H&E Equipment Services Inc (HEES) 2007 Q2 法說會逐字稿

Good day and welcome to today's H&E Equipment Services Second Quarter 2007 Conference Call. Today's call is being recorded.

At this time I would like to turn the call over to Mr. Kevin Inda. Please go ahead sir.

Thank you Deanna, and welcome to H&E Equipment Services conference call to review the Company's results for the second quarter ended June 30, 2007, which were released earlier this morning.

The format for today's call includes a PowerPoint presentation, which is posted in the Investor Relations' section of our website at www.he-equipment.com. Please proceed to slide one.

Conducting the call today will be John Engquist, President and Chief Executive Officer, and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to Slide 2.

During today's call, we will refer to certain non-GAAP financial measures, and we reconciled these measures to GAAP figures in our earnings release, which is available on our website.

Before we start, let me offer the cautionary not that this call contains forward-looking statements within the meaning of the Federal Securities Laws. Statements about our beliefs and expectations, and statements containing the words may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend, and similar expressions, constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties which could cause actual results to differ materially from those contained in any forward-looking statements.

These risk factors are included in the Company's annual report on Form 10K for the year ended December 31, 2006. Investors, potential investors, and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

Except as required by applicable law, including the security laws of the United States, and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date of this conference call.

With that stated, I'll turn the call over to John Engquist.

Thank you Kevin, and good morning everyone.

Please proceed to slide three. I'll start out with an overview of our financial performance and key achievements, discuss our marketplace, the key drivers of our business, and then turn the call over to Leslie for a detailed review of our financial results. We'll then be happy to take questions.

Please proceed to slide five. The second quarter was a very solid quarter for us, despite record year-over-year comps and some softness in time utilization early in the quarter. We, in fact, achieved the highest level of quarterly revenue in our Company's history. I believe this is another indicator that we continue to operate in a very strong environment. Our revenue increased 15.1% to $233.1 million, with new equipment sales increasing 38% to $78.5 million.

We also continued to see double-digit growth in our high-margin parts and service business. While our revenue growth was very strong, our margins were negatively impacted primarily by a shift in revenue mix to new equipment sales and lower time utilization early in the quarter.

Again, revenues increased 15.1% to $233.1 million; gross profit decreased $2.9 million to $71.2 million; income from operations decreased 6% to $32.9 million; net income decreased 23.2% to $15.2 million. I would remind everyone this is largely the result of a significantly higher effective tax rate than the prior year.

EBITDA increased 2.5% to $57.6 million; and our gross margin decreased to 30.5%, compared to 33.7% a year ago.

Leslie will provide a lot of detail in her presentation to show how revenue mix, time utilization, and other contributing factors impacted our margin.

Please proceed to slide six. We have often said that one of our strengths is our footprint in the markets we serve. That is certainly the case today, as we operate in some of the highest-growth regions in the United States. Our footprint includes many major markets where we are seeing strong activity in the non-residential construction markets. Our footprint also gives us tremendous exposure to the petrochemical, mining, oil patch, and energy sectors. These are all key drivers of our business in industries we feel have a long-term growth potential.

We continue to see increased spending on infrastructure. This country has an aging infrastructure that must be improved and maintained at a higher level. We deal in the types of products and services that participate in infrastructure work.

While the demand for our products and services has been strong in the markets we serve, we have seen a slowdown in Florida, which has impacted our time utilization and dollar returns. The softness in Florida for us is largely the result of the hurricane-related activity that we have benefited from in the last several years coming to an end. We are dealing with this by adjusting our fleet size in Florida and moving product to other high-demand areas within our footprint.

Please move to slide seven. To summarize, we had a strong quarter with excellent revenue growth despite very difficult year-over-year comps. The strong demand in our distribution business points to continued strength in our end-markets and provides tremendous downstream opportunity for our high-margin parts and service business. However, our margins have been negatively impacted by our revenue mix. We also saw our time utilization return to normal second quarter levels by mid-May.

We are very confident that we can continue to grow our business and grow it profitably. As I have stated before, green fields are an important part of our growth strategy, and we currently have 3 new locations in the start-up phase. These are in Austin, Texas, Fort Pierce, Florida, and Pompano Beach, Florida.

We continue to focus on growing our parts and service business and look for accretive acquisitions. The definitive agreement we signed with JW Burris is still in place, and both sides are working diligently to close this transaction.

I'm going to now turn the call over to Leslie to discuss our second quarter financials in more detail; Leslie?

Thank you John, and good morning. I would like to go through these next few slides and provide a little more detail on our second quarter results. I'll begin on slide nine.

Our total revenue growth was 15.1% year-over-year with strong increases across all business segments, with the exception of used equipment sales. As John mentioned, the second quarter was another record revenue quarter for us. I'll spend some time discussing the key highlights and drivers of our results by segment.

For the first quarter of 2007 rentals increased 8.7% over the prior year, with growth across all product lines. Our average time utilization for the quarter was 69.1% as compared to 70.8% a year ago, 170 basis point decline. May and June's time utilization was 70%, which is typical utilization for this time of year.

The decline in time utilization is partly a result of our focus on fleet rotations, specifically on the aerial side of our business. The Asian markets have provided us with an outlet for profitable disposal of our older aerial fleet. We have sold numerous packages of large quantities of aerials at solid margins. However, these package deals are a lengthier sale process due to additional documentation requirements, the time needed to prep large quantity of machines for sale, and also transportation arrangements. This lag resulted in some temporary softness in time utilization as our equipment is not typically on contract during this get-ready period.

In addition, we grew our fleet to meet time demand and prepare for the expected near-term demand. As John mentioned, we have also experienced some isolated softness in the Florida market.

We estimate that the year-over-year decline in time utilization resulted in a one percentage point reduction to our dollar returns. Dollar returns were 41.5% for the second quarter of 2007, as compared to 42.2% for the same period in 2006.

Average rental rates were down 0.4% year-over-year, primarily as a result of lower time utilization, and rate pressures in various markets, but rates increased 0.3% sequentially.

New equipment sales continued to reflect tremendous strength with an increase of 38% over the prior period. The demand for new equipment continues to accelerate at high levels, and as a result, our revenue mix is more heavily weighted to new equipment sales.

For the quarter, new equipment sales represented nearly 34% of total revenues as compared to 28% of total revenues a year ago.

New crane sales continued to grow significantly. Cranes increased 62.8% over the prior year. As a result, cranes account for a larger share of total new equipment sales. After the first 6 months, cranes account for about 55% of total new equipment sales, and in excess of 30% of our total revenue.

All other core products lines increased, with the exception of a $400,000 decline in new lift-truck sales for the quarter.

Used equipment sales declined approximately 3.8%. which is the same trend as in the last several quarters. We have seen our customers purchasing trend shift from used equipment to new equipment as a result of improved new equipment availability from most of our manufacturers.

Our parts and service business continues to show strong growth at 12.7% on a combined basis.

Gross profit margin has decreased to 30.5% as compared to 33.7%. The single largest contributing factor is the change in our revenue mix. We estimate that the change in revenue mix negatively impacted our gross margin by 120 basis points.

The next largest factor is the impact from the decline in rental gross margins to 50.9% from 53.8%. Rental gross margin decline partly due to lower time utilization as I discussed at the beginning of my comments, combined with higher depreciation expense as a result of de-aging and growing our fleet.

Our increased depreciation costs reflect the impact of higher replacement costs of our fleet. I mentioned earlier our focus on fleet rotation; as a result we have de-aged our fleet about 3.5 months since the beginning of the year by disposing of older equipment and replacing with new units at a higher cost.

In addition, approximately two-thirds of our 2006 fleet growth occurred in the second half of 2006, which was also replaced by units carrying a higher average unit cost.

Our maintenance and repair costs as a percentage of revenues improved slightly during the quarter of, second quarter of 2007 as compared to a year ago.

The decline in used equipment gross margins to 24.2% from 28.5% is due to several factors. While 80-plus% of our used equipment sales are from our rental fleet, we do take in trades to enhance our customer base. Occasionally, these trades are purely a pass-through and have zero gross profit. This quarter, we sold a couple of large cranes as pass-throughs which lowered our used margin.

In addition, our aerial fleet rotation process has impacted our margin, and lastly our crane fleet has de-aged significantly from 46 months to 35 months over the last 12 months. The sale of younger cranes on average has narrowed our used margin.

In addition, we closed some crane sales during the quarter under rental/purchase conversions, which carry lower margins.

We also saw a decline in service gross margins to 62.7% from 64.6% a year ago. This decline is primarily a result of service revenue mix. In addition, we completed some large jobs during the quarter that were awarded through a competitive bid process, which typically brings lower margins.

Gross margins on other revenue, which is primarily related to equipment support activity, such as hauling, freight, and damage waiver, declined to 8.5% from 14.7%. The decline relates primarily to increased hauling costs associated with our aerial fleet rotation process.

Margins on new equipment sales increased to 12.9% from 12.7% a year ago.

As I go through the next few slides, you will see the impact of the declining gross margins throughout the presentation. Slide ten please. Income from operations decreased 6% to $32.9 million from $35 million. Margins decreased 320 basis points to 14.1% from 17.3%. We estimate that revenue mix alone reduced our EBIT margin by 120 basis points, and the remaining 200 basis point decline is a direct result of the decline sin gross margins as I just discussed.

Our SG&A costs were consistent as a percentage of revenues when comparing the year-over-year quarters.

Proceed to slide 11 please. Net income decreased 23.2% to $15.2 million from $19.8 million. This is largely due to the increase in our effective tax rate to a more normalized rate of 37.6% from 21.5% in the prior year. Our pre-tax earnings are down 3.3% year-over-year, primarily as a result of our gross margin decline, which were offset by lower interest expense as a result of our refinancing a year ago.

We estimate the shift in revenue mix reduced our current earnings per share by $0.04.

Slide 12 please; EBITDA increased 2.5% as compared to the second quarter of 2006 with margins decreasing to 24.7% from 27.8%. We estimate that the change in our revenue mix negatively impacted our EBITDA margin by approximately 170 basis points in comparison to the prior year.

Next slide 13; SG&A remained flat at 16.5% as a percentage of revenue. SG&A dollars increased $5 million due to costs associated with higher revenues, such as increased headcounts, commission, other employee-related benefits and insurance costs.

And then on slide 14, our gross fleet capital expenditures for the quarter were $71.7 million, and net fleet capital expenditures were $44.5 million. We grew our fleet by $25 million in the second quarter.

Gross PP&E capital expenditures for the quarter were $4 million and net PP&E capital expenditures were $3.9 million.

Our fleet age at the end of June was 36 months as compared to a year ago of 43.9 months, primarily as a result of fleet growth and the rotation of our aerial fleet.

With that overview of our financial results, I would like to turn the call back to John to discuss our outlook for the remainder of the year.

Thank you Leslie.

Slide 15 please; we expect demand for our products and services to remain strong for the remainder of the year. We currently have the largest backlog of sold equipment in our Company's history. In view of this, and with continued high demand for new equipment, we believe we will see new equipment sales account for a larger percentage of our overall revenue for the remainder of the year. While this impacts our gross margins, we view this positively because it speaks to the strength of our end markets and creates downstream opportunity for our product support operations.

As Leslie mentioned, we have also gone through a significant fleet rotation since the beginning of the year. We have disposed of a significant portion of our older aerial fleet and replaced it with new equipment at higher original equipment costs. This has increased our depreciation expense which this has impacted our rental gross margin, it has also reduced our average fleet age to 36 months at the end of the second quarter, which is a very positive situation for our business going forward.

Taking into consideration new equipment demand, revenue mix, and increased depreciation due to fleet rotation, we are revising our annual guidance as follows; revenues in the range of $935 million to $953 million; EBITDA in the range of $233 million to $240 million; and EPS in the range of $1.59 to $1.67.

With that, operator, we would now like to move onto the Q&A session; please provide the instructions.

Thank you. (OPERATOR INSTRUCTIONS).

Jamie Cook, Credit Suisse.

Hi, good morning; I guess my first question I think if we go back and look at the transcript, from the first quarter at that point it sounded like your estimates were more inclined to go up versus, in the EBITDA range you're actually lowering your guidance a little. So I'm just trying to understand one, I understand the mix as you said, one in the second quarter, how much were new equipment sales up versus your expectation?

And then second, at what point did you decide to increase your cap, I guess lower the age of your fleet, at what point in the second quarter did you (inaudible)?

Okay Jamie; one, new equipment sales is certainly accounting for a higher percentage of our overall revenue than we projected. I mean we were certainly seeing strong demand for new equipment and we've been saying that, but the demand on the crane side is unprecedented in my career. I've never seen anything quite like it, so we did not anticipate new equipment sales taking as big a percentage of our overall revenue as it has.

As far as this fleet rotation, when we acquired Eagle in Southern California, they had a fleet age problem; their average age of their fleet was above 60 months. We knew that when we bought them. It's one of the reasons we bought them for the price we did. We initially had intended to deal with that over a longer period of time, but as we've been accessing these Asian markets, it because very apparent to us that the demand for older aerial equipment there was phenomenal.

Now that older aerial equipment I'm talking about stuff older than 6 years old, 6, 7, 8 years old. There's not strong demand for that product in this country. There's tremendous demand there and we elected to accelerate that fleet rotation, and Jamie we've taken Eagle's average fleet age from maybe 62 months to maybe 37 or 38 months in a pretty short period of time, and I think that's a huge net benefit to us. It has impacted our gross margin on the rental side, but I will trade a little gross margin on the rental side for the average fleet age we've obtained any day of the week. There's going to be a real long-term benefit for us going forward.

Phil (inaudible), Goldman Sachs

Hi it's actually Jason Mulleffin for Phil. Just a couple of quick questions; maybe you could talk a little bit more about the regional weakness. You've mentioned Florida is a little weak; any other spots and kind of any sort of order of magnitude for Florida?

Florida is down for us, as we said in the press release it's primarily a result of the hurricane-related activity which we have benefited from the last 3 years probably, really trailing off. Look, Florida is a good market; there's a lot of non-residential activity going on there. There's a lot of infrastructure work. I don't want to say that Florida is running off the table because it's not. But we've ramped up our fleets pretty good there for this hurricane activity, and that's trailed off, and it's impacted our time utilization and our dollar returns. That's nothing we can't adjust for.

We are bullish on the Florida market going forward. We're, in fact, opening a couple of green fields in the Greater Miami area. We found the right people; we're going to go in there with good locations and the right size fleet, and I think they'll perform very well for us.

But we have felt the trailing off of the hurricane activity there.

Okay, and then just one quick question, follow-up on the mix shift. Obviously, new equipment becoming a bigger piece of the pie, I mean can you give a little more color as far as why? I mean, were you discounting products, which kind of increased that people deciding to buy equipment versus rent and down the road, do those people stop renting from you? Or maybe just a little more color would be great.

No, look our rental business is not suffering any as a result of this high demand on the equipment side. The primary driver of the equipment demand is cranes; that's accounting for 55% of our new equipment sales. Crane demand typically is tied to the energy sector; it's tied to the petrochemical, to power generation, to infrastructure. It's just a real strong environment right now.

And so look our rental business is good; there's not question about it, and the trends in our rental business are very strong. We talk about time utilization hurting us in the early part of the quarter, and that was the case. If you go back to April, our time utilization on a physical basis was above 67%. By June, our time utilization was above 70%, and we had grown our fleet by $25 million during that timeframe.

So the trends in our rental business are very positive.

Okay, and then just one final question as far as in general; obviously, non-residential construction is strong and we've seen some estimates in the 4.5 range for the second half of the year. Do you have direction as far as if that's a good estimate as far as you guys are thinking?

I've seen estimates from 4.5% to 9%; I mean they're kind of all over the place I can tell you we're very comfortable with the demand. We, as I said, we have strong exposure to the petrochemical sector; we have a lot of mining exposure in the inner mountain region. We're in a lot of big major markets where we're just seeing a lot of activity in private, non-residential construction.

So I think we're going to continue to see those markets grow, and I think we're going to continue to benefit from them.

Okay great, good luck.

Seth Weber, Bank of America Securities.

Thanks, good morning; so John, can you update us on what your forecasts are for rental pricing for the year? I think previously had been low-to-mid single digits for the year for the rental fleet. And I have some follow-up questions.

Sure Seth; clearly our projections, we've been running a little behind our projections. During the second quarter, we showed a minimal decline in average rental rates. Sequentially we go an increase from the first to the second quarter of about 30 basis points. I believe, we're seeing a little more rate pressure than we anticipated, and the Florida market with our softer time utilization there certainly impacted our rate increases.

But I believe for the remainder of the year, we'll be flat to up slightly.

Okay, can we go back to the aging topic? I mean you're bringing your fleet age from 38.5 down to I think 36 you said. I mean, is that being driven by competitive pressure where your competitors have younger fleets? Is it what your customers are telling you? I mean I guess I don't understand a lot, you have rental business that has a gross margin of 50%, and then you're selling used equipment for mid-20% margin, so I'm just trying to understand kind of the process that's gone through there.

It's strictly opportunity for us Seth, and again, the product that we're selling is the oldest product in our fleet. The average age of what we have sold during this fleet rotation was 74 months on the aerial side, so this is old product; it's not real well accepted in the marketplace. It is not attractive in the secondary markets in this country, I can tell you.

We acquired a lot of that fleet problem with the Eagle acquisition. Originally, we were going to take more time and deal with that over a longer period of time, but with our access to the Asian markets, the tremendous demand there for the aerial products, we were being opportunistic and we sold a lot of that product over there and brought new product in.

Again, I think this is a big net positive for our business. It has impacted our rental gross margin some, but we still have exceptionally strong margins. They're above 50%, so I'll trade that little bit of gross margin for the younger fleet any day because that's going to be a real long-term benefit for us.

Okay thanks; I'll get back in queue.

Brant [Zaccagnini], Deutsche Bank.

Hi sorry I joined late; just wanted to get an update on the Burris acquisition. Is that scheduled for closing and did it close in July? And also, just in terms of the impact in terms of going forward, is that in your numbers presently in terms of revised guidance? Thanks.

Okay, there's nothing in our numbers for the revised guidance. The definitive agreement is still in place, and both sides are working diligently to close this transaction. As you know, sometimes an acquisition will kind of take a life of its own, and we've had a few delays here, but we're working hard to close this transaction.

Okay and I think your original estimate was maybe by July 31; do you think by the end of the month it will close?

I really can't give you any guidance there; I certainly hope so.

Yes, and okay -- no that's it, thank you.

David Bluestein, UBS.

Good morning; a couple of quick ones. With rental rates flat to down slightly, I'm sure there were some strong spots and some weak spots, but which were they? I mean how much were cranes up; how much were aerials down? Can you give us some sense?

Sure I'd be glad to; cranes were up about 7.5%. Again, that's a supply and demand situation. Aerials were down less than a point, and I think that was driven largely by Florida.

Earth-moving was down a couple of points David, and more than anything, I think that's a function of us maybe getting ahead of ourselves maybe a little bit on our earth-moving rates. Our dollar returns there are outstanding; our rental business is very strong there, but a year ago after the hurricane, we pushed those rates really, really hard and I think we got in front of ourselves a little bit.

So that's kind of where we are.

Perfect; next question you've de-aged the fleet this year. If you hold the fleet constant next year that probably means your capital spending is down. Should we expect, as we look forward, for you to try to maintain a 36 or 37-month average fleet age, or would you expect to age it a little bit over the next couple of years?

David, we could comfortably take that fleet age up, and I mean I think what happens there is going to be a function of opportunity. If we grow our fleet, our fleet age is going to naturally going to come down a little bit. I mean, that's a natural occurrence if you're growing your fleet, so I think fleet age is going to be based on the opportunities we see. We take a pretty short-term approach to putting equipment in our rental fleet, and we look at short-term opportunities.

In the first quarter this year, we actually shrunk our fleet a little bit because of the softness due to weather-related issues and the softness in time utilization. We grew our fleet $25 million in the second quarter, so our fleet age is going to depend on what we do there and what opportunities present themselves.

Okay, and then the final question is on used equipment prices. Can you, very much like you talked to the cranes and the aerials and the earth-moving on rental rates, can you make the same comments possibly on used equipment pricing?

Absolutely I'll be glad to; and the first thing I want to really emphasize is there has been no deterioration in used equipment pricing. To the contrary, we continue to push crane pricing up, up, up; there's been no deterioration. What you're seeing there, the reason that gross margin is down, and Leslie touched on it in her presentation; one is the aerial rotation. All of this equipment that we're selling into the Asian markets, that has, it's got a good gross margin on. It's got a better gross margin than we could have realized with domestic sales. It's still lower than our average margin, and that's a significant amount of equipment.

We've had several large pass-throughs, and by that I mean these are large cranes we've taken on trade for a customer and flipped them at no margin. That's had an impact. We've had a significant amount of rental/purchase business and basically, what that is we'll put a piece of equipment with a customer at an agreed-upon price, agreed-upon rental rate, and he'll rent it for about 6 months. We apply the rent to the purchase, less a carrying charge, and then he exercises that option and buys it.

Those show as fleet sales, but they really are more of a new sales process at a lower margin.

Terrific, thanks a bunch.

(OPERATOR INSTRUCTIONS).

Chris Doherty, CIBC World Markets.

Leslie, just a quick clean-up question; can you tell me what the Florida financing was at the end of the quarter?

It was approximately $100-and -- let me get that exact number for you -- we were about $150 million, $152 million at the end of the quarter.

And then in terms of the crane, it seems like the supply/demand relationship is strong. Is there any difficulty in getting cranes right now? Is there a supply issue?

Yes, there's a huge supply issue. We're actually placing orders, or will be placing orders very shortly for some '09 deliveries. We have actually accepted some purchase orders for cranes that will be delivered in the third quarter of '09, so yes there's significant supply constraints.

So then I guess thinking long term, so at this point it would be tough to basically change from a -- or have you thought about keeping some of the cranes that you have on order for your fleet rather than selling them? Is there a, what's the thought process there?

Yes, look we would very much like to be growing our crane fleet right now, and we have not. If anything, our fleet it down a little bit. There are tremendous supply constraints. We've got a lot of good crane customers that need crane product, and we have because of that really been unable to grow our fleet, but that's something we're looking at hard. I mean, I would like to grow our crane fleet significantly; I think the demand is going to be there, but with the supply constraints and with the demand with our good long-term loyal customers, it's been difficult.

Then if that's -- I mean going back then to the mix issue, if you've actually reduced your crane fleet, and yet the change in margin is down, is that just, is that then more an issue of the age of the fleet that just takes longer to sell that you're selling off; is that really when you look at your dollar utilization, is that really the driver then?

When you say the margin, you're speaking-- ?

The dollar utilization. I mean I know, I think Leslie talked about that dollar utilization was affected by a mix.

No, dollar utilization was impacted by our time utilization being off, and that time utilization we estimate accounted for about a full point in dollar returns.

All right.

And that's, again that's normalized; we're back above 70% time utilization.

And then, just one last question in terms of service revenue. As I look at the new sales that grew considerably this quarter, and lower sales growth in service, what's the lag there, I mean and the stickiness in terms of getting things in service and parts business from the new sales?

That's a good question, and I don't know that I can you -- clearly there's a lag. I mean you put a piece of new equipment in the marketplace that, there's a lag before it starts eating parts and service. And I don't know exactly what that is, but I can tell you that strong, strong new equipment sales will certainly provide downstream opportunity for us. I don't know that I can define that lag other than tell you there is one. I mean it's a while before they start using parts in service.

And I think that varies somewhat by product group too. Our earth-moving equipment starts consuming parts sooner than a crane will.

All right, thank you.

Seth Weber, Bank of America Securities.

Hi, so on your, John on your revised guidance, can you just talk about what's embedded in that as far as the Gulf Coast reconstruction funding? I mean are you starting to see, I mean do you have confidence that that's going to really start accelerating here, or is there something that you could point to that gives you conviction that that's really going to start getting better?

Yes Seth, I mean we're feeling it in our New Orleans stores right now. I mean their business has picked up and their business had trailed off when this funding came to an end. But I mean their business is picking up; we're seeing more demolition work right now, considerably more which is going to lead to some reconstruction.

The big stuff that's coming is Corps of Engineers related levee work. They're going to let in the fourth quarter $500 million-worth of levee work, and that's going to be good for us. Basically, they're going to be taking these levees that are built to hurricane-3 levels, and they're going to upgrade that levee system to withstand hurricane-5 levels, and again, that work will be let in the fourth quarter, and the first letting is supposed to be about $500 million-worth of work. So that's going to be significant.

Okay thank you.

Andrew Bauer, Stonebrook.

Good morning; thanks for taking my call. Can you help us understand going forward for rental gross margins for the rest of the year, so the second quarter was affected by the weaker time utilization in the beginning of the quarter, but how should we think about them on a year-over-year basis in both the third and the fourth quarter?

I believe that although we've got some tough comps, I think that our time utilization will run the remainder of the year at pretty normal levels, which is 70% and some, 70% and change.

And so that should read through as a fairly consistent gross margin year-over-year on the rental segment?

Well, in the back half of the year, we were north of 53%; 53%, 54% if I remember correctly.

In the fourth quarter; in the third quarter it was 51.1%.

51.1%, okay but I think we need to consider too this higher depreciable base impact in our margin, but at 50-plus, still very strong margins.

So the depreciation, what's a reasonable if depreciation and amortization ran at about 24.5 this quarter, did that only have part of the new sort of deprecation step-up involved? Is there a reasonable number to use in the third and the fourth quarter?

Yes, I would kind of look at depreciation maybe on a percent of OEC basis, and we have seen that percent tick up a bit, which speaks to this higher average unit cost versus speaking of in absolute dollars, because we don't give CapEx guidance, but we have grown our fleet, and we've got some additional growth expected.

Okay, and one other question is surrounding the balance sheet, even I guess if you factor in $108 million for the Burris acquisition, you're currently running at under 1.5 times current year's EBITDA. Clearly, on a day like today when the market feels like the news that you've issued is very dire, can you talk about how you potentially could consider using that for share repurchase?

I can tell you that will certainly, will be considered and that's something we'll be talking about.

Has it been discussed already? I mean, when is a reasonable amount of time to think that you might -- I mean the stock is down 26% as we speak, so I guess when do you see as an opportune time to discuss it in greater depth?

I think we'll be discussing it in the near term here.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS).

Eric [Grivner], Northstar Capital.

HI guys; thanks for taking my question. I actually have 3 questions related to the crane segment. The first is, are you looking for alternative cranes, or alternative manufacturers, maybe the Chinese or some other vendors so that you can get cranes now?

I am not and there's a couple of reasons for that. The supply constraint on the crane side pretty much runs worldwide. I don't know anybody that's got access availability on cranes right now, be it Grove Manitowoc or your German manufacturers like [Liebert] or your Japanese manufacturer like [Kato]; I mean it's pretty much a worldwide issue, these supply constraints.

And too, we have a very strong special relationship with the Manitowoc Crane Group we're their largest distributor on a worldwide basis and we would not bring competing lines into the markets where we represent the Manitowoc Crane Group.

And how much more is pricing that you're placing now for '09? I mean what is the pricing increase that you're seeing?

From the manufacturer to us?

Yes.

They're pushing pricing pretty good. I mean we're anticipating a price increase, it's not double-digit, but it's the upper single digit range. So they are pushing pricing.

Okay, and how long do you see this crane demand lasting? I mean if you're ordering cranes for '09 delivery, you must see it lasting past '09?

I absolutely do; I mean I think the crane demand is going to be strong for the foreseeable future. I don't have a crystal ball, but when you look at what's driving the crane business, we've got good years in front of us, I can tell you that.

Okay thank you.

Thank you and with no further question, I'd like to turn the conference back over to Mr. John Engquist for any additional or closing remarks.

No, I appreciate everybody being on the call. Again, I want to emphasize that the drivers of our business are very strong; we feel good about our end markets. I want to emphasize that this decline in gross margin on the rental side of our business is really a good tradeoff for what we've done with our fleet age. That's going to give us long-term benefits, and we feel very, very good about where we are; we feel good about the markets and we look forward to talking to all of you in the near future. Thank you.

Thank you for your participation. That does conclude today's conference. You may disconnect at this time.