H&E Equipment Services Inc (HEES) 2014 Q3 法說會逐字稿

Good day, everyone, and welcome to H&E Equipment Services' third-quarter 2014 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Kevin Inda. Please go ahead.

Thank you April, and welcome to H&E Equipment Services' conference call to review the Company's results for the third quarter ended September 30 which were released earlier this morning. The format for today's call includes a slide presentation which is posted on our website at www.he-equipment.com.

Please proceed to Slide 1. Conducting the call today will be John Engquist, Chief Executive Officer, Brad Barber, President and Chief Operating Officer, and Leslie Magee, Chief Financial Officer and Secretary.

Please proceed to Slide 2. During today's call, we will refer to certain non-GAAP financial measures and we reconcile 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 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 factors are included in the Company's most recent annual report on Form 10-K. Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

With that stated, I'll now turn the call over to John Engquist.

Thank you, Kevin, and good morning everyone. Welcome to H&E Equipment Services' third-quarter 2014 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 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 discuss our outlook for the balance of 2014 and after that, we will be happy to take your questions.

Slide 5 please. Our business delivered another strong quarter as we continued to successfully leverage the recovery in our wide-ranging commercial construction end-user markets. In addition, we are benefiting from the increasing activity we are seeing in the energy and petrochemical sectors in our Gulf Coast markets and remain excited about the future opportunities for our business in this sector.

I would like to point out the solid leverage generated in our business with EBITDA increasing approximately 19% on single-digit revenue growth. We are very pleased with our results as well as both the short and long-term opportunities for our Company.

The high demand for rentals continued in the third quarter as we achieved a 21% increase in rental revenue. Rental gross margins were 50.5% compared to 49.6% a year ago. Fleet utilization was 74.1% compared to 72.3% a year ago. Dollar utilization and rental rates also continued in an upward trend compared to a year ago.

We experienced lumpiness in our distribution business this quarter, as we do on occasion. And I want to emphasize that we were up against very tough comps on both a sequential and year-over-year basis for new equipment sales. Also, as we indicated on our last call, we expected used equipment sales to decline as a result of our young fleet age. Both of these segments are still performing at high levels. Our combined parts and service businesses are delivering both strong revenues and margins as well.

In terms of the financials, total revenues increased 1.7% to $275 million versus last year, and gross margin was 33.1% compared to 29.7% a year ago. Income from operations increased 17.9% to $40 million, and EBITDA increased 18.8% to $83.1 million compared to a year ago. Net income for the quarter was $15.3 million, or $0.43 per diluted share, versus net income of $14 million, or $0.40 per diluted share, a year ago on a much higher effective tax rate in the current quarter. Overall, it was another very strong quarter for our business.

Proceed to Slide 6 please. Our Gulf Coast and Intermountain regions continued to account for the majority of our revenue and gross profit as a result of the high levels of activity in the energy, petrochemical, and manufacturing sectors.

Given the recent decline in oil prices, I want to point out that oil exploration and production only accounts for approximately 12% of our total revenue. Based on industry sources, we also believe that oil prices would have to fall well below current levels to have a significant impact on this segment of our business. It is our opinion the falling oil prices will have little to no impact on the industrial expansion taking place in Louisiana. These projects are driven by low natural gas prices.

Proceed to Slide 7 please. The singular point I want to reemphasize on this slide is that the current commercial construction environment in the United States is positive and is forecast to further strengthen in 2015. Nonresidential construction spending continues to grow, and this is not only supported by what we are experiencing in our end-user markets, but is also supported by important indicators such as the ABI and the Dodge Momentum Index.

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

Good morning and thanks, John. I'll begin on Slide 9.

We are pleased to discuss with you this morning continued strong results. As John highlighted, total revenues increased 1.7% to $275 million and gross profit increased 13.4% to $91.1 million compared to the same period of last year. The strength in rental demand and solid growth in our parts and services businesses were the primary drivers of our consolidated revenue goal. Our topline growth is partially offset by declines in new and used agreement sales, which I will address further in a moment.

At this point, I would like to review our results in more detail by first covering revenue by segment, and then I will discuss gross profit by segment.

As for our rental business, the story is consistent with recent trends. Our rental business continues to deliver impressive growth and improving returns while investing in the fleet and maintaining industry-leading physical utilization. Rental revenues were [410.2] million for the quarter, a 21% increase over the same period a year ago. As I mentioned, we've continued to invest in our fleet, which has increased approximately $218.1 million or 22.3% from a year ago based on our original equipment cost or OEC.

While our fleet size has grown significantly, we are operating at high utilization levels with average timing utilization based on OEC of 74.1% for the quarter compared to 72.3% a year ago. In addition, based on number of units available for rent, average time utilization was 68.3% compared to 66.6% last year. Also, average rental rates increased 2.9% over a year ago and 1.3% over the second quarter of this year with positive rate trends in all product lines. As a result, our dollar returns were 36.9% compared to 36.7% a year ago.

New equipment sales were $80.8 million, down 10.5% from $90.2 million a year ago. This was primarily the result of lower demand for earth moving, which decreased 22.5%, and for cranes, which decreased 5.8%, in each case over a year ago. As we have emphasized to you many times, these period-to-period fluctuations are evidence of our ongoing challenge to predict customers' timing on equipment purchases which result in lumpiness in this segment. The third quarter a year ago was the peak quarter of new equipment sales in 2013 by at least 15% and we generated the same volume of new equipment sales just this past quarter, resulting in a difficult comp both year-over-year and sequentially.

Used equipment sales were $25.2 million, an $11.6 million or 31.5% decrease over the third quarter of 2013. The decrease was due to lower use crane, aerial and earth-moving sales. As we mentioned on our last call, we have, by design, a younger fleet, a consequence of which will be relatively flat to lower demand for fleet sales. Sales from our rental fleet comprised 75.6% of total used equipment sales this quarter compared to 87.8% in the third quarter a year ago.

For the second consecutive quarter, our parts and services segment delivered solid double-digit growth with a 10.7% increase in revenues to $44.6 million.

Now, let's move on to a discussion of gross profit by segment. Our total gross profit for the quarter was $91.1 million compared to $80.3 million a year ago, an increase of 13.4% on a 1.7% increase in revenue. Consolidated margins were 33.1% compared to 29.7% a year ago with every business segment delivering improved margins from a year ago.

Our rental business delivered margins of 60.5% compared to 49.6% a year ago, due primarily to lower rental expenses as a percentage of comparative revenue. Margins on new equipment sales were 11.3% compared to 10.6% in the same period last year, reflecting higher margins on new crane, earth-moving and aerial equipment sales.

Gross margins on used agreement sales were 31.1% compared to 26.3% in the same period last year. Margins on pure rental fleet sales, which excludes the impact of margins on the sales of used inventory and accounted for approximately 76% of total used equipment sales were 38.2% this quarter compared to 29.7% a year ago. Parts gross margins were 28.6% compared to 28% a year ago and service gross margins were 65.7% versus 64% a year ago. Margins on other revenues were 5% compared to 3.4% in the third quarter of last year.

Slide 10 please. Income from operations for the third quarter increased 17.9% to $40 million, or a 14.5% margin, compared to $33.9 million or 12.6% margin a year ago. The driver of the increase was the strong performance of rental and our other business segment, which each delivered improved gross margins compared to a year ago.

Proceed to Slide 11. Net income was $15.3 million, or $0.43 per diluted share, compared to $14 million, or $0.40 per diluted share, in the same period a year ago. As John mentioned earlier, our effective tax rate increased 43.6% compared to 33.5% a year ago, due to lower benefits from permanent items in the current quarter. As a result of this reduction and previously forecasted (technical difficulty) in relation to current-year pretax income, our 2014 effective tax rate estimate is 40.3%.

Please move to Slide 12. EBITDA was $83.1 million, or an 18.8% increase over the same period last year, and EBITDA margins were 30.2% compared to 25.9% a year ago. And as John mentioned, we are extremely pleased with the leverage in our business with a (technical difficulty) increase in EBITDA on single-digit revenue growth. This EBITDA expansion is primarily driven by strong rental performance combined with solid performance from our other business segment.

Next, Slide 13. SG&A was $51.6 million, a 9.8% increase over the same period last year, and SG&A as a percentage revenue was 18.8% this quarter compared to 17.4% a year ago. We incurred increased wages, incentives, and benefits of approximately $2.7 million, largely due to the growth in the business since a year ago. Further, our greenfield initiatives added $0.3 million in SG&A this quarter compared to a year ago. The increase in SG&A as a percentage of revenues is largely a result of the impact to our topline from the decline in new and used equipment sales this quarter. The prior year's third quarter demonstrated significant operating leverage at the SG&A line due to the timing of those equipment sales last year. Also, SG&A expenses this quarter were similar to last quarter in both dollars and as a percentage of revenue.

Slides 14 and 15 include our rental statistics and our fleet based on original equipment costs at the end of the third quarter was $1.2 billion versus $978.9 million a year ago, which is an increase of 22.3%, or $218.1 million. And during the third quarter, we increased the size of our fleet by $80.1 million, or 7.2% based on OEC.

Our growth fleet capital expenditures for the quarter were $117.4 million, including non-cash transfers from inventory. Our net rental fleet capital expenditures for the quarter were $98.3 million. Gross PP&E CapEx was $14.4 million and net was $13.7 million. Our average fleet age as of September 30 was 31.8 months.

Next, on Slide 16, at the end of the third quarter, our outstanding balance under the ABL facility was $220.5 million and accordingly we had $175.5 million of availability at quarter end under our ABL facility net of $6.5 million of outstanding letters of credit.

At this point, I'll turn the call back over to John to discuss our current outlook and then we will open the call for questions.

Thank you Leslie. Please proceed to Slide 18. Before we open the call to questions, let me close by saying our business has performed very well during 2014, and outlook for the remainder of this year and into 2015 remains positive as we believe our Company will continue to benefit from the significant growth expected in the commercial construction markets in the US. We believe we are in the right place at the right time and well-poised to benefit from the significant capital projects reported in the pipeline slated for our Gulf Coast region related to major chemical, energy, and manufacturing projects beginning in 2015. We anticipate further fleet investment during the fourth quarter based on the current demands in our end markets, as well as in anticipation of these projects. And we believe this reflects the confidence we have in our strategy, financial strength and the positive conditions and opportunities in our marketplace. Our Company remains focused on solid execution, greater productivity and returns for our shareholders.

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

Thank you. (Operator Instructions). Neil Frohnapple, Longbow Research.

Good morning guys. John, regarding the drop in new equipment sales, I know you guys had a very difficult comp versus last year, but should we think about your new equipment sales business kind of at peakish levels with maybe some lumpiness quarter-to-quarter, or do you think the capital projects funding that is forecasted to begin in the Gulf Coast should provide some growth in 2015 and beyond?

I think, when these projects in the Gulf Coast, Louisiana, and Texas, really get underway and gain traction, it's going to have a positive impact on equipment sales, rentals and really all aspects of our business. The vast majority of those projects have yet to start. There's some of them in the dirt phase right now, but by and large, we're going to see those start gaining traction between 2015 and 2017.

Great, that's helpful. And then the used equipment sales decline, is that also a function of you guys holding onto more fleet due to the strong rental fleet utilization? I know you guys called out the younger fleet age. And then as a follow-up, what are you seeing from a used equipment pricing standpoint, and any particular equipment categories that stand out as outperformers or laggards?

Yes, we will definitely slow our fleet sales by design. As you've seen, we've got an exceptionally young fleet age which we believe is a great investment in our future, but we certainly have no need to continue to de-age that fleet. I think you might see some of that just based on our future fleet investment, but we will, by design, slow fleet sales down.

As far as the used equipment markets, they are exceptionally strong. Pricing is firm, and I don't see anything that's going to change that for the foreseeable future.

Great. Then one last one for me if I can. Nice double-digit growth in parts and service again. Any color on what drove the strength this quarter, and if you think this type of growth can be sustainable for the next several quarters? Thank you.

I think the growth is sustainable. I think that Brad and his team have a very strong focus on parts and service. That's been an area of growth in the past, in our recent past, in our business that we have not been satisfied with or pleased with, and Brad's got a heavy focus on it, and I think we are seeing good results from that.

Great. Thanks very much guys.

Philip Volpicelli, Deutsche Bank.

Good morning. The first question is for Leslie. What's the manufacturers floorplan payables at the end of the quarter?

$92.4 million.

Okay, great. And then as you guys -- I know talked about more CapEx in the fourth quarter and then into 2015. Should we consider it the same rate of growth, 20% growth, or how do you guys frame your CapEx for fourth quarter and 2015 expectations?

Look. We are spending some money in the fourth quarter this year, third and fourth quarter, that's probably a little out of our normal buying cycle just based on heavy, heavy demand, particularly in Louisiana and Texas. These are markets that we don't think will show a whole lot of cyclicality -- or excuse me, seasonality. So, we are buying some equipment. We are able to put this stuff on rent quickly. We are in the middle of our budget process as we speak, so we need a little more time to answer your question about 2015 as we conclude the budget process.

Okay. That's fine. And then when you think about fleet growth versus rate growth, is there a balance that you can achieve there to get more rate growth or is it simply you're growing your fleet because the demand is there and the rate does what it does?

One, we are growing our fleet because the demand is phenomenal and we think that's going to continue, but I don't want you to think we are just saying the rate does what it does, because we are very focused on rate. We're pushing on our people very hard. We are not just interested in revenue growth. We are interested in the quality of the revenue. So, we are going to be pushing hard on rates going forward.

Okay. And then the last one from me is on the new unit sales, obviously you have limited visibility there. What kind of -- does someone make an order and they want equipment next week or is it next month? How much visibility do you have in that order book?

This is Brad. It varies by product type, but all of the above happens. We take orders every day that weren't anticipated with much advance notice, and every day we take orders that may arrive in three, six, 12 or more months depending on the product type. Generally, the leadtimes are longer on large crawler cranes and they are better or shorter on some of the smaller products. But the answer is it's all of the above.

And have you had a material change in people's outlook given the drop in oil and gas? I recognize it's not large part of your business, but --

We have not. We've actually been in front of many of our large oil and gas customers, and the outlook there is still very positive.

Great, thank you very much. Best of luck.

Joe Box, KeyBanc Capital Markets.

Good morning. A question for you on the fleet growth. 7% sequential growth was a little bit more than I was expecting in 3Q. And now it sounds like you're talking about maybe taking a little bit more fleet in 4Q than you normally might. Can you just help us from a modeling standpoint? Are we looking at similar sequential growth in 4Q, or are we looking at maybe more like low single-digit growth?

I'm taking a look at that right now. Give me a second.

Sure. Do you want me to go on to the next question and you can come back to that?

I think, in the fourth quarter, it's more like mid-single-digit growth. We are not going to grow at the same level we did sequentially.

Okay, so mid-single-digit sequential growth, but not quite the 7%.

Right.

Okay. Rental rates were a little bit better year-over-year. Can you maybe just talk to the mix of contracts signed? I'm curious if you signed fewer long-term contracts or if we are just legitimately seeing pricing move up from here.

No, I don't think our mix has changed. I think it's pretty much the same, and I think we are seeing improved pricing.

Yes. The only thing I would add is we saw positive rate increases in all product types for the quarter, and on a year-over-year basis, we've seen positive rate improvements from every region in the Company. So it's more of the same. The mix remains constant and we remain very focused on balancing this really nice fleet growth, really high utilization, and keeping our finger on the pulse of the right opportunity.

Understood. Okay. You guys have a number of mega-projects that are on the front end of starting in your backyard. I'm trying to determine how we should think about the timing of revenue for some of these projects. Can you guys just give us a sense of, from a rental standpoint, are we looking at maybe some percentage of rental spend that typically comes on the front end of a project as opposed to the back end of the project, like it's -- let's just say it's a large petrochemical project, do you see 30% on the front end, 70% on the backend? And then I guess same question for the new equipment side. At what point would they typically place an order for a new piece of equipment?

I think when they start placing orders is based on the timing of their project, and when the contracts start getting signed. We had one of our really good customers just sign a $300 million contract in Lake Charles. So, they are going to start looking hard right now. Other projects aren't quite that far along. They're in permitting and planning stages. So it just depends.

But Joe, I could tell you at what point earth goes on a project versus aerials versus cranes, but to break it down into a percentage of revenues, I can't do that on this call. Brad, I don't think you'd have any more color than I do.

No, I don't. The only thing I would add is sometimes it may be as important who the customers are performing on the projects, because some folks move in more products where some folks want to rent more products on a particular project. All of these will lead to a lot of parts and service opportunities for us to maintain both our rental fleet, new sales that we place as well as existing customer owned equipment.

Okay, that's helpful. And maybe just let me ask it a little bit more specifically on the new equipment side. Do most of your customers place an order for a new crane or a new dirt-moving piece of equipment before even breaking ground on a project, or is it usually at some point during the project? I'm just curious how everything play into that.

I think leadtimes play into that heavily. And typically, they want to have their contracts signed, everything in place and have some pretty good visibility when the job starts, and then they place orders I think based on leadtime primarily.

Okay, I'll leave it at that. Nice quarter guys.

This is Leslie. I want to make one correction to the CapEx discussion. Our CapEx analysis was not formatted in the same view as your question, so just a correction. It's really our CapEx spending for the fourth quarter is going to be more like low single digits.

Okay, so low single-digit sequential growth in 4Q from 3Q.

Correct.

And is that in terms of fleet growth or CapEx spend? Just to be clear?

That's fleet growth.

Fleet growth? Okay, perfect. That's what I was looking for. Thank you.

Steve Fisher, UBS.

Great, thanks. Good morning. Just to follow up again on the Gulf Coast projects, trying to be fairly specific here. When do you think the cranes will need to be delivered for these big Gulf Coast projects that have hit the dirt already? Do you think it's the second half of 2015 or is it more like 2016? Thinking like projects like CP Cam -- Cameron and Freeport on the LNG side?

I would think 2016 may be the most velocity, but I think second half of 2015, we should see some benefit.

If you use a rule of thumb of six to nine months on large projects from the time that earth moving starts, foundation, deep foundation, that type of work, six to nine months later is when you would expect to see the cranes come in and start with steel erection.

Okay. And then it was interesting to see the rental revenue growth actually accelerated this quarter against the backdrop of the weaker sales. Can you talk about where you are actually seeing accelerating rental activity versus steady growth?

Two things. I would object of the term weaker sales. I think our sales were very solid in the quarter. We had brutal comps if you go back and look what we did prior year-end in the second quarter, but our distribution business is still very solid.

As far as the rental side of our business, demand is exceptionally broad-based. We've got every region screaming for product. Utilization is high across the board. So, the demand is very broad-based. It's not just the energy sector or the oil patch. I mean the commercial construction markets, the nonresidential markets, have improved dramatically, and they're continuing to improve. So, rental demand is very broad-based.

Do you think you're seeing any incremental shift from owning equipment to rental in the marketplace that might be driving that as well?

I do. I do.

Okay. Thanks very much.

Nick Coppola, Thompson Research.

Good morning. Looking at your rate growth year-over-year relative to a large competitor, I guess you've been softer in recent quarters where historically you've been stronger. And I'm just wondering how you explain that and then also how you benchmark yourselves to what you're doing relative to the rest of the industry.

One, I don't think we are comparing apples to apples. Their methodology for measuring rates is different from ours, so that raises questions in and of itself. I said, on the last call, to really be fair in measuring us against other companies, I think you almost have to go back for 10 or 12 quarters or whatever and stack the rate gains, because I can tell you when we were getting 10%, 12% rate gains, that competitor you're talking about was getting 5% or 6%, and we were going up against a lot tougher comps. And so I don't know that we are comparing apples to apples. I will tell you we are getting rate gains. We are going to continue to get rate gains, and we are very, very focused on rate. That's something we are paying a lot of attention to.

Okay. That's helpful. And then I guess my follow-up would be I heard you talk about broad-based strength in the rental business. I'm just wondering if you can dig in a little bit more into what's going on in commercial market, whether or not there's any particular reason (technical difficulty) to kind of stand out, and then I guess just what type of projects are recurring?

We are seeing everything from sporting facilities to hospitals. It's just broad-based. There's some wind activity again. I mean it's municipal spending (multiple speakers). It's broad-based in every sense, Nick. And also, as John stated, it spans all of our regions. So, you know, there's no one particular area of the business that we feel is lagging. It's improved substantially on that side and continues to at a very steady pace. But there's nothing particularly that I could call out for you that lagging or leading. It feels pretty balanced right now.

There's office stuff going on. It's pretty broad-based. Multi-family. I mean in Florida, the condominium market is back in a big way. Now that's more residential type stuff, but it's pretty broad-based.

Okay. That's great. Thanks for your help.

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

It's actually Daniel [Hollister] on for Seth. So a couple of quick questions, one on crane rentals. Have you seen -- I think you mentioned you've seen rates increase. So I guess could you speak a little bit about how utilization has been tracking, and would you expect further rate increases down the line?

We do. So utilization continues to track somewhere in the 80% physical utilization range, so it's very good. It's been at similar levels for some time now. Rate gains year-over-year were nice on the crane side, better than most other products. But I will tell you with the headwinds of the replacement cost or new acquisition cost, it's still a difficult comp when we relate it back to value utilization. But the dynamics are there. Rates are improving. Utilization remains steady. That will continue. The opportunity is immense. What we need are other competitors that are specific to the crane rental industry to raise their rental rates. And so we are seeing that happen. It's at a very slow pace. We are optimistic that it will continue at least the pace it's that, and there's the potential that it could accelerate some.

Okay. And then have you ever -- can you I guess elaborate on the rough terrain inventory issues some of the OEMs have talked about? Are you guys seeing anything in your footprint or in your markets at all?

Sure. Again, I think we are a little immune to what you see across North America because of the projects we've been talking about within our footprint. You know, our inventory levels are healthy. Our opportunities remain very steady. So you know what you're seeing from Terex and Manitowoc about their inventory levels really aren't represented in what we're seeing in our market opportunities.

RFPs are probably our softest side of our crane business but just not near as soft as other parts of the country. We just have more opportunity here. We are very, very fortunate with our footprint today.

Okay. And just one last one on CapEx. Are there any specific types of equipment that you're focused more on ramping up purchases then?

No, our fleet complexion will remain very constant.

Thanks a lot.

Barry Haimes, Sage Asset Management.

Thanks very much. I had a question. If we take all the large petrochemical projects in the Gulf that you talked about in the 2015 through 2017 timeframe, in terms of the impact on your business, should we expect to see more of it in crane versus rental, or similar increments to growth in both of the segments? Thanks.

I think it's going to impact all aspects of our business. You know, we have a lot of big industrial contractors we deal with that they own and rent; they do a lot of both. So we expect it to impact our new equipment sales and it will definitely impact us on the rental side. And it's not just cranes. Early on in those projects, it will impact our earth-moving business, and then later in the project, like Brad said, six to nine months down the line, it will begin impacting the crane side and the aerial side of our business. So we are going to -- the benefit we are going to see is going to go across all of our business segments.

Thanks very much.

Bob Franklin, Prudential Financial.

Hi. Last quarter, the last question on the call, you said that there were a lot of projects, a lot of engineering and permitting going on, but not many shovels getting into the ground. And it sounds like you're even more enthusiastic now. But are the shovels in the ground or what makes you more enthusiastic?

There's been some contracts let in Lake Charles relating to LNG and ethylene cracker projects that are very significant and very sizable projects. So, there's activity there. They are in the dirt phase of those projects. So --

So those have actually begun at this point?

That is correct. That is correct. And there's a lot of others that are coming. And look. Some of these projects that have been announced won't happen. That's a given. But I can tell you if half of them happen, it's going to be really, really special and probably unlike anything we've seen in this state. So we are enthusiastic. It's a question of timing.

Okay. And on that topic, given where we are today versus the end of the last quarter, are you seeing -- I don't know what you see, but can you see things in terms of specific start dates pick up, or more quota activity for specific projects than you did last quarter?

The answer is yes, we are getting more inquiries. We're having more customer conversations. But these are customers who are still trying to position themselves to gain pieces of these overall contracts. So, that's part of our enthusiasm.

But the truth is it still very difficult to handicap just the timing, the start date and then how it impacts us. While we would like to give better data, the truth is it's just going to be really good for us. We're well-positioned. Not only are we the largest Manitowoc and Grove dealer in the world, we're also the Komatsu distributor in Louisiana. And we've got this large rental fleet. So we are going to benefit in every segment. And we certainly wish we could give better, clearer guidance, and every day we get one day closer to that. But we do see some shovels in the ground, to use your terminology, and we are hearing more feedback from customers who are working and negotiating on potential contracts. So I think every quarter we're going to have a little more -- a little better data to share with you guys. But right now, that's what we have.

Okay. And then a follow-up on the OEM question, if I may. You referred to some of the crane rental companies needing to raise their rates, and moving in that direction. Can you give us any more color about that?

Sure. When we talk about the broader rental segment, our larger rental competitors away from the crane business are very sophisticated. They are working hard and very focused on raising rates, as are we.

When you get into the crane rental sector, some of the same sophistication systems analysis does not exist and it's been more of a cash flow approach to the business. And so when we are dealing with smaller, less sophisticated competition, it can hurt the opportunity for returns, and that's just the most simplistic way I can put it.

Okay. Are they seeing their demand pick up? I'm trying to figure out the same kind of question I asked about the shovels in the ground, when maybe people start ordering more rough terrain or boom trucks.

I think -- look, utilization levels, certainly across the Gulf Coast, are very, very strong. And I think, if you looked at utilization levels on crane fleets across the country, they are probably running north of 70%, 75%. So we are in an environment where we should be getting rate increases. We are, but we are somewhat limited by what we can do by the overall market. But our expectation is, with utilization levels, that we will continue to get rate increases there. It's lagged what we've seen in some areas over a two-year period, but we are gaining traction there.

Okay, terrific. Thanks very much.

Neil Frohnapple, Longbow Research.

Just two quick follow-ups. First, can you remind us what you're planning for new branch openings in 2014, and just any initial thoughts on further branch expansion in 2015 to capture some of the activity you guys have highlighted?

Sure.

This is Brad. So what we have been saying is four to five locations. We're going to fall a little short of that this year. We've actually got -- so we've got Lubbock, Texas we've opened this year. We've got 11 total we have done, 11 greenfields that we've opened so far in the last handful of years. We've got Lubbock that opened earlier this year. We've got an opening that's going to occur on November 1, one that is going to occur on December 1, and then we are going to have what was hoped to be our fourth opening that's going to actually fall into early Q1. So we're going to get three this year, and the anticipation is that we do four to five locations in 2015.

Great. That's very helpful. An then just Leslie, on the tax rate, for modeling purposes, should we be thinking more along the lines of 40% going forward, or is what you guys put up in the Q3 we should be thinking of more?

No, you need to look at the year-to-date, which is the 40% is our estimate for the full year, and so that's the right rate to use.

Great, thank you.

Joe Box, KeyBanc Capital Markets.

I apologize if I missed this earlier, but did you guys say what percentage of your new equipment sales was dirt-moving versus crane?

Give us just a second here.

About 70% this quarter was crane, and approximately 20% was earth.

How did that compare maybe to last year at this time?

Very similar, 65%, 25%.

Okay. Great. Thanks.

(Operator Instructions). It appears there are no further questions at this time. I'll turn the conference back over to our presenters for any additional or closing comments.

I just want to thank everybody for attending the call. We are in a really solid environment right now, and we feel good about the remainder of this year and 2015. So, we look forward to talking to you on the next call. Thanks for attending.

That does conclude today's conference. Thank you all for your participation.