H&E Equipment Services Inc (HEES) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to today's H&E Equipment Services fourth-quarter 2013 earnings conference call. Today's call is being recorded.

And at this time, I would like to turn the call over to Mr. Kevin Inda. Please go ahead, sir.

Thank you, Lisa, and welcome to H&E Equipment Services' conference call to review the Company's results for the fourth quarter and full-year 2013, which were released earlier this morning. The format for today's call includes a Power Point 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'll refer to certain non-GAAP financial measures. And we reconciled these measures to GAAP figures in our earnings release, which also is available on our website.

Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of the Federal Securities laws. Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties which could cause actual results to differ materially from those contained in any forward-looking statement. These risk factors are included in the Company's most recent [annual] report on Form 10-K.

Investors, potential investors, and other listeners are urged to consider these factors carefully and evaluate 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 a now turn the call over for John Engquist.

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services' fourth-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 3, please. This morning, I'll give an overview of our fourth-quarter performance and also discuss activity within our regions and current market conditions. Leslie will then review our fourth-quarter and full-year financial results in more detail. When Leslie concludes, I'll close with our thoughts on the outlook for 2014. After, we'll be happy to take your questions.

Proceed to slide 5, please. We believe our fourth-quarter performance was indicative of the across-the-board strength and momentum that continued in our business and demonstrates our ability to capitalize on improving market conditions. We were pleased with the conclusion to a great year for our business.

We delivered positive results in our rental business, which include our higher margins and strong utilization while, at the same time, expanding our fleet. Our distribution business delivered solid results as well.

While sales were still strong in our new equipment segment, it did experience a decline against the same period last year. It is worth mentioning that this decline in new sales is a result of a few high-dollar crawler cranes that were sold in the prior period. And user demand for new equipment remains strong. Our continued focus on leveraging the increasing demand in our end user markets was reflected in our financial results for the quarter.

Total revenues increased 3.8% to $259.6 million, versus the same period last year, with rentals increasing 12% and used equipment increasing 28.9%. EBITDA for the fourth quarter increased 17.5% to $70.9 million, compared to $60.4 million a year ago. Net income for the quarter was $14.6 million, or $0.41 per diluted share, versus net income of $10.7 million, or $0.31 per diluted share, a year ago.

The rental environment continued to show steady, strong demand. And as a result, our margins increased to 48.9% from 48.1%. Utilization remained at a high level on a much larger fleet, and rental rates increased 5.6%, compared to a year ago.

Please proceed to slide 6. I just want to make a few brief but important comments regarding this slide. We see all of our regions having benefited from the improved market conditions and higher end user demand. Our equipment was put to work on a vast array of construction projects -- projects we believe were made possible by an improving economy. From highway infrastructure, to apartments, retail and shopping malls, office, and many other projects.

In the fourth quarter, we saw capital spending on construction activity, that had disappeared during the recession, emerging once again. We have seen this in even our less industrial regions. Our industrial focus on our Gulf Coast and Intermountain regions continue to generate the majority of our revenue and gross profit. And we expect this will continue and increase in 2014.

We are heavily embedded in the petrochemical oil patch and other related industries along the Gulf Coast and in our Intermountain region. We believe activity related to these industries is at an all-time high. As a result, we have opened a store in Lubbock, Texas, since the first of the year. Furthermore, and as I have discussed on previous calls, we expect to benefit from what has been reported as historically high levels of projected capital spending, relating to new projects in these industries, in our Louisiana and Texas markets.

Proceed to slide 7, please. This slide just illustrates the current and positive market indicators relating to the construction markets. Forecast called for increased growth in 2014 and beyond, and we believe this is the beginning of an expansion cycle in nonresidential construction. As I mentioned earlier, we are closely monitoring the industrial projects that are expected to begin breaking ground this year in Louisiana to construct new petrochemical and manufacturing plants.

At this time, I'm going to turn the call over to Leslie to discuss our fourth quarter and full year in more detail.

Thank you, John, and good morning. I'll begin on slide 9.

Our fourth-quarter performance was a solid close to 2013, with total revenues increasing 3.8%, to $259.6 million, and gross profit increasing 11.1%, to $81.6 million, compared to the same period last year. The primary drivers of our revenue growth this quarter were rentals and used equipment sales. I'll briefly touch on each of our business segments, beginning with our rental business, first covering revenues. And then I'll provide gross profit highlights of each of our segments.

Rental revenues were $90.4 million for the quarter, a 12% increase over the same period a year ago. We have continued to invest in our fleet, which has increased approximately $117.8 million, or 13.3% from a year ago, based on original equipment cost, or OEC.

Although our fleet size has grown significantly, we have maintained high utilization levels, with average time utilization -- based on OEC -- of 71.9% for the quarter, compared to 71.8% a year ago. In addition, based on number of units available for rent, average time utilization was 66%, compared to 66.6% last year.

Also, average rental rates increased 5.6% over a year ago, and increased 0.4% compared to the third quarter of this year. Rental rate improvements were achieved across all product lines. Our dollar returns were 36.2%, compared to 36.4% a year ago.

New equipment sales were $77.8 million, down 10.6% from $87 million a year ago. And as John indicated in his earlier remarks, this decline was primarily the result of lower demand for large cranes, which increased by $17 million, or 24.9% -- which decreased by $17 million, or 24.9%.

Keep in mind that, when 2012 came to a close, we experienced significant year-end buying, which has resulted in a challenging prior-year comparison. However, the decline in demand for large cranes was partially offset by increased demand in new earth moving and aerial equipment, resulting in increases of 73.5% and 24%, respectively.

Used equipment sales were $38 million, an $8.5 million, or 28.9%, increase over the fourth quarter of 2012. The increase was primarily due to strong used cranes and earth moving sales.

Fourth-quarter combined revenues in our parts and service segments were $39.8 million.

Now, let me briefly walk through gross profit by segment. Total gross profit for the quarter was $81.6 million, compared to $73.5 million a year ago, an increase of 11.1% on a 3.8% increase in revenues. Consolidated margins were 31.5%, compared to 29.4% a year ago.

Gross margins have increased due to revenue mix combined with strong performance in several individual business segments. Our rental business delivered margins of 48.9%, compared to 48.1% a year ago. Margins on new equipment sales were 10.7%, compared to 11.2% in the same period last year, primarily due to mix and higher volume related to a few large package deals this quarter.

Gross margins on used equipment sales were 29.7%, compared to 30.2% in the same period last year. The health of the used equipment market is evident by the demand for used equipment and the strength of the residual values of our used equipment.

Parts gross margins were 30.2%, compared to 27.4% a year ago, and service gross margins were 63.9%, versus 59.4% a year ago, due to revenue mix. Margins on other revenues were 6%, compared to 1.7% in the fourth quarter of last year.

Moving on to slide 10, please. Income from operations for the fourth quarter increased 18.6% to $33.8 million, or a 13% margin, compared to $28.5 million, or an 11.4% margin, a year ago. The driver of the increase was a shift in revenue mix to rentals and solid performance from our business segments I have just discussed on the previously slides.

Proceed to slide 11. Net income was $14.6 million, or $0.41 per diluted share, compared to $10.7 million, or $0.31 per diluted share in the same period a year ago.

Our effective tax rate was 31.1%, compared to 36.1% a year ago, due to higher favorable permanent differences in relation to pre-tax income. These permanent differences will be reduced this year, resulting in a higher 2014 tax rate that should approximate statutory rates for both federal and state taxes.

Please move to slide 12. EBITDA was $70.9 million, or a 17.5% increase over the same period last year. And EBITDA margins were 27.3%, compared to 24.1% in the same period a year ago, also affected by revenue mix, combined with improved rental and parts service gross margins.

Next, slide 13. SG&A was $48.7 million, a 7.9% increase over the same period last year. And SG&A as a percentage of revenue was 18.8% this quarter, compared to 18.1% a year ago.

Our Greenfield initiatives added $1.1 million dollars of the total $3.6 million increase in SG&A this quarter, compared to a year ago. And further, we incurred increased wages, commissions, and incentive pay, largely due to the growth in the business.

Slides 14 and 15 include our rental fleet statistics. And our fleet, based on original equipment cost at the end of the fourth quarter, was $1 billion, versus $883 million a year ago, an increase of 13.3%, or $117.8 million. During the fourth quarter, we increased the size of our fleet by $21.9 million, based on OEC.

Our gross fleet capital expenditures for the quarter were $70.4 million, including non-cash transfers from inventory. And net rental fleet capital expenditures for the quarter were $38.1 million. Gross PP&E CapEx was $8.7 million, and net was $7.8 million. Our average fleet age, as of December 31, 2013, was 34.9 months.

Next, slide 16, please. At the end of the fourth quarter, our outstanding balance under the ABL facility was $102.5 million. And accordingly, we had $293.5 million of availability at quarter-end under our ABL facility, net of $6.5 million -- about (inaudible) letters of credit.

Next, slide 17. Let me conclude by quickly reviewing our full-year 2013 results. To summarize, 2013 was an impressive year, resulting in total revenues of $987.8 million, or an 18% increase in revenues; a 17.3% increase in gross profits; and a solid gross margin of 30.6%.

As I highlighted earlier, due to the increased demand, we have invested in our rental fleet and increased the size by approximately $117.8 million, or 13.3%, to $1 billion in total OEC. Even with a significantly larger fleet, time utilization remain high at 70.8%, based on OEC. And we raised rental rate 6.9% for the full year.

Income from operations increased to $115.3 million, on 11.7% operating margin, compared to $89.2 million, on a 10.7% margin, in 2012. Net income increased to $44.1 million, or $1.26 per diluted share in 2013, versus $28.8 million, or $0.82 per diluted share in 2012. 2012 adjusted net income was $35.4 million, or $1.01 per diluted share.

We finished the year with EBITDA at $255.5 million, on a margin of 25.9%, compared to $196.5 million, on a margin of 23.5%, a year ago. Or EBITDA of $255.5 million, compared to 2012 adjusted EBITDA of $206.7 million, on a margin of 24.7%.

At this time, I'll turn the call over to John to discuss our 2014 outlook. And then we'll open the call for questions.

Thank you Leslie. Please proceed to slide 19.

Let me quickly close by saying that 2013 was a great year for our business, and we could not have achieved such positive results without the dedication and solid execution by our employees. As a result, we also delivered significant gains in shareholder value, which is very important to everyone at H&E Equipment Services.

We expect 2014 to be an exciting year and believe the trends we are experiencing in the marketplace will continue. Many indicators are pointing to the majority of the recovery in nonresidential construction is still to come, with a very long runway ahead. We believe that our rental business is positioned to benefit the most from this robust growth, with end user demand currently significantly higher than this time last year.

At the same time, based on customer feedback, we also expect our distribution business will continue to operate at high levels. We are excited about the wide range of construction projects being reported in our markets and look forward to the resulting appetite for rentals and new and used equipment.

As I mentioned earlier, we expect our focus on the industrial sector, along the Gulf Coast, will be a major contributor to our growth in 2014, particularly if the anticipated historically high upcoming capital spend comes in, as reported. We believe the overall market conditions are very encouraging. And our focus remains on solid execution to improve our market position and capitalize on the anticipated positive trends in our industry in 2014.

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

(Operator Instructions)

We will take our first question from Joe Box with KeyBanc Capital Markets.

Question for you guys on weather and the impact on rental rates. I get the weather could certainly slow project starts. I'm a little more curious the impact on rental rates.

Does weather typically give rental companies pause on raising rates? Or is it something you look through? Any sort of clarity you guys could give us on sequential rate expectations would be pretty helpful.

Joe, I don't know that weather has impacted our rates, and I will tell you why. In spite of really tough weather conditions, our utilization has held up very well. January and February we are running well ahead of a year ago on utilization.

So the demand is very strong, so I'm not sure we've seen much impact on rate. Really what drives rates one way or the other is physical utilization, and we are currently experiencing pretty strong utilization. Brad, have you got any?

The only thing I would add is I think we do, our competitors do and to a certain level our customers do as well -- weather is always a short-term phenomenon. It can certainly have an impact, maybe even within a quarter, if the weather is severe enough. But it's never been typical in the industry for weather to be severe long enough for it to impact rates and that really be the driver.

Great. I just didn't know if that would cause a slower start to the year. But that's helpful, thank you.

Maybe a question on the new locations. I know this was obviously your first year with a slug of new locations coming online.

Can you maybe just give us just a feel for revenue contribution? Maybe where margins shook out, or at say the pace of current growth, how long could it be before these locations hit an average rental margin?

Sure. We've not given much guidance specific to those locations. I would point out we opened four locations actually in 2013. We started this initiative late 2012 and opened Midland and Mesquite, Texas in 2012.

And in 2013 we opened Seattle; Fort Worth; Union City, California; and Pasadena, Texas. As John mentioned in his comments, we have already opened Lubbock. They were opened February 1 for business, and we expect to achieve four to five more locations open this year.

As it pertains to the averages, they range very vastly, Joe. We've kind of with the small numbers of locations that we're opening meaning four, five, six locations per year, we have shied away from giving guidance. Because you can have an operation that has $10 million in inventory, an operation that has $20 million in inventory.

The numbers are dramatically different. I will say with all of the Greenfield we have open in 2012 and 2013, that we have well exceeded our internal expectations and that our plans are going very well.

Understood. Fair enough. Maybe switching gears over to free cash flow, at this point in the cycle, arguably still pretty early, how are you guys balancing free cash flow with the idea that the market could have several years of expansion?

Do you have a plan in place where at some point in the cycle you want to start generating a lot more cash and maybe delevering the balance sheet? Or is it still years out, and that is not really something that you need to start thinking about right here?

Joe, look, our level of capital spending this year in 2014 will be very similar to what we did last year. At the net spend will be a little different, because I don't think we are going to sell as much rental equipment as we did a year ago. We don't need to.

Our fleet's very young. But at the gross level and at the growth capital spend, they are going to be similar to last year. From a cash flow standpoint, we anticipate this year being neutral to slightly cash flow positive, and our expectation is, as we go out in future years, we will start generating more cash.

Understood. Thanks guys. Nice quarter.

We will take our next question from Neil Frohnapple with Longbow Research.

Good morning, congratulations on a nice quarter and year. Can you talk about SG&A in 2014, and puts and takes to consider?

Should we expect incremental costs obviously from the new store openings in 2014? And yes, if you could just talk about directionally how we should be thinking about SG&A?

Leslie may want to give more color. I think that you are going to see some increase in absolute dollars. And, the biggest area of our business that we are projecting growth in next year is the rental segment.

We are looking at really strong growth there. So I think you will see some absolute dollar increase, but I think as a percentage of revenue, our SG&A will remain relatively flat.

Relatively flat?

Right.

Okay and that is total overall?

That's correct.

Okay. And then I guess just switching gears quickly, can you just talk a little bit more about the modest parts and service decline in the quarter? It was obviously very little. But, how should we be thinking about these businesses as we head into 2014?

Yes, look. For the year, we showed decent growth in that. And one thing I would point to, in our parts and service business is the margin improvement we saw in the fourth quarter, which was very strong.

That is an area of focus for us. We are anticipating solid top line growth in that segment, and really, significant margin improvement next year.

So I think we have been very focused on the margin side, and whether weather played somewhat of an impact or it didn't, I don't know. I can't tell you that. We were a little bit surprised our growth was flat year over year, but our expectations are for reasonable growth next year and margin improvement.

Let me add a nice portion of overall service and parts are derived from the crane business, crane repairs, crane rebuilds. And as we have spoken before, directionally about retail sales, those large products typically lag the cycle. They are later cycle products.

So it is reasonable to assume at some level of repair, heavy maintenance, rebuild, getting these machines back in condition will also become late cycle. And I will tell you we have seen inquiries continually pick up on the opportunity to rebuild these large crawlers.

So that is likely going to be one of the larger drivers of improvement. As John says, we are not necessarily happy with our performance. We are going to continue to focus and continue to focus on the quality of revenues and improving the margin, and I believe the volume will take care of itself through our sales and marketing efforts along with the large crane opportunities there to come.

Thanks for the additional color, Brad, and just one final one. Can you just remind us what the carry over rental rate will be for 2014?

I don't have that in front of us. If I had to guess, it will be 1. 5 or 2 points. Yes.

Great. Thanks very much.

Thank you.

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

Good morning.

Good morning Nick.

What is the cadence that you expect on the industrial projects in Louisiana and Texas you've been discussing? I would say there are some big numbers there, it is going to be a bit of a runway, clearly going to be over a period of years. When should we start to see the benefit?

Well, I think it will start in 2014. But I tell you, trying to predict the cadence and timing of these projects is difficult.

A lot of them have been announced, they are going through permitting processes and what not. And that can take some time. Brad, I don't know if you have any more cases.

There is some site work going on. So some of these jobs are starting to materialize at some level. But I certainly agree with John.

It is very difficult to project. What we know is it's going to be good. We are starting to get some minimal benefit from some of these high-level, high-profile large dollar projects.

We suspect we will have more clarity as we work through Q1 and Q2 of this year as to what our opportunities will be as it pertains to timing. But the opportunities are going to be very nice; it is just a matter of when at this point.

Several of these really big projects are in the dirt right now, but it's preliminary, earth moving work. I think we will start to see some benefit this year, and it will ramp up significantly over the course of the next few years.

Okay, that makes sense. Then, just a second question here, very generally, can you give us an update on expectations for rate improvement in 2014?

And is there an expectation that rates are just going to see a bit of a moderation from earlier years just as rates can't keep rising like they have? What is your thinking around that?

Yes, our thinking is, I think you should expect some moderation on rate increases. We are going to get year over year improvement in rates, we've got some room left, but those increases will moderate somewhat. But I think we are very confident we will continue to get year over year rate increases with some moderation.

Okay, that's great. Thanks for your help.

We will take our next question from Phillip Volpicelli with Deutsche Bank.

Good morning, this is [Sean Longerak] sitting in for Phil. Great quarter. Building on the last gentleman's question about rates, when you talk about rates by equipment type, at this part of the cycle, can you give us an idea of which equipment is able to kind of garner the higher rates right now versus other pieces of equipment?

I think our strongest rate increases have been on aerial product. Our weakest increases have probably been on cranes. Brad, you probably have more color than I do.

I do. But look, John just nailed the two key points. Crane utilization is high, it was high a year ago. It is a little higher today.

It is going to grow exceptionally high, and the opportunity is going to grow I think exponentially as these large projects come online. As Leslie mentioned, we had rate increases in all product segments, and certainly we had more on the aero work platform piece of our business. That could change a bill bit this year.

Cranes were maybe the lowest contributor from a rate improvement standpoint. Depending on the times of these industrial jobs, that could turn around.

That being said, it is important to keep in perspective the average cost of a crane versus average cost of an aerial in the relationship with those percentile increases. Cranes range from $250,000 to $1 million per unit that are in our rental fleet. Aerials are probably more in the $40,000 to $50,000 average per unit.

So when we talk about a percent of increase, it is a little more difficult. But the dynamics are likely to exit for cranes to contribute at a much higher level than they did in previous periods. Hopefully that little color gives you some direction.

It does. It makes a lot of sense. Thank you.

I find when people talk about rates, a lot of times they are just talking about this blanket rate, but really needs to look at the actual fleet you are dealing with. So, basically, while aerials are strong now, you could see a pickup toward the second half of the year potentially with cranes, which could help boost rates. Thank you.

The next question, I know you guys have been very organic with your growth. But we have seen an increase in M&A activity over the past six months. Would you consider any acquisitions, and what magnitude would it be?

Yes. We would, as I've said in the past, we've got a good, strong balance sheet.

We've got more than adequate liquidity, and good capital structure, we would be opportunistic if the right deal came along at the right multiple that made sense. We'd absolutely look at an acquisition.

We are not out, we don't have a team of people out chasing acquisitions, I can tell you that. We are working on a greenfield strategy. But we will be opportunistic, and if the right situation comes along, we are going to take a look at it.

All right. Thank you. Did you happen to state exactly how many greenfields you are planning to open this year?

Our expectations are we will open five locations. We are saying four to six, but we will probably open five locations this year. This year meaning 2014.

We opened four locations last year. And we did two on the back half of 2012 when we started this Greenfield growth initiative.

Five or six a year is what we're planning on. We are planning on five or six high quality operations.

Right. Echoing John's comments earlier, how projects in the Gulf Coast should drive growth in 2014, when I look at slide, I think it is 4 or 5, that shows the map of the States, and you look at the Gulf Coast, 52% of your revenue and 49% of your gross profit. Is this going to be an area that you are targeting these greenfields?

Because I noticed the greenfields last year were in different areas of the country. I was curious if you might be focusing more on that area this year?

Yes, we definitely are. I mean we've recently put stores in Mesquite and Fort Worth and Lubbock.

I mean we are looking at Texas real hard because of the huge oil and gas play there and the Petro chemical side there. We are very focused on Texas now.

Is Louisiana also an opportunity? Or are you pretty comfortable with your footprint there?

No, there is some opportunity there. We are looking at adding some additional stores in Louisiana, we are doing the analysis. But you have got to understand, Louisiana is a pretty small state of 4 million people.

So we can cover Louisiana pretty well with our existing stores as opposed to a state the size and scope of Texas. Very different.

Right. That makes sense. My last question is just a quick housekeeping question. What was the balance on your floor plan financing this quarter?

$49.1 million.

Thank you very much. That's it for me, great quarter. Good luck.

(Operator Instructions)

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

Good morning everybody.

Good morning.

As I look at your dollar utilization for the year, was about 36%. If you go back to the prior peak, 2006, 2007, it was closer to 40%. Is there something that's structurally changed that would prevent you from getting back to that kind of number?

Nom I think we can get back to that number, Seth. We are dealing with a couple of things. I don't think rates are -- utilization is kind of back to prior peak physical utilization.

Right.

Rates aren't totally all the way back. And then we've got an inflationary head win. We are paying more for equipment than we did at the prior peak, but I have no reason to think we won't get back to that 40% range.

But a little headwind, inflationary headwind and rates just aren't quite back to where they were. As that evolves, I think we get back there.

Okay. I mean, is it just the crane rental rates that you think are not back? Are aerial rates back to where they were and just the cranes are lagging?

It is segments. It is very different byproduct line. Booms versus scissors, but across-the-board, I do not believe aerials are all the way back.

Cranes aren't. But again, we are moving in that direction. And part of the problem, aside from rate, is the inflationary headwind we've got.

Sure. Kind of on that topic, I assume you are talking about tier 4 and things like that. Have you heard any chatter about rental companies being able to charge higher rates for tier 4 equipment?

No. None at all. Customers won't go for that. If you tell them, the fact is when someone orders a 60-foot boom or an 80-foot boom, they don't care whether it is a tier 4 or any machine we want to use.

They likely would prefer the tier 3 product because they don't have the regen processes for the difficulty of the machine. If you give someone a machine they can use less and charge more, you're going to lose a customer, so there is no validity to that.

There are some government contracts and things I think are starting to mandate that, right?

Well, look, I think over time, and I agree with what Brad just said today. But over time, rates will adjust for the cost impact of tier 4, they have to.

Look, they always have. The history of our company, every time there is a steel surcharge, everyone reacts in response, but the truth is we pass that in to our end user, and our new sales margins don't seem to change. They remain very stable.

Sure.

Whether it be tier 4, steel surcharge, other types of components that have increased in price that have affected the overall acquisition, tier 4 I guess is no different is what I'm saying. It will all get pushed through over a period of time. It is part of the economic headwind that John mentioned.

Right. No, understood. Thank you.

And then on the crane business, I think over the last few quarters you have talked about inquiries, you have a prospect list or inquiries list that you have kind of characterized as being strong. Has that continued here in the first part of this year?

It has. And we feel pretty good about the conversations we are having right now. And Seth, I tell you, that miss on new equipment sales, that was totally related to cranes, and I'm talking about literally a few cranes. Maybe three cranes that were in the prior period.

Sure.

So that is a few high dollar crawler cranes that didn't repeat, but I don't think that is at all indicative of any kind of weak demand on the crane side.

Very good. Understood. Thank you very much guys.

Thank you.

We will take our next question from Steve Fisher with UBS.

Hi, good morning. Sorry if you have covered this already; I got on the call a little bit late. But in terms of crane sales, just wondering if there is any comment you could make on how they are looking in the first quarter thus far after the lower fourth quarter you called out in the release?

Yes so Q3, Q4 have traditionally been really strong for retail sales, particularly crane sales. And what I will say on the call is we are going to have a nice first quarter relative to typical first quarters.

As John just said, we are getting plenty of inquiries, and small level of backlog, and we see a lot of opportunity. Q1 should be a good quarter for crane sales relatively speaking to the cycle.

Okay, and then I know these metrics are going to bounce around quarter to quarter. But as you do expand your fleet, which of your utilization metrics do you most closely manage your business to?

Dollar utilization. The last call Seth asked the question about returning to prior peak which was somewhere in the 40% range. Without us changing our mix, we think we can get back to that level, and we are certainly managing to try to do so.

Leslie spoke about our growth year over year substantial fleet growth, time utilization being relatively flat and in the 6.9% rate increase. We are going to continue to push rates, we are going to continue to look for leverage within physical utilization. But our primary target to answer your question is dollar utilization of the assets.

Okay. Then lastly curious, what you are seeing on the competitive front and the Gulf Coast region. To what extent are you seeing an influx of competition from players that are more traditionally outside the region, as well as expansions from those that are within the region?

I don't think we are really seeing much of an influx with people that typically aren't here. Maybe on the crane side, we are seeing some of that because it is such a big crane market.

But we have all of the players here. I mean United, Hertz, Sun Belt, we are not short of any competition. Brad, I don't think we are seeing any big influx.

Really Steve what we saw a few years ago, when we were still in more of a recessionary period, were a lot of folks relocating because there was more opportunity in the Gulf Coast, more particularly the Houston train markets, things like that. But as far as, as of late, no change.

It was more of the same. We've got every competitor you could list out all vying for the same type of opportunity.

Okay, thank you.

(Operator Instructions)

There are no further questions at this time. I would like to turn the conference back over to our speakers for any additional or closing remarks.

I want to thank everybody for being on the call. Clearly we feel good about 2014. I think it is going to be an exciting year with a lot of opportunity for us, and we are going to work hard to capitalize on those opportunities. We look forward to talking to you on the next call. Thank you.

That concludes today's teleconference. Thank you for your participation.