[Starts Abruptly] website at IR.HercRentals.com. Today we’re reviewing our third 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. Now, let’s move on to your Safe Harbor and GAAP reconciliation on Slide 3. Today's call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from our 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 to 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 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 we do not approve or sanction any transcribing of the call. 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. I'll now turn the call over to Larry.

Thank you, Leslie, and good morning, everyone. Before we get started today, I want to take a minute to recognize Elizabeth, who as was mentioned after nearly seven years with Herc has elected to retire next year. Until then, Elizabeth will continue shepherding our ESG strategy and further developing and executing our corporate sustainability initiatives. On behalf of everyone at Herc, I want to thank Elizabeth for her commitment to building our IR function and for her many contributions to our success over the years, including managing our relationship with all of you. Elizabeth will be listening in to today's call, but will not be directly participating. As Elizabeth narrows her focus, I'd like to welcome Leslie to our team. I've had the pleasure of working with Leslie in the past and I know she will be a great partner to the investor and analyst community. Now, let's go ahead and get started on Slide number 4. I'm pleased to report another strong growth quarter that reflects strong organic growth across all of our regions, as well as contributions from our expanding branch network. I'm incredibly proud of our financial and operating performance. Third quarter total revenue, rental revenue, and adjusted EBITDA were all time quarterly highs for the company. In addition, to an unwavering focus on managing rapid same store growth from our existing locations, we completed the acquisition of seven companies in the third quarter adding 12 more locations, which brings the year to date total to 16 companies and 24 new locations. You'll recall our acquisition strategy helped drive revenues, scale, and operating leverage by increasing fleet and locations in and around targeted urban markets. Through the end of the third quarter, we have spent $441 million in support of our acquisition strategy and have a solid…

Thanks, Larry, and good morning, everyone. Our strong performance in the third quarter reflects the benefit of our strategic branch network expansion, the improved scale and diversity of our equipment fleet and our successful penetration into a variety of industry verticals. These initiatives driven by the dedication and commitment of the entire Herc team are making a clear difference in Herc’s growth trajectory. Moreover, secular growth trends further position us for sustainable long-term growth. Now please turn to Slide number 8. Our third quarter results reflect the opportunity we see by accelerating investment in fleet with average OEC fleet up 35% over last year's comparable period. Equipment rental revenue in the quarter increased 36%, compared with the prior year quarter. Our regional leaders are doing an excellent job leveraging our expanded offering and entry into new markets to incrementally drive the top line, while capitalizing on the broad economic recovery across commercial and end markets. Rate growth of more than 6% in the quarter helped offset inflationary pressures and our team successfully managed rising fuel costs through increased revenue recovery and equipment delivery and equipment refueling charges in the quarter. Our core business benefited from the continued strong demand for equipment across all our regional operations. And our ProSolutions business delivered double-digit growth year-over-year again in the third quarter. As you know, ProSolutions offers targeted solutions that support mobile power and distribution, climate control, remediation of pump equipment. This is a fast growing high margin business for Herc. We are capturing share here by capitalizing on cross-selling opportunities with new and existing core business customers and leveraging the increasing density of our branch network for faster response. Our acquisition and integration activities are our core competency of Herc Rentals and we are successfully building on new businesses to our grow…

Thanks, Aaron, and good morning, everyone. The Herc team continues to execute our strategy and we continue to operate in high gear as we maintain record performance in our key metrics in the third 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, profitable growth, and continue to deliver improvement in the key metrics that create long-term value for our stakeholders. Strong demand in our end markets and the ongoing supply chain challenges of equipment manufacturers continued to provide a strong operating environment for our rental business. As Aaron mentioned, we ordered early, so our new fleet is arriving at a steady pace throughout the year and we have been putting the additional fleet to work driving revenue growth. Our operations team has done an excellent job, maintaining strong time and dollar utilization in a fast paced, high growth environment, while integrating new team members, customers and fleet into the Herc model. This consistent execution has led to sustained performance and strong momentum that will continue for the rest of 2022 and beyond. Slide 14 shows a summary of our third quarter results, compared with 2021. Equipment rental revenue increased by a very impressive [36%] [ph] to 706.2 million from 519.6 million in 2021, primarily due to continued volume and pricing momentum. We're pushing hard on both our organic growth and acquisition strategies and enjoying a lot of success. Taking a look at the 36% rental revenue growth for the third 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 growth and we believe we continue to expand our market share. Our successful…

Thanks, Mark. This summary demonstrates the acceleration in growth we are achieving with our investments in 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 we've made. We are demonstrating that we can accelerate top line growth and showing 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 team Herc members for their diligence, professionalism, and commitment to customer service. We are proud of our Team Herc. Please turn to Slide 21. Many companies are now focusing more on purpose. We began our vision, mission, and values and are 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. Now, I'd like to turn the call back to Leslie Hunziker before we open the lines.

Thanks, Larry. I understand that my opening remarks where I introduced myself were cut off. So, let me take one more minute to do that. Again, my name is Leslie Hunziker. I've recently joined Herc to support the company's Investor Relations and Corporate Communications program. I'll be transitioning the IR responsibilities with Elizabeth Higashi as she recently announced her plans to retire next year. Elizabeth would have been here today to share this news with you herself before an emergency [indiscernible] has her solidly in recovery mode. Once she's back and we've transitioned IR responsibilities, Elizabeth will continue to focus on driving her expanding sustainability initiatives. For me, I come [from Hertz] [ph], most recently from WESCO, a Fortune 250 Industrial Distributor, where I also led Investor Relations and Communications. And prior to that, I handled IR for Hertz and [Tenneco] [ph]. I'm looking forward to working with all of you. So, let's go ahead and get started with Q&A. Operator?

[Operator Instructions] Your first question is from the line of Jerry Revich with Goldman Sachs.

Yes. Hi. Good morning, everyone, and please send our best to Elizabeth for a quick recovery. I'm wondering if we could just talk about the implied fourth quarter EBITDA guidance at the midpoint of the full-year range that implies EBITDA is up 7% sequentially, which is much better than normal seasonality. I wonder if we can talk about how much of that is just the impact of the benefit from the storm versus other parts of the business, can we just expand on the drivers of the 4Q outlook?

Yes. Hi, Jerry. I mean, the storms typically generate $5 million to $6 million worth of EBITDA, so that's not a massive driver of Q4. I mean the timing is a little bit different this year against the comps we had won in Q3 last year. We've got it in Q4 this year. So, most of us coming from fleet growth that's been received steadily throughout the quarter and continues to come into Q4 as well as, sort of acquisition activity that was consummated during the year that builds into Q4. So, it's growth in the business that's already baked in by Q3 that continues to roll into Q4.

Got it. Yes, sorry, Larry. Please go ahead.

I was just going to say, Elizabeth can hear you. She's in listen mode, so she heard your comment.

Thank you. And can I ask about pricing in the quarter based on the year-over-year acceleration? It looks like you folks got better than normal seasonal increase in pricing? It looks like it was up 2.5 points in the quarter. Is that about right Mark and is that momentum continuing into October and your-end?

Yes. No, I mean, I'm not too sure about momentum. I mean, we've talked about pricing in terms of looking to, sort of maintain that I think mid-single-digits for the medium term rather than sort of looking for sharps spikes this year. So, we will maintain high pricing. It's probably going to level off as we roll through into Q4 and we'll look to maintain that around the zone into 2023. So, it's more managing the pricing. We've had strong growth in spot that's limited in terms of how far we really want to push that. We've got a, sort of tailwind coming in from the ongoing contract negotiations. So, as we sort of move those, our contracts are closer to the spot increase and we get continued, sort of pricing strength rolling into Q4 and 2023.

Super. And lastly, can you talk about your initial views on CapEx outlook for 2023, and when do you need to have firm purchase orders? And then you mentioned flexibility in the business model, can you just talk about how you – what's the date around which you'd have flexibility to make changes to your commitments to vendors? Thanks.

Jerry, it's Aaron. Our view for 2023 is still very robust. So, we've got planned CapEx of 1.5 billion for new fleet. We've ordered already – we have POs on about a billion of that and agreed on pricing for about 70% of that number, so called 700 million and the markets are robust. So, we think next year is going to be a terrific year as well, but if things ever change, we do have a lot of flexibility to pull back if we need to.

Super. Thank you.

Your next question is from the line of Rob Wertheimer with Melius Research.

Hey, good morning everybody. I had two questions, kind of following up on that fleet dynamic. And just I know people talk a lot about aerials, but you have a pretty diverse supply base. Can you just generally characterize whether the expected loosening up and freeing up supply constraints does mean there's a lot more availability for you in the industry next year or that's not yet evident? And then I don't suppose we've seen a rising rate environment like this in a long, long time. So, I'm curious about any opinions you may have about how it affects the ability or desire of smaller rental companies to purchase with higher funding cost?

This is Aaron again. I'll take that first one. As far as the aerial specifically, the supply chain or the availability equipment is still about how it's been all year long. I don't think they're going to be able to produce everything that the market, the industry wants in 2023. Now, if the smaller – to your second question, if the smaller rental operators have difficulty accessing capital to buy that equipment [indiscernible] might loosen some of that fleet up, but as of right now, we have none of that's been kind of evidenced.

And outside of aerials, do you think that you have any loosening up or not?

No. Look, we haven't seen it yet, but that could happen next year sometime if the things I mentioned occur. We expect the supply chain … Rob, the supply chain looks to be constrained as far as we can see into next year. So, there's no loosening up maybe by the end of next year, there's some progress, but we are expecting similar environment to what we've been dealing with this year.

Okay, great. Actually, I'll stop there and let somebody else have a chance. Thanks.

Thanks, Rob.

Your next question is from the line of Neil Tyler with Redburn.

Good morning, everyone. A couple of questions, please. Firstly, on the customer mix, you pointed at the – can you remind us of the strategic, sort of rationale and benefits of targeting the mix as you do? And whether you are able to or how you benchmark the, sort of cross-selling penetration rates in the different customer groups? That's the first question. And then secondly, any thoughts on the, sort of potential scale? I think, Aaron, you mentioned the industrial orders and the link to things like the Inflation Reduction Act and the [indiscernible] Act, but have you done – you guys done any work in terms of scaling that perhaps relative to the infrastructure bill? I remember Larry about 18 months ago, you poured some cold water on my enthusiasm around the size of that infra bill, but – and I'm just wondering whether you want to do the same thing at this point or not?

Well, look, are you talking about the mix between local business and national account business or are you talking about…

I am, yes. Yes.

Well, look, we said from the time we got here, the numbers were exactly opposite. It was 60% national account and 40% local customers and we said our desire was to flip that and go 40% national account, but keep that growing, not reduce that and go to more of a local mix because that tended to be higher margin business, faster, more rapid turnover where we could accelerate and penetrate the local markets and not totally be reliant on our national account base. So, both of them continue to grow and we've gotten to the point where the mix we feel is appropriate for how we want to do business and how we're focused on large metropolitan geographic areas where there's density of people and work and where that seems to be more continuous on a regular basis. So, that's where we're at there. As far as throwing cold water, I'll give you some warming water as we're beginning to see the letting of that, you know of those funds for infrastructure project. There's been [Technical Difficulty] going into the ground. We'll see more of that as we progress into 2023 and we certainly think that'll, you know to add and perhaps replace some of the concerns that folks have about slowing consumer spending on the consumer side. So, we think a combination of the Infrastructure Act and then the other acts in federal spending that Mark mentioned not to mention the mega projects in the EV world and the data centers and the other things, we think will certainly give us the momentum to push through any concerns about slowing demand on the consumer side.

Thank you. That's great. Very helpful.

Your next question is from the line of Sherif El-Sabbahy with Bank of America.

Hi, good morning everyone.

Good morning.

So, just looking at the secular shift from ownership to rental over the last few years, how much growth do you expect is coming from customers who might prefer to typically own their own equipment, but they cannot do the supplier costs? And then once supplies do improve, do you expect to see any impacts from some of these customers reverting back to owning their equipment?

Yes. Hi. Good morning, Sherif. I mean, you do tend to see – you see a pickup in the secular shift and the down cycle like you saw in 2020 with people, sort of unloading fleet and then not necessarily getting back into it. And then in this environment, you're going to see that extend and probably take another step up just due to the difficulties in getting the hands on the new fleet even if they wanted to. So, it's kind of incremental on the margin. You might have someone who owns four pieces of equipment and rents four pieces of equipment and sells off two, and then doesn't replace them and moves into a few more pieces of rental equipment, but without a doubt, the current environment, we're struggling get our billion dollars plus worth of fleet. If you're going to a retail store and trying to buy retail, it's one very expensive; and two you're probably waiting a year or two for that. So, without a doubt, I suspect the current environment is driving an increase in their secular shift. And once that step change happens, it doesn't revert, right. So, you look at that over history, it continues just to go up and go up. It might slow down as the dealers return to a more normal sort of inventory cycle, but it's not likely to reverse.

Got it. Thank you.

Your next question is from the line of Brian Sponheimer with Gabelli Funds.

Hi, Brian.

Hi, Larry, hi Leslie. And obviously, hello to Elizabeth. I hope you're doing well. I'll speak to you soon. If I could just start with – just a question on leverage and the confidence there. We've seen others in this industry see it two to three times levels being a little too heavy, you're at [2.4] [ph] now and buying back stock into what is still going to be a fairly heavy CapEx cycle here. Any thoughts there Larry as far as wanting to stay towards the lower-end or even going below that once you start generating considerable cash in the fourth quarter here?

Yes. Look, I think we've said 2x to 3x is our desirable level. And certainly, in a strong economic environment, we don't mind going up a bit towards the top end of the range. And in an environment where we feel that there might be any headwinds, we would try to keep that towards the lower end of the range, but I'll let Mark comment a bit on how he is viewing that and how we're going to utilize our capital allocation.

Yes. No, I mean, we're comfortable in that 2x to 3x zone. The balance sheet's pretty much bulletproof. There's not a lot of risk to that. As you've seen in the recent, sort of [2025 drill] [ph]. We are at peak leverage in the quarter just given the working capital drain in terms of funding the CapEx. So that does decrease slightly going into Q4. So, we will manage it at the lower end of the range, but unlikely to be dropping it below two in the current environment just given our growth trajectory and the amount of money we're investing in the business.

Sure. Mark, while I have you, given the level of profitability, absolute level of profitability, are you all subject to any minimum tax thresholds from a cash perspective?

Not at this stage. Yes, not at this stage. So, I mean, we still benefit from accelerated depreciation on the fleet coming in, so that protects us on Texas for the short-term. So, if it continues for another two to three years, then we start moving into a cash tax position, but not this year and not next year.

Understood. Okay, I'll get back in line. Thank you very much.

Thanks Brian. Your next question is from the line of Seth Weber with Wells Fargo.

Hi, good morning, guys. This is actually Larry Stavitski on for Seth.

Hi, Larry.

Hi, guys. I just wanted to ask about the acquisitions. I think you mentioned third quarter acquisitions contributed about 250 million to total revenues, how should we think about that in the fourth quarter? And was that one of the main sources of the EBITDA raise?

Yes, I don't know that you've got that number right. I think we mentioned that one-third of our growth was from acquisition activity and that's from all the acquisitions completed for 2021 and 2022. So, you might have must construe that comment a little bit. And I think that's the ratio that we're looking at. So, it's about two-thirds of organic growth and about one-third of acquisition growth and that's likely to be the contribution in Q4. Part of the raise was from additional acquisitions and part of a sort of continued strength and the two-thirds of the business that's driving organic growth.

Got it, got it. That makes sense. Thanks for the clarification. And then I just wanted to touch on used equipment pricing. If you guys can kind of give your take on it and what you guys are seeing out there regarding used equipment pricing?

It's still a vibrant used equipment market. There's still a lot of demand because there's limited supply. Most categories when you look at – if it's retail wholesale still very, very strong. If you look at the auction prices depending on the category, most of them probably peaked already and they're starting to gradually roll over, but still higher than a normal baseline. So, it's still a good – really good overall used equipment market.

Yes. I'm just wondering how that contrast to the Ritchie Bros release earlier this week and if there's any disparity between what came out from them and what you guys are seeing, but okay, I understand that.

No, I believe I read that, maybe the same one that you're referring to. And they said, the volume was picking up of auction assets being sold. And I believe that's accurate. I mean, that's what they stated. We're seeing that too.

Okay, great. Thanks a lot, guys.

Thank you.

Your next question is from the line of Steven Ramsey with Thompson Research Group.

Hey, good morning. Maybe to circle back on the topic of fleet. The fleet spend of 1.5 billion next year, is that net or is that on a total basis? And then you expect used sales will be lower in next year if fleet supply conditions are similar to this year?

That's a [$1.5] [ph] a gross number, Steve. And as far as disposals for next year, we believe that towards – since back half of next year, we'll start to pick up and sell more of our page fleet. We've really sweated out to a degree and we need next year we'll be selling more of it than we did this year based on its useful rental life.

Okay, helpful. And then thinking about acquisitions, is the macro picture or in markets changing your appetite to do deals in the next two to four quarters? Are changing conditions, changing seller's willingness to do deals? And is it changing the multiples that you or others willing to transact at?

Not really. I mean, the pipeline is pretty robust, I would say, a steady stream of opportunities that we're looking at. We're pretty confident going into 2023 that we'll be able to, sort of maintain at this level and multiples remain unchanged. So, it's a similar, sort of environment that we've seen all year. We don't really see it changing. And I'd say it's pretty, sort of robust line of opportunities for us to look at there and we, sort of approach that with our strategic lens and go after the ones that make sense for us.

Great. Thank you.

Your next question is from the line of John Healy with Northcoast Research.

Thank you. Quick question for Mark. I wanted to ask about the M&A strategy just a little bit. When you guys are buying these properties, I think you have in one of the slides, kind of spend to date and the amount of EBITDA you've gotten and then what your kind of pro forma target EBITDA kind of creation multiple would be? How do you think about, kind of the timing to get to that? And are there anything that we should be expecting that maybe not be in our, there's nothing talked about as it relates to getting those synergies or anything like that as we look to next year?

Yes. So, I mean, clearly – and we're doing smaller type tuck-in deals. So, they're typically focused on one key market and single branches or a couple of branches, so not big deals. They benefit straight away by being part of our network right now moving into a district that's got additional fleet that's got more [indiscernible] classes available to read that's got other sales guys in the market already and other customers that are renting. So, the cross-sell and the fleet efficiencies start straight away. Most of the synergies, we look to have, you know if we start realizing by the end of year one. And if it's a big lift, then some of them might roll into year two, but we've got, I would say, 80% of the synergies starting to roll within 18 months.

Great. And then just one question, when you're buying these properties, I'm just kind of curious to kind of get your thoughts on how these operators are pricing versus your pricing? Is there anything, kind of lessons learned there in terms of the pricing strategies or the opportunities to, kind of harmonize pricing between acquired properties and how you guys are running the business and how you have been running the business?

Yes. So, I mean there's a – we've got tools as a big national platform that's operating in 350 stores and across a lot of geographic markets that a lot of the small players just don't have. They can – they're competing against big national players in their markets, so they have to sort of focus in on a niche customer base or have a niche pricing strategy. So, as part of operating fleet as efficiently as we can and operating margins as we can, that's typically not pricing as well as we do. We don't look to change that straight away as part of a cultural change in terms of moving them into our network and just assimilating that customer base. So, we're not looking to shock the system, if you like, but over time, we've plugged them into our tools and the rest of sort of operating model that we operate with and we get pricing lift into the, sort of second year of the hold, if you like.

Makes sense. Thank you.

Your next question is from the line of Mig Dobre with Baird.

Yes. Thank you. Good morning and all the best to Elizabeth. I want to go back to the fleet as well and maybe clarify for us as you're thinking about net CapEx, I mean, you talked about gross CapEx next year, but presumably net CapEx would be up relative to 2022 as well?

Yes. Yes. No, it will be up. We're probably still going to be somewhat constrained on our sale of used equipment certainly through the first half and we'll have to determine what a fleet availability looks like into the back half of the year to see if we can relieve some of the older fleet. But look, if we have it on rent, we're not going to take it off rent just to sell it. So, it will all depend upon availability of the new gear that comes in from our OEM suppliers.

Yeah. Understood. So, thanks for that. And I'm also trying to think about some of the framework that you laid out at your Analyst Day a little while back as we're thinking through 2024. The way you're kind of talking about CapEx and deplete into 2023, it seems like we're doing the 2024 plan a year earlier maybe into 2023. So, related to that, I'm kind of curious what have been, kind of the moving pieces that you're seeing to your business. Again, relative to that plan that you laid out? It seems like the overall demand environment is maybe a little more robust than what you anticipated initially, but I'm wondering if there's anything else that differs relative to that plan that you might want to, kind of highlight for us as well?

Right. Yes. Hi, Mig. So, that plan was organic that we laid out. So, there's almost a billion dollars of M&A since the end and probably $700 million more since the end. So, those branches need fleet replacement and need fleet growth. So, we're working off a bigger base in that plan. Now that plan was obviously front loaded or the growth was front loaded into the front-end of that plan, which we've seen. But as you mentioned, we weren't anticipating 35% growth in 2022. So, the demand has been stronger. We've responded to that with more fleets and more M&A and that creates a bigger base for us going into 2023. So, new CapEx is likely to be higher than it was in 2022, but the growth rate slowed down, which was, kind of the anticipated model in that [indiscernible]. So, it's a bigger fleet base to work with. With the fluid replacement for a year just, sort of working into this real tight demand environment. So that will start loosening up and towards the end of the year potentially, but I think we've got more growth into 2022 that sort of creates more CapEx into 2023 and that's, kind of our first look at this stage. We’ll adjust accordingly as we deal with the facts on the ground next year.

That makes sense. One final one for me. As you're looking at your fleet age and based on your comments for 2023, kind of curious what your expectations are exiting 2023 if you actually say convert on that CapEx plan, should we be thinking that fleet age, sort of remains kind of around the current levels or do you see that regarding back closer to pre-COVID levels? Thank you.

It'd be sub-50 months and in a range of like 45 to kind of where we are that we reported this quarter of 49 months.

So, it'll drop. But I mean, we're not selling that old fleet at the same rate that we normally do. So that's – we're not giving the same benefit as we normally would from the amount of new fleet that we're putting in.

But I mean, that's sort of what I was wondering. If you're stepping up your sales towards the back half of 2023, do we start to see this average age coming down? And the implication here is really replacement demand right? Are you really, kind of satisfying the replacement demand that you naturally have given more age fleet at this point?

Yes. No, that's correct. And we are not replacing at the same pace that we normally do. So, there'll be – once this market loosens up in terms of supply, then we'll be reverting back to our more normal replacement pace.

Understood. Thank you.

Your next question is from the line of Ken Newman with KeyBanc Capital Markets.

Hi, everyone. This is Katie Fleischer on for Ken Newman. I wanted to ask about the SG&A this quarter. So, I know it was a little bit elevated, I think, most of that was driven by the acquisitions. How should we think about that going forward? And do you see it normalizing to more normal level?

Yes. We didn't get as much leverage I would say out of SG&A as we typically do. I mean that is expanding and most of it is volume driven. So, it's sort of coming into selling expenses and variable comp and a little bit of receivables sort of provision. Some of the step-ups we made in terms of selling expenses were done in the back half of last year. So, we'll be anniversarying over those, so that rate of increase won't be to the same extent as it was in Q3, so we should revert to, sort of more normal leverage on that SG&A line going forward.

Okay, great. And then just one more quick question. Can you talk about some of the conversations that you've been having with your customers as you finalized pricing for 2023. I know you had talked about in the last call being able to pass through cost of those customers? Are there any concerns about that for next year or have you been getting pretty good feedback from them so far?

So, we stepped up a lot of the ancillary charges. I mean, that was really just a sort of one month delay in February that sort of caught us off guard just that big leap in fuel. So, we've been increasing our fuel ancillary charges. They were increasing our recovery of the increased fuel costs. Fuel costs have flattened out. To a certain extent, there's still an increase in volume, but that increase in unit cost is not as dramatic into Q3, might have even dropped a little bit. So yes, we continue to focus on our ancillaries. We've had great success in delivery, fuel charges, and we're recovering a big portion of the increased fuel cost on a year-over-year basis.

Okay. Thanks. You got it.

Your next question is from the line of Steven Fisher with UBS.

Thanks. Good morning. Wondering what impact if any are you seeing from a softer housing market? And if it's too soon to see anything now, kind of what might you be doing to prepare for that or is it just on a market that really, kind of swings your business too much?

The housing market, residential market really doesn't swing our business very much at all. So…

Any potential… Go ahead.

Yes. I mean, the only place in mind is big multifamily, but purely, like track homes in that kind of construction, not at all. So, I did – I have – we've been watching some statistics on multifamily and that has slowed down, but it's really a smaller piece of our business. We're very balanced with industrial government, commercial contractors, larger projects.

And is there any, sort of impact you're seeing on, sort of the lighter commercial side at this point from housing or it's not really?

Actually, nothing at all. I get out to the field half the month every single month. So, I see a lot of the activity in the field and now there is no slowdown to mention at this point.

Okay. Thank you very much.

Your next question is from the line of David Raso with Evercore ISI.

Hi. Thank you for taking my question. The gross CapEx for next year, I apologize if I missed this, but of that roughly 30% to 33% growth, how much of that is pricing and also the cadence of your suppliers to ship, are you hearing anything unique about it having to be later than normal or maybe some slots have opened up for whatever supply chain reason that you can get it on a normal cadence?

Yes. So, I think what – we're probably looking at high single digits, mid-to-high single digits from most of the suppliers in terms of pricing. And the cadence is probably not going to change significantly from the cadence that we've seen this year. We several years ago due to the efforts of our fleet team began to take fleet on a year round basis rather than, sort of drive it all into Q1 or Q2. And so, we've been able to input fleet on a fairly normalized and even level into our business. And consequently, we've been able to work with our suppliers on their supply side and our demand side to get acceptable levels, although we still see delays of 30 to 60 to 90 days, but that won't change much throughout next year and we don't hear anything different from our suppliers other than that they're hopeful and I use the word hopeful in parentheses. They're hopeful about their second and third tier suppliers improve, which will allow them to improve their supply line to us in the back half of the year, but going into the first half of the year, the balance of this quarter of this year and going into the first half of next year, we're not anticipating nor planning for any type of a different supply chain.

That’s helpful. And real quickly on your national account contracts that are being renewed, can you give us some sense of what's the biggest impact? Is it the fourth quarter contracts or some of the more [dated stale] [ph] where the price increase will be most significant or are there still a lot to be repriced for first quarter that are pretty significant and what should be a decent step up just trying to get a sense of that cadence? Thank you.

It's pretty level. We've sort of worked hard to just have a, sort of a pretty even, sort of monthly renewal. So that's an ongoing and an ongoing monthly renewal. So, there's no real big [lumps] [ph] coming in, in Q4 and at the end of the year or into Q1. So that – but it's a [flywheel set] [ph] right. So, we're getting the benefit now from the contracts we negotiated sort of three months ago and that starts running through and picking up momentum. So, the benefit does help us disproportionately into 2023 from all the work that we've done so far in 2022.

Terrific. Thank you. Appreciate it.

At this time, we have come to the conclusion of our Q&A session. I will now hand today's call back over to Leslie Hunziker for any closing remarks.

Thank you for joining us on the call today. If you have any further questions, please don't hesitate to reach out to Elizabeth and me. We look forward to seeing you all soon. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.