Good morning. My name is Dennis, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Herc Holdings First Quarter 2024 Earnings Call and webcast. [Operator Instructions] I would now like to turn the conference over to Leslie Hunziker, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Herc Rentals first quarter 2024 earnings conference call and webcast. Earlier today, our press release and presentation slides were furnished, and our 10-Q was filed with the SEC. All are posted on the Events page of our IR website. Today, we're reviewing our first quarter 2024 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 reconciliations 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 the call. You should 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 for 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 through our 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 team at three industrial conferences this quarter. We'll be at Bank of America's conference on May 14th in New York, KeyBanc’s conference in Boston on May 30th, and Wells Fargo's Chicago conference on June 11th. 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.

Thank you, Leslie, and good morning, everyone. Let's turn to slide number four. We're off to a solid start in 2024. Revenue and adjusted EBITDA were first quarter record highs, driven by continued strong volume growth and a 5% increase in rental rate year-over-year. These results reflect total company performance, including our Cinelease business. Our flexible business model, diverse customer base, and broad equipment portfolio, enabled us to generate topline growth in the first quarter across both core and specialty categories, and local and national accounts. By capturing an outsized share of market volume, generating rate growth to offset fleet inflation, and delivering operating efficiencies, adjusted EBITDA increased 10% over the prior year. Reported adjusted EBITDA margin in the first quarter benefited from operating leverage and the early stages of recovery in the Studio Entertainment market after last year's labor strikes. Mark will take you through the core business performance, excluding Cinelease, in just a minute. The core business is where we align with our full-year guidance. Moving to Slide 5, you can see that the successful execution of our strategies is driving our continued improved performance. As we scale our business for sustainable growth, we are investing in expanding our branch network. In the first quarter, we completed four strategic acquisitions, and opened four greenfield locations in key markets. We also invested in our high-margin ProSolutions fleet to address growing demand, capture cross-selling synergies, and support new specialty locations. Our specialty offering is expanding, with our investments in trench shoring over the last two years. In fact, in the first quarter, we acquired our largest trench shoring business to date, bolstering our expert solutions offerings for our customers. Our innovative customer-facing digital capabilities are also improving the customer experience, while streamlining transactions and enhancing productivity. When it comes to…

Thanks Larry, and good morning, everyone. There is a lot to like about how our teams are delivering for our customers. Everyone is laser focused on leveraging our scale, go-to-market approach, pro control and next-gen technology, and one-stop shop equipment offering to support our customers’ success. In the first quarter, new accounts are up year-over-year, and contributions to revenue growth are being delivered across the board. I'm really proud of the way our team continues to focus on delivering a superior customer experience 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 7, our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In the first quarter, on our branch by branch measurement, all of our operations achieved at least 97% 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 our customers. On Slide 8, you can see that we are making great progress on our urban market growth strategy by expanding through greenfield locations and acquisitions in the top 100 metropolitan markets. In the first quarter, we spent $148 million in net cash on four acquisitions in the west and in the northeast, adding a total of 11 locations to our network. We also opened four Greenfield locations in the first three months of the year, bringing our total over the last 12 months to 22, which is nearly a 50% increase over the comparable trailing 12-month period. As you know, we are focused on opportunities in high growth markets that complement our current branch…

Thanks, Aaron, and good morning, everyone. I'm starting on Slide 13, with a summary of our key metrics for the first quarter. For clarification, these are our GAAP results and include the Cinelease performance. Rental revenue increased 10% year-over-year. DOE and SG&A as a percent of rental revenue improved 50 basis points in the quarter, supporting a 12% improvement in adjusted REBITDA. The adjusted REBITDA margin of 43.1% was a 70-basis point increase year-over-year, and adjusted REBITDA flow-through was roughly 51%. Net income reflected 27% higher interest expense year-over-year from increased borrowings on our ABL revolver to fund acquisitions, and a 75-basis point increase in the Fed funds rate. Additionally, our effective tax rate increased by 910 basis points in the latest quarter, primarily as a result of a reduced benefit related to stock-based compensation specific to the first quarter. Let's walk through some of the other key performance drivers on Slide 14. Here, you can see the rental revenue and adjusted EBITDA walks from the first quarter 2023 to first quarter 2024. In the revenue chart, the roughly 10% increase year-over-year was made up of a 5.1% increase in rate, and an 8% increase in OEC fleet on rent. Mix was an offset of about 3%, reflecting the net of higher equipment inflation and a more favorable mix of equipment on rent. For clarification, when it comes to revenue, fleet inflation is included in the mix to adjust the volume measured at OEC dollars to a unit metric. Adjusted EBITDA benefited from higher rental revenue and lower operating expenses as a percent of revenue. Adjusted EBITDA margin was 60 basis points higher year-over-year, driven by a $10 million or 53% increase in Cinelease revenue in the 2024 first quarter, partially offset by last year's higher fleet disposition proceeds. Our…

[Operator Instructions] Your first questions from the line of Rob Wertheimer with Melius Research. Please go ahead.

Thank you. Good morning, everybody. So, my question is going to be basically on supply demand in the industry and trying to kind of square up a few numbers that are pointing in different directions. And so, specifically, the rental PPI kind of released by the government is in theory a broad metric, was basically zero for March and February. You had really strong rate, up five, and I'm curious if you guys see the numbers and we don't, but does the rental PPI tend to track what you think of as being the rate environment? Sometimes, it looks like it. Sometimes it diverges. I'm curious if you think there's any signal in that weak number.

No, we don't. That's not one of the metrics we actually focus on. It's got a lot of volatility in it and it isn't representative of what's going on at the local markets on rate and pricing. It's our experience on that.

Okay, perfect. And then, so if I got it right, your average fleet, I'm doing total average fleet, was up 10. Your rate was up five. Implied time mute is down. I know it's 1Q. There's seasonal. There's weather. Is there any kind of weakness in the market? Are you losing any business on having to, or choosing to push aside any business on having higher rate, or how would you characterize I guess the time you market, if you can?

Yes, look Rob, there's always weather in every year, at every time, and we don't really sort of report out weather as being any kind of a significant factor, unless of course there's a major hurricane or something like that, that has a significant impact. So, we wouldn't even turn to weather, but no, we don't believe we are losing any business on the basis of rate or any kind of pricing. We do see a normalizing of the seasonality of the business more back to pre-COVID levels, and I think that's what we're experiencing, and that's what we'll continue to see.

Great. I'll stop there. Thank you.

Your next questions from the line of Steve Ramsey with Thompson Research Group. Please go ahead.

Hey, good morning. This is actually Brian Biros on for Steven. Thank you for taking my questions. On the large trench shoring acquisition, can you maybe just talk about, one, the qualities of that business there, and maybe two, the valuation of that deal versus your usual multiples paid?

Yes. I mean, from an overall multiples perspective, obviously it's more viewed in a specialty light. So, it would trade at a higher multiple than your gen rents business, but we won't publicly disclose that multiple. In terms of the overall business, we're really excited about that opportunity, right? I mean, trench has been an area where we have been trying to develop, and we've had a few M&A activities over the last couple of years, and this is just another in that step.

Got you. And then maybe on a follow up, just, do you still have a, I guess, positive growth outlook from your local customers? We heard a large PA a couple of months ago kind of stating mid-single digit growth. Our channel checks kind of align with that. So, just wanted to kind of reconcile how that is maybe a little bit below your 7% to 10% growth outlook and just kind how to connect the dots there. Thank you.

Yes, Brian, that's how we see the local markets. It's a mid-single digit activity. Inflation interest rates have had some effect on the local markets, but they're stable. We think the fundamentals are really good in the market, and then the large reshoring and mega projects really has added that extra balance for the business and the industry to continue the growth story.

Your next question is from the line of Jerry Ravich with Goldman Sachs. Please go ahead.

Hey, this is Clay on for Jerry. Can you update us on the capital allocation plan for the year, specifically any changes in equipment availability from last year? I know particularly there was some constraint in booms previously. We're curious how the equipment supply market has changed.

Yes. So, we've commented on what categories are constrained over the last several updates here. I'd say over that time, has gotten better and better. There's still a few very specific aerial access type categories that are in high demand, but for the most part, things have really corrected itself, and we feel like we can get most of the fleet that we planned to deliver this year on schedule when we want it, and if we have incremental situations, 90-day lead time, we can usually get that fleet.

Thanks. And as a follow up on the Cinelease business, is there any - can you update us on the anticipated timeline around that decision and potential use of those proceeds? Thanks.

Yes. Look, we’re really not going to comment much on the Cinelease business during the call because we're in the middle of negotiations and due diligence with several parties, both strategic and financial sponsors in the business. We said the assets should be disposed of within the year. And as far as any proceeds that we obtain from the business, it'll go to reduce our ABL and roll back into our capital allocation strategy and determining what's the best appropriate use of that on a go-forward basis.

Thanks. I'll pass it on.

[Operator instructions] Your next question is from the line of Ken Newman with KeyBanc Capital Markets. Please go ahead.

Hey, morning guys. So, just wanted to back into the core fleet utilization. I think, externally it's probably somewhere in that low 40% range. One, just wanted to confirm if that's the right way to think about it. And then two, I think you mentioned expectations for rental revenue to step down sequentially 1Q to 2Q. Just curious how - should we see core dollar use for the fleet still stays in this 40% range throughout the year and improves in the back half, or just any other color there?

Yes, good question, Ken. Just take the dollar use first and foremost. Yes, it was right about 40D in Q1, and I think our anticipation is dollar utilization cadence should follow that of any other sort of annual view you want to take. I think you'll see a run. It'll increase into two. It will top in Q3, and then slightly come off of that for Q4, just based on seasonality. Second part of that was what, Ken?

Yes, I guess - I mean, you’ve pretty much answered it, which was how to think about dollar use for the rest of the year if we think we stay above this 40% range?

Yes, I think so. And then your second question was on sort of the cadence of revenue growth, fleet growth as you sort of work your way through the year. Prepared remarks, I mean, if you just look at sort of in-fleet year-over-year, right, the fleet growth is slowing as we move into Q2, just based on the planned actions, the goal of fleet efficiency here. And so, you'll see fleet growth slowing Q2 as compared to Q1. And then as those fleet actions take place and we buy our gear in second and third quarter, as Aaron talked about, you'll see fleet growth in three and four, and the revenue should follow that.

Got it. And then just a follow up here, just going back to a prior question about the visibility for these new projects, and I know you mentioned inquiry levels are very strong. Sounds like you're expecting a stronger back half with some of these mega projects breaking ground. Where is the confidence or how confident are you in terms of the timing of those projects coming through? Because obviously you do have a larger peer who has mentioned some push-outs of some of these larger projects out into 2025 versus 2024. And how much risk is there in the guidance as we think about potential timing issues? Not necessarily that these don't actually happen, but more so just a push out, rather than a pull in?

Yes, Ken, right, there's a lot of announcements of projects that come out on a daily basis. You have to weed through when those are actually going to start and track the projects. You really have to have a beat on the projects that you think you would service well, and have a beat on when those things are really starting. And they have had - as all projects always had over time, not just this current modern time, they get delayed. There's things that cause them delay. Sometimes it's funding. Sometimes it's labor. Sometimes it's permitting. So, when you have this many big projects out there, there's going to be a lot of ebb and flow going on. But we feel like our line of sight on what's going on for us particularly is pretty clear. We tracked all these projects. We communicate with our sales team, and we really - that's how we demand plan the fleet that's coming in and where it's going to go in this environment. So, we believe our line of sight's really good, and we have a, I'd say a strong confidence level on what we're giving as guidance as it relates to where we see the project flow coming in for our business.

Yes, and Ken, remember, we’re not trying to be Benjamin Moore and cover the earth here. We're only focused on a, I would call a segment of those mega projects and not 10% to 15% of the total that's out there. So, as Aaron said, we're pretty confident that our line of sight is good and that we don't really see any risk at this point on what we've talked about.

Helpful. Thanks, guys.

Your next question is from the line of Brian Sponheimer with Gabelli. Please go ahead.

Hey, good morning, everyone. Just one question on the balance sheet. Obviously, a pretty concentrated debt stack for a few years out. As you think about capital allocation, Mark, maybe talk about some optionality, the recurrent rate environment, et cetera, and what you want to do regarding the balance sheet.

Great question, Brian. As we sit here today, right, we're sort of 65/35 floating to fixed. And the reality of that is, I'd rather it be the inverse. I'd rather be about 70% fixed floating, 30% floating. And so, with that, we've got a big stack in 2027. So, nothing necessarily overly pressing today, but we would like to be opportunistic into that market, right? Obviously, the markets and the 10-year treasury needs to play along at some level for us to begin to sort of make that move from fixed to floating or floating to fixed. But absolutely it’s an opportunistic play, and we are keeping our eye on it every day.

And I appreciate that. And assuming you all can get reasonable value for Cinelease, use of proceeds would simply be X. Talk about that.

Yes, we'd just pay down the ABL at this point, and it would go into our general funds, and then we'd go back to our capital allocation strategy and follow that path.

Understood. Well, appreciate that and best of luck for continued success.

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

Yes, thank you. Just back to the mega projects discussion, can you maybe frame for us what percentage of the fleet or what percentage of your 2024 revenue is associated with what you internally define as a mega project, and how you see this component of the business growing over the next couple of years?

Yes, we don't display or disclose that piece of the mega piece of our revenue, Mig, but the visibility is - looks like it's a three year run, right? These things continue to get released. The Dodge data, you can track the progress on them. And I think clearly that the reshoring, the mega, the investment in the chip manufacturing here, the data centers, these are happening now. Those are some of the biggest projects going on in North America, and there's more plans. So, that's a real activity that's going on in the marketplace.

In the way you report, do you have this business as part of your national or as far of part the local component of the reporting?

Yes, these - the revenue streams that come from the megas are almost 85% always national type revenue relationships. These are the larger contractor, specialty contractors that are performing that work in any geography.

Understood. Final question, we talked a little bit about rental rates, but I'm wondering if you can sort of give us an update as to how you think about the full year relative to what you've been able to put up in Q1? Thank you.

Yes, I mean, good question, Mig. I mean, I think as a reminder, right, we sort of entered the year fairly balanced between contract, non-contract, with an overarching goal to sort of negate the inflationary impacts of 2024, which sort of began the year in this 5% range. And I don't think anything has changed there. Obviously, we posted a really good strong Q1 and with sequential improvement inside the quarter. And so, that will continue to be our focus and goal and strategy as we move forward throughout the year.

All right. Good luck.

At this time, I would like to turn the call back over to Leslie Hunziker for closing remarks.

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 questions, please don't hesitate to reach out to us. Have a great day.

This concludes the Herc Holdings first quarter 2024 earnings call and webcast. Thank you for your participation. You may now disconnect.