H&E Equipment Services Inc (HEES) 2009 Q1 法說會逐字稿

Good day, and welcome to today's H&E Equipment Services first quarter 2009 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, Michelle, and welcome to H&E Equipment Services conference call to review the Company's results for the first quarter ended March 31, 2009, which were released earlier this morning.

The format for today's call includes a PowerPoint presentation, which is posted on 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 two. During today's call, we will refer to certain non-GAAP financial measures, and we've reconciled these measures to GAAP figures in our earnings release, which is available on our website.

Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of the federal securities laws. Statements about our beliefs and expectations, and statements containing words such as "may," "could," "believe," "expect," "anticipate" 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 most recent annual report on Form 10-K and quarterly report on Form 10-Q.

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. The Company does not undertake any obligation to publicly update or revise any forward-looking statements after the date of this conference call.

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

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services' first quarter 2009 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer.

Please proceed to slide three. This morning, I am going to give a high-level overview of our first quarter results. More importantly, I will discuss what we are seeing in our markets and the things we are doing to scale our business to a very challenging and uncertain environment. Leslie will then go over our financial results in more detail. When Leslie concludes, we'll then take questions.

Proceed to slide five, please. We are pleased with our first quarter results. We were able to remain profitable in our seasonally weakest quarter of the year and in the most challenging environment I have experienced in my 35 years in this industry.

The availability of credit remains extremely tight, and nonresidential construction in the industrial sectors has slowed substantially. As a result, our revenue decreased 24.2% to $186.2 million. EBITDA decreased $18.3 million to $38.1 million on a 20.4% margin. Our net income was $2.2 million, or diluted earnings per share of $0.06.

We were successfully able to adjust our business to remain profitable during the period, and our efforts in this regard are focused and very much ongoing. Our primary focus in this economic climate continues to be the protection of our balance sheet and cash generation, with less focus on short-term results.

We are committed to taking the appropriate steps in our business to maintain our financial strength. We continue to reduce the size of our fleet, and incurred very minimal rental CapEx, resulting in a negative net CapEx for the quarter. This reduced capital spending will generate free cash flow, which we intend to use to pay down debt. These actions will further protect the strength of our balance sheet, which is reinforced by a low-cost capital structure and debt maturities well into the future.

We continue to take numerous steps to reduce our operating costs. During the quarter, we reduced our headcount by 3%, and as a result, our SG&A expenses were down 16.1% versus a year ago. Also, we have completed another workforce reduction in the second quarter.

Please proceed to slide six. We continue to believe our focus on the industrial sector and geographic diversity are strengths for our company, in spite of the worldwide credit crisis and anemic US economy. Our Gulf Coast markets are performing better than most areas in the US As you can see from the pie charts, these regions account for half of our last 12 months' revenue and gross profit.

Our footprint gives us significant exposure to the industrial sector, which is down, but still stronger than most sectors in the economy. We believe our first quarter performance validates the power of our integrated business model.

We were successfully able to manage our assets and generate positive cash flow and net income despite the unsurpassed economic challenges. We have multiple sources of revenue and gross profit, and our high margin parts and service businesses are performing solidly in the current environment.

We also remain optimistic about potential increased governmental infrastructure spending and the positive impacts it could have on our business. Our strong presence in the Gulf Coast provides an opportunity for our company, as a substantial portion of hurricane protection work has yet to occur. The Corps of Engineers is letting $4 billion of storm protection work in 2009. The government stimulus package could also prove to be a positive driver in our business, as billions of dollars have been earmarked as part of the package for infrastructure work. It should also be noted that more than 50% of the government-defined shovel ready projects fall within our footprint.

The challenges we spoke about on our last call remain very much present. Lending remains at a standstill, which continues to result in project delays or cancellations. The economy remains weak, and is forecast to remain weak throughout 2009. As a result, nonresidential construction and industrial spending is forecast to decline this year. The weakened demand for construction equipment has resulted in excess availability of certain products in the marketplace, primarily aerial and earth-moving equipment. This scenario is, obviously, affecting price and utilization. As such, it is extremely difficult to predict trends in our business.

Please proceed to slide seven. To summarize, we are pleased with our first quarter results and profitability given the extreme challenges we faced with the economy. The environment remains very challenging, and we do not expect any significant improvement in conditions during 2009. However, we believe our integrated business model, geographic diversity and exposure to the industrial markets will help to mitigate the impact of the current economic downturn to our business.

Our rental fleet is very young and well maintained, and these are the type of assets that are conducive to aging when market conditions so dictate. All of these factors, combined with our strong balance sheet, put us in what we believe is the best position possible to deal with the challenges that lie ahead.

We are continuing to focus on and to take proactive steps to maintain a strong balance sheet, generate cash, control costs and protect our margins during this period of declining activity in the nonresidential construction and industrial markets. Our business is well capitalized, with our debt carrying a low interest rate and maturity dates well into the future.

We've significantly reduced rental fleet CapEx during the first quarter, to include only some very selective additions, such as cranes, where warranted. In addition, we anticipate very little CapEx spending during the remainder of 2009.

We continue to implement additional cost controls, including the continued downsizing of our workforce, freezing of management incentive compensation, and overall reductions in SG&A, so we can ensure our business delivers the best possible results in the current environment.

To close, I want to emphasize that we remain very confident in our business model and our ability to scale our business to deliver solid performance in a very challenging environment.

At this time, I'm going to turn the call over to Leslie for the financial review.

Thank you, John. Good morning. I'll start out by walking through our quarterly results, which begin on slide nine.

Our total revenue decreased $59.6 million, or 24.2%, to $186.2 million year over year, as we've seen lower demand for our products and services due to the continued decline in construction and industrial activities and the current macroeconomic conditions, including very difficult credit markets affecting our end users.

Revenues declined in all of our business segments, with the largest decline in used equipment sales of $25.3 million, or 61.1%, in the first quarter of 2009 compared to the first quarter of 2008.

On a more detailed basis, our rental revenues decreased $15.7 million, or 22.1%, over the prior year. Rentals were weaker in all product lines, but were primarily affected by weaker demand for aerial work platforms, which accounted for more than half of the rental revenue decline. Aerials were down 25% year over year.

Our dollar return was 28.7% for the first quarter of 2009, as compared to 35.5% for the same period in 2008. Year over year dollar return was impacted by lower time utilization of 840 basis points and a 9.9% average rate decline.

Our average time utilization for the quarter was 56.1%, as compared to 64.5% a year ago, with declines in each product line. Aerial utilization declined 980 basis points as a result of lower demand across essentially all markets. Utilization of both cranes and earth-moving equipment was down less than 300 basis points in each product category.

The 9.9% average rental rate decline on a product line basis is as follows. In comparison to the first quarter of '08, aerial rates declined 10.4%, rates on cranes decreased 2.2%, earth moving rental rates declined 12.1%, and lift truck rates declined 6.5%.

New equipment sales declined by $12.3 million, or 16.1%, over the prior period. New crane sales increased over the prior year by approximately 7%, while new sales of all other product lines declined. Earth moving and AWP sales both declined in excess of 60% on a comparative basis.

As I mentioned at the beginning of my comments, demand was weakest in the used equipment segment versus the first quarter of last year, with a 61.1% or $25.3 million decline. All of our product lines suffered significant contraction in demand.

Our parts and service business also declined, although to a lesser degree than our rental and equipment sales segment. On a combined basis, product support revenues declined $4 million, or 8.8%.

From here, I would like to expand a bit on gross profit and take a look at each of our segments. Our total gross profit margin decreased to 27% as compared to 29.6%, primarily due to a decline in margins on rentals and used equipment sales. For a sequential comparison, our gross margins were 28.4% in the fourth quarter of '08.

In our rentals segment, we experienced declines in rental growth margins, to 36.7% from 46.3% in the prior year. As we saw in the fourth quarter, our rental revenues declined faster than our costs. Rental depreciation decreased $2.6 million, or 10%. Also, the declines in average rental rates and time utilization have affected our rental gross margins. Maintenance and repair costs decreased approximately 6.4%.

Margins on new equipment sales decreased to 13.6%, from 14.2% a year ago, due to the mix of lattice boom and hydraulic cranes sold in the period.

Gross margins on used equipment sales declined to 21.2% from 25.3% in the prior year. This is largely the result of weaker demand for used aerials. Demand for used equipment and, as a result, pricing on this equipment, has been impacted by an increase of used equipment in the marketplace. Rental companies continue to deflate in an effort to size their fleets to better match the current rental demand.

Our margins on the sale of used cranes and earth-moving equipment were consistent with the margins achieved a year ago.

Margins in our product support business declined to 41.6%, from 42% in the prior year, mostly as a result of the mix of parts sold. Parts gross margins decreased to 28.8% from 29.9%, and service gross margins were 63.1% versus 63% a year ago.

While revenue from support activities, or what we classify as other revenues, declined in line with the change in our rental business, gross margins on other revenue improved to 5.6% from a negative margin of 5.6% a year ago. This is the result of lower fuel costs in comparison to last year.

Slide 10, please. Income from operations decreased $15.1 million, or 57.6%, to $11.1 million. The decline in EBIT is due to the gross margin fluctuations that I just discussed in detail combined with a more rapid decline in revenues than in our costs.

However, we do continue to make progress to right-size our business, as evidenced by a 16.1% decline in SG&A Q1 of '09 versus Q1 of '08.

Slide 11, please. Net income was $2.2 million as compared to net income of $10.2 million in the first quarter of last year. On an EPS level, this calculates to $0.06 per share on a lower share count, as compared to $0.28 per share. The effective tax rate was 30.8%, as compared to 37.1% in the prior year.

For the quarter, interest expense decreased $2 million over the prior year to $8.2 million as a result of lower interest rates, lower outstanding floor plan payables, and average debt under the senior credit facility.

Slide 12, please. EBITDA decreased $18.3 million, or 32.5%, compared to the first quarter of 2008, with margins decreasing to 20.4% from 22.9%.

Next, slide 13. Our SG&A costs decreased $7.6 million, or 16.1%, to $39.1 million. Lower SG&A costs are due primarily to previous headcount reductions of approximately 10% that began in the first quarter of 2008 and were completed by year-end, and some impact from an additional layoff of 3% of our workforce that occurred throughout the first quarter of 2009.

Also, costs are lower due to commission pay tied to lower revenues, reduced benefits and other employee costs such as travel and entertainment, and employee education. As a percentage of revenues, SG&A costs were 21% as compared to 19% a year ago.

During the first month of the second quarter this year, we adjusted our workforce down by another 3%, as we continue to monitor the current business environment and our cost structure.

Slide 14. Our gross fleet capital expenditures for the quarter were $5.7 million, including non-cash transfers from inventory, and net fleet capital expenditures were a negative $7.6 million. Our fleet at the end of the quarter was $763.2 million, which has decreased $22.4 million since the beginning of the year. Gross and net PP&E CapEx for the quarter was $7.1 million.

Our fleet age at the end of March was 34.5 months, as compared to 31.4 months a year ago and 33.3 months at the beginning of this year.

Slide 15. Before opening the call to questions, I'd like to again highlight our current capital structure. The two primary components of our debt structure are the senior secured facility, due August 2011, and our 8.375% senior unsecured notes, which are due in 2016. We have no near-term debt maturities and more than ample liquidity under our senior credit facility. This is an asset-backed $320 million facility. After considering debt drawn at quarter end and outstanding letters of credit, our net availability under the ABL facility is $244 million, compared to $236 million at the end of the year.

While we generated positive free cash flow in the first quarter, working capital was a significant use of cash, largely due to the timing of payments to our crane manufacturer on inventory received at year end. As we continue to work through this inventory and control our CapEx, we expect an increase in the generation of cash throughout the remainder of the year.

In addition, we have no covenant concerns under our credit facility, as the financial covenant springs only if availability drops below $25 million. At that point, the minimum fixed charge covenant requirement would be 1.1 to 1.

Furthermore, we continue to maintain significant excess collateral value well above the $320 million facility side. At quarter end, the excess collateral value, relative to the size of the facility, was approximately $175 million.

We are managing our business through very difficult times, with extremely low leverage of 1.4 times on a trailing 12-month basis and also benefit from high interest coverage. As we focus on protecting our balance sheet and cash generation, we will be prepared to take advantage of an economic recovery in our market when the time comes.

With that overview of our financial results, we'll now take your questions. Operator, please provide our instructions.

Thank you. (Operator instructions). We'll pause for just a moment to give everyone an opportunity to signal for questions. And we will take our first question from Seth Weber with Bank of America. Please go ahead.

Hi. Good morning. Hey, good morning, everybody. I guess, John, I was struck by the used equipment sale number. It was well below where it's been trending for the last couple years, or couple quarters at least, anyway. I know that there was some Burris defleeting going on there, but I mean, would the number have been high -- would you have preferred to see the number higher, or is that kind of the number that you think you're going to settle out at here going forward? And is there some -- I mean, it sounds like there's a lot of defleeting going on across the industry, so it's just you're choosing not to sell equipment at depressed prices? Or maybe can you just tell us what you're thinking there?

Seth, we could accelerate our used equipment sales by the auction process, but what I'm seeing in pricing, that doesn't make sense to me. We've got an exceptionally strong balance sheet, tremendous liquidity, no covenant issues, and I don't see a need for us to give fleet away.

With that said, demand is just weak. Nobody's out making a lot of capital expenditures, so it's impacted our retail sales significantly. We're going to push hard. We're probably going to see some margin contraction -- not probably, we will. But you're seeing a lot of the rental players really go the auction route in a big way. That's not our game plan at all. We're not going to give product away because I don't think we have to.

Okay. And so if you are looking at a net CapEx number -- I don't think you've given guidance, but let's say net CapEx is a negative number or zero for the year. Can you talk about where you think your fleet age would come out?

Sure. I mean, we're at 34.5 months today. I would think we would approach 40 months by the end of the year. I don't think it'll go past that.

Okay. And you said you added some cranes to the rental fleet this quarter. Was that just stuff you had -- you were contractually obligated to do, or do you see demand? Is there -- are there certain projects where you still feel like you have demand for the large cranes?

There's still some demand for cranes, Seth, and again, we're very selective. With the right customer, where we get a 12-month guarantee on a rental and solid dollar returns, we're still selectively putting some crane product in the rental fleet, but we're being very selective there.

Okay. And then, just finally, Leslie, do you have a floor plan payable number?

Sure, $114 million.

Great. Thank you very much.

Thank you. And we'll take our next question from Adrienne Colby with Duetsche Bank. Please go ahead.

Hi, thanks for taking my question. From the footnote in your press release, it looks like your location count is about 62. Does that mean you closed a few locations?

We did. We closed two relatively small locations -- Fort Pierce, Florida, and North Charleston, South Carolina. These are two stores that -- in very, very weak markets that were in close proximity to another location, that we felt like we could maintain a material portion of that revenue and reduce our costs significantly. So we did close two small stores.

Can you give us any guidance if you're thinking about closing any more? I know you have a considerable footprint in Louisiana and North Carolina and Virginia too. I don't know if you've considered any other branch locations to close.

We have no further plans for branch closures right now, but that's something we continue to monitor on a monthly basis. But right now, we have no further plans to close any locations.

Okay, great. And if I could ask one more. The tax rate was a lot lower this quarter. I'm just wondering if we should be using that going forward in our modeling.

Well, there were some permanent differences that affected that, but kind of following the logic that our -- that trends in our overall business are difficult to predict, that does trickle down to the tax rate. Given that, I would say that what you saw in the first quarter is a fairly reasonable rate for this year.

Okay. Thank you very much.

And it looks like we'll take our next question from Mr. Henry Kirn with UBS. Please go ahead.

Hey, good morning, guys.

Morning, Henry.

I'm wondering if you could talk about the tailwind from the headcount reductions and maybe how much runway you have to further cut SG&A out of the business.

Henry, I don't see any more major headcount reductions to the tune of 3% or 4% at a given point. We have a hiring freeze in place, and I think just through attrition, our headcount will continue to come down somewhat throughout the year. But again, we don't have any plans for any significant reductions. I think you're just going to see it trend down through attrition.

Look, we're watching our SG&A, every component of it, on a monthly basis. We're seeing travel and entertainment come down dramatically. We're managing every aspect of that, and we'll continue to pare our costs down throughout the year.

Is it possible to quantify it in any way, just how much less labor costs you have as a whole, today or going forward, than you would have in the fourth quarter or the first quarter?

And you're looking at considering the reductions that we did last year?

Well, the reductions you did in the first quarter and so far in the second.

Okay.

I'm trying to figure out how to model that going forward.

Yes. If you annualize that, it would be north of about $4 million of cost. Now, a piece of that will affect gross profit and protect margins and then a piece of that would flow through the SG&A line.

That's helpful, thanks. Do you have -- is there any color on how the rental rates trended during the quarter? They were down a lot more this quarter. Did it get worse at the end of the quarter, or did it start to improve?

I don't think we're seeing any improvement right now. I mean, it's a -- it is a really, really tough rate environment, probably the toughest I've seen, and I would anticipate to the future, continued rate pressures. Hopefully they're going to bottom out, but we're not seeing that yet. It's a very difficult rate environment right now.

And one final one, if I can squeeze it in. The crane backlog -- how long does that stretch out, and how much have you seen in terms of cancellations? How sticky are those orders?

Today, we have about a $67 million or $68 million backlog. We have seen some cancellations, and we've canceled a lot of product with our crane manufacturers, a lot of product. The bigger machines, the highly technical machines, crawler cranes above 300 tons and the big all-terrain cranes, the German product, those are -- that demand is holding up reasonable well. Smaller cranes, RTs under 60 tons, crawlers under 300 tons, it's -- that market has softened considerably. But we're carrying about a $68 million backorder of sold stuff.

Thank you very much.

You bet.

Thank you so much. (Operator instructions). We'll take our next question from Mr. Seth Weber.

Hi, thanks. Just a quick follow up to the -- to Henry's rate question. Is most of that pressure coming from local mom-and-pops, or is it from the national guys as well?

It's pretty broad-based. It's some of the big national players, and some are more disciplined than others. It's -- some of your regional players have gotten extremely aggressive, and some of it's coming from local players. It's pretty broad-based. I mean, no one's immune from this, I can tell you that. It's a tough rate environment.

Okay. Thanks very much.

You bet.

And we will now hear from Peter [Chang] with Credit Suisse. Please go ahead.

Hey, how's it going, guys?

Good.

I had a question on your industrial markets comment, being a little bit better than general non-res. If so, could you give us sort of your forecast and the breakout between the two of those for the remainder of the year?

Well, I think the industrial sector will continue to probably drive in the range of 50% of our revenue. That's what it has been doing. I don't see that changing. We don't have a lot of residential exposure. Probably less than 10 percent of our revenue is, and it's probably less than that today because it's fallen off so much, and the rest is the various components of nonresidential construction.

Got you. And the parts revenue was down about, what, 10% in the quarter, and I was sort of curious as to if that was just customers trying to push back any type of purchasing and if you could sort of expand upon that.

Well, I think that is what -- the situation. People are just putting off expenditures everywhere they can. I think a lot of our end users have their own fleets parked right now, the demand is that weak, and they're not spending money unless they have to. Typically, our parts and service business is somewhat counter-cyclical to a downturn, and I think, again, we're seeing that segment of our business hold up considerably better than other areas. As Leslie commented, I mean, we're down, like, 8.8% in our products port component, and in this environment that's pretty good.

And do you foresee that sort of like a high single-digit decline or mid to high decline going forward?

I don't -- I anticipate that holding up pretty well going forward, and I think when this market turns, there's going to be a real pent up demand that we'll take real advantage of.

Great. Thanks, guys.

Thank you.

And we will take our next question from Philip Volpicelli with Cantor Fitzgerald. Please go ahead.

Good morning.

Good morning.

Just with regard to the floor plan financing, any discussions with the providers there? Obviously, the credit environment is difficult. Have they expressed any concern? Are they pulling back? Are there any covenants in the facility that we need to be aware of?

Philip, this is Leslie. No covenants, no pushback whatsoever, so just really no concerns that relate to our providers there.

Great. And then in terms of CapEx for the year, between fleet and PP&E, do you guys have a sense of what you're targeting? Are you targeting, I guess, free cash flow neutral maybe on the fleet side and maybe small use on the PP&E side?

We don't give CapEx guidance, as you know, but I would anticipate our fleet spending to be negative for the year.

Okay.

And then on the PP&E side, your assumption is reasonable.

Okay. And then the 2Q workforce reduction -- I think I heard you say that there was an additional workforce reduction in the second quarter, but it was smaller than the magnitude in the first quarter. Is that accurate? Can you give us a number of how many, percentage, were laid off?

It was another 3% in April.

Okay. Okay, great. And then in terms of regional outlook, I know you guys have exposure to Las Vegas. There's been a lot of disruption there with MGM and the CityCenter project and Cosmopolitan and Fontainebleau. Can you give us some color on what you're seeing currently in Vegas? Are you guys being affected by those negotiations?

Absolutely. I mean, anybody with Vegas exposure is feeling it right now, and I think you pretty much summed it up. You've got CityCenter coming down towards the end of this year. The Fontainebleau project has been put on hold. We do think that project will be completed, but there could be maybe a 60-day delay there. So Las Vegas is going to be a challenging market for the remainder of the year, in our estimation.

Now, is that an opportunity for you, or is it something you would back away from in terms of -- should some other competitors there have problems, would you look to expand, or are you looking to get out of that market?

Well, we're not looking to get out of the market. I mean, look, Vegas, when it's right, is a phenomenal market, and it will be again. We're certainly not looking to get out of it, but we'll be doing what we're doing everywhere, and that's adjusting our business to fit the environment. But we have no intention of exiting that market.

Great. And my last question, you mentioned -- or I guess you've disclosed that you sold less product in the quarter on the used sales. How far down are prices for used equipment?

Leslie could give you some margin overview, but I mean, our -- the sales that we're making out of our normal retail sources are -- the margins are holding up pretty well, particularly -- I mean, crane margins are holding. Our earth moving margins have held pretty stable. Aerial margins are down, definitely. I mean, there's a tremendous overcapacity situation. Leslie, is there any more color you can give there?

No. I mean, the margins were 21.2% for the quarter compared to 25.3%, and as John said, that was impacted really by the aerial side.

Okay, all of that was aerial.

Primarily.

Great. Thank you, guys. Good luck.

Thank you.

And we'll now go to Adrienne Colby with Deutsche Bank.

Just a quick follow up. I'm wondering how much seasonal recovery we could expect in terms of time utilization for the rental fleet.

Adrienne, that's a real good question. If you look at our business historically and you go can back a lot of years, we almost always see seasonal improvement in the second and third quarter over the first quarter of the year. The first quarter is normally our seasonally weakest quarter.

I don't know that history is going to apply here. This is a very different environment with these credit markets frozen and what we're seeing. I hope to get some seasonal pickup, but that's a question mark right now.

Okay. Thank you.

You bet.

(Operator instructions). We'll now go with Michael Terwilliger from Bank of America Securities.

Hey there, folks. Mike Terwilliger. Just some quick clarifications. I jumped on late here, so I apologize if I missed this. The excess availability, the 244 that you mentioned on your ABL, I assume that's based on a recent appraisal. When was your most recent appraisal done, and when can we expect the next one?

We have two appraisals a year. The last appraisal was done at 12/31. Now, that appraisal is really what values the assets that support the collateral base, and so we've got assets above the $320 million total facility size. So, yes, indirectly, the $244 million does reflect the appraisal, although, because we've got suppressed assets, it didn't really come into play too much. And so our next appraisal will be midyear, June.

Midyear, okay. Great. And regarding the rate environment, hearing from your competitors in the last couple weeks, it sounds as though rates are definitely under a fair amount of pressure. Sort of trying to get to a sense of how bad things really are and how bad they could get, how would you compare this rate environment to the downturn in the 2001 to, let's see, 2003 context, sort of the last big downturn in the rental space? I mean, we hear a lot about how the industry is much more disciplined this go-round. How do you feel like this is shaking out compared to the last downturn?

Well, I do believe the industry is more disciplined, as evidenced by everybody trying to reduce their fleet sizes, bring their fleets down. That was not the case back in '01, '02, '03. I mean, I think the opposite was happening. I think the manufacturers today are much more disciplined. They're shutting down their plants as opposed to trying to continue to find ways to pump capacity into the marketplace, so I do believe we have a much more disciplined sector.

We're dealing with some challenges we didn't have the last go-round. I mean, this situation of frozen credit markets and the impact it's having to new projects and current projects, with cancellations and delays, it's a whole different scenario. I would say the price pressure is similar to the last go-round. I mean, it's been difficult, and we think it's going to be difficult for a while.

Okay. Now, there seems to be some degree of tradeoff between rate -- utilization rates and price. I assume you're turning away a fair amount of business based upon just the price not being attractive, and therefore that's hurting your utilization. Going forward, how do you feel about that tradeoff? I mean, there seems to be a degree where if everyone's cutting price, everyone's losing profitability. I'm just sort of curious about how you guys look at that.

Yes. I mean, look, we walk away from business every day, and we'll continue to do so, and it is -- it's just what you say, it's a balancing act, and you've got to try and balance price versus utilization and to maximize your dollar returns. And that's what we're doing, and that's what we're going to continue to do.

Okay. And then exit question. It seems as though, based upon your negative net CapEx and your net working capital trajectory, that you should be solidly free cash flow positive. Any thoughts about buying back bonds in this marketplace in the open market?

Anything we do along those lines requires bank consent, and you go for bank consent today, they're going to reprice your facility. We have exceptionally favorable pricing on our ABL facility, and I'm not too interested in repricing that right now.

All right, great. Thanks very much. Great quarter.

Thank you.

And we'll now go to Chris Daugherty from Oppenheimer. Please go ahead.

Good morning, John and Leslie.

Hey, Chris.

John, can you just talk a little bit -- I mean, clearly the sounds of what you're saying is the market is tough, and I think everybody understands that, but yet when you look at the nonresidential numbers that are being posted, it doesn't seem to be as bad. Can you sort of talk about the mismatch there and then also where you think the trajectory for volume for non-res construction is throughout the year given that some people are expecting it to be down 20%-plus?

Yes, and I'm not sure what you're referring to, Chris, when you say the numbers don't appear to be that bad. From our perspective, they look pretty bad. And again, projections are they could be down 20%. I don't know, I'm not an economist, but I can tell you the workload in the nonresidential sector is down significantly, and everybody is feeling it in a big way.

Yes, I'm referring to the government numbers. The nonres construction numbers that are posted there are showing basically still year-over-year improvement. And I guess in terms of the cycle, where do you think we are? I mean, have we just started to see the downturn? Is it going to continually get worse through the year, or when should you expect some sort of leveling off?

Well, again, I wish I had the answer to that. We anticipate for the remainder of this year -- and the way we're planning our business is more of the same. We think it's going to be a difficult year for the remainder of '09. There are some forecasters out there calling for somewhat of a turnaround in the second half or toward the end of the year. Bernanke thinks this thing is bottoming out, and I hope he's right. We're managing our business and planning for a difficult '09 for the remainder of the year.

And then, Leslie, just one last question in terms of your recent appraisal. Can you tell us what the NOL, the percentage, was as a percentage of your OEC?

As a percentage of OEC? I don't have that right in front of me, but I mean, I can tell you that our appraisal values decreased about 10%, 12% over the previous appraisal.

All right, thank you.

And we will take our final question from Mr. Philip Volpicelli from Cantor Fitzgerald.

Just a follow up on the suppressed availability on the credit facility. Do you have that number, Leslie?

$175 million at the end of the quarter.

Great. Thank you.

Sure.

Thank you, and I will now turn the conference back over to Mr. Engquist for any final remarks or closing remarks. Please go ahead, sir.

Thank you. I appreciate everybody being on the call. Again, it's a difficult environment. We're going to measure our success this year by our ability to maintain our financial strength, maintain a strong balance sheet, lots of liquidity, and be ready to really take advantage of things when this market turns, and it will, and we're going to be postured to really perform when that happens. So, look forward to talking to you on the next call.

That concludes today's conference. Thank you for your participation, ladies and gentlemen.