HERC HOLDINGS INC Q3 FY2024 earnings call

• Long-term growth strategies focus on increasing market share, geographic density, optimizing fleet mix with specialty equipment, and leveraging data/tech. - Acquired 26 locations and opened 16 greenfield branches year-to-date. - Specialty fleet CapEx increased to support share of wallet and mega project demand. - Safety program focused on perfect days, with all operations achieving at least 97% perfect days in Q3. - Urban market growth via greenfield and acquisitions in top 100 metro areas, with $277M net cash spent on acquisitions in Q3. - Fleet composition: total fleet at $7.1B as of Sept 30, 2024, with specialty fleet at ~20% of base fleet. - Local accounts represented 56% of rental revenue in Q3, with national accounts benefiting from government/private funding in areas like battery storage and data centers.

In the third quarter, rental revenue increased 13.2% and adjusted EBITDA increased 8.8% to a record $446 million. The base fleet is about $6.8 billion, with higher margin specialty fleet representing approximately 20% of the total base fleet. Year-to-date, rental rate was up 2.3% quarter-over-quarter and 3.5% year-to-date.

• Full-year rental revenue guidance revised to 9.5%-11% based on organic growth and 2024 acquisitions. - Full-year adjusted EBITDA guidance unchanged at $1.55B-$1.6B. - Fleet CapEx expected near high end of ranges. - Anticipate record rental revenue in Q4 due to mega projects, acquisitions, and hurricane recovery.

• Macro-economic uncertainties and interest rate impacts on local project starts. - Uncertainty regarding the full impact of hurricanes on Q4 results, including fleet mix and duration of gear on rent. - Challenges with integrating new acquisitions and achieving full margin potential in the short term.

Q: Discuss performance of fleet on rent and hurricane impact on 4Q.

A: Mark Humphrey noted it's too early to pinpoint hurricane impact, but fleet efficiency was affected by M&A activity with half fleet growth in Q3 from M&A.

Q: Comment on rate exit and margin stability.

A: Mark Humphrey said sequential improvement in Q3 was in line with expectations, and directionally rate exit in 4Q and Q1 2025 expected to be in low twos, with margin stability dependent on demand driving fixed cost structure.

Q: CapEx increase and mega project absorption.

A: Aaron Birnbaum stated CapEx increase matches revenue guidance, with fleet mix and customer demand in mega arena driving it.

Q: Learnings on mega projects and used channel sales.

A: Aaron Birnbaum said large customers want scale, technology, young fleet, and safety; Larry Silber mentioned used channel sales are in early innings of transitioning to retail/wholesale mix.

Q: Rate increase breakdown and fleet efficiency outlook.

A: Mark Humphrey said rate trends include non-contract vs contract, and fleet efficiency is about revenue growth ahead of fleet growth, with M&A impacting short-term efficiency.

Q: Specialty vs general rent growth and used channel volume.

A: Mark Humphrey said specialty grew double digits, and used channel sales are in early stages of transitioning to retail/wholesale mix.

Q: 4Q EBITDA margin and 2025 fleet growth.

A: Mark Humphrey said 4Q EBITDA margin expectations involve cost actions and demand, and Larry Silber noted it's too early to say on 2025 fleet growth beyond replacement.