Earnings Call: Q3 2019

Oct 23, 2019

Good day, and welcome to the Herc Holdings third quarter 2019 earnings conference call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. I would now like to turn the conference over to Elizabeth Higashi. Please go ahead. Thank you, Kevin, and thank you all, and good morning. I'd like to welcome everyone to our third quarter earnings conference call. Our press release and presentation slides were filed earlier today, and those are posted on the events page of our IR website at ir.hercrentals.com, along with our third quarter 10-Q. This morning, I'm joined by Larry Silber, our President and Chief Executive Officer, and Mark Irion, Senior Vice President and Chief Financial Officer. They will review the third quarter and the nine-month results, as well as our industry outlook. The prepared remarks will be followed by an open Q&A, which will also include Bruce Strelau, Senior Vice President and Chief Operating Officer. Before I turn the call over to Larry, there are a few items I'd 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 3 of the presentation for our complete safe harbor statement, as well as the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2018. 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. 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'll now turn the call over to Larry. Thank you, Elizabeth, and good morning, and thank you all for joining us. Our team continues to focus on quality of earnings through the execution of company-wide self-help initiatives to increase our operating margins and profitability. Our initiatives once again drove industry-leading year-over-year price improvement that contributed to higher adjusted EBITDA margins and dollar utilizations in the third quarter. We achieved excellent EBITDA flow-through and improved EBITDA margin by reducing expenses in the quarter. in 2019, we focused on the management of our net fleet capital expenditures to maximize return on capital and held OEC about flat compared with prior year. We are focusing on improving the utilization of our existing fleet before we commit capital to expanding our fleet size. This does not mean that we're more cautious about the strength of our end markets, which we consider to remain strong. Our interactions with contractors and customers reinforce our continued belief that the markets in which we participate are stable and growing, albeit at a slower rate. These factors contribute to our conviction that 2019 will be another good year for Herc Rentals, and our adjusted EBITDA guidance for the full year reflects an improvement of approximately 8%-10%, or a range of $740 million-$750 million. Our strategic initiatives on slide 5 serve as our roadmap to improve dollar utilization and EBITDA margin, enhance free cash flow, and reduce net leverage. We expect to continue to make annual year-over-year progress in these important financial metrics and are committed to closing the gap between Herc Rentals and our industry-leading peers. On slide 6, we discuss one of our most important internal metrics, safety performance. We expect our entire team to focus on safety first while assisting our customers and communities with the equipment and services they require. Our team members provide the differentiating factor that makes us unique in the equipment rental industry. Throughout our locations, we focus on the simple concept of a perfect day, which means no OSHA-recordable incidents, no at-fault rental vehicle accidents, and no DOT violations. We celebrate those locations who reported a perfect safety month. All of our branches recorded at least 90% perfect days through the third quarter of 2019, with many of our locations reporting 100% perfect days. Our goal is for continuous safety improvements throughout our entire organization. Now, please turn to slide number 7 for a summary of our financial results for the third quarter. Strong gains in pricing were offset by strategic reductions in re-rent revenue to improve profitability. As a result, equipment rental revenue grew 2.4% to $459.6 million. Total revenues were $508.1 million, down slightly compared to the prior period in 2018. Total revenues were impacted by the planned reductions of used equipment disposals in the quarter, which Mark Irion will describe more fully later in our presentation. We reported net income in the third quarter of 2019 of $9.4 million, or $0.32 per diluted share. This quarter included $53.6 million of pre-tax costs related to the redemption of our 2022 and 2024 notes and the transaction costs related to the issuance of our 5.5% notes and a new ABL agreement. Excluding the impact of costs relating to the refinancing, spinoff, and restructuring costs and related taxes, our adjusted net income in the third quarter of 2019 increased 17.7% to $43.2 million, and our net income per diluted share increased 16.5% to $1.48 compared to last year. Adjusted EBITDA increased 3.9% to $209.4 million, reflecting reductions in SG&A and our initiative to control direct operating expenses. Adjusted EBITDA margin was 41.2% in the third quarter. Pricing improved 4.5% compared with last year's third quarter, reflecting demand in our targeted markets and the strength of our Optimus pricing tool. We wouldn't get rates like these unless markets are stable, and our customers recognize the value of professional services and support we provide. Improvement in pricing and mix contributed to the year-over-year improvement in dollar utilization in the third quarter of 2019, with an increase of 160 basis points to 40.8%. Moving to slide number 8, which illustrates the continuing improvements we made in the third quarter of 2019, compared with 2018. The graph in the upper left illustrates our year-over-year pricing over the last two years. We've improved rates year-over-year for an even longer period, now 14 straight quarters, with the latest quarter up 4.5% over last year. This slide also shows average fleet at OEC was up 0.4% to $3.94 billion in the third quarter of 2019 over last year. We took a conservative approach this year and kept average OEC fleet in the quarter about flat with last year by controlling our fleet spend and disposing of older equipment. Our goal was to improve our volume growth by improving utilization. Our average fleet on rent during the third quarter of 2019 was down 1.6% compared with a strong 2018 third quarter. While we didn't get the time utilization improvement we had hoped for in the quarter, we're still pleased with the overall revenue growth, which was driven by our pricing gains. Now please turn to slide number 9. You can see the steady improvement we've made year-over-year in dollar utilization, as well as the seasonal impact of volume on the business. Third quarter dollar utilization reached 40.8%, an increase of 160 basis points and up from a strong third quarter performance in 2018. This increase reflects the improved pricing and mix we achieved. Average fleet age as of September 30, 2019, was 44 months compared with 46 months for the same period last year. Together, our ProSolutions and ProContractor equipment now account for approximately $836 million of OEC fleet, or about 21% of our total fleet as of the end of the third quarter of 2019. You can see a detailed breakout of our fleet categories in our appendix. Now, please turn to slide number 10. Our strategy is driving further diversification of our customers and markets, as well as industry mix. Third quarter local rental revenue grew by 4.9% year-over-year and accounted for about 61% of rental revenue. Continued growth in infrastructure projects at the local level contributed to positive gains. National account revenue represented about 39% of the total in the third quarter and increased 1.7% compared with last year. Our rental revenue by major customer segment for 2018 is showed in the composition chart in the upper right-hand corner of this slide. Contractors represented 34% of equipment re-rental revenue, followed by industrial customers with 27%. Other customers, which include commercial and retail service, hospitality, healthcare, recreation, entertainment, and special events, represented 21% of equipment rental revenue, and infrastructure and government increased to 18% of the total. Growth in new customer accounts continued to be solid throughout the quarter, both at the local and national account level. We continue to focus on maintaining a solid pipeline for future growth opportunities in all of our targeted end markets, as well as growing the portfolio of equipment used by our current customer base. Please turn to slide number 11. Certain economic and industry metrics have begun to show some mixed signals regarding the economy. The Architecture Billings Index predicts activity 9 to 12 months out, fell below 50 in August. The index recently has been reporting in a tight range around the 50 level. U.S. industrial annual spending forecasts for 2019 estimate growth of 5.5% over 2018 and seven-tenths of 1% in 2020. In contrast, our conversations with our industrial customers and contractors in our markets indicate confidence for continued growth in spending in both the short and medium-term horizon. U.S. non-residential spending is expected to be positive in 2019, up 1.1%, with strong growth in public spending dollars. Current estimates for 2020 suggest a slowdown in spending with a decline of 2.9%, but clearly, volumes and absolute dollar levels are sufficient to create favorable rental demand. Longer term, the North American ARA forecast for industry equipment rental revenue growth remains robust, with compound annual growth projected at 3.8% through 2023. Our strategy to focus on urban market coverage should support our growth as urban customers increasingly use rental to offset space and cost constraints. Those secular trends will contribute to steady industry growth as rentals expand beyond traditional rental equipment categories. Please turn to slide number 12. We've added four new greenfield locations so far this year in high growth urban markets such as Boston, Raleigh, North Carolina, Orlando, Florida, and relocated several branches in other urban markets so that we could house more fleet to support our urban density model. The map on this slide also shows the growth expectations by state and province over the next five years based on forecasts by the American Rental Association. They currently forecast growth of 4%-6% over the next five years in the West, Southwest, and Southeast regions of the U.S. and in Western Canada. We expect our end markets to remain strong into 2020, and we'll continue to focus on self-help initiatives to improve our operating margins in a positive environment. Now, let me turn the call over to our CFO, Mark Irion. He'll discuss our financial results in more detail, and then at the end, I'll summarize before we open it up to your questions. Thank you, Larry, and good morning, everyone. Please turn to slide 14 for the details of our third quarter 2019 results. Equipment rental revenue increased 2.4%, from $449 million to $459.6 million in the third quarter of 2019. The year-over-year growth was driven primarily by improved pricing, but was partially offset by a reduction in re-rent revenue. As part of our self-help initiatives for 2019, we have been successfully focusing on utilizing our own rental fleet and re-renting their fleet. Excluding re-rent revenue from our results, pure rental revenue increased 4.5% year-over-year. Pricing clearly drove our rental revenue growth as fleet-on rents declined 1.6% compared to a strong third quarter last year. As Larry mentioned, our strategy for 2019 was self-help with a focus on utilizing existing fleet. In the third quarter, we got the rate structure right, but not the utilization. We've always stated that we would prefer a point of rate over a point of time utilization, but our expectation going into the quarter was that we could drive volume growth by improving our time utilization. We did not quite get the results we expected. It's a challenge for any team to grow volume when the organization is holding OEC fleet flat, but we remain focused on the challenge, however, and expect our results to improve with ongoing focus. In addition, the third quarter is seasonally one of the slowest for equipment rental sales, and we reduced our sales of rental equipment and sales of new equipment, parts, and service in the third quarter. Those strategic reductions impacted total revenues, which decreased 1.6% year-over-year to $509.1 million. I'll talk to that in more details in our revenue comparison slide. We reported net income of $9.4 million or $0.32 per diluted share in this year's third quarter, compared with net income of $46.2 million or $1.60 per diluted share in 2019. This year's results also included $52.6 million in pre-tax costs related to the refinancing of our debt. Excluding these costs as well as spin-off expense, restructuring costs, and related taxes, adjusted net income in the third quarter of 2019 was $43.2 million or $1.48 per diluted share, compared with $36.7 million or $1.27 per diluted share last year. More details regarding our net income bridge and the non-GAAP reconciliation are included in our appendix. Adjusted EBITDA in the third quarter of 2019 increased 3.9% or $7.9 million to $209.4 million over the same period in 2018. Adjusted EBITDA margin improved 220 basis points year-over-year to 41.2% in the third quarter. The third quarter reflected excellent progress in terms of flow-through. We reported EBITDA flow-through of 83.3%, which benefited from reductions in re-rent expenses as well as reductions in SG&A and flattish growth in DOE. Our EBITDA margin rose to 44.9% during the third quarter of this year, an increase of 90 basis points from the third quarter in 2018. We increased average OEC in the third quarter of 2019 by 0.4% over the prior year. We're focusing carefully on fleet at the location level to ensure that we are maximizing fleet utilization before we make any further additions. OEC at the end of the third quarter was $3.94 billion. Our focus on rates delivered excellent results in the quarter. Pricing improved 4.5% year-over-year, holding up especially well considering that a year ago, rates in the third quarter were up by 3.2%. Slide 15 focuses on the changes in total revenue for the third quarter and nine-month period. Equipment rental revenue grew 2.4% to $459.6 million. Although the increase was impacted by strategic reductions in re-rent revenue compared with last year's quarter. Pure rental revenue was up 4.5% year-over-year. In the third quarter of 2019, sales of rental equipment declined to $14.6 million, excluding currency. The lower year-over-year sales in the third quarter reflected the company's net capital plans for 2019 as we continue to improve fleet mix and age while focusing on improving time utilization. The largest portion of our sales of rental equipment in the third quarter went through auction channels and accounted for 52% of the total sales volume compared with 45% in the prior year. We generated proceeds of approximately 40% of OEC due to the larger concentration of auction sales during the quarter. On slide 16, we review the Q3 adjusted EBITDA bridge. The adjusted EBITDA for the third quarter was $209.4 million, an increase of 3.9% or $7.9 million compared to $201.5 million in the third quarter of 2018. The bridge shows that the largest contributor was increased equipment rental revenue with growth of $11.1 million as compared to the prior year. Direct operating costs rose slightly by $3 million excluding currency, compared with the third quarter of 2018, as we continued to control expenses with improved operating efficiencies such as lower re-rent and delivery and freight expenses. Those reductions were partially offset in the third quarter by increased facility costs as well as increased personnel and personnel-related expenses. Selling, general, and administrative costs were lower in the third quarter of 2019, primarily due to the reduction of consulting and professional fees. These reductions were partially offset by additional selling expenses. EBITDA measures the contribution from our core rental business without the impact of sales of equipment, parts, and supplies. We believe EBITDA provides a better comparison with our industry peers as it excludes the impact of varying depreciation policies. Third quarter 2019 EBITDA flow-through was once again strong at 83.3% and drove the margin of 44.9%, an increase of 90 basis points compared with the Q3 of 2018. On slide 17, we've broken out our fleet expenditures and disposals on an OEC cost basis and have provided a rolling balance of the OEC value of our total fleet. A quarterly breakout of this information is also in the appendix. Total fleet OEC was $3.94 billion as of September 30, 2019. The average OEC of our rental fleet during the quarter was about flat, with an increase of 0.4% over the prior year quarter. The third quarter of 2019 fleet expenditures at OEC were $172 million, with fleet disposals of $89 million. The average age of our disposals in the third quarter was 80 months. On a cash basis, net fleet CapEx for the nine months was $349.8 million, compared with $428.4 million in the prior year. Non-fleet capital expenditures for the quarter totaled $34.9 million, down from $58.5 million in 2018. We reduced the average age of our fleet to approximately 44 months at the end of the third quarter from 46 months in the comparable period last year. On slide 18, we can see the total debt was $2.2 billion as of September 30, 2019, about the same as the prior year. Net leverage decreased to 3 times compared with 3.4 times in the comparable quarter and was solidly within our targeted range of 2.5 times to 3.5 times. We had ample liquidity of over $1 billion as of September 30, 2019. For the nine months ended September 30, 2019, free cash flow was a positive $65.5 million, compared with a negative free cash flow of $108 million last year, a substantial improvement. On slide 19, based on our expectations for positive demand in our market and our continued margin improvement focus to tightly manage operating expenses, we are updating our guidance range for adjusted EBITDA for 2019. Our new guidance range is $740 million-$750 million, or an increase of 8%-10% compared with 2018. We are narrowing our guidance of net fleet capital expenditures to the top of our previous range to $400 million-$410 million. The planned reduction in capital spending over the prior year, along with expectation of improved EBITDA, should continue to contribute to strong free cash flow for the year. Our overall strategy is expected to continue to provide ample liquidity and the financial flexibility to fund our strategic growth, to improve our operating margins, to serve our customers and create value for our shareholders. Now I'll pass the call back to Larry. Thanks, Mark. I'd like to summarize where we are today. Our strategic initiatives have continued to drive growth in rental revenues and improved dollar utilization. We improved adjusted EBITDA margin by 220 basis points to 41.2%. We increased dollar utilization 160 basis points to 40.8%. We improved year-to-date free cash flow from negative $108 million in 2018 to positive $65.5 million in 2019. Our operating initiatives will continue to contribute to strong EBITDA flow-through for the full year 2019. Net leverage is expected to be at the lower end of our targeted range of 2.5-3.5 times by year-end, and the full year 2019 dollar utilization and EBITDA margins are expected to improve, leading to our updated adjusted EBITDA guidance. We've assembled an outstanding team, and I want to thank each and every one at Team Herc for their hard work and commitment to our business and our customers. We're committed to achieving our stated goals through solid execution to improve value for our shareholders, customers, and employees. Now we'd like to open the line for questions. Thank you. As a reminder, ladies and gentlemen, if you do wish to ask a question, please signal by pressing star one on your telephone keypad. We will now take our first question. It comes from Jerry Revich of Goldman Sachs. Please go ahead, sir. Hi, good morning. This is Ben Burud for Jerry Revich. Good morning, Ben. How are you? Good. How are you? Yeah, wonderful. Thanks. Great. Just wanted to start on the topic of pricing discipline. Is there any reason to believe that industry pricing discipline will be less volatile in this cycle than it was maybe in the past? Are there any tools or specific industry dynamics that you all think would dampen pricing volatility as we progress through the later stages of the cycle? Yeah, look, I think that just as a matter of course, the industry is much better situated today than it was during any previous cycle. Partly as a result of consolidation, but more importantly, as a result of the tools that we all have and employ today in the market. I would think, and I would expect that there will be much more discipline as we go into, or when we go into any kind of a cycle. Bruce, you may want to comment on that. Yeah, no, I would second what Larry is saying. Just with all the consolidation is kind of the big get bigger, and the investment everyone has made in technology. You can see that in our pricing with our proprietary Optimus tool. The industry is driving better pricing, and I think that just leads to better discipline. Got it. As we begin to think about 2020 equipment procurement, can you give us an idea of what type of price inflation you might face on new equipment purchases? How has your ability to manage that potential inflation evolved in recent years? Yeah, look, I would say we're in the very early stages of discussing 2020 fleet requirements with our key vendors. I would expect that our inflation will be similar to what we experienced last year. Got it. Thank you. Thank you. Our next question comes from John Healy of Northcoast Research. Please go ahead. Thank you. Hey, John. Hey, guys. Congrats on a great quarter. Thank you. Wanted to ask about 2020 potential. You look at the revenue growth level in the business today, and it's very clear that closing the gap relative to peers on margins is the main objective. What sort of revenue growth level do you think the company needs to get to show further contraction in that spread versus peers? Yeah. Hi, John Healy. We're still looking for high single-digit revenue growth going into 2020. End markets feel similar to what we've got in 2019, so it should be supportive. We'll be looking for continued rate growth, challenging ourselves on improved time utilization and with net CapEx levels at these levels consistent with 2019, we can still do low single-digit growth in fleet. So that sort of adds up to high single digits, and that's our expectation going into 2020. Great. When I think about just the SG&A line, you guys have done a really nice job there managing that lower for the last three quarters. How much more trimming is there, and how do we think about SG&A growth relative to revenue growth at this point in the cycle? Yeah, obviously, John, we feel really good about where we are. We'll probably try to hold that flattish going forward and try to leverage volume in our locations. There might be some marginal inflation increases and obvious commission structure as you grow volume. We're going to try to hold it flattish and leverage volume. Mark, you want to add to that? Yeah, no, I think that's fair. Most of the consulting costs from 2018 run off by the end of this year in terms of the year-over-year cost. We're heading into a sort of flat line for SG&A going forward. Great. Just final question from me. I think you guys mentioned you'd be at the low end of the leverage range in 2020 if EBITDA grows, I would imagine the free cash flow would only be stronger. Are there any priorities or any ways that we should be thinking about you guys deploying that incremental free cash flow in 2020? Or is it a situation where you might just let the cash on the books kind of build and have a rainy day fund of some degree? I think we've been pretty consistent with our messaging that we will continue to pay down debt with free cash flow for the short to medium term. That's the same primary goal going forward. Thank you, guys. Thank you, John. We will now take our next question from Seth Weber of RBC Capital Markets. Please go ahead. Hi, this is Brendan on for Seth. Good morning. Good morning. I was wondering if you could give more color on the positive commentary that you're hearing from your customers. Is there any particular end market that you're seeing that are more optimistic than others? Could you remind us your exposure to upstream oil and gas and comment on customer demand there? Hi, Seth, this is Bruce. End market demand and what we're hearing from our customers pretty much is across all regions of where we serve in North America. On the O&G part, our O&G market actually ticked up a hair year over year. We're seeing, even though there is a bit of weakness in that market, I think we're performing well. We were very focused on the capital that we deployed into that market over the last year. We're doing well there. Overall, pretty good market across North America. Yeah, I'd add to that. Remember, over the last four plus years, we've dramatically reduced our dependency on the upstream oil and gas market. We've been very selective about where we participate and where we play. Okay, great. Thank you. Our next question comes from Steven Ramsey of Thompson Research Group. Please go ahead. Good morning. Good morning, Steven. How are you? Doing good. Thank you. I wanted to start on the CapEx plans. Net CapEx now at $250 million with fleet on rent down a tick and then raising or going to the high end of the net CapEx range. That just sounds like it would be tilting to the lower end. What is driving you guys, or the factors driving you to add fleet now at this point of the year? Yeah, I think, Steven, it's important to notice that our CapEx spending this year is down significantly from prior year. I think it's almost 20% reduction in net CapEx year over year at the top end of our range. That's the main driver why the fleet's down year over year, and it's no real change to our guidance range. We're just hitting in on the top end, and there's still opportunities to commit CapEx and put fleet into certain locations, and we've taken advantage of that. But there's a substantial decrease year over year, which is the main driver of the fleet growth trends. Great. Then a thing on the growth of infrastructure projects. Maybe talk to how that impacts your specialty fleet, or is the specialty fleet utilized as much on these infrastructure projects? Yeah, look, infrastructure continues to be a growth market for us, particularly as we're focused on urban markets, high density markets in North America and with the letting of a fair amount of funding at both the local and state level. So infrastructure is strong for us, continues to be strong and grow. I would say that our specialty equipment doesn't necessarily impact that infrastructure business too much. Certainly, there's a little bit on the fringes, but our specialty gear and ProSolutions and ProContractor product more supports our general restoration, remediation, and local contractor business. So it's more of our classic gear, which is the 80% of our total, that supports the infrastructure activity. Great. Then lastly, thinking on re-rent. Is the bulk of this opportunity the benefit of reduced re-rent revenue? Is that now past us and this is more reflective of kind of ongoing re-rent impact, or is that still kind of a tailwind to results as you reduce that from the high levels of the past? I think the rate of change will slow down going forward. A lot of the dramatic reductions. It's not really a tailwind. It's a tailwind to sort of reported revenues, I guess. But it's sort of a revenue shift and a margin improvement also. So the rate of change will change. Well, there will be a steady sort of re-rent level that we'll get to. But it is likely to continue, although at a slower rate, over the next couple of quarters. Excellent. Thanks for the color. Sure. Again, if you do have a question, please signal by pressing star then one. Our next question comes from Brian Sponheimer of Gabelli Funds. Please go ahead. Hey, good morning, everyone. Good morning, Brian. How are you? I'm excellent. I hope you're doing well. Yes, we are. One clarification on the net CapEx. Is that buying more or selling less fleet? I mean, we are really just headed towards the higher end of the range. Q3 fleet was down, but that is really just seasonal. You will see an uptick into Q4 as per the normal seasonality in terms of the cadence of our fleet sales. It was really just hitting in on the higher end of the range rather than spending more or selling less. Okay. It is down 20% year-over-year. So it is the high end of the range that we started with and a significant reduction from prior year. Okay. A really small nit in the quarter. Any impact from the hurricane that was not as far as branches that had shut down and then nothing to clean up? Yeah, no. The hurricane was sort of a big nothing, quite frankly. As much gear came off rent in the impacted area as went on rent in preparation of a major storm. So it ended up being a net zero. Okay. As you look at your disposal markets, putting more through the auction channel this quarter, versus other methods, selling it yourself, et cetera, how do you see that market shaping up? And what is your thought on the broader used equipment market right now? Yeah, let me sort of answer the first part, maybe Bruce can answer the second part. The first part is really a strategic decision for us to keep our salespeople focused on rental, which is where we make our money and where the activity is, and use our resources most appropriately. So we've determined that while we still do a fair amount of wholesale and retail business, a vast majority of our activity will be through the auction market. It's just more efficient, and the margin differential isn't enough to distract our people on a regular basis to focus on either the retail or the wholesale market. So I think longer term and going forward, you'll probably see more of that, of what we've evolved to. And then maybe Bruce can comment on the market in general. Yeah. Hey, Brian. So just overall market is stable and it's a positive market for us right now, and we see that continuing into the future. All right, great. Well, look forward to talking to you all later, and nice to have again. Thanks, Brian. Our next question comes from Bill Mastoris of Baird. Please go ahead. Larry, acknowledging that you're trying to increase the utilization rates on your existing fleet, but also taking into account that your end users seem to be expressing a pretty optimistic outlook. As we look to 2020, and as you continue to change your rental mix and reduce the average age of your fleet, is 2020 CapEx, is that going to go up? If you care to lay out a range, that would be great. Then I do have a follow-up. Yeah. We're still putting together the 2020 sort of plans in detail. But our current expectation is that net CapEx will be in the same sort of range as what we've seen in 2019. No dramatic increase or decrease from here. Okay. My follow-up is, and this one's for you, Mark. This has to do with kind of the deleveraging strategy. Might we expect that we're going to see some debt pay downs on the ABL, or is that deleveraging going to be a little bit more towards really the expansion of EBITDA? Or might we see some open market purchases of, let's say, some of the bonds that you recently issued? I think there will be absolute pay down of the ABL. We are in a position where we expect to be generating free cash flow, so that'll be applied to pay down the ABL. Unlikely that we'll be in the bond market in the short to medium term. Okay. Thank you very much. This concludes our question and answer session. I would now like to turn the conference back over to your hosts for any closing remarks. Thank you, Kevin, and thank you all for joining us today. As always, if you have any further questions, please don't hesitate to call me, and we look forward to seeing you all soon. Thanks a lot. The conference is now concluded. Thank you for attending today's presentation.