H&E Equipment Services Inc (HEES) 2014 Q4 法說會逐字稿

Good morning and welcome to H&E Equipment Services fourth-quarter and year end 2014 earnings 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 Noah, and welcome to H&E Equipment Services conference call to review the Company's results for the fourth quarter and year ended December 31, 2014 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 security laws. Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate and similar expressions constitute forward-looking statements.

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

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

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

Thank you Kevin, and good morning everyone. Welcome to H&E Equipment Services fourth-quarter 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.

Slide 3, please. Our call this morning will be structured differently than previous calls, as we want to address market concerns regarding our oil and gas exposure and the current trends in our end user markets. My comments will focus almost entirely on this issue, then Leslie will briefly review our fourth quarter and full year financial results. When Leslie concludes, I'll discuss our outlook for 2015. After, we will take your questions.

We have purposely abbreviated our prepared remarks, so we have ample time to answer your questions.

Proceed to slide 5, please. Leslie will go through our financials, but let me just say the fourth quarter represented a strong conclusion to a great year for our company, as we continued to successfully capitalize on the accelerating recovery in the nonresidential construction markets. Our business carried a significant amount of momentum throughout the fourth quarter and we continue to see this momentum as we move into 2015. Overall, it was another strong quarter and a great year for our business.

Slide 6, please. Our Gulf Coast and Intermountain regions continued to account for the majority of our revenue and gross profit in 2014. We recognize that in light of the recent significant decline in oil prices, investors may have concerns about our exposure to oil and gas exploration and production activities, as well as from the potential side effects associated with prolonged lower energy prices, particularly in our Gulf Coast region. Therefore, we want to address these issues in greater detail.

Please proceed to slide 7. First, only 13% of our total revenue in 2014 was directly related to oil and gas, but we want to break it down even further for you to validate just how minimal we believe the impact would be on our business if current pricing levels are prolonged. In 2014, our approximate exposure to upstream activity, the first part of the oil patch, to feel the effects of lower oil pricing was only 12%, followed by less than 1% in midstream and less than 1% in downstream activity.

Of the 12% of upstream exposure, we estimate that 95% is tied to production, which has proven to be less sensitive to volatile oil prices and exploration. We are closely monitoring our end users and customers in the oil and gas markets and are prepared to quickly redeploy assets in the event we begin to see softening of utilization in the oil patch.

While we expect oil patch activity to soften in 2015 due to current oil prices and may see a resulting decline in our revenues related to that activity, we believe significant growth opportunities exist in the construction markets, which we believe should see a net benefit from the lower fuel costs. We also see significant opportunities from industrial projects in the Gulf Coast that are tied to low natural gas prices.

Proceed to slide 8, please. The most important point I want to make on this slide is that our fleet mix is an extremely positive factor for us in any market environment. You will see from our fleet mix breakout, that none of our fleet is specialized for applications in the oil and gas industry or any other industry for that matter and is 100% transferable between end markets.

Fleet mix is core to our fleet management strategy. We have strong fleet management systems in place and can quickly and efficiently redeploy fleet into other regions if we experience a decline in demand related to oil and gas in a certain geographic region like the Gulf Coast or in any other situation.

This is evidenced by our industry leading rental revenue growth and utilization. We have always stated that our CapEx plans are flexible and can be adjusted either up or down in short order. If significant fleet is transferred to other regions, we will have the flexibility to redistribute or reduce our CapEx plan for the year.

Proceed to slide 9, please. I want to highlight several important points on this slide, as they relate to our oil and gas exposure. As I stated earlier, oil and gas accounted for only 13% of our total revenue in 2014. Over 70% of this exposure is in our Gulf Coast region and 50% is in Texas. We believe this is important because the majority of our rental fleet in Texas is in the Eagle Ford shale, which is one of the lowest lifted cost per barrel shale plays in the US.

It is also important to reemphasize that 95% of our fleet is deployed on production sites that are not as sensitive to volatile oil prices as exploration is. I want to also point out that our utilization in Texas remains strong and nearly 75% of our total revenue in Texas in 2014 was tied to construction activity other than oil and gas.

Please proceed to slide 10. Finally, let me focus on a few key takeaways relating to the potential impact of reduced oil and gas prices on the construction markets we serve. The ongoing recovery in the nonresidential construction markets has not been limited to our oil rich states. It has been broad-based, occurring across the nation. Construction spending related to oil and gas accounts for only 4% of the total construction spend in the US.

We believe, as do others, that low oil prices will be a net positive for the construction markets, creating growth and opportunities for our sector. This should help mitigate any slowdown in oil patch activity.

We are also heavily active in many other sectors of the industrial market in our Gulf Coast region that we believe will not be materially impacted by lower oil prices. These markets include petrochemical, manufacturing, shipping, infrastructure, transportation, power, public works and utilities, among others.

As noted earlier, we understand that investors may have concerns about the potential impact of low oil prices on the industrial expansion in Louisiana and Texas. These concerns were likely intensified in January 2015, when the Sasol gas to liquids facility in southwest Louisiana was shelved. This project differed from other chemical projects announced in Louisiana and Texas, due to its use of natural gas to compete with oil to produce liquid transportation fuel such as diesel.

This process is totally different than chemical manufacturing's traditional use of natural gas to produce products like ethylene, ammonia or methanol. These projects, which there are many, are not tied to the price of oil and are driven by low natural gas prices.

Based on reports and feedback, we expect the vast majority of the chemical manufacturing projects to proceed as planned. Leslie will provide some additional commentary at the end of her remarks, regarding our views on this issue from a financial impact perspective. At this time, I'll turn the call over to Leslie.

Good morning and thank you, John. I'll begin on slide 13, but will keep my remarks brief, so we have additional time for Q&A.

We are pleased with our results this quarter. From a high level, total revenues increased 14.7% to $297.8 and gross profit increased 16.4% to $95 million compared to the same period last year. The strength in rental demand and solid growth in our new equipment and parts and services businesses were the primary drivers of our consolidated revenue growth.

Our rental business again generated strong growth and returns. To touch on a few key areas, rental revenues increased 22.6%, to $110.8 for the quarter over the same period a year ago and while our fleet size has grown significantly, we operated at high utilization levels, with average time utilization based on OEC, of 72.4% for the quarter compared to 71.9% a year ago.

Also, average rental rates increased 3% over a year ago, with positive rate trends in all product lines and 0.6% over the third quarter of this year. Our dollar returns were 35.8% compared to 36.2% a year ago.

New equipment sales were $87.2 million, up 12% from $77.8 million a year ago. This was driven by higher demand for earth moving sales, which saw a 51.3% increase in sales and was partially offset by lower new crane sales.

Used equipment sales were $37.2 million, down 1.9% from the fourth quarter of 2013. Sales from our rental fleet comprised 80.1% of total used equipment sales this quarter compared to 85.1% in the fourth quarter a year ago.

For the third consecutive quarter, our parts and service segment delivered solid double-digit growth, with a 16.6% increase in revenue to $46.5 million on a combined basis.

Total gross profit for the quarter was $95 million compared to $81.6 million a year ago, an increase of 16.4%, or a 14.7% increase in revenues. Consolidated margins expanded to 31.9% compared to 31.5% a year ago, primarily driven by higher rental gross margins of 49.3% compared to 48.9% a year ago, and new equipment sales gross margins of 11.9% compared to 10.7% last year.

Slide 14, please. Income from operations for the fourth quarter increased 22.1% to $41.2 million or a 13.8% margin compared to $33.8 million or a 13% margin a year ago. The main drivers of the increase were the strong performance of our rentals and new equipment sales business segments as just mentioned, combined with increased operating leverage in the business compared to a year ago.

Proceed to slide 15. Net income was $16.7 million, or $0.47 per diluted share, compared to $14.6 million, or $0.41 per diluted share in the same period a year ago. Our effective tax rate increased to 40.4% compared to 31.1% a year ago, due to lower benefits from permanent items in the current quarter.

Please move to slide 16. EBITDA was $87.1 million or 22.8% increase over the same period last year and EBITDA margins were 29.2% compared to 27.3% a year ago.

Next slide, 17. SG&A was $55.2 million, an 11.2% increase over the same period last year and driven in part by increased wages, incentives and benefits of approximately $2.3 million, largely due to the growth in the business since a year ago. SG&A as a percentage of revenue was 18.2% this quarter compared to 18.8% a year ago.

Slides 18 and 19 include our rental fleet statistics and during the fourth quarter we increased the size of our fleet by $46.1 million or 3.9% based on original equipment costs. We ended the year with an original equipment cost of our fleet of $1.2 billion versus $1 billion a year ago, an increase of 24.2% or $242.3 million.

Our gross fleet capital expenditures during the fourth quarter were $96.4 million, including noncash transfers from inventory and net rental fleet capital expenditures for the quarter were $66.5 million. Gross PP&E CapEx was $8.2 million and net was $6.8 million.

Our average fleet age as of December 31, 2014 was 31.7 months.

Next slide, 20. At the end of the fourth quarter, our outstanding balance under our ABL facility was $259.9 million and therefore, we had $136.1 million of availability at quarter end under our ABL facility, net of $6.5 million of outstanding letters of credit.

On February 5, 2015 we increased the size of our senior credit facility by $200 million, which enhances our liquidity position. We determined it was an appropriate time to utilize a portion of our suppressed assets and adjust the size of our credit facility to better match the growth in the size of the business and provide increased financial flexibility. Based on our asset values, we continue to operate with significant suppressed availability, even after increasing the total availability under the facility to $602.5 million.

Next slide, 21. Let me review our full year 2014 results. To quickly summarize, 2014 was a great year, resulting in total revenues of $1.1 billion, a 10.4% increase over last year, as well as a 15.3% increase in gross profit and a solid gross margin of 31.9%.

Even with a significantly larger fleet, time utilization remained high at 72.2% based on OEC and we raised rental rates 2.8% for the full year. Income from operations increased to $143.7 million on a 13.2% operating margin compared to $115.3 million on an 11.7% margin in 2013.

Net income increased to $55.1 million, or $1.56 per diluted share in 2014, versus $44.1 million or $1.26 per diluted share in 2013. We finished the year with EBITDA at $311.6 million, on a margin of 28.6% compared to $255.5 million on a margin of 25.9% a year ago.

Please proceed to slide 22. Lastly, as John mentioned, I will provide some additional color on a sensitivity analysis we have prepared today, to demonstrate possible impacts to our business as a result of prolonged energy prices at current levels. I think it's important for you to understand a few things before walking through this analysis.

One, we took a different view of the downsize scenarios to our rental business versus our distribution business and second, we feel we applied conservative assumptions based on what we see today and how we feel we could react if we were impacted to a larger extent than today's viewpoint. Third, we applied these conservative assumptions to our full year 2014 results as a baseline for illustrative purposes.

In our rental business, we assumed our oil and gas related revenues declined 25% in 2014. We also included an assumption that we were able to redeploy only 50% of any idle equipment due to the assumed 25% decline in oil and gas activity.

Next, we eliminated 100% of all new oil and gas crane sales in 2014. Our oil and gas crane sales have consistently approximated 25% of new sales over recent years and consistently represents the majority of oil and gas related new equipment sales. So we felt this was an appropriate, yet conservative assumption.

As for our parts and service businesses, we eliminated 25% of oil and gas related revenues from our 2014 results. The results of this modeling was an approximately reduction in 2014 revenue by $80 million and 2014 EBITDA by $12 million, which has only a 15% flow through due to the revenue mix or higher weighting to new equipment sales.

Based on our 2014 results, we view 7% of revenues and 4% of EBITDA as minimal. We hope this provides you with some framework to better understand our exposure, the potential impact and how we would react. I'll now turn the call over to John to discuss our current outlook and then we'll open the call for your questions.

Thank you Leslie. Please proceed to slide 24. Before we open the call to questions, let me quickly close by saying, we believe significant growth opportunities will continue into 2015, driven by continued improvement in the construction markets and the industrial expansion in the Gulf Coast. Our outlook is positive, based on the current trends we see in our business and the deep penetration we have established in our wide ranging industrial customer base.

Although we are currently experiencing some year-over-year declines in physical utilization, on a much larger fleet, due to softness in some of our oilfield markets and inclement weather, demand for rentals is strong and we expect further revenue growth this year. Based on this, we expect continued fleet growth during 2015, although at a moderated and more normalized level, compared to our significant spending during the last three years.

During 2014, we grew our fleet 24%. Further, we expect growth in profitability in 2015, despite the impact of lower oil prices. Our company remains focused on solid execution, greater productivity and returns for our shareholders.

I hope we have provided a more granular view of our outlook into 2015, current trends in our markets and addressed the questions regarding the potential impact of low oil prices on our business. We are pleased with the overall trends in our business and the opportunities for our business in 2015.

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

(Operator Instructions) Joe Box, KeyBanc Capital Markets.

John, you just mentioned that there's been a little bit of softness in time use on a larger fleet, really just because of a couple of oil and gas markets. But can you just give us a snapshot of maybe what you're seeing for utilization so far in Texas and Louisiana? Just curious if it's down meaningfully there or if it's just down slightly and maybe what volume of equipment on rent looks like.

Joe, it's down across the board. Look, a lot of this is due to a much larger fleet. Some of it is due to softness in markets like Midland, where we've seen utilization come down some. And frankly, we're getting an impact from weather.

We typically don't talk about weather on calls. You have weather every year, but we've had nine states, probably 30 branches that have had a significant impact here in February from weather. So that's part of it also.

Our utilization in Texas is still strong. The oilfield presence we have in the Eagle Ford shale is still holding up and running between 75%, 79%. The Permian Basin, which is primarily Midland for us, has seen some declines. It's softened. But overall, I think the decline we've seen in utilization has been three things; much bigger fleet, weather and some impact from starting oil patch markets.

I appreciate the breakout earlier of upstream exploration versus production. I think it's easy for us and investors to understand what type of equipment and the number of pieces of equipment that get tied to each rig. So, I've got to say I'm a little surprised that 95% is production and only 5% is exploration. I guess I would have thought it would have been the other way around.

Can you maybe just tell us what applications and the type of equipment types that are used in the production side, so we can have a better understanding of it?

The primary products you'll find out there will be telehandlers that are loading and unloading on current production sites; 60-foot boom lifts, air compressors of various sizes and light plants. They're needing light at nighttime. That would be kind of the bread and butter machines that support all these production sites.

Is this during the drilling and fracking process or is this post that?

It's both. But it's certainly post that as well.

Can you maybe just comment on the dollar utilization? I'm trying to reconcile why rental rates were up, utilization was up slightly, but yet dollar utilization was down. Was that really all a function of mix? And maybe if you could help us understand what's in your other bucket?

Joe, it's two things. Mix is part of it, but the biggest driver of that, with our extremely young fleet age, that's a real advantage for us. It's a competitive advantage, it's a real benefit at the point in time we enter some type of a downturn, because we can go a long time without spending any money.

The negative is, it's a significant inflationary headwind that puts some pressure on your dollar returns. When you get down around 30-month fleet age, you've sold off so much of your older stuff and your average cost per unit goes up significant and it puts some pressure on the dollar utilization. We think it's a great tradeoff and we like where we are, but that's the big driver of it is just an inflationary headwind.

You talked earlier John about moderating fleet growth. Is moderation 5%, is it low single-digit? What's kind of normal for you at this point in the cycle? It's kind of tough for us to forecast it here.

Look, before the oil prices imploded, just by normal course, we were probably going to reduce our gross spend somewhere in the 25%, 30% range. We made some further adjustments based on the oil patch. We're going to have some fleet growth this year, but it's going to be relatively modest. I hope that's helpful.

Nick Coppola, Thompson Research Group.

Just building on one of those earlier question, do you think you're seeing any decline it utilization in any of those energy intensive areas from less non-res work or do you think it's just the oil and gas side and the weather that you talked about?

It's strictly oil and gas and weather. We're seeing absolutely no contagion, for lack of a better word. The utilization is very strong in those markets outside of the oil patch. And again, we're getting some weather impact, but as you know, that's temporary and that'll be a bad memory here in about 30 days.

That's great feedback. Then on the petrochemical projects that you're expecting to benefit from, I'm just looking for a little bit more color there. It sounds like you expect for a majority of those to continue to occur. Any color on just when you expect those to ramp up and when you expect to kind of hit your rental and new sales business?

I think the vast majority of it is still in front of us. We've had some projects start. Sasol started their ethylene project; it's about an $8 billion project and we've got some equipment on that as we speak, both equipment we've sold and that we are renting. That's a really good project.

But the majority of this stuff is still in front of us. Look, we've said all along from day one, that all of these announced projects wouldn't happen. The Sasol gas to liquids facility; that being shelved did not surprise us at all, as I stated earlier. That's a gas to liquids fuel facility that competes directly with oil to produce transportation fuel. So that was no surprise.

We're probably going to lose some LNG facilities. I think there's a correlation between the low -- there needs to be significant separation between oil and gas for those to make sense. So let's say we lose some of those, but I'll tell you, these traditional chemical manufacturing facilities for ethylene and ammonia, methanol and there are a lot of other ones.

There was a $2.4 billion aluminum manufacturing facility announced in Louisiana last week. Just a tremendous job. We're still in a real good spot from the standpoint of manufacturing, mostly chemical manufacturing, but there is some steel, there's some aluminum and some other things coming that are going to put us in a good spot for several years to come.

Steven Fisher, UBS.

Nice quarter. On the reduced CapEx, can you maybe just give us some regional color, where you're going to be increasing CapEx and where you might be reducing it? Just kind of curious where you feel the markets are strong enough that you'd be transferring your dollars into?

When you look at where we're reducing, that's pretty simple; it's going to be in the oil patch. When this thing first started, we immediately eliminated growth capital there. And as we see where this thing goes and then we see what utilization does, we may make some further cuts to CapEx in those markets or transfer some fleet out of there, which we will then in turn reduce some CapEx in some other markets. Brad?

Steven, we have five or six locations that certainly fit the mold of what John's speaking of, that have more opportunity to be impacted by oil and gas, if this continues for some period of time.

That being said, the remainder of the growth, as we think about it, covers all our geography. There's not another specific location or group of locations that's not anticipating growth this year and planning for. It's very broad-based. It crosses all product types and it crosses our entire geography, with the exception of these handful of oil heavy locations.

I guess I'm trying to gauge specifically in the Gulf Coast. I know it sounds like there's still a lot of optimism around petrochemicals. Are you anticipating adding fleet into the petrochemical market and projects in the Gulf Coast this year?

Yes, we are.

The only uncertainty there, Steven, is the timing of these projects. We've already added fleet, again, in southwest Louisiana on this Sasol ethylene project. We'll be putting fleet on this aluminum manufacturing project. If some of these ammonia plants and methanol plants get kicked off, we're going to be working those things hard, but a lot of that is still in front of us. It's a timing issue.

I don't know if you can clarify in terms of rental revenue growth for this year, are you thinking kind of single-digit or double-digit and then maybe how you're thinking about year-over-year pace in the first half versus the second half?

Let me take this opportunity to say a couple of things. Leslie pointed out that crane sales into the oil patch accounts for 20% of our new equipment sales. That's the area we would expect to get the most impact in our business, from lower oil prices.

So we would expect new crane sales, actually, we would expect new equipment sales to be down somewhat year-over-year. I think the biggest impact would be in the first two quarters there and I think we'll see some strengthening in the second half of the year.

But look, rentals are going to be up solidly. New crane sales is 9% or 10% gross margins. Rentals bumps 50%. It's going to be up solidly and that's what's going to drive improved profitability in our business.

Seth Weber; Royal Bank Canada.

I'm wondering if you can clarify, when you talk about moving fleet around or relocating fleet, is that moving fleet out of the energy patch, the states that are there? Are you moving it out of Texas or Louisiana into other states or are you just talking about moving it within these states, within these regions to other applications other than oil and gas applications?

The answer is somewhat both, but it's primarily within that tighter geography. We've talked about our physical utilization last year, north of 72% for the year. We do a really nice job of fleet management. We're quick to respond.

We certainly take into account moving it to the nearest location, to both minimize the transportation costs, as well as increase the efficiency, getting it back on right quick.

So within the State of Texas, for an example, we have moved some product out of Midland, as John spoke about. It's not a catastrophic situation, but we've moved a handful of truckloads out of that location and most of those have gone to other Texas locations. That will continue to be the case.

Some of these markets, Houston and Dallas, are very robust, projecting nice growth this year and we'd want to feed them before we moved it further. If need be, we certainly can go further. We have not really seen that need and don't expect we will.

When you talk about adding fleet, for example for the petrochem projects, is that based on projects where there are shovels in the dirt already or are you anticipating some additional projects to start this year?

Both. There are some projects underway, there are some ethanol projects underway. There are several chemical manufacturing facilities. But it's both. We've got some going now and we've got more in front of us.

Seth, early in the year, it's typically turnaround season, so we're entering what we call the turnaround/shutdown season. So it's really common for maintenance to be occurring and we see that happening at its normal pace.

Can you talk about your expectations for free cash flow in a scenario where CapEx is flat to up this year?

When we moderate our spending, it has a very positive impact on free cash flow. Our cash flow will improve materially when we moderate our spending.

When you moderate the spending growth you mean or when you moderate the absolute number?

When you moderate the top side, the absolute number, which in effect moderates growth also; it does both. But when we pull that down a little bit, it has a very positive impact to cash flow.

Fred Lawrence, Avondale Partners.

Two quick questions; the first one I guess, how would you guys handicap the likelihood of that scenario that you outlined in your slide deck playing out?

And then for you, John, I'd just be interested in hearing your thoughts on the potential for follow-on reductions in O&G CapEx into 2016, when some of these guys lose protection that they have this year from in-the-money hedges, if you will. Is this just sort of the tip of the iceberg for spending cuts or how would you look at maybe the next 18 to 24 months in that business?

The issue we have, you can talk to 10 people on what their expectations for oil prices are and you get 10 different answers. I don't think anybody knows how long this is going to stay.

We took a best guess on what we see today in the marketplace and at 25% reduction in rental revenue, we think that's reasonable for what we're seeing today. We were really aggressive on crane sales; we just eliminated all of them on the distribution side. We tried to be conservative but realistic.

We'll continue to moderate this thing. I guess if oil stays at $40 or $50 long enough, yes, it will have some further impact going forward. But irrespective of that, I think the way we're positioned, we feel like our oil patch exposure is quantifiable and it's manageable. We feel like we can deal with this and it won't be any kind of crushing blow to our business at all.

I know some of the concerns I'm hearing out there with this O&G CapEx reduction scenario, people worried about residuals on used equipment to the extent that you guys need to sell equipment into the used markets, but I guess if I listen to your CapEx plans, look at the current age of your fleet, I'm guessing that you intend, at this point, to react to any kind of softening in O&G just by repositioning equipment rather than adding anything material to the used sales line. Is that the appropriate way to think about it?

That is absolutely correct and it is our intent that we will sell less used equipment this year, not more, because of our fleet age. We have no need to sell it and we'll do just what you said. If there's some softness in oil patch, we'll reposition that equipment and reduce CapEx in other areas.

Philip Volpicelli, Deutsche Bank.

Leslie, first one for you. What's the manufactural floorplan at the end of the year?

93.6 million.

Then just on these large projects, I think in the past you guys have mentioned $90 billion worth of projects. Is there any way for you to break down what's started, what's still in the future and what's been canceled out of that $90 billion?

We don't have a current estimate in front of us. I think our comments go back to the past, out of that $90-plus billion worth of work in Louisiana, we've said anecdotally, if half of it happened, it would be really special for us and we still feel the same way.

Some of those projects have kicked off. All those notable large projects are in the very early stages, with many more yet to come and we're still struggling with the clarity on an actual start date on some of those projects. I don't know if it's very helpful, but our position is still relatively the same. We are seeing some projects get started and but yet, many many others are yet to come.

Would you be willing to give us the names of the bigger projects that you've spec'd in on? What I'm trying to get at is if we hear the next announcement like the Sasol gas project to liquids, I'm trying to figure out which ones would affect you the most.

There have been a number of LNG facilities announced and two of them have started, they're underway and we're participating in those projects. There's probably another seven or eight LNG facilities that have been announced. Assume they all get cancelled. I don't think all of them will, but make that assumption; it's still going to be a good environment here.

With the ethylene and ammonia facilities, methanol facilities, I mean Methanex is spending a ton of money here. Again, we just had a major aluminum manufacturing facility announced. That's going to employ 1,000 people. It's a big long-term project. We're going to be in a nice environment here for the foreseeable future.

And there's just no reason for these traditional chemical manufacturing facilities to be impacted by oil. They're driven by low natural gas prices. That's a different situation with LNG facilities. There is a correlation there and I understand that. So say they all go away and we only get the two that are currently under construction, that said, we'll still be in a good environment.

On the revolver increase to 602.5, how much suppressed availability is left after that and what would be the availability on the credit facility, pro forma, that change in the size?

There's about 400 million of suppressed availability after the increase.

The 136.1 of available, that's after that facility increase or that's prior?

That's before; that's at year end, so it would increase by the 200.

(Operator Instructions) Manish Somaiya, Citigroup.

Congrats on a strong finish in 2014 and thanks for all the wonderful slides in the presentation. It really helps us understand some of the thinking behind the business.

I just had a quick question on I guess the recent ARA show and the Ritchie Brothers auction that took place last week. I'm sure someone from the team was keeping abreast of all the activity and I was hoping to get an update on some of the data points that you guys gathered.

I'm going to let Brad handle that one. He was at the ARA show the whole time and he can probably talk about the auction.

The general consensus, talking to the manufacturers and some of our competitors, very strong. They were writing a lot of orders. The ARA is a show that's really more conducive to the small regional mom and pop type operations. Larger companies like H&E, United, Hertz, typically attend at some level, but more so for manufacturer meetings. The consensus though, was very very positive.

As it pertains to the recent Ritchie Brothers auction, I think the general findings were that prices have kind of leveled off. I've actually had a few folks ask, how concerned are we about used equipment pricing if they level off at current levels. And I tell you, current levels are pretty high.

So we feel good about the current pricing. It was kind of more of the same. There was a little bit of a mixed bag at the Ritchie auction, but in general, used pricing has not continued to increase at the same pace; it's stabilized at a level that everyone's probably pretty happy with.

Just one more. As we talk about the energy markets and the impact on H&E, have you guys heard from customers about potential price concessions on projects; existing projects, future projects, if they were to continue?

We have. We've had some of the larger contractors in the oilfield who have just sent out blanket emails saying hey, we're looking at pricing, what can you do for us. And we've met with some of these customers. I can tell you to date, we have reduced no pricing to any of these customers and it's not our anticipation that we're going to decrease pricing to these customers.

Now Manish, if your question was, is there price negotiating going on with these major chemical manufacturing projects, I have not heard that. I don't think that's the case.

Barry Haimes, Sage Asset Management.

Thanks for all the great slides and color on the oil and gas. Maybe I missed it, but did you have a specific forecast for CapEx and depreciation for 2015? And then my second question is, looking at some of the big project business, would you expect to see a greater impact on your rental business or on your crane business?

And it sounds like some of the oil and gas related new crane sales might be down in the first half and then it looks like you're expecting some of the big projects to pick up crane sales maybe in the second half. Is that the right way to read what you said?

We're expecting some declines in crane sales year-over-year, primarily due to the oil patch and we think the biggest impact will probably be in the first half of the year. So that's true. As far as CapEx, we don't give CapEx guidance, but as I stated earlier, just by normal course of business, it was our intent to pull our gross spend down 25% or 30% and we've pushed that a little bit, based on some softness in the oil patch on a gross basis. That will also moderate our growth capital.

What part of your question did I miss beyond that?

Just on big project business, (inaudible) more business on the rental side or on the crane side?

I think it's both. If you look at this big Sasol ethylene plant in Lake Charles, we sold a lot of equipment that is being used on that site and we put a lot of rental equipment on that site. It impacts both sides of our business. Brad, you're closer to it.

Nothing to add to that.

It's positive for both sides of our business.

Joe Box, KeyBanc Capital Markets.

Just a couple of follow-ups. Two questions on the rental business. One, are you guys still planning greenfield locations this year and two, how should we be thinking about incremental gross profit margins in the rental business? There are a lot of different moving pieces. Trying to understand if 50% is a good range or if that's maybe a bit optimistic?

I'll answer the greenfield. The answer is yes, we plan to open four to five locations. We were only able to get three open last year. The good news is, they're all performing well above expectations in the respective markets and we've got a newer location we'll be announcing here very soon. So yes on the greenfields and you should think about four or five locations. I think Leslie can handle the other piece of the question.

On the incremental margins at the gross profit level for the rental business, I think 50-ish percent is reasonable. That is before really considering any impact here recently on (inaudible) utilization. I will say it will be sensitive to metrics such as that. So just depending on how long utilization stays down or is impacted, we'll revise it for that. But I think that's a reasonable estimate today.

And maybe just Brad, in terms of the locations, are you looking outside of the real oil heavy areas? And since you were at the ARA show, I'm curious, your takeaways and maybe what you think in terms of industry fleet growth from a capacity standpoint?

We're absolutely looking outside of the oilfield areas. While I don't want to get specific, I'll just say that we're looking at areas that would be more as warm start, continuous growth opportunity in small to medium sized commercial markets that have real growth in front of them. And so we see plenty of opportunity.

As far as capacity, most of the feedback I tried to obtain there is from the manufacturers and it feels like everyone is being fairly disciplined. I think everyone's done a pretty good job on rates. Everyone's utilization last year improved, I think, year-over-year.

We expect to see more of the same. I do not think there's going to be an overcapacity with any one competitor buying too much or being irrational. And the sense that I get, that our biggest competitors are very focused on the quality of their revenues, as are we.

(Operator Instructions) With no further questions at this time, I'd like to turn the call back over to John Engquist for any additional or closing remarks.

As always, we appreciate everybody being on the call. I hope we gave you a better view of what this slowdown in the oil patch means to us. We think it's very manageable and we're going to have a really nice year in 2015. So thanks for being on the call. Look forward to talking to you on the next one.

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