Herc Holdings Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Hertz Holdings, Inc. Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, please press star 1 on your telephone keypad. If you'd like to remove yourself from the queue, press star 1 again. As a reminder, today's call is being recorded. I will now hand today's call over to Leslie Herzinger, Senior Vice President of IR and Communications. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to HERC Rental's third quarter 2022 earnings conference call and webcast. I'm Leslie Hunsaker, and 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 with us today to share this news with you herself, but for an emergency appendectomy that has her solidly in recovery mode. Once she's back and after we've transitioned the IR responsibilities, Elizabeth will continue to focus on driving HERC's expanding sustainability initiative. For me, I come from HERC most recently from Wesco, a Fortune 250 industrial distributor, where I also led investor relations and corporate communications. And prior to that, I handled IR for Hearst and Tenneco. I'm looking forward to working with all of you. So let's get started. Earlier today, our press release, presentation slides, and 10-Q were filed with the SEC, and all are posted on the events page of our IR website at irherkrentals.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 our safe harbor and gap reconciliation on slide three. 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 Form 10-K for the year ended December 31st, 2021. In addition to the final 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 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 Irian, 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 four. 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 helps drive revenue 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 pipeline to fill in the balance of our $500 million annual target. Additionally, We opened seven greenfield locations in the third quarter, which brings the year-to-date total to 17. The winning combination of targeted M&A and greenfields in high-growth markets will continue to drive our strategy to sustain growth and to expand market share as we solidify our position as one of the leading rental equipment companies in North America. As you saw in our press release, based on third quarter results trend and our outlook for the rest of the year, We updated our 2022 guidance for adjusted EBITDA to 1.22 billion to 1.25 billion, which implies a 36 to 40% increase over our 2021 results. We also tightened our guidance range for net fleet capital spending. Mark will share more on our outlook in a few minutes. When it comes to capital allocation in the third quarter, we repurchased in excess of a half a million shares of our common stock at an average price of about $109 per share. Given our operating performance and long-term growth prospects, we believe our stock price implies a discounted valuation to our real worth. We intend to continue to take advantage of this price imbalance to enhance our return to shareholders longer term while maintaining debt levels within a targeted range of two to three times net leverage. Now let's move on to our financial highlights. Slide number five shows the third quarter results over the last five years. Our third quarter results demonstrate the continued momentum and sustained growth as we focus on executing our shift into high-gear strategy. Equipment rental revenue increased 36% over the prior year, driven by robust performance in our core business, growing market share from higher margin specialty businesses, and the contribution from acquisitions. Total revenues grew 35%, impacted somewhat by lower sales of used equipment, a decision that we made to continue to meet customer rental demand as we continue to experience tight supply of new equipment related to supply chain issues from original equipment manufacturers. Adjusted EBITDA grew 40% over the prior year, with an adjusted EBITDA margin up 160 basis points to 46.3% in the third quarter of 2022, driven by the growth of our rental business and focus on operating leverage. We are committed to providing excellent customer service and expanding our rental solution to a broad array of customers and industries to achieve even greater success. This is an exciting time for Team Herc, and we are especially pleased with the performance and the tenacity of our people. That was never more evident than in the wake of Hurricane Ian over the past several weeks. We had teams on the ground and across the country, including new team members from our acquired branches, stepping up to support their Florida-based colleagues, the impacted communities, and our customers. Our people have worked tirelessly and under difficult circumstances to get equipment where it needed to be and to provide essential services. The planning, collaboration, responsiveness, and execution. It's a true reflection of operational excellence. Our people are getting it done, and I couldn't be prouder. But it's not surprising. With 57 years of history in the equipment rental industry, our 6,400 team members work hard to ensure our customers achieve optimal performance safely, efficiently, and effectively every day. Now, please turn to slide six. Everything we do is built on our promise and our commitment to help our customers and communities build a brighter future. As of the end of the third quarter, we operated 351 locations across the United States and Canada in 42 states and five Canadian provinces. As we add locations and employees to Herc Rentals, we are committed to ensuring that we focus on safety training and other programs to assist the new team members in their integration to our Herc culture. I'd like to personally welcome all of our new members who joined us in the third quarter through our acquired businesses. It's great to have you on board. The addressable North American market size is estimated to be $61 billion and growing by about 13% in 2022, according to the American Rental Association. Every day, new mega infrastructure and other industrial and commercial projects are announced throughout North America. We intend to get our fair share of this new activity. We expect to continue our momentum by addressing the opportunities in the market and outperforming the overall industry as we grow organically, supplemented by select acquisitions and greenfield operations. And now, Aaron Birnbaum will update you on our operational progress.