Good day and welcome to the Herc Holdings Incorporated First Quarter 2019 Earnings Conference Call. Today's conference is being recorded and after today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Elizabeth Higashi. Please go ahead.

Thank you, Savanna and good morning, everyone. I would like to welcome you all to our first quarter earnings conference call. Our press release and presentation slides went out this morning and both are posted on the Events page of our IR website at ir.hercrentals.com along with our first quarter 10-Q filings. Please turn to slide two. This morning, I am joined by Larry Silber, our President and Chief Executive Officer and Mark Irion, Senior Vice President and Chief Financial Officer. They will review the first quarter as well as the industry outlook for 2019. The prepared remarks will be followed by an open Q&A which will also include Bruce Dressel, Senior Vice President and Chief Operating Officer. Before I turn the call over to Larry, there are a few items I would like to cover. First, today's conference 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 this call. Please refer to slide two through four of the presentation for our complete Safe Harbor statement. The company's Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission contains additional information about risks and uncertainties that could impact our business. You can access the copy of our 2018 Form 10-K by visiting the Investors section of our website at ir.hercrentals.com or through the SEC's website at sec.gov. 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 material, which were furnished to the SEC with our Form 8-K this morning and are also posted on the Investors section of our website at ir.hercrentals.com. Finally, a replay of this call can be accessed via dial-in or through 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. I will now turn the call over to Larry.

Thank you, Elizabeth. If you turn to slide five. And thank you all for joining us this morning. We're very pleased with the continued year-over-year improvement in operating results we reported for the first quarter. Combined with the generally positive industry and economic metrics being forecast, we're confident that 2019 will be another strong year. Our strategic initiatives continue to improve pricing and contributed to the increase in dollar utilization and rental margins year-over-year. We drove strong flow through by controlling and reducing direct operating expenses and SG&A. And we continue to make progress in our fleet renewal and diversification program in the first quarter. The strong start for the year, particularly in our ability to continue to improve rates and control expenses along with the seasonal ramp up in rental equipment demand we are currently seeing support the profitable growth we expect in 2019. Now please turn to slide number six. Major initiatives of our long-term strategy guide our day-to-day activities and performance. We rolled out our new culture and people initiatives at our second annual Pro Expo business meeting last month. Pro Expo is an annual gathering of our senior team members made up of operations, sales, and field support staff. We shared our progress on strategic initiatives, held regional strategy discussions, and got a chance to see a broad array of equipment from our major suppliers. I was thrilled by the enthusiasm and the energy of our people across all of our regions and we heard about positive trends for 2019 regarding our progress, the customer demand from rental equipment we are seeing and the state of the industry. Now please turn to slide number seven. Safety awareness is a fundamental part of how we operate, how we treat our employees and how we work with our…

Thank you, Larry and good morning, everyone. We're pleased with the results we reported for the first quarter. The first quarter always represents seasonal challenges and having got off to a good start, sets the stage for us to continue to execute on our goals for 2019. On slide 15, we can review our first quarter results. Equipment rental revenue grew 2.3% from $369.1 million to $377.6 million in the first quarter of 2019. Year-over-year growth was driven primarily by improved pricing, but was particularly partially offset by a reduction in re-rent revenue. As part of our self-help initiatives for 2019, we're focused on utilizing our own rental fleet and re-renting less fleet. Re-rent revenue was down by $4.9 million, or 28% in Q1. Total revenues increased 10.3% to $475.7 million, our seventh quarter of year-over-year double-digit growth. Net results improved in the first quarter of 2019 compared with the prior year. We reported a net loss of $6.7 million, or $0.23 per diluted share in this year’s first quarter compared with a net loss of $10.1 million or $0.36 per diluted share in 2018. Net results were impacted by higher depreciation of rental equipment, which increased $6.7 million or 7% in the first quarter compared to the prior year. First quarter net results also benefited from improved operating results, a reduction of $4.9 million in spin-off related costs and a $2 million tax benefit. More details regarding our net income bridge are included in our Appendix. Adjusted EBITDA in the first quarter of 2019 increased 7.2% to $142.3 million over the same period in 2018. Adjusted EBITDA margin was 29.9% in the first quarter, a 90 basis points decline year-over-year, impacted primarily by the margin on the sale of used equipment, which is why we continue to focus internally…

Thanks, Mark. Before we move to the Q&A portion of the call, let me summarize a few points of where we are in our journey. Please turn to slide 21. We're pleased with the results we reported today and the outlook for the balance of 2019. Our strategic initiatives are expected to continue to drive growth in both revenue and dollar utilization. We expect to maintain REBITDA flow-through of approximately 60% to 70% throughout 2019. We expect dollar utilization and REBITDA margin to steadily increase year over year. And finally we're affirming our adjusted EBITDA guidance of $730 million to $760 million. Now we look forward to your questions operator, please open the lines.

[Operator Instructions] And we will take our first question from Steven Ramsay with Thompson Research Group. Please go ahead.

Good morning.

Good morning, Steve. How are you?

Doing great. Kind of wanted to dig in more on local accounts and local mix, being near 60%, clearly, very high. Is that reflect any seasonality, is that an optimal level, you would like that to be at going forward?

Yes. Hi, Steve. This is Bruce. I would say that's the level we're looking for. And there's probably a little seasonality in that just seeing that, as Larry spoke earlier on our National business, our National business was down a bit year-over-year due to some comps and some timing of some large downstream LNG customers.

Excellent. And then thinking more on local mix, can you talk even directionally to the customer type of local accounts. Are they more weighted to contractors, are they more weighted to industrial just trying to figure out how that high local mix reflects in market activity?

Yes, I would tell you that local customer base is broad diverse customer from your kind of contractor base like you're talking about to retail, to facility management, to smaller government. So it's a whole mix of just local customer base within that concentrated large urban market.

Great. And last on new customer accounts. Are you winning these from other competitors that are larger or smaller? And is there any way to talk to the fleet mix that is rented to new customers if it's different than in accounts that you have had for some time.

So again, it's a broad range of customers. As you can see with the way kind of where we've been executing on our pricing, it's not really a competitive market out there in that it's just a lot of it is this conversion from ownership to rental and just new rental customers entering in to the marketplace. And just serving a customer base out there in a robust kind of environment.

Great, thank you guys.

And our next question will come from Brian Sponheimer from Gabelli. Go ahead.

Hi, good morning, everyone.

Good morning, Brian.

I hoped on a little bit late. I just wanted to talk a little bit about the re-rent decision. Is there a way to quantify the year-over-year impact on revenue and the year-over-year impact on EBITDA?

Yes, it's -- I mean, it's not necessarily meaningful on either it's had more of an impact on margin. So, it's, throughout $5 million in terms of revenue, it's not a huge amount, but it's really just focusing on self-help. It's a low margin business, if we're reaching it something into 20% margin, if we can use our own equipment, then that's a win. Or if we can satisfy that customer or get the new piece of equipment in there to satisfy that customer for a longer term re-rent, then that’s also a win. So it's really just part of focusing on maximizing the utilization of our own fleet, and making sure that we've got optimal fleet on hand to take care of customer needs as they come up.

Right. I think, I get that I guess the question is just relative to the lower volume in the quarter, I guess we've heard from two or three peers so far. You obviously -- you've made a strategic decision to give up some business. I'm just wondering how much of that was re-rent versus just general volumes.

Yes, I'm not sure that's the case. I mean, the -- some of that re-rent can get supplanted with an extra rental of our own fleet. The gap between -- the impact of the re-rents maybe 50 bps of that growth. So it's not a big driver. Our strategy is more focused on organic growth. So I think that's probably why you're seeing a lower growth rate with no acquisition sort of activity in our P&L. Q1 seasonally impacted, it was in line with our expectations. So we're happy with the revenue and the volume and especially the rate that we got in Q1 and it's the tone for a positive year going into 2019.

Now the rate and the profitability look great. All right. Congratulations on the strategy. Take care. Thank you.

Thanks, Brian.

And our next question comes from Kamal Patel with Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for the time. I wanted to check in on the bonds, both your 2022s and 2024s are callable next month in are trading above their respective call prices. What's the latest thinking on those and the potential for a refi?

No, we're comfortable with the balance sheet as it is. We don't have any immediate needs in terms of refinancing. We continue to analyze the markets and we're in discussion with our finance committee in terms of opportunities. So that's something that we will tackle opportunistically over the next couple of years, but there's no immediate need to do anything and we continue to look for the best opportunity to refinance those notes as they come up.

Got it, thank you. That's helpful. And then just quickly, as you've put up some good results over the past few quarters and leverage is coming down, have you had conversations with the rating agencies recently, particularly with Moody's on any potential upward momentum on the ratings front?

We have ongoing an annual conversations with the ratings agencies just as part of our normal treasury function, you know as well as I do how rapid they are to adjusting sort of EBITDA, and leverage. So that's something that we look forward to changing it at their leisure based on their analysis and steer conversations internally.

Appreciate it. Thanks so much.

And our next question will come from Jerry Revich with Goldman Sachs. Please go ahead

Good morning, everyone. This is Ben Burud of for Jerry.

Hey, Ben.

Hey, good morning. Just wanted to touch on rental rates, so you grew pricing 1.6% sequentially, which is well above your normal seasonality. I'm just curious if there was anything we need to keep in mind regarding applying normal seasonality over the balance of the year. So typically 2Q seems to be 1% sequential improvement. And I know Larry on the call mentioned that the strong start to the year implied good things to come. Just wanted to make sure if there was any puts and takes to keep in mind in terms of normal seasonality.

Yes, I think -- I'm not too sure some of my numbers are different I've got 90 bps of sequential rate growth from Q4. And looking last year Q1 to Q2 was like 10 basis points. There's not a real sequential -- there's not really a real seasonal cadence to the rate, I mean, Q1 is definitely the most seasonally impacted quarter. So typically it's the most challenging. Having got 3.8%, where it definitely sets the tone for positive momentum through the course of 2019. And you can sort of just see the cadence we've been steadily building rate growth that is a metric that once you start getting success, you can continue getting success. There's a bit of a flywheel impact as equipment comes off grid at an old rate and then goes back out on rent at the new rate. So it's a key focus for us. We're having great success, and we sort of continue to look forward to focusing and delivering good results on the rate front through 2019.

Got it. And then, I know it's not the biggest piece of your business, but can you give us an update on what you're seeing on the public construction side of things?

Yes. Hi, this is Bruce. I would say we're seeing kind of stable, good environment in infrastructure in the public side. And then, if in fact additional funds go towards that in the infrastructure than that bodes well for the entire industry overall.

And is there any -- are you cognizant of increasing your exposure there or you kind of just taking business if it comes?

Well, I would tell you it takes the mix the fleet we currently have, and it's in the markets we're in. So, we play in that to begin with, it's not a huge part of our business overall. But, we would benefit from any additional dollars going towards that type of work.

Great, thank you.

Yeah. Particularly since we, you know, operate in concentrated highly urbanized markets. If there will be infrastructure spending that we heard about the other day it will certainly impact us. And we’ll participate in that in our fair share of the way.

Understood, thank you.

And that concludes our question-and-answer session and I would now like to turn the conference back over to Elizabeth Higashi for any closing remarks.

Thank you. And thank you all for joining us on today’s call. If you have any further questions as always please don’t hesitate to call me. We look forward to seeing you all soon. Take care.

And the conference has now ended. Thank you for attending today’s presentation.