Q4 2024 Herc Holdings Inc Earnings Call
Thank you for standing by my name is Karen you know it will be your conference separator today at this time I would like to welcome everyone to the her coatings fourth quarter and full year 224 earnings call and webcast all lines have been placed on mute to prevent.
Any background noise. After today's presentation, there will be an opportunity to ask questions to ask a question you May press star followed by the number one on your telephone keypad to withdraw. Your question you May Press Star followed by the number one you can't I will now turn the call over to Leslie.
Speaker Change: Zycher the floor is yours.
Leslie Zycher: Thank you operator, and good morning, everyone welcome to her rentals fourth quarter and full year 2024 earnings conference call and webcast.
Leslie Zycher: Earlier today, our press release and presentation slides were furnished in our 10-K was filed with the SEC. All are posted on the events page of our IR website today, we're reviewing our fourth quarter and full year 2024 results with comments on operations and our financials, including our view of the industry and our strategic outlook.
Leslie Zycher: The prepared remarks will be followed by an open Q&A now.
Leslie Zycher: Now, let's move onto our safe harboring GAAP reconciliation on slide three today's call will include forward looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties I would caution you that our actual results could differ materially from the forward looking statements made on this call.
Leslie Zycher: You should also reported refer to the risk factors section of our annual report on Form 10-K for the year ended December 31 2024.
Leslie Zycher: In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe are useful in evaluating the company's operating performance.
Leslie Zycher: Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials.
Leslie Zycher: A replay of this call can be accessed via dial in or through the webcast on our website replay instructions were included in our earnings release. This morning, we have not given permission for any other recording of this call and do not approve or sanction any transcribing of the call.
Leslie Zycher: Finally.
Leslie Zycher: Please mark your calendars to join our management meetings at the Barclays Industrial Conference for Jpmorgan High yield conference in Miami in February where we'll also be attending the Jpmorgan Industrial conference in New York in March we hope to see you at one of those events.
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 <unk> Senior Vice President and Chief Financial Officer, I'll now turn the call over to Larry.
Leslie Zycher: Leslie and good morning, everyone. It goes without saying that the performance of our business is a direct reflection of the efforts of the members of team hurt who come to work each and every day is driving to improve our customers experienced in 2024 herk employees hard work translated into record level results across both key financial.
Leslie Zycher: Metrics and our growth strategies, and I couldnt be prouder of the team let.
Leslie Zycher: Let me first give you an update on our growth strategy starting on slide number four.
Leslie Zycher: 24 was a year of high job growth effective collaboration and delivery of exceptional value to our customers and our shareholders over the past year strong execution against our strategies further bolstered our scale resiliency and long term opportunities.
Leslie Zycher: We opened 23 Greenfield branches in 2024 and through nine acquisitions. We added 28 more locations together these will drive market share and revenue efficiencies in key metropolitan areas in line with our urban market growth strategy. In addition to desirable locations the acquisitions bring complementary.
Leslie Zycher: <unk> fleet categories valuable new team members with a strong cultural fit and new local account density while reinforcing our national account capabilities.
Leslie Zycher: When it comes to fleet mix in 2024, we increased our specialty fleet capex to be able to cross sell our expert solutions to acquire Gen rent customers in order to capture share of wallet opportunities and to support the incremental demand for Mega projects.
Leslie Zycher: We also increased investments in systems and technology, delivering more value to our customers and in concert with our continuous improvement E. Three OS initiative achieved operating productivity improvements logistics and fleet efficiencies and of course pricing optimization. These contributions to our long term.
Leslie Zycher: <unk> paid off in the short term last year when interest rate sensitive end markets began slowing early in the second quarter.
Leslie Zycher: The strategic investments process improvements and enterprise wide cost management enabled us to successfully navigate this dynamic operating cycle just as they are intended to do.
Leslie Zycher: Now moving to slide five this is our 2024 financial scorecard, which includes the <unk> business last year's performance really emphasize the advantages of her to Mega project participation, our customer project and geographic diversity, our specialty equipment and services strategic.
Leslie Zycher: Acquisitions and of course of course, our cost discipline for the full year equipment rental revenue was up just over 11% outpacing fleet growth for greater asset efficiency year over year.
Leslie Zycher: Net income for the full year of $7 40 per diluted share included an adjustment to the fair market value of our <unk> business, which is currently an asset held for sale.
Leslie Zycher: And the value of this asset results from the slower than anticipated recovery of the studio entertainment industry. After two years of crippling labor strikes our analysis of the current market valuation was based on recent offers we received through the ongoing process.
Leslie Zycher: On an adjusted EPS basis was $12 88 per share up about 5% over last year adjusted.
Leslie Zycher: Adjusted EBITDA margin increased over 2023 on a strong national account and specialty sales growth and an improving revenue comp for assemblies and higher proceeds year over year from our favorable shift shift in used equipment sales channels. These drivers offset the impact from the softer local markets and the <unk>.
Leslie Zycher: <unk> drag from new acquisitions, and Greenfields ultimately as these new locations mature they drive scale efficiencies, making them a key component of our long term profitability plan.
Leslie Zycher: ROIC is also being impacted by near term inefficiencies from the new locations, which will improve over time, Mark will walk you through the year over year comparison in detail in just a few minutes.
Leslie Zycher: Looking ahead to 2025, let's jump to slide number six to share some thoughts.
Leslie Zycher: First I'm proud to tell you that our team heard celebrates its <unk> anniversary. This year. Our journey has been defined by innovation collaboration and a commitment to excellence as we've evolved to meet the ever changing demands of the industry.
Leslie Zycher: We're proud of the impact we've made for our customers and are excited about the opportunities that lie ahead for continuing this legacy of service and success in the years to come.
Leslie Zycher: As you know over the last eight years, we've put a lot of work into positioning our company for resiliency, which is important in a dynamic market. The diversified nature of our business today reduces our dependency on a single vertical or product type and allows us to capture the upside opportunities from any demand shifts to end markets or geographies.
Leslie Zycher: Please.
Leslie Zycher: For 2025, we can see we're seeing continued strength in <unk>.
Leslie Zycher: Those four mega projects in LNG.
Peter: Peter centers semiconductors, along with strength in health care education and infrastructure <unk>.
Peter: New projects together with increasing demand for specialty solutions, the special contribution from industrial and commercial maintenance projects. The full year revenue benefits of our recent acquisitions and the ramp up of Mega project starts from the back half of 2024 should more than offset the persistent weakness in interest rate.
Peter: Sensitive local markets and allow us to outpace overall industry rental revenue growth again this year.
Peter: When it comes to network expansion. This year, we want to elevate our support of recent acquisitions and Greenfields as they work towards their full margin potential and a challenging local environment.
Peter: At the same time, we will continue our strategy to build density in the top 100 geographic markets through Greenfield and strategic acquisitions, our balance sheet is strong and our leverage ratio is well within our charter range. So as opportunities present themselves that fit our criteria, we will selectively move forward to expand our presence.
Peter: In the top 100, North American markets.
Peter: From a margin and fleet Capex as always we'll manage our costs and assets carefully while continuing to support the growth of our business now.
Peter: Now I will talk a little bit more about our operating trends and then Mark will take you through the fourth quarter business performance and more specific puts and takes that support our full year guidance range earned.
Speaker Change: Thanks, Larry and good morning, everyone. We finished last year with another strong quarter of market outperformance and achieved new fourth quarter records for revenue and adjusted EBITDA.
Speaker Change: I want to thank our team for the tremendous efforts through the quarter and the year from emergency response events to managing the variability in the demand environment. They worked together to minimize the impact on our customers and our company.
Speaker Change: And they did all of this while managing costs and building a safer work environment for our employees customers and the communities we operate in.
Speaker Change: 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 and.
Speaker Change: Can we strive for 100% perfect days throughout the organization.
Speaker Change: In 2024 on a branch by branch measurement Oliver operations achieved at least 98% of days is perfect.
Speaker Change: Equally notable our total reportable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers.
On slide nine as Larry mentioned, we're making great progress on our urban market growth strategy by expanding through Greenfield locations and acquisitions in the top 100 metropolitan markets.
Speaker Change: In the fourth quarter, we opened seven greenfield locations, bringing our total over the last 12 months to 23, which is about a 10% increase over 2023.
Speaker Change: We also made our final acquisition of the year, adding two more locations to our branch network in Louisiana, which is an area that's seeing robust growth in industrial construction.
Speaker Change: This acquisition brings our total in 2024% to nine transactions in 28, new locations, serving commercial and industrial customers in the most populated areas of the U S.
Speaker Change: Roughly 10% of the new locations our specialty branches.
Speaker Change: As you've seen in the past five years, we've been extremely active in market consolidations strategically investing more than $2 billion in general rental and specialty equipment companies in key geographies to strengthen our existing market position.
Speaker Change: We focus on acquisition opportunities in high growth markets that complement our current branch network and fit our strategic financial and cultural filters.
Speaker Change: Since late 2020, when we initiated this strategy. We've added 51 businesses with 115 locations into the network over the same period. We opened approximately 80 Greenfield locations. This has allowed us to capture market share elevate our national account capabilities and enhance our revenue mix to specialty cross.
Speaker Change: Selling and a period of extremely rapid growth.
Speaker Change: We will elevate new opportunities for continued network and product line expansion this year and pursue those with the best strategic fit.
Speaker Change: Also progress also as we progressed through 2025, we're going to increase our focus on supporting our recent acquisitions acquisitions and Greenfields take about 24% to 36 months to get fully accretive to our branch operating margin. So elevating our focus on capturing the cross selling of fleet productivity synergies from the.
Speaker Change: <unk> completed over the last 24 months should help accelerate that timeline to maximize the value.
Speaker Change: Acquisitions, and Greenfields are just part of our diverse portfolio of opportunities for growth.
Speaker Change: On Slide 10, you can see that we continue to grow our core and specialty fleet through new equipment investments.
Speaker Change: Our fleet composition at OFC is on the right side of the page total fleet is now a record $7 billion as of December 31, 2024 when.
Speaker Change: When you exclude the <unk> assets, our base fleet is about $6 7 billion.
Speaker Change: In our higher margin specialty fleet would be about 20% of the total with plenty of room to continue to grow.
Speaker Change: When it comes to fleet management last year, we spent roughly 12% less on new fleet than in 2023.
Speaker Change: We prioritize fleet efficiency repositioning equipment from softer local markets to more robust geographies to optimize existing fleet.
Speaker Change: And then with demand dynamics in flux, we layered in growth fleet as needed for Mega projects, new acquisitions Greenfields in specialty growth.
Speaker Change: We also disposed of 11% less fleet on an OCC basis, and keeping with our plan for a more normal seasonal cadence of dispositions last year.
Speaker Change: Our team did a phenomenal job, making sure we have the right fleet in the right place at the right time successfully balancing the timing and location of Mega project activities with the plateauing of local market growth.
Speaker Change: For 2025, our primary goal is to further optimize our equipment as we increase productivity acquired fleet and benefit from last year's fleet repositioning.
Speaker Change: We're planning for gross fleet expenditures of $700 million to $900 million.
Speaker Change: Little more weighted to specialty than last year and with a focus on supporting our Mega project pipeline.
Speaker Change: When it comes to dispositions will continue to actively shift sales into the higher return retail and wholesale channels, helping to level set values and a normalizing used equipment market.
Speaker Change: Turning to slide 11, we are successfully addressing the needs of both local contractors and large national accounts continuing to target. A 60 40 revenue split long term as this diversification provides for growth and resiliency.
Speaker Change: Local accounts represented 54% of rental revenue in the fourth quarter and 55% for the full year.
Speaker Change: Despite the slowdown in local project starts as interest rates remain elevated we are expanding through share gains from acquisitions and greenfield locations as well as organic growth in select regions, where infrastructure education, local utilities and facility maintenance and repair projects are underway.
Speaker Change: On the National account side government and private funding for new large and Mega projects is still quite robust we're.
Speaker Change: We're continuing to win our targeted 10% to 15% share of the project opportunities with several new Mega projects on deck this year and a 2024 projects still ramping up.
Speaker Change: Turning to slide 12, these mega projects continue to represent incremental new opportunities for us as our specialty offering expanded market coverage technology advancements service and logistics expertise and Big project solution based capabilities distinguishes us as a top three provider across end market verticals.
Speaker Change: We expect to continue to win an outsized share of the Magic Mega project activity again in 2025 with that I'll pass the call onto Mark.
Mark: Thanks, Erin and good morning, everyone I'm, starting on slide 14, with a summary of our key metrics for the fourth quarter for.
Mark: For clarification. These are our GAAP results that include centrally switch as has been discussed is classified as assets held for sale.
Mark: Just make a couple of quick points here before turning the focus to the core results in the fourth quarter rental revenue increased 12, 2% and adjusted EBITDA increased 14, 7% to a record $438 million Larry already talked you through the net loss, we incurred in the quarter related to center lease you can also review the disc.
Mark: Closure in footnote eight of our Form 10-K, let's move to slide 15.
Mark: Here, we outline our core financial results, which exclude <unk> 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 can be found on slides 26, and 27 in the appendix of our presentation.
Mark: For the fourth quarter equipment rental revenue was up 11, 5% year over year base.
Mark: Based on benchmark data hurt volume continued to significantly outpace overall rental market growth on both an organic and total rental revenue basis Mega.
Mark: Mega projects led the national account business to double digit rental revenue growth in line with our expectations, while our local rental business grew as a result of contributions from recent acquisitions as well as organic growth from healthcare education municipal and MRO projects and cross selling specialty solutions.
Mark: <unk> from the Hurricanes in Florida, and North Carolina were less than the historical average as a result of the smaller size of the markets affected.
Mark: Pricing in the second quarter and the pricing in the quarter was two 1% higher year over year for the full year rate was up three 2% over 2023 was fleet efficiency initiatives advanced pricing tools and an improved mix of fleet on rent supporting positive rental rate all year acquisitions.
Mark: Acquisitions, and the slower local market weighed on fleet efficiency and dollar utilization in the shoulder season, However, organic fleet efficiency was positive overall in 2024.
Mark: Net income for both the fourth quarter and full year was impacted by higher interest expense related to increased borrowings to fund acquisitions and invest in rental equipment and higher non rental amortization expense associated with acquisition intangibles. In addition to the loss on assets held for sale.
Mark: Partially offsetting these impacts was operating leverage gained in our SG&A from our cost disciplined as revenues expanded.
Mark: Our EBITDA during the fourth quarter was a record and margin was strong at nearly 49% EBITDA flow through has improved on a sequential quarterly basis since the second quarter and reached to 2024 high points in the fourth quarter at 45%.
Mark: The EBITDA flow through improved 200 basis points in the second half of the year compared with the first half benefiting from the work done on enterprise wide cost management to catch up with the changing dynamics in the marketplace.
Mark: Trailing 12 month ROIC for the core business declined 120 basis points to 10, 1% at the end of 2024.
The variance year over year relates to the impacts from the local market slowdown and inefficiencies associated with new acquisitions and greenfields overtime their maturation of newer locations greater fleet efficiency from our prudent onboarding of new fleets and the recovery in the local market will drive ROIC improvement.
Mark: Now, let's turn to slide 16, and I'll walk you through the rental revenue and adjusted EBITDA bridges from fourth quarter 2023 to fourth quarter 2024 to give you a visual reconciliation.
Mark: And the revenue chart, the roughly 12% increase year over year was made up of two 1% increase in rate and an 11, 6% increase in OCC fleet on rent.
Mark: Mix was an offset of $2 two.
Mark: Two 2%, reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent.
Mark: For clarification when it comes to revenue fleet inflation is in the mix to adjust the volume measured at OFC dollars two a unit metric.
Mark: Of the top line growth in the quarter six five points came from organic rental revenue and five points came from 2024 acquisitions for the full year of the 10% rental revenue growth that contributing split was roughly seven points of organic growth and three points from 2024 acquisitions adjusted EBITDA increased 13 two.
Mark: <unk> percent compared with last year's fourth quarter.
Mark: Benefiting from the higher overall rental revenue.
Mark: And we effectively maintained adjusted EBITDA margin, which benefited from favorable direct operating and SG&A expense management, but was impacted by the slowing local market less efficient new acquisitions, and greenfields as well as lower proceeds on OSV fleet disposals in the fourth quarter.
Mark: 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 through the cycle.
Mark: Higher operating cash flow and disciplined net capital expenditures resulted in $314 million of free cash flow in 2000.
Mark: In 2024, we remain confident in our business model and are committed to increasing shareholder value in the fourth quarter, we declared a quarterly dividend of <unk> 66 five.
Mark: Which represents $2 66 per share for the year.
And last week, we announced a 5% increase in our annual dividend to $2 80 per share.
Mark: On slide 18 is a snapshot highlighting the continued strength in our primary end markets, taking a look at the updated industrial spending forecast is at the top left industrial info resources is projecting 2025 to be another strong year of capital and maintenance spending at 446 billion <unk> forecast for <unk>.
Mark: Nonresidential construction starts in 2025 are estimated to increase 8% to 482 billion.
Mark: Additionally, there's another $357 billion in infrastructure projects forecasted for 2025, that's an 8% increase over 2024.
Mark: Dotted line and these charges reflects growth over pre pandemic peak levels you can see that this year in the next three years are projected to be some of the strongest periods of activity that this industry has seen we've also included a trend chart for Mega project starts in the upper right quadrant. This gives you a snapshot of the year to year growth.
Mark: Of the largest construction projects in North America over the last two years and for 2025. The chart shows the continued substantial number of Mega projects launching this year. We project. We're only in the early to middle innings of the multi year opportunity depending on the project type whether it's infrastructure LNG data.
Mark: Centers et cetera, and as we've stated our goal is to capture 10% to 15% of these opportunities.
Mark: We don't take the chart out beyond this year because visibility is less clear for actual start dates of those projects still in the planning phases, but there is nearly two trillion dollars more in the pipeline.
Mark: Of course, there is some overlap in projects from these four datasets, but no matter how you look at it for companies with the capabilities technologies and product breadth to service customers at the national account level the opportunities for growth are significant.
Mark: If you flip to slide 19, you can see our 2025 guidance, which highlights our plan to continue to outpace market growth again. This year as noted our guidance excludes the performance of <unk> <unk>.
Mark: Starting with gross fleet Capex, our plan is to invest roughly $800 million at the midpoint of the range, reflecting the normal replacement of aged equipment continued improvement in fleet efficiency, including digesting. The 2020 for acquisition fleet and incremental demand opportunities for Mega projects and new Greenfield locations expenditure.
Mark: These will be weighted a bit.
Mark: More towards specialty equipment versus last year net capex is estimated to be between 4% and $600 million.
Mark: Our fleet plan is aligned with rental revenue growth of 4% to 6%. We're a relatively flat local market is more than offset by the <unk> of acquisitions and Greenfields completed in the second half of last year as well as contributions from specialty cross selling new Greenfield locations, New Mega project starts and the ramp up of existing law.
Mark: <unk> projects.
Mark: Our guide also assumes continued positive rental rate year over year as we work against inflation headwinds our focus on fleet efficiency and the strategic use of proprietary pricing systems and optimization tools.
Mark: Tables us to capture the best most appropriate price in every transaction.
Mark: I'll note here that in 2025, we're no longer going to report specific rental rate metrics. This approach is consistent with industry practice.
Mark: Had a lot of internal feedback that our disclosures put us at a competitive disadvantage in the market. So our pricing updates going forward will be more directional than the precise metrics we've shared in the past.
Mark: Benefiting from operating leverage we estimate adjusted EBITDA will be between one $5 75 billion and $1 65 billion, representing another year of profitable profitable growth ranging from 1% to 6%.
Mark: Overall, the strong demand, we're experiencing across the manufacturing industrial and infrastructure markets along with the stability that comes.
Mark: From industrial and commercial maintenance projects provides plenty of opportunity to continue to grow even through the slower phase of the cycle we.
Mark: We intend to continue to deliver strong financial metrics as we invest in and execute on our proven strategies to support the long term growth of our business with that operator, we'll take our first question.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Mark: Ask that you limit your questions to one and one follow up.
Mark: We will just pause for just a moment to compile the Q&A roster.
Mark: Sure.
Speaker Change: Your first question comes from the line of Rob Wertheimer from Melius Research. Please go ahead. Your line is open.
Rob Wertheimer: Thank you. Good morning, guys. My question is going to be on the revenue rental revenue outlook versus the EBITDA look where you got a midpoint of five I guess on the rental revenue and a little bit lower on EBITDA, and then with fleet inflation I guess.
Rob Wertheimer: Operating com or whatever it would be a little bit lower than that so is there any abnormal pressure on the EBITDA that leads you to guide that midpoint below and could you talk through the pluses and minuses there. Thank you.
Mark: Hey, Rob it's Mark.
Speaker Change: I think we're guiding to 4% to 6% on the equipment rental.
Speaker Change: But really we're projecting that disposals will be.
Speaker Change: At last year's level, so thats, implying that your total revenue is growing a bit slower than your equipment rental revenue and then and then and that sort of forecasting sort of defending re EBITDA margin. If you will sort of across the board. So.
Speaker Change: The only component left is the expectations around.
Speaker Change: Used equipment, and how we will handle that and so there's a range in there.
Speaker Change: Last couple of years, it's been $44 45, So I think if you just range that in math Thats, probably running from 42 to $45 to sort of get you to yearend result, there from the adjusted EBITDA growth perspective.
Speaker Change: Okay got it and then I understand the especially.
Speaker Change: Especially I guess <unk> the.
Speaker Change: On the pricing disclosure is going away.
Speaker Change: In General do you think that you and the industry are still able to capture equipment inflation and how many more years do you need to run.
Speaker Change: Higher than.
Speaker Change: Higher than 10 years ago here in five years ago rental rate in order to offset that higher depreciation expense and I'll stop there. Thanks.
Speaker Change: No. It's a great question, Rob I think from my perspective, and our perspective right. We don't look at inflation versus price on a one year basis rates sort of thinking about the fleet that we're buying over its lifecycle of seven to eight years really.
Speaker Change: Over the last four years <unk> 'twenty one to present.
Speaker Change: <unk> has really been where we've experienced the majority of this inflation.
Speaker Change: In our gear and so if you evaluate sort of the pricing lift to that inflation that we've received over that period of time, we've actually offset that inflation to date. So again, it's much more of a longer term view.
Speaker Change: And then obviously from an overall P&L perspective.
Speaker Change: We want to be able to sort of offset the inflation that's inside of the P&L with where the pricing lift and that's our go get.
Speaker Change: Our next question comes from the line of Jeremy Revich from Goldman Sachs. Please go ahead. Your line is open.
Clay: Hey, this is clay on for Jerry quick.
Speaker Change: Quick question for me what are your expectations for run rate.
Speaker Change: Sequentially sequentially into <unk>, and then what does guidance contemplate versus 'twenty versus 2025.
Speaker Change: Yes.
Speaker Change: Think as we just said we're going to be less directional.
Speaker Change: From a pricing perspective going forward the expectation that's built in is as positive price for 2025.
Speaker Change: But we're not going to get pointed there with those answers.
Speaker Change: Got it and then as a.
Speaker Change: Quick quick follow up.
Speaker Change: Hi.
Speaker Change: Can you update us on the M&A pipeline, particularly as it relates to specialty rental I know you've talked about more especially rental in the in the growth Capex just curious on the M&A pipeline front.
Speaker Change: Yes look we have a robust process around M&A.
Speaker Change: The pipeline continues to be prevalent.
Speaker Change: We we've taken a very.
Speaker Change: Measured look at all types of opportunities to make sure. It is a cultural fit as well as the geographical fit. So we will continue to evaluate that pipeline and as you know M&A is opportunistic, but we are prepared to participate in market and continued market consolidation.
Scott Music: Your next question comes from the line of Scott Music <unk> from JP Morgan. Please go ahead. Your line is open.
Scott Music: Thank you hi, good morning.
Scott Music: First question is more strategic so one of your larger peers is flat.
Scott Music: Planning to buy one of your smaller competitors.
Speaker Change: I'm curious what are your thoughts.
Speaker Change: How do you overlap with.
Speaker Change: HMA and some of the Big key states.
Speaker Change: What could be a strategy to protect or gain share in those markets once that folded into <unk>.
Speaker Change: Any thoughts on that.
Speaker Change: Look we really don't comment on specific deals that happened in the industry.
Speaker Change: We let those play out but overall, we think consolidation is a good thing it.
Speaker Change: Typically results in a more stable industry, which is an important part of our long term strategy.
Speaker Change: Yes.
Speaker Change: Got it that's helpful. And then one question on specialty versus general rent.
Speaker Change: The rental revenue guide for the 6% for the.
Speaker Change: Any directional comments on how youre thinking about specialty growth versus Gen Vandenberg.
Speaker Change: Yes.
Speaker Change: We said in the prepared remarks that the specialty by we'll be able to bit more weighted this year to gen rent just given the needs that we see from our customers I think when you sort of roll that through to the overall mix of the fleet, it's not meaningful.
Speaker Change: And so I think at the end of the day.
Speaker Change: We will continue to sort of pursue those specialty opportunities and buy as needed, but the the buy as we printed it is a bit more specialty weighted.
Steven Ramsey: Your next question comes from the line of Steven Ramsey.
Steven Ramsey: Thompson Research group. Please go ahead your line is open.
Steven Ramsey: Good morning, maybe to continue the specialty line of thought can you even order of magnitude talk to the specialty rental revenue growth experienced more recently.
Steven Ramsey: And embedded in 2024 overall, how that specialty revenue trends directionally to your larger peers.
Steven Ramsey: Well in our case for 2024, especially was a stronger growth profile than our core business.
Steven Ramsey: We also began to invest in other specialty lines such as.
Steven Ramsey: French with a series of acquisitions and some greenfields and.
Steven Ramsey: That will continue to build into 2025, but we don't comment.
Speaker Change: Comment on our peers and how they illustrate their specialty diversions.
Speaker Change: Okay. That's fair and then revenue from national customers in the second half showed really strong growth looks like near.
Speaker Change: Near 20% year over year.
Speaker Change: How much does that reflect mega projects ramping and is that kind of growth level that you saw in the second half is that what is expected in 2025, maybe you can dovetail with just the general trend of Mega projects ramping and how that's impacting your business.
Speaker Change: Long term as we as we mentioned, Steve we want a 60 40 split local to national account, but in this environment as we said and you've heard a familiar the local markets have been slowing so.
Speaker Change: More of our opportunities have been in the national account side, specifically in the Mega project side.
Speaker Change: We would envision that 2025.
The visibility we have right now will be a lot like 'twenty four in that case. So that's that's.
Speaker Change: That's how we view <unk>.
Speaker Change: We are going long term 60, 40, but 2024 it was a little bit not completely in that 60 40 alignment just because of the market fundamentals and Steve maybe I would just add on to that that I think we stated.
Speaker Change: Throughout 2024 that we thought that the mega projects, we're going to be back half loaded into 2024, which is really what you are referencing and seeing there I think as we look out to 2025, I think that cadence becomes a bit more normalized.
Speaker Change: So youre not going to have.
Speaker Change: A big blip or our expectation and what we see now is sort of a normalized cadence of growth.
Speaker Change: From the megas as we walk through 2025.
Neil Tyler: Our next question comes from the line of Neil Tyler from Redburn.
Speaker Change: Please go ahead your line is open.
Speaker Change: Yes. Thank you good morning.
Speaker Change: A couple of questions. Please firstly on the <unk>.
Speaker Change: On the Capex outlook already small specifically free cash flow generation and you've talked obviously referred to the opportunities around M&A. One of your peers was mentioning that the multiples for deals hadn't yet reflected the softening market.
Speaker Change: And I just wondered what you are seeing in terms of assets available.
Speaker Change: For purchase and whether they are off.
Speaker Change: The risks and realism in.
Speaker Change: And the prices that are being asked for those.
Speaker Change: And I guess the net.
Speaker Change: Even with that in mind.
Speaker Change: It looks like.
Speaker Change: The envelope.
Speaker Change: You should get to generate.
Speaker Change: Is north of 700 million free cash flow plus potentially some proceeds from from stimuli such as that comes through.
Speaker Change: Given that dynamic.
Speaker Change: That M&A landscape do you see opportunity to deploy that if most of that.
Speaker Change: Yes look I don't think we're giving.
Speaker Change: Our capex budget around M&A.
Speaker Change: As we have in the past but.
Speaker Change: We will continue to look for consolidation opportunities. We believe consolidation is good for the industry.
Speaker Change: Certainly something that we'll participate in but as you know.
Neil Tyler: Neil M&A is opportunistic.
Neil Tyler: We will have to evaluate that as time goes on as far as multiples.
Neil Tyler: To date, we haven't seen the multiples on gen rent expand that much.
Neil Tyler: There are certainly the ones that we've looked at recently, but.
Neil Tyler: But I would expect as our.
Neil Tyler: <unk> expands that could.
Neil Tyler: Could be likely.
Neil Tyler: But we'll have to evaluate that certainly the multiples on general on specialty rental will be a bit higher.
Neil Tyler: And as those opportunities come along we will evaluate that.
Neil Tyler: Fit and mix.
Neil Tyler: And future growth opportunities around it.
Neil Tyler: Thank you.
Neil Tyler: Neil maybe just one other point of clarification, I think that from a free cash flow for 2025.
Neil Tyler: Our anticipation at least as it stands now no change to legislation will be a fed cash taxpayer for the first time.
Neil Tyler: And Thats.
Neil Tyler: That's a build north of a $100 million.
Neil Tyler: And so that needs to be baked.
Into your model as well from a free cash flow perspective.
Neil Tyler: Got it okay. Thank you. Thank you that's helpful and I guess the follow up.
Neil Tyler: Just.
Neil Tyler: Kind of a modeling question, but it looks as though.
Neil Tyler: In terms of sort of average OECD, that's going to be very limited growth in value terms, perhaps even a contraction.
Neil Tyler: In volume terms. So the guide on rental revenue looks like <unk> got some scope to improve fleet.
Neil Tyler: Fleet efficiency by two to 300 basis points, perhaps is that the way you think about that is you've got headroom in the fleet to be able to.
Neil Tyler: Push push utilization up by by that sort of amount.
Neil Tyler: Moving utilization two to 300 basis points as a.
Speaker Change: Gargantua and ask I guess I would say to you Neil that it is always our intent.
Neil Tyler: To make our fleet more efficient and certainly some of that is embedded in.
Speaker Change: In the guidance.
Speaker Change: Yeah.
Speaker Change: Next question comes from the line of Mig <unk> from Baird. Please go ahead. Your line is open.
Mig: Thank you good morning, everyone.
Speaker Change: I wanted to ask a quick question about California, I know you have pretty sizable exposure to that state if im not mistaken more than 15% of your branch locations are in California. So.
Speaker Change: What are you what are you seeing in the wake of these fires.
Speaker Change: In Los Angeles, what sort of exposure do you have to that maybe what's embedded into your guidance.
Speaker Change: And how do you think about that reconstruction effort eventually contributing to to your business maybe in 'twenty six 'twenty seven nothing.
Speaker Change: Nothing specials in the guidance from the fires in California, it's probably going to be a slow go.
Speaker Change: Initial response was like a lot of other.
Speaker Change: Disaster responses. So we deployed assets, we took care of the customers that needed equipment to.
Speaker Change: Handled emergency response and at the moment I think we're all just paying attention to see what kind of funding comes into those areas. So they can rebuild but nothing thats.
Speaker Change: As I said in the beginning thats like the embedded in our guidance.
Speaker Change: Maybe one other point there is that none of our branches were damaged or impacted by the fires as well.
Speaker Change: That's good to hear.
Speaker Change: It seemed like it was mostly residential that was impacted I don't know if that.
Speaker Change: And then beyond yet Youre right business for you down the line.
Speaker Change: Okay. Then my follow up is.
Speaker Change: Again related to your slide 18.
Speaker Change: In terms of the key end markets.
And the way I'm sort of looking at.
Speaker Change: Basically the.
Speaker Change: The growth that youre seeing in nonresidential and infrastructure.
Speaker Change: Does not quite add up to the growth that you are calling out in mega projects. So clearly there is something in these mega projects that is.
Speaker Change: Outside of these two non res and infrastructure categories.
Speaker Change: Maybe you can clarify in terms of what in this Mega project.
Speaker Change: And then the more traditional non res and infrastructure and then specifically on data centers for instance, I'm curious if you can frame for us how you think about.
Speaker Change: A dollar spent on the data center what percentage of that you sort of have a right to win with your services and the products that you're offering.
Speaker Change: Okay.
Speaker Change: Well I'll take the second part of your question first on the data centers is probably accurate now we.
Speaker Change: We use.
Speaker Change: Metric.
Speaker Change: Size of the project how much the project costs, how much of it will go into the rental opportunity in on a data center, because there's so much technology and computers and place it might be a little bit less than what we used for the rest of our business.
Speaker Change: On the first part of your question was it related to.
Speaker Change: The.
Speaker Change: Change in Mega projects 2025 versus 24, what the opportunities are.
Speaker Change: Yes, I mean, just mathematically if we look at non res and infrastructure. These combine for your projections in here and spend is going to grow 63 billion.
Speaker Change: But then you call out.
Speaker Change: Project starts growing $242 billion in 2025. So obviously there is something in these Mega project that is not captured in nonresident infrastructure and I was just looking for a little more context around that.
Speaker Change: Yes.
Speaker Change: I mean, I think the best way I can answer that is the mega projects or some of them are privately funded.
Speaker Change: <unk>.
Speaker Change: Or publicly funded a lot most of our majority of privately funded and there's really not a correlation.
Speaker Change: Between non res and the Meg activity.
Speaker Change: As far as the falling into the datasets like in the Dodge area I think maybe you're going after maybe some crossover, but we find that a lot of the big private Mega projects don't show up in the us.
Speaker Change: The traditional Dodge non res data that we're getting.
Speaker Change: Your next question comes from the line of Kenneth <unk> from Keybanc Capital markets. Please go ahead. Your line is open.
Speaker Change: Hey, Thanks, good morning, guys.
Speaker Change: Good morning.
Speaker Change: Good morning.
Speaker Change: Mark or Aaron maybe just for my first question I'm curious if you could just help us think about the expectations of the cadence of core dollar Ute for this year.
Speaker Change: I know, we were down 60 basis points hearing in 2020 for fourth quarter was a little bit weaker I think it was down 80 basis points.
Speaker Change: Do you think core dollar you for the fleet can be flat or up in 2025.
Speaker Change: Yes, I mean, I think it's all sort of a it's a great question, Ken I mean, I think that's the goal is to sort of hold on to that dollar you manage.
Speaker Change: The fleet mix in a bit more specialty into 2025, I think obviously the overall marketplace.
Speaker Change: The slowing nature of the <unk>.
Speaker Change: Global markets.
Speaker Change: Certainly weighed on dollar utilization in 2024.
Speaker Change: And that's our challenge in 2025 is to manage the fleet.
Speaker Change: As efficiently as we can to hold onto that dollar U.
Speaker Change: Okay.
Speaker Change: And that kind of leads into my follow up here.
Speaker Change: Obviously, you are taking a bit more of a disciplined approach to the fleet growth this year.
Speaker Change: And I'm, assuming that's primarily doing due to the industry being over fleeting, especially on the local side.
Speaker Change: I'm curious do you agree with that and two if so.
Speaker Change: When do you think the industry reached equilibrium from a supply perspective.
Speaker Change: Yes look we don't really view the industry as being over fleet and quite frankly, we think it's been quite disciplined.
Speaker Change: I think what you're sort of seeing in a local market is really just.
Speaker Change: The slowdown of the new starts and the new activity in the local market, but I think we.
Speaker Change: We are seeing discipline.
Speaker Change: In disposals, losing discipline and rates.
Speaker Change: So I don't think there is an over fleeting going on and I think the Oems have responded accordingly as well.
Speaker Change: And I think youll see that from some of their forecasts as they report earnings.
Speaker Change: Ken maybe just another point I think I would say that we took a fairly disciplined approach in 2024, as well and I think as we rolling into 2025.
Speaker Change: We mentioned that was a significant.
Speaker Change: Backend of fleet acquired through M&A and so.
Speaker Change: Trying to look at this through the lens of fleet efficiency rate, we need to digest that fleet at some level.
Speaker Change: And then respond to the opportunities that are in front of us and I think that the fleet guide that we've laid out here.
Speaker Change: Essentially what we see.
Speaker Change: As we look forward into 2025.
Speaker Change: Your next question comes from the line of Sherri is also buy from Bank of America. Please go ahead. Your line is open.
Sherri: Hi, Good morning, I, just wanted to ask on the cash flow.
Speaker Change: Guided is positive for the year gave us some color on the moving parts in cash from ops could you maybe frame your free cash flow outlook in terms of what free cash flow scenario from an investor at your Investor Day, you think might be most relevant.
Speaker Change: I think it's I forget what page Sharif 64, maybe from the deck.
Speaker Change: Be falling into that middle middle frame rate, where we were sort of a.
Speaker Change: A more moderated Rev growth scenario.
Speaker Change: With fleet and that sort of net area of that $4 to $600 million I think is how that laid out there. So I think thats a reasonable place.
Speaker Change: To run and then.
Speaker Change: Again, just highlighting the fact that at this point in time, we are expecting to be a fed.
Speaker Change: Cash taxpayer as well.
Speaker Change: Thank you.
Speaker Change: Welcome.
Speaker Change: Alright.
Speaker Change: Your next question comes from the line of.
Speaker Change: Ryan Spohn Hanrahan from Gabelli funds. Please go ahead your line is open.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Good morning.
Speaker Change: Mark you mentioned, obviously, you're going to be a cash taxpayer, we have a new administration thats going to be coming out with a tax plan.
Speaker Change: What would be on that wish list four.
Speaker Change: Items that either are brought back from either a bonus depreciation standpoint, like kind of exchange et cetera.
Speaker Change: It's really broad.
Ryan: Ryan I mean that wish list is probably very long.
Ryan: But I think its bonus depreciation first and foremost.
Speaker Change: But the administration to this point right is sort of focused on the individual taxpayer much more so than the corporate and so I think as it sits here today and what we know is sort of what we've tried to forecast and project into 2025.
Ryan: Along those lines given.
That the election is behind us.
Ryan: Any change in local quoting activity.
Ryan: <unk>.
Ryan: Clarity or just that the visibility is remains a little too murky.
Ryan: Yes.
Ryan: Got on Brian I think we're still relative to the local market I think we're going to it's going to require some rate cuts from the fed before that activity ramps up or at least gets to the point where.
Ryan: Folks are willing to make investments in those type of projects. So I think it's.
Ryan: It's not that it's murky, it's just not there and.
Ryan: So we see the fed take action I think there'll be a continued resistance to initiating those type of projects.
Ryan: And that can be recovered Q&A session I will now turn the call over to Leslie Hunziker for closing remarks.
Speaker Change: Thank you for joining us on the call today, and we look forward to updating you on our progress in the quarters to come of course, if you have any questions. Please don't hesitate to reach out to have a great day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank all for joining and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.