Earnings Labs

Herc Holdings Inc. (HRI)

Q4 2023 Earnings Call· Tue, Feb 13, 2024

$134.71

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Transcript

Operator

Operator

Good morning. My name is Brianna, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Herc Holdings, Inc. Fourth Quarter and Full Year 2023 Earnings Call. Please note that this call is being recorded. [Operator Instructions] I will now turn the call over to Leslie Hunziker. You may begin your conference.

Leslie Hunziker

Analyst

Thank you, operator, and good morning, everyone. Welcome to Herc Rentals Fourth Quarter 2023 Earnings Conference Call and Webcast. Earlier today, our press release and presentation slides were furnished and 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 2023 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 our 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 the forward-looking statements made on this call. You should also refer to the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2023. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. A replay of this call can be accessed via dial-in or through the webcast on our website. Replay instructions were included in our earnings release this morning. We have not given permission for any other recording of this call and do not approve or sanction any transcribing of the call. Finally, please mark your calendars to join our management meetings at 3 conferences this quarter: JPMorgan's high yield conference on February 27 in Miami; Evercore's Industrial Conference in New York on March 5 and Bank of America's Industrial Conference in London on March 20. This morning I'm joined by Larry Silber, President and Chief Executive Officer; Aaron Birnbaum, Senior Vice President and Chief Operating Officer; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Lawrence Silber

Analyst

Thank you, Leslie, and good morning, everyone. Please turn to Slide number 4. 2023 was another year of double-digit growth for Herc Rentals. We delivered record level financial performance across the board. Equipment rental revenue grew 12% on top of 34% growth in 2022. Strong pricing of nearly 7% supported the record top line performance and more than offset inflationary pressure. Demand remains resilient and our diverse end market mix sets us up to take advantage of the most robust sector opportunities like data centers, energy, semiconductors, transportation, health care and education, to name just a few. The diversification was important in 2023 as the shutdown of the studio entertainment business that resulted from the prolonged writers and actors strikes had an adverse impact on rental revenues. In fact, excluding our Cinelease studio entertainment business, rental revenue would have been up 16% year-over-year. By capturing an outsized share of market volume and focusing on rate growth and operating efficiencies, adjusted EBITDA hit a record high, increasing 18% over the prior year or 24% when you exclude Cinelease. Reported adjusted EBITDA margin in 2023 was impacted by substantially more lower margin used fleet sales. Fleet disposals at OEC increased more than 150% in 2023 compared with 2022. As the supply chain recovered in the first half of 2023 and backordered new fleet became available, we finally were able to begin rotating out of our oldest equipment. If we exclude Cinelease, adjusted EBITDA margin would have been 10 basis points higher year-over-year. Similarly, Cinelease represented a drag on ROIC of about 130 basis points in 2023. In October, you'll recall we announced plans to explore strategic alternatives for Cinelease. There's not a lot to share until the transaction is complete, but the process is underway and moving along the normal course. Now…

Aaron Birnbaum

Analyst

Thanks, Larry, and good morning, everyone. Our record fourth quarter results for revenue and adjusted EBITDA served as a great conclusion to a year marked by agile execution, geographic expansion and new account wins. I'm really proud of the way our team continues to focus on delivering superior products and services for our customers while executing well against our strategic growth initiatives. Execution starts with safety, and of course, safety is always at the core of everything we do. As you can see on Slide 8, our major internal safety program focuses on Perfect Days. We strive for 100% Perfect Days throughout the organization. In 2023, on a branch-by-branch measurement, all of our operations achieved at least 98% of days as perfect. Equally notable, our total recordable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and customers. On Slide 9, you can see that we're making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions. In 2023, we spent $430 million in net cash last year on 12 acquisitions, 4 of those transactions came in the fourth quarter, where we added 7 acquired locations to our network on top of 8 greenfield locations. For all of 2023, 42 new locations were opened or acquired, of which 26% were specialty locations, further expanding our high-margin offering and solution selling capabilities. As you know, we are focused on opportunities in high-growth markets that complement our current branch network and fit our strategic, financial and cultural filters. Moreover, many of the mega industrial projects being announced are in the geographies where we have focused our acquisitions and greenfield additions like Texas, Ohio, Arizona and in the southeastern United States. Our acquisition process is…

W. Humphrey

Analyst

Thanks, Aaron, and good morning, everyone. I'm starting on Slide 15 with a summary of our key metrics for the fourth quarter. Larry touched on the full year 2023 line items, so I'm just going to provide some color on the fourth quarter. For rental revenue, about 2/3 of the growth was organic and 1/3 came from acquisitions. DOE and SG&A as a percent of rental revenue improved 80 basis points in the quarter, supporting improvements in adjusted REBITDA margin and a flow-through of roughly 65%. The adjusted REBITDA margin of 48% was a 70 basis point increase year-over-year. Let's walk through some of the other key performance drivers on Slide 16. Here, you can see the rental revenue and adjusted EBITDA walk from 4Q 2022 to 4Q 2023. In the revenue chart, the roughly 5% increase year-over-year was made up of 5.8% increase in rate and a 9.4% increase in OEC fleet on rent. Mix was an offset of about 10%, reflecting the impact of Cinelease and higher equipment inflation. When it comes to revenue, the mix impact for inflation adjust the volume measured in OEC dollars to a unit increase year-over-year. Inflation accounted for approximately 50% of the mix impact. As we mentioned in October, the 2023 fourth quarter had a difficult comp due to Hurricane Ian generating rental revenue in the 2022 fourth quarter that was about 2x higher than typical weather-related events. Comparatively, 2023 had no major weather catalysts, resulting in a fourth quarter rental revenue headwind of approximately 3% year-over-year. Similarly, and as expected, dollar utilization of 40.9% in the 2023 fourth quarter was lower than the 43.5% a year earlier, primarily as a result of the drop-off in studio entertainment revenue, which accounted for 170 basis points of the year-over-year difference as well as…

Lawrence Silber

Analyst

Thanks, Mark. And now please turn to Slide 21. Everything we do starts with our vision, mission and values and a purpose statement that focuses on equipping our customers and communities to build 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. With that, operator, we'll take our first question.

Operator

Operator

[Operator Instructions] Your first question comes from Steven Ramsey with Thompson Research Group.

Steven Ramsey

Analyst

Maybe to start with on the local business, given it's a 60% revenue split for you guys. It looks like the growth may have slowed to the mid-single-digit range the past couple of quarters and recently talked about positive local markets growth, but a step down from prior periods. Maybe talk to the local market growth assumed for 2024 versus the national market growth and maybe where those 2 come in versus kind of the market outlook of 6.5%?

Aaron Birnbaum

Analyst

Yes, Steven, this is Aaron. Our investment in greenfield and the acquisition investments really is our strategy to grow our local market -- the density in those local markets. We see that as continue to be a growth vehicle for us in 2024. And our sales teams are very focused on acquiring new business for all of our branches every week that they're out there in the field talking to customers. So it's a big part of our strategy, and we think that will continue throughout the entire year.

Steven Ramsey

Analyst

Okay. Helpful. And then just thinking over the past couple of years, pricing was strong in both years and you executed on $470 million of acquisitions averaged out with a similar kind of pace for this year expected. What I'm getting at is how does the impact of bringing in these new acquired companies contribute to your pricing over the past couple of years? And how do you expect that to impact pricing in 2024?

Aaron Birnbaum

Analyst

Yes. I mean, I think generally speaking, our acquisitions are sort of revenue-based synergies, right? So typically, time ut, pricing, et cetera, are probably below that of the consolidated numbers. So there's opportunity and that's what we see is opportunity as we think about those acquisitions, I think it probably takes on hold probably a year or so to get their pricing up to the consolidated sort of Herc pricing all-in, Stephen.

Operator

Operator

Your next question comes from Rob Wertheimer with Melius Research.

Robert Wertheimer

Analyst · Melius Research.

My first question is just on your ability to get more out of the fleet. There's a lot going on with Cinelease and with COVID and the equipment is coming off schedule and things like that. But where are you this year, in 3Q and 4Q, versus what you thought you could do on time utilization? And then embedded in the guide and/or just in general, are you at a normalized level now? Do you have room to improve that off of the disrupted this year with the equipment coming at different times? Just talk about time ut for a minute, if you're willing to.

Aaron Birnbaum

Analyst · Melius Research.

Yes. Great question. I think when you think back over the last couple of years, right, 2022, too hot, supply chain dynamics in 2023. If you kind of think about those as the goalpost, I think our drive for 2024 is to be somewhere in the middle between those 2 years. And I think that's sort of where and what Aaron was talking about when we think about fleet efficiency. I think the other point that I would make is when you look at our in-fleet average fleet for 2023, you really have about $250-or-so million of fleet to put to work. So that's embedded in your fleet by 2023, but we're almost thinking about that more along the lines of 2024 fleet by as we put that fleet more efficiently to work in 2024.

Robert Wertheimer

Analyst · Melius Research.

Okay. That's super helpful. And this one may be a bit of an oddball, but that inflation factor is pretty high. And one of the things we thought was a bit of a positive is that the industry needs to get price or rental rate. And then to the larger companies, you guys have plenty of cash flow so you can spend on fleet. Smaller companies, private companies may have lower margins and probably need to price even more in order to grow. You guys look at a lot of acquisitions. You've done a lot of acquisitions. What are you seeing on your regionals and locals on their ability to grow fleet in real terms, do you see what I mean, in this kind of equipment inflation environment?

Aaron Birnbaum

Analyst · Melius Research.

Yes, Rob, it's Aaron again. The acquisitions that we've been involved with, it took them a while to get their fleet, right? So they might have order fleet in 2020-'21, it took them a long time to get the fleet. They finally did start to get their fleet, but the pricing they were paying was very elevated. And I think they had sticker shock and they were slow to adopt the fact that they have to get a higher rental rate. But in most cases, they don't have the systems or the diligence to do it. So they're just kind of trying to find that kind of muscle memory to execute there. But often, their customer base was accustomed to a certain type of price point. So I think it was a challenge for them, but the fleet finally started to come in for them, but the pricing dynamics that we're really clipped with, they really were struggling with.

W. Humphrey

Analyst · Melius Research.

Rob, the other point I would make there, too, right, is that elevated pricing on their end and then elevated interest rates to pay for that elevated pricing, I think, does support a disciplined and healthy pricing environment for 2024.

Operator

Operator

Your next question comes from Jerry Revich with Goldman Sachs.

Jerry Revich

Analyst · Goldman Sachs.

I'm wondering if you could just expand the discussion on Cinelease, obviously, we're divesting the business. The shortfall versus guidance in the midpoint for the fourth quarter, can you talk about how much of that was Cinelease -- and obviously, we'll see what the proceeds are. But given the good free cash flow this year, plus the potential proceeds, should we be thinking about deleveraging versus M&A that's higher than the $500 million. And then the last one I'll glue in there on a related basis is, given the drag on dollar utilization from Cinelease, is it fair to think about just the natural tailwind to dollar utilization of about 1 point to 1.5 points, '24 versus '23 as the assets come out of the fleet?

W. Humphrey

Analyst · Goldman Sachs.

All right. There was a bunch there, Jerry. I'll try to unpack all of those. First, in terms of sort of the overall impact of Cinelease the business in 4Q. If you just want to -- and I guess maybe first, Page 28 through 32 in the deck has sort of the split by quarter with and without Cinelease. But when you just look at 4Q on a standalone basis, there was about, just call it, $15 million of EBITDA impact year-over-year that sort of fell through the bottom of the business from a Cinelease perspective. And I think quite honestly, when you think about that from a dollar ut perspective, dollar utilization impact in 4Q is probably 170 basis points, give or take. And I think that it is hiding some of the core performance of the business. And so that's one of the reasons, Jerry, that we're going to guidance in 2024 sans Cinelease. So it may take a little bit of updating models and the like, but we think sort of getting a like-for-like view at the core level is the right way to look at it. So that does mitigate some of your dollar ut variance when you sort of adjust to the dollar utilization of the core for 2023, there isn't as big a jump there once you take Cinelease out.

Lawrence Silber

Analyst · Goldman Sachs.

As far as utilization of the proceeds from the business when it's completed, we'll initially go to pay down our ABL and reduce our exposure there. And then we'll -- it will sort of roll into our normal use of capital in the business.

Jerry Revich

Analyst · Goldman Sachs.

Okay. Super. Can I just ask one more on the pricing cadence, normally in the industry in October, we get a sequential price increase and we give some back in November and December. Mark, can you just talk about how that looked this year and what pricing looked like into January, if you can comment sequentially?

W. Humphrey

Analyst · Goldman Sachs.

Yes. No, good question, Jerry. I mean, obviously, we posted a 5.8% for the quarter, that reflected sequential pricing improvements each month of the fourth quarter. And that takes us -- as we exit January, we'll be in the mid-single-digit range. And I think the only other point I would make is we've stated that our goal is to negate the inflationary impact of the fleet through pricing, and that's the goal for 2024.

Operator

Operator

Your next question comes from Seth Weber with Wells Fargo.

Lawrence Stavitski

Analyst · Wells Fargo.

This is Larry Stavitski on for Seth this morning. I just want to ask about your traction into the mega projects, specific what's your visibility into the project pipeline? How does that compare to a couple of years ago? And if you could talk about some of the geographies that these projects are in and the competitive process, if you will?

Aaron Birnbaum

Analyst · Wells Fargo.

Yes. Larry, the mega arena is still plenty of starts coming out every month. It's healthy. You see kind of give and takes on start dates, sometimes there's challenges with getting the labor, some of the permitting. But I mean, there is plenty of big projects in all the sectors we talked about coming out. And we see that. We track that on a monthly basis. And I would say it's a super healthy environment for that. It seems as though many of that were kind of talked about over the last 12 months are coming at starts right now in the first quarter of this year. So I think it's a very vibrant, strong environment for the mega arena.

Lawrence Stavitski

Analyst · Wells Fargo.

Okay. Got you. And you guys talked about supply chain loosening up, but still some constraints with some AWP pieces. Can you elaborate a little bit more on that? And what your expectations are for '24? Are we still expecting to see some holdups there?

Lawrence Silber

Analyst · Wells Fargo.

Yes. Great question. I'd say, by and large, vast majority of the supply chain is back to normal or near normal kind of operating metrics somewhat similar to 2019. In the access area, meaning aerial work platforms, in particular, reach forklifts, the major vendors that we deal with are -- still have extended lead times. They've come in a bit and are certainly more reliable on when they give us delivery dates but we're still not going to be able to get everything we'd certainly like to get for this season. So we're somewhat hopeful in our discussions with them that as their, what I'll call, close plants, meaning their plans that have put in place in Latin America or Mexico, in particular, will improve and come back stronger. We'll have a better supply resource from them, and we're looking forward to that improving. But we'll operate with some constraints in that area for all of 2024.

Operator

Operator

Your next question comes from Neil Tyler with Redburn Atlantic.

Neil Tyler

Analyst · Redburn Atlantic.

One more from me, please, at least around the CapEx guide for next year. I wonder if you could sort of fit that into the medium-term framework on CapEx that you provided back in September. And the sort of cadence you're anticipating for 2024, trying to drive together sort of your answers to some of the previous questions around the end market outlook and the opportunity for better time ut and how all of those things are sort of have influenced your thoughts in the intervening 4 or 5 months since you gave the medium-term guidance?

Aaron Birnbaum

Analyst · Redburn Atlantic.

Yes. I mean I think you start with 7 to 10 rental revenue guide, right, and sort of that that takes you into your fleet needs for the year, knowing full well that we've got fleet efficiency gains that we're looking for, both from the in fleet as well as from a time utilization perspective. So I think the guide implies that $750 million to $1 billion of gross CapEx spend. That's not -- and we're not saying that that's the end-all be-all, we will update you if things change. And so the last part of your question, Neil, was around what…

Neil Tyler

Analyst · Redburn Atlantic.

Well, just really, I suppose it has the [indiscernible] space has the end market panned out broadly as you had anticipated it would. And sort of what looks like sort of lower CapEx expectations reflect more opportunities for efficiency than less optimism around the end markets.

W. Humphrey

Analyst · Redburn Atlantic.

Yes. I don't think it's a statement on the end markets. I think it's more a statement on us wanting to obtain fleet efficiency. I would say demand is normalizing, end markets are strong. And so, I don't think it's anything more than us being prudent and diligent from a fleet efficiency perspective.

Lawrence Silber

Analyst · Redburn Atlantic.

Yes. And I would add to that, Neil, with the OEMs becoming more normalized themselves and having shorter lead times, if there are spikes in demand, we can always get gear on a shorter interval or a shorter basis from a lead time perspective. Sometimes we can get it within a matter of days or weeks as opposed to months or years in the past. So our ability with a normalized OEM supply chain really helps any sort of moderations in the end-user market.

Neil Tyler

Analyst · Redburn Atlantic.

Got it. And then just to come back to the pricing outlook that you gave, and thanks for the help on the initiatives that you're able to apply to your acquired businesses. But in your experience, Aaron, I think you talked about the sort of sticker shock that some of those businesses had faced. Do you think that outside of -- is your sense that sort of outside of those businesses you've acquired in the sort of smaller end of the market, that the broader industry is sort of responding more constructively to upward cost pressure? Or is that only really when you come onboard that you see the changes take place?

Aaron Birnbaum

Analyst · Redburn Atlantic.

No, I think it's -- everybody is trying to act in a disciplined manner. Everybody understands the cost of capital. And as Mark said, the markets are normalizing, but they're healthy and solid, but as far as getting the returns on capital, I think the entire industry is operating in a disciplined way.

Operator

Operator

Your next question comes from Ken Newman with KeyBanc Capital Markets.

Kenneth Newman

Analyst · KeyBanc Capital Markets.

Just wanted to go back, Mark, I think you mentioned core dollar ut is probably the right way to think about modeling the business going forward just given all the moving pieces of Cinelease. I'm sorry if I missed this, but is there a way to think about how you think about the cadence for that metric as we move through the year? You put up 42% of change this last quarter. Does that approach a mid-40 number by the end of the year or is that just a little too difficult?

W. Humphrey

Analyst · KeyBanc Capital Markets.

No. I mean I think, obviously, the seasonality or cyclicality of the business within the year, right? Your 4Q -- 3Q and 4Q dollar uts will be the high watermark for the year. We finished this year at 42.5% sort of dollar ut core. And I think as we said and sort of anticipated in the guide is an improvement that average 42.5% will be improved in 2023 just from the fleet efficiency metrics that we're putting in internally.

Kenneth Newman

Analyst · KeyBanc Capital Markets.

Got it. Okay. That's helpful. And then for my follow-up, this is more of a, I guess, more of an accounting question, just to clarify, so that we're all going to level set on the expectations. Obviously, Cinelease, I know it's kind of hard to pin down on the timing of when you expect to sell that asset. But I'm curious, just to clarify, we're not expecting to put that into discontinued ops here in the income statement for '24, correct?

W. Humphrey

Analyst · KeyBanc Capital Markets.

No, that's right. I mean, it will sit out there as available for sale. I think while GAAP is GAAP, and we'll report that way until we move it off our books, we'll have a more pro forma view of the core business as we walk into Q1 reporting as we're not providing Cinelease inside of our guide for 2024.

Kenneth Newman

Analyst · KeyBanc Capital Markets.

So we should expect that if there was a recovery in centiles you would exclude any kind of impact, just to make it apples-to-apples with your guide?

W. Humphrey

Analyst · KeyBanc Capital Markets.

That's exactly right. We'll report on apples-to-apples.

Operator

Operator

Your next question comes from Mig Dobre with Baird.

Mircea Dobre

Analyst · Baird.

I want to go back to a question that Neil asked a moment ago on CapEx. I'm kind of trying to wrap my mind around what's baked into 2024 because I remember your target that you set out for 2026, implying a little north of $1 billion per annum of net CapEx. Obviously, you're guiding for something that's substantially lower. So I guess 2 questions here. Why is that happening first? And then, second, what are the areas where you're investing less than you did in 2023?

W. Humphrey

Analyst · Baird.

Yes. I mean I think the guide -- the 3-year guide, right, was sort of set on a 10% to 14% average growth rate for that 3-year period, right? Our guide here is in that 7% to 10% range based on our current visibility into 2024. And so, I think correspondingly, if you think back to the overall guide from November at Investor Day, that was like a [ 3.3-ish ] sort of number over the 3-year period, and this is implying something more along the lines of $600 million to $700 million at the midpoint of the fleet guide. So that's really the difference there Mig is the 10% to 14% versus 7% to 10%, and it is year 1.

Aaron Birnbaum

Analyst · Baird.

I think the second part of your -- Mig you had a second part of that question about where the areas we're investing less in. And we've mentioned previously in the last hour that the access aerial and material handling areas, we really can't get enough of the fleet that we want those -- manufacturers can't provide us as much as we want, as Larry mentioned. So we would take more if we could, but those are some of the areas where we just can't get as much as we want.

Mircea Dobre

Analyst · Baird.

So that would imply that maybe earthmoving or some other specialty areas is maybe where the lower investment is coming from?

Aaron Birnbaum

Analyst · Baird.

No. No, just that if we could obtain more aerial access material handling, we would invest more there.

Mircea Dobre

Analyst · Baird.

Okay. I understand. Then sort of the final question for me is on the business mix itself. There's been obviously a lot of growth the past couple of years, and we're talking about infrastructure and we're talking about mega projects. But if I sort of look at your mix, national versus local, or even within contractors versus industrials versus your other verticals, there hasn't been much change that I can see. So I'm sort of curious, do you expect the business mix to continue to remain constant or would that change over the next couple of years in any way?

Lawrence Silber

Analyst · Baird.

Look, we are trying to remain diversified and grow all of our verticals at a similar pace so that we're not dependent on any one segment of our business relative to if there's ever a downturn, or ever some type of an event that causes one to go down, we're going to be well balanced across the board in all of our verticals. So I don't think that implies anything other than a very balanced growth business that is able to be very nimble and adjust the marketplace dynamics and changes and take advantage of opportunities on hot markets.

Operator

Operator

Your final question comes from David Raso with Evercore ISI.

David Raso

Analyst

On the net rental CapEx, right, as a percent of your rental revenue guide, it is the lowest we've seen in 10 years, except for the pandemic initial year. But when I look at the average of the last 4 years, right, including the guide in the prior 3, you're sort of back to normal, you're sort of back to, call it, 29%, 30% net rental CapEx to your rental revenue. So just to be clear, it sounds like you're saying, yes, we're just sort of normalizing it. And hey, it could go a little higher if we can get more aerials. But when we think about '25 and '26, should we still be thinking about net rental CapEx in that 25% to 30% of how you think about your rental revenue growth just for framework, just to make sure nothing has changed. And then also maybe I missed it. The used equipment sales, the margins for '24 that is baked into the guide, just curious how you're looking at those margins. And maybe if you could help us on the revenues, the used sales as a percent of OEC being sold.

W. Humphrey

Analyst

Yes. So I'll take the second one first. On the used equipment side, right, we sort of closed out the year with, I think, about $0.44 on every dollar of OEC from a disposal perspective. And I think if you sort of look through the guide, it's probably slightly north of that in the implied guide for 2024. And I think that's really coming about as we shift out of that auction channel into a more retail and wholesale focused sales mix. I think that's supportive of a slight increase from an OEC proceeds perspective. Does that make sense?

David Raso

Analyst

Yes. And did I miss the margin comment on that? I apologize the margin assumption.

W. Humphrey

Analyst

Yes. I mean you've got -- you would have some slight increase in your margin. Obviously, as a percentage of your revenue in 2024, that number is going to go down, right? I'm selling somewhere between 20% and 30% last year. So you'll get some EBITDA lift there just from a mix perspective.

Lawrence Silber

Analyst

And let me sort of partially take the CapEx guide. You're absolutely correct, we're into a more normalized environment. And our visibility is very good now, certainly over the short term. And as our visibility improves and some of these mega projects and reshoring projects, they're multiyear projects, and they're going to ramp up over time. And we can always -- because the supply chain is much healthier than it's been over the last 3 years, we always have the ability to ramp up that CapEx intake as we experience improvements on the rental revenue side.

David Raso

Analyst

Yes, I'm not trying to have you give a '25 CapEx guide. I'm just making sure I hear from you that this below 20% net rental CapEx to expect to rental revenues. It's below trend because you were above trend kind of normalized, but if I think about '25 and '26, just to get a sense of your confidence in the growth beyond '24, I was just curious if you're willing to say like, no, you should expect net rental CapEx in '25 in that normal 25% to 30% of whatever you think the rental revenue is.

W. Humphrey

Analyst

David, I don't think that's unreasonable. I think that's a reasonable assumption.

Operator

Operator

There are no further questions at this time. I will now turn the call back over to Leslie for any closing remarks.

Leslie Hunziker

Analyst

Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any further questions, please don't hesitate to reach out to us. Have a great day.

Operator

Operator

This concludes today's conference. You may now disconnect.