Good morning and welcome to the Herc Holdings' Second Quarter 2022 Earnings Conference. All participants will be in a listen-only mode. [Operators Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Elizabeth Higashi. Please go ahead.

Thank you, MJ, and thank you all for joining us this morning. Welcome to our second quarter 2022 earnings conference call. Earlier today, our press release, presentation slides, and 10-Q were filed with the SEC and they are all posted on the newly redesigned IR website at ir.hercrentals.com. This morning, I'm joined by Larry Silber, President and Chief Executive Officer; Aaron Birnbaum, Senior Vice President and Chief Operating Officer; and Mark Irion, Senior Vice President and Chief Financial Officer. We'll review our second quarter results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Before we begin our formal remarks, I'd like to remind you to review our Safe Harbor statement, on Slide 3. Today's call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from the forward-looking statements made on this call. You should also refer to the Risk Factors section of our Annual Report on the Form 10-K for the year-ended December 31, 2021. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures for the closest GAAP equivalent can be found in the conference call materials. Finally, a replay of this call can be accessed via dial-in or through a webcast on our website. Replay instructions were included in our earnings release this morning. We’ve not given permission for any other recording of this call and we do not approve or sanction any transcribing of the call. I'll now turn the call over to Larry.

Thank you, Elizabeth, and good morning, everyone. Please turn to Slide #4, I'm pleased to report that we achieved strong results in the second quarter reflecting a positive operating environment and robust demand. We continue to achieve new records in the second quarter of 2022 in total revenue, rental revenue, net income, dollar utilization, adjusted EBITDA, and adjusted EBITDA margin. Volume and rates contributed to the 35% increase in rental revenue in the second quarter over the prior year. Dollar utilization increased 40 basis points to 42.5% and adjusted EBITDA increased 37%. We completed the acquisition of six additional companies with a total of nine locations in the second quarter, including the previously announced acquisition of Cloverdale Equipment Company in April. Year-to-date, we've spent $317 million in net cash expenditures on our acquisition strategy. On July 5, we announced the amendment and extension of our senior secured asset-based revolving credit facility, doubling the capacity to $3.5 billion and extending the maturity to 2027. The additional capacity is expected to provide the company with ample liquidity for several years to come. We announced today that we plan to repurchase our common shares under the 2014 stock repurchase program subject to market conditions. The program was established in March of 2014 and has a remaining authorization of $395.9 million. We believe that given our operating performance and long-term growth prospects that the year-to-date downturn our stock price implies at discounted valuation of our real worth. We intend to take advantage of this price imbalance and continue to enhance our returns to shareholders longer-term keeping in mind that we intend to maintain debt levels within a targeted range of 2x to 3x net leverage. And finally, based on the second quarter results and our outlook for the rest of the year, we are…

Thank you, Larry, and good morning, everyone. We continue to see steady demand in our markets and attractive opportunities to grow our business given our investments in additional fleet, and our expansion through acquisitions in greenfield locations. As you can see from our results, we are increasing our scale and operating leverage in our key urban markets. Our team has done an excellent job executing our strategy as we enter the third quarter, which is typically the seasonally strongest quarter. We see no reason for slowing up our momentum. Clearly, there is more to come. Now, please turn to Slide #8. Our Q2 results reflect the opportunity we cease by accelerating investment in fleet with average OEC fleet up 32% over last year's comparable period. Equipment rental revenue in the quarter rose to $605.4 million, up 35%, compared with 2021. Our core business continued to benefit from solid operating performance in all of our regional operations. Strong rate growth helped to offset inflationary pressures and our team successfully passed on rising fuel costs through increased revenue recovery and equipment delivery and equipment refueling charges. Our ProSolutions business also continued to contribute strong double-digit growth year-over-year in the second quarter of 2022, as we continue to expand our market share in the rental of power generation, climate control, remediation and pump equipment. The integration of the acquisitions we've announced to date is on track and we continue to focus on additional locations in targeted markets through organic growth and acquisitions. We will continue to capitalize on our fleet expansion and are investing $900 million to $1.2 billion in net fleet capital expenditures this year. Now, please turn to Slide #9. Our fleet expenditures at OEC totaled $327 million in the second quarter of 2022. Given current equipment rental demand and our…

Thanks, Aaron, and good morning, everyone. The Herc team continues to perform at a high level as we continued to deliver record performance on all our key metrics in the second quarter of 2022. The strength and momentum we are achieving bodes well for the rest of the year and into 2023 as we focus on [fast] [ph] profitable growth and continue improving the key metrics that create long-term value for our stakeholders. Strong demand in our end markets and the ongoing supply challenges of equipment manufacturers continue to provide a strong operating environment with the leading rental companies. As Aaron mentioned, we’ve ordered early, so our new fleet is arriving steadily and we expect the new additional fleet growth to drive revenue growth. Our operations team has done a great job with delivering record time and dollar utilization, while integrating new team members, customers, and fleet into the Herc model. This consistent execution has led to excellent performance and strong momentum that will continue throughout 2022 and beyond. Slide 15 shows a summary of our second quarter results, compared with 2021. Equipment rental revenue increased by a very impressive 35% to 605.4 million from 448 million in 2021, primarily due to continued volume and pricing momentum. As we said last quarter, the seasonal trends build sequentially throughout the year. We are successfully executing on our growth strategy and are clearly running in high gear when you view our Q2 results. We're pushing hard on both our organic growth and acquisition strategy and enjoying a lot of success. Taking a closer look at the 35% rental revenue growth in the second quarter, about two-thirds of the growth was organic and a third from acquisitions. This validates our ability to grow our core business. Our organic growth is outpacing the market…

Thanks, Mark. Please turn to Slide #22. This summary demonstrates the acceleration in growth we are achieving with our investments and fleet and M&A. As you can see, we have truly shifted into high gear. We've come a long way in the six years since we went public and I'm proud of the tremendous strides that we've made. We are demonstrating that we can accelerate top line growth and show an improvement in adjusted EBITDA margin. I think we provide a unique opportunity for all of our stakeholders, but most important of all, I'd like to thank our Herc team members for their diligence, professionalism, and commitment to customer service. We are proud of our team Herc. Please turn to Slide #23. Many companies are now focusing more on purpose. We began with our vision, mission and values and committed to a purpose statement to equip our customers and communities for a brighter future. We do what's right. We're in this together. We take responsibility. We achieve results and we prove ourselves every day. So, now operator, we’d like to open the lines for questions.

Thank you, Larry. [Operator Instructions] We will begin today with Rob Wertheimer of Melius Research. Please go ahead.

Thanks and good morning, everybody.

Good morning.

Good morning, Rob.

So, impressive EBITDA margin improvement. And Larry I had a question, kind of on the potential. So, you focused on dollar utilization for many years in our conversations I guess is the right metric for improving price and time at the same time I suppose. I'm a little bit curious how much more room there still is on time utilization to get to best-in-class. I'm a little bit curious as you acquire companies, if you're seeing your operational ability to raise up their time utilization, as well as other metrics and just what the glide path is from here? Thank you.

Yes, great question, Rob. Look, there's always opportunity to speak a little more out in different areas of our fleet. And certainly in acquisitions we have a combination. Some we have opportunities to improve time utilization. Some we have an opportunity to improve dollar utilization and others we have an opportunity to cross-sell or products that they don't carry, which will sort of rising tide, raises all ships, helps us utilize some of our specialty gear that traditionally operates with lower time utilization than the general rental fleet. So, we'll be able to expand into that. But certainly always opportunities in all of those areas. Is it tremendous? No, but there is a pathway.

Okay, perfect. Thank you. And if I may, just your thoughts on SG&A this quarter, how much is pure inflation, how much is sort of strategic investment for growth, and how much more of that do you have to do? I will stop there. Thanks.

I mean, most of it’s in investment for growth, say, pure inflation is mid-single digits. On the SG&A lines, we're obviously growing headcounts and the operations faster to support the growth. So, most of it is connected with that.

Got it.

Our next call is from Sherif El-Sabbahy of Bank of America. Please go ahead.

Hi, good morning. So, looking at the large infrastructure spend ahead, we've had a lot of these larger mega projects announced and today, how have those aligned with the footprint that you have that's focused more on dense urban locations?

We feel we're really positioned well for all the infrastructure spend. We are in most of the urban markets in North America. We've been investing with greenfields and acquisitions in those markets, that's our core strategy. So, we feel very well-positioned to capitalize on those opportunities. And as we mentioned previously, with our 2022 fleet investments, we've really focused on getting our core of our business larger. So that's the type of fleet, whether it's earth moving or aerial that really you see showing up on those big infrastructure projects.

Understood. And looking ahead, what do you anticipate your fleet cost to look like next year? And can you outpace that? And how should we think of that dynamic off the very strong 2022?

In 2022, as I mentioned, we're in the mid-singles. We believe that next year will be higher than that in 2023.

We don't have to outpace that in year one, right. That fleet is coming in for eight years. So, you can see that our current 5.5% rate increases outpacing the current impact of inflation in our fleet as we pick up improved dollar utilization.

Thank you.

Our next question is from Jerry Revich of Goldman Sachs. Please go ahead.

Yes. Hi, good morning, everyone.

Hey, Jerry.

As we look at the business today, obviously, very different from profile business that you folks inherited some six years ago. Given where the business stands today with the operating improvement, pricing improvements in the scenario where we do go into a downturn, can you just talk about what level of operating leverage you folks would expect in the business? And Mark, you alluded to having playbook ready and levers that you folks would pull can you just expand on that part of the conversation? I appreciate it's not the base case, but can we just step through what that scenario might look like for Herc?

Yes. I mean, it all depends on the size and the shape of the downturn obviously going in to a downturn with this amount of momentum impacts the sort of strength of the business on the way through. But typically in a downturn, the operating leverage works against you on a fixed cost business, so you lose, you sort of head into negative leverage to a certain extent to fuel revenues are actually decreasing and your cost is staying relatively fixed, but getting from 35% fleet growth, 35% revenue growth is a negative revenue growth that's quite a big drop. So, I would suspect momentum we've got going on and the likely severity of any upcoming downturn being pretty mild that we'd be able to sort of manage our way through that pretty favorably in terms of operating leverage.

And over the course of COVID, you folks flex the cost structure really well. I'm wondering, to what extent you might be able to do that in the next downturn whenever that might be to mitigate the margin pressures and the fixed cost pressures that you're alluding to, Mark, based on lessons learned over that challenging period in time?

Yes. Although every recession has a different sort of shape and impact. So, the COVID one was specifically very dramatic on the cost side with everything shutdown. So, I don't think we'd be able to adjust the cost side or once we adjust the cost side as dramatically as we did in that particular downturn.

Super. And in the quarter just on Slide 16, you folks – so it looks like utilization increased year-over-year, pricing was up 5.5%, but dollar utilization was up just 2.5% year-over-year, which suggests I think a meaningful mix headwind. Can you talk about that? Is that mix away from entertainment or what's driving that? And what's the mix outlook into the back half of the year?

Great question. Mix has been a bit of a challenge this year. It's mostly due just to relative growth rates and you sort of touched on it with the entertainment business. So, that was obviously growing incredibly rapidly last year as that was bouncing back from a really low number in 2020. So that growth is not as dramatic this year and that is having an impact on mix. There's also a bit of an impact on the bulk business with the healthcare rentals that we're out still some of them out last year with the COVID rentals they've sort of gone away and that bulk business is having an impact on mix. Also, the specialty business was growing much faster than the core business historically and that was having a positive impact on mix and that's not the same as we're growing the sort of core and the specialty at the moment at a similar growth rate. So, good question, a bit of a complicated answer. Mix was a big impact in Q2, should be less going through Q3 and Q4.

Terrific. Thanks.

Our next question comes from Ken Newman of KeyBanc. Please go ahead.

Hey, good morning guys.

Good morning, Ken.

Good morning. For my first question, I was just curious if you could talk a little bit about the cadence of business trends that you saw as we progressed through the quarter. Obviously, I think you are very optimistic about the momentum, kind of holding up into what's typically your strongest quarter, seasonally next quarter. Does seem like the forward sentiment for construction spend seems pretty resilient here even with all the bearish sentiments in the market, but just any color that you've seen from your customers in terms of behavior as we've progressed through the second quarter here into July?

Ken, this is Aaron. I'll probably answer that. Q2 is very strong to build up through the end of June. Our time [here] [ph] is very, very strong and we're able to do the acquisitions and bolt them on and work on the synergies and really it was accretive to what we accomplished in the second quarter. As far as the sentiment just on the ground, we see a tremendous amount of projects starting in activity. I've been in a lot of major urban markets during Q2 and there is just a lot of construction going on. So, we see a lot of activity right now. We get the tea leaves about the activity coming along the rest of the year and into next year. We listen real closely to the street to see what's going on with our customers' comments and it's all very, very positive. We don't hear any negative activity or concerns going forward.

Got it. And then for my follow-up, obviously, you've been very active on the M&A front here in 2Q included, you gave some good color on the revenue contribution, but I'm curious if you could maybe help us kind of frame what the impact to margins were from the acquisitions this quarter and maybe the expectation for margin cadence as those deals are integrated later on into the back half?

So the [exhibition] [ph] is a kind of margin neutral, I would say. They come in pretty close to our sort of corporate margin and then we've got the opportunity to expand that sort of up to our benchmark branch margin through synergies over, sort of 18 months to 2 years is sort of the guide there. So, they are neutral, I would say, overall to margin.

Thank you.

Our next question is from Neil Tyler of Redburn. Please go ahead.

Yes, good morning everyone. I've got a couple left please. First on your share repurchase scheme. You've been fairly clear that that's predominantly in response to the change in the share price, but does the decision in any way to restart that buyback reflect either rising valuations or reducing availability of assets to sale and maybe give us a little bit of an update on how you see the M&A pipeline? The second question, you mentioned, I think, Aaron, that you'd visited all the major suppliers recently and were confident on receiving fleet that you needed for this year and for next, but from those meetings, can you perhaps share any latest insight on the broader comments from those customers on the supply chain issues they're facing and how that has progressed over recent months? Thanks.

Sure. I'll let Mark take the first question on the share repurchase.

Yes. So, I mean, the acquisition pipeline is still robust. We're still closing deals and looking at deals. We sort of guided to a rough cadence of say 500 million a year and you can sort of see that we've made a good fight of that through the first half. So, there's no real change in our appetite or our ability to execute. It's mostly our response to the share price as you mentioned and we can put that on top of our acquisition activity and our fleet growth plans.

And Neil, on the OEM visits, yes, we mentioned on the narrative that we did. We have been visiting and did visit several in Q2 of our big OEMs. Just visit with them about strategic look forward over the next couple of years and I think it's well known. Supply Chain has been challenging for everybody. And some OEMs are able to kind of handle the supply of product to us a little more rapidly than others, but they're all working very hard. And when we see down the road, we think we're going to continue to have challenges through the end of this year and the first half of next year, but we believe that by the end of 2023, it will get to more normalcy. It really has to do with the components that the OEMs need to finish the products. So, we have been receiving the products, the equipment that we expected to get so far this year and we got a line of sight of what's coming the rest of the year, but it's not easy. It used to be that you could buy equipment on the spot market for a deal and get it in a week. You can't do anything like that anymore, and the used equipment market is very, very tight as well. So, I think everybody is improving their fulfillment of equipment and we're very positive on where we're going through next year.

Great. Thanks very much for that. And just to follow-up there, Aaron, what does that mean in terms of for lead time to which you're committed on equipment purchases in terms of number of months, for example?

We've placed about 40% or 50%, roughly 50% of our 2023 orders in already, so we in a normal environment, you don't have to get your orders in that much in advance, but in this environment, you do. And we're still as I said, receiving our product this year, but it tends to be – or if it used to be two or three months delayed, now it's more like two months or 1.5 months to 2 months delayed. So, we are seeing product showing up every single day in all of our branches all the way through Q2 and in July.

That's very helpful. Thank you.

Our next question comes from Seth Weber of Wells Fargo. Please go ahead.

Hi, Seth.

Hi, guys. This is Larry Stavitski on for Seth. How are you today?

Good. How are you today?

Hey, Larry.

Great, great. Just a couple of questions. Going back to the, kind of the environment where you talked about not seeing any kind of negative signs or project cancellations, just to reiterate, nothing on interest rates or recession concerns that you're hearing, you know on the ground or anecdotally from customers?

The only thing I would mention is just labor. The ability to ramp up some of these big jobs need 3,000, 4,000, 5,000 employees to conduct a project. That's where they're having some challenges, but nothing on project cancellations, anything of that nature. And as I mentioned the demand for equipment, our time utilization is super strong.

Okay. And does that include energy market activity? What are you guys seeing in terms of that?

Yes, we divide energy into upstream, midstream, downstream. They've all picked up, of course, since a year ago. And so, we're seeing it all along the oil and gas and chemical segment of industrial.

Okay, great. And then just if I could squeeze in a last one, your rate outlook for the rest of the year, you did mention you still expect sequential acceleration. Any kind of color on what we should expect the exit rate for 2022 for pricing?

Yes. So, maybe a little bit of nuance on that [secular message] [ph], so secular increase. I don't know that we're expecting secular acceleration, but we should see increases quarter-over-quarter and year-over-year going through the rest of the year. No guidance on the exit rate. We're happy with the, sort of mid-5% zone and we'll be happy to, sort of increase that modestly as we go through the year.

Okay, great. Thanks guys. Appreciate the color.

Our next question is from Matt Brooklier of GAMCO. Please go ahead.

Hey, thanks and good morning. I just had one for you. As you think about the next, let's say, 12 months to 24 months, all of the kind of big infrastructure projects that have been announced and are starting to gain momentum, could you talk to maybe which equipment types you feel most bullish on which equipment types you think are going to benefit the most from these particular projects? Thanks.

Pretty much all of them Matt are projects where it's a new build. So, you got to [indiscernible] the ground, we call that the civil part. So that's a lot of earthmoving wheel loaders, excavators, compassion, and then they move into concrete, tilt-up work, they enclose the building and then you get a lot of material handling, aerial, insight. And some of these projects are so big that they don't connect to the grid in a quick fashion. So, they need temporary power, temporary cooling until they can connect to the local energy provider, the grid in the market. And these projects are typically, I would say, at the low-end, two-year build and some keep going for five years depending on what type of big project it is. And then on the road and bridges, you'd see those in the freeway. Those are long-term projects. They seem like they never end. So, again, those are a lot of excavators, wheel loaders, compaction and aerial to do all the – [get the men up] [ph] in the air to connect all the concrete girders and so on and so forth.

All right. That's helpful. Thank you.

Our next question is from Mig Dobre of Baird. Please go ahead.

Hey, good morning. Thanks for squeezing me in here.

Hi, Mig.

Hi. I wanted to go back to your comments vis-à-vis your interaction with your suppliers, your OEM suppliers. So, it sounds like the pricing for 2023 equipment is going to be higher than mid-single digits. I'm wondering if you can put a finer point on that. And when you sort of look at, sort of pricing, you're going to have to pay in 2023, how does that compare historically? I mean, I realize that it's higher than what we've seen maybe in the last few years, but I'm wondering if it's very much out of the norm for what the company has seen in its history. And related to this, I guess I'm wondering how you're approaching it, right, because OEMs are asking for pretty significant price increases. That's pretty clear, yet input costs, raw materials and so on are coming down. So, from your standpoint as a customer, how are you approaching that in your negotiation and the timing of your CapEx?

Yes. Well, let me sort of take the first part. Yes, we said we'll exit this year with fleet that's probably up mid-single-digits over prior year and we expect that [2023] [ph] fleet will be higher than that, probably mid-to-high single digits, but we haven't quite frankly finalized all of that pricing with a lot of our key OEMs. So, it will be hard for us to really comment on what our true expectations are until we finalize those negotiations with our suppliers. We're more concerned now immediately with securing slots, production slots, and availability slots and that's where most of our work has taken place with our key OEMs, while they're still trying to understand what their component supply might be going into next year and what the relative improvements that they can make over this year relative to both acquisition and cost of those components. So, it would be hard for us to predict, although we do believe it will be higher than what it was this year going into next year.

Right. But going back to the essence of my question, the price increases that you're seeing here for 2023, does that impact at all the way you're thinking about dispersing CapEx? I mean, one could argue that you could, sort of weighted out a bit until lower input costs are actually starting to flow through to [Multiple Speakers].

Yes. Well, no, it's not going to impact our decision on what we're going to acquire. We're going to try to get as much fleet as fast as we can and put it into the market while we have a robust operating environment and customers demanding fleet for their projects. So, remember, the cost only is over a 7-year or 8-year period. And on some of the fleet that we're acquiring, some of that has useful life up to 25 years. So, the input cost is not that dramatic when it comes to the benefits that we can have of getting gear and putting it on rent. So, no, it's not impacting our decision to acquire gear in the short-term.

Understood. Thanks for clarifying that. Then my last question is on the way you're managing inflation and higher costs within your own business and kind of how you expect that to trend going forward, the flow through margins on our EBITDA, a little bit lower than the 50% to 60% that you targeted. So, I'm sort of curious here as to how – what is the timeline here for getting back to that more normalized flow through margin? Can that happen in 2022 or is more of a [2023] [ph]?

Yes, I think we – I mean, we discussed in Q1 that those flow through margins would be improving sequentially throughout the year and they did improve in Q2 to over 51%, which was better than we did in Q1. So, we expect that flow through to be better in Q3 and Q4 as we get more revenue and more operating leverage on the cost base. So that's the impact for this year and we don't anticipate an acceleration of the inflationary environment going into 2023. So that should allow us to continue to improve that flow through going forward. So, being able to improve our EBITDA margins in Q2 by 200 basis points with these inflation pressures that you'd like to point out is a pretty good outcome and we're very happy with that.

Thanks for the color.

Our next question is from Steven Ramsey of Thompson Research Group. Please go ahead.

Good morning. Maybe to start with markets generally tied on supply versus demand, is there a way to think about, kind of order of magnitude percentage of markets that are not in this tight supply demand equation? And are you moving fleet out of those areas to better markets or maybe just generally, is there any outsized activity of fleet movement that is higher or lower than normal?

Steve, really all of our end markets are very strong across all of our regions. In prior years periods, yes, we would move fleet from one geography toward another to get better utilization, but at the moment, all of our North American operations and markets have a big appetite for fleet. And we want to continue to get our hands on as much as we can to really see our needs in our business and what our sales force is creating.

Helpful. And then one on rates. Can you talk to the strength of spot market – spot pricing on the market in this good market versus prior positive cycles? And can you talk to if this spot pricing versus non-spot pricing, is there a larger delta than normal going on there?

So, the spot pricing, obviously is a little bit more volatile and easy to move, so that is very strong currently. Hard to compare that to prior cycles, but very strong and stronger than the national account pricing as you'd expect you're dealing with or a quicker tune of that equipment and smaller customers and shorter-term demand as opposed to longer-term negotiations on contracts with bigger customers, but we do have momentum in both. So, we've got success going in that [national account] [ph] negotiation. Those rates are going up, and the spot pricing continues to be very strong on both.

Helpful. Thank you.

Our next question is from David Raso of Evercore ISI. Please go ahead.

Hi, thank you for the time. Your suppliers don't usually book an order properly and book pricing asset. So, your comment about 40% to 50% of your 2023, let's call indications of interest in the equipment you want, do any of those have set pricing yet or is it still just, sort of an indication of interest trying to hold the slot?

Some does and some is holding the slot.

Okay. Thank you. And then you said, again, you felt more comfortable after meeting with your supply base thinking about late this year into 2023, but you did make the comment that still a challenge through the first half of 2023. And I know it's early macro can change, your thought can change, but when you think of your fleet growth potential next year from what the suppliers are telling you, is there a level of comfort they're providing or that they could give you 10% more, 15% more. I'm just trying to get a sense of what they're communicating and trying to think about a peek into 2023 fleet growth potential for you?

I think they're more in-line with providing what they provided in 2022 because they need to get more visibility for the whole year in 2023 first. So, we're optimistic that as they progress through 2023, we can probably get more if the markets are still very strong.

And lastly, the carryover pricing, if you could answer it maybe just from what we have already today on the books or how we think about the rest of the year. If there was no further price gains after this year, just again a peek into growth for 2023, is there a carryover of 3%, 4%, just trying to get a sense of how we start the analysis for 2023?

In terms of our rate, yes, we got no rate growth from here, right? And that held through 2023, you'd be talking about mid-2% to 3%, sort of rate growth booked in for next year.

Very helpful. Thank you so much.

Thank you.

Our next question is from Steven Fisher of UBS. Please go ahead.

Great. Thanks. Good morning. Wondering if you could just touch upon how used prices trended over the course of the quarter? And how that has affected your decision making in terms of used sales and then overall fleet management? We've heard of some softening in various categories in the market. Just curious what you saw and how that's affecting your actions?

Steve, we made a strategic decision through Q2 just like you want to not sell as much fleet as we typically would during the quarter because the rental opportunity was so strong and so we chose to hold on to our fleet. The used market is very strong and that's benefiting us and the fact that the fleet that we are selling we're able to get the market rates in the retail side and we're selling more of our fleet in Q2 to retail and wholesale than we typically may in the auction market. So that really drove up our proceeds because we're able to push the fleet through those channels as limited as it was.

Yes. But just a follow-on on that. The fact that the market is strong has not really, sort of caused us to look to sell more gear because we can do far better as long as that gear is acceptable to our customers, operational, and doesn't have big repair and maintenance costs associated with it. It's far better for us to keep that in the fleet and rent it.

Okay. But just to clarify, you are not seeing anything in the underlying market conditions of softening or anything like that?

In the rental market or the used market?

Used.

I think the used market ran up pretty strong and somewhat leveling off right now. It's not running up like it was previously. So, it's kind of an elevated status right now.

Okay, terrific. Thank you.

Our next question is from Ken Newman of KeyBanc. Please go ahead.

Hey, thanks for squeezing me in for a quick follow-up. I just wanted to follow-up on a prior question about moderating material costs. Just maybe could you put that into the context of whether or not there's been more progress on negotiations with your bigger suppliers about passed through pricing. I know that's been a bigger topic in recent months and over the past 12 months here. I'd imagine if that were to go through that be potentially a benefit to you if costs were to continue to decline here?

Yes, Ken. I think that you might be following markets that are moving on a daily basis and the suppliers are dealing with costs that move on six monthly, maybe annual basis. So, steel has rolled over, copper has rolled over, but way to recently, I think they have any impact on their ability to adjust pricing. So, I don't think we're going to move to a deflationary environment on our equipment costs because some of these commodity prices have rolled over. It is positive that they have. I'm sure that does take a lot of pressure off of our manufacturers, but it's way too early. I think for that to start factoring into our negotiations in terms of pricing of equipment.

Understood. I guess the essence of the question is more so about whether or not there's been more progress in negotiations was the suppliers regarding their want to be more imperative with material costs and whether or not that's going to move forward versus the last two or three quarters?

We don't really talk to them directly about their individual input costs either. So, I think they are still faced with cost pressures. There's still year-over-year pressure on them that they’re dealing with. So, the conversations with the suppliers are around prices hitting up as the direction of travel.

Understood. Thanks for squeezing me in.

Sure. No problem.

And thank you all. I hope you all – we took a little bit longer to finish up to get everybody’s questions in. So, thank you all for joining us today. But before we close, just like to point out that if you haven't already reviewed our 2022 corporate citizenship report it’s on our newly redesigned website at ir.hercrentals.com. And as always, if you have any questions, please don't hesitate to reach out to me. And we look forward to seeing you all soon. Thanks a lot.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.