H&E Equipment Services Inc (HEES) 2010 Q3 法說會逐字稿

Good day, and welcome to today's H&E Equipment Services second (sic - see Press Release) quarter 2010 conference call. Today's call is being recorded. At this time I'd like to turn the call over to Mr. Kevin Inda. Please go ahead, sir.

Thank you, Leslie, and welcome to H&E Equipment Services conference call to review the Company's results for the third quarter ended September 30, 2010 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'll refer to certain non-GAAP financial measures and we've reconciled these measures to GAAP figures in our earnings release which also 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 statement.

These risk factors are included in the Company's most recent annual report on Form 10-K. 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 -- to publically 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 third quarter 2010 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer.

Please proceed to slide three. This morning I'll give an overview of our third quarter performance including an update on the specific regions we serve and provide our thoughts on the current market conditions. Leslie will summarize the quarter's financial results. When Leslie concludes we will then take questions.

Proceed to slide five, please. While we believe a full-scale recovery is not underway by any means, market conditions did improve during the third quarter, and as a result our business delivered solid sequential improvements and year over year gains in select segments of our business. While our total revenue was down 12.4% to $153.8 million from $175.6 million a year ago, our revenue increased 17.4% from the second quarter. This increase was primarily driven by continued growth in our rental business and sequential increases in new equipment sales.

Our EBITDA decreased $4.8 million to $24.5 million on a margin of 15.9% versus 16.7% a year ago. Sequentially, EBITDA increased 31.3% from the second quarter with a margin improvement of almost 170 basis points. We posted a net loss for the third quarter of $3.8 million or $0.11 per share compared to a net loss of $2.3 million or $0.07 per share a year ago. Our net loss improved 46.7% from a net loss of $7.1 million in the second quarter.

We were pleased by the continued strength in the demand of our rental fleet in the third quarter. Average fleet utilization increased to 62.3% based on units and 65.9% based on OEC. On a year over year and a sequential basis, the range of increase was 700 to 900 basis points on either measurement. As a result, our rental business posted solid year over year improvements with revenue increasing 7%, rental gross profit increasing 31.2%, rental gross margin up 6.9% and dollar utilization up 3.7%.

This is the first quarter since late 2008 that our rental segment delivered positive year over year results. We are encouraged by these results and the current level of activity in our rental business. In fact, in the month of October our rental business performed at levels we have not experienced since early 2009, even with approximately $100 million less in rental assets.

Lastly, I want to highlight the quality of our fleet. At September 30 our fleet age was 43 months compared to an industry average near 52 months.

Please proceed to slide six. On a regional basis we continue to see the strongest results in the same regions we've talked about for some time. The Gulf Coast remains our most productive and profitable region due to our significant exposure to the industrial sector, mainly the oil and gas and petrochemical industries. The moratorium on offshore drilling did not help our crane or product support business in this region, but we expect activity to return to more normal levels now that the moratorium has been lifted.

The Intermountain region is our second most productive region, again due to industrial exposure, specifically mining and oil and gas. Utah in particular is seeing increased demand. Not surprisingly, Florida, Arizona, Nevada and Southern California continue to be our most challenging markets and we expect this will be the case for the remainder of the year. We believe these markets will see increased demand as nonresidential construction begins to recover in 2011.

The Mid-Atlantic is an area where we saw nice gains in our rental business earlier in the year, particularly in our earthmoving business. However, our utilization has flattened out in this region and we are currently not seeing the month to month gains in on-rent we're achieving in other regions. We do anticipate improvement in our end markets in the Mid-Atlantic in 2011.

As it relates specifically to utilization of our fleet, all regions improved on both a year over year and on a sequential basis.

Would you please move to slide seven. While we have seen market conditions improve the last two quarters, major challenges still persist. Commercial construction remains anemic as lending remains tight and forecasts continue to call for a contraction in spending during the balance of this year. Residential construction, while not a material part of our business, also remains weak and we need to see this sector improve substantially before the nonresidential construction markets begin to improve. Lastly, weather is always a wild card late in the fourth quarter.

The last two quarters indicate the market is improving for our industry. The economy remains stable and several economic indicators are pointing towards improvement and growth. Our rental business delivered year over year improvements and the third quarter was the first quarter of positive sequential gains in rental rates since the second half of 2008.

Used equipment pricing is improving, driven by higher utilization rates, and utilization trends have improved for several consecutive quarters and into the fourth quarter. The industrial markets we serve also remain strong and are forecast to grow.

Lastly, the September ABI at 50.4 was the highest rating in two years, but this generally lags construction spending by nine to twelve months. Normal seasonality related to holidays and weather caused utilization levels to moderate and could put pressure on rental rates in the fourth quarter. It is difficult to predict how significant this impact will be.

Please proceed to slide eight. In conclusion, we're very encouraged by the trends in our business during the last two quarters and thus far into the fourth quarter. Our rental business is performing well with year over year improvements and we expect this performance to continue into the fourth quarter barring any major weather events in our markets or unusual slowdown of activity through the holiday season.

Our parts and service business has stabilized and we expect to see improvement in this segment of our business as we move into 2011.

Other segments of our business, particularly equipment sales, remain difficult to predict. While we remain cautious due to the persistence of market and economic challenges, our business has improved and our results prove we have scaled our operations to leverage any improvements in market conditions.

With a solid balance sheet and capital structure, we have tremendous flexibility to take advantage of improved market conditions and opportunities. We are pleased with our performance and remain extremely focused on profitable growth.

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

Thank you, John. My comments this morning will include a more detailed review of our third quarter results. Overall, our business continued to show improvement in many areas. We're pleased to be in a position of discussing year over year improvement along with continued sequential improvement in a variety of metrics.

We are investing in our fleet with the increased demand and our balance sheet remains quite solid providing us with the flexibility to adjust to the environment.

Slide ten, please. As usual, I will first address the fluctuations in revenue for the related period sand then I'll address the changes in gross profit before proceeding to the next slide.

On a year over year basis, total revenues were $153.8 million, a decrease of 12.4%, and yielding gross margins of 24.6% in the third quarter versus 22.8% last year. Before I get too far into the details, let me remind you that the prior period's results include the sale of certain Yale lift trucks and related assets totaling $16.6 million in revenue and $1.6 million in gross profit or a 9.6% gross margin. Approximately 80% of the revenues were used equipment sales.

After taking this transaction into account, our third quarter gross profit margins were still in positive territory compared to a year ago. On our second quarter call we discussed flat year over year gross margins, so we are pleased with this movement in the right direction.

Sequentially, total revenues increased 17.4%, driven primarily by higher new equipment sales and rentals. On a segment basis, rental revenues were $48.3 million for the quarter, a 7% increase over a year ago. Rentals increased largely due to higher earthmoving and aerials which were partially offset by lower crane and lift truck rentals.

Our dollar returns were 29.2% for the third quarter of this year as compared to 25.5% last year and 25.3% last quarter, an improvement of nearly 400 basis points. The current quarter's dollar return exceeded quarterly returns in all of 2009 and also thus far in 2010. Improved dollar returns continue to be driven by higher time utilization. Returns were partially offset by lower rates this quarter compared to a year ago. However, the negative year over year trends in rental rates continue to decelerate. As John pointed out, we moved into solid sequential rate improvement this quarter.

As for the components of our dollar returns, first, time utilization based on units increased 800 basis points to 62.3%. On a product line basis, utilization of our earthmoving fleet exceeded year ago levels by 800 basis points or more for the second consecutive quarter. Aerial demand was nearly 900 basis points higher than a year ago and crane utilization increased by approximately 200 basis points over the prior year.

Sequentially, time utilization increased 740 basis points from the second quarter, an increase in cranes, aerials and earthmoving equipment. Aerials delivered the largest sequential increase in demand of 860 basis points. With aerials comprising 60% of our fleet this is significant to our business.

Second, average rental rates on new contracts were down 5.9% in comparison to a year ago. However, these declines continue to decelerate. Rates on earthmoving equipment reflected solid year over year gains but were pulled down by other product lines, primarily aerials. Sequentially, rates were up 1.8%. All product lines increased sequentially with the exception of aerials which were nearly flat compared to the second quarter.

New equipment sales were $47.7 million, or only a 2% decline over the prior year period. Declines in new crane sales were nearly offset by an increase in new aerials and new earthmoving sales. Used sales were $14.7 million or a 55% decline over the third quarter of 2009. Lower used sales are due to a couple of factors. First, the prior period included revenues of $13.4 million related to the Yale lift truck sale. And second, we've slowed the sales out of our rental fleet due to the increased demands.

Business activity in our parts and service segments was also down year over year on a combined basis of $6 million or 14.6%. Excluding the parts and service revenues as a result of the Yale lift truck transaction a year ago, combined revenues were down 10.4%.

Now I'll provide some more details on gross profit changes in each of our segments. Total gross profit for the quarter was $37.9 million compared to $40 million a year ago. From a gross margin perspective consolidated margins were 24.6% compared to 22.8% a year ago. A more relevant comparison is a gross margin of 24.1% last year which excludes the Yale transaction. Overall, the improved profitability in our rental business is driving the margin expansion.

In our rental segment margins were 37.5% compared to 30.6% in the prior year and were the result of higher fleet utilization on a smaller overall fleet compared to last year. Margins on new equipment sales were 9.9% this quarter compared to 10.5% in the prior year, due principally to lower margins on cranes.

Gross margins on total used equipment sales increased to 24.6% from 17.2% in the prior year. Included in these results were margins of 28.9% versus 18.5% last year on rental fleet sales. The prior year margins were negatively impacted by the Yale transaction.

Parts gross margins were 26.1% compared to 26.5%, and service gross margins were 58.3% versus 62.9% a year ago due primarily to revenue mix. Margins on other revenues which are equipment support activities declined due to higher costs associated with transporting equipment on fairly consistent revenue.

Slide 11, please. For the first quarter in a year we recorded income from operations. We generated income from operations of $1.5 million or a 1% margin compared to $5.2 million or a 3% margin a year ago. Margin results reflect the impact of the declines in our top line combined with higher costs in certain SG&A line items. Partially offsetting these changes were higher gross margins.

Proceed to slide 12, please. Throughout this presentation the revenue and profitability changes resulting in a net loss have been outlined so I'll not go through them again. But for the quarter our net loss was $3.8 million or a loss of $0.11 per share compared to a loss of $2.3 million or $0.07 per share a year ago.

Slide 13. EBITDA was $24.5 million or 16.4% decline with margins at 15.9% compared to 16.7% a year ago. The declines in year over year results continue to narrow with the recovery in our rental business. Sequentially, EBITDA grew 31% and EBITDA margin increased 170 basis points.

Next slide 14. SG&A expenses were 23.8% of revenues this quarter compared to 20% a year ago, mostly as a result of lower revenue. SG&A increased $1.5 million or 4.3% to $36.6 million, primarily due to an increase in depreciation of $700,000 and another $700,000 increase in labor and benefits, largely due to the new ERP system.

Slide 15. With improved market conditions continuing in the third quarter we are reinvesting in our fleet. Our gross fleet capital expenditures for the quarter were $33.3 million including noncash transfers from inventory and net fleet capital expenditures were $21.6 million. For the quarter gross PP&E CapEx was $2.1 million and net was $1.9 million. Our fleet age at the end of September was 43 months as compared to 40 months at the beginning of this year.

Slide 16. Our fleet, based on our original equipment costs, at the end of the quarter was $665.5 million versus $694.1 million a year ago and $675.1 million at the end of 2009. Also, the fleet increased by $8.4 million from the second quarter.

Slide 17. On slides 17 and 18 we've included our capital structure. There have been no material changes since we last spoke. And as we've stated many times, our capital structure is solid with considerable flexibility and liquidity.

Please move to slide 18. Our debt maturities are well in the future with the earliest maturity occurring in July of 2015. This facility is a $320 million ABL facility and now includes a five-year commitment. Today our availability is unchanged and is $312 million net of outstanding letters of credit of $8 million. We believe our amended ABL facility supports future growth of our company.

In closing, we're encouraged with the improvements in our performance as some of our end markets seem to be in the early stages of a recovery. We believe our company is positioned to capture opportunities as market conditions hopefully continue to improve.

We'll now take your questions. So operator, if you'll please provide instructions for our Q&A session.

Thank you, Ms. Magee. The question and answer session will be conducted electronically. (Operator instructions). It looks like our first question is from Henry Kirn with UBS.

Hey, good morning, guys.

Good morning, Henry, how are you?

Good, how are you doing?

Good.

I guess first for the quarter is it possible to quantify how much of a hit you took from the moratorium on offshore drilling and when that might be [based] back up?

Well, it's a little difficult to put a number on it. I can tell you that I think it impacted our product support business in this area more than anything else. We probably got a couple of machine sales cancelled or pushed back, but I think the bigger impact was our product support business. We had a couple of major rebuilds we were fixing to start that were cancelled because of it. We had some -- a significant number of crawler cranes moved out of this region that we were supporting for various customers of ours. So it had an impact. I do believe that we'll return to a more normal business environment now that the moratorium has been lifted. It might take a couple of months but it should come back.

Excellent. And with conditions starting to get a little bit better, could you talk a little bit about how you view CapEx going into next year?

Yes, well, there's no question, Henry, that we've changed from a very defensive mode to an offensive mode. Demand has picked up considerably. We're starting to invest in our fleet. We've got some real positive metrics there. We've been increasing OEC in our fleet and at the same time increasing our time utilization almost weekly. So we're real pleased with that metric and we're going to continue to invest. I think our fourth quarter spending will be similar to our third quarter, and then we'll continue to watch demand and our capital spending will continue to be pretty short-term in nature based on demand.

And one last one if I could. As we go into the fourth quarter there's sometimes seasonality on the rate side as well. Are you seeing your competitors doing winter rates or are folks staying a little more disciplined in trying to put through the rate increases?

Well, right now to this point October rates were up a little bit and were actually pretty flat year over year. I think we're right on the cusp of seeing year over year rate increases here. Let's see how -- there's going to be some impact from seasonality. There always is and we expect that. When that occurs you're probably going to see more rate pressure than we're presently seeing. But overall, I think our sector is being pretty disciplined and working to get rates up.

Thanks a lot.

Thank you, Henry.

And we'll take our next question from Philip Volpicelli with Deutsche Bank.

Good morning.

Good morning.

Leslie, could you give us the floor plan financing at the end of the quarter?

Sure, $76 million.

$76 million, great. And then you both made comments about new equipment sales only down 2% yet the cranes it sounded like were down more than that and it was offset a little bit by aerial and earthmoving. Can you give us some more granularity? How much was cranes down and how much was maybe aerial and earthmoving up?

Sure. Our cranes were down about 25% year over year and earthmoving and aerials were up significantly compared to the prior year, so 75%-plus.

Right. Because historically you've mostly sold cranes, is that accurate?

Right, that's exactly. This quarter it was about 60% of our total new equipment sales and in the past that's been higher. So that's the -- not really a new trend.

Understood. And that 25% year over year decline in cranes, how does that compare to pure cranes in the first and second quarter declines?

Moderating.

Okay, okay. And then when you look at the capital spending for next year, it sounds like it's going to be more earthmoving focused. Can you give us a little color on what equipment types are doing well for you, what equipment types are lagging? It sounded like rates for aerial were weak but you were able to sell some there. So I guess, maybe some more color on what you're buying.

Well, look the aerial business is our most challenging product line from a rate standpoint, and there's several reasons for that. Some of it we had a lot of aerial exposure in the weaker markets, Florida, Nevada, Arizona, Southern California, a lot of aerial exposure there. That's part of it. And then it's just the anemic nonresidential construction markets, particularly commercial construction which is a significant driver of the aerial business. So that's the reason for that. We have categories within our aerial group that are doing very well and we're investing some money there. Big booms is a specific example of that. I mean, we've got classes of big booms that are 80% utilized right now and we need to spend some money there. We are investing in our earthmoving fleet. It's an early cycle product and we're seeing some nice gains there.

Okay, great, thank you very much.

You bet.

And we'll take our next question from David Wells with Thompson Research Group.

Good morning, everyone. First off, just jumping up back to your commentary with regards to the month of October. Any sense of the performance that you're seeing relative to historical levels? Is that -- are you referring to that on a dollars basis of revenue or are you referring to that on a time utilization or rental rates? Any more color that you could give there would be helpful.

Well, I mean, we've seen improvement in Octo- -- are you speaking year over year or sequentially here?

No, I think there was some commentary that the month of October you were seeing levels that you haven't seen since early 2009. And I was just trying to get a sense of if -- what the driver -- if you were referring to that on a time utilization basis or if you were actually seeing that in terms of dollar -- the actual dollar of revenue that you were generating was more similar to that level.

All of the above. We've seen -- we're generated a similar level of revenue that we did a year ago or almost a year ago in early '09 with $100 million less fleet, so obviously our gross margin and dollar returns have improved dramatically.

Okay, that's very helpful. And then touching on the capital expenditure side. I guess from an overall fleet age you still have a nicely young fleet, but your -- the aerial piece is starting to get up. How do you think about replenishing that piece of the fleet? And are you seeing rental rates get to a point where the economics make sense to bring on new assets? And if you decide to defer out that replacement, maybe if you could talk about what the -- should we expect increased maintenance costs or service costs associated with that?

We have seen no material change in our maintenance costs as a percentage of revenue. It's very consistent. Our aerial fleet's not what I would call aged, it's 47 months. A lot of our fleet is big booms. That's not too much unlike a crane. You can age those products a long way. We have a lot of product support infrastructure and capability. We maintain our fleet to a very high level so fleet age is no concern to us.

We are -- as I said earlier, we're investing in certain aerial categories, primarily big booms. We're highly utilized, the returns there are still attractive. We've got areas in our aerial fleet that we're not investing in and that we're probably going to shrink. But we're managing it by asset class or category.

That's helpful. And then lastly and I'll get back in the queue, as you look at the new sales that you saw, how sustainable do you think that sequential improvement is coming into the end of the year here? And any thoughts about what 2011 looks like on that front, I guess specifically with regards to crane sales?

I think 2011 we're going to see some improvement in our new equipment sales. I don't think there's any question about it. A lot of that will be on the earthmoving side. We're seeing a lot of increased demand there. I generally feel better about the crane business today than I did even three or four months ago. I think we're going to start to see a modestly better environment for crane sales in 2011.

We don't have a whole lot of visibility on the crane side. We're selling equipment every month but it's pop-up sales. It's nothing that you have on your radar screen. And it's typically related to some energy-related project or even some stimulus spending. So not a whole lot of visibility but we do anticipate a fairly significant increase in new sales next year.

Great, that's helpful. Thank you very much.

Thank you.

And we'll take our next question from Seth Weber with RBC Capital Markets.

Hey, good morning, guys.

Good morning.

Actually, I wanted to drill down on the new equipment sale number a little bit as well. I mean, so it went from -- I think it was up sequentially like 60% or 65%. I mean, was that -- were there some of these "pop-up" sales or one-off sales in that number or I guess I'm just trying to also get comfortable with what the run rate there should be on a quarterly basis. I mean, is that the new run rate?

Well, our new equipment sales was $47 million and change in the third quarter. I don't know that that's a run rate but it won't be way off, because I think we're going to see improve- -- continued improvement in earthmoving sales and probably some slight improvement in crane sales. So I don't know that -- I wouldn't say $47 million is a run rate but we're going to see improvement going forward.

Okay, because I mean it was averaging kind of $28 million in the first half.

Right.

Yes.

I wouldn't use $47 million but we're definitely going to see continued improvement.

Okay, that's helpful, thanks. I was surprised to see the parts and service numbers revenues down sequentially. I mean, I think we've talked about that as being kind of a leading indicator of business activity, but the numbers were a little bit lower than where we would have thought they would be kind of considering where we are with things getting better. Is there -- is that just seasonality or is there something that --?

No, I think that what we're seeing there, and frankly we've been a little bit disappointed ourselves in our parts and service revenue. I think what we're seeing, though, a big, big driver of that business for us is the crane business and a lot of that comes out of Belle Chasse, Louisiana relating to the Manitowoc product. And we've seen some real pressure there. And a lot of that came from that drilling moratorium. I mean, that had a heavy impact on our business. And just the crane environment being down like it is has impacted our product support business on the crane side, and that's a big driver of that. We think it's stabilized. I think we're kind of flat now and I think we're going to see improvement in that business in '11.

Okay. And if -- as the drilling comes back on, I mean, do you need to renegotiate those service contracts or do they just automatically come back to you?

There will be some of both. I mean, I don't think there's going to be a lot of renegotiating. I think they'll come back.

Okay, and then just lastly, can you -- you kind of alluded to this, but rental rates in October versus September, they were up sequentially again?

They were up sequentially again, and, again, we were pretty flat on a year over year basis. So we're approaching year over year gains in rental rates. We're getting real close.

Okay, so it's safe to think you think next year rates should be up year over year?

I do. And again, the fourth quarter is a wild card just because of seasonality, but next year we should be up year over year.

Right, okay. And then just, Leslie, I'm sorry if I missed it. Did you give the dollar number of the transfer that was in the CapEx?

I did not. It was $12.8 million for the quarter.

$12.8 million. Great, thanks very much, guys.

Thank you, Seth.

(Operator instructions). And we'll take our next question from Chris Doherty with Oppenheimer.

John, could you just put a little bit of qualitative analysis around the increase in new sales. I mean, what we heard from some of the other rental companies was that volumes improved even though nonres construction hasn't because people are going to the rental market versus buying. But yet some of your numbers sort of show the difference -- or different opinion. So why are people buying versus renting?

Well, I don't know that that's the case. I think that our equipment sales was at such low levels that we showed some pretty big increases. I think that the rental companies -- I think we're at a point in the cycle that there is not a whole lot of confidence whether this thing is real or not. And I think people are -- as they do at this point in any up cycle, early stages of it, they tend to rent before they start buying. And I think that is going on right now and I think that's why we're showing more improvement in the rental side of our business than we are on the distribution side. If this recovery gets legs, if it gets legs and confidence returns to our end users, they will return to their normal behavior and normal patterns of buying and renting.

And then, Leslie, given the upswing in new sales, where did inventory end at?

Total inventory, parts, used and new, were -- was $93 million.

That's up quarter over quarter, right? I mean, why -- given the big sales, I mean, I would have thought that you could have driven that down a little bit.

It's -- I think it's just a function of us bringing product in that hasn't gone into the fleet yet. I mean, it's a timing issue. Everything we buy hits our new inventory first, then it goes into the fleet. So I think a lot of that's a timing issue.

All right, thank you.

And one other comment I want to make on that. Some of that new inventory will be cranes that are sold and just hadn't been invoiced yet. That's part of it, and those are big dollars. So that really moves that needle a lot.

And we'll take our next question from Barry Haimes with Sage Asset Management.

Thanks very much. Two questions. You mentioned that used prices were up. Could you quantify that a little bit, any rough feel for what percentage, let's say, year to date used prices have come up?

And then second, you mentioned in the Gulf the moratorium maybe being somewhat of an issue and it is off. On the other hand, it seems like they've been really slow in terms of letting permits. Are you seeing any change there yet or how are you evaluating that situation? Thanks so much.

We're going to have to watch that for awhile. I mean, I can tell you that's a concern in Louisiana is what they're going to do with permits and that question remains and we're just going to have to watch that. But still, lifting the moratorium is going to let them go back to work on some rigs that were already in place and that will certainly benefit our business. We do a lot of business with boat builders and these offshore supply companies that were really hammered by that moratorium. I mean, it was a real tough situation. So we're pleased to see that moratorium lifted and it's going to benefit our business.

Thanks. And the used pricing, any quantification on that?

I think it would be beneficial for you -- and I don't have it in front of me, to take a look at the Rouse Report. I mean, they track used equipment prices closely. But I can tell you we're seeing improvement in essentially all of our equipment categories. Aerial pricing has improved; earthmoving pricing has improved; crane pricing has been stable to up slightly. So we've seen it across the board and we're certainly pleased to see that. That's a real positive indicator for us and our sector.

Thank you.

We'll take our next question from Tom Klamka with Credit Suisse.

Good morning. John, how far ahead do you have to commit for CapEx when you look at into Q4 and to 2011 and [depending] on spending more money? How far ahead are you committing to that, or are you able to kind of roll during the year?

In this environment our commitments are very short-term in nature. I mean, we've been in positions in the past, you get in an '07 environment where you had to -- we were making commitments probably six to as much as 12 months out depending on the categories. That's not the case today. We're making CapEx decisions on a very short-term basis right now.

The decisions we've made to this point have been related primarily to demand but also a concern that once everyone starts purchasing, which they are right now. I mean, United spent -- all the big players are spending money right now on their fleet. And we have a significant concern over the manufacturers' ability to meet this increased demand because boy, I'll tell you what, they've sucked their capacity way back. So those two things are driving our recent CapEx decisions. But they've been very short-term in nature.

Okay. And how do you balance sort of -- everyone sees some increased demand off of a low base. Rates are increasing somewhat but still low, so your dollar utilization is still low though time is increasing. How do you balance those internally? On one hand can guys be getting ahead of themselves adding more capacity so rates are going to stay under pressure as opposed to adding capacity very slowly and maybe trying to get more on rates. How do you balance that?

Well, I think that we do a lot of analysis before we put equipment into any operation of ours and there's a lot of analysis on what we anticipate for time utilization and rates. We look at returns. If the returns aren't satisfactory it doesn't go there. We've got some areas like Utah that are just really seeing a lot of increased demand and I can tell you, a lot of the product that we've purchased is going into Utah. So I think we do the appropriate analysis to make sure that we're not getting in front of ourselves.

Okay, thank you.

(Operator instructions). It appears there are no further questions. At this time, Mr. Engquist, I would like to turn this conference back over to you for any additional or closing remarks.

Now I appreciate everybody being on the call. Generally we're very encouraged by the trends we're seeing in our business and in our sector and we think this is going to continue. And we look forward to talking to you and hopefully have some good numbers for you on our next call. Thank you.

And that concludes today's conference.