Earnings Call: Q2 2017

Aug 8, 2017

Summary

Q2 rental revenue rose 7% to $351 million and adjusted EBITDA reached $133 million, while a $29 million impairment contributed to a $28 million net loss. FY EBITDA and net CapEx guidance were reaffirmed.

Good day everyone, and welcome to the Herc Holdings second quarter 2017 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two, and please do note that today's event is being recorded. I would now like to turn the conference over to Elizabeth Higashi. Please go ahead. Thank you, William, and good morning. I'd like to welcome everyone to our second 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. This morning, I'm joined by Larry Silber, our President and Chief Executive Officer, and Barb Brasier, our Senior Vice President and Chief Financial Officer. They will review the quarter as well as the industry outlook. 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 and Barb, 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 slides 3 through 6 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, 2016, which was filed with the Securities and Exchange Commission, contains additional information about risks and uncertainties that could impact our business. You can access a copy of our 2016 Form 10-K by visiting the investors section of our website at ir.hercrentals.com or through the SEC's website at sec.gov. On a related matter, our second quarter Form 10-Q will also be filed today and can be accessed through either website. 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 materials, which were furnished to the SEC with our Form 8-K this morning and are 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 a 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 concludes my comments. I'll now turn the call over to Larry. Thank you, Elizabeth, and good morning, everyone, and welcome to our second quarter call. I'm pleased that you're able to join us this morning. As we begin, let's turn to slide seven. Before we begin the review of our financial highlights, I'd like to point out that we've just celebrated our first anniversary as a stand-alone public company. While we have a new name and brand, we're leveraging more than 50 years of knowledge and experience in the equipment rental industry. We're continuing to separate the company from Hertz and implementing initiatives to drive profitable top-line growth and improvements in operational efficiency to enhance profitability. We are accelerating rental revenue growth through fleet and customer diversification. We are also investing in fleet to improve mix and dollar utilization. We are investing in upgrades and expansions to our branch locations as well as sales and branch training programs to enhance our operational efficiency. We are enhancing our customer experience through a number of different initiatives in both technology applications and expansion of fleet categories to assist our customers with the best solutions to meet their needs. Now please turn to slide eight. Before I summarize our financial results, I'd like to address the key strategic decisions we recently implemented to support our long-term success. We've identified, evaluated, and decided on a course of action in several important areas to both eliminate distractions and better position the company for long-term growth. First, as you know, we've been in the process of separating certain legacy IT systems from our former parent and establishing platforms we can directly manage. In June, we decided to discontinue the development of new financial and point-of-sale systems that had been initiated prior to spin-off. Instead, we will retain and build on our current industry-standard systems, RentalMan and Oracle. The new system under development was not going to be a feasible solution to complete our transition services by June 30, 2018. Instead, we decided to transition the legacy systems that we've been using and redirect our investments to upgrade and enhance their functionality. This decision puts us on a solid path to achieve what's best for the business, leveraging our existing resources. We also decided to sell certain revenue-earning equipment in one of our non-core international operations to focus on our North American business. Despite the immediate short-term impact on our reported results, we made these decisions to drive future profitability. In addition, just yesterday, we signed an agreement to sell and lease back 44 company-owned locations, which is expected to generate approximately $120 million in the second half of 2017. This transaction will allow us to monetize capital tied up in our real estate and take advantage of the attractive real estate and financing markets that exist today. The transaction is expected to give us dry powder for use of the business, thereby providing financial flexibility. Now, on to our second quarter results, and please turn to slide number nine. We're pleased with the revenue momentum we experienced in the second quarter, and we reported an increase of 7% to $351 million in overall equipment rental revenue, compared with $328 million in the prior year period. Equipment rental revenue in key markets grew nearly 9% and represent about 85% of the total. Equipment rental revenues from upstream O&G appear to be stabilizing for the first time in two and a half years. Pricing in key markets increased 1.5% in the second quarter over the prior year period, supported by solid performance in renewals of national accounts and growth in local account revenues. Overall, pricing increased 1.4% in the second quarter compared to the prior year. Despite the strong top-line growth, we posted a net loss of $28 million in the second quarter, primarily due to the impairment charge related to our IT decision already mentioned, increased interest expense, stand-alone public company costs, and continued investments in facilities and people. Second quarter adjusted EBITDA increased $35 million from the first quarter and was up year-over-year to $133.1 million. We expect to build on the momentum we are experiencing and to achieve substantial year-over-year improvement in the second half of 2017. Therefore, we are affirming our adjusted EBITDA guidance for the year of $550 million-$590 million, and net CapEx of $275 million-$325 million. Overall, we remain confident in our strategy and in our ability to deliver improving results in connection with that strategy over the long term. Marv will go into more detail on the elements that contributed to this quarter's results and the actions to reach our 2017 guidance range. Please go to slide 10. Our strategic direction includes operational priorities to expand and diversify revenue, improve operating effectiveness, and enhance the customer experience. These strategies drive our actions as we continue to transform our business while maintaining disciplined capital management. Now, please turn to slide 11. Rental revenues accelerated in the second quarter, with June being especially strong for us. We achieved above-market growth, and importantly, rental revenues from upstream O&G markets appear to be stabilizing in the quarter and were flat compared to prior year. We continue to experience solid growth in the U.S., particularly in the West and East Coasts, and major urban markets. The Midwest region is also improving as a reflection of some of the changes that were implemented late last year. The graph on the upper right shows the year-over-year growth in rental revenues in both key markets and overall. As you can see, upstream O&G results in the second quarter aren't detracting as much from overall performance as it has for the last two and a half years. Pricing was strong in key markets, particularly in the U.S., in both national and local customer accounts. As shown on the bottom right of this slide, we've successfully increased overall pricing year-over-year for the last five consecutive quarters. Of note, pricing in key markets increased at least 1.5% in each of the last five quarters. Local rental revenues grew faster than national accounts, primarily relating to our successful urban market strategies and offering more ProContractor and ProSolutions type equipment through targeted geographic locations. We are currently operating 33 ProSolutions locations. Our ProContractor showrooms are now in 75 locations, with a target of 125 by year-end. We also continue to improve our ancillary revenues, which grew about 12% in the second quarter compared to the same period in 2016. While this is a small percentage of rental revenue, approximately $0.90 of every dollar falls directly through to the bottom line. We started out the spring season strong from both a rental momentum and pricing perspective. As we enter the summer months, we're pleased that our strategy is providing the top-line momentum that we had anticipated. We are seeing improvements in volume, mix, pricing, and customer diversification. Please turn to slide 12. We're continuing to aggressively manage our fleet through purchases of new equipment categories that broaden our customer base and improve dollar utilization. ProContractor and ProSolutions now make up about 20% of our fleet, compared to 17% at June 30, 2016 and 16% at the end of 2015. A comparison of this fleet category changes is also included in the appendix of this presentation. Besides increasing our fleet in ProContractor and ProSolutions equipment, we also continue to increase our investment in higher dollar utilization categories such as aerial scissor lifts, industrial material handling, and compact earth-moving equipment. Please turn to slide 13. Rental revenue growth exceeded average fleet growth in the quarter, reflecting better volume mix and pricing, resulting in improvement in dollar utilization, the first year-over-year increase since the downturn in oil and gas. We continue to make investments in fleet and people to lay the foundation for our growth. We're focusing on vertical markets to drive customer and industry diversification. We continue to focus on branch operations training, an investment that is expected to realize improved operating efficiencies as we go forward. Our fleet available for rent, or FUR, also improved year-over-year. In June 2017, FUR was at 13.1%, down from 13.3% in the prior year period. We're reflecting better traction of our programs focused on improving the turnaround of equipment. Now please turn to slide number 14. Safety is our number one priority, and we took the opportunity of June's National Safety Month to focus on our safety programs throughout the organization. We continue to make progress reducing our year-to-date Total Recordable Incident Rate by 9% compared with last year. Our ultimate goal will always be zero incidents and to provide a safe environment for our team and our customers. Overall training in sales, branch operations, systems, and safeties continues to be an important investment for new and seasoned personnel. Now please turn to slide 15. We continue to focus on delivering improved solutions to our customers. For example, to help our customers meet new OSHA requirements on controlling silica dust, our campaign, The Dust Stops Here, will help customers comply with new OSHA standards that go into effect this coming fall. By getting out in front of the upcoming changes in federal standards such as this one, we play a critical supporting role for our customers. Our ProSolutions team is also expanding our customer base and meeting current customer requirements with solutions that we didn't offer previously. We are working with customers across a broad array of diverse industries that can utilize climate control, remediation, and pump and power applications. We now have targeted catalogs and the ability to customize product marketing flyers for our sales organization to enhance their effectiveness in the field. Our customer-focused events are also reinforcing our services and the new Herc Rentals brand. Our locations are hosting activities such as the READI campaigns to introduce local customers to our broad range of equipment and solutions we now provide. Please turn to slide 16. Our technology enhancements are enabling superior customer experiences and are focused on helping our customers work more efficiently, effectively, and safely. Our telematics application, which we call ProControl, allows customers to track equipment location, performance, utilization, and service requirements in real time and from remote locations. Herc On-the-Go will track the delivery of equipment. E-Apply is helping customers open new accounts faster and more efficiently. Optimus provides real-time price quotations to our customers. We are committed to enhancing technology and mobility to provide our customers the tools to drive their efficiency and effectiveness. Please turn to slide 17. Key industry metrics remain positive, with the architectural billing index improving to over 54 in June. Industrial spending forecasts for 2017 remain positive, and expectations for U.S. construction spending in 2017 and 2018 continue to be positive in both residential and non-residential segments, with growth projected in the mid to high single digits. The ARA forecast remains robust through 2021. Longer term, the continuing overall shift from ownership to rental is expected to drive growth in the equipment rental industry over time. We believe that these factors will continue to fuel revenue growth and extend the current market cycle. Please turn to slide number 18. You've seen this slide before, and I won't go through every bullet. Let's summarize by simply saying that we continue to make progress on executing our strategy and driving improvements in operating performance. Now let me turn it over to Barb Brasier, who will discuss our quarterly financial results in more detail, and then I'll summarize at the end before we open it up to questions. Thank you, Larry. Good morning, everyone. Before I cover the financials, I want to highlight four takeaways from the quarter, all of which I'll expand upon in my remarks. First, we achieved strong above-market top-line growth. Second, we made important strategic decisions that position us well for the future. Third, we are continuing to invest in people, processes, and facilities to improve profitability in the long term. Fourth, we are affirming our full year guidance. Please turn to slide 20. Larry already provided an overview of key metrics for the quarter. I'll reiterate a couple of highlights, then I'll walk you through the detailed bridge charts. In the second quarter and first half of 2017, we delivered overall revenue growth and pricing improvement driven by strong performance in our key markets. Key markets are those outside of upstream oil and gas. Adjusted EBITDA in the second quarter of 2017 improved $3 million over the same period in 2016 and accelerated by $35 million from the first quarter of 2017, reflecting strong market performance in stabilizing upstream oil and gas markets. Please turn to slide 21. We achieved above-market growth in the second quarter of 2017 with equipment rental revenues of $351 million, an increase of 7% over 2016. Equipment rental revenues were $671 million for the first half of 2017, an increase of 5.6% over 2016. Second quarter rental revenues in key markets increased nearly 9%, excluding currency, and represented about 85% of rental revenues in the quarter. This increase in key markets is attributable to three factors. One, our urban market strategy continued to gain traction. Two, our core business continued to do well with strong gains on both coasts and in major markets. Three, we had solid gains in our ProSolutions and ProContractor businesses. Upstream oil and gas markets, which represented 15% of total rental revenues in the quarter, also appear to be stabilizing after more than two and a half years of year-over-year declines. We benefited from the continuation of strong pricing gains in the second quarter, with an increase of 1.5% in key markets and 1.4% overall compared to the prior year period. Now please turn to slide 22. Total revenues in the second quarter of 2017 increased 9% to $416 million, and for the first half, increased nearly 8% to $805 million as compared with the prior year period. We have already discussed equipment rental revenues, which accounted for most of the increase, so I'll move on to the other components of total revenue. Sales of revenue-earning equipment were $46 million for the second quarter, an increase of almost 50% from the prior year period. We continue to aggressively shift the fleet to transform our mix. This mix shift is driving our growth in rental revenue and dollar utilization improvement. Sales of new equipment were lower year-over-year since, as we have said before, we have exited dealerships and are focusing on higher-margin rental activity. Please turn to slide 23. Our net loss in the second quarter was $28 million compared to a net loss of $8 million in 2016. The biggest drivers of the higher year-over-year loss were impairment charges, interest expense, and fleet depreciation. Impairment charges were $29 million in the quarter, consisting primarily of a $26 million write-off related to our IT decision and an impairment charge of $3 million related to the sale of non-core international rental equipment. Interest expense for the second quarter was $32 million, an increase of $18 million over the previous year, reflecting our interest expense as a standalone company. The first half also includes a $6 million charge related to the redemption of $124 million of our senior notes during the first quarter. The second quarter also benefited from savings in interest expense, given the lower interest rate on the ABL compared to the interest rate on the bonds. Fleet depreciation increased approximately $10 million as a result of our 4.7% fleet growth in the quarter and the carryover effect of adjustments made last year. There have been no significant depreciation adjustments in 2017. Our second quarter spin-off costs of about $9 million were one half of last year. We expect that our decision to retain and update our current financial and point-of-sale system will result in an increase of spin-off costs of about $10 million-$15 million in the second half of the year. We now estimate that for the full year, spin-off costs will be about $35 million-$40 million, higher than the $25 million we had originally estimated. This increase will impact total SG&A costs for the full year but will not impact our adjusted EBITDA. Please turn to slide 24. Adjusted EBITDA for the second quarter was $133 million, an increase of about $3 million from the second quarter of 2016, and an increase of $35 million from the first quarter of 2017. The largest contributor to adjusted EBITDA was strong equipment rental revenue growth in the second quarter, which was offset by operational and sales investments to promote future growth. Losses from the sale of revenue-earning equipment for the quarter and first half were lower than prior year periods, reflecting the utilization of more retail and wholesale channels rather than auction channels that were used in 2016. Investments in our facilities, people, and processes were reflected in higher direct operating expenses and higher sales costs. Standalone public company costs increased nearly $6 million in the quarter compared to the prior year period. Remember that during the first half of 2016, when we were a division of Herc, certain costs, such as corporate staff salaries, were considered spin-off costs. Since July 1, 2016, those costs are no longer considered spin-off costs as they represent our ongoing standalone company costs. Please turn to slide 25. Based on our investors' feedback about how we report our fleet capital expenditures, we have changed the format of the information we are providing. We have broken out the expenditures and disposals on an original equipment cost, or OEC, basis and have provided a rolling balance of the OEC value of our total fleet. We have included a quarterly breakout of this information for 2016 and 2017 in the appendix, which we hope will help you better track the changes in our fleet. For the first half of 2017, fleet expenditures at OEC were $336 million, and disposals were $231 million. The average age of our fleet disposals was 79 months, and the percentage of revenue to fleet disposed was about 44%. As of June 30, 2017, the fleet value increased to $3.65 billion. While average fleet grew 4.7% in the second quarter and 5% year-to-date, rental revenue grew faster at 7% and 5.6% respectively. Dollar utilization increased 50 basis points to 34% in the second quarter, the first year-over-year improvement in nearly two and a half years. Please turn to slide 26. Total debt was $2.2 billion as of June 30, 2017, largely unchanged from year-end. We maintained ample liquidity during the quarter. Availability under our asset-based revolving credit facility, plus cash on hand totaled $733 million as of June 30, 2017. Net cash flow from operations totaled $123 million. Free cash flow for the first half of 2017 was $23 million and was positively impacted by changes in working capital. A reconciliation of free cash flow is in the appendix of the deck. As Larry mentioned, we have signed an agreement to sell and lease back 44 company-owned branch locations, which is expected to generate approximately $120 million in the second half of 2017. The transaction is expected to give us dry powder for use in the business, thereby providing financial flexibility. In summary, our operating cash flow and liquidity provide us the financial flexibility to fund our strategic growth, serve our customers, and create value for our shareholders. Please turn to slide 27. We are affirming our adjusted EBITDA guidance of $550 million to $590 million for the year. The expected drivers for the second half adjusted EBITDA include the trajectory of year-over-year rental revenue growth heading into the seasonal peak summer months, stability of upstream O&G markets, improved volume, mix, and pricing, rental revenue growing faster than fleet, continuing focus on controlling costs, and realizing the benefits of investments made in people, processes, and facilities. We are also affirming our net CapEx guidance of $275 million to $325 million. Now, I'll turn it back to Larry. Thanks, Barb. Please turn to slide 28 before we begin our Q&A discussion. I'd like to recap the reasons we're confident that we're on track to achieve our long-term operational and financial targets. First of all, we've achieved strong above-market top-line growth. Secondly, we've made important strategic decisions that position us for the future, and we continue to invest in our people, processes, and facilities to improve profitability in the long term, and we are affirming our 2017 guidance. I want to thank our Herc Rentals team members who are hard at work transforming our business while maintaining an unwavering focus on serving our customers. We continue to advance every day toward our vision to be the supplier, employer, and investment of choice in our industry. Now we look forward to your questions. Operator, please open the lines. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. It looks like our first questioner today is Nick Coppola with Thompson Research. Please go ahead. Hey, good morning. Good morning, Nick. How are you? Good. Thank you. I wanted to ask about rate. What were the key drivers of performance in the quarter? To what extent was it a better competitive environment versus maybe some self-help or mix shifts? What are your go-forward expectations? Bruce, I'll ask Bruce to handle that one. Great. Morning, Nick. To talk about just the environment, I think it's a good market out there right now, and I think people are acting rational in the marketplace. Like I've spoken before about our pricing, I truly believe there's a science to this. With our Optimus pricing guide that we have out there and the actions we've taken, we've been able to see these price gains, and we see no reason in the future that we shouldn't be able to continue to see these types of gains. Okay, that's helpful. Wanted to drill in a little bit more on O&G markets. That's flattening out. Any more color on trends there? Would you expect acceleration from here? Yeah, look, as we said, we saw the first time in 2 and a half years where the O&G markets have stabilized or flattened. Certainly in portions of the business, we've even seen a bit of an uptick with drill rig counts starting and a little more production coming out of the oil sands. Bruce may be able to provide greater color for you on the overall market. Yeah, I think that you are starting to see the O&G market stabilize and in certain pockets actually grow. As we stated all along, we're going to be extremely disciplined, and we have been in the capital allocation, and you can see that in our O&G business was flat, where we probably could have taken advantage of that a little bit. But we didn't. We stayed disciplined, and we're pretty fortunate, I think, that our main strategy of growing our big urban centers in the urban major markets allows us to deploy our capital there and see the growth in those markets, which ultimately gets us to where we want, a more diversified customer base. Okay, great. Thanks for taking my questions. Thanks, Nick. As a reminder, it is star then one if you would like to ask a question today. The next question will be Brian Sponheimer with Gabelli. Please go ahead. Hi. Good morning, everyone. Good morning, Brian. How are you? I'm good. First of all, congratulations on the anniversary of your spin. I guess along those lines, if you think back a year, where are you ahead and where are you probably a little bit behind where you would want to be at this point? Great question. I would say from being ahead, I think we are certainly well-positioned on our fleet in terms of what we've been able to do to transform the fleet and the mix that we've been able to pull together. I think we're pretty happy with the gains that we've made in terms of pricing and targeting verticals and specific customers and customer segments. Certainly positioning our brand and rebranding our facilities and upgrading our facilities are probably the areas that we're ahead. Probably, I wouldn't say behind, but running on track and according to the separation is some of the TSAs and dealing with the different conditions that we have to use to separate the businesses from Hertz. I think we're on track and not ahead of track, but certainly an area that we're paying a lot of attention to and putting a lot of effort into to make sure that we comply with the separation agreement, which is June 30, 2018. Okay, thank you very much. You mentioned your former parent. Can you just remind us, because you do tend to trade with HTZ. In the event that there's some sort of material adverse event at the car rental company, can you just go over your exposure or remind us the exposure? Yeah, look, I do not want to comment or speculate on our former parent. I think we will all be listening this evening to their call. But look, I think at this point, we have outlined all of our liabilities in our 10-K and certainly in our separation agreement that talk about the liabilities that exist in the past. Nothing has changed from that, and we do not really anticipate any adverse effect on us that we can see at this point. Okay. All right. Thank you very much. Just one more. Just talking about the business itself. At the local and national level, what end markets are you seeing drive that increased demand? Bruce, you want to handle that? Sure. I would tell you it is across all of the different segments that we are focused on. It is a fairly robust market, as Larry and Barbara said. The coast seems to be stronger than the center. Canada seems to be stabilized. Eastern Canada actually is ticking up and we are getting some growth. But overall, the teams have done a great job as we have diversified across our customer base, and we are seeing robust activity in the overwhelming majority of the markets that we are serving. All right, excellent. Well, best wishes for continued success here. Thank you very much. The next questioner today is going to be Jamie Kahler with BRAML. Please go ahead. Hi, it's James Kahler. How are you? I'm great, James. How are you this morning? Good. Just a few follow-ups mostly. In terms of the $10 million-$15 million increase in the spin-off cost that you outlined, can you maybe just give us a little bit of color on specifically what those relate to and when those should taper down? Is it kind of like a discrete time period, and then you would expect beginning early next year that those would fall to the wayside? Yeah, I'll let Barb chime in on that one. Yeah, James, the incremental spin costs that we talked about today really are tied to that IT decision. So they're really linked to the technology implementation that we're undergoing in part of our separation. That $10 million-$15 million is our expectation for the second half of 2017. We would expect spin costs to continue to be incurred into 2018, albeit expected to be at a somewhat lower level. Okay. I think you mentioned this in the opening remarks, but the total spin cost for all of 2017 now, that range would be $35 million-$40 million. Is that right? That is correct, James. Okay, great. Just one other technical question on the sale-leaseback transaction. Is that transaction going to be accounted for as a capital lease or an operating lease? Yeah. Go ahead. James, sounds like you have a little knowledge in that area. The transaction, first of all, I want to make clear it is not expected to impact our adjusted EBITDA. The reason for that is that for accounting, we do not expect the transaction will be accounted for as a sale-leaseback. We will keep the assets on our books and continue to depreciate them. So that is why we do not expect any impact on adjusted EBITDA. So more capital type lease treatment than operating. So there'll be no rental expense recorded on the That's correct. No rental expense that would impact adjusted EBITDA. Yes. Okay. Then just finally, bigger picture. Obviously there's been quite a bit of consolidation in the industry. I know you have a lot going on with your sort of spin out and sort of strategic focus, but maybe you can just comment on your thoughts on the consolidation in the industry. Are you looking at transactions? Do you see value in the transactions that are getting done? I guess that's really it. Well, a few questions there, and I'll sort of take a stab at them. First of all, I think the consolidations that have happened have been healthy for the industry and have certainly been good. We've been certainly watching them and been knowledgeable of what's been going on. But as we stated as part of our strategy, this really isn't a roll-up business. This isn't an M&A opportunity that we've identified here. This is more of an organic growth business where we feel that we have this unbelievable footprint that was left to us by the legacy business that we can grow our business and grow our volume through the existing footprint with some minor organic adds in terms of branch locations building out the urban markets as we have been doing over the last 12 months or so. So we'll always be looking, and as I said, we'll be opportunistic if the right opportunity and right fit comes for us that fills in a geographic urban market that we don't participate in. But generally, ours is not an M&A strategy. Ours is let's put more volume through our existing footprint. Okay, great. Thank you for the update. The next questioner today will be Jerry Revich with Goldman Sachs. Please go ahead. Hi, Jerry. How are you? Hey, Larry. Good morning. Good morning, everyone. How are you folks? Good. I'm wondering if you could talk about pricing cadence over the course of the quarter. Did you folks see an acceleration in pricing as we went through May and June compared to the start of the quarter? Jerry, this is Bruce. I would say we saw some momentum. I wouldn't call it an acceleration, but there was some momentum as we went through the quarter, and this is why I feel pretty comfortable saying that we should be able to continue to see these type of gains in the future. Given the changes in the fleet, can you talk about, I know you don't disclose time utilization, but conceptually, can you talk about as we're entering Q3, are you folks effectively all out from a utilization standpoint, or do you folks still have room to move utilization higher off of the levels that you're seeing now? I know you don't disclose time utilization, but I'm hoping you can talk about it qualitatively. Yeah. How to answer that without quoting time use, I think Barb and Larry both used the term volume was gaining through the quarter. We are continuing to see that as we get the fleet mix right. You see how much we brought in on the yard in the first half and how much we have disposed of. So we are aggressively executing on this fleet mix change. Also, you see that we still have ability to improve on our FIR. We have brought it down, and we will continue to do that, which brings more equipment available to rent. As we build into the peak season, I would tell you there is opportunity to continue to build on the volume that we have already obtained. Okay. Barb, on the sale-leaseback transaction, can you just give us an update? How many additional branches do you folks own where this could be an opportunity? You mentioned no impact on EBITDA, delay accounting. Any impact on cash flow directionally? Yeah, Jerry. First of all, this is a little more than half of our locations. We own something in the low 70s locations. So a little more than half. The transaction will not impact adjusted EBITDA. We will be receiving about $120 million roughly in proceeds, and we would expect the cash flow impact in the first year to be about $8 million for rent payments. Okay. Thank you. Barb, on the systems decision that you folks made this quarter, can you just flesh that out a bit more? What are the puts and takes of upgrading the legacy systems as opposed to the prior plan? Can you just talk a little bit more about that, if you do not mind? Yeah. Let me take that, Jerry, and tell you a little bit about the decision-making. The work that was going on prior to us coming into the business and certainly long before the spin happened, was around developing a new, both front-end and back-end platform for the business. We inherited that, then as of the spin date, we became responsible for that and began evaluating whether or not that was appropriate for our business going forward. Anytime you take a decision like that involves a write-off of the magnitude that we did, we didn't take it lightly, and we wanted to make sure we fully understand what the capability was going to be and what our existing platform looked like, and how that related to the industry on a go-forward basis. So that evaluation went on over the past 12 months, and we came to the realization and strong belief that while the new system may have been something that could have been a generational improvement, it was extremely risky for us and also involved some time factors that were risky for us to fulfill the TSA obligations and satisfactorily withdraw or end our relationship with Hertz under the TSA. So all of those factors together, and the fact that RentalMan is an industry-standard platform, everybody in the industry that's of any size uses it. It was something our organization knows well and is certainly upgradable. We felt that that was the best interest and our best decision to do. About 85% of the funds related to this write-off were incurred prior to the spin. So most of the spending happened before the spin. We slowed it down and took a look at what we were doing and trying to understand, before we spent a lot more money on it, once we became in control of it. Ultimately, we decided it wasn't a right decision for us and decided to remain with our current legacy systems without our industry-standard platforms. Okay. Thank you. I appreciate the color. Once again, if you would like to ask a question, please press star then one on your touch-tone phone. There looks to be no further questions, so this will conclude the Q&A session. I would like to turn the conference back over to Elizabeth Higashi for her closing remarks. Thank you, William, and thank you everyone on the call for joining us today. If you have any further questions, please don't hesitate to call me. I also want to point out that we'll be in New York City tomorrow at the Jefferies 2017 Industrials Conference and in Boston the next day. So we look forward to seeing you all soon. Take care. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect.