Herc Holdings Inc. (NYSE:HRI) Q4 2022 Earnings Call Transcript

Aaron Birnbaum: We started to, Rob, in the fourth quarter, obviously selling more fleet for replacement CapEx. And we believe as we go through 2023 as long as the supply chain cooperates, we’ll get back to a more normal cadence. But we feel good about where we are right now. We’re glad we started firing it back up in the fourth quarter and feel good about the flow of new and replacement in 2023.

Larry Silber: That said, we’re still concerned about supply constraints in the year. While we’ve managed to develop a fairly normal cadence, there’s still supply constraints from the OEM level that we’re concerned about.

Rob Wertheimer: Yes, thank you.

Operator: Your next question comes from the line of Neil Tyler from Redburn. Your line is open.

Neil Tyler: Hey good morning everyone. Thanks. Larry, your answer to the previous question actually sort of brings us neatly to the topic I wanted to ask about, which was in terms of that supply and the growth CapEx number, I guess, if we see a similar pattern to the demand side of things, as we’ve seen over the last 12 months, namely the initial forecasts end up being raised during the year, and that translates into greater demand. Is there scope for you at this stage to add much more to your gross CapEx number? Or do you see that demand manifesting either in terms of you matching it with accelerated M&A or through rate? And which order do you think those things are likely to stack up in a better demand environment? Thank you.

Larry Silber: Yes. Look, great question and a number of things to sort of unpack there. But we’re pretty much have on order of the fleet that we expect and hope to be able to get in with a fairly normal cadence over the course of the year. Remember, our fleet is fungible, right? So, certain markets might have some softness, and we’ll be able to move fleet to those high demand areas where those projects materialize and where we can capitalize on that business. We still have some room in our CapEx. If we choose to go after it, but the constraint there is the availability and ability to get it from the OEMs and their sort of limited capacity as we go through the year. Certainly, they’ve improved, but not to the level where we have assurances of what we’re going to get every month.

We’re still sort of — we’re still expecting certain amounts of material, but there’s still a fair amount of delays and rollover going on today. So, I think supply is more of the constraint rather than demand. But fortunately, as I said, our gear is fungible and we can move it.

Neil Tyler: Okay. Thank you. And is there any constraint on your sort of things? I mean, landing $1.5 billion of fleet into your business is obviously very different to the situation a year or even a year ago or two years ago, certainly, and how are the branches sort of able to cope with that and deploy it?

Aaron Birnbaum: Neil, it’s Aaron again. The branches are doing a great job absorbing the fleet. We’ve really spent a lot of time in the past 18 months developing our teams, expanding our teams. The network is bigger through greenfields and acquisitions. And our sales force has been really developed very nicely to take that fleet, find new customers. And then over the top of that, you’ve got our national account team, which really has done a great job developing and nurturing the relationships we have on some of the larger projects in North America. So, we feel like all of our branches can continue to take fleet without any absorption issues in 2023.

Neil Tyler: Got it. Okay, thank you very much.

Larry Silber: Thanks Neil

Operator: Your next question comes from the line of Ken Newman from KeyBanc Capital Markets. Your line is open.

Ken Newman: Hey good morning guys.

Larry Silber: Good morning.

Mark Irion: Hi Ken.

Ken Newman: So, obviously, it sounds like demand visibility is very strong for 2023, it’s driven by these large mega projects that we’ve all been talking about. I’m curious Larry or Mark, is there any way that you can kind of help us quantify just how much of that visibility can be framed by the new guidance? What’s the guide kind of implying in terms of incremental infrastructure activity or opportunities versus reshoring activity?

Mark Irion: I mean, I think it’s — our visibility and our revenue mix is in that really specific. So, we’re just factoring in continued strong demand. These projects do take up big chunks of fleet when you get on them. So, there’s a certain amount of visibility around that. But overall, there’s quite a bit of variability to the revenues and where they’re coming from, and we’re not specifically targeting growth in specific end markets. But you sort of look at that pie, there’s growth all across those end markets. So, we’ll be targeting that and we’ll be looking to get our unfair share.

Larry Silber: Yes, I think, Ken, we sort of — or I look at the mega projects as sort of like the icing on the cake. The overall general markets that we cover are all very strong, and the mega projects are just sort of additive to what we’re doing. So, I don’t view that as necessarily driving this improved demand. I think the base level of demand is very strong.

Ken Newman: Right. I guess, maybe to clarify then. I mean just given how large these projects are still a huge competitive advantage. Is it fair to assume that you’re going to punch well above your weight relative to your market share for these larger projects?