H&E Equipment Services Inc (HEES) 2012 Q4 法說會逐字稿

Please stand by. Good day and welcome to today's H&E Equipment Services fourth-quarter 2012 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.

Thank you, Camille, and welcome to H&E Equipment Services' conference call to review the Company's results for the fourth quarter and year ended December 31, 2012 which was 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 1. Conducting the call today will be John Engquist, Chief Executive Officer; Brad Barber, President and Chief Operating 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'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 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 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 fourth-quarter 2012 earnings call. On the call with me today is Brad Barber, our President and Chief Operating Officer, and Leslie Magee our Chief Financial Officer.

Proceed to Slide 3 please. This morning, I'll give an overview of our fourth-quarter performance, including an update on the specific regions we serve and current market conditions. Brad will then discuss several key operational initiatives. Brad was promoted to President in addition to his duties as Chief Operating Officer in November of last year, and we're excited for Brad to join us on these calls. Brad's participation will add value to these calls given his deep knowledge of our Company and the industry. Leslie will then discuss our fourth-quarter financial results in more detail and summarize our 2012 yearly results. When Leslie concludes, I'll provide our thoughts on 2013 and at that point we'll take your questions.

Proceed to Slide 5 please. In summary, the strong performance and momentum that we experienced in the first three quarters of 2012 continued through the fourth quarter of 2012. I believe our results demonstrated our ability to capitalize on strong or improved demand throughout our end markets. Our rental business continues to benefit from an overall secular shift towards rentals in the industry. As a result of strong rental demand, we continue to invest in our fleet during the quarter. Lastly, every one of our business segments delivered year-over-year revenue growth.

In terms of financial highlights, total revenues increased 15.3% to $250.1 million this quarter on a year-over-year basis with significant growth of 28.9% in our Rental business. EBITDA increased 39.2% or $17 million to $60.4 million compared to $43.4 million a year ago.

Net income for the quarter was $10.7 million or $0.31 per share compared to net income of approximately $7.9 million or $0.23 per share in the fourth quarter of 2011. The momentum in our Rental business continued as our utilization levels remain near record levels at 71.8% based on all we see versus 72.3% a year ago.

Let me remind everyone that our fleet size a year ago was meaningfully smaller, so matching utilization from the fourth quarter of 2011 was challenging. Rental revenues grew 28.9% while Rental gross margins grew to 48.1% compared to 44.5% a year ago. Rental rates improved 10.1% from a year ago and dollar utilization also increased to 36.4% from 33.9% over the same period last year.

Please proceed to Slide 6. The key take-away from this slide is that our regions with significant oil and gas activity continue to be our most productive geographies. This is evident in our Gulf Coast and Intermountain regions, which account for 68% of our revenues of 67% of our gross profits. With that said, we are pleased to see solid year-over-year improvement in our other less industrial markets. We believe this is indicative of improving construction markets.

Slide 7 please. We continue to operate in a positive environment as evidenced by our fourth-quarter and 2012 results. The industrial markets we serve are strong and we expect they will remain strong for the foreseeable future. The residential construction markets have improved dramatically and market indicators point to improving nonresidential construction markets for the next several years. We feel positive about the growth opportunities we see for our business moving forward.

At this point in time, I'll turn the call over to Brad to discuss several key operational initiatives.

Thank you, John, and good morning. I look forward to sharing my operational perspectives with you moving forward. I'll begin on Slide 9.

With our current footprint of 66 locations in 22 states, we're excited about our initiatives for existing branch expansion and the new greenfields in market with attractive growth opportunities and high and increasing levels of demand. Our focus will be on markets that possess and that are expected to continue to possess construction -- commercial construction in industrial, including oil fill opportunities.

I thought it would be beneficial to discuss our process of determining what existing markets to expand or new markets to enter. We take a simple but effective approach to market identification. We look to markets that have a mix of construction and industrial, including oil and/or gas related business. We utilize analytical information such as DOT construction estimates, oil and gas rig counts, and Moody's market information, including various valuations they place on the health and vitality of particular MSAs. We use feedback from our existing customer base and factor in their views as we enter these markets.

Last but not least, we look for experienced leadership within the specific markets we have identified.

Slide 10 please. We continue to expand and diversify our Rental business with the general rental products. We have historically supplied AWP, crane, earth-moving in forklift rental products. While the general rental component has always existed, we implemented a focused plan for growth this past year. These rental products, general rental products, items like air compressors, generators, light towers and more accomplish three primary objectives for the Company. First, they allow us to increase our customer base as we can participate on existing jobsites with new contractors who may not be regular users of our four traditional product types. Second, they allow us better penetration of our existing customer base by supplying more of their rental needs. And last, these products generally yield better returns on invested capital. For the reasons I mentioned, we believe these are meaningful benefits to be realized from continuing to grow this Rental component and in 2012, we increased our investment in general rentals by more than 50%. This also benefits our national account growth plan by broadening our product offering to certain customers.

The final topic I'd like to discuss briefly this morning is our CRM tool. I believe iConnect, our proprietary opportunity management software, has helped drive our impressive rental rate gains in 2012, rental rate gains that outpaced our competitors. iConnect is a fully integrated sales management software we developed in-house to assist our sales force and branch management opportunity management. iConnect empowers our sales force to recognize and act on cross-selling opportunities, which is key given our diversified business model. iConnect has significant capability for our managers. Our managers can quickly identify opportunities and shift focus as a result of effective delivery of appropriate information. We're continually enhancing iConnect's capabilities and our next phase will address the opportunities facing our product support sales representatives.

I will now turn the call over to Leslie.

Thank you, Brad, and good morning. I'll begin on Slide 12. As John indicated, we are very pleased to have ended the fourth quarter and full year with continued momentum.

First from a high-level, our fourth-quarter total revenues were $250.1 million, an increase of 15.3%, and gross profit was $73.5 million, an increase of 31.1% in each case compared to the same period last year.

Digging into the details a little deeper, I'll begin with our rental business and provide more details behind the numbers first on a revenue basis and then I'll provide some highlights on gross profit by segment.

Rental revenues were $80.7 million for the quarter, a 28.9% increase over the same period a year ago. Due to the strength of the demand for rental equipment, we have a much larger rental fleet available for rent compared to the fourth quarter of 2011. We have increased our total fleet by approximately $146.4 million, or 19.9%, based on original equipment costs, or EC, over the last 12 months. Average time utilization based on OEC was 71.8% for the quarter compared to 72.3% a year ago. Based on number of units available for rent, average time utilization was 66.6% compared to 67.3% last year.

In addition, Rental revenues were higher as a result of a 10.1% increase in average rental rates in comparison to the fourth quarter a year ago and 0.4% compared to the third quarter of this year -- I'm sorry, of last year.

The improvements have also been broad-based across all product lines. Our dollar returns improved to 36.4% compared to 33.9% a year ago. This 250 basis point improvement was due to higher average rental rates compare to a year ago and continued strong time utilization on a larger fleet.

New equipment sales were $87 million, essentially flat over the prior-year period. Used equipment sales were $29.5 million, a $9.8 million or 49.6% increase over the fourth quarter of 2011. The increase was primarily due to a $6.3 million increase in aerial sales.

Business activity in our Parts and Service segment improved as revenues increased 8.5% on a combined basis to $40.4 million with both segments up from a year ago.

Moving on to gross profit by segment, our total gross profit for the quarter was $73.5 million compared to $56.1 million a year ago, an increase of 31.1% on a 15.3% increase in revenue. From a gross margin perspective, consolidated margins were 29.4% compared to 25.8% a year ago. Expansion of our consolidated gross margins was largely driven by improved performance from our Rental business and higher used equipment margins.

Our Rental business delivered margins of 48.1% compared to 44.5% a year ago. Strong demand, which is driving higher volume and rate, combined with control of our rental expenses, continued to result in rental gross margin expansion. Margins on new equipment sales were 11.2% compared to 10% in the same period last year due to higher margins on new crane sales. Gross margins on used equipment sales increased to 30.2% from 25.9% in the same period last year. Parts gross margins were 27.4% compared to 27% a year ago, and Service gross margins were 59.4% versus 60.2% a year ago. Margins on other revenues such as equipment, hauling, and parts freight revenues, were 1.7% compared to negative 2.2% in the fourth quarter of last year.

Slide 13 please. Our results again reflect significant operating cost leverage. The improvement in profitability is reflected in the 61.2% increase in income from operations for the fourth quarter of 2012 to $28.5 million or an 11.4% margin compared to $17.7 million or an 8.1% margin a year ago.

Proceed to Slide 14 please. Net income was $10.7 million or $0.31 per diluted share compared to $7.9 million or $0.23 per diluted share in the same period a year ago. Our effective tax rate was 36.1% compared to 26% last year due to higher pretax income in relation to our permanent differences.

Please move to Slide 15. EBITDA was $60.4 million or a 39.2% increase over the same period last year, which again outpaced our revenue growth of 15.3%. EBITDA margins were 24.1% compared to 20% in the same period a year ago, an expansion of 410 basis points.

Next, Slide 16. SG&A was $45.1 million, a 16.7% increase over the same period last year. SG&A as a percentage of revenue was 18.1% this quarter compared to 17.8% a year ago. The increase was primarily due to higher commission and incentive pay combined with a larger workforce associated with the growth in our business.

Slides 17 and 18 include our rental fleet statistics. Our fleet based on our rental equipment costs at the end of the fourth quarter was $883 million versus $736.6 million a year ago, an increase of 19.9% or $146.4 million. During the fourth quarter, we increased the size of our fleet by $12 million based on original equipment costs. Our gross fleet capital expenditures for the quarter were $56.4 million, including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $30.9 million.

For the quarter, gross PP&E CapEx was $10.4 million and net was $10.2 million. Our average fleet age at the end of December was 38 months.

Next, on Slide 19, at the end of the fourth quarter, our outstanding balance under the ABL facility was $157.7 million. And accordingly, we had $238.3 million of availability at quarter end under our ABL facility net of $6.5 million of outstanding letters of credit.

Subsequent to quarter end in February, we successfully completed an add-on notes offering of $100 million of 7% senior unsecured notes due 2022. The notes were issued as additional notes under an indentured date as of August 20, 2012, pursuant to which we previously issued $530 million of 7% senior unsecured notes due 2022. We used the proceeds from the offering to repay indebtedness outstanding under our ABL facility and for the repayment of related fees and expenses. The offering enhanced our liquidity profile, was leverage neutral and was priced favorably at 108.5% for an effective yield of 5.6%.

Next, Slide 20. Let me briefly review our full-year 2012 results. To summarize, momentum in our business improved throughout the year resulting in total revenues of $837.3 million, or a 16.2% increase in revenue, a 33.5% increase in gross profit and a 400 basis point expansion in gross margin. And as I highlighted earlier, as a result of increased demand, we have invested in our rental fleet an increased the size by approximately $146.4 million or 19.9% to $883 million in total OEC. While growing our fleet, we operated at near historic peak physical utilization levels in the latter half of the year and we raised rental rates 10.5% on average for the full year.

Income from operations increased to $89.2 million on a 10.7% operating margin compared to $40.1 million on a 5.6% margin in 2011.

Net income increased to $28.8 million, or $0.82 per diluted share in 2012 versus $8.9 million or $0.26 per diluted share in 2011. Adjusted net income was $35.4 million, or $1.01 per diluted share, in 2012. EBITDA increased $56.2 million to $196.5 million on a margin of 23.5% compared to $140.3 million on a margin of 19.5% a year ago and adjusted EBITDA increased $66.4 million to $206.7 million on a margin of 24.7%.

2012 was a positive year for our business due to the outstanding execution by our entire organization which allowed us to successfully capitalize on improved market conditions. Our capital structure provides us with the flexibility to take advantage of market improvement.

I'll now turn the call back over to John to discuss our 2013 outlook and then we will open the call for questions.

Thank you, Leslie. Please proceed to Slide 22.

2012 can be summarized as an impressive year for our Company where we delivered significantly improved results from 2011. Based on the current trends in our business, we're expecting 2013 to be an even better year for our Company as our customers are more confident in the recovery and demand in our end-user markets remain strong. We expect solid growth in our Rental business accompanied by continued rate increases.

Although difficult to predict, we remain optimistic about our distribution business. This segment delivered strong results throughout 2012 and we expect that the extension of the bonus depreciation deduction should have a positive impact on machinery sales during 2013. As a result of the ongoing strength in our industrial markets and the improving trends in commercial construction in our non-industrial markets, we're focused on expansion plans to capitalize on this strength and improvement.

In closing, we undertook several significant steps during the year to strengthen our balance sheet and enhance our liquidity, substantially increase our fleet size and overall better position our Company for future growth opportunities. Our goals remain consistent. We're focused on solid execution, operating leverage, cost control, and leveraging marketplace trends to deliver strong results and enhanced shareholder value. Once again, I congratulate our employees for their excellent performance.

At this time, we'd like to take your questions. Operator, please provide instructions.

(Operator Instructions). Seth Weber, RBC Capital Markets.

Hey, good morning everybody.

Good morning, Seth.

So just a couple of questions on the Rental business. The sequential rate increase you called out in the quarter, can you talk about whether that has continued here in January and February, whether you've seen sequential rate increases monthly in January and February?

And then the follow-up question to that would be if you did not raise rates at all for this year, kind of what's your starting point? What would be the rate increase for 2013, just kind of based on where you're starting the year from the increases you pushed through last year, if that makes sense?

Sure, look, first on -- we're continuing so far this year to see year-over-year rate increases in the double-digit range. And January, February, we saw sequential rate increases which I believe are more important in the year-over-year. So we're very pleased with that. We think we're going to show really solid rate increases this year. You know, I don't have the number in front of me but I suspect we have baked in a 2% to 3% price increase if rates just stayed flat from where we ended the year but, again, we're continuing to see double-digit year-over-year increases and we saw a sequential increase in both January and February, which is really high (multiple speakers) this time of year.

Okay, that's helpful thanks. Right, absolutely, understood. Would you expect utilization to be up or flattish year-over-year? You know, I expect you're going to continue to add some fleet here. How are you thinking about that?

I would not expect time utilization or physical utilization to be up. I mean we're operating on a much larger fleet, so you know, I would expect this to peak at similar levels to down slightly.

Okay, and if I could slide in a quick question on the distribution business, you mentioned that margins on the distribution business were up related to cranes I guess. Is that a function of better pricing or is it mix? Can you just help us understand that?

I think it's largely mix. Our crane sales were heavily related to the hydraulic side of the business and crawler cranes were very soft and crawler cranes generally have a lower margin, so I think a lot of that was mix.

Okay terrific. Thank you very much.

Thanks, Seth.

Neal Frohnapple, Northcoast Research.

Hi guys. Congrats on another nice quarter.

Thank you.

John, you just mentioned that the large crawler crane business is still weak. And I think historically, it's kind tended to lag the hydraulic crane business by six to eight months. I think you've had quite a few quarters now in a row of solid hydraulic crane demand. I'm just wondering if this was beginning to translate into improved quoting activity or are you seeing any signs of life on the large crawler crane demand market yet?

I would defer to Brad on that. Look, we hope to see some improvement in the second half of the year. Brad you may have some color on --

Sure. We're seeing -- we're hearing optimistic talk by those crane users. As you referred, it's normally at a six to eight month lag time. We've exceeded that obviously at this point. And you know we're not fixing to start selling a whole bunch more lattice boom cranes next month. However, the optimism is there. We think, with the energy sector continuing to benefit, that we plan, as Manitowoc does, Q3, Q4 to start to see some benefit and expansion of the crawler products.

Great, thank you. And maybe another question for you Brad. You know, you mentioned expanding existing branches. What does this entail? Are these branches that are at capacity from a parts and service perspective, or does this involve hiring additional sales personnel? And maybe just a little bit more color there on sort of start-up costs or CapEx associated with this?

Sure. It's actually both of what you mentioned. You know, we're in some markets where we've just exceeded our opportunity with the infrastructure. We're in markets that are expanding, and we are adding sales coverage parts and service folks to support those other elements of the business. So it's really all of the above. You know, we're just looking at markets that we see existing opportunity, that has expanded, that we expect to continue to expand, where we can grow our presence internally.

Great, and then one last one if I may. John, on the equipment rental business, I think Sunbelt mentioned earlier this morning that its rental revenue is benefiting from the temporary disruption in the market of the United and RSC merger. Are you guys experiencing similar positives in the near-term with the new rental business? And if so, how long do you think this could last? Thank you.

Well, I think we've seen several benefits to the merger. One, there's been some good people come available and we've picked up some people because of the merger. You know, I think they've created a huge entity there. In many cases, I think end users are looking for -- they either used United or RSC as their first call and the other one for a second call, so now they're looking for a strong second call participant. So that has definitely benefited our rental business, and I think it will continue to.

Great, thanks a lot guys.

Thank you.

Eric Crawford, UBS.

Hi, good morning.

Good morning.

I wanted to get a bit more color on the bonus depreciation commentary. Did you see anything unusual in the cadence in Q4 to suggest a pull forward in demand? Does that shape your view on Q1 at all?

Brad, do you want to take that? You may have better -- I don't think so.

No, it doesn't shape our view on the first quarter is the answer. And I would say that I think we have had some level of benefit in the fourth quarter with the bonus depreciation. And since it's going to be expanded through this year, likewise we should see the same.

Okay. And then switching over to the Rental business, past couple of years, we've seen a sequential uptick in your Q4 Rental gross margins. Can you talk a bit about what you saw there and what was different this time?

Just exceptionally strong demand. And you're talking about in Q4?

Right.

Yes, I just think that just very, very strong demand, more of the same. And we were able to maintain near historical levels of physical utilization, drive rates hard, so it's really just a demand issue more than anything.

Okay. And if I could get one more, I appreciate the color you've given on time utilization in light of your investment to take advantage of growth opportunities. Does dollar utilization now become a more telling metric than time?

I think dollar utilization is always a more important measurement than time utilization. It's a function of rate and physical utilization, but I mean that's what drives our financial performance. So yes, we always look at dollar utilization more than we do physical utilization.

Perfect, thank you very much.

Nicolas Coppola, Thompson Research Group.

hey guys. On new equipment sales in the quarter, you guys certainly met a tough comp from Q4 2011, and it was the second year in a row where there was a big sequential increase from Q3 to Q4. Is that -- should we think about that as a benefit of the bonus depreciation or is there something else going on there? I know you said that crawlers weren't particularly strong, so I don't know if there was any kind of lumpiness in that quarter. Do you have any thoughts around that?

You know, I think that the bonus depreciation is definitely a significant driver of that year-end buying. I think most of our end users are profitable today. They're making good money and they're taking advantage of the bonus depreciation. So, I think that is a significant driver of what we've seen in the last couple of years and particularly in December.

Okay, that makes sense. And then following up on kind of the operational update and the market expansion, on the greenfield side, I understand that maybe you guys wouldn't want -- may or may not want to disclose exactly where you're looking, but just to think about the magnitude of that, how many branches do you think you could reasonably open in '13? I guess how significant of an expansion are we talking about?

Yes, we expect to open six locations. We actually had a press release go out this morning to announce the opening of Fort Worth, Texas. So we opened Seattle January 1 and we announced the opening of Fort Worth yesterday evening or this morning and we think we can accomplish likely four more locations this year.

Okay. That's helpful as well. Then last question, can you talk about how much fleet you're expecting to add in 2013?

Look, our fleet investment is going to decline in absolute dollars, and our growth rate is going to come down a little bit. Nick, you know, we don't give CapEx guidance because we try to make very short-term decisions there based on opportunity, but we will have fleet growth this year although at a lower level than what you saw last year. We grew our fleet 20% last year and it won't be that significant a fleet growth and our absolute dollars we spend will be less.

Okay, thank you.

You bet.

(Operator Instructions). Joe Box, KeyBanc Capital Markets.

Hey, good morning guys.

Hey Joe. Good morning.

John, I just wanted to ask about the Gulf Coast. Obviously, it's been a pretty strong region for you over the last couple of years. Can you maybe just talk about where you see us in the evolution of the Gulf Coast, both from a demand standpoint and a supply standpoint as well? Just kind of curious what inning you think we're in?

Well you know, in short, I just see tremendous opportunity coming to the Gulf Coast over the next few years. Lake Charles is looking at probably the largest industrial expansion we've ever seen in Louisiana over the next few years largely related to some large LNG plants but just tremendous activity there. The same thing in Corpus Christi, you know, just tremendous industrial activity there. So I think there's a lot of runway in front of us in the Gulf Coast and a lot of really exciting stuff coming up.

And do you think that the demand that is going to clearly outpace the amount of supply growth in the market -- because it seems like there's clearly some guys moving assets down there and growing locations.

I think the -- Yes, I mean everybody is here now and I mean everybody is aware of what's going on. We're not short on any competitors, but I think the market opportunity will certainly support the projected fleet growth here. There's a lot coming up in the Gulf Coast.

Great, okay. That's good color. And maybe switching gears to your dealer business, can you maybe just talk to where customer sentiment is at right now and maybe put a little bit more color on what drove solid Parts and Service pickup in the quarter?

Yes, I'll let Brad speak to that.

Yes, I think the sentiment is still somewhat mixed depending on product type. We've talked about the crawler crane markets and so you can suspect what the comments of those customers are. On the earthmoving side, we have seen some additional optimism and expect it will continue to grow. Parts and Service obviously are weighted fairly strong to our earthmoving and crane distribution business, and I can tell you that we see plenty of opportunity for that to continue to expand throughout 2013.

Great, okay. Maybe circling back on the rate question, obviously you guys had solid Rental rate performance last year, and it sounds like a lot of that momentum has continued so far early this year. If you look at I guess one of your peers specifically, they are looking for about a mid-single-digit improvement in 2013. Given your footprint in some of this newer software you're talking about, do you think that you can nicely outpace the industry again on rates in 2013?

Yes, I think we will certainly outpace that projection, that mid-single digit, and frankly, I think they will too. Two. But yes, we're going to do considerably better than that.

Okay, thanks. And maybe last one, this is really kind of the first quarter in call it eight quarters where you didn't really get solid SG&A leverage. Were there any one-time factors that may have impacted the quarter, or are you just kind of at that point now where you need to put some G&A in place to support the higher revenues?

Yes, I have a couple of comments and Brad or Leslie may want to add some color. But if you go back and you look at '11 and '12, Joe, we had some very, very significant topline growth and really kept our headcount pretty flat. We're just at a point now that, from an efficiency standpoint, we've got to add some people. So I think it's kind of caught up with us and we've got to add some people in certain areas. And a lot of that is just related to performance. It's incentive type stuff. But there's no question we reached the point where we had to start adding some headcount.

Can you maybe give us a little bit of help then on maybe what an appropriate SG&A run rate would be then?

Percentage-wise?

Either on an absolute dollar basis or should we think about it creeping up throughout 2013 on a percentage basis or would you expect it to be flat on a percentage basis? Just any color there.

I wouldn't be surprised to see it creep up a tad as a percentage of revenue basis maybe in 2013 but, again, it's going to be -- it's a topline issue so, you know, it remains to be seen on the distribution side of the business as to how some of the, as Brad was talking about, how some of the back half of the year plays out on the crane side of the business.

Perfect, that's really helpful. I'll turn it over. And welcome to the calls, Brad.

Thank you.

Philip Volpicelli, Deutsche Bank.

Good morning John, Leslie and Brad.

Hey Phil.

The first question is for Leslie. Can you give us the floor plan financing at the end of the year?

Sure, $50.8 million.

Okay. And going back to the CapEx versus time utilization question for 2013, I get it that you're going to spend a little bit less on CapEx. But how do you manage that? Is it time utilization as a result of the amount of CapEx you are adding based upon the demand you're seeing in there, or are you managing to time utilization number?

I think we spend dollars based on demand and what we see in the marketplace. I don't think we manage to a time utilization number.

We do not. You know, we certainly -- there are some drivers like our fleet age where we have some initiatives for rotation where we can factor in. From a timing standpoint, we want to time those purchases with the disposals, but generally speaking, as John was saying, we are going to look at the opportunity that presents itself. And our time utilization is just a factor of the resulting performance.

Okay that's great. Thanks Brad. And then I always ask this question -- mergers and acquisitions. Clearly, the market -- there's several smaller players, one in bankruptcy and a couple of others with capital structures that become callable this year. You guys have previously focused on greenfields or said your focus would be on greenfields. Is that still the case or will you consider M&A?

I think our focus will be on greenfields. With that said, if the right thing came along at the right multiple, we would certainly look at it. I think we've done some good stuff with our balance sheet and we've got a lot of liquidity, but our focus is on greenfields right now. We're having good results. We think it's a real sound strategy and we're going to continue to pursue that.

Okay great. John, how high would you take leverage if you did do an acquisition?

I would not want to take leverage much beyond where we are. I think we told the market that when we went out and sold notes in the recent past, and we're going to look to deleverage over the next year.

Great. Thank you very much. Good luck.

Matthew Dodson, JWest LLC.

Can you talk a little bit about your growth in fleet from Q4 to Q1? You've been adding sequentially every quarter for the last six or seven quarters. Can we expect that trend to continue?

As we've talked about, that level will mitigate itself, moderate to some level. We just saw -- typically in Q4 we're not in a growth mode but the dynamics existed for us to be opportunistic and do so. And so as we enter Q1, our seasonally soft quarter, we are continuing to look but as we stated, we will grow the fleet throughout the year, but at a slower rate.

Got you. And then can you talk a little bit about the competitive dynamics? Are you seeing the mom-and-pop shops adding significantly to their fleet?

We're not. They're not aggressive. There are some smaller regional players who have a nice presence, but even those folks by and large are not adding fleet. They're certainly not growing and in some cases they are not even de-aging their otherwise very aged rental fleets, so no.

And then, can you talk about your pricing? Is it unusual for prices to grow sequentially in January and February from Q4? I mean is that abnormal seasonality?

It is a little abnormal. You know, I think it speaks to the discipline in our Company, the discipline in our industry, and certainly to some degree the continued strength of the marketplace, but yes it is abnormal.

Got you. Thank you.

(Operator Instructions). It appears there are no further questions in the queue.

Thanks everybody. Appreciate your attendance and your questions and we look forward to speaking to you on our next call. Thank you.

This concludes today's conference. Thank you for your participation.