H&E Equipment Services Inc (HEES) 2013 Q3 法說會逐字稿

Operator Good day and welcome to today's H&E Equipment Services third-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.

Thank you, Shannon, and welcome to H&E Equipment Services conference call to review the Company's results for the third quarter of 2013 which were release 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, Chief Executive Officer; Brad Barber, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to slide two. During today's call we will refer to certain non-GAAP financial measures and we have 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 the 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 any such forward-looking statements. The Company does not undertake to publicly revise any forward-looking statements after the date of this conference call.

With that stated I will now turn the call over to John Engquist.

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services third-quarter 2013 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer, and Brad Barber, our President and Chief Operating Officer.

Proceed to slide three, please. This morning I will give an overview of our third-quarter performance and also discuss activity within our regions and current market conditions. Leslie will then review our third-quarter financial results in more detail. When Leslie concludes I will provide our thoughts on the balance of this year and into 2014, and we will then be happy to take your questions.

Slide five, please. Our business delivered strong results again this quarter as we continued to execute our operating strategy, capitalize on the positive trends in our end-user markets, and leverage our strong industrial market penetration. We are seeing demand for rental equipment continue to increase and we also experienced increased demand for new and used equipment this quarter, which we believe is indicative of the healthier economy and general construction market.

Construction activity in the industrial areas we served, particularly the oil patch and petrochemical industries, is the highest we have seen since the last peak cycle and we believe it is continuing to expand. We see continued positive business trends and our employees are doing an excellent job of capitalizing on these increased opportunities.

As a result, total revenues increased 32.2% to $270.4 million versus last year with rentals increasing 14.9%, new equipment 84.1%, and used equipment 47.2%. Adjusted EBITDA for the third quarter increased 25.2% to $70 million compared to $55.9 million a year ago.

Net income for the quarter was $14 million, or $0.40 per diluted share, versus adjusted net income of $10.9 million, or $0.31 per diluted share, a year ago. The rental environment continues to show steady, strong demand, and as a result, our rental revenue increased 14.9% versus a year ago and margins increased to 49.6% from 48.9%.

Utilization remains at a high level on a much larger fleet at 72.3% based on OEC compared to 72.9% a year ago. Rental rates were up 5.2% compared to a year ago and improved slightly from the second quarter. We are pleased with our focus and discipline on capturing rate gain. However, rates are understandably moderating given the solid increases we have seen in the last two years.

Slide six, please. Let me now briefly provide some specific comments regarding activity in our various regions, all of which we believe point to an improving economy and continued cycle expansion.

Our Gulf Coast region has experienced significant industrial expansion as petrochemical and oil patch activity is high and reports indicate that multibillion-dollar capital investments relating to the petrochemical and oil patch industries, as well as other types of manufacturing facilities, are expected to occur over the next three to four years. We expect these backyard projects to drive demand in the coming years.

During the quarter we opened a new service center in Pasadena, the heart of the petrochemical industry in Texas, just outside of Houston where we are planning further expansion to capitalize on these opportunities. Oil patch and construction activity in our Intermountain region is strong, driving a significant share of our total revenue and gross profit.

Improvements in the construction markets are benefiting our West Coast, Southwest, Southeast, and Mid-Atlantic markets with all of these regions delivering year-over-year growth. Specifically, our branches in Arizona, California, Florida, and Nevada are benefiting from increased spending on a wide range of construction projects.

Please proceed to slide seven. As you can see from this slide, reports on current market conditions are positive and further expansion and growth is forecasted into next year. On our last call I highlighted several significant capital projects occurring in our Gulf Coast region where we have our highest concentration and penetration in the industrial sector.

As more details emerge about these projects, we are becoming increasingly excited about the economic impact and opportunity for our business in the years to come. It is reported that Louisiana, where we are headquartered, is expected to be home to an industrial expansion with approximately $90 billion projected in the aggregate to be spent by national and international firms over the next five to six years to construct new manufacturing facilities and petrochemical plants in Louisiana.

We believe this level of capital spend will be unprecedented for Louisiana. We are closely monitoring the developments in Louisiana, as well as other major capital projects along the Gulf Coast, and believe we are well-positioned to capitalize on this significant industrial construction activity.

At this time I will turn the call over to Leslie for our financial review.

Thank you, John, and good morning. I will begin on slide nine. As John said, we are very pleased with our strong third-quarter performance in which our total revenues were $270.4 million, an increase of 32.2%. And gross profit was $80.3 million, an increase of 20% compared to the same period last year.

The drivers of our revenue growth continue to be rentals and new and used equipment sales, and these segments again delivered the strongest demand compared to a year ago. As we dive deeper into the results I will begin with our rental business, first covering revenues and then I will provide gross profit highlights for each of our segments.

Rental revenues were $89.4 million for the quarter, a 14.9% increase over the same period a year ago. We have continued to invest in our fleet which has increased approximately $108 million, or 12.4%, from a year ago based on original equipment costs, or OEC.

Although our fleet has grown significantly, we have maintained high utilization levels with average time utilizations based on OEC of 72.3% for the quarter compared to 72.9% a year ago. In addition, based on number of units available for rent, average time utilization was 66.6% compared to 68.9% last year.

Also, average rental rates increased 5.2% over a year ago and increased 0.7% compared to the second quarter of this year. Rental rate improvements were seen across all product lines. As a result, our dollar returns were consistent with the prior year at 36.7%.

New equipment sales were $90.2 million, an 84.1% increase from $49 million a year ago. Demand for cranes, which increased 87.2%, and earthmoving equipment, which increased 98.1%, continues to show strength and drive demand for new equipment.

Used equipment sales were $36.8 million, an $11.8 million, or 47.2%, increase over the third quarter of 2012. The increase was primarily due to strong used crane and aerial sales. Business activity in our parts and service segments were solid again with revenues of $40.3 million.

Let's move on to a discussion of gross profit by segment. Total gross profit for the quarter was $80.3 million compared to $66.9 million a year ago, an increase of 20% on 32.2% increase in revenue. Consolidated margins were 29.7% compared to 32.7% a year ago. Our individual business segments are each performing well, but with comparatively high demand in new equipment sales this quarter, consolidated gross margins were negatively impacted by this shift in revenue mix.

Our rental business delivered margins of 49.6% compared to 48.9% a year ago. Margins on new equipment sales were 10.6% compared to 11.5% in the same period last year, primarily due to mix and a few large package deals with lower margins that closed in the quarter.

Gross margins on used equipment sales were 26.3% compared to 26.4% in the same period last year. As a reminder, used equipment sales are comprised of the sale of used inventory, such as trade-ins, and the sale of equipment from our rental fleet.

In the third quarter equipment sales from the rental fleet were 88% of total used equipment sales at a 29.7% gross margin compared to rental fleet equipment sales of 82% of total used equipment sales at a 31.8% gross margin a year ago. This quarter's margins were affected by product mix within our sales from the fleet, but the important point is that residual values of used equipment remain strong.

Parts gross margins were 28% compared to 26.7% a year ago and service gross margins were 64% versus 61.1% a year ago due to revenue mix. Margins on other revenues were 3.4% compared to 6.7% in the third quarter of last year.

Slide 10 please. Income from operations for the third quarter increased 35.5% to $33.9 million, or 12.6% margin, compared to $25 million, or 12.2% margin, a year ago. Despite the significant operating leverage achieved in SG&A expense this quarter, the leverage was offset by the mix shift in revenues and the resulting impact to our gross margin from the high demand in new equipment sales as I just mentioned on the previous slide.

Proceed to slide 11. Net income was $14 million, or $0.40 per diluted share, compared to $3.7 million, or $0.11 per diluted share, in the same period a year ago. Adjusted net income in the third quarter of last year was $10.9 million, or $0.31 per diluted share. Our effective tax rate of 33.5% compared to 29.7% a year ago.

Please move to slide 12. Adjusted EBITDA was $70 million, or a 25.2% increase over the same period last year, and adjusted EBITDA margins were 25.9% compared to 27.3% in the same period a year ago, also affected by revenue mix.

Next, slide 13. SG&A was $47 million, a 10.8% increase over the same period last year, yet SG&A as a percentage of revenue declined to 17.4% this quarter compared to 20.7% a year ago. Our greenfield initiatives added $1 million, or approximately 22% of the total $4.6 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.

Slide 14 and 15 (inaudible) our rental fleet statistics. Our fleet, based on original equipment costs at the end of the third quarter, was $978.9 million versus $871 million a year ago, an increase of 12.4% or $108 million. During the third quarter we increased the size of our fleet by $24.6 million based on original equipment costs.

Our gross fleet capital expenditures for the quarter were $79.6 million, including non-cash transfers from inventory.

Net rental fleet capital expenditures for the quarter were $47.3 million. For the quarter, gross PP&E CapEx was $8.4 million and net was $7.7 million. Our average fleet age as of September 30, 2013, was 35 months.

Next, slide 16. At the end of the third quarter our outstanding balance under the ABL facility was $135.1 million and accordingly we had $260.9 million of availability at quarter end under our ABL facility, net of $6.5 million of outstanding letters of credit.

I will now turn the call over to John for further discussion about our views on the remainder of the year and into 2014. And then we will open the call for questions.

Thank you, Leslie. Please proceed to slide 18.

As I have discussed most of these points previously, let me quickly close by stating that this is an opportunistic environment for our business. We believe that the general construction market is in recovery mode and we see end-user demand in our key industrial markets growing at high levels.

The capital projects underway and anticipated in Louisiana and along the Gulf Coast are significant opportunities for us to leverage. We believe that key indicators in our business are pointing in the right direction and we expect these positive trends will continue throughout this year and into 2014. We are focused on continuing to execute our operating strategy and capitalize on market conditions.

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

(Operator Instructions) Neil Frohnapple, Longbow Research.

Good morning, guys. Congrats on a great quarter. John, want to spend a moment on the distribution businesses. Very strong performance in the third quarter, but was wondering if you can help us understand the sustainability of this into the fourth quarter and into 2014.

I think that we have got a lot of momentum and my expectation is that that continues. If you look at our business the last several years, the fourth quarter has been very strong from the standpoint of equipment sales. There has been some significant tax benefits that drive that.

Those benefits have been reduced a little bit, but they are still significant and we are continuing to have a lot of inquiries right now. There are tax benefits. We think the fourth quarter will be another strong quarter.

When you look at the industrial expansion that is taking place in the Gulf Coast that is going to drive a lot of equipment sales and I think it is going to benefit our crane business. Brad, I don't know if you have any more color on that, but we are seeing plenty of demand.

Great. As a quick follow-up to that, John, I mean do you expect the fourth quarter to be another strong quarter? Last year's fourth quarter, you have been reminding us, is up against a very difficult comp. Do you think you will be able to match or exceed last year's fourth quarter on the distribution side?

Look, we are going to have a strong quarter. And you are right; the fourth quarter last year was exceptionally strong. It is a tough comp, but we are confident there is a lot of demand out there and we're going to close the year strong.

Neil, I think I would just second John's comments. A lot of good activity. With the nature of these large cranes it is certainly possible that we could. At the same time, a few large deals really move the needle from a revenue standpoint.

But I can tell you momentum is good, appetite seems to be pretty robust among our end-users, and we feel very optimistic about Q4 being a very solid quarter. How that actually ends from a historical standpoint from revenue still yet to be seen, but it is going to be a good quarter for sales.

Thanks for the color, Brad. Just one final one for me. Can you provide any commentary on our rental business performance in the month of October? Did you see rental rates increase versus where we ended the third quarter? And just any other color you can provide would be helpful, thank you.

I don't have color on rental rates right now and I really don't like to give monthly rate numbers. They can be deceiving. I prefer to do it on a quarterly basis, but utilization has continued to increase. Our utilization is very strong and we are very, very pleased with where we are from a utilization standpoint.

Great. Thanks very much, guys. Appreciate it.

Nick Coppola, Thompson Research Group.

Good morning. On that rate performance, it's certainly understood that you have seen really strong growth over the last couple of years and there was some inevitable moderation. But is there anything else you can tell us about drivers you are seeing out there in the competitive environment? How should we be thinking about rates?

Nick, this is Brad. The comments I would make is that I think we have seen the same environment that our larger and some smaller competitors have seen, which is really healthy utilization, continued increase in rates over the last few years. And rates have gotten a little softer as far as the increases have gone.

My anticipation is that all of us in our sector are going to continue to focus on return on assets and at the utilization that all of our companies are running today we should expect to see continued improved rental rates. I view it as a situation where we have had steady increases for a couple years; starting to moderate here the last couple quarters, but still positive. And as we go through these seasonal slow, meaning November, December, January, fully expect to see all of us head back in a positive direction.

So I think there is still plenty of upside for rental rates. Will it be the same growth rates we saw the last two years? I don't think that is reasonable. Will it be consistent and positive? I believe that is what we will see.

Okay, that is helpful. I understood your comments about being happy with utilization, but how do you think about mass utilization? So as you think about 2014 what kind of room for improvement is there or do you feel like you may be approaching a point where you don't want to be stocked out and turn away orders?

So I wouldn't say -- happy may be to the wrong term, and I apologize, what we are is we are at a level that we are not going to run a lot higher utilization and be able to properly service our customer. So we have opportunity in many ways.

Number one, we can continue to grow our fleet. We can look within the mix for higher return assets that our customers are consuming. And then, as I just stated, we are going to have an opportunity to continue to increase the rental rate on the existing fleet as well as future purchases. So I think we have got a lot of upside within the mix or the view of utilization.

Okay. Then last question for me. I apologize if I missed this. Did you quantify how much increase you saw in new equipment sales in terms of cranes and earthmoving?

Yes, I think Leslie did. Earthmoving was up close to -- it almost doubled year over year.

It was about 100% increase. It was 98% and cranes were up like 87% year over year [in new equipment].

Thank you very much for taking my questions.

Joe Box, KeyBanc Capital Markets.

Good morning, everyone. Nice job just re-accelerating the equipment rental incremental gross profit margin in spite of getting a little bit less contribution from price. Can you maybe just frame up what the big drivers were behind getting those incremental gross profit margins back into the 50% range from the 40% last quarter?

I think it is largely related to very strong utilization. You know we are running at very, very high utilization levels right now. I think that is the biggest driver.

Are you finding that maybe you are investing a little bit less in terms of mechanics or drivers at this point and maybe that is also helping? Or is it just sheer volume on rent?

Look, I think that that could be a piece of it, Joe, because we are entering October, November -- typically our peak rental months. So maybe the term would be we are kind of hitting on all cylinders and there is some incremental gains from each of those. But as John stated, certainly the largest piece of that improvement just came from the additional leverage of more equipment on rent compared to the previous period.

Got it. Thanks, Brad. Just a question on the petrochemical and energy project that you expect over the next couple years. Can you maybe just talk to the equipment usage on this type of project? Is a low single-digit percentage maybe the right way to think about equipment share as a percentage of the total project?

I am not sure I know how to answer that question, Joe. One, I will tell you that the need for equipment will be very broad-based across all of our equipment categories depending what stage a project is in.

It is going to impact our dirt equipment, it is going to impact our crane business in a big way, and it is going to impact our aerial business. It is going to be broad based the demand, but how to break that out percentage-wise I am not sure I can do that for you.

I don't think I could either, John. I will say this, though, it is going to be really good for H&E Equipment Services. With our blended mix of rentals, parts, sales, service, being the largest Manitowoc distributor, having all these service technicians with the skill levels that cannot be replicated by our competitors, it is going to bode well.

And I will go further to say that I think our distribution, our more traditional distribution base attributes of parts and service will lend itself and enhance our opportunities on the rental side of these projects.

Agree with you completely, Brad. And maybe is this a better way to think about it? So in terms of the equipment intensity that you might have per se a commercial or a nonres construction project -- and I guess that it varies based on type of project -- is the equipment intensity much bigger for these petrochemical projects or is it basically the same?

No, it is bigger. It is higher intensity and it has got the potential to consume more equipment. Now you do have certain types of nonres projects, like a big stadium job or something.

The Cowboys Stadium, we had 400 machines on that job, maybe more than that for a long time. So there is exceptions to that, but these projects are very equipment intensive. These industrial projects.

And in terms of what you sold out of the new equipment business, do you think any of that equipment went towards some of these projects or are they still a year or two from seeing some sales?

No, we had a few sales I would call ancillary at this point but, no, nothing meaningful. I think we are somewhere in the six- to 18-month range before we start to see real meaningful impacts, and it is only going to get better from there.

Understood. Thanks, guys.

Philip Volpicelli, Deutsche Bank.

Good morning, great quarter. First question is for Leslie; the floor plan financing outstanding at the end of the quarter?

$49.7 million.

$49.7 million, great. Then I believe you guys talked about six greenfield branches being open this year and I can count five so far. Can you give us a sense of where the last one might be and then what your plans are going forward in terms of greenfields and possible M&A?

Sure. Philip, like you say, towards the end of last year we opened Midland and Mesquite, both in Texas. We had Seattle in January this year, Fort Worth in March of this year, Union City in the Bay Area in July, and then most recently Pasadena in October.

We have approved and are moving forward with the opening of Lubbock, Texas, right now. As far as additional opportunity, it is readily available to us so we have got plans to open another six or so locations in 2014.

And while we have not given a lot of guidance around these locations and our investment, I will say that all of the locations I just mentioned are performing well ahead of our internal expectations. We are doing well. We are moving at a controlled pace, but the strategy is paying dividends for us.

Great. In terms of M&A, have you guys -- I know there is a couple books out there in the marketplace. Are you seeing the pace of opportunities across your desk accelerate? Are the multiples at reasonable levels? What are your thoughts on M&A?

Obviously, there is some assets for sale out there and we will always take a look. We are not pursuing anything right now, but as I have said in the past, we have got a balance sheet and a capital structure that will certainly allow us to pursue the right opportunity if and when it comes along. And we will be opportunistic and just take that approach.

Last one for me. In terms of capital spending, a couple of your smaller competitors, regional competitors have talked about pulling forward CapEx into the fourth quarter from the first quarter because of discounts from manufacturers. Are you seeing that?

Yes, there is some of that. I mean we have probably invested a little heavier late in the year than is difficult for us just because of opportunity, particularly in Texas. But the demand we have got there right now is just amazing.

And so, yes, I think we have probably -- and Brad might want to give summer color on this. We have been investing some money here probably a little more so than we typically would this time of the year, but it is really -- it is not so much based on any kind of discounts. It is based on pure demand.

Great, thank you very much. Good luck.

Seth Weber, RBC Capital Markets.

Good morning, everybody. Actually I wanted to follow up on that prior question.

Obviously, John, you sound particularly bullish and encouraged about the outlook. Do you feel like you have adequate infrastructure, or do you think you will be hiring more sales staff, more mechanics, etc.? Do you think that we will start to see SG&A creep up here going forward, or do you feel like you have kind of adequate resources at this point to address the opportunity ahead of you?

No, I think we have adequate resources to address the opportunity. Now I can tell you we are always hiring technicians. That is something we are always pursuing and always will. There is a shortage of technicians in our sector, so when we find a good one we are going to hire him if we can.

But, no, we absolutely have adequate resources and we are structured to grow our business significantly as we stand.

Okay. Just given the positive dynamics around your footprint, are you seeing anything unusual with bidding activity? Are you seeing some of the other competitors get more aggressive trying to come into your footprint?

Or do you feel like there is just enough opportunity out there that you are able to continue to drive your business like you would expect? I think you referenced some of your competitors are pulling forward some fleet.

I don't think we are seeing anything unusual on the competitive front. I think it is more of the same, nothing unusual there. There is going to be a tremendous opportunity in this Gulf Coast area.

We looked at a report this morning -- and the Greater Baton Rouge area probably comprises four or five parishes around east Baton Rouge. There is $27 billion worth of industrial projects underway or fixing to start. There is more than that in southwest Louisiana, so it is something Louisiana has never seen before. It is a huge industrial expansion, so there is certainly enough for everybody.

Now obviously everybody is going to be looking at this opportunity, but unless Brad sees something different than I, I don't see anything unusual on the competitive front. Just more of the same.

Seth, I think there is reasonable discipline by all of our competitors. As John has said, we will see more of the same. But no one is getting overly aggressive on the rate front and so it is very encouraging, and I think 2014 is going to give us some real opportunity.

Okay. Just one last one. Historically your distribution business has not -- you have been on more of the small and midsize crawler cranes. Are you starting to see more requests or are you contemplating adding more of the bigger crawler cranes to your offerings?

Your margins tick down a little bit and that usually happens when you sell more, bigger stuff. Do you expect to sell more large cranes going forward?

We have recently sold an 18000, which is obviously a very large crawler crane, and we are -- I think the inquiries on large crawlers is definitely up. We are talking to more people about it.

So, Brad, you got --?

Seth, look, that 18000 John referenced, we are talking about machines that probably carry a 5% to 6% margin instead of the more traditional 10% to 12% margin on some of the other large products. So could we sell -- when you say are we adding those two our offering, we are working with Manitowoc consistently on our inventory needs; balancing our needs against their inventory and their build schedules. We are in communication.

We think we will be able to source the products. I think there is an opportunity that larger products will excel more than they have maybe in the last 12 or 18 months, and we may be starting to see some of that right now. So maybe that is helpful to you.

Yes, that is. Lastly, one of the other OEMs talked about some extra inventory in the North American crane channel. Are you guys seeing anything to that effect?

No, we are not. I mean there are always pockets or a certain particular size class, if you will, but in general we feel pretty good about what is going on with the inventory levels in cranes.

Thank you very much everybody.

(Operator Instructions) Steven Fisher, UBS.

Good morning. Just wondering to the extent that the strong equipment sales are coming at the expense of rental at all. Then I suppose somewhat related to that; are you finding that in the Gulf Coast region in particular where there is perhaps a deeper pipeline of perspective projects that new sales are becoming more relevant than rental?

Steven, the answer is, no, to really both questions. They are two independent businesses. We have a rental salesforce; we have a retail salesforce and those guys don't get together and decide what we are going to do. The customer really drives that opportunity.

Clearly in the rental side you know who our largest competitors are with United, Hertz, Sunbelt, and those folks. On the retail side it is more the traditional distribution base of the Link-Belt dealer, the Caterpillar dealer, or what have you. So they are mutually exclusive of one another and I think that the opportunity for both will continue to grow.

I do think you are going to see increased activity in our distribution business because of the magnitude of these projects and the confidence in the economy, but that will not be at the expense of the rental business. The rental business will perform very well on its own.

In the Gulf Coast, where you have a deeper bench of perspective projects, does that lend itself more to sales than rental, or is there a role a good, solid role for rental as well?

There is a good solid role for both. I mean it is going to drive a lot of rental activity and it is going to drive our distribution business. So I think that we are sitting here with a real, real strong business model to take advantage of this opportunity.

Okay, great. Then it sounds like you don't to give specific monthly data points, but just curious if there is any color that you can give directionally on how the rental rate trend played out over the course of the quarter.

It was somewhat lumpy, but again from the second quarter we were up sequentially, 0.7 of a point I think. So we had a sequential gain from the second to the third quarter and on a monthly basis it was a little bit lumpy. But it is still a solid, but moderating, rate environment, but we are still getting positive gains there.

Okay, terrific. Thank you.

Sameer Rathod, Macquarie.

Actually all of my questions have been asked and answered. Thank you.

Matthew Dodson, JWest LLC.

Last quarter you talked about significant inquiries in your crawler crane business and you are talking about today that you have seen more inquiries in kind of the heavy duty crawlers. Are you seeing the ability to push price on that side of the rental business?

On large crawlers, I mean there is a suggested manufacturers' price, the discounts on those are fairly slim, so I mean we typically don't discount those products.

Matthew, I think one distinction let me make just for clarity, we don't offer large crawlers as part of our rental offering. Now we have a substantial rental fleet of cranes, but those are primarily rough terrain cranes, carry-deck cranes, and on to the smaller boom trucks. So the crawler crane business is more of a retail distribution business, not really a meaningful piece of our rental business.

Got you. And so I guess, on the rough terrain activity you guys mentioned last quarter and today, are you able to push price in front of what you have been seeing in inquiries that you been talking about?

You are referring -- when you say price, are you talking about rates or sales price?

Rates, yes. I am sorry, rate.

We are getting rate gains on cranes. It is probably more moderate gains than some other products that we have, but we are running at strong utilization levels there, as most of our competitors in the crane rental markets are. So, yes, we are getting rate gains there and pushing price.

Perfect. Thank you.

(Operator Instructions) It appears there are no further questions in queue. I would like to turn the conference back over to today's speakers for closing remarks.

Everybody, I appreciate you attending the call and we look forward to speaking with you on the next call. I think we are in a very positive environment and I think we have got some nice runway in front of us here. Talk to you next time. Thanks.

That does conclude today's conference. We do thank you for your participation. You may now disconnect.