United Rentals, Inc. (URI) Q1 2010 Earnings Report, Transcript and Summary

Good morning. And welcome to the United Rentals First Quarter 2010 Investor Conference Call. Please the advised that this call is being recorded. ’: ’: ’: ’: ’: ’: Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

’: ’: ’: ’: ’: ’: ’: Rental revenue was down 15%, now some of that was due to fleet being down up by 6% on a year-over-year basis. The worst of the environment happened in January through mid-February and then we saw a shift late in February continue into March and March came back stronger than we anticipated. ’: Rental revenue was down 15%, now some of that was due to fleet being down up by 6% on a year-over-year basis. The worst of the environment happened in January through mid-February and then we saw a shift late in February continue into March and March came back stronger than we anticipated. ’: Rental revenue was down 15%, now some of that was due to fleet being down up by 6% on a year-over-year basis. The worst of the environment happened in January through mid-February and then we saw a shift late in February continue into March and March came back stronger than we anticipated. ’: Rental revenue was down 15%, now some of that was due to fleet being down up by 6% on a year-over-year basis. The worst of the environment happened in January through mid-February and then we saw a shift late in February continue into March and March came back stronger than we anticipated. ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: Southeast is also picking up in projects like infrastructure, power plants and bridges. The Gulf area, activity is increasing as industrial plants return to a more normalized maintenance schedule, which impacts the local economies. ’: Southeast is also picking up in projects like infrastructure, power plants and bridges. The Gulf area, activity is increasing as industrial plants return to a more normalized maintenance schedule, which impacts the local economies. ’: Southeast is also picking up in projects like infrastructure, power plants and bridges. The Gulf area, activity is increasing as industrial plants return to a more normalized maintenance schedule, which impacts the local economies. ’: Southeast is also picking up in projects like infrastructure, power plants and bridges. The Gulf area, activity is increasing as industrial plants return to a more normalized maintenance schedule, which impacts the local economies. ’: ’: ’: ’: ’: ’: ’: Now to give you some early insight into the first quarter (inaudible) into April, rates have been essentially flat. So when you put the rate trend together with used equipment pricing and time utilization, which is continuing a positive trend as we move through April, it suggests that though we saw the worst part of the cycle in the first quarter. ’: ’: ’: ’: ’: ’: ’: ’: Leveraging our footprint and fleet through our people, focusing our sales efforts on larger more profitable accounts, key accounts, national, strategic, government and local accounts, that have been assigned a single point of contact. Also investing in areas to drive growth, for example, our headcount is down in the first quarter year-over-year, but the number of national and strategic account managers is up 27%. ’: Leveraging our footprint and fleet through our people, focusing our sales efforts on larger more profitable accounts, key accounts, national, strategic, government and local accounts, that have been assigned a single point of contact. Also investing in areas to drive growth, for example, our headcount is down in the first quarter year-over-year, but the number of national and strategic account managers is up 27%. ’: Leveraging our footprint and fleet through our people, focusing our sales efforts on larger more profitable accounts, key accounts, national, strategic, government and local accounts, that have been assigned a single point of contact. Also investing in areas to drive growth, for example, our headcount is down in the first quarter year-over-year, but the number of national and strategic account managers is up 27%. ’: Leveraging our footprint and fleet through our people, focusing our sales efforts on larger more profitable accounts, key accounts, national, strategic, government and local accounts, that have been assigned a single point of contact. Also investing in areas to drive growth, for example, our headcount is down in the first quarter year-over-year, but the number of national and strategic account managers is up 27%. ’: Leveraging our footprint and fleet through our people, focusing our sales efforts on larger more profitable accounts, key accounts, national, strategic, government and local accounts, that have been assigned a single point of contact. Also investing in areas to drive growth, for example, our headcount is down in the first quarter year-over-year, but the number of national and strategic account managers is up 27%. ’: ’: Today we now have coverage of 50% of our revenue, meaning our reps are assigned directly to customers. Equally as important, complete visibility through our sales force automation, also pursuing industrial business with our goal of 30% of rental revenue, currently for the quarter at 19%, but it continues to make progress. Of the 65 national accounts signed in the first quarter, 25 were industrial with a total wallet estimated to be at $25 million. Now within our national accounts team we now have a broad base of managers who are subject matter experts in industrial to help us grow that business. Everything I just mentioned relates to target customers, also paying close attention to the rest of our customer base, our sales initiatives in place and designed to drive revenue generation across all markets. One of the examples of that is reactivating dormant accounts. In March, we pushed out through our sales force automation tool 7,000 we call quiet accounts, accounts that revenue was declining over the last trailing 12 months. We generated over $1.3 million of additional revenue in March alone by calling on these customers. ’: Today we now have coverage of 50% of our revenue, meaning our reps are assigned directly to customers. Equally as important, complete visibility through our sales force automation, also pursuing industrial business with our goal of 30% of rental revenue, currently for the quarter at 19%, but it continues to make progress. Of the 65 national accounts signed in the first quarter, 25 were industrial with a total wallet estimated to be at $25 million. Now within our national accounts team we now have a broad base of managers who are subject matter experts in industrial to help us grow that business. Everything I just mentioned relates to target customers, also paying close attention to the rest of our customer base, our sales initiatives in place and designed to drive revenue generation across all markets. One of the examples of that is reactivating dormant accounts. In March, we pushed out through our sales force automation tool 7,000 we call quiet accounts, accounts that revenue was declining over the last trailing 12 months. We generated over $1.3 million of additional revenue in March alone by calling on these customers. ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’:

’: ’: ’: ’: ’: ’: ’: A bit more context on our fleet. Our fleet size during the year or during the quarter was down versus last year, down 6% at the end of the quarter. And obviously that was a positive in supporting utilization. Utilization, as Mike said was essentially flat. It was up actually 10th of a percentage point compared to the same quarter last year. ’: A bit more context on our fleet. Our fleet size during the year or during the quarter was down versus last year, down 6% at the end of the quarter. And obviously that was a positive in supporting utilization. Utilization, as Mike said was essentially flat. It was up actually 10th of a percentage point compared to the same quarter last year. ’: A bit more context on our fleet. Our fleet size during the year or during the quarter was down versus last year, down 6% at the end of the quarter. And obviously that was a positive in supporting utilization. Utilization, as Mike said was essentially flat. It was up actually 10th of a percentage point compared to the same quarter last year. ’: A bit more context on our fleet. Our fleet size during the year or during the quarter was down versus last year, down 6% at the end of the quarter. And obviously that was a positive in supporting utilization. Utilization, as Mike said was essentially flat. It was up actually 10th of a percentage point compared to the same quarter last year. ’: ’: ’: ’: ’: ’: Auction was 17% of our sales this quarter, compared to about 39% last year. So, that certainly was a positive contribution in addition to the improvement in underlying equipment prices. Earthmoving in particular was a better performing component of our used sales than other categories. For contractor supplies, another solid story for us even though the revenue was down materially, down 28% year-over-year, the gross margin improved very significantly. Gross margin was up 230 basis points for the quarter to just over 30% in our contractor supplies business. ’: ’: ’: ’: Specifically salaries and benefits were a major component and they came down in line with a significant headcount reduction. Professional fees were down materially as well, they came down in line with our greater focus on being careful on where we engage professional service providers. ’: Specifically salaries and benefits were a major component and they came down in line with a significant headcount reduction. Professional fees were down materially as well, they came down in line with our greater focus on being careful on where we engage professional service providers. ’: Specifically salaries and benefits were a major component and they came down in line with a significant headcount reduction. Professional fees were down materially as well, they came down in line with our greater focus on being careful on where we engage professional service providers. ’: ’: ’: On our cost of rent excluding depreciation, that came down $19 million in the quarter and like SG&A we had contributions from most of the lines of our cost of rent. Salaries and benefits again in line with headcount was a significant contributor. But other areas such as R&M, facility costs were also down and we continue to look for opportunities to continue that momentum. As we streamline, as we automate, as we really drill into our rental processes we believe there are more opportunities available, things like the fast initiative that Mike mentioned to help optimize our logistics operation we think will contribute to our path on costs in our cost of rent lines. ’: On our cost of rent excluding depreciation, that came down $19 million in the quarter and like SG&A we had contributions from most of the lines of our cost of rent. Salaries and benefits again in line with headcount was a significant contributor. But other areas such as R&M, facility costs were also down and we continue to look for opportunities to continue that momentum. As we streamline, as we automate, as we really drill into our rental processes we believe there are more opportunities available, things like the fast initiative that Mike mentioned to help optimize our logistics operation we think will contribute to our path on costs in our cost of rent lines. ’: Put it all together between revenue and cost and you see that we delivered adjusted EBITDA of $115 million for the quarter and that was at a margin of 21.4%. So none of us are satisfied with 21.4% EBITDA margin but for the first quarter, seasonally the weakest quarter and compared to last year we think that represents solid performance in the quarter. ’: Put it all together between revenue and cost and you see that we delivered adjusted EBITDA of $115 million for the quarter and that was at a margin of 21.4%. So none of us are satisfied with 21.4% EBITDA margin but for the first quarter, seasonally the weakest quarter and compared to last year we think that represents solid performance in the quarter. ’: Put it all together between revenue and cost and you see that we delivered adjusted EBITDA of $115 million for the quarter and that was at a margin of 21.4%. So none of us are satisfied with 21.4% EBITDA margin but for the first quarter, seasonally the weakest quarter and compared to last year we think that represents solid performance in the quarter. ’: Turning to free cash flow, we generated $99 million of free cash flow for the quarter that included a $55 million cash tax refund that we received in March. That tax refund is consistent with the cash tax impact that we talked about in February. ’: Turning to free cash flow, we generated $99 million of free cash flow for the quarter that included a $55 million cash tax refund that we received in March. That tax refund is consistent with the cash tax impact that we talked about in February. ’: ’: A couple of thoughts on fleet, we continue to drive the fleet strategy, in terms of leveraging our fleet, the best way that we can. Transfers are a key component. We had $1.2 billion of transfers this quarter and that was about 33% of our overall fleet involved in our transfer activities over the quarter. When you look at our used sales activity, the age of what we sold from the fleet in our used sales this quarter was 75 months, again consistent with our strategy of selling the oldest fleet first. And within those sales about 60% of the sales were in aerial and reach forklift categories, categories that are lagging a little bit in terms of overall market performance. As I mentioned, on a year-over-year basis our overall fleet size is down 6% at the quarter end and this helped us achieve the essentially flat time utilization that we remarked earlier. ’: A couple of thoughts on fleet, we continue to drive the fleet strategy, in terms of leveraging our fleet, the best way that we can. Transfers are a key component. We had $1.2 billion of transfers this quarter and that was about 33% of our overall fleet involved in our transfer activities over the quarter. When you look at our used sales activity, the age of what we sold from the fleet in our used sales this quarter was 75 months, again consistent with our strategy of selling the oldest fleet first. And within those sales about 60% of the sales were in aerial and reach forklift categories, categories that are lagging a little bit in terms of overall market performance. As I mentioned, on a year-over-year basis our overall fleet size is down 6% at the quarter end and this helped us achieve the essentially flat time utilization that we remarked earlier. ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: During the quarter we also temporarily moved a large portion of our Canadian cash position down to the U.S. and we carried that intercompany loan position over the quarter end so that explains the significant decline in cash balance that you see on the balance sheet. It was roughly $160 million U.S. and obviously when we moved the cash into the U.S. we used it to pay down the ABL. Total debt at the end of the quarter was down by $245 million since the year end and our net debt was down by $96 million. ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’: ’:

Good morning, guys. [Henry] from Munich.

How are you?

Good. What was the weather impact to the first quarter?

What was the weather impact, I mean, obviously…

Yes, is there any way to quantify it or?

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Yeah.

Thanks.

Thank you. Our next question comes from [excuse me] from Philip Volpicelli.

Thank you very much. Good morning, guys.

Good morning.

With regard to the time utilization, is that more of a function of you guys having right sized your fleet or I guess the industry having right sized fleets or is it a pickup in demand that allowed time utilization to be flat year-over-year?

You hit the nail on the head. It is part, taking your fleet down and rightsizing it and we did that and we were proactive last year. And just to remind everybody on the phone call, last year we sold $650 million worth of OEC and going into this year and so that as part of it. ’: ’: ’:

And actually our trench business is also up year over year in OEC on rent. And the other categories of our equipment, other than aerial are all either a little better or only slightly worse in terms of the percent OEC on rent year-over-year.

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Great. And then in terms of your fleet plans for the rest of the year, is it a question of, you have to reach a certain utilization level for you to add fleet or are you going to continue to shrink the fleet in an effort to try to get rates positive?

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Last question. The one and seven are potable back to the company in October. Do you plan to satisfy that put, assuming it comes to you with revolver or with free cash flow?

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Great. Thank you very much.

Thank you.

Thank you. Our next question comes from Emily Shanks of Barclays Capital.

Hi, Emily.

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All right.

Just a couple of housekeeping questions for you. Could you guys give me an exact number on the OEC after the $1 million?

For the end of the quarter it was $3.741 billion and the average would be $3.750 billion.

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Yes.

Data points right? Okay. Great.

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Great. And then just one final question. I saw your comments in the 10-Q regarding your RP capacity, still look like you have any. Could you just quantify on the size and particularly where, what buckets those restrictions are coming in?

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Thank you.

Thank you. Our next question comes from Seth Weber of RBC Capital.

Hi, Seth.

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Yes. It was.

It was.

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Okay. And did I hear correctly that you said rates were running flat year-over-year in April?

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Okay.

Sequentially.

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Sequentially.

Yeah.

Okay.

Sequentially.

Not year-over-year?

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Year-over-year over there.

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Right.

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Okay. Have you noticed any uptick in maintenance costs on the fleet as it gets older here or do you feel like you still have some, you can age it another four or five months kind of thing?

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Okay. Last question. On the used equipment, is there any way to track, is a lot of that going overseas or is that staying here, the sales, do you think?

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Okay.

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Right. I mean, did the age of the fleet that you sold change materially from past quarters?

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77.9.

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Okay.

And that will be the story as we go through the remainder of this year as well.

Great. Okay. Thanks very much, guys.

Thank you.

Thank you. Our next question comes from Scott Schneeberger of Oppenheimer.

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Yeah.

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’: And then also, any thought, this is a suggestion and a question, any thought to providing enhanced level of guidance next quarter on the assumption that you may have better visibility? Thanks very much for everything. ’: And then also, any thought, this is a suggestion and a question, any thought to providing enhanced level of guidance next quarter on the assumption that you may have better visibility? Thanks very much for everything.

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Those are the year-over-year comparisons by month…

Right.

… for rate.

Great. Thanks.

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Okay. Thanks.

Okay.

Thank you. Our next question comes from David Wells of Thompson Research.

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Thanks, folks.

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