United Rentals, Inc. (URI) Q2 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the United Rentals Second Quarter Investor Conference Call. Please be advised that this call is being recorded. Before we begin, note that the company's press release, comments made on today's call, and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the Safe Harbor statement contained in the company's earning release. For a more complete description of these and other possible risks, please refer to the company's Annual Report on Form 10-K for the year ended December 31, 2015, as well as subsequent filings with the SEC. You can access these filings on the company's website at www.ur.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that the company's earnings release, investor presentation in today's call include references to free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA, each of which is a non-GAAP term. Please refer to the back of the company's earnings release and Investor Presentation, to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; William Plummer, Chief Financial Officer; and Matt Flannery, Chief Operating Officer. I will now turn the call over to Mr. Kneeland. My. Kneeland, you may begin. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks, operator, and good morning, everyone, and welcome to our call. I'll begin my comments with our second quarter performance because it's a good reflection of our current operating environment. The market conditions are in our favor especially in the United States and I'll talk about some of the initiatives we have underway to capitalize on the growth in demand. And then Bill will cover our results in detail and then, we'll spend the rest of the call on Q&A. So, I'll start with some of the highlights from our results. While total revenue was close to flat year-over-year, our earnings were up. Our adjusted EPS for the quarter was $2.06 per diluted share compared to $1.95 a year ago. We generated $679 million of adjusted EBITDA at a margin of 47.8%. And, it was another strong quarter for free cash flow. Now, looking at the underlying metrics, time utilization increased 90 basis points year-over-year to 67.5%, which was good, but a little softer than we expected. And, we drove a 3% increase in volume, and which was partially offset by 2.4% decrease in rental rates. It was a solid second quarter performance and it shows that we were taking a balanced approach to managing the business. I want to spend a few minutes on rates, because I know it's a point of interest. Our second quarter rates were better than anticipated. We still expect full year rate erosion, but we now believe it may not be as deep as 4%, but more likely scenario is in the 2% to 3% range. It's always difficult to forecast rate. So, it's gratifying that we drove sequential rate improvements of 0.5-point or better in both May and in June. In fact, May was our first sequential increase in 16 months. This comes from intense focus on rates, coupled with a deep dive into the data. We're analyzing transactions that fall outside of our rate criteria, and we've had some success in turning that around. Furthermore, the improvement was widespread. In June, for example, all of our regions took rates higher from May. Now, I remind you of something I've said many times. Rates, utilization, volume and CapEx need to work together to generate returns. And when rates go up, utilization can be impacted and vice-versa. There's always a give-and-take between the metrics. And we also said recently that we felt we could do better on rates, and in the second quarter, we did. Now, turning to our operating conditions, from what we see in here, the cycle is intact. We made that statement on our last call and we believe it still holds true. Conditions remain challenging in Canada, but activity is strong in many areas of our core U.S. markets. We believe the demand that we're seeing goes beyond seasonality, and that shows that we're still in up-cycle, with an added benefit with secular penetration. Regionally, customer activity is robust on both the East Coast and West Coast. The Northeast has a large number of multiyear construction projects underway. Massachusetts is a good example, we're on two casino projects and a railcar facility. And work began in the second quarter and should ramp up in the coming months. In our Southeast region, rental revenue was up 12%, led by South Carolina and Florida. These two states have increases of over 20%. On the West Coast, commercial activity is stable to up in nearly every market. The technology and entertainment sectors are driving the bulk of the commercial activity right now, and infrastructure spending is strong. And nationally, our customer surveys show that optimism is still on the rise. A number of key market indicators line up with our position. These include the ABI, which is at 52.6 in June, followed by another strong showing in May. The ABI has now been above 50 for five straight months and non-residential construction was up more than 7% year-over-year through May. Private non-res, which is our largest end-market, was up 9.2% and contractors are reporting sizable backlogs of project work, and in some case is stretching out more than a year. The bigger backlogs are with larger contractors where we have a competitive advantage. Specialty rentals continue to be another factor in our favor. In the second quarter, our rental revenue from specialty segment was up 8.4% in total. And within that, our Power & HVAC business was up 15.7% and our Trench business was up 14.9%. The Power and Trench increases were almost entirely due to same-store growth. Another one of our specialty operations, pump solutions, was down 5% due to the headwinds from upstream oil and gas. Excluding that sector, rental revenue from our pump was up 21%. So, we're having good success at cross-selling our pump fleet to our current existing customer base with our gen rent customers and those who use our other specialty surfaces that we offer. In the first six months of 2016, cross-selling revenue from pump increased by almost 14% over the prior year. Now of course, not everything is ideal, industrial production is lackluster. Several of our industrial markets have been challenged by weak commodity prices and the impact of the strong U.S dollar on exports. And the Rouse data that came out last week suggests that in the U.S. the supply of fleet in our industry is still growing faster than demand. Much of that imbalance is driven by heavy dirt equipment, which makes up a small percentage of our fleet. Nevertheless, we would obviously like to see the industry return to equilibrium. In our own business we're being very disciplined with CapEx management. For the first six months of 2016, we invested $722 million of gross rental CapEx compared to over $1 billion in 2015 for the same period. And we're making good on our promise at the start of the year and deploying our CapEx in a more measured pace. This gives us greater flexibility in the back half of the year. We're always mindful of the potential for macro volatility. The financial markets got a taste of that recently with the Brexit vote. The economy in Canada remains weak, and globally, there is a sense of economic uncertainty. We're not seeing any backlash in our markets from macro, but if it comes to that, we'd be well prepared to manage through it. The companies that navigate the macro best are the ones that can pivot quickly and we've shown that we're very good at that. In addition, our customer base is much more diversified than it was 10 years ago. We have a better balance between construction and industrial business, and a broader vertical strategy that limits our reliance on any one end-market. We've also diversified our specialty range and expanded these operations. This has accelerated our cross-selling, which leverages our broader base. And for the second quarter, rental revenue from cross-selling, companywide, was up 14%. I also want to mention an announcement that will be coming out in the next few days, about the expansion of our digital customer service platform. The launch of a true e-commerce capability will give us more ways to connect with customers and engage in new markets. Our system is the first in North America to fully automate the rental transaction process end-to-end, and the first to offer online ordering to all commercial renters and consumers. We're always looking at ways to walk-in our customers' shoes. And while many of our customers want a consultative approach, there are always customers who know exactly what to order and prefer to operate in a more digital manner. And we're excited to give those customers a more streamlined way to transaction with us. So, in conclusion, our second quarter performance is an accurate representation of where we believe we are in the cycle, with significant amount of runway ahead. We have many levers inherent in our business model, we fine tune our operations every day using CapEx, redeployment of assets, vertical strategies, cross-selling and used equipment sales, and we'll continue to do that at every operating environment. And as we move through 2016, we're using the inflow data to inform the balance of the year, and that's why you saw some minor adjustments to our guidance last night. We want to be as accurate as possible in our communications with the investment community, and we believe our business is properly calibrated for the current market opportunity. And we see that opportunity expanding, and we're continuing the growth in our end market demand. So with that, I'll hand it over to Bill. And so Bill can discuss the second quarter results. Over to you, Bill. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks, Mike, and good morning to everyone. As always, I'll add a little color on the numbers for the quarter and update our outlook toward the end. We'll start with rental revenue, $1.204 billion of rental revenue in the quarter, that's down $17 million, or 1.3% compared to last year. The components of that really are driven by the owned-equipment revenue items, re-rent and ancillary, net essentially to zero on a year-over-year change basis. And within OER, the volume impact was the big positive. The 3% volume increase netted $33 million of year-over-year revenue benefit. That was offset by the 2.4% decline in rental rates, which was worth about $26 million of year-over-year rental rate – or revenue decline. Our CapEx inflation number was about $20 million of headwind this quarter, and then we had $4 million headwind from mix and other, and it's a net of a variety of different items. So, those are the key components of that $17 million year-over-year decline. Mixed in with all of that was the result of our change in the Canadian dollar. The currency impact in the quarter was about $5 million of headwind versus last year from currency strictly. Moving briefly to used equipment sales, $134 million of used equipment sales in the quarter was $10 million better than last year, and the adjusted gross margin in the quarter was 47.8%, that was down slightly versus last year and it primarily reflected slightly lower pricing for used equipment in the market overall, as well as a slightly greater mix of lower margin channels in the quarter, in particular, somewhat more through the vendor channel than the same quarter last year. Those are the key revenue items I wanted to mention, moving to profitability, starting with adjusted EBITDA. You saw $679 million for the quarter that was down $27 million versus last year. The margin in the quarter of 47.8% was also down 1.6 percentage points in margin and the key components were as follows. So, for the $27 million year-over-year decline, $25 million was the impact of rental rates that 2.4% rental rate impact clearly has a significant change on a year-over-year basis. Volume though, offset $21 million of that $25 million rate decline. Fleet inflation cost is about $12 million and our used equipment sales contributed an incremental $2 million positive over last year. We have a usual merit increase impact, it was about $6 million of decline this year, and then the net of mix and all the other factors was a headwind of about $7 million, that included a little bit of negative adjustment for incentive comp, negative in the sense that it was a greater expense this year than last year, reflecting a little bit higher accrual balance for the incentive programs. Had a little bit of a year-over-year headwind from an insurance accrual adjustment, but that was offset significantly by bad debt improvement over last year. So, those are the key components within that $7 million negative from mix and all other. Moving to adjusted EPS, you saw $2.06 for the quarter, that was $0.11 better than last year and it reflects all the factors that we talked up above, including a net impact of about $0.02 negative from the Canadian dollar. Our free cash flow, you saw that we delivered $792 million of free cash flow for the year-to-date through June 30, that's about $360 million better than last year. The primary drivers really were the lower spending on CapEx, lower spending and timing of CapEx spend, was worth about $300 million of that year-over-year change, and the rest was driven by lower interest expense and timing on working capital and the year-over-year difference in operating cash flow. Our rental growth CapEx, you saw that $722 million rental growth CapEx spend in the quarter, that was again consistent with guidance that we've given about how we want to approach rental CapEx this year, it's down from a comparable period last year, and it does build a net flexibility that Mike mentioned for our ability to spend in the back half of the year. The net rental CapEx for the year was $488 million and that compared to $569 million last year. ROIC in the quarter of 8.5% was down 50 basis points, and again reflects the impact of all the factors that we talked to so far. Moving quickly to liquidity and capital structure, we finished the quarter with just over $1.3 billion of total liquidity that includes $1 billion of ABL capacity, that's available to us, and $265 million of cash available on the balance sheet. We had a lot of activity on the capital structure and, in particular, on debt redemptions in the quarter. In May, we closed the redemption of our 7.375% and 8.25% notes, as well as closed the new debt issue that we used to finance them. And then you saw that we announced that we will redeem the remaining balance of the 7.375% notes, the $200 million that remains outstanding in August that is when that will close. If you aggregate the impact of all those redemption actions so far this year, we expect that we'll be at an annualized run rate save on interest expense of about $30 million. So, some significant improvements of all of those redemption actions. We also took action to extend our ABL in the quarter, so that now we have that ABL maturing in 2021, and that is the first significant debt item that we have. Our debt maturities are very clear up until that point. Just a quick update on the share repurchase program. We bought a total of $171 million worth of shares in the quarter, and that brought our year-to-date purchases to $324 million. And in fact, it brought the program to-date purchases on this $1 billion authorization to $435 million since we started it late last year. So, we're on the pace to continue to deliver share repurchases as we talked about recently, we're spending on a pace of about $670 million or so for this year, and we will continue to execute that on a fairly steady pace. Regarding the limitations on restricted payments, that are inherent in some of our debt. We are still in very good shape there with about $560 million of available capacity when you add both the baskets of restricted payments limitations from the debt and the cash capacity that's available at the parent URI. So, well positioned to be able to continue the share repurchase program. Couple of points on our outlook for the remainder of the year, you saw that we did not change our revenue and adjusted EBITDA ranges for the year, neither did we change our expectations for free cash flow or CapEx spend. On CapEx, I'll just note that we did put in a range around the $1.2 billion of CapEx that we're talking about, that was really done in response to the SEC's guidance to companies that they should be reconciling any non-GAAP financial forecast that they make to the nearest GAAP indicator, the nearest GAAP indicator for free cash flow is cash from operations, and when we try to reconcile to the range that we put around free cash flow, we decided that, we needed to put a range on CapEx. But it doesn't reflect any change in our thinking about spending on CapEx this year, we're still targeting the $1.2 billion that we had in our previous guidance. The two changes to our guidance revolve around rate and time utilization. You saw that we raised our rate range expected for the full year to down 2% to down 3%, that's up from the down 3% to down 4% that we had previously. At the same time, we lowered slightly our expectation for time utilization; we're now calling that at approximately 68% for the year, which would be about a 70 basis point improvement over last year. And really, we raised the rate and adjusted the time to reflect the experience that we had in second quarter and the approach that we're taking in managing those metrics and others for the remainder of the year. So, those are the key points of our outlook as they stand today. I know that the first question we get probably would be how is July going so far and that in finishing out the full year guidance that we're talking about, so just a couple of key points there. On rate, July has started out at a trend that looks like it will bring us at around flat sequentially for the month, compared to June and time utilization is up, and in fact, it's up a little bit more than what we experienced in June. So, it looks like it's up about 70 basis points, that's where we are today and that's a reasonable estimate for where we might end up for the year. So, those are the key points on July, and again, the key points of our guidance for the remainder of this year. One last point, regarding guidance in future periods, we've had a lot of discussion inside the company about what are the proper elements of guidance for us to put forth that will help us have as useful a conversation with all of you as investors as we can. And we've seen over the last several quarters, the challenge that we have in forecasting individual items of guidance, whether it's rate or time utilization, those two items in particular, those are a challenge to PEG, as individual elements of guidance, why? Because, we manage the company in a way that manages those two elements together. So, in order to get us more focused on how we approach managing the company, we've decided that we are going to eliminate providing rate and time utilization guidance, starting at the beginning of 2017. We'll finish the year out with the guidance that I just outlined. And then, starting in the new year, we'll eliminate those two elements. We will continue to provide you the actual results for rate and time after each quarter is complete in our earnings calls. We'll also continue to provide financial guidance on revenue, EBITDA, and free cash flow and our capital spend. We think this is the best way to go forward in order to have the kind of conversation that we think, gives you the best insight about how we're approaching managing the business, and allows us to manage the business in the way that optimizes everything that we're after. So, those are the key comments I wanted to make. I'll ask the operator now to open up the call for questions-and-answers.

Certainly. Our first question comes from the line of Scott Schneeberger from Oppenheimer. Your question please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, Scott. Scott Schneeberger - Oppenheimer & Co., Inc. (Broker): Hey. Good morning, guys. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning. Scott Schneeberger - Oppenheimer & Co., Inc. (Broker): I guess starting out, Bill, could you address – you had cited before that you may see some modest rate growth in 2017, obviously an incremental improvement in May and June here, and then you just gave us 2017 which seems on path. I guess I'm looking for what you're thinking about the flow through into 2017 now, and if you could speak to if your trends monthly for rate are flat or up or down to the end of the year, how you would think about that 2017 context, please? William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. Sure, Scott. I'll start and certainly, Mike and Matt, please chime in. So, if you look at the range of rate guidance that we gave, if we were to deliver flat monthly sequentials for July through October, and then a normal kind of seasonal decline in November, December, that would put us to the minus 2% high end of our rate guidance. If all of that happened, then we would go into next year with a carryover of about flat for 2017. So that's the high end of the rate range guidance. At the low end, it would take sequential declines of about 0.6%, let's say, each month from July to October in order for us to come in at the down 3% end of our rate guidance. If that happened, again with a normal November, December, we'd have a carryover going into 2017 of about negative 1.5%. So that gives you the two ends of the spectrum as to how we could finish out this year and what it means for next year. Hopefully, that's responsive. If not, ask another question. Scott Schneeberger - Oppenheimer & Co., Inc. (Broker): That's great. Thanks for that. I'll just ask one more and then I'll turn it over. You cited internal initiatives and market environment as attributes to the improvement in rate in May and June. If you could elaborate on magnitude of each one, and then perhaps a little bit more on the internal initiatives? Thanks so much. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Sure, Scott. This is Matt. I would say the only reason we were able to achieve 90 bps of year-over-year time ut. and any sequential rate improvement, it all starts with demand. So we feel very good about the demand. So we give more credit to the opportunity that's out there and the customer demand for both of those. As far as what actions we took internally to drive May and June sequentially positive, it was really, as we look at those two levers of rate and time, we came out of Q1 with a rate performance that we didn't want to continue to absorb going forward and we had a little bit of headroom on time. So we were almost myopically focused on rate to achieve that, to the point where we even achieved sequential positive rates in markets that have really tough macros like Canada; that was in June. That was a lot of cutting the tail, so to speak, really getting rid of some of the anomalies, and just a very rigorous focus to reset the baseline of where our rates needed to be for us to continue to serve our customers in a profitable manner. Michael J. Kneeland - President, Chief Executive Officer & Director: Yes, Scott, this is Mike. The only thing I would add to that is, we're using data and the live data that we've got it to a point now where we can communicate that to management much more simplistically and in a user format that they can help manage their markets better than what we had before. So it's a combination of both. Scott Schneeberger - Oppenheimer & Co., Inc. (Broker): Thanks, guys. I'll pass it over. Michael J. Kneeland - President, Chief Executive Officer & Director: Yes.

Thank you. Our next question comes from the line of Joe O'Dea from Vertical Research Partners. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, Joe.

Hi, good morning. Could you just comment on some of the volatility we've seen in the sequential trends? I think toward the end of April when you last reported, April was trending worse than what you actually experienced for the full month, and then we saw improvements in May and June, now July to show a little bit flattish. So maybe just kind of what you've seen over the course of those four months in terms of kind of what jumpstarted some of the improvement? And then in July, why maybe we've seen that taper when typically in a stronger demand environment we would continue to see month-over-month gains? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Sure, Joe. This is Matt. I think you have to first start with how sequential is measured, right. So it's the current month feeding off of the previous month. So by definition that great May, June performance raised the baseline to what you're being judged on in July. So what you saw was just the new contracts going out, as you think about it this way, were not greater than what you achieved in the previous month or the last contract that just came off rent. So there's a lot of inputs, and then you have to think about different geographies and different customer sets, and different products. So, I think to Bill's point about the ability and how difficult it is to forecast sequential rate on its own is proven out by the ebb and flow of what we've seen here in the first half of the year. It's a very, very dynamic metric. But as we manage the business day-to-day, as each manager out in the field is looking at it, you're balancing your decisions on rate and time and is that a profitable customer, not just on that individual transaction, but in the whole of our experience with that customer. So I would say it's just putting a little more emphasis on, as I answered in Scott's question, a little more emphasis on the rate than you normally would in a balanced environment to get the baseline back up to where it needed to be. And now we're going to make those business decisions based upon profitability and customer demand going forward. William B. Plummer - Chief Financial Officer & Executive Vice President: Yes. The only thing I would add to that is if there is an opportunity, we're going to take it. We're not shy. We've got the tools. We've got the management team that's myopically focused on it. So if there is an opportunity for us to take more, we're going to definitely reach for it.

That's helpful. Thanks. And then just one more on with what we've seen at some of the Rouse supply-demand data recently, I think on the demand side, some of that's explained with heavy equipment trends and some weather effects. But when you think about it on the supply side, outside of your own decisions, is your general sense that the industry is behaving rationally with the supply growth that we continue to see. And then related to that, do you think that we have now fully moved beyond some of the equipment redeployment related to oil? Michael J. Kneeland - President, Chief Executive Officer & Director: So there are several answers there. So in my estimation, I think we have moved beyond the oil and I think that has been fully absorbed. I think what we're seeing now out of the Rouse is net new acquisitions or net new fleet being added to the mix. It's not unusual because typically in the second quarter our industry has a tendency to fleet up that captures the balance of the year. The answer is going to lie in what does the balance of the year look like and the good part of it is there's reports now that are out there that we can have a better understanding of what is happening and make adjustments accordingly and we have done that; that's number one. Number two, I think by order of magnitude when you ask is everyone playing safe or playing right, I think that one of the things that I took away from the Rouse report, I believe, it was in May, the report actually saw where the supply was below the demand. The demand was higher. So that would tell me that their people are being good stewards in understanding of the industry trends. The question is does it continue? That's everyone's question.

Got it. Thanks very much. Michael J. Kneeland - President, Chief Executive Officer & Director: Yes. Thank you. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thanks, Joe.

Thank you. Our next question comes from the line of Nick Coppola from Thompson Research Group. Your question, please.

Good morning. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning.

So kind of a follow-up to that last question. It sounds like folks are being good stewards and growing fleet at a lower pace, but what are you seeing in terms of the competitive environment in terms of price? So certainly your focus on price has been a significant driver of sequential improvement here. What are you seeing in terms of competitive pressure as well? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Sure, Nick. This is Matt. I mean, it's been competitive. It's been competitive for the past 18 months. And I would say that to Mike's point about the Rouse data, that supply continuing to moderate should help ease some of that competitiveness because the demand is there. So that's the great news, if demand is there. I think the challenge that we have to focus on is when you are the big guy on the block, you have the requirement to be the leader. And we take that leadership position very seriously and there is always going to be in any given market somebody that wants what you have. That's nothing new. By the way that happened during the peak runs in the 2000s and it happened from 2010 to 2014, and we just need to make sure we keep a balanced approach to how we're going to defend the business we have as well as grow upon new end-markets and that's why you hear a lot of focus on our specialty business, on our value prop, and bundling all of our services and utilizing our footprint in a way that's unique advantage to us. So that's how we balance it, Nick, and that's how we'll continue to go on.

Okay, that's helpful. And then can you just talk more about demand trends, particularly in Canada? What are you seeing there and are there potentially more fleet transfers that you can do? How are you working to mitigate any kind of weakness there? Michael J. Kneeland - President, Chief Executive Officer & Director: So from a demand perspective, Canada is still very, very challenged. Now there's some provinces like if you look at the GTA, the Greater Toronto Area, we're actually up year-over-year. So there are some good spots, B.C. isn't bad in Western Canada. But if you can imagine the provinces that are resource reliant and commodity reliant markets, they're really hurting right now. As far as fleet movement, I think that we'd pretty much move the fleet out of Canada, if we need to. As we sit here today, our Canadian business is down over 11%, but that's only 3.1% on fleet on rent volume. It's almost 8% on rate. So we think we've got the fleet right-sized in Canada, and I think most of our competitors have done the right thing as well and gotten their footprints and their head count and their fleet rationalized to the current market conditions.

Okay. Thanks for taking my questions. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thank you.

Thank you. Our next question comes from the line of Mili Pothiwala from Morgan Stanley. Your question, please. Mili Pothiwala - Morgan Stanley & Co. LLC: Yes. So, I guess, could you just provide sort of an update on how you're thinking about the non-resi environment? Obviously, you seem fairly positive on the near-term, but I guess more generally, how you're thinking about the cycle here, especially given some of the data points we've seen on the macro front have been more choppy recently? And then just as a follow-up, I guess, can you jut parse out which verticals are stronger, which ones are weaker, any end markets that got incrementally better or worse during the quarter? Michael J. Kneeland - President, Chief Executive Officer & Director: I'll try and take. This is Mike. I'll try and take a macro view, and then I'll let both Bill and Matt talk about and chime in as well as the verticals. But you're right, there's positive encouraging comments around construction, and there's also some negative and cautious variables out there. I mentioned the ABI, the Dodge Momentum Index is another one, non-res starts, contractor backlog, the ISM, PMI, our own customer survey, these trend towards the positive. On the other side, we mentioned the Rouse non-res construction put in place that slowed a bit. The other part would be the construction employment numbers that came down. The question we have to ask ourselves is how much that was due to projects related in and around the oil and also possibly some weather related. (37:31) keeps on coming down here in the U.S. So when we look at our backlogs and we talk to our customers, they are very optimistic in looking out over the next year of the projects they've got booked. And we're not going to go into details because I'm sure a lot of my competitors are on the phone too. But do I think that our overall construction will be tempered a little bit, yes. Do I think has it gone down to a point where we're not going to see growth, no. I think that the fundamentals are still there as we see it today. And that's kind of how we're looking at it. Matt and Bill can chime in or add more about the verticals. William B. Plummer - Chief Financial Officer & Executive Vice President: Sure. I'll start by addressing the non-res, Mili. It is our biggest vertical and we still saw a nice growth in non-res in the second quarter. And we can make that statement about the first half of the year as well. And some of the indicators that Mike pointed to I think would argue that we should continue to see nice growth, maybe not quite as strong as what we saw sort of late last year, early this year in non-res, but still it should be nice, right, whether it's ABI, whether it's Dodge Momentum Index, some of the REIT starts data, backlogs that we've seen from various industry groups would support that non-res verticals should remain a solid base for us of growth. And then when you look in some of the other verticals, we've seen growth in our downstream oil and gas vertical in the most recent quarters. That's encouraging to us. Upstream is still a challenge as you might imagine. But the refineries and some of the other related industries have been solid growth for us as well. Again, there's some timing items that flow through, but certainly that's a nice platform for us that we think will continue to be a growth engine go forward. And then there are host of other verticals where we can point to that do see growth going forward. Matt, I'll ask if you want to focus on any in particular. If not, I can continue to take off. Matthew John Flannery - Chief Operating Officer & Executive Vice President: No, I think we've covered it. I think, the largest opportunity is, what we've learned through our process of our go-to-market after some specific verticals and the success we had there, has really paid off. So it's not just where the end-market is, but where are the verticals that we can bundle our services, and support our customers, maybe deeper than we have in the past is something that we're really focused on and we're encouraged with the results. Mili Pothiwala - Morgan Stanley & Co. LLC: Okay, great. I guess just in the context of that could you provide any thoughts on how you're thinking about CapEx into 2017? William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah, sure, Mili. You saw in our investor material, we put a range out there between $1.2 billion and $1.6 billion I guess was the top of the range that we put out. And I would say that we really do think about that full range as being available to us for 2017. As we go through our planning process starting up here in a couple months, we'll refine our view. But we are really going into 2017 saying look, our expectation is that the overall market will continue with attractive growth for us, and that will put us in a position so that we could spend anywhere in that range. The $1.2 billion that we're spending this year, I'll remind you, was heavily influenced by our desire to get our utilization up this year. We were down last year, we wanted to recapture that this year. And, I think we're making real good progress in doing that this year. If we do what we want this year, and if the market is still robust next year which we expect, then we'll be talking about, okay, what's the right number, and it will fall somewhere in that range. So, more to come, as we refine our thinking about next year. Mili Pothiwala - Morgan Stanley & Co. LLC: Got it. Thank you. I'll get back in queue. William B. Plummer - Chief Financial Officer & Executive Vice President: Okay. Yup. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thanks. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks.

Thank you. Our next question comes from the line of Seth Weber from RBC Capital Markets. William B. Plummer - Chief Financial Officer & Executive Vice President: Hey, Seth.

Hey. Good morning, guys. I actually wanted to touch on the 2017 CapEx point as well. Since you have kind of laid out this framework for us where if rates kind of are at that down 2% number for this year, you've talked about carryover into next year kind of flat from a rate environment. So Bill, trying to get a little bit more granular here, if you're looking at flat rates for next year, where does that put you in that $1.2 billion to $1.6 billion spectrum, is that enough to go the top end of that spectrum, and if you're down 3% this year, does that put you to the $1.2 billion? I'm trying to just pin you down a little bit more relative to this new data that you've given us. William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. Thanks, Seth. I appreciate being pinned down. Look, we will have much more conversation about it, and answering a hypothetical is always a very dangerous game. What I would say is if we felt like we were carrying flat carryover into next year, and if we were confident in the demand supporting that or better, then I think we'd be more willing – certainly more willing to spend more than the $1.2 billion we're doing this year. How far up we would go in that total range? Hard to say right here and now. $1.7 billion is the max that we've ever said, $1.6 billion would be a shade under that. The question at the top end of the range is, A, would you have enough confidence in the environment to spend close to the max that you've ever spent? That would be a robust discussion. That said, it's on the table as we sit right here and now. More realistically, I think, we're probably looking something more like what we spent last year, that $1.5 billion kind of number. Again, but that would be dependent on us saying, yeah, we've got a rate environment that's okay, and we've got a demand environment that looks like it's going to sustain. And it's got to feel like it's going to sustain more than just calendar 2017, right. And so, those are the kinds of things that we'd be discussing; we'll be able to say more as we get into our Investor Day late this year.

Okay. That's helpful. Would you expect the mix still – the growth capital to still be skewed towards the specialty business in that scenario? Call it $1.5 billion, would you be – would the large majority of that growth continue to go towards specialty? William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. If we were at $1.5 billion – again, dangerous game playing with hypotheticals, but I think specialty would still be a very significant portion of the growth capital in that kind of scenario. I'll remind you what we said before, right, this year, we don't have a lot of growth capital in our gen rent business after you include the effect of inflation.

Right. William B. Plummer - Chief Financial Officer & Executive Vice President: So, if we're spending more than the $1.2 billion, then some of that incremental spend would be going into the gen rent side of the business, but we'd also be supporting the growth in our specialty businesses in a robust way as well.

Okay. Thank you. And then just to follow-up on the energy markets. Rig count seems to have stabilized here, commodity prices are stabilizing. Have you heard anything from your customers with respect to project activity restarting, incremental demand around kind of the current environment, or do you think that's still on the come? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yes, Seth, this is Matt. I would say it's still too early for that. Everybody is reading the same rig data and the same reports, and I would say it's still too early for us to see it materialize into additional revenue, but it does give us comfort that we may have passed the trough, which is good news. And we were kind of planning on flat in the oil and gas markets for this year anyway. So we've moved the fleet appropriate. We think we have some existing capacity in there to absorb a little uptick, which would be great, but nothing that's making us think that we'd actually be moving more fleet into the oil and gas market at this point.

Terrific. Thanks very much, guys. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thanks, Seth. William B. Plummer - Chief Financial Officer & Executive Vice President: Okay. Thank you.

Thank you. Our next question comes from the line of George Tong from Piper Jaffray. Your question, please. William B. Plummer - Chief Financial Officer & Executive Vice President: Hi, George. George K. F. Tong - Piper Jaffray & Co. (Broker): Hi, thanks, good morning. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning, George. George K. F. Tong - Piper Jaffray & Co. (Broker): Bill, can you flesh out some of the factors that contributed to your lower time utilization guidance for the full year and how you see time ut. playing out during the remainder of the peak rental season? William B. Plummer - Chief Financial Officer & Executive Vice President: Sure, George. So, I mean, we touched on it before. It's partly the interplay between rate and time, and how we expect to be able to manage that go forward for the second half. We think the demand environment will be there to allow us to realize our goal for the year, which was nice year-over-year time ut. improvement. And we've got to make sure that we're approaching the market in a way that that allows us to do that, while also realizing as much rate as we can. So, I think that's really how to respond back, right, is that – it's the interplay between rate and time that we expect. We do expect to be able to continue to drive nice year-over-year improvement in time utilization. You saw 30 basis points in June, that's below where we want to be and need to be, and so we expect that we'll be delivering a little bit more year-over-year improvement as we go into the back half of the year. And we're going to be focused on doing that. George K. F. Tong - Piper Jaffray & Co. (Broker): Got it. And Mike, can you comment on how you expect OEC-on-rent to grow in the second half of the year compared to the first half of the year, particularly as oil and gas comps begin to lap after 2Q? Michael J. Kneeland - President, Chief Executive Officer & Director: Sure. I think, there's a chart that we have out there, on our – it's on page six of our investor deck, that kind of shows the cadence of how our OEC-on-rent has progressed this year in comparison to other years. And you can see where it lift up last, as Bill mentioned, our July time utilization is up nicely. So, I think, the cadence you see there is going to be a similar pattern of delay in which it follows by the seasons. William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah, George, to the numbers, I think, you saw 3% OEC-on-rent growth in the second quarter. If I had to put some numbers to it, I'd say we might be just slightly under that in the third quarter, and around that number in the fourth quarter as sort of a way we're thinking about it. We need that kind of growth in order to get to the utilization improvement that we're looking for on the capital plan that we have, but I don't want to get overly precise with those numbers, because as we said that interplay between how we go at rate and time utilization which is OEC-on-rent in the numerator is something that we're going to manage actively as we go forward. George K. F. Tong - Piper Jaffray & Co. (Broker): Very helpful. Thank you. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks, George

Thank you. Our next question comes from the line of David Raso from Evercore ISI. William B. Plummer - Chief Financial Officer & Executive Vice President: Hey, David.

Hey. I know we're working with a lot of midpoints here, but – and I can happily take you through all the math. It still seems that you're implying 2017 EBITDA to be down a little bit, when you capture all the aspects of your free cash flow guidance midpoint for next year, how you're viewing your net debt-to-EBITDA leverage. So, if I can just ask you straight out, is that what you're trying to imply with these numbers, or it just TBD, to be updated in October, and I'm – obviously I'm looking at slide 20 as you're – what kind of leverage do you expect in 2017, be it 2.6 times, 2.7 times net debt-to-EBITDA. Again, it's implying EBITDA down next year, I just wanted to ask you is that what you're trying to imply? William B. Plummer - Chief Financial Officer & Executive Vice President: So, David, we give the range that we give to be explicit, the ranges on all of the guidance that we give, could lead you there. And I can't argue with the math that could come out, but I just, I think we do this every quarter, I'll just emphasize that the ranges are ranges for a reason.

Sure. William B. Plummer - Chief Financial Officer & Executive Vice President: And don't anchor yourself too much to the midpoints of the ranges in guiding how you think about how we're going to do this year. Now that said, we are facing an environment where we expect rates to be down 2% to 3%, that's a significant headwind for a year to start out with, and utilization improvement is a great thing to try and offset that, but rate is pretty powerful as you know. So, that's a challenge that we are working to overcome. Will we overcome it or not, tune in later in the year and we'll see.

And a question about the CapEx planning for next year, even within that CapEx, where you would allocate the capital, clearly specialty rental has been a focus. But, when you look at the dollar utilization year-over-year, you kind of see booms and lifts the dollar ut. has been – at least this past quarter was pretty negative, but trench and other has really been very negative. I mean, it's getting less negative, but it's been still pretty challenged, I mean, it was the worst for this quarter, it's been the worst year-over-year dollar ut. now for five quarters or so. How should we think about that? And maybe educate me, and when you say trench and other, how much is that capturing any of the specialty rental, I'm just surprised that dollar ut. has been that weak. It's actually been the weakest of your four major categories you provide us with the data? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yeah. So, David, this is Matt. That trench and other is a real broad bucket, you've got pumps in there, you've got light towers in there, you've got all kinds of stuff in there that's watering it down. So, I would not take that trench and other as a proxy for specialty in any way, shape or form. If it were just specialty, we'd still have the drag, that the pumps dealing with, right, obviously.

Sure. Matthew John Flannery - Chief Operating Officer & Executive Vice President: But, I would not – we'd probably change the label on that, maybe it won't be trench and other, maybe it will just be other, but that is not a proxy for our specialty product.

All right. That's good to know. I appreciate it. Thank you. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you, David. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thank you.

Thank you. And our final question today comes from the line of Robert Wertheimer from Barclays. Your question please.

You kind of touched on this earlier, but I wondered if you would hazard a guess as to the shape of Canada over the next couple years. It's obviously very, very weak. You mentioned some sort of sequential strength. I mean, when do you think it will trough and is there enough fleet rationalization to get profits back without a sharp rebound, just maybe the shape of what you see? Michael J. Kneeland - President, Chief Executive Officer & Director: This is Mike. As Matt mentioned, it's really a tale of two sides. There are some positives that are happening out of the East as opposed to the West and Western Canada, which was impacted by oil. But on top of that also the players that put things on delay. I will tell you that to restart the facilities there takes an enormous amount of work. It's not an easy feat. So and as you think that, that will be – the things have stabled out. So, I think over time, with the capital investment that the government has committed, we'll start to trickle in over time. My sense is that, could it be a year, that's anyone's guess. I know, I can't predict where oil will be, tried that didn't work, but my sense is that, it's probably more on the mends than it is on a decline.

That's helpful. Thank you. I'll see you soon. Thanks. Michael J. Kneeland - President, Chief Executive Officer & Director: Yeah. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks, Rob. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks, Rob.

Thank you. And I'd like to hand the program back to Mr. Michael Kneeland. Michael J. Kneeland - President, Chief Executive Officer & Director: Well, thanks, operator. I want everyone to feel free to reach out to Ted Grace, who heads up our IR here in Stamford, and also our new investor presentations are available and downloaded on our site. I wanted to thank everybody for taking the time out to join us on today's call. So, I think today is – now is an appropriate time to end it. Thank you very much, and talk to you in the third quarter call.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.