuss how the change in mix i.e. the growth in megas has impacted that 2.2.3% number.

Speaker Change: and then I may have missed this earlier, but on fleet efficiency when you're describing this without look there, can you help us in the context of your, you know, your medium term targets a medium term sort of capex?

Speaker Change: Guy that you presented at the investor event last year. Where are we on that path? Given the gap that's going to be given today for sort of 25 and 26. And it's obviously the right assumption from your comments that's sweet efficiency improved sort of year on year on year over the next two years as well as into the back of this year. Thanks.

Speaker Change: Let me take the rate question first.

Speaker Change: So, let's talk about nine contract verses contract. I would tell you that both of them are performing as expected. I think that the spotmark is stable.

Speaker Change: You know, the break between those will pass on sort of giving that, but I would tell you sort of big picture performing as expected and like I said, you know, we got sort of a sequential price lift.

Speaker Change: you know, in line with Q2's 60 points and so you know, I think performing as we would intend, remember, right, we're trying to cover off inflation and grab a premium for the service that we provide and that's, you know, that's our goal and that's our intent.

Speaker Change: and I'm now blanking on.

Speaker Change: the specific of what you wanted me to cover there. From an efficiency perspective, right?

Speaker Change: and then in context of the goals that we laid out at the end of 2020.

Speaker Change: Three, I think it's too early to sort of align where we are today with where that three year mark would have had us.

Speaker Change: Obviously, even inside of that plan, you know, fleet efficiency was the expectation. I think that the market place in and of itself has changed fairly significantly from the time that we rolled that out to what we're operating in today. And so I think there's a bit of a way to see there as these interest rates take hold, you know, how quickly developers put activity back online into these local markets. And I think, you know, as that demand shows will be ready to capitalize on it, but we're not going to speculate there and buy in advance of that. I think the health of the OEM certainly supports, you know, that play.

Speaker Change: Your next question comes from the line of Tammy Zekaria from JP Morgan, please go ahead.

Speaker Change: Hi, good morning. Thank you so much for the opportunity. So my first question is, are you able to comment on growth in specialty versus general rent you saw in the quarter relative to the overall 7.3% organic growth? I think you said you saw in the in the quarter for rental revenues. I'm just trying to understand special diverse rental performance in the quarter. Without, I mean, I think generally speaking, you know, especially grew with double digits, but we won't get any more pointed than that. It's certainly a tailwind for us and performing extremely well as we work our way through the back after the year.

Speaker Change: God, that is super helpful. Thanks for the color. And then my next question is, I think you mentioned local account revenues increased in the quarter of DJ Acquisitions in Greenfield. Are you able to quantify or give directional commentary around the organic growth in local accounts, ex these Greenfield Acquisitions in the quarter. I'm just trying to understand how local markets did in 3Q versus the prior two quarters. Is there any stabilization going on or things got worse? So any color there would be helpful.

Speaker Change: Certainly, I think, no, I mean, in terms of getting that pointed to, you know, local market growth versus national growth. I mean, obviously, you know, we grew organically somewhere in that plus 7% range. I would tell you that the color is, is that sort of the local market behavior coming out of Q2 is really what we experienced in Q3. So I would say to you, from a color perspective, stabilized as we worked our way through Q3 as we had anticipated coming out of Q2.

Speaker Change: Your next question comes from the line of Ken Human from Keyback Capital Markets. Please go ahead.

Ken Human: Thank you more guys, thanks for taking the question.

Ken Human: Good morning.

Ken Human: Morning. You know, I just wanted to touch on the updated guidance this morning. Mark I think it does imply 4Q core EBITDA rental margins in the low and amid 50% range. Obviously that's a decent step up from both last year and last quarter. I know there's a lot of moving pieces here, whether it's, you know, the hurricane impact or maybe some better volume absorption, but I was curious if you just help us provide a bridge from 3Q to 4Q on those various buckets on, you know, what helps you come and get to that bid point.

Speaker Change: Well, I think, you know, generally speaking, if you look at, you know, sort of three, two, four, two historically.

Speaker Change: You know, those have performed at reasonably the same levels, give or take sometimes a three, outperforms a four and sometimes a four outperforms a three.

Speaker Change: But I think, you know, as we walk into 4Q, you're not wrong, there's going to be a bit of hurricane lift there to be determined. But I think it's more around sort of the cost actions that we've taken that we talked about in Q2. And then obviously, you know, the demand components that we've talked about. There's a lot of moving parts underneath that. But I think, you know, that sort of gives us the sort of confidence to talk through it in the way that we have. I think the other piece of this is, is that if you look at 4Q, 2023.

Speaker Change: A bit of an easier comp than 32, 20, 23. So I think all of that sort of relative put all of that into the mix and that's sort of where you fall out.

Speaker Change: Okay, you got it. So is it fair to say that?

Speaker Change: Just levels of magnitude from a higher, you know, 30,000 flood type of view. It's more so the cost actions may be leveraging SGNA more so than a mixed benefit from hurricanes at this point.

Speaker Change: Good morning.

Speaker Change: To be determined, you know, I think we had to put this together with a bit of one arm tied behind our back, right, because we're halfway through the first month of...

Speaker Change: a significant amount of...

Speaker Change: of hurricane disruption, but I think all else being equal, you're not wrong.

Speaker Change: Yeah.

Speaker Change: I'm a little too early to tell, you know, on the hurting.

Speaker Change: Two different types of hurricanes, different fleas mix for the two hurricanes.

Speaker Change: is on the length or duration of gear on rent for that and I think what we've done is our best estimates based upon the past, but again, too early to tell.

Speaker Change: Yep, got it. And then just quickly on my follow-up here, you know, look, I know you're not ready to give 25 guidance yet, but you know, I think you are in the process, potentially of securing build lots for new equipment for delivery next year.

Speaker Change: Just given what you're seeing at this point in time, is it fair to assume that you expect to drive fleet growth beyond replacement at 2025?

Speaker Change: You know, I think it's a little too early to sort of say that. I think what we are doing is looking at replacement capex first and looking at mega project requirements that stem from that and then look at cross selling opportunities at our acquisitions and where we need to fill and gravitate that towards those to make those acquisitions reach the multiples that Aaron talked about. So I think those are our top three priorities and our field is, you know, working on that together with our fleet team. But, you know, it'll be a minimum, at least, of replacement capex, which you know, we replaced the fleet, you know, on a seven to eight year average.

Speaker Change: So sort of take our six point nine billion or six point eight billion, of course, Lee. And that's about, you know, one sevens or one eights, that'll be a minimum.

Speaker Change: I understood. Thanks, Larry.

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

Speaker Change: Hi, good morning. I just learned the touch on the slow.

Speaker Change: for you. Understand, third quarter is impacted by.

Speaker Change: and the local slowdown in emanating green fields.

Speaker Change: Guide seems to imply similar flow through in Q4 to Q2.

Speaker Change: Street, but just give them the pace of M&A in your current market visit.

Speaker Change: How should we think about flows from going forward?

Speaker Change: Part of you leave you maintain a similar pace of M&A next year as you have this year.

Speaker Change: Good question, obviously there's a lot of moving parts here, right? Sort of the larger component of a brev growth coming from M&A, just sort of making it immature by its very nature.

Speaker Change: and the challenging local market slow down. You know, when you look at a 23, right? That was a...

Speaker Change: in the quarter, I mean.

Speaker Change: No, I mean, again, it's just in the cake, it's there, it's just right now, the M&A piece of this where that's generally sort of been in the mid 20s to 30s is sort of ranging into that 40% of your rev growth contribution just given M&A timing.

Leslie Hunziker: Hunziker, thank you.

Speaker Change: Your next question comes from the line of Meg Dobry from Beard. You go ahead.

Meg Dobry: Yes, the morning, thank you for taking the questions.

Meg Dobry: Larry, maybe just clarification here, your common on slide 19 concerning guidance mentions that there is some contribution from Hurricane.

Meg Dobry: Is this... Is this...

Larry Silver: You essentially baking in sort of an average hurricane or weather event into this guide with your comments earlier in a deck pointing to potential outside. So if these hurricanes are worse than average, then that would be the source of upside. Or is it that the guidance?

Larry Silver: is now the flag, really any contribution in this point, because you don't know how to size it. I'm just looking to clarify that.

Speaker Change: Yeah, I would say we've baked in just what has been a historical normal average at this point, nothing more, nothing less, and it's not the only thing contributing to the upside in Q4, so it's just one of the components for Q4 and not significantly impacting the upside.

Speaker Change: Okay, because that was going to be my second question on the revenue guidance race, what sort of drove that give or take 50 million of the race and you know, how come I guess we're not seeing more of an impact on EBITDA both from the revenue and also from the incremental M&A that you guys have done this year.

Speaker Change: Thank you. I think we talked about why there's an impact on the event that we do have some drag from acquisitions and greenfields, particularly because they're more local markets focused and they're not up to yet the margins that are existing locations are and it takes a, you know, an exchange of 24 months period to do that. So, you know, I don't think if there's all that mark coming on the first part of your question.

Speaker Change: Yeah, I mean, there's a fair number of tailwinds that sort of have worked their way through the back half of the year, Meg, you know, one of those is just the mega project growth, you know, as you think about that year over year, you know, that has performed as we had anticipated it, had anticipated it through the first three quarters, and you know, that anticipation into 4Q is also one of those lovers that's been pulled as we think about our growth components for Rev and 4Q.

Speaker Change: As there are no further questions at this time, I would like to turn the call over back to Leslie for closer remarks.