聯合設備租賃 (URI) 2012 Q4 法說會逐字稿

Good morning and welcome to the United Rentals fourth-quarter and full-year 2012 investor conference call. Please be advised this call is being recorded. Before we begin, note that the Company's press release, comments made on today's call, and responses to your question 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 indicated in the Safe Harbor statement contained in the release. For a more 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, 2012, as well as 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; and Matthew Flannery, Executive Vice President and Chief Operating Officer. I will now turn the call over to Mr. Kneeland.

Mr. Kneeland, you may begin.

Thanks, operator, and good morning, everyone, and welcome. With me today, as the operator stated, is Bill Plummer, our Chief Financial Officer; Matt Flannery, our Chief Operating Officer, and other members of our senior management team. Now typically on the fourth-quarter call, I will summarize the key results and then turn to the coming year. I know there's a lot of interest in our operating environment and we will certainly address that today, but I also want to touch on the broader implications of our fourth quarter results. 2012, as you know it, was not a typical year for us and I think it is important to view the quarter in that light.

First, the results we reported were clearly a strong finish to a very good financial year, a year in which we transformed the Company for superior returns. In addition to the merger with RSC, we were also successful executing our strategy in the expanding market place. Second, the numbers reflect a substantial progress we made on the integration with the beneficial effect on margin. And the alignment of our operations is now largely complete and we are working together is one. Now bear in mind that the merger happened less than a year ago and we realized some significant efficiencies in a brief time. In the fourth quarter, we captured another $42 million of cost synergies, bringing the total to $104 million for the year. And before I recap the numbers, I will remind you that any year-over-year comparisons I give you are on a pro forma basis -- that is measured against the combined results of United Rentals and RSC for 2011.

On the top line, our rental revenue for the quarter was up about 9% year-over-year and total revenue was up more than 7%. Our adjusted EBITDA was $553 million for the quarter at a 44% margin. That is 580 basis points higher than the same period last year and our flow-through was a very robust 125% for the quarter. Now these results stand on their own but they become even more meaningful as a part of our trend toward superior performance. Now over the past year, as you know, we've use these calls to explain how we are becoming more disciplined in running the business for value creation. And each quarter, the proof was in the numbers and the fourth quarter was no different.

A number of factors worked in our favor including a modest improvement in the construction environment in 2012, a continuing trend towards market penetration, which is increasing the size of the industry pie, and a robust use (inaudible) market. Now within our own Company, we had a more balanced mix of rental revenue with nonconstruction accounting for about 50% of our business, an effective focus on key accounts with the application of our technology for their needs. A 7% increase in the volume of equipment on rent and a 6% increase in the rates we charge for our equipment. Time utilization was 68.7%, which although lower than last year, was still very strong on a much larger fleet. And the ongoing optimization of our field operations in the fourth quarter -- we closed 14 branches, nearly all of them merger related.

So we have a mix of factors, most of which were created through our own efforts and some presented by the macro environment. But in every case, we were intensely opportunistic and making these factors work to our advantage. And in the final month of 2012, our regions were still dealing with the tail-end of the integration. But even so, they turned in very solid performance. 13 of our 14 regions had year-over-year growth in rental revenue for the quarter and 13 regions had year-over-year increase in rental rates. Of those 13, 11 regions had quarterly sequential rate increases so demand held up going into the off-season. Rental revenues from key accounts grew 14% year-over-year, and within that group, national accounts grew 16%. Another shining star was our Trench Safety Power and HVAC business. It had an extremely strong quarter. Revenue from specialty rentals grew 37%, reflecting demand for construction, industrial, and emergency response application.

So that's a quick snapshot and Matt's here and will be available during our Q&A to answer any questions about our field operations and the integration.

Now I want to talk to you about 2013 and give you our insights. As you saw by our outlook, we are projecting strong growth in both revenues and adjusted EBITDA and very strong free cash flow. Our expectations for rates and utilization are in line with the demand that we are seeing for services and we feel confident that we can drive more improvement in rates while increasing time utilization year-over-year and we plan to do this while investing over $1 billion of net rental CapEx to our fleet. Several years ago during the worst of the downturn, it was extremely difficult to plan our current market conditions and we were operating in a very murky economy but, to a lesser degree, that is still true. Nevertheless, our projections for 2012 are on the money and that put us exactly where we expected to be in 2013.

Now, we have end-markets that are showing signs of growth, especially in oil, gas and power sectors, and we see a continued trend toward secular penetration driven by the growing appreciation for the economic benefits of renting. And we have a broader deeper value proposition that we can now bring to market. Time and again we are seeing our customers come to the realization that they are wasting money by owning fleet that sits idle. Now these customers see equipment rental as a sound business strategy, which should continue to elevate demand in the recovery.

Now, if you were with us on our investor day in December, you know that we feel that we are still in the very early stages of a meaningful recovery. The macro consensus seems to be in line with global insight which estimates the US equipment rental industry to grow by 8% in 2013 and by 11% in 2014. And private non-risk construction, which accounts for half of our business, is projected to grow about 6% in the US in 2013 with accelerated growth in 2014. And we think these are all reasonable forecasts and are supported by our own customer surveys as well as surveys from other sources that serve the same markets as we do. Also, we agree with forecasters who think most of the market momentum in 2013 will come in the back half of the year.

Now, this is all good news but I will reinforce something I've said in the past, we believe our strategy, our scale, and our customer service will keep us growing faster than our end-markets. And I want to spend a minute on customer service because it's very serious -- we are very serious about service as a differentiator. We know what the attributes of great service are in the rental business and we've built up a lot of credibility by focusing on those attributes. We track them at the branch, district, and region levels through metrics that measure customer service, fleet management, and process efficiencies. And if a branch starts to slip on its on-time delivery, a manager knows it very quickly or if a district is having -- with a particular metric, our people are on it.

We also have Company-wide goals in 2013 like a more streamlined rental process and a metric called OEC not available for rent and we are very focused on improving the number. We are also running a tight ship when it comes to safety and I'm proud to say that we had a full-year pro forma recordable rate of 1.4 for 2012 and that is our best safety record performance yet. Moreover, 84% of our branches had zero recordables for the year, and as far as we know, that is the best safety record in the industry and we are going to keep driving all of our branches toward zero.

So what else will you see from us in 2013? Great question. You will see us continue to focus on technology, including total control system. We are identifying key accounts that can benefit from total control to help them lower their equipment cost. You'll also see us roll up a metro model to more markets. And this model uses dedicated repair hubs and centrally managed field services to improve our margins in high density areas. We now have 20 successful implementations of our metro model in cities like Toronto and San Diego with another 20 -- excuse me -- another 15 or so planned for this year. We also will go hard after the remainder of the synergies targeted when we merged with RSC and we continue to expect that we will reach a fully developed run-rate of between $230 million and $250 million of cost synergies in 2014. And we have plans to reduce our leverage, as Bill will discuss.

The operating cash flow characteristics of our business are very strong and the timing of the merger has dovetailed nicely with market projections. So we are in a favorable position to reduce our leverage.

Most important, you will see us continue to deliver on our promise of improved profitability and higher margins. We address that with our branch managers at our annual management meeting in Indianapolis earlier this month. Our managers are energized by the merger and hungry for growth. I think we all came away from that meeting that we are ready to take on the world.

One year ago, I stood here and told you that 2012 was not just about the deals we would make or the forecast we put out there. I said it would be about delivering on our promise and to drive returns and you saw us deliver on that promise in 2012. Now the bar is set higher and mistakes are bigger and you can expect us to deliver again on 2013. Now, I'm going to close on that thought and I'm going to turn it over to Bill for the financial results and then after that we will take your questions. So now over to you, Bill.

Thanks, Mike, and good morning to everyone. As always, I will try to add a little bit more color to the quarter and the year that we just reported and also spend a little bit more time on our guidance for 2013. But before I get started, let me just remind everyone what Michael said that all of our discussion here is about our pro forma forecasted, or actual performance. Anything that is not pro forma we will call out as we go through.

So let me start with our rent revenue performance for the quarter, up 8.7% year-over-year with good contributions from rate and volume as always. Rates were up 6% over the comparable quarter last year and they were up 0.8% sequentially versus third quarter of 2012. That brought us to a full-year rental rate performance of 6.9%, very consistent with our guidance of about 7%,8%. If you look at volume and time utilization, we had nice growth in overall volume in the year. OEC on rent, which is our measure on volume, was up 7.2% in the quarter to an average of $5 billion of OEC on rent, clearly reflecting what is a overall strong demand environment and certainly reflecting the investment that we've been putting in our fleet over the last year -- year and a half or so.

Time utilization on that OEC on rent was 68.7% in the quarter and that, by any measure, is a very strong level of utilization for the fourth quarter. It's certainly consistent with the demand that we've seen, consistent with the ability to deliver price, and certainly is a focus of how we manage our business. It is down 90 basis points from the fourth quarter of the prior year, but I will remind everyone that that's less of a year-over-year decline than what we have seen in the prior couple of quarters. And again, remind you of the discussion that we've had about the impact of the integration, the branch consolidations that we've gone through. We are continuing to claw back our leveraging of the fleet from that upheaval and we are making very good progress. And I think that smaller decline in year-over-year utilization demonstrates that.

For the full year, our time utilization was 67.5% and that was down only 30 basis points from 2011. And again, I will remind you that that was on a larger fleet. The overall fleet -- average fleet size for 2012 was up about 12%, or roughly $770 million of incremental fleet, and certainly putting that to work very effectively explains that 67.5% utilization across the year.

Before I move onto profitability, just a word on our used equipment sales results for the quarter, we had a very strong quarter and, indeed, a very strong year for used equipment sales. In the quarter, we generated $141 million of proceeds from used sales at a very robust 39.7% adjusted gross margin. And again, that is the adjusted margin excluding the impact of the step-up in basis due to the merger accounting. The margin reflects really a very, very strong performance in the channel mix. We had a great year as we drove more of our sales through our retail channel. 56% of our sales in the quarter were through our retail channel, and that is up almost 6 percentage points from that channel share last year. And you all know that we get our best results in that retail channel. So great success there. We are having great success in accessing overall used equipment demand and that certainly portends well for our used sales going forward, which will continue to be robust.

Let me move now to profitability and start there with adjusted EBITDA. Adjusted EBITDA for the quarter was $553 million. And that was at a margin of 44.3%. So that represents an improvement of $104 million of absolute EBITDA dollars and that is 580 basis points better in margin than the prior year. For the full-year, adjusted EBITDA came in at $1.988 billion and the margin for the full-year was 42.6%. For that full-year, that represents almost $500 million of incremental adjusted EBITDA -- $490 million and 650 basis points more in margin than the same period in 2011 -- full-year 2011. Flow-through for the quarter, which we define as the change in adjusted EBITDA divided by the change in total revenue, flow-through was an outstanding 125% for the quarter.

If you look at the full-year, we had another great result in flow-through -- 93% flow-through for the full-year. That margin, and flow-through performance overall, reflects the strong [rate] environment, clearly, but also, obviously, reflects the impacts of the synergies that we realized from the integration. Even if you exclude the synergies though, the flow-through story is still pretty robust. So flow-through still had a 74% impact in the quarter if you exclude the synergies. And for the full-year it was comparable, about 73% flow-through for the full-year if you exclude the synergies that we realized in the course of the year.

If you move down to EPS, on a profit basis our adjusted EPS for the quarter was $1.27 and it's worth pointing out that that $1.27 reflects an underlying tax rate that was just under 30% -- 29.5% to be precise. If you look at our GAAP tax provision for the quarter, you see that we actually reported a tax benefit of about 5% on a GAAP basis but that benefit is really driven by the effect of a couple of key items in the quarter. So we had, you all know, a refinancing of our ten-and-seven-eighths notes during the course of the quarter and we reported a loss for the premium paid to [refinance] that issue, that loss was recognized in the United States as a deduction and therefore pushed down the US pretax income very significantly and our tax -- our effective tax rate as a result mixed more significantly toward Canada, which you all know has a lower tax rate.

So that was a very significant mix impact that drove down the underlying tax rate on a GAAP basis but it was further exacerbated by the fact that we had favorable settlements of tax audits, really around the states and, in particular, in Canada during the quarter. So the discreet items there were very, very favorable for the tax impact in the quarter and that was a significant part of driving that 5% tax benefit in the quarter.

All in all though, the EPS performance on any basis is pretty strong. As I said, the $1.27 reflects about a 30% tax rate. Even if you wanted to use a 35% tax rate, our view of adjusted EPS would still be in that $1.17, $1.18 area. So a good strong EPS performance.

Let me move to integration just briefly and talk about the $42 million of synergies that we realized in the quarter. A very robust integration performance as has been the case and we believe we are comfortably on track to deliver what we've talked about as $230 million to $250 million of fully developed cost synergies. And the contributions were pretty solid across all the different areas of synergy delivery in the fourth quarter. So the $42 million brought us to $104 million, as Mike said, of synergies in the fourth quarter and it sets us up very nicely to continue to drive those synergies through 2013.

Before I move to the outlook for 2013, let me just touch on free cash flow and capital structure and liquidity, briefly. Free cash flow -- this is the only measure that I'll talk about that is not pro forma adjusted. We report free cash flow on an as-reported basis and that number came in for the full-year at $223 million of cash usage. Keep in mind -- excuse me -- keep in mind that that includes the impact of all the restructuring and merger payments that we made in cash. That impact was about $150 million at cash. So if you net out the $150 million of merger related costs, we had a free cash flow usage of $73 million for the year and that is within the range that we guided to of between minus $25 million and minus $75 million for the full-year.

In terms of our capital structure and liquidity, we finished the year with a total of $782 million worth of total liquidity. Within that, $654 million was ABL capacity and the remainder was cash and our AR facility. And I will remind everyone that as I mentioned just a couple minutes ago, during the quarter we redeemed our ten-and-seven-eighths notes and incurred a significant interest expense charge to do that. Roughly $72 million was the impact that played through our P&L.

Before we move to Q&A, just on 2013 outlook, just briefly since Mike hit the high numbers, just a little color -- we put the revenue in the range of $4.9 billion to $5.1 billion -- that is total revenue. Within that, the rental revenue performance we expect to be driven by our rental rate expectation at 4.5% year-over-year. That includes a carryover impact from where we finished 2012 of about 2%. For time utilization, we're expecting about 68% for the year. That is a 50 basis point improvement for the year and, again, continues to reflect the focus that we put on driving our utilization performance. Reducing the fleet unavailable for rent, as Mike pointed out, will be an important focus there and certainly that will help us drive utilization more effectively without having to invest capital underneath it.

Adjusted EBITDA for the year we expect to be between $2.250 billion and $2.350 billion for the year -- so midpoint of $2.3 billion. Our net rental capital expenditures we expect to be just over $1 billion, $1.050 billion and that reflects roughly $1.5 billion of gross rental CapEx and the difference being proceeds from used sales. Full-year free cash flow for the year we expect to be between $400 million and $500 million. And as we've discussed in the past, we will use that primarily to reduce our leverage. On leverage, we certainly expect a significant move during the course of 2013. We are right now saying that based on the guidance that we're providing that we should finish the year at right about 3 times debt to EBITDA. And it will be that number whether we use any of the cash proceeds to finish out our share repurchase program or not. So a very nice deleveraging coming during the course of 2013.

Those are the key points that I would make right here and now. There are plenty of other topics that we can talk about in Q&A. So certainly look forward to your questions. We can move to that now.

Operator, let's open it for Q &A.

(Operator Instructions)

Seth Weber from RBC Capital.

Hi. Good morning, guys. Just wanted to get a sense for how committed you are to holding the line on this $1 billion net CapEx number. What is sort of the optimal mix here? If you can get 68.5% utilization and keep the 4.5% rate, would that trigger a higher CapEx number? Or how are you thinking about the balance there? Because your 68% number would actually be above what you've done the last couple of years.

Seth, this is Mike. Let me answer it this way. Look, we are trying to drive profitable both growth. If I were to see both rate and time start to accelerate, I would have no hesitation to spend more. But I would like to see both of those come into play. And the other thing is I would say is that we are generating a lot of free cash flow and we've got a lot of blue sky in order to meet customer demand.

I mean, as you are looking at your guidance, would you think that there is more relative upside to the rate number or to the -- which would you push? Which would you prefer to push rate, I guess, versus utilization if you had a choice?

I think you know me. I would tell you that, obviously, rate is near and dear to my heart, has the biggest flow-through and the highest potential for margin expansion and I think that that is a fair statement. So rate, I think, if you go back last year, we started out the year saying 5% we ended up just a hair underneath 7%. We will continue to focus on it. We are going to continue to drive it and I think the team is well equipped. We have got the tools. As I stated in my opening comments, we are now a unit as one and we are going to focus on that.

And are you seeing anything from a competitive standpoint? Are the smaller independent guys re-fleeting or are they becoming more aggressive with pricing or is everybody kind of being rational here?

Hi, Seth, this is Matt. Overall, I think everybody is being very rational. The national players are in much the same mode that we are and I think the rest of the industry is following suit and that is good for the entire industry. So I'm very comfortable and encouraged by that.

But do you get the sense that the smaller guys are re-fleeting or are they still capital constrained?

No, I'm not seeing a trend there at all.

Okay. Thank you very much, guys.

David Raso, ISI Group.

Hi. Good morning. Two bigger picture questions -- you keep referring to Global Insight's outlook for '13 but the guidance you're giving appears to be no better than the industry outlook. So I'm just trying to see how you are framing the year. And you keep referring to your ability to penetrate and take share but your guidance is really only in line with it seems like how you are viewing the industry. So can you just step back for a second and explain to us why you don't think you'll be able to outgrow the industry this year?

Well I think, David, the way in which we look at the world -- you can't parse out the numbers however you want but we believe that we are going to be outpace the industry this year. As I stated and I continue to state, we are driving profitable growth, but don't lose focus on the fact that our key accounts and our national accounts grew at very nice numbers and those are the areas that we continue to focus on. And you are going to see us put more effort on growing that segment of the business.

I'm trying to backdoor into Bill telling us the rental revenue growth for the year because if you look at the implied used equipment sales, which is obviously the second biggest driver to your revenues, that is implied to be up nearly 13%. Total revenues are implied only up 7%. So I'm just trying to get a feel -- are we thinking rental revenues are up 7%, 8%, 9%, 10%? I'm just trying to get a feel for that. And then the segue question is, we are implying the core incremental EBITDA margins -- forget about synergies -- dropping 1,000 basis points year-over-year from roughly 73%, 74% down to an implied 63%? So I'm just trying to get a feel for why would the incremental margins be 1,000 basis points lower and, again, why the rental revenue maybe is not faster than the industry. But if you can help us in any way with those two question it would be appreciated.

So, David, it is Bill. What I would say on the revenue rental growth is, it's -- at a certain level it is a semantical question about outperforming the industry. We do have a rental revenue growth within that center point $5 billion revenue number that we gave that is in excess of anything that we've heard from forecasting services for the industry in the year. And we haven't given exact number but you can back into it reasonably close. I think you would have to know a little bit more about our assumptions for contractors, supplies, new equipment, and so on in order to get super precise. But we feel very comfortable in saying that we will outperform the industry in the year and that's what underlies that guidance.

In terms of the flow-through performance and the change versus last year, we view 63% as being very robust flow-through performance when you exclude the impact of synergies. That's -- if you look back over the history of the Company and the industry, I think you have to say that that's a good level of performance. Is it as good as the 73%, 74% range that we were in in 2012? Clearly not. But I think what we got in 2012, it is hard to imagine that you are going to be able to sustain forever. We don't have as much rate realization assumed for '13 as we actually had in '12. That backs off the flow-through impact. We are putting as much fleet in on a percentage basis in '13 as we did in '12. And you know the benefit of flowing more fleet through the fixed cost base is pretty significant. So that would back off your flow-through in 2013.

So when you start parsing through the things that we won't have their on our '13 forecast compared to what we had in '12, it is not shocking to me that our flow-through ex-synergies would be down. And we can have a robust debate about how much they should be down but we feel good about 63% ex-synergies based on what we expect for the year.

No. I'm not denying it's a good absolute number. I was just wondering -- you closed 187 stores over a six-month stretch. I have to believe that would've hurt the flow-through to some degree but I guess you're saying the other items you cited more than offset the positives of 2013 won't have those branch closures.

Yes. I think along with the branch closures, there were a variety of activities going on. I'll tell you one of the things that benefited '12, for example, is as you are going through those consolidations and figuring out new responsibilities and how things are going to work, there is a level of uncertainty that is introduced that caused some people to say, you know what, I'm going to hold off on adding headcount even though I know that I might need to add head count. So in that environment, ex-synergies, you might actually be operating a little bit understaffed relative to where you otherwise should be. That is not going to be as much of an impact in 2013, at least we're not forecasting it to be. And so that is part of the story that causes ex-synergy flow-through to back off a little bit. But please don't lose sight of the fact that 63% is still pretty good.

No. That is all fair. All right. I appreciate it. And quickly just the tax rate for '13?

We are saying the upper half of the 30s -- so 35%, 36%, 37%, in that area.

Joe Box, KeyBanc Capital Markets.

Good morning, guys. Mike, question for you on your metro model. I think you mentioned earlier that you are looking at about 20 current implementations and then maybe another 15 or so this year. I guess, one, is that the full opportunity? And, two, what percentage of your overall markets might fit within this type of model?

Matt's here so I'm going to ask him. He's deeply involved in it. So, Matt --

Joe, it's -- so it is 20 that are already implemented and another 15 that we've got planned to roll out. There is probably another 10 to 12 after that. If you look at branch count, which isn't necessarily tied to revenue, it is about 50% of our footprint is condensed enough to take opportunities of shared services that the metro model offers. I don't know if that answers your question, but we've been encouraged by the results of the models we had. And obviously the longer ones -- the ones that have been in place in early first quarter 2012 have significantly better metrics than the Company average. So we are very encouraged by that.

That is perfect. And then I know at your analyst day you talked about 1 to 3 points of EBITDA improvement from this, is that still fitting for some of the other markets that you plan to roll this out to?

Yes. So we are not certain yet, but if we make the assumption that we took the biggest opportunities first, which would be a safe assumption, we probably front-loaded that. Some of the additional markets that we roll out you don't have as much density in so the scale may have some effect on where you're going to fall between that 1% to 3% range but we expect to be in that range.

Excellent. Maybe one more for you real quick. Can we just dig into some of the moving pieces that would drive upside or downside to the 4.5% rental rate guidance? And maybe just add to that, it looks like both used and new equipment prices are well above the prior peak as opposed to rental rates that are still below, how does new and used price play into your ability to raise rental rates? And I guess is it normal for rental rates to lag this far behind?

So on -- to your last question, I don't feel that new and used pricing really has an effect on our rental rate whatsoever. In the big scheme of things, it is not a driver for the end users. Rental is still such an attractive value versus all the costs that come along with owning that I don't think that is part of the decision process. Your first question was about the 4.5% rate and, if I recall, it was what the opportunity is. We've pegged 4.5% because that is what we think -- if you look at the 2% carryover that we referred to and then the figure first quarter -- some of the middle quarters are where we have our opportunity. We make some sequential assumptions that get us to that 4.5% rate that we are very comfortable with. If the demand picks up sooner, Mike had said earlier, the second half of year, we feel stronger. If we see the demand in the first half of the year increase more than we forecasted, we will -- I think we've proven in the past, we won't hold off on getting that opportunity. And that can very well show up in rate.

The other thing I would say, just -- look, we try to be as transparent as we possibly can. We are trying to make sure that everyone can try to look at how we see the world and the metrics that go behind the revenue that we are putting out there. So to the extent it's a balancing act, as Matt mentioned, and we are going to continue to drive rate. It is -- this is an industry that has to get over its cost-to-capital and through the cycle and that's what we're focused on.

Sounds good. Thanks, guys. Take care.

Nick Coppola, Thompson Research.

I want to ask about the impact of Hurricane Sandy. Is there anything you can quantify there?

Yes, Nick. This is Matt. We had in the fourth quarter about $6 million of revenue that was directly as a result of the impact of Sandy. There is about one third of that that remains on rent today. So not a large number. As far as forward-looking, the starts have been now starting to come in as far as the construction planning starts now that the government has approved the funding specifically for the Jersey Shore. But we forecast maybe $20 million or $25 million of additional OEC on rent in those effected areas. So it will be big in those communities and in that area and we will play a big role but we don't see it as a needle mover -- a big impact on the overall Company's scale.

Okay. That is helpful. And then can you also give us rates by month on a year-over-year basis?

Yes. Rates by month on a year-over-year for the month of October -- it was 6.5%, for November it was 6.1%, and for December it was 5.3%, and for the full-quarter it was 6% on a weighted average.

Okay. And can you tell us anything about how things are turning into January?

Yes. I will take that one. So January is tracking as we expected, both for rate and fleet on rent and time utilization. It started -- I'll step back and say one of the things that you saw this year with Christmas being on a Tuesday, as we saw the latter half of December, things softened up a little bit more than you normally would see if Christmas were on a Monday or a Friday or over the weekend. So the second half of December was a little softer and so we started the year a little lower than we otherwise might have. But we've caught all that back and so January is on pace, both in terms of rate and in terms of getting fleet into the market, and it feels pretty good at this point.

Okay. All right, thank you.

Ted Grace, Susquehanna.

Hi, guys. Congratulations on a good quarter. Michael, I was hoping to come back to some of your comments about the end markets. I know you commented that oil and gas and power were strong. Could you frame -- where those the strongest in 2012 and would you expect that to carry into 2013 as well? Or do you see other groups maybe improving on a relative basis and maybe get a little more granular about the end markets based on the client surveys or the other metrics you're looking at?

Let me start with the client survey -- and that is a great point because our December survey of our customers, 62% of the key customers expect growth over 2012, which is a -- which is up slightly from what we had in our last quarterly call. So we take that as a take away from our customers. The confidence level is beginning to remain bullish and we take that as a positive.

With regards to some of the industries, the power sector is still an area where we are -- we participate in in a broad sense and we think in 2012 it will continue in 2013. We can debate whether there is a pipeline. There's an awful lot of work that is being done once we've got all of the wells drilled for natural gas and for wet gas. It is an efficient way of fuel and we see that demand. We are also having a colder winter than last year. Unlike last year, there was somewhat of a pause because there was an oversupply of natural gas. And given that the temperatures that we are unfortunately going through right now where it is rather cold, that is going to I think acerbate some of the demand or the need for the fuel and energy sector. Our power grid continues to -- needs to be refurbished. That is underway. That is a long-term project. The same goes for coal and all of fossil fuel plants. They are aging. Repairs are ongoing.

And then I would say that one of the things that there is -- we are seeing is more investment in the chemical side of business, particularly in the Southwest or in the Gulf area, and from foreign investment coming in here. Stable. It -- we have lower energy prices and so we are seeing more of that start to play out inside of our industry. Having said all that, I will also point out that the one area that -- when we look at our markets -- we don't see the growth in Northeast Canada. They came off of a high. It is still going to grow but not at the rate we saw historically. Western Canada will remain strong and that's -- I hope I answered all of your question.

Yes, that is helpful. And in terms of just -- I was hoping to next touch on the synergies for 2013. And I don't know if this is a Matt question or Bill question or Michael but the guidance is for a step of I think $96 million, could you help us understand what that allocation looks like between COGS and SG&A and how the realizations in 2012 split between those two buckets?

Ted, I will take a stab at it and, Matt, certainly feel free to chime in. So as we look at what is to come in 2013, I would say there is a majority of it that comes in cost of rent because it's slated to come out of areas such as operational headcount metrics that we track. Delivery -- efficiencies that quite honestly we haven't recognized any synergies for as of yet but we know that there are some benefits that are going on, we just have to get our heads around how do we capture them and calculate them. So the majority of that incremental $96 million will be in the cost of rent lines of the Company.

It's not to say that we still don't have opportunities in SG&A. I think there is still some process changes to play out in some of the administrative areas but it will be skewed toward cost of rent during 2013. We have been more heavily skewed towards SG&A savings so far in the $104 million that we realized in 2012 and that is just natural. Right? A lot of it came out of reducing redundancies in the corporate functions, reducing the management structure in the field. And we've done a nice job of that. It has gone very well. The stuff yet to do is going to be more -- it is the harder stuff, quite honestly, but stuff that is more directly tied to the operation. Matt, do you want to add anything?

No, Bill touched upon it right. And a lot of the operational efficiencies -- you need time to actually achieve. Right? So specifically as we report achieved synergies, you will see more achieved synergies from branch operations coming in '13 than you did '12. And we will get to our $200 million achieved for the full-year and that should bring us to a run-rate of $220 million by year-end 2013. So most of the -- so the achievement will be done by year-end 2013 to get to our $230 million to $250 million fully developed plan.

Got it. The last thing I was hoping to ask you is -- and I apologize if I missed it earlier -- how should we think about the cadence of CapEx for 2013? Is it -- will it follow the normal split of 60/40 or -- ?

Ted, it is Bill again. We've thought very carefully about it this year and so I think what you will see is that the cadence by quarters in 2013 will look a little bit more like what you've seen in prior years like 2011, for example, than what you saw in 2012. We very heavily front-end loaded things in 2012. Roughly -- I think I've got the numbers here in front of me -- in the first quarter we spent about 36% of our total year spend last year in the first quarter. And then another 35% in the second quarter and then it went 18% and 11%.

For 2013, I think you can look for us to be more like what we were in '11, which was 19% in the first quarter of 2011. We're probably going to be around that level again this year. And then the second quarter may not be dramatically different than it was in the prior year, so call it 35%, 36%, 37% in that area. We'll probably load a little bit more of a spend into the third quarter than we normally might, so call it 30% or so, and then the remainder in the fourth quarter this year. We think it is important that you understand the pacing so that you get a good sense of how that capital spend will play out across the year. Does that help?

That is super helpful. Best of luck this quarter, guys.

George Tong, Piper Jaffray.

Could you outline some of the specific steps you are taking to ensure rental revenue growth in '13 will outpace the overall rental market?

Specific steps? I think if you take a look at our investor presentation, Juan, who is our Senior Vice President of Sales and Marketing, laid out a very detailed map of how we are looking at the world and how we are plan to attack it -- using total control, going after verticals specifically, and also implementing sales force automation tools that we have out there. And those are a lot of dynamics that we've laid out. It is a lot of the best practices that we have learned between both Companies of how we are going after the market. And core is another one that we've rolled out and we've got to educate the legacy employees and that has been fully laid out and they have been educated on that. And 2012 was as much as really kind of integrate and learn so that in '13 that we could be prepared. And those are probably the biggest things that I can think of. Matt, if you want to add something?

Yes. I mean if you're just talking about -- talking about it overall from 10,000 feet, we've spent more time and energy in the past six months on preparing our sales team for sales force effectiveness through new tools and training than we have in my 20 years in the industry. And this -- I really think we will see the benefit of that on top of the stabilization of everybody being in their new territories, their new stores, and just the overall -- the full-year effect of having a team together I think we will be able to achieve the growth that we have forecasted.

Yes, and I would also point out that there's going to be some things that we're going to roll out this year that we just haven't announced. Were going to expand on some of the technology and leverage that, some of the best practices that we haven't yet implemented will be rolled out, and so there will be more to come.

Got it. That is very helpful. Next question is related to margins. The midpoint of your 2013 guidance suggests EBITDA margins of 46%. Will that be the new steady-state or do you see additional upside to 46% beyond 2013?

Well I would be remiss if I didn't say that I think there is an upside. Right? Because the idea is that we continue to drive profitable growth. We have a lot of things that we are -- we're going to be utilizing. Some of what we just mentioned -- some of the things around profitability by product and by customer --that technology exists. Rolling that out, implementing those type of tools, further capital efficiencies around what is not available for rent should all go to a margin improvement. So, for me, I would tell you that there is more to come.

Very helpful. And then last question, could you give us some color on how much revenue synergies you expect to achieve in 2013?

We had -- this is Matt. George, we haven't pegged a specific number on it. I will say that we are well on target to hitting our commitment of $50 million of incremental EBITDA that we reported last year as our target. And if you recall, that will come at a high flow-through because of where we're getting it. That will be somewhere between $60 million and $70 million of additional revenue. And I am not trying to avoid giving you an answer. The real challenge is, unlike cost synergies, we have set things in motion to achieve revenue synergies but we actually have to build the revenue, which is going to come throughout the year to take credit for it. But we do feel that we have the actions in place to meet and probably exceed our plan.

Yes. On that point just to point out that the harmonization of all the contracts -- although we've kind of got almost all of them done, they are not all done. We've got about 90% done. We will get the balance of those baked into this quarter. I think -- and Matt is exactly right, as you see the quarters unfold this year, you will see more visibility around those numbers.

Great. Thanks and congratulations on a quarter.

Timothy Thein, Citigroup.

Good morning. Congrats again on a good year and in terms of the acquisition as well, in terms of your integration. Question back on terms of the EBITDA guidance, Bill, and if you walk through some of the key pieces, I'm trying to get a feel for how we should think about the volume impact. And you just mentioned the incremental cost synergies of -- that gives you, call it, $100 million incremental benefit. The benefit from right should give you another, call it, $180 million, and obviously these are not givens of course. But I'm trying to think about if you assume a more equal weighted spend on that $1 billion of net CapEx implies about $500 million in higher pro forma average OEC and you are saying that utilization is up some on '12. So what should be kind of an appropriate drop through range that we can think about on that incremental volume?

Tim, so to make sure I understand your question, you are looking for the drop through of just incremental volume alone?

Yes, exactly.

So what I would say is we haven't parsed it at that level. We talked -- we gave the guidance that shows you that the increment -- the drop through for overall revenue, whether it's price, volume, mix, whatever, fleet, whatever, is implicit in the guidance. And David Raso, earlier, talked about 63% if you exclude the impact of synergies. We haven't broken out the incremental impact of volume at that level of detail. So, I'd -- I actually don't even have a number committed to memory that I would want to throw out there. Clearly, volume is going to be a focus for us. We are putting more fleet in. We are going to raise utilization and certainly that is going to be a key driver of our overall profit improvement, but why don't we leave it at the discussion at the total revenue level.

Okay. All right. Fair enough. And then, Bill, in terms of the mix impact, how should we -- just kind of bridging that price versus volume and then the additional kind of unknown, what should we think about from a modeling perspective in terms of what that mix factor looks like in 2013 as you move more of your business towards these monthly contracts?

Certainly. So as we look at 2013 and what is implicit in the guidance is a mix impact that is somewhere around 1.5 points of headwind. So a 4.5% rate, whatever your model for volume is, and explicitly we are saying about a 1.5 points of mix headwind. That will give you the high single digits creeping up on 10% revenue growth that's implicit in that overall total revenue growth that we've guided to. So that is how we are thinking about it.

Okay, great. Thanks a lot.

Philip Volpicelli, Deutsche Bank.

I have two quick ones and then one more philosophical. The first is, where do we stand on the stock repurchase authorization and where do we stand on the RP basket? And then the last one is, with regard to acquisitions, clearly the integration of RSC is going well. In 2013 would you consider looking at other targets of size?

So on the share repurchase, Phil, we have got about $85 million left to do and we will manage that the way we said initially, which was we were going to get it done over an 18 month period post-to-close and we will just spend it as we go along. In terms of the RP basket, I'm going to look over at Irene Moshouris who is sitting here and say where it is it on your cheat sheet, Irene? Help me?

It's the acquisition notes and then the most restrictive with $250 million.

I'm sorry could you say that again?

$250 million.

Thank you, Irene. And I guess, Michael, maybe the acquisition question?

Yes. With acquisition we are always going to be focused on driving profitable growth and you're going to hear me say that over and over. Strategically, it has to fit -- it has to -- and I've been a lot of rigor around this, it also has to be accretive and a cultural fit. Having said all that, we always look at what is out there. And I think one of the areas that was very evident that we are going to be focusing on is our specialties side of the business, which is a very high return and bodes very well with our current customer mix as we go forward. So, again, opportunistic but no need to rush out there and we will continue as we stated earlier, we've got a lot of free cash flow and not only this year but in the years to come. So we are going to be in a good position.

That's great. And maybe I can just ask, are the number of books coming across your desk -- are opportunities increasing or decreasing in terms of potential M&A that you are analyzing?

I don't measure it in that way. I think that people try to get in to talk to us to get a sense of what our thoughts are. And I will tell you that I turn away as many as I open up. So I don't measure it in that form. It is just -- I think people are trying to understand what our appetite is and we've got this integration underway. That is foremost on my radar screen. It is delivering what we say we are going to deliver and then some. We have the best in class. We have got to deliver on the best practices and then it has to be strategic. How can it fit with our long-term yield?

Great, thank you very much. Good luck.

Thank you. Ladies and gentlemen, due to time constraints, this does conclude the question-and-answer session of today's program. I would like to hand the program back to Michael Kneeland for closing comments.

Thanks, operator, and thanks everyone for joining us today. You will find our investor presentation on our website. We've got some updated data that we hopefully find -- you find it as useful for all of you. And as always, feel free to call us or Fred Bratman here in Greenwich and you can discuss the details in more -- all of the comments in detail. And also, if anyone would like to -- I extend a visitation to anyone of our sites to get a better sense of how we operate. Thank you very much and we look forward to our next quarterly call.

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