H&E Equipment Services Inc (HEES) 2013 Q2 法說會逐字稿

Good day and welcome to today's H&E Equipment Services Second Quarter 2013 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 Marquida and welcome to the H&E Equipment Services Conference Call to review the Company's results for the second quarter of 2013, which were released earlier this morning. The format for today's call includes a Powerpoint presentation, which is posted on our website at www dot he dash equipment dot 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 refer to certain non-GAAP financial measures. We reconciled these measures to GAAP figures in our Earnings Release, which is available on our website.

Before we start, let me offer the cautionary 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 undo 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 will now turn over the call to John Engquist.

Thank you, Kevin, and good morning everyone. Welcome to H&E Equipment Services' second quarter 2013 earnings call. On the call with me today is Leslie McGee, our Chief Financial Officer; and Brad Barber, our President and Chief Operating Officer. Proceed to slide 3, please.

This morning, I will give an overview of our second quarter performance to discuss activity within our regions and current market conditions. Leslie will then review our second quarter financial results in more detail. When Leslie concludes, I will provide our thoughts on the balance of 2013, and we'll then be happy to take your questions.

Slide 5, please. To summarize, I'm extremely pleased with our second quarter results as our momentum in our business continues. We opportunistically took advantage of improving trends in the market place. Our financial highlights for the quarter were solid, and we believe validate the trends we are experiencing in our end markets.

Total revenues increased 17.4% to $245.3 million this quarter on a year-over-year basis. It's significant to point out that we delivered double-digit revenue growth in our rental and combined new and used equipment sales; which grew 18.8% and 22.4% respectively.

This strong top-line growth resulted in a 22.3% increase on a year-over-year basis in EBITDA to $63.3 million. Net income for the quarter was 10.8 million, or $0.31 per diluted share compared to net income of approximately 10.5 million or $0.30 per diluted share in the second quarter of 2012. Our utilization levels at 71% based on OEC versus 73.5% a year ago continued to be strong despite a substantially larger rental fleet compared to a year ago.

To put the growth of our fleet into perspective, our OEC has increased nearly $145 million; or nearly 18% from a year ago -- representing over 2,500 additional units of equipment. The momentum in our rental business continues as revenues grew 18.8% . Gross margins were strong at 47.1%. Rental rates increased 7.3% from a year ago, and 2.1% from the first quarter of this year. All-in-all, it was a very solid quarter for our business.

Please proceed to slide 6. Let me just make a few brief, but important comments regarding this slide. Given our ongoing strength in oil patch and petro-chemical sectors, our Gulf Coast and Intermountain regions continue to be our most productive markets in terms of revenue and gross profit. We also see a tremendous amount of activity in capital investment [incurring] in our Gulf Coast region. I will elaborate about this opportunity in more detail on the next slide.

Since our last call, we opened new stores in Fort Worth and San Francisco. We plan on opening in a third location in Houston very soon. We are very pleased with the performance with our Greenfield locations. Our less industrial regions are continuing to deliver meaningful improvements; which we believe validate, and improve confidence in the economy, and cycle expansion.

Slide 7, please. As you can see from this slide, market indicators are improving across the board. The trends in our business continue to strengthen. In particular, I want to highlight several significant events occurring in our Gulf Coast region where we have our highest concentration and penetration in the industrial sector. High oil prices and strong demand for natural gas are resulting in capital investment.

In Louisiana alone, we expect an aggregate of approximately 50 billion will be spent by national and international firms over the next three to four years to construct two manufacturing facilities and petrochemical plants. Many of these are slated to be built in our backyard in Baton Rouge, and New Orleans, Lake Charles, and along the Mississippi River.

Reports indicate that seven projects alone have price tags of more than $1 billion and a proposed natural gas-processing plant [by Sasssau] has been publicly projected to cost $21 billion. We also anticipate capital spending in Texas growing to support its strong oilpatch and petrochemical industries. We expect that these projects and the resulting impacts on our economy will be very beneficial to our business in the years to come.

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

Thank you, John, and good morning. I will begin on slide 9. We are again very pleased with this quarter's results. In terms of the top line, our second quarter total revenues was $245.3 million, an increase of 17.4%. Gross profit was $75.4 million, also an increase of 17.4% compared to the same period last year.

Generally speaking, the strength of our business continues to be driven by rentals and equipment sales. These segments are showing the strongest demand compared to a year ago. As we dig deeper, I will begin with our rental business. First ,talking about revenues and then I'll provide gross profit highlights for each segment.

Rental revenues were $83.7 million for the quarter, an 18.8% increase over the same period a year ago. To meet in user demand, we continue to invest in our fleet, which based on original equipment cost, or OEC increased approximately by $145 million, or 17.9% from a year ago.

Although our fleet size has grown significantly, we have still maintained solid utilization levels with average timing utilization based on OEC of 71% for the quarter compared to 73.5% a year ago. In addition, based on number of units available for rent, average time utilization was 66.3% compared to 68.7% last year. Also rental revenues were higher as a result of a 7.3% rental increase in average rental rates over a year ago; and a 2.1% increase compared to the first quarter of this year.

Rental rate improvements were seen across all product lines. As a result, our dollar returns were 35.8% compared to 35.6% a year ago. New equipment sales were $75.4 million, a 13.5% increase over $64.7 million a year ago. Demand for cranes, which increased 21.7% continued to show strength.

Used equipment sales were $37.4 million, and $11.1 million or 46.9% increase over the second quarter of 2012. The increase was primarily due to strong crane and aerial sales. Business activity in parts and service segments improved as revenues increased by 4.2% on a combined basis to $40.2 million. Let's move to a discussion of gross profit by segment.

Our total gross profit for the quarter was $75.4 million compared to $64.2 million a year ago, an increase of --17.4% on a 17.4% increase in revenues. Therefore consolidated margins were 73.7%, the same as a year ago with no impact on revenue mix when comparing period. Our rental business delivered margins of 47.1%, compared to 47.5% a year ago. Depreciation expense increased as a percentage of and compared to rental revenues due to the investment of our fleet.

We continue to tightly manage other costs components of our rental business, such as repairs and maintenance expense. Margins on new equipment sales were 11.4%, compared to 10.9% in the same period as last year. Gross margins on used equipment sales were 30.3% compared to 30.5% in the same period last year due to the mix of used equipment sold.

As a reminder, used equipment sales is comprised of the sale of used inventory such as trade-ins and the sale of used equipment from our rental fleet. In the second quarter, equipment sales from the rental fleet were 80% of total used equipment sales at a 35% gross margin, compared to rental fleet equipment sales of 89% of total used equipment sales and a 32.8% gross margin a year ago. The key takeaway is that residual values of used equipment remain strong.

Parts of gross margins were 27.3% compared to 28% a year ago. Service gross margins were 63.3% versus 62.8% a year ago due to revenue mix. Margins on other revenues were at 8.7% compared to 7.4% in the second quarter of last year. This improvement is largely the result of improved freight recovery and increased damage (inaudible) to income.

Slide 10, please. Income from operations for the second quarter increased 23.2% to $28.9 million; or an 11.8% margin compared to $23.5 million or an 11.2% margin a year ago.

Proceed to slide 11. Net income was $10.8 million or $0.31 per diluted share compared to $10.5 million or $0.30 per diluted share in the same period a year ago. Our effective tax rate was 32.6% compared to 37.2% a year ago.

Please move to slide 12. EBITDA was $63.3 million or 22.3% increase over the same period last year; which, again, outpaced our revenue growth of 17.4%. EBITDA margins were 25.8% compared to 24.7% in the same period a year ago.

Next, slide 13. SG&A was $47.1 million, a 13.8% increase over the same period last year. Yet SG&A as a percentage of revenue declined to 19.2% this quarter compared to 19.8% a year ago. Our Greenfield initiatives added $1.1 million or nearly 20% of the total $5.7 million increase in SG&A this quarter compared to a year ago. Further, we incurred increased wages, incentive pay, and healthcare costs, largely due to the growth in the business.

Slides 14 and 15 include our rental fleet statistics. Our fleet based on original equipment costs at the end of the second quarter was $954.3 million versus $809.3 million a year ago; an increase of 17.9% or $145 million. During the second quarter, we increased the size of our fleet by $66.7 million based on original equipment costs.

Our gross fleet capital expenditures for the quarter were $99.4 million, including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $71.8 million. For the quarter, gross PP&E CapEx was $7 million and net was $5.4 million. Our average fleet age as of June 30, 2013 was 35.9 months.

Next, slide 16. At the end of the second quarter, our outstanding balance under the ABL facility was $100.5 million. Accordingly, we had $295.5 million of availability at quarter end under our ABL facility net of $6.5 million of the outstanding letters of credit. Let me conclude by saying that we are pleased with our financial performance during the second quarter. It has been a strong first half of this year for our business. We are encouraged about the positive trends.

I'll now turn the call back to John for further discussion about our 2013 outlook. Then we'll open the call for questions.

Thank you, Leslie. Please proceed to slide 18. I think I have covered most of these points in my earlier comments. I will quickly close by stating that our second quarter performance was solid with significant improvements from rentals and equipment sales compared to a year ago. Our expectations and outlook remain positive for the balance of this year based on the trends in our business -- especially what we believe is the continued strength in the industrial markets we serve.

Lastly, our capital structure continues to afford us the ability to leverage growth and expansion opportunities in the market. At this time, we'd like to take questions. Operator, please provide instructions.

(Operator instructions). We'll take our first question from Neil Frohnapple with Northcoast Research.

Good morning, John and Leslie. How are you?

Good morning. How are you?

Good. A Nice rental performance in the quarter, particularly on the top line with rate. Can you comment on the trends you guys have experienced in the month of July?

From a utilization standpoint?

Yes, and rental rate, as well. I'm just trying to get a sense of the strength that you saw in the second quarter. How it has carried over into the month of July?

Well, look, throughout the second quarter, we saw a steady improvement in utilization throughout the quarter. We're seeing the same in July. We were 71% utilization on the average for the second quarter. We're bumping between 72.5% and 73% today.

Continued improvement; I'd prefer not to give monthly rate information, because it's just misleading. We'd like to report that on a quarterly basis. But we're continuing to see year-over-year rate improvement and we expect to do so for the remainder of the year. We do believe rate improvement will moderate somewhat. It has to. I mean, we've been producing year-over-year double-digit increases for a long time. Our expectation was that it would moderate and it is. But we will still be getting solid rate increases.

Great. That's very helpful. With the rates moderating, do you anticipate exceeding prior peak levels, whether it's in later this year or in 2014? Just talk about with the industry consolidation, just kind of your outlook for rental rates longer term. How you think the industry can take them.

I do expect to exceed prior peak levels. I don't want to give you a pinpointed time frame on that. But the performance we're driving today is really driven by the industrial sector with still historically weak construction markets. We're starting to see some improvement in the construction markets, but it's very modest. I think when we start getting some real improvement in those markets, yes, we expect to exceed prior peaks.

Great. Just one last one, John. Your commentary around cranes this quarter seemed to be a little bit more optimistic across the board. Have you seen a pickup in demand or quoting activity for the large crawler cranes? That had been a drag the last few years on the business.

We are getting more inquiries across the board on crawler cranes. Most of the activity we are seeing is on what I would call mid-sized crawlers as opposed to the really big stuff. I'm speaking on 2250s, 14000s, 16000s. That's where we're seeing most of the activity. But, our inquiries have increased across the board. Our expectation is for an improved results the second half of the year. Brad, have you got any --

I mean, it is [saved]. I would second that and just say that most of the inquiries on the mid-sized crawlers, John is speaking to are coming from our larger customers. Still [some will build] activity, so it remains positive. We expect we will finish the year strong in cranes.

Great. Thanks very much guys.

Thank you.

We'll take our next question from Nick Coppola with Thompson Research Group.

Good morning.

Good morning.

Good morning.

Good morning, Nick.

Just kind of building off that last question, and in talking about the utilization trend in Q2. I guess, how did utilization trend relative to what your expectations were? I mean, we certainly know that you got tough comps here --- a lot of additional fleet add. Is that really the components of the story here? Is there any kind of read through on demand?

Look, a couple of comments there. First, I want to point out that 71% average time utilization is still very strong. It's significantly better than our peer group. We are running it on a high level.

A year ago we were running at very --- at unusually high utilization levels. We had some markets, some regions, and some specific large branches that were running north of 90% utilization; which is not a reasonable level. I mean, that tells me we are under serving the market. We brought a lot of fleet in. Those markets today are instead of 90% , they're running 80% utilization, which is still exceptionally strong. But it has impacted our year-over-year results.

To answer your question, we're running pretty much where we thought it would be. We have had some weather impact that we had earlier this year that we did not have last year. Last year was as a good of a construction environment as you could dream of. This year has been somewhat challenging from a weather standpoint. Generally we're running about where we expected to be.

Again, we're seeing increases in utilization. Today we're bumping into that 72.5%, 73% range. But, it would not have been reasonable to expect to maintain a [type] utilization we did a year ago. We're happy with where we are.

Right. I certainly appreciate that. Then, in talking about new equipment sales, we don't know that it's a lumpy business. But having several quarters, or more really, in a row of nice year-over-year improvement. Are you starting to get a sense that really just end-market improvement is a driver here. You're more confident on new equipment sales and growth going forward?

Yes, I'm going to let Brad give you color on this. From my perspective, we are seeing increased confidence in the economy and our end users. Their business view is optimistic. We do expect the second half of this year to continue to see improved results.

What I would add to that is our key manufacturers Komatsu, Grove, Manitowoc. These folks have certainly adapted. As we see their markets continue to improve; their pricing, there strategies, their inventory, the proper inventory, in-time inventory is really going to allow us to be competitive.

We expect, because of the drivers in the marketplace as well as the approach in the programs with these key manufacturers that we represent in the distribution portion of our business. That we will continue to benefit. We'll continue to see the growth that you're asking about.

That is helpful. Thank you.

Thank you.

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

Good morning.

Hi, Seth.

Good morning.

Just going back to the utilization question one last time. I think last year's quarter was around high 70 -- the high 72s, around 73. It sounds like that's starting to --- You're starting to get up around those levels. Do you think that utilization could be flatish this, in the third quarter year-over-year then?

Seth, again, we typically, we don't give guidance. But let make these comments. On the last call I spoke about the additional investment. I think I referenced $20 million in cranes primarily for the rental fleet. We have continued to invest. That has had a short term. Two things have had, I believe a shorter term impact; our fleet growth and cranes.

Then some of our investment in coal stocks, our new Greenfield locations. Right? The Greenfields are operating ahead of our internal expectations. Our cranes will be rebounding to more normalized utilizations. Subsequently, I think we will get close to those types of levels.

But as John said, I think everyone should bear in mind we are probably running about 300 basis points ahead of our competition on utilization. To date, we have outpaced our competitors in rate increases. We want to make sure we have a good healthy balance. But I don't think it's unreasonable that we will approach those types of levels again.

Okay. I mean, it sounds like you're there. You're pretty much there, if you're at 72.5 to 73 today versus --

That's where we --

--- This [72 not]. Yes.

Yes, that is where (inaudible).

What is that.

Yes, that is correct.

Okay. With respect to the fleet adds, I started the year thinking fleet CapEx this year would be down, the growth rate would be down year-over-year. It looks like you're running pretty close to the same rate that you were running last year so far through the first half. I know you do not. I know this is sort of a fluid discussion with you. But what I mean; if you're handicapping, do you think that your fleet adds are going to slow down here in the second half of the year relative to the first half?

That is absolutely. Our spending is front-end loaded. Our spending will certainly moderate. We're going to have some modest growth remaining through the seasonally busiest time of the year. But yes, our second half growth will be nothing like our first half. It's very front loaded.

Okay. You think for the full year the fleet adds will be below what you added in 2012?

The growth rate will be the same.

The growth rate, yes.

Absolutely, no question.

Are you continuing to add cranes to the fleet? Or, can you give us a sense for what you're fleet add mix is skewed to?

It's not really skewed. It's been a fairly blended mix. Maybe in the last couple of months we've been a little heavy on cranes than we had, if you want to look at ratios. But it's going to continue to be very similar to our overall fleet profile.

Okay. Then just a separate question. The rental margin; we look at the pull through margins or incremental margin. It has been a little bit softer than we would have expected for the last couple of quarters given the strong rate increases. I know that depreciation has been a little higher. Is that something you think will start to come back? Or is this 50% pull through margin about the right level to think about?

I think we are going to be in that 50% range, is what our expectation is.

Okay. Thank you very much, guys.

Thank you.

We'll go next to Joe Box with KeyBanc Capital Markets.

Good morning, guys.

Good morning.

Good morning.

Follow up on the new equipment sales component. I definitely get that it's going to be lumpy. Can you maybe just help us frame the cadence of new equipment sales this year? It looks like the last couple of years, 3Q has been a bit softer than 2Q. Then you get your big end-of-the-year tax buyers that show up. Are you thinking that's going to be a similar cadence this year, or could we actually see a better 3Q?

I'm going to let -- Brad would have more color on that than I would.

Joe, I think there's a reasonable possibility that we see a better Q3 than the trend you're speaking of historically. I also think it's reasonable that we'll see a Q4 that is more typical of the trend you see historically. That's our view of it.

We've got a lot of activity right now.

Yes. I mean, any way you could frame up the increase in inquiries that you're seeing? Any commentary on that would be helpful.

Well, I think from the crane side, and Brad can give color as needed. But from the crane side, we're seeing significant increase in rough terrain activity, mid-sized crawlers and all-terrain cranes. We've got some specific truck-crane models that have actually softened year-over-year just because of the amount of sales we had last year.

An example would be 90-ton truck cranes, where we sold a tremendous number of them to rig movers. Those guys are just fleeted up. They just don't need more. But, rough terrain crane demand is increasing. Mid-sized crawler crane demand is increasing. The European ATs, that demand is increasing. We're really pleased with what we're seeing. On our earth-moving side, it's pretty broad based on the inquiry side. We're seeing just improved demand there.

Great. It's been a long-time coming, right?

Yeah. You're right about that.

Can you just give us an idea of what the new locations did in terms of revenue? Maybe just how much cost is baked in for those new locations? What I want to do is basically just get an understanding of where the incremental rental gross profit margins are shaking out ex-those locations.

Okay. That may be a discussion for later. We probably invested $50 million in fleet in those Greenfields. I'm a little bit pulling that out of there. I don't have an exact number. But, Joe, you may be better off us getting on that offline where we can give you more information than we have in front of us right now.

Okay. Great. I'll circle up then after the call. Maybe one last question and then I'll turn it over. Can you just give us a flavor of how much your legacy Gulf Coast region is driving better rental rates and volume of equipment on rent as opposed to say maybe your West Coast region and Southeast. That has lagged and now it just appears to be coming back?

Again, this might be a question for Brad. He can give color. I think that our legacy region, specifically in the Gulf Coast, probably never fell off in rate as much as the other regions did. I think we're probably seeing stronger rate improvements in an area like in California, just because they fell of more than the Gulf Coast did.

Yes, Joe, that's certainly the case. The legacy region you're speaking of , we're a Kumatsu distributor. We talked about in the first quarter calls, the impact that weather, that rain specific we had. The earth-moving products being the most impacted products because of the nature of the performance of the job site. Rate increases are coming across the board; probably not as great in the legacy region you speak of. Although the physical utilization has improved tremendously because the weather is moderating. We're back to more normal conditions.

Okay. Speaking of weather, I know you guys have a location in Oklahoma City. Do you see any impact by the tornadoes in 2Q?

Very minimal; obviously there's tremendous devastation. We got to see it first-hand. Maybe some positive impact, but very minimal.

Got it, and thanks, guys.

Thank you.

(Operator Instructions). We'll go to next to Eric Crawford with UBS.

Good morning.

Hi, Eric.

Good morning,

Just looking at the dollar utilization by equipment type relative to a year ago. You saw the small tick-down in crane and a large decline in other. It sounds like the increase in fleet is what may have led to the decline in crane. But could you speak to what you experienced in those two categories?

I will speak to the crane piece. It is primarily the investment and the timing of the investment. Getting this new larger fleet up and running at typical time utilizations. We expect that to return to the more typical levels as the utilization continues to improve today. With the other products, that's a large mix of products. As I have spoke about before, it's about 5% of our inventory. It remains at that ratio today as everything is growing at a nice pace. That should shake out and level out over a period of time. But we have been very much in a growth mode. That is I believe more of a mix issue with [general].

Understood; that's helpful. Thank you. Then, on rental rates, can you speak at all about to how those trended sequentially through the quarter? Did you see any softness or sequential declines?

Again, we'd just prefer to not give any type of feedback on a month-to-month basis. As John stated, we're starting to see rates improvement moderate. But we think it will continue to be positive.

Now we did see a 2% sequential increase in the second quarter from the first quarter. Even that sequential increase is moderated. I mean, a year ago in the first quarter or second quarter, we saw a 5% sequential increase. The second quarter is when we always get the largest sequential increase. Because that's the time period that your utilization is ramping up the most. You're able to push the rates. I hope that color helps.

Got it. No, it does. Thanks very much.

We'll go next to [Sean Wandrek] with Deutsche Bank.

Good morning, guys; a good quarter.

Thank you.

Thank you.

I was curious. My first couple of questions just had to do, more generally speaking with you end markets. Could you do me a favor? Can you remind us of your exposure to commercial construction (inaudible) the percentage?

I mean it's very significant. I mean, particularly in our less industrial markets. You get into California, and Arizona, Las Vegas. Las Vegas, I mean, we got very -- in the Dallas, Houston. I mean, it has big commercial. We go big exposure there. It drives half of our revenue, I guess.

Okay. You would say around 50%?

Yes.

We're beginning the year. I only mentioned this on the last call a bit. You're starting to see improvement being in Texas, in particular. We're starting to hear that commercial construction is picking up a little bit in certain sectors. Can you comment on that a little bit between those different markets? If you can just give a little color there and what you're seeing?

Yes. I do think we're seeing some increased non-rev activity in markets like Dallas. We've had a lot of activity there. The same thing in Houston; probably San Antonio to a less degree, but improvement in those markets. But I want to be clear. By historical standards, the construction markets are still very weak.

They are not anywhere near close to the '06, '07 time frame, but they are improving. I think it shows our results and in our less industrial markets. It is starting to prove up -- improve. I think it shows in the buildings index, the architectural buildings index. We're starting to see some improvement.

Right. Texas is kind of an anomaly, having such a low unemployment rate and seeing so much strength. But when you talk about California or Florida, for example? What kind of jobs are you seeing the strength go into? What are the companies spending on exactly? What sectors?

It's a really broad based. It's just at lower levels -- at historical levels, as John mentioned. It's hospitals. It's schools. It's some residential and office --- very broad based The good news is that the market that we're most impacted with housing have by and large corrected their housing situation. I don't want to lead you to believe that our business is heavily driven by housing. However, that's an indicator of some of the commercial and office space type activity that we're beginning to see.

There is no. If we back up to a year and half, two years ago. We saw a lot of the municipal spend that was augmented by governmental support. It's more private sector money. It's probably the thing I could tell you today we're seeing. It's just at much lower levels than historic.

Thank you. That's very helpful. A quick housekeeping question. What was your floor-plan balance on this quarter, please?

$56.4 million.

$56.4 million, thank you. Then switching over to rental category. If you were to just take where rents are at right now, can you let us know what the rate carryover would be 3Q '13 versus last year? Would that end in improvement next quarter?

I don't have that in front of me. I mean, that would certainly be a carryover. I mean, we have not calculated that. We can certainly do that and find out what the implied rate and carryover would be. But I don't have that in front of me.

Okay. Fair enough, thank you. The last question has to do with new equipment sales. Notice when you're speaking about the equipment sales, you're selling more cranes it sounds like. I know cranes carry a little bit of a weaker margin than your other equipment. Yet you're starting to see that the spread increase in terms of profitability there. Can you talk about the different dynamics affecting that? Are you raising prices more but you're selling more cranes that are kind of off-setting a bit? Or, what is going on there?

I think the fluctuations you typically see in margins, it can be mix related. I don't know if this quarter --

This quarter was really not mix related. It was just better performance on earth-moving sales. New earth-moving sales had better margins than the prior year (inaudible).

Yes. That would be the case, as Leslie just said. But if you want some color pertaining to how it can impact even though it did not this quarter. The large crawlers that we're seeing are still more spotty. Typically hold a 5% to 6%, and 7% margin possibly.

Medium-sized crawlers, 7% to 9%, and maybe 10%. Hydraulic cranes are in the same range. Then when you get to the [RTs], which are also to be considered hydraulic. They can be in the 9% to 12% range. It can be an impact. That may be what you're thinking of. However, it was not this quarter.

Okay. Excellent. Thank you very much.

Thank you.

(Operator Instructions). It appears we have no questions at this time.

Okay. I'll conclude. Thanks everybody. I appreciate you being on the call. We look forward to the next call. We are very encouraged by what we're seeing. We think we're going to have a strong second half. Thank you.

That does conclude today's conference. We appreciate your participation. You may now disconnect.