聯合設備租賃 (URI) 2010 Q4 法說會逐字稿

Good morning and welcome to the United Rentals fourth-quarter and year-end investor conference call. Please be advised that this call is being recorded.

Before we begin note that the Company's press release, comments by presenters, and responses to questions contain forward-looking statements. The Company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently actual results may differ materially from those projected.

A summary of these uncertainties is included in the Safe Harbor statement contained in the release. For a complete description of these and other possible risks, please refer to the Company's annual report on Form 10-K for the year ended December 31, 2010, as well as to subsequent filings with the SEC. You can access these filings on the Company's website at www.UR.com.

Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that today's call will include references to free cash flow, adjusted EPS, EBITDA and adjusted EBITDA, each of which is a non-GAAP term.

Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer, and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

Thank you, Operator. Good morning, everyone, and welcome. On the call with me today is our Chief Financial officer, Bill Plummer, and other members of our senior management team. In some ways this won't be a typical year-end discussion. We just reported our results for a period that may be the most significant in the last three years.

Our performance in the quarter was pivotal to our Company; it allowed us to close out the year from a position of strength and carry that momentum into 2011. The construction cycle is showing signs of turning, although the commercial sector is still very weak. But that's okay. We have our arms around that challenge and, as you'll hear, we're bullish about our ability to capitalize on any level of recovery.

I'll start with a look at some of the key metrics for the fourth quarter and then I want to talk about our goals as a company and the progress we expect to make towards those goals. And then after that, Bill will cover our outlook and results in detail and then we'll take your questions. So first the numbers.

It was a good quarter for us. We were able to take a non-residential construction environment that was negative year over year by about 8% and leverage it into a performance that was not only positive but in some cases dramatically so. Our rental revenue was up 10.4% in the quarter, including a 14.3% increase in same-store rental revenue.

Now in addition, we had record time utilization of 69.3%, and that's important because that was the third consecutive quarter of record utilization. And perhaps the most telling -- our rental rates were up 1.2% for the quarter year over year. In fact, we turned a corner on rates a little earlier and more strongly than we anticipated.

That took months of hard work and discipline to make that happen and, let me tell you, it feels great. But we still have a long way to go. I'll talk more about rates in a minute, but first I want to summarize our earnings for the fourth quarter.

As you know, we have some puts and takes in the quarter. On an adjusted basis we reported positive EPS of $0.16 per share compared to a loss of $0.21 in 2009. On a GAAP basis we lost $0.29 per share and our adjusted EBITDA for the quarter was $181 million with an adjusted margin of 30.3%, both significantly higher than in the fourth quarter last year.

All these numbers include the negative impact of an $18 million fourth-quarter charge related to our insurance reserves. This is a non-cash charge related to settlements of claims activities that date back several years. Overall we did a good job on cost in the quarter; we took another $4 million of SG&A expense out of the business compared to 2009. And our full range SG&A savings of $41 million was in our target range.

Cost of equipment rentals ex depreciation, which is a metric influenced by demand, increased by $14 million for the year and this expense would actually be down year over year by $4 million without the self-insurance charge. Now Bill will talk more about that in a minute.

Another area of operations we get asked a lot about is our branch network and we're continuing to optimize our footprint to reflect a more traditional business pattern. In the fourth quarter we consolidated 22 branches which is almost half the closings in the full year. That's not a reflection on the quarter; it has a lot to do with analyzing our network over time to optimize our footprint in markets where we can maintain the same level of customer service with fewer locations.

And we didn't exit any major markets and we invested in opening four cold starts including a new Trench Power HVAC location. Specialty rentals is a strategic area of growth for us and we plan to open more of these branches in the coming months. We also expect to close fewer branches going forward and as a result the net change in our branch count in 2011 should be more moderate than it was in 2010.

So to recap, in the fourth quarter we had higher revenues in our core rental business; a more efficient cost structure in our corporate and branch operations; better utilization of our fleet at better rates; and more flow through to EBITDA. Now we're clearly focused on our strategic priorities and I would put rental rates on the top of that list.

I've also made the point that there's a sequence to construction cycle; it starts with a recovery of used equipment prices followed by utilization and then rates. It's also true that monthly rates lag daily and weekly rates in a recovery.

As I mentioned before, monthly rates are the basis for about 70% of our rental revenue for strategic reasons. The fourth quarter was a turning point for us; we were able to push through the monthly lag and go positive on general rental and dirt equipment rates year over year. The demand for aerial equipment remained weak and our monthly rates reflected that, but we were able to go positive on aerial rates for our weekly and daily terms.

The credit for these accomplishments goes to the field team that is incredibly focused on rate improvement. They're doing this with the help of Core, our state-of-the-art price optimization technology and our sales force is using this intelligence to help balance rates and utilization. In fact, if you recall I gave you the prediction on the last call that our rates would be flat to slightly positive year over year in the fourth quarter and we're happy to outperform it.

There is a common theme to our comments today, it's a single word -- outperform. That's a bold word in this environment, but one I'm very comfortable with. If you recall three years ago, we set a strategy for long-term profitability and since then we've made a lot of progress in transforming this Company.

This includes staying true to our go-to-market strategy which is to define unit rentals according to our core business of equipment rental; to leverage our size by serving large construction and industrial accounts through a single point of contact; to serve our customers through Operation United and to achieve customer service leadership in our industry; and to continuously improve our cost structure in fleet management.

In 2010 we saw tangible results of that effort. We showed that we can outperform the construction environment by driving an increase in rental rates in the last half -- revenues in the last half of the year, and we realized the highest time utilization in the history of our Company. We also outperformed our outlook on rates in the fourth quarter and although rates were down about 2% for the full year, we're confident it's better than the industry average.

Now I lived and breathed these numbers every day in 2010 and our performance tells me that we can leverage this recovery to the same effect or better in 2011. There's plenty of evidence that the recovery, while modest, is still gaining traction. We saw a definite improvement in demand in the second half of 2010. And a number of external sources are predicting an increase in project starts in 2011, including McGraw-Hill Construction and the Architectural Billings Index. In December the ABI score was 54.2, the highest it's been since November of 2007.

Within our operations all nine regions had year-over-year growth of rental revenue in the fourth quarter and we had 36 states and all 10 Canadian provinces. Now two of those states, the ones that have been chronically very weak, California which is up 4% in the quarter, and Florida which was up 5%, so we're encouraged by the change in customer demand.

Our strategy has been to stay in front of our key customer segments across North America throughout the downturn earning their confidence for exactly this point in the cycle. And now we're starting to see the pay off, particularly in terms of progress we're making with our customer segmentation strategy. Our national accounts program rental revenue was up 15% for the year and 20% for the fourth quarter, reflecting the higher -- impact of higher demand and our efforts to earn a greater share of wallet.

We will continue to shift towards larger accounts where we have a competitive advantage. These accounts tend to rent more equipment for longer periods of time, pay invoices more quickly and return equipment with less damage than the average customer. And when managed properly through a single point of contact larger customers equate to profitable growth.

Now in addition, we believe our end markets are opting to rent more equipment rather than purchase it. Recessions always drive some degree of rental penetration and we strive to be the first in line for any new prospects. For example, in our east region alone we signed 1,300 new accounts in the fourth quarter.

I just described a number of different opportunities and the outlook we announced last night shows that we're prepared to make the most of them. We believe that we can achieve a rate increase of at least 5% year over year and if it turns out we can do better, believe me, we won't stop there. We're going to spend between $425 million to $475 million of net rental CapEx or about $625 million of gross and we think we can drive another point or so of time even after posting a record year.

Now after all that we expect to achieve positive free cash flow. Now earlier I said that we're very committed to outperform at every opportunity and in the depths of the recession it has a lot to do with positioning. But this year it's about profitable growth. Now given the way that we're firing on all cylinders we expect to continue to outperform our end markets.

You can see in our rate performance, our time utilization, our focus on cost, our customer mix, our fleet management, but most of all our employees. They [showing] it by the way they pull together through Operation United and keep raising the bar on service with tools like our customer focused scorecard. The scorecard has already become a way of life; in fact virtually every area of the business, our progress can be traced to the support of our employees.

Now we just received the results from our most recent employee engagement survey and our scores were up significantly from 2008. In fact, they exceeded the norm for high-performance companies in a number of areas. It's important to our strategy because there's a correlation between employee engagement and customer service and service to profitability.

Two weeks ago we brought our field managers together for our annual meeting in St. Louis. It's a chance to share our objectives for the coming year and to get everybody on the same page with our priorities. There was a clear energy in those meeting rooms, but more than that there was a sense of commitment.

Our people believe that we're going in the right direction. They see firsthand how we're transforming this Company in ways that are meaningful to our customers. And they understand how that translates into revenue and profits.

Some of what we achieve in 2011 will be dictated by the pace of the recovery. But it's more about discipline, our sense of purpose and our excitement about this opportunity to forge ahead. So on that note I'll ask Bill to review our results in detail and then we'll go to your questions. So, over to you, Bill.

Thanks, Mike, and good morning to everyone. As Mike said, I'll go further into the fourth-quarter results. But before going into the fourth quarter, let me recap the 2010 performance against the objectives that we've been updating for you.

In looking at our SG&A objective we laid out a $40 million to $50 million save in SG&A costs for the full year in 2010, we achieved the $41 million that Mike mentioned. So toward the bottom of the range, but we achieved the range.

As we have seen in a number of the prior quarters, the reductions came about through almost every line of SG&A, but particularly through salaries and benefit costs associated with headcount reductions; through professional fee reductions as we focus our spend there; through T&E reductions; and again through almost every line of G&A.

Importantly, the reductions that we achieved over the full year offset an increase in selling and commission costs associated with higher revenue, so we feel very good about the SG&A performance for 2010.

Cost of rentals ex depreciation we targeted for a reduction of $5 million to $15 million in 2010 and we finished the year with a $14 million increase. As Mike pointed out, that increase included the impact of the $18 million self insurance charge that we booked in the fourth quarter. Take that out and we would have actually had a $4 million reduction, very close to the bottom end of the range that we had guided to.

Our overall sense is that the cost of rent performance was good in 2010 and that certainly is a strong statement to make given that we had a very nice rebound in transaction volume and the variable cost associated with that represented a headwind that we did a nice job of overcoming, again excluding the self insurance charge. On the self insurance charge, I'll give just a high-level touch on that in just a minute.

Free cash flow and net rental CapEx, the guidance was for free cash flow of $200 million to $225 million increase through the year. We delivered $227 million. For net rental CapEx within that, we guided to $180 million to $200 million of net rental CapEx investment, we achieved $202 million, slightly over the top of the range there. So once again we were able to invest in the business the way we thought appropriate and still deliver very nice free cash flow performance for the year.

That's what I wanted to say about the 2010 outlook. Let me go to the fourth-quarter performance details and just hit the highlights there. As Mike said, in fourth quarter our rental revenue was up 10% year over year and very clearly that was driven by a nice rate performance with year-over-year rates up 1.2% for the quarter.

If you look sequentially fourth quarter compared to third quarter, we had a sequential rate increase in the fourth quarter of 2.3%. Now on a year-over-year basis, that 1.2% increase is the first time we had a year-over-year quarterly increase in rental rate since the first quarter of 2007. So we feel good about the quarterly performance and it gave us nice momentum coming into 2011.

In fact, we had previously said back in the third-quarter call that we expected -- if rates ended the year the way we expected we would have had about a 2% carryover into 2011. Our view now is that that carryover benefit will be about 2.5% in 2011.

If you look just briefly at equipment types and the rate performance there in a little bit more detail, the cycle that Mike mentioned earlier is playing out. Earth moving equipment and general rental categories were the ones that had the best rate performance in 2010 and aerial and forklifts lagged somewhat.

On a volume and time utilization front, again a nice performance in the year and in the quarter. For the quarter OEC on rent was up 13% in the quarter while the overall fleet size was only up about 1% versus the prior year. So put those two together and they translate into the time utilization you saw for the quarter. 69.3% time utilization in the fourth quarter and that's up 7.5 percentage points versus the prior year.

I don't know about you guys, but that's remarkable to me that we're 69% utilization in the fourth quarter with the holiday season baked in there and with a very challenging weather environment in some areas of the country during the month of December.

If you look at time utilization just broadly, the fourth quarter was not only a record fourth quarter in time utilization for us as a company, but it was the second-highest time utilization quarter ever for the Company following only the third quarter of 2010. So all in all a very nice performance in the quarter. Just briefly, for the full year time utilization was 65.6%, that was up 4.9 percentage points compared to 2009. And again, as Mike said, that was another record year for the Company.

Turning now to used equipment revenues and margin performance, it was a good quarter for us on the used equipment side. We realized $40 million of proceeds in used equipment sales in the fourth quarter, that on $78 million of OEC sold in the quarter. And most significantly, the margin for those sales came in at 27.5% and that's up from 10.8% the prior year.

So nice margin performance and good volume of sales activity in the quarter. The important driver of that margin improvement was the mix of the channels that we used during the quarter. Retail was very nicely represented with retail representing 63% of our sales overall in the fourth quarter, that up from 44% retail in the prior year.

Auction -- the share of auction sales was about constant [30] versus [29], but the auction results were nicely impacted by the fact that overall pricing in the market has improved over the last year.

Moving on to cost of rent ex depreciation -- we, as I touched on earlier, saw fourth-quarter cost of rent up slightly versus the prior year, but focusing on the full year we were up about $14 million. And as I did say, that includes the impact of the self insurance reserve adjustment. Maybe I'll just take a brief moment here to address that topic briefly.

As with most companies, we retain a level of self insurance in our liability programs, so worker's comp, auto liability, general liability. Our approach is to retain the first portion of loss to make for a reasonable insurance coverage for the higher levels of loss that we could experience.

In 2010 the $18 million represented a number of claims that were adversely developing against us in the year of 2010. We had several large settlements during the course of the year that are unusual relative to where we've been over the history of the Company and that was a significant driver. Roughly half of that $18 million was associated with unusual adverse claim development.

But the other half was associated with our actuary's view of what we needed to carry as reserve for future adverse developments. That component of the reserve called IBNR, incurred but not reported, was about half of the $18 million as well. And within that component we had a change in methodology by our actuary that contributed roughly $6 million of the $9.5 million associated with IBNR.

Neither of those events, either the claim at first claim development or the IBNR impact from the actuary, we view as ongoing. And so our view is that the $18 million is not part of our run rate cost going forward. And we can talk more about this in Q&A if there are questions. But our view is that we don't expect to have this as a matter of routine going forward.

Moving on to cost performance, I already talked a little bit about SG&A for the quarter and the year, so I won't spend much time there other than to say that we continue to look at opportunities to drive more SG&A saves wherever possible. The challenge obviously will be the S part of SG&A in 2011 given that we're expecting revenue growth across the course of the year.

Dropping down to adjusted EBITDA, adjusted EBITDA for the quarter came in at $181 million and that's at a margin of 30.3% and that margin represented a 350 basis point improvement over the prior year. Obviously the drivers we've already touched on were the key components. So strong rate performance, very nice utilization performance and good cost controls were the key drivers of that improvement year over year.

I will point out that that 350 basis point improvement does include the impact of the self insurance reserve. If you took that out the improvement would be more like 660 basis points over the prior year. So very significant margin expansion there.

And just briefly on the full year, adjusted EBITDA margin for the full year was 30.9%. That was a 430 basis point improvement over 2009. And here again, if you took out the self insurance reserve adjustment that would be an improvement of more like 510 basis points. So again, nice improvement in margins over the course of the full year.

Dropping to EPS, on an adjusted EPS basis we reported $0.16 for the quarter and $0.33 for the full year. And again, the drivers were very similar to the drivers for EBITDA performance in rate and utilization and cost performance. And again it includes the impact of the self insurance reserve.

I'll also point out that at EPS -- the impact there of a tax discrete item that we recognized in the quarter. About $6.5 million was included as a tax benefit in the quarter representing an adjustment for an alternative minimum tax credit that we recognized in the quarter from a prior period. So that favorable impact certainly boosted EPS, but the impact to the self insurance reserve worked against us.

If you made the adjustment for those two items, take out the self insurance reserve charge and take out the impact of that tax benefit, on an adjusted basis our EPS would be something like $0.23 per share using the 60.6 million shares that we based all of our other calculations on. So all in all we feel very good about the EPS performance for the quarter and, again, that gives us good momentum going into 2011.

I already touched on cash flow for the year. For the quarter free cash flow came in at $83 million, that's up nicely against $45 million the prior year. And again, we're continuing to look at free cash flow generation as an important part of how we think about the business going forward.

In terms of liquidity at the end of the year, we ended the year with $830 million roughly of overall liquidity, that includes availability under the ABL as well as cash in the bank.

2011 -- just a couple of the high-level outlook items for 2011. We do expect the end market to grow, end market being the rental market. We're seeing something in that 5% to 10% range. And as Mike said in his comments, we expect that our rental revenue performance will outperform the market overall, a combination of good rate performance, nice time utilization and we'll grow the fleet some this year.

As you saw in the press release, and as Mike said, we expect rates to be up at least 5% and always we drive more if it's available. We also expect time utilization to be up over 1% or about 1% in 2011, that following a record year, as I said, in 2010.

On the CapEx and free cash flow front, our current plan is for net rental CapEx of $425 million to $475 million. And as we've done in 2010 and in 2009, we'll flex this number based on what we're experiencing in the marketplace. Within that net rental CapEx target we expect to spend a gross number of about $625 million and that in spite of the fact -- in spite of the fact that we'll invest those levels we expect that our net free cash flow for the year will be positive.

We're calling $10 million to $15 million as a range and, again, we'll be continually evaluating that as we go through the year and update you as we view it in the context of the market.

In terms of profitability -- in the past we've talked about our cost performance as a dollar cost save. We're going to pivot away from that this year and talk more about flow through as a measure of how we're driving profitability for the Company. So our expectation for 2011 is that we'll have total revenue flow through to EBITDA of about 65% to 70%. In other words, each dollar of incremental total revenue will translate into about $0.65 or $0.70 of incremental EBITDA.

Those are all the points that I wanted to make about 2010 and the 2011 outlook. It's a good time now to stop and open the call for questions and answers. So if I can ask the operator to open the call, we'll go to Q&A. Operator?

(Operator Instructions). David Raso, ISI Group.

Hi, good morning. Just one quick comment and clarification on that last statement you made, Bill. It looks like just running some simple math on the revenue growth for this year that would imply an incremental EBITDA this year of about $160 million or so. Is that how we should roughly be thinking about it? So about a $700 million EBITDA base in 2010 growing in that ball park $160 million kind of range, is that a fair assessment?

David, David, David, I won't to offer a specific comment on the number. I think we've given enough components, especially with the EBITDA flow through, so that you can converge on a pretty good sense of what we're thinking about. So I won't offer a comment on your specific number.

Okay. And on that for a drop through, my numbers your EBITDA went up about $70 million last year and the revenue growth was roughly -- the conversion rate was not, I guess not terribly different. So -- okay. Main question, though, the margin for 2011 when we think of the equipment rental margin. If you look at the history of the Company, obviously back when you got started back in the late 1990s you did have one year around 57%. In 2006 it was a shade above 55%.

Given what you're seeing on rental rates and your forecast and obviously that has a pretty big impact on dropping to the bottom line, how should we think about 2011 equipment rental margin versus your history? Should this be the year you get back to your peak level? How should we be thinking about that?

Well, I certainly -- I hesitate to say that we get back to a peak level, but not because that's not where we might end up, but because I would rather not address it that specifically. I do think that we will have a nice improvement based on the components that we've already talked about. And if we achieve what we've got in our plan right now I'd feel very good about how we've driven those margins over the course of 2011 (multiple speakers).

(multiple speakers) what are the risks on the cost side that maybe I'm not appreciating, again thinking about how rates drop to the bottom line? We can go all the way down to the operating profit line if you want. Other costs, I mean obviously some years we've seen fuel costs suddenly become something -- you don't think about that. It's not an insignificant cost for you for some of your fuel costs.

How are you thinking about wages? Is there any change to the comp you're giving to your salespeople as a percent of their rental commissions they bring in? Just what are some of those costs we should thoughtful about that you're thinking could be maybe a little higher than the Street is contemplating?

So just to offer some comments on the various line items -- the relationship of revenue to selling costs probably not going to be dramatically different as we go forward. And so I don't know that the percent of sales represented in selling cost you should think about as changing dramatically.

Certainly fuel cost as part of our overall delivery cost environment is something that we're watching very carefully. The trend of oil prices will be a major driver there. Repair and maintenance expense, we're operating at very nice levels of OEC on rent growth in the plan that we've got for 2011. And as you might expect, repair and maintenance correlates pretty closely. So R&M expense is an area that we're going to be focused on and that's one of the key variables in our variable cost bucket.

Delivery cost I mentioned already. Headcount and salary and benefits, our plan has headcount not changing dramatically over the course of the year. And so depending on sort of whether it's slightly plus or slightly minus will be a major driver there. The challenge with headcount is that we are coming off of the prior couple of years where we have restrained merit increases. And so merit increases are going to come back in 2011 so there will be a headwind from that affect that we're going to have to manage through as the course of the year unfolds.

And we also, David, we're reinstating our 401 contribution as well. So, those -- that's the only other bucket that I would say. But it's -- nothing has changed from a material standpoint.

Last one for me and I'll hop off. On CapEx, obviously it's a pretty healthy number for 2011 and clearly the question is more trying to get a feel for how you view the CapEx for the Company over the next couple of years. That strong CapEx number in 2011, what is that implying about your thoughts on 2012 and how much did the 100% equipment expensing that you have to work within 2011 influence the 2011 numbers?

I'm just trying to get a feel if you look out to 2012-2013 -- structurally are you thinking this is a gross CapEx number that's [$700 million], [$750 million] the couple years out after that? Or was some of the 100% expensing somewhat related to pulling forward some 2012 into 2011?

So, the 100% bonus depreciation scheme is not going to be a major impact for us. As I may have commented before, we have a fairly large NOL position; it's going to take us a while to work off those NOLs. And so the cash tax benefit of 100% depreciation will be pushed out for us. So it's a small enough effect so that we're not thinking explicitly about accelerating 2012 or 2011 into 2011 expenditures.

In terms of how 2011 reflects our thinking about the longer term, I think the answer has got to be it depends on what we see developing going forward. Our view is that 2011 certainly will be a nice down payment for growth over the next several years if the market supports it.

So if we go through 2011 and it develops the way we're thinking about right now, then that will give us more confidence that another round of nice investment in 2012 is warranted and then I could say the same thing about 2013 based on 2012's performance.

That's the way we're really thinking about the level of CapEx going forward. If the market is there then we'll continue to invest in what we think are high return investments in capital. If the market develops more slowly then we'll consciously look at dialing back some of the expectations that we might otherwise have had.

A little vague I know, but I think it's important to understand that the investment decision is going to be keyed off of how we see the market developing, how we see our customer relationships developing, and where we think we could put it to work at good returns.

Yes, David, I would just only add that we are spending more CapEx, you're right. It's still down from peaks that we've spent as a Company historically. And that we remain focused on free cash flow generation as an organization. And we want to drive our capital expenditures to be much more efficient, that's why we're transferring more equipment.

I appreciate it. Thank you very much.

Thank you, David.

Henry Kirn, UBS.

Hey, good morning, guys. I guess the first one, how are you thinking about seasonality this year given what you're seeing so far with the weather and your fleet addition plans?

Well, there's a seasonal trend every year, some are more volatile than others. If you recall, the first quarter of last year we had a significant seasonality swing with a lot of snow. Obviously we're going through that -- that hasn't changed our view on what we think 2011 can deliver. We're very comfortable with that.

We planned for it, we understand it. And we just continually look at areas of opportunities like the new accounts I mentioned. I was (inaudible) about how our capital will be spent. I don't think it's going to be dramatically different as far as how it's been done in the past because you really want to bring the capital in so that you can get most of it put to work for the season. Having said that, we will spend capital as we have customer demand and as we continue to shift our focus on our national and industrial accounts and to meet those demands.

And on the fleet additions you're buying a little bit more equipment than I expected. Can you give some color around the fleet categories you're focusing on or your latest thoughts there? And maybe dovetailing with that, how able is the industry as a whole to go out and make fleet additions at this point? Is there a strategic advantage there?

Yes, it's a great question. The first part of that, I'd say that nothing is dramatically going to change from the way we -- our purchases last year. We're going to be -- obviously we will buy aerial and all the products. The question is, will we be buying more on earth moving? Yes. Will we be buying more in industrial-related products? Yes. And as I mentioned, we'll be expanding in the area of power, HVAC and Trench as well.

So our pattern and what our goal is hasn't changed. We will increase our percentages in earth moving and other and we will have a shift of our forklifts to be also not only reach forklifts, they'll be higher reach forklifts but also the industrial forklifts. And then from the aerial standpoint it will come down as a percentage of our total fleet mix.

As far as the capacity, I can't speak to everyone's strategy that's out there. As we reported, we're seeing record demand. We've seen three consecutive quarters. The way in which we focus on it is on customer demand and to make sure that we're staying true to our strategy.

Do I think this is capacity for the vendors to meet our demand? Absolutely. I think as an industry, and I go back to rates, we still need to focus on getting an ample return and make sure that what you are buying you will get those returns over time.

Thanks a lot.

Thank you.

Chase Becker, Credit Suisse.

Hi, good morning. On the free cash flow, just trying to understand the stickiness of the CapEx assuming that rates end up being better than your 5% assumption. I understand it's probably more tied to utilization and demand, but just trying to understand how I should be thinking about free cash flow if rental rates do exceed that 5%?

I think it's probably not far off to say, look, if rates do better and we therefore generate more operating cash flow, we're probably not far from saying dollar per dollar operating cash flow goes to CapEx. Now I hesitate in saying that because we certainly would have a lot of discussion around what the environment might support.

But if the momentum is there our view is let's try and put more fleet to work because we would be doing it in an environment that supports better returns. There's certainly a benefit to adding more fleet, there's certainly an impact on our ability to generate profitability and margin. But there's also an impact on our ability to continue to invest in the fleet, to manage fleet age, to manage the mix and to support key customer growth. So we look for opportunities to invest more and if the world goes better than we expect then we're probably going to bump up the level of investment.

Okay. And then just in terms of the long-term margin potential for the Company. I can appreciate that you've got a significant amount of cost coming out of the structure relative to last cycle and I understand your normalized margin target. But is there any reason structurally why your peak EBITDA margins next cycle can't be closer to your peers who are kind of in that 45%-46% range?

Is there anything that I'm missing? It seems like the restructuring actions alone can kind of get you closer to that 40% range and then you get rates on top of that? I don't know if that's more of an analyst day type question or not, but --.

Yes, probably, but I guess I would answer at a higher level I don't see anything structurally that should keep us from being very competitive with our major competitors in terms of margin. A key question that we would need to wrestle with is, should we let margin go up to the mid-40s, right?

Or if you're at that level of performance your returns are going to be very attractive, should you be investing more in your business and taking maybe a little bit less margin kind of investment to drive better net present value of the business.

That's debate that we would have if we were north of 40% and given the opportunity of going 45% versus investing more and maybe staying at 40% and just being a bigger company. So that's the kind of discussion we would have. It's a high-class problem to have, let's get there first.

Sure. All right, thanks a lot.

Seth Weber, RBC Capital Markets.

Hey, good morning, guys. Just following up on that last question. I mean, so your time utilization guidance for this year up a point, it basically gets you to your intermediate-term target of the 67%. So what are the implications of that?

I mean, should we think that that number doesn't go any higher in the next two -- 2012, 2013? Or -- I'm just trying to understand how you're thinking about time utilization going forward. I mean, it sounds like it's similar to how you just -- what you were just talking about.

I was going to say that's the way we're viewing the world going into next year. Keep in mind that the construction by McGraw-Hill standards is only going to go up in the low single digits. But do I think that we can go beyond that? Sure. We have a set goal that we've laid out there to achieve.

We've been marching in that direction very nicely. We've had consecutive records for the Company, but there is some -- there's also a component that we are throughout all 10 Canadian provinces and there are changes in the environment that you can't rent in certain areas because in the Outer Banks it's 40 below zero.

But that being said, do I think that we can improve our time utilization? Yes. It will also come with a mix -- the changes that we have as we layer them in over time and we continue to develop our customer base.

I guess I would add I agree 100%. We could drive utilization higher. I think one of the important discussions that we should and will have as a business is how much higher? And whether we should allow utilization to go much higher than 67%-68% or should we, again if the environment supports, should we invest more, grow the fleet more and keep utilization at about that level in the service of growing profitability and improving return?

So, yes, we could go higher. I have no doubt about that. I've become very fully convinced of that fact. The question is how much higher should we go? Again, a high-class problem, let's get there and then we can talk about it.

Sure, sure.

I would just also point out that it's also balanced against a rate. You want to be able to get the rate. You know, you can drive time in this business all day long, but you've got to balance the two of them.

Right, that's fair. And then just on the pricing target. Can you just talk a little bit about how we should think about the slope of pricing throughout -- through the year? I mean, if you're looking for a full-year number of 5% presumably you're going to have to end the year at a pretty robust number. I mean, can you just talk about how we should -- the trajectory of that?

Sure. So without going into too much detail about how we've laid it out over the quarters, I will point out that the first-quarter comps from last year are the easiest in the course of the year. But that said, we believe that there will be enough demand and enough momentum as we get into the second and third quarter in particular so that there is -- there's a sequential rate improvement opportunity for us even in those environments.

And then the fourth quarter, again we think that we can continue to trend sequentially rates higher in the fourth quarter. So as a broad statement I think the view is that we'll be able to continue to push rates higher as we go throughout the course of the year. The challenge of the comps from the prior year gets harder in the second and third quarter, but we believe that the market will be there to support rate improvement.

Okay. Did you not see the typical seasonal softening at the end of the year this year, is that a fair statement?

I would say that's a fair statement. If you recall 69.3% time utilization is a record. And the performance just speaks for itself and we didn't see that drop off, as Bill mentioned, even with the holidays and the seasonal trend. Is there a seasonal component to our business? Absolutely. But clearly we outperformed it.

Okay. And then just lastly, I mean, can you just remind us where you are relative to the past peak pricing? Are you down 10 points, 12 points, is there a number we could think about?

The -- so versus the prior peak, recall that we came down 12% in 2009, we came down a little bit in 2008 before that, and we came down another 2% this year. So versus the prior peak -- somebody have the number handy?

21 points.

So it's about -- versus the prior peak -- 16? 16 to high teens kind of range.

Okay, still, okay. Okay, thanks very much, guys.

David Wells, Thomson Research Group.

Good morning, everyone. I guess first off on the rental rate expectation front, just looking at the fleet statistics that you put in your deck. With aerials sitting at 74% utilized, I guess I'm trying to get a sense of -- of that 5% expectation, how much of it can you see on the aerial piece or is it more in some of the other categories that you're being able to push that lever more effectively?

Well, as I mentioned, we saw the aerial in weekly and daily terms actually go up in the quarter. We did see a sequential improvement in aerial on the monthly side of things, but it wasn't enough to break through on a year-over-year basis.

As we get through the year we would expect to see more demand and be able to support a price increase for that product as well as we go through the year. So, it's really -- we don't break it down specifically by categories, it's much more scientific than that.

But we look at it by geography, we look at what we are capable of getting by the customer, we look at utilization and we make judgment calls and in some instances we walk away from deals and we'll transfer the asset. So it's all the above in how you manage it, but I would expect to see aerial rates improve as we go through 2011.

That's helpful. And then thinking about the mix of customers, obviously focusing on the larger national account, presumably they're going to be more price savvy or have the leverage in place from a purchasing perspective to get greater scale. Does that hurt the ability to move the rate that 5% or are you baking in some return, if you will, to that smaller contractor base who doesn't have the scale in place to push back on rates?

No, it's all the above. We negotiate a lot of these rates on an annual basis. Some are set not to exceed pricing. There's a lot of things that we can do to manage those rates more efficiently and we've got systems in place to help us with that. But to your point, the spot customer who wants to come in for that shorter-term, yes, depending upon the utilization of that asset and that type of customer they could probably expect to pay more.

So just in general on rates, this is an industry that really needs to focus on rates, needs to get a return on the capital it's employing out there. This is not just for me, it's the whole industry. So I think as we begin to see the turn of the trend of being the construction starting to pick up and most companies are seeing sequential improvements. I don't see them stopping, I see them continuing to focus on improving that picture. So it's all the above that will get us there.

Okay, thanks. And then lastly, just one quick housekeeping question. How should we think about the share count for next year?

So with profitability, David, the share count clearly will start to include some of the securities that were anti-dilutive when we were in a loss position. As we look at the full year, assuming that we've got a nice net income position for a stock price in the $25 million to $30 million range -- boy, there's a Freudian slip -- $25 to $30 stock price, we think that the expected fully diluted share count will be somewhere in the -- let's say in the mid-70s as sort of a starting point for the year, so $75 million let's say, right in that area.

Great, thank you very much.

Scott Schneeberger, Oppenheimer.

Thanks, good morning, guys. A couple of scattered ones here. First, Mike, could you address stimulus, what type of -- how material was that in 2009? Is that going to be headwind, tailwind -- I mean in 2010, will that be a headwind, tailwind in 2011? And just speaking to infrastructure in your business overall?

Well, it really affects the Trench business and the Trench business has seeing a nice uptick as it went through the year. And as I mentioned, we're going to continue to invest in that line of business. So the stimulus dollars don't peak out into 2011. So I would say that that area of the business will continue to go forward as we have been. It ramps up but it peaks out in 2011. But there are a lot of projects that are underway.

Okay, thanks. Shifting gears, if you do in fact end up 2011 doing the CapEx that's been discussed in the outlook, what type of OEC at the end of the year and, importantly, what type of fleet age are we looking at and how are you thinking about fleet age (multiple speakers)?

Sure, on average for the year you can expect our fleet to probably up and average $100 million for OEC on average. With regards to age, our age is going to be relatively flat. I'll put the goalpost, it could go a month in either direction. We're very comfortable with that and we'll continue to monitor it. We still sell the oldest assets and we're very active in our fleet management program.

In terms of the fleet size at the end of the year, you can back into it reasonably closely, but say the fleet goes up 175 to 200, in that range.

And then finally, just on the self-insurance -- Mike, could you speak to your safety record? Is there anything we should be concerned about? Just a progress update there, thanks.

No, this is something that's very important to the Company. It was also pointed out in our engagement surveys where we got one of the highest scores on safety. We continue to improve our safety in all areas that Bill mentioned both in general liability, our recordable rate as well as our automotive. So it's something that we take very seriously and in fact we have a program where every employee has to go through on an annual basis, including myself. And we're very stringent on safety, it's very core to our business.

Okay, thanks, and congratulations on your continued business success.

Thank you.

Emily Shanks, Barclays Capital.

Hi, good morning. Thank you for all of the detail. Basically all of my questions have been covered. But I did want to ask just a follow-up around the fleet age. As you gave color around CapEx spend being targeted, if I heard correctly, around earth moving and industrial type products, and that aerial will become a lower percentage of the fleet mix, should that naturally take your fleet age down or not materially?

Not materially. I mean, if you think about it obviously when you buy new it brings it down, but a lot of our aerial fleet we refurbish and we're going to hold onto it. And so you'll see that age out over time, especially a lot of the booms and to a lesser degree some of the larger forklifts.

So we see that as a viable alternative to buying some of these assets. So that has an impact as well. But again, as I mentioned, it's going to fluctuate a month in either direction. And we're very comfortable and you can see by the utilization we have out there that our serviceability on these assets is just fine.

Okay. And then this may sound completely counter to what everybody else is asking, but in the event of a double dip or another pull back, are you comfortable with the fleet age where it is and how much longer would you want to age it or would you be comfortable taking it too?

No, we haven't crossed that path yet, but aging it out does not scare me. We're always prepared for a double dip if need be; we're not afraid to make those choices whether it be selling assets or going through and doing what we have to, make hard choices, we've done that. We'll do it again if need be.

I just don't think that's in the cards, but you never know. That's beyond our control at this point. But as far as aging the fleet out, if we had to age it out even further it would not bother me. Our R&M expense would go up, but it wouldn't go up dramatically.

Great, thank you. Good luck.

Thank you. Yes.

Thank you. This does conclude the question-and-answer period of today's program. I'd like to turn the program back for any concluding remarks.

Thank you, Operator. I want to thank everybody for joining us today and, as always, you're welcome for follow-up calls here in Greenwich, getting a hold of Fred Bratman or visiting one of our locations. And I just want to remind everybody, next week we're holding an Investor Day on February 11 in New York City starting at noon Eastern Time. We will be webcasting the event through a link on our website so I hope you join us. With that I think that concludes today and we'll talk to you after the first quarter. Thank you.

Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.