Aaron Birnbaum: 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.
Brian Biros: 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.
Larry Silber: 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.
Operator: Your next question is from the line of Jerry Ravich with Goldman Sachs. Please go ahead.
Unidentified Analyst: 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.
Larry Silber: 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.
Unidentified Analyst: 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.
Aaron Birnbaum: 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.
Unidentified Analyst: Thanks. I’ll pass it on.
Operator: [Operator instructions] Your next question is from the line of Ken Newman with KeyBanc Capital Markets. Please go ahead.
Ken Newman: 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?
Mark Humphrey: 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?
Ken Newman: 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?
Mark Humphrey: 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.
Ken Newman: 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?
Aaron Birnbaum: 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.
Larry Silber: 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.
Ken Newman: Helpful. Thanks, guys.
Operator: Your next question is from the line of Brian Sponheimer with Gabelli. Please go ahead.
Brian Sponheimer: 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.
Mark Humphrey: 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.
Brian Sponheimer: And I appreciate that. And assuming you all can get reasonable value for Cinelease, use of proceeds would simply be X. Talk about that.
Larry Silber: 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.
Brian Sponheimer: Understood. Well, appreciate that and best of luck for continued success.
Operator: Your next question is from the line of Mig Dobre with Baird. Please go ahead.
Mig Dobre: 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?
Aaron Birnbaum: 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.
Mig Dobre: 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?
Aaron Birnbaum: 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.
Mig Dobre: 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.
Aaron Birnbaum: 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.
Mig Dobre: All right. Good luck.
Operator: At this time, I would like to turn the call back over to Leslie Hunziker for closing remarks.
Leslie Hunziker: 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.
Operator: This concludes the Herc Holdings first quarter 2024 earnings call and webcast. Thank you for your participation. You may now disconnect.
