聯合設備租賃 (URI) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the United Rentals’ First Quarter Investors conference call. Please be advised that this call is being recorded.

The statements in this conference call and the answers to your questions are intended to provide abbreviated and unofficial background information to assist you in your review of the company’s press releases and official SEC filings.

In addition, certain of these statements are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as ‘believes, expects, projects, forecasts, may, will, should, on-track, or anticipates,’ or the negative thereof or comparable terminology, or by discussion of strategy. The company’s business and operations are subject to a variety of risks and uncertainties, and consequently actual results may differ materially from those projected by any forward-looking statements.

Factors that could cause actual results to differ from those projected include but are not limited to the following. Unfavorable economic and industry conditions can reduce demand and prices for the company’s products and services. Governmental funding for highway and other construction projects may not reach expected levels, the company may not have access to capital that it may require. Any companies that United Rentals acquires could have undiscovered liabilities, and may be difficult to integrate, and costs may increase more than anticipated.

These risks and uncertainties as well as others are discussed in greater detail in the company’s filings with the Securities & Exchange Commission, including its most recent annual report on Form 10-K, and subsequent reports on Form 10-Q. The company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.

Speaking today in Greenwich for United Rentals is Wayland Hicks, Vice Chairman and Chief Executive Officer, John Milne, President and Chief Financial Officer, Mike Kneeland, Executive Vice President of Operations, Al Colangelo, Vice President of Finance, and Chuck Wessendorf, Vice President of Investor Relations and Corporate Communications.

I will now turn the conference over to Mr. Hicks. Mr. Hicks, please go ahead.

Thank you, Operator. And good morning, everyone. Thank you for joining our first quarter conference call.

Let me begin by saying we reported revenues of $645m for the first quarter, which seasonally is our slowest quarter of the year. Our revenue was up 8.9 percent from the same period last year. Our loss of eight cents per share excluding charges was an improvement from the 11 cent loss we reported last year, and was also better than the guidance of the 10 to 15 cent loss that we provided during our fourth quarter conference call this past February.

Our favorable results in the quarter compared to prior year were primarily due to the 6.5 percent year-over-year improvement in rates, which was also better than we expected. I would just remind those of you who attended that conference call in February that we said at the time that our rates, we expected our rates in the first quarter to be up by five percent. And so we were slightly better than our expectations.

I would also point out that this rate increase was achieved despite the fact that our principal end market, private and non-residential construction, was down substantially over the last two to three years, but in particular, during the month of January and February, it continued to go down. In fact, in January some of the residential construction was down 1.7 percent, and in February it was only down like four-tenths of a percent. And so we think it’s kind of bouncing along the bottom, but it has not yet turned positive.

We were also able to get our rates up in the quarter by focusing intensely on getting rates up, and that’s something we’ve worked very hard at. For over a year you’ve heard us talk a lot about that. But getting rates up has been something that has been almost a byproduct of an unrelentless effort that we have made.

I should also say we accomplished this at the same time that we were able to hold our time utilization flat. And I make that point because basically we’re not giving up market share, we’re not losing business as a result of raising rates. We also increased our dollar utilization by three percentage points during the quarter.

Now, having said that, the positive impact of our strong revenue growth plus the benefit we realized from lower interest rates was partially offset by higher costs, as well as a decline in our traffic control, the profitability of our traffic control business. This decline in traffic control profitability, we believe, is directly related to the sluggish nature of the highway construction market.

And frankly, I don’t believe that that’s going to change much as we go through the balance of this year. We have a lot of confusion in the marketplace today because of the absence of clear direction on T21 funding. That’s not likely to get resolved probably until after the election. We also are seeing an impact on roads and highway construction that’s more directly attributable to a shortfall in State Government tax revenue. And I don’t think until those two things are resolved or tax revenue comes back that we’re going to see a major change in that. Although, we do think our business will perform slightly better this year on balance through the full year than it has in the past.

So based on current business conditions we continue to expect $1.00 to $1.10 earnings per share full year excluding charges. Now, as I mentioned, we haven’t seen a rebound in our end markets yet, but I would say we’re beginning to sense more optimism from our general rental customers. They’re feeling like their business has bottomed out, and it’s beginning to turn. Should this turn in that primary end market of ours materialize then we would expect to have some up side opportunities to our earnings going through the remainder of the year.

With this as an overview for our first quarter results, I will turn the microphone over to John, who will provide some greater detail in the quarter. And then following that, of course, we will allow ample time for any questions that you might have. John.

Thanks, Wayland. And good morning, everyone.

During the call I am going to be referring to some non-GAAP terms, such as earnings excluding charges, operating income excluding charges, free cash flow, and diluted earnings per share excluding charges. And in the press release today you can see the details that reconcile the non-GAAP numbers to the GAAP results, and so if you want to see those details please take a look at the press release and you’ll see the information.

Starting first, though, with the reported results, the GAAP results, for the quarter we reported net loss of $107m and that’s a loss of $1.38 per share, and that’s on total revenues of $645m. Now, the results in the quarter were impacted by two charges, both of which we highlighted when we had our fourth quarter call. The largest of the two was the $95m after-tax charge that arose from the refinancing we completed in the first quarter. And that refinancing charge plus a $5.5m after-tax charge from stock vesting is excluded from all of the results I’m going to be talking about on the rest of the call today.

So moving to those results excluding the charges, the quarter came in better than expected. As Wayland pointed out, our loss per share was eight cents in the quarter, and that’s an improvement over our 11 cents in 2003, and it’s also an improvement from our outlook which we gave you in the fourth quarter which is a 10 to 15 cent loss.

Total revenues in the quarter were $645m, up 8.9 percent, and the components of that growth were a five percent increase in revenue from equipment rental, a 58 percent increase in sales of rental equipment, an eight percent increase in our sales of equipment, contractor supply, and other.

Our gross profits for the company were $164m, and that’s up 6.6 percent year-over-year. And our overall gross profit margin was 25.5 percent, which is down 50 basis points on a year-over-year basis. The decline we saw in our gross margin was caused by a 100 basis point decline in our rental gross margins, and I’ll talk more about that as we get into the segment analysis.

Our SG&A expense for the quarter, they ran 16.7 percent of total revenue, and that’s versus 16.3 percent of total revenue in 2003. And that difference represented a year-over-year increase in SG&A costs of $11m. That SG&A cost increase was a result of higher costs we saw in our general rental segment which, again, I’ll be covering when we go through the segment analysis.

So continuing on, so the total company results are non-rental depreciation and amortization with $16m in the quarter, or 2.5 percent of revenue. And that’s down slightly from 2003, down by about a half a million dollars. So that overall, our operating income of $40m was down only $300,000 or essentially flat year-over-year, and our operating margin was 6.2 percent versus 6.8 percent in 2003.

We did see benefit in our interest cost line. Our interest expense was down year-over-year, $5m. That was not from the first quarter refinancing. We didn’t get any benefit from the first part of refinancing yet in the first quarter results. The difference there was driven by lower interest rates, predominantly on our floating rate debt, we had a higher portion of floating rate debt year-over-year. We will see the refinancing impact our results favorably starting in the second quarter where we’ll see a benefit of $10m a quarter in our interest expense line.

So, overall what we saw in the quarter was increases in our revenues resulting from higher rental rates in general rental, and lower interest rates were able to more than offset the cost pressures we saw in the general rental business and the profit declines we saw in our traffic control segment. The result of all of this was our net loss was $5.9m, and that’s versus $8.7m last year, or an improvement of about $3m to our bottom line results.

So having covered the company as an overview, let’s talk about our two segments, starting first with our largest segment, the general rental business. And you’ll see in the press release we detailed what the components of these segments are, but just simply stated, traffic controls is the business of providing the equipment to control traffic in the construction work zone, and general rental comprises the rest of our business, the general rental, aerial, and trench are the primary fleet types.

In our general rental business we are starting to see favorable signs in the environment in the first quarter. The demand for our primary end user, non-residential construction has basically flattened out. We were down less than .5 percent in February. Now, although it’s not turned yet, certainly the current environment is a lot improved from the unprecedented 35 percent decline we’ve seen in non-residential construction since September 2000 where we had peak spending levels.

In our business general rental segments saw total revenues up 11 percent, and within that we saw an eight percent increase in our rental revenues, a 56 percent increase in our sales of rental equipment, and a 10 percent increase in our sales of equipment, contractor supplies, and other. In our rental revenue growth we saw an 8.5 percent same-store rental revenue growth, and that included the 6.5 percent increase in our rental rates.

Our total gross margins in the general rental segment were down about 40 basis points year-over-year, and that was primarily caused by an 80 basis point decline in our rental gross margins. Nonetheless, looking at our total gross profits in the general rental segment we were up to 166m or a 27.7 percent gross margin, as compared to 151m or 28.1 percent in 2003.

We did experience higher rental rates in the general rental segment, as I mentioned, but they were partially offset by our higher rental costs on a year-over-year basis. The largest component of our year-over-year increase in rental costs was the approximately $6m increase in our maintenance costs. We also were impacted by the acquisition we completed in February which added about $2.5m to our rental costs.

Now, the higher year-over-year maintenance costs will not continue for the balance of 2004, and we will see costs normalize as we go through the balance of the year. Our fleet in the first quarter was 3.5 months older year-over-year, and as we go through the balance of the year and we put in place our replacement capex, along, according to the program we laid out, this age variance will become flat and then will turn more favorable so that we’ll end the year with a slightly younger age. And our maintenance costs through the balance of the year will follow that favorable trend.

The other thing we saw in maintenance cost this year is they are more front-end loaded. We put a lot more of our maintenance costs in the first quarter. The reason why is we’re prepping and reconditioning a lot of our older fleet in anticipation of replacement sales that are planned for the balance of the year. And, of course, we’ll see that ease as the program rolls out.

And so, overall, we feel confident that although we did see a significant increase in our maintenance costs in the first quarter that will normalize out and we’ll still hit our target of pretty much flat year-over-year on maintenance costs.

Looking at the rental equipment sales in the general rental segment, those sales increased 56 percent in the quarter to 55m, and that’s a significant increase but it’s right in line with our plans for full year sales of $225m to $250m.

The gross margins we saw on our rental equipment sales were down about 140 basis points year-over-year, but they did improve sequentially from the fourth quarter by about 260 basis points.

We’ve certainly seen stronger markets in the demand for used equipment, much like the manufacturers have been indicating, our used equipment markets are stronger on a year-over-year basis. And although our margins are down we’ve taken the opportunity to push out into these stronger markets a lot more of our older, off stack and under utilized fleet, which did impact our margins on a year-over-year basis. Overall, our prices on used equipment like for like are up about two to three percent year-over-year.

Our sales of equipment, contractor supplies, and other revenue in our general rental segment are up 10 percent year-over-year, and that increase is almost entirely driven by a 34 percent increase in our sales of contractor supplies. And even with that substantial increase in contractor supplies we are also able to expand our gross margin. Our gross margin is up 100 basis points to 26 percent in the general rental segment.

SG&A in the general rental business was 16 percent of total revenues, which is flat as a percent of revenues when you compare it with 2003. The SG&A did increase year-over-year, it went up by about $10m, and that’s running about $5m to $6m higher than we would have anticipated notwithstanding the higher revenue level that we experienced in the quarter.

Again, these costs are not going to continue in subsequent quarters. A big part of that cost increase year-over-year was the impact of converting our sales reps from a salary plus profit sharing program to a sales commission program that’s tied to revenue and rental rate performance. And so although we will see slightly higher commissions over the balance of the year that’s going to be driven strictly by the higher revenue level so that overall for the full year, stepping back and looking at all of 2004 SG&A as a percent of total revenues in 2004 will be flat or slightly down from 2003.

So in summary, in the general rental segments we saw a year-over-year improvement in our operating income. We went from $49m to $54m, and that represented a nine percent operating margin which was flat on a year-over-year basis.

Looking now at our traffic control segment, our traffic control saw total revenues that were down $8m to $45m in the quarter, or a 14.5 percent decline. The decline in our traffic control revenues was driven by a rental revenue decline of 14 percent, caused by a 12 percent decline in same-store rental revenues. And our sales of contractor supplies [declined] [ph] significantly, they were 4.4m which is down roughly $2m year-over-year.

And unfortunately, we did continue to see significant decline in trends in road construction spending in the first quarter, and that impacted our traffic control group. If you look at the statistics, road and highway bid letting in the first couple of months of the year is down by over 14 percent. And certainly, the uncertainty of the T21 Bill is having an impact. And even though our operations were good at cutting costs out of the business on this lower revenue base it took about $4.4m of costs out year-over-year, they weren’t able to fully offset the large decline that we saw in revenue in this segment. So that the operating loss in the first quarter of $14m, which is, of course, typical, we’d see a loss in this segment in the first quarter because it’s our seasonally weak period. But that operating loss was larger year-over-year by $5.4m.

Moving from the segments and moving to the overall results for the company, once again, I’d like to talk a little bit about the cash flows. In total in the first quarter we generated $87m of free cash flow, and that’s after all of our capex but it’s prior to any expenditures we made on acquisitions in the quarter.

Our capex in the first quarter for rental equipment was $153m, and our total capex in the quarter was $172m. Both of those are up significantly year-over-year. The rental capex is up $51m year-over-year, and total capex is up $60m.

Now it’s important, and I think Wayland pointed out as well, to focus on the fact that our effort of raising rental rates hasn’t cost us rental volumes. Demand level in our general rental business did exceed our expectations in the quarter, and we actually increased our fleet size as we went through the quarter.

Essentially, we pulled up some of our capex from the latter quarters so that by the end of the first quarter, on March 31st, our fleet size was slightly higher year-over-year at $3.7b. And that’s important, because we started the quarter with our original cost about $150m lower year-over-year. So by raising it up to flat or slightly above flat by the end of the quarter our overall fleet size on average for the quarter was only down two percent, which is a little better than we expected.

Now, we’re not modifying our capex program for 2004 just because we moved some additional capex into the first quarter. We’re still planning on growth capital of $100m to $200m, and replacement capex of $400m to $450m. But, obviously, if strong conditions continue for the balance of the year we’re likely to hit the high end of that growth capex range.

Looking at our EBITDA in the quarter, EBITDA excluding charges was $147m, and that’s up $9m year-over-year. Our total cash flow from operations plus the proceeds of our used equipment sales was $258m, up $140m on a year-over-year basis.

And finally, with the free cash flow we generated in the quarter we used a portion of it totaling $61m to fund the acquisition of the [sky reach] [ph] business in Western Canada.

Taking a moment to review our balance sheet, we did complete the major refinancing of our balance sheet in the first quarter. Almost all of it was done prior to the end of the first quarter. We had one final piece that occurred on April 1st, and that was the redemption of the nine percent notes.

The press release has the pro forma details, factoring in that last redemption that occurred one day after the end of the quarter. And so when you adjust for that we had total debt outstanding of $2.950b, and we currently have available under our revolver, our $650m revolver, $514m and that’s after borrowings of $92m and letters of credit totaling $43m. It’s worth also pointing out that we had nothing drawn, we have nothing drawn under our $250m accounts receivable facility, as well.

Our operating leases, our fleet under long-term operating leases was $183m at the end of the quarter, and the expense we had for operating leases in the quarter was $13.5m.

And so looking at the rest of 2004, overall we are still seeing weaker demand from our end users, our non-residential construction and road building markets, and that’s after three-and-a-half years of significant declines in construction spending. Now, it’s worth pointing out, during that three-and-a-half year period we have had very strong cash flow. We’ve generated $655m of free cash flow during that time period, and that’s after $1.4b of capex to replace and maintain our fleet and facilities. So clearly in the calendar years that I’m looking at, 2001, 2002, and 2003 we were solidly cash flow positive, $655m.

And now we’re not yet ready to call an upturn in demand for non-residential construction, but it’s clear we’re seeing some positive signs in the environment, we and others. I mean new equipment sales from manufacturers are up considerably in the past few months, and it sounds like they’re expected to remain strong for the balance of the year. And although the OEMs have said this is driven by replacement cycle spending, not because of increased activities of their end users, it’s clearly a vote of confidence that the markets and the end users are expecting to see recovery soon.

To summarize our outlook for 2004, we continue to forecast four to six percent total revenue growth year-over-year, and that’s including a two to three percent rate improvement and flat operating margins for the full year, which translates to our EPS outlook of $1.00 to $1.10 excluding charges. We’re going to see lower year-over-year increases in our costs during the balance of 2004, as I’ve pointed out, and when we combine this with the continued impact we have from our rate initiative which we think will end up better than the two to three percent improvement, we could end up better than the two to three percent improvement that we’re forecasting, and we combine that also with our ability to absorb the planned growth capital, will certainly more than offset any impact a weaker road construction environment might have on our traffic control segment.

And as Wayland pointed out, if we see some improving trends in our non-residential spending, all of those components I mentioned, lower costs year-over-year, lower cost increases year-over-year, improving rate, and growth capital could lead to opportunities for margin expansion as we go through the balance of 2004 which would then be better than our expected results.

With that, I’m going to turn it over to Wayland. I am sorry, over to Wayland to give some wrap-up comments. Thanks.

Operator, could you open the lines up for questions, please.

[Caller instructions.]

We’ll take our first question from [Jason Voss] [ph] with [Davis Mutual] [ph]. Mr. Voss, your line is open. Please go ahead.

I missed the average fleet age, because I stepped out of the room for just a second. That’s all I need, thanks.

No problem. The average fleet age at the end of the first quarter was a little over 39 months, 39.5 months.

[Caller instructions.]

We’ll go next to Joel Tiss with Lehman Brothers.

Hi, guys. This is actually Mark Livingston sitting in for him. One of my questions, can you tell me what the pretax number was for the charge? That was $95m after-tax?

Yeah, let me have Al pick up that.

Yes, hi. The pretax charge for the financing was $161m.

Okay. And looking at the cash flow, it looks like a substantial amount of that came out of working capital. Should we expect that to continue, because isn’t normally the first quarter seasonally weak for free cash flow? I just want to know if this was pulled forward from the fourth quarter?

You’re right to point out the working capital gave us a significant benefit in the first quarter. Basically what transpired there is in the fourth quarter, you may recall, we drove down our accounts payable and our working capital became a much more of a use in the fourth quarter than typically because we were taking advantage of some prepayment opportunities on our vendors.

And so in the first quarter we moved back to a more traditional cycle on our payments, and so we will maintain that benefit for the full year but it certainly won’t repeat in each of the following quarters. So the benefit you saw of increased sources from working capital will hit, we’ll get that benefit for the full year, but no, we’re not going to see that amount every quarter for the balance of the year.

What kind of benefit are you expecting to see for the full year from working capital?

Well, traditionally, if you exclude last year our working capital has generally provided to us about 25m to 45m on a full year cycle. And so it would probably be a little higher than that this year just because our capex program has increased, and then add to it the benefit you saw in the first quarter I would say that on a full year basis you’d probably see 125, between the impact of the first year and the typical working capital cycle.

Okay. And last question, with rental rates up and same-store growth rates improving for the general construction why, can you go over again why margins were flat, why we didn’t see any leverage there?

Sure, let me pick-up on that. A number, a couple of things that hit us. First of all, we did see rental rates up, and that gave us a significant improvement to our overall profitability. That’s a 6.5 percent rate increase on our general rental business translates to approximately $20m of improvements. Offsetting that we had the highway business which was down over $5m on operating income. We had normal inflationary costs increase that we anticipated, and we mentioned in our fourth quarter call, which had a three percent taste. It translates to somewhere between 8m to 9m.

The big thing that was unusual that impacted the flow-through was the higher than expected SG&A and maintenance costs, each of which were running, you know, roughly $6m above normalized levels.

And so when we eliminate those one-time incurrences in the first quarter you’ll see that as we – if we’re able to continue to maintain this trend of having rental rates above expectations we will see flow-through in the subsequent quarters, which will improve our margins going forward.

What kind of incrementals do you expect on that, just the general construction? If you didn’t have those increased costs from the SG&A? Going forward, how should we look at that?

Well, if you, you should look at it this way, if it’s the same year basis, in other words, no inflationary impact, you roughly have 35 percent incremental cost for the unit that comes in the yard. Now, you’re always, not always, but you obviously are going to have year-over-year situations where inflationary costs will hit you. For example, I think all of us are feeling the pinch from insurance and benefits costs, and it continues to go up at a pace of about 10 percent a year. But excluding inflationary impact 35 percent will be your incremental costs out of $1.00 of more revenue. When you factor in some inflationary costs on a year-over-year basis you should get an incremental flow-through of somewhere between 25 to 50 percent on your incremental revenue.

Okay, thank you.

And our next question will come from Mike Kender with Citi Group.

Yes, I was wondering, you mentioned insurance. How much of a hit was that in the quarter, on a year-over-year basis, roughly?

Insurance was up 11 percent year-over-year, Mike. And which was consistent with our outlook that we built into the three percent overall inflationary outlook and costs. In terms of absolute dollars, I believe it was about $3.5m to $4m in the quarter.

Okay. And as we go through the rest of the year should we see that same type of incremental year-over-year hit, or does it flatten out as we get deeper into the year?

We’ve factored into our original guidance, where we’ve said margins would be flat and we’d see a three percent inflationary cost increase, we factored into that a 10 percent increase in our insurance costs. And so we’re not anticipating that flattened out significantly in the balance of the year, although obviously we do have some opportunities because the year-over-year comparisons may get more favorable in the back half.

And also, can you talk about the acquisitions? You know, you had the one up in Canada in the first quarter. And you know, what are your thoughts, you know, as we go through the rest of the year? Should we expect to see additional small acquisitions like that, or are you looking at anything bigger, what are your thoughts there?

We don’t anticipate any major acquisitions as we go through the year. We wouldn’t rule it out, obviously, if the right opportunity came along and it seemed to make sense. But at this point we don’t anticipate doing that.

This was a relatively small acquisition. It was in an area of Canada that is a very hot market. Unfortunately, their business had been, unfortunately for them, fortunately for us, their business had been poorly managed and they went into receivership. And so we were able to buy the business at a very attractive rate, and it will strengthen our position in a strong, strong market.

We may see other examples like that during the year, but they’ll be more on the opportunistic basis. I can’t see any right now on the horizon, but that doesn’t mean one might not pop-up next month or the month after that, or sometime as we go through the year.

Okay, thank you.

And we’ll take our next question from Christina Boni with CSFB.

Yes, good morning, everyone. I was hoping you could address just regionally what you’re seeing in terms of overall rates, if there’s differentials within markets? And maybe if you can address specifically what you’re seeing in the aerial markets?

Christina, this is Mike Kneeland. We’ve seen no significant changes in our rental across our regions.

Addressing the aerial portion of our business, we have seen increases throughout all of our product lines by aerial products, so the whole company.

Okay. And from the standpoint of adding fleet, as you talked about growing the fleet through the quarter, is there anywhere specifically where you’re seeing that you’re required to add fleet in some markets versus others?

No, we’re not. We’re, you know, as you know, in the fourth quarter we develop our plans, and we’re spending our capex in accordance with those plans. And we’re not seeing any significant change in our mix of our fleet or in areas that we had already made our plans.

That being said, we do have pockets of the country like the Southeast that is going much stronger, and we’re moving, as Mike said, we plan to move more equipment into that part of the market. The Northeast is the same, and we are pushing more capital in. Offsetting that we have some pockets that continue to be soft. If you look at the Silicon Valley area that remains a pretty depressed area, and we’re still moving capital out of that market.

Great, thank you very much.

And we’ll take our next question from Devin Fitzgerald with [First Bank] [ph].

Good morning, guys. Just had a follow-up to Mike [Tenor’s] [ph] question regarding acquisitions. In terms of the sky reach acquisition can you give us what the total purchase price was?

$61m.

$61m.

And that was essentially a revenue base of a little over $40m on U.S. Those are all U.S. dollars.

Okay, great. And then in terms of purchase price multiple?

You know, it’s hard, it’s a difficult one to give a multiple to, because basically we bought it on a liquidation basis. In other words, the -- we bought it at a discount to the appraised value of the fleet and the assets. We had, you know, an outside appraiser go through the bankruptcy process, appraise the fleet, we signed off on it, and then paid a discount off of that appraised value.

And so, as a multiple of EBITDA it probably seems a little pricey, frankly. But there was a lot of extra fleet we came across that we are now redeploying throughout our branches in Western Canada and down in the Western United States. And so, on balance, we’re pretty happy with the deal, essentially buying at a discount to hard asset value.

Right, and then in terms of the question on geographic trends, Mike kind of went into it a little bit, but can you talk about trends in terms of geography and then by equipment type? Have they changed or is it pretty consistent for what you guys saw in the third and fourth quarters?

This is Mike, again. We saw no significant changes from the back half of 2003. When you look at our geographic footprint, take all of Canada was positive with the exception of New Foundland. The East Coast remains positive. Areas that were flat were all through the Central U.S. And the West Coast we still saw softness due to the technology industry. As we go through our monthly operational reviews with our customers we are seeing signs of optimism. You know, it’s based on our very diverse customer base.

But as far as the equipment mix, our equipment mix is predominantly we have a lot in our aerial portion and also in our dirt equipment, but we haven’t changed our mix from fourth quarter or from year-over-year.

The only thing to add to that, if I could, it’s John, the only thing to add to that is where we are investing incremental capital is in some of our specialty businesses, the trench and the pump and power business. If you look at our [cold start] [ph] program for the year we’ve got roughly eight to 10 cold starts on the board. Some of them are already starting to break out of the ground. And those are two areas where we just see a, you know, under penetration, under serviced market, a lot of growth statistics, strengths, and strong profitability. And so we’ll see a little bit more capital proportionately being put into those areas, but it’s a relatively small piece of our 3.7b and so it’s not going to move the dial too much.

Got you. And then in terms of the aerial business, one of your competitors had a conference call last week and kind of said that the oversupply situation seems to be working itself out and there has been some improvement in terms of rates. I would imagine you guys are seeing the same thing as them?

We are seeing exactly the same thing. Our rates are coming back. That was an area where demand had been relatively strong even last year, but rates were a little on the softer side. That’s flipping around and coming back now.

Okay, those are all of my questions. Thanks, guys.

And now we’ll go next to [Partek Varma] [ph] with CBI.

Good morning. Could you quantify what was the residual value of your used equipment leased is going up by, please? Thank you.

Could you repeat the question? There’s some static in our …

Certainly, I beg your pardon, I am calling transcontinental. Could you quantify what the residual value of your used equipment leased is going up by?

The residual value? Well, let me take a different slice at it. Generally, we sell our fleet at about 50 percent of its original cost. Historically, if you look at before the prices in used equipment market went down over the last two years, they went down about 10 percent, we saw sales were typically running 55 to 60 percent of original costs. But in this environment it’s closer to 50 to 55 percent.

Now in the first quarter, as I mentioned, we were pushing out some of our old off spec stuff that, you know, we’d been holding during this time period when we were cutting back capex. And in those sales you actually saw our sales as a percent of OEC, we went down 300 basis points, we were closer to 47 to 48 percent of original cost. So the residual value has come down based on the current sales, but and only by about 300 basis points.

Okay, thank you.

And our final question will come from [Evan Marwell] [ph] with [Carter Capital] [ph].

Good morning, guys. A couple of questions. Number one, have you guys seen any impact now that NES, National Equipment, is out of bankruptcy? Has that had any impact on your rates? And then, second, if you could comment a little bit on, it seems like you’ve had a change in tone from first quarter to second, or from fourth quarter to now in terms of your outlook on the market, and if you could comment a little more on why that is?

Well, let me comment on the NES situation. We really haven’t seen much of a change at all in terms of how that company is performing vis-à-vis how they were performing, including up to the time they went into bankruptcy and then emerged. They are not as disciplined as some of the other companies in the industry in terms of rates, but that being said we’re certainly not losing any business to them. In fact, my guess is we’re probably continuing to pick-up market share.

With regard to the second question you had, we are more optimistic today than we were during the fourth quarter. The -- you’ll remember in the fourth quarter of last year on residential construction, continued to come down, full year, I think it was down 5.2 percent. As we went through the first quarter, as was previously noted, non-residential construction was down but it was only down a point, 1.7 percent in January, and four-tenths of a point in February.

And so our sense is we’re balancing along the bottom. But more importantly, our customers, and so when John, and I, and Mike are out in our fields or in the field and visiting customers, or when we’re going through monthly operating reviews with our management, we’re getting positive feedback from the customers. Their sense is that the, you know, the world has kind of bottomed out, and they’re optimistic that we’re at a turning point. Whether that materializes next month or not, who knows, but I would say we’re certainly more optimistic today than we were three or four months ago.

Okay, thank you.

And at this time, I’d like to turn the conference back to Mr. Hicks for any additional or closing comments.

Okay, Operator, thanks very much. And, again, thanks to everybody for joining our conference call today.

I’ll just close off by saying I think we’ve come through a very difficult period over the last three years as a company, three, three-and-a-half years. Non-residential construction has been down at an unprecedented level, 35 percent during that period of time. As I just said in response to the last question, we think that may be beginning to turn. Our customers certainly sense that it’s beginning to turn. We feel really very good about getting our rates up. And I would just add that that performance is continuing during the month of April, in fact, at a pace that is just slightly above where we’ve been during the quarter. And so we see no reason to believe that that will abate as we go further into the year.

We had some pressure, as John talked about, on our expense as we came through the first quarter, but we have a lot of energy into trying to continue to take costs out of the business. In fact, on a year-over-year basis through the end of the first quarter, year-over-year by comparison I should say, we’ve reduced the headcount in the company by a further 469 people, and we have a number of other efforts underway that will help us continue to take costs out of the business.

And so as the world turns, when it turns, we really feel very good about our position. We’ve said on a number of occasions that we do have high operating leverage and so we think that we’re well positioned to take advantage of any turn that happens in the market.

And with that, thank you very much, again, for joining our conference call. And we’ll look forward to catching up with you on the next quarterly conference call. Thank you, and have a very good day.

Thank you. That concludes the United Rentals Investor conference call. Thank you, and have a great day.