聯合設備租賃 (URI) 2013 Q4 法說會逐字稿

Good morning and welcome to the United Rentals fourth-quarter and full-year 2013 investor conference call. Please be advised that 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 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 more complete description of these and other possible risks, please refer to the Company's annual report on form 10K for the year ended December 31, 2013, as well as two 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 expectation. You should also note that the Company's earnings release, investor presentation and today's call 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; William Plummer, Chief Financial Officer; and Matt 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 to today's call. 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.

Last night you saw us report a strong end to a record year of value creation. Our efforts in 2013 were defined by our disciplined, our focus and our pursuit of profitable returns. All three of these qualities are apparent in our results. Our rental revenue and our EBITDA both showed substantial year-over-year improvement in the quarter and these are the key metrics of our core business and their trajectories look very good.

We increased our rental revenue by a robust 9.4% in the quarter. The full-year increase was 7%. So we outpaced our performance in earlier periods as expected. And our adjusted EBITDA for the quarter was $651 million and a margin of 48.7%. That is 440 basis points higher than the prior year and these are strong tailwind's to take us into 2014.

In addition, the three drivers that underpin our revenue and margin showed solid year-over-year growth in a season-challenging quarter. Our rates improved 4%. Our time utilization increased 60 basis points to over 69% and our volume of equipment on rent increased by more than 8%. The bottom line, as you saw, was an adjusted EPS of $1.59 per diluted share. Now Bill will discuss these numbers in more detail in a few minutes and then we will go into the Q &A.

So now I want to turn it over to the current year. The operating environment is obviously a major factor in our outlook. And we agree with the majority of forecasts predicting more lively equipment rental market in 2014 with further upswings in 2015 and 2016. Now whether the improvement this year is roughly 8%, as global insight predicts, or a different number, our intention is to outpace the industry as we profitably grow the business. Now we will continue to execute a balance capital allocation program, incorporating investments both organic and inorganic growth. In the process we expect to continue to bring down our leverage and return cash to shareholders.

The outlook we issued last night is a measure of are confidence in achieving these objectives. You can expect us to move well passed the $5 billion mark in total revenue and with an even more dramatic improvement in EBITDA. To help drive this growth, we set our gross rental CapEx at $1.65 billion for 2014. That is a big number and we spent close to that last year and we think our customer activity will support it again. Now approximately $500 million of this capital is earmarked for growth CapEx and based on our expectation for recovery. We can adjust the throttle at this any time, depending on how the year unfolds. Our agility is a major advantage for United Rentals in terms of fleet management and it ties directly to our scale and liquidity.

I also want to mention our used equipment margin because that is another measure of demand. Our fourth-quarter margin on used sales was more than 46%, compared to roughly 40% prior year. Now North America is a strong marketplace for us right now and we are in the process of expanding our export channels for used equipment to take advantage of foreign demand. So we are thinking both the near-term and long-term dynamics to execute our strategy for profitable growth.

I want to reiterate our mantra that you've heard me use before. United Rentals is not a Company that chases the topline at all costs. We view demand for our services and return on our capital as two sides of the same coin and we won't lose sight of that in the recovery. Our entire Company is laser focused on returns. In fact, return on capital was an essential theme in our annual management meeting three weeks ago. We will be tracking returns very closely this year using metrics that tied to compensation, both at the branch and executive levels.

Now I'll touch briefly on the operating environment for the fourth quarter as it carried into 2014. We drove rental revenue growth in all but one of our regions in the quarter with about half of our regions showing double-digit growth. The Southeast had the most robust performance in our [general] rental business. It was up nearly 21% year-over-year. Georgia was particularly strong. We service large capital improvement projects and plant shutdowns as well as retail.

A number of these projects are ongoing into 2014 and we see good demand from oil and gas, industrial manufacturing and the food and beverage sector. Plant maintenance and retrofits continue to be a strong trend. We've also recently won bids for corporate offices and data centers. So it is an encouraging mix and the real traction in commercial construction is still ahead of us.

Our specialty business has a growing role in this landscape. In the fourth quarter Trench Safety revenues were up more than 19% year-over-year. The power HVAC revenues were up more than 15% and that growth would've been even higher without the comparison of Hurricane Sandy in 2012.

Our third specialty business is called Tools and Industrial Solutions and we've seen an enhanced opportunity to cross sell these services based on increasing number of [tool hubs] in our footprint. As many of you know, these business units speak prominently in our Company's growth strategy. We open 18 specialty locations in 2013, 12 of them in the fourth quarter. These branches are off to a good start and we expect it be realized a growing benefit from our specialty cold starts in 2014 and beyond.

Now we will continue to expand our specialty offerings, both organically and through select acquisitions, if the right opportunities arise. This year, you can expect us to see and open another 13 cold starts dedicated to power and HVAC, trench safety and pulls. And we've increased our capital allocation for specialty by 44% compared to last year. These are sound, strategic reasons for our focus in rentals -- especially rentals. First, they are attractive, high-margin business served a range of growth markets.

Second, we expect that a greater diversification of revenue streams and end-markets will help us achieve our goals for return on invested capital and lessen the impact of cycles. And third, we can cross sell these services to our general rental customers using our existing sales structure.

A cross sign for us is not just our incremental revenue, it's a big part of our positioning as a provider of total job site solutions. By cross-selling specialty, we deliver more value to our key accounts. Large customers want and need these services and they are embracing the chance to access them through the one source along with more traditional equipment categories.

We also have good news to report on safety. We ended the year with approximately 10% fewer reportables than the prior year. Our reportable rate for 2013 was 1.3%, which is our best performance yet. Safety, like rental rate and cost discipline, is an area where you will never see us become complacent and there is always more work to be done. This mindset of continuous improvement has become embedded in our culture.

We started with Operation United in 2009 for our call to the customer service excellence. It was extended to operations with our rollout of the 5S process in 2012 and now we are embarking on Operation United 2, which is based on a lien philosophy pioneered by Toyota. And this is tremendously exciting for the Company. We've competed 8 branch pilots using Kaizen process and will soon begin a Company-wide rollout that target nearly 200 branches this year.

Our vision for lien will require a financial investment and a major operational commitment. But based on the results we saw for these pilots, we believe that we can realize significant improvements in our operations over time. And we are targeting a run rate of at least $100 million in efficiencies within three years.

So in conclusion, we had a record year in 2013 but we are still hungry. We are still thinking about new ways and we are also looking at our business from every angle, exploring every possibility for profitable growth. Most importantly, we are moving forward from an unparalleled position of strength.

So with that, I will turn it over to Bill for the financial results and then we will take your questions. Over to you, Bill.

Thanks, Mike, and good morning to everyone.

As is usual, I will spend some time going in a little bit more detail on the quarter before I move on to our outlook for 2014. I will start with just an update on the rental revenue for the quarter. You heard Mike say that rental revenue was up 9.4% in the quarter. That was very robustly driven by the increase in our owned equipment rental revenue. OER was up 9.6% in the quarter. You heard about the 4% year-over-year rate improvement. That was a very significant driver but we also had very robust volume growth in that OER number, up 8.2% in fleet-on-rent in OER for the quarter.

Mix and other was a drag of about 2.6%, and as we've talked in the past, about 2% of that drag was from the effect of inflation on our original equipment as we sold used equipment. So the remaining negative 0.6% or so was owed to mix in our period mix and in other mix effects in the revenue. So OER up 9.6%, or about $86 million out of the $97 million or so year-over-year growth in rental revenue.

We also had another very strong quarter in ancillary revenue, up $16 million or so over the prior year. That is a 15% growth rate for ancillary, really driven by better sales of our rental protection program and higher collections on delivery revenue in the quarter. So a very robust quarter in ancillary and others. Re-rent was down in the quarter. That was the main difference between the two strong growth items in OER and ancillary. But put it all together, revenue was up the $97 million or so year-over-year. And again, that is a 9.4% rental revenue improvement.

If you move on to used equipment, just real quickly, another good quarter there for us -- $134 million of proceeds in used at the 46.3% adjusted gross margin that Mike mentioned. So another very strong used result. The margin mainly reflects what was a very strong retail mix in our channels. Yet again, we were over 60% -- actually about 51% through our retail channel in used sales in the quarter. That is up 1.8 percentage points versus the prior year and it reflects the continued emphasis that the field is putting on making sure that our used sales are really landing in the hands of the highest value buyers for both us and for the buyers. So good used equipment sales quarter for us there, again.

Real briefly, touch on profitability. Maybe I will do it as we've come to do it recently by walking through a bridge of our adjusted EBITDA performance. So we were up $98 million in adjusted EBITDA, up to that $651 million number for Q4. Of that $98 million, we were helped by rental rate increases by about $35 million at EBITDA impact. So that is the 4% year-over-year rate. Flow-through is something like 95%. Volume was also strong, up $49 million over the prior year. And again, that reflects the 8.2% OEC on rent growth that I talked about other flow-through, let's call it, 65%.

The fleet inflation and mix impact was a negative $16 million, again, reflecting the fleet inflation from used sales along with the mix impact as we talked about. Our used sales -- we sold $263 million of original cost fleet at an average age of 88 months. So if you hit that with sort of a 2% inflation factor for each year in that 88 month period, that gets you to the fleet inflation dollars within that $16 million headwind. Synergies -- had another good synergy quarter this year, $59 million of synergies realized in the quarter for Q4. And that is $17 million more in synergies that we realized in Q4 of 2012. So the year-over-year synergy impact in EBITDA was that $17 million difference.

I talked about ancillary revenues being strong, so that contributed at about $8 million in the quarter at EBITDA. And our used sales contribution year-over-year was about a positive $8 million as well. SG&A, we had a good SG&A quarter. The impact in SG&A year-over-year was about $13 million positive with a heavy contribution from a strong bad debt expense performance in the quarter. About $9 million of that $13 million was from bad debt expense reductions as we saw the benefit of all the good work we have been doing to address the longer dated accounts receivable in our overall AR balance.

The remainder, our headwinds, we talked in the past about our merit increases on a year-over-year basis being about $5 million a quarter. So there is a $5 million headwind from merit. The other lines of business, new equipment, service and other and supplies accounted for about $3 million drag year-over-year and a host of other things we lump into all other would be about and $8 million headwind. So those are the key components that add up to the $98 million of year-over-year improvement in adjusted EBITDA. $651 million is a very nice 48.7% margin in the quarter and that is about 440 basis points better than the prior year. I think Mike said that as well.

Flow-through for the quarter, in total, was 110.1%. And that was a very nice result, obviously helped along by the improvement in the synergies realized in the quarter over the prior year. If you exclude the synergies, it's still a very robust 91% in the quarter. And that brought the full-year for flow-through, excluding symmetries, to 59.4%. Again, that is the full year. Just a side on the synergies, we realized $236 million of synergies for the full-year and we ended the year with an annualized run rate for cost synergies -- these are cost synergies only -- an annualized run rate of right at about that same number -- right at about $238 million, $240 million.

So we are very pleased with the synergy results that we've realized and we feel that we have now completely delivered on the synergies, the cost synergies, that we've talked about since the RSC acquisition. This will be the last quarter that you hear us talk about cost synergies as a separate stand-alone item. Those savings are now baked into our business and our objective is to drive them as we go forward. So a nice synergy result and a nice flow-through result in the quarter overall as well.

Just touching briefly on EPS. EPS was $1.59 in the quarter and that totaled $4.91 for the full-year at adjusted EPS. So a very strong year for us in earnings-per-share as well.

Before I move on to the outlook, just touch on free cash flow briefly. We ended the year, the full year, with free cash flow of $421 million and that includes the add-back of about $38 million of merger and restructuring related payments. You all know that we have been carving that out of the cash flow for the entire year, in fact since the RSC transaction. That free cash flow, obviously, is after the investment we made in our fleet. We spent $1.580 billion on new capital this year and, obviously, it nets out against the overall free cash flow that we delivered. So a very robust result in free cash flow from our perspective and well within the range that we have been guiding to $400 million to $500 million.

On cap structure and liquidity just real briefly, we finished the year with a total liquidity of about $1.370 billion. Within that was $1.1 billion of available capacity on our ABL and about $175 million of cash on hand. And I will remind everyone that a couple of days ago we did redeem $200 million of 10.25% notes that we had assumed in the RSC transaction. So continuing to focus on really optimizing our capital structure. We used our ABL to redeem those notes and we're able to do that because we upsized the ABL during the month of December. But again, even after using the ABL to redeem the notes, we still had that $1.1 billion I mentioned of available liquidity on the ABL by itself. So a pretty good liquidity position for the Company overall.

Before we move onto Q&A, one last item to address, which is the outlook for 2014. You saw in the press release last night but just to recap, we think our total revenue will come in the range of $5.25 billion to $5.45 billion in 2014. And within that, rental revenue will be driven by the key measures that we talked about.

So we expect rental rates to be up about 4% for the full-year and that will be after the impact of carryover. Carryover this year will be something between 2% and 2.5% -- so call it 2.25% just for discussion sake. We do expect to improve time utilization this year. 68.5% is where we think we will be. That is up 30 basis over what was a very strong year last year and would be another record for us. So expect good operating performance to drive robust rental revenue growth.

At adjusted EBITDA, we are calling that between $2.45 billion and $2.55 billion and we will achieve that at a flow-through of about 60% for the full year. So again, another year of about 60% in 2014. Net rental CapEx, we are going to spend $1.650 billion on gross rental CapEx in the year and that will net down to about $1.150 billion in the year. Our free cash flow for the year we expect to come in between $400 million and $450 million over the course of the year.

And along with that, we think that we will end the year with leverage as measured by net debt to EBITDA, somewhere in the 2.7 to 2.8 times area. That net debt will be after we've executed a pretty robust share repurchase program this year. We expect to spend about $450 million on share repurchases during the course of 2014. And even with that, we expect our net debt to EBITDA leverage to come down to that 2.7 to 2.8 range from the 3.0 that we finished 2013 with.

Let me address just one point that came up in some questions since the press release last night around free cash flow. The guidance of $400 million to $450 million. The questions or comments that we've gotten suggest that, hey, your EBITDA is going up if you use the midpoint. Your EBITDA is going up year-over-year something like $200 million but your cash flow is basically flat. Why the disconnect? And I assure you there is no disconnect. We think about these things very carefully as we put the guidance out. That increase of EBITDA of roughly $200 million in the year, if -- assuming it all came in cash, would naturally argue for $200 million higher in free cash flow. The headwinds that we have working against that in 2014, though, are an increase in our CapEx were $1.580 billion this year going up to $1.650 billion. So that is an extra $70 million of capital spending. So the $200 million is now down to $130 million.

We are so going to spend a little bit more on-rental CapEx in the year as we roll out some of the cold starts and invest in the facilities to do that. We invested in pickup and delivery fleet to fleet those new cold starts as well as to improve the [P&D] fleet around the rest of the Company. So another -- call it another $10 million or so of incremental non-rental CapEx eats up part of that increased EBITDA.

We got higher taxes coming in 2014 to the tune of about $30 million. No, we are not done with the NOLs in 2014. That increase is really reflecting some alternative minimum tax increases that we experience along with greater profitability in 2014 raising Canadian and state and local taxes somewhat. So about $30 million gets eaten up in higher taxes. We get a little bit of the benefit in cash interest from having redeem the high coupon issue, call that $10 million or so of benefit, but working against that is an increase in working capital.

As we grow our business, let's say we grow revenue roughly 8%, and we -- if we assume the same level of DSO performance, our accounts receivable will grow in that same area. We finished the year with roughly $800 million of AR. So you put 8% on AR, that is a $50 million headwind in working capital right off the bat.

Working against or offsetting that, we are looking at some benefits with larger payables in the year. So you net all that together, working capital should be a headwind of something like $60 million and then the rest is just puts and takes in a whole bunch of areas including, perhaps, a little bit of conservatism on our part. So hopefully that addresses the free cash flow outlook that we gave and hopefully that gives folks confidence that it is fully in alignment with the other elements of guidance that we've given for the full year.

Couple of real minor points just to finish up. To help you with thinking about cash flow and some of the other items next year, our book interest expense for the year we think will be in the $450 million to $500 million area and cash interest for the year should be in the bottom part of that range. Our tax rate, we finished the year this year with an effective tax rate that is a little north of 36%. If you use 37% or so, I think that would be a good starting point for our ETF in 2014.

A little bit of pressure there from the mix of earnings between the US and Canada. Our federal cash taxes, I mentioned that they will be of roughly $30 million or so over where they were this year. We spent $48 million this year in cash taxes overall. So the increase is mainly federal for 2014.

So those are some key points on the outlook. Hopefully that helps you with your thinking about the year and certainly we will be glad to address them in Q&A. But let me finish my comments by just reiterating what some of the comments that Mike made. We had a great year in 2013. It finished off strong and we had great momentum going into 2014.

As we start the year this year, we've got a lot of initiatives that we think can really help contribute to a robust improvement in profitability this year as well as in years subsequent. So we are excited about the year and we look forward to talking to all of you about the results as we go through the year.

So with that, I'll turn it over to the operator for Q&A. Operator?

(Operator Instructions)

Seth Weber, RBC Capital Markets.

With the free cash guidance that you just outlined, Bill, the $400 million to $450 million for 2014 on top of the $425 million for 2013, can you talk about your relative comfort to reaching the $1.5 billion that you've talked about collectively for 2013 to 2015? And what would be the source of that large uptick in -- the implied uptick in 2015, which would have to be $600 million, $650 million?

Sure, Seth. Thanks for pointing that out. I probably should have said it in my prepared comments. But we are very comfortable with the $1.5 billion number that we talked about covering the 2013 to 2015 time period.

Yes, it does imply a significant uptick in free cash flow for 2015. But again, we feel good about being able to deliver that.

Where is it going to come from? We think robust improvement in our operating cash flow from profitability. As we continue to grow the fleet and as we see the impact of some of the investments that we've made in prior years, we fully expect that we will have a nice improvement in profitability that will contribute to significant improvement in free cash flow overall.

So that is the biggest driver to get to that roughly $650 million number. There is a little bit of a headwind against that as we talked about. NOLs run out in 2015 and so our cash tax bill will go higher. It will be a drag of something north of $100 million -- $120 million, thereabouts. But we feel like with the improved profitability and some of the other items that I'll touch on in a second, we can overcome that.

One of the other important drivers is that we don't anticipate to continue to grow our capital spend, as we go forward, dramatically. And in fact, as we sit here and think about 2015, we think, broadly speaking, we think about 2015 CapEx as being comparable to the 2014 number that we spend. So we don't expect to see a significant drag from increased CapEx in the year 2015 as well. So that helps.

And then we've got some things focused that, in the areas that I will broadly call working capital, that we think can really help improve our working capital position in 2015 and contribute to less of a working capital use in that year than what you might normally expect. So those we'll detail more as we go forward. But if you broadly say working capital improvements, that will be a nice slug of the incremental cash flow in 2015. And then we will get a little bit of benefit as well from the non-rental CapEx. I mentioned that we're investing a little bit more in non-rental CapEx this year. We should be able to dial that back in 2015 as well.

So those are the big things I pointed. There are a ton of moving parts in that outlook. But we feel like we've been pretty good in delivering what we've said over the long haul and the short haul and we've got a lot of confidence that we can hit that roughly $1.5 billion number that we talked about. That help?

Yes, that is helpful. Thanks. And if I could ask a follow-up on the CapEx discussion? Did I hear correctly that specialty CapEx is up 40%-something in 2014? And --multi-part question -- but how should we think about CapEx cadence through the year? Should it be normal? And if specialty CapEx is up that much, where -- what's -- where are you deemphasizing CapEx, I guess?

Great. Seth, this is Matt. Good question. As far as the specialty CapEx, think of our CapEx as 2/3 replacement and 1/3 growth within that 1,650 number, roughly. And if you think about the growth capital, the number that you are referring to is we are going to spend about 45% of that growth capital on specialty. It is a major strategic advantage for us with our key customers and as well as to fund all cold starts that Bill and Mike had referenced.

Within the other 2/3 of the capital, we will continue to mix even within major Cap classes. So we have a focus on making sure there's three levers that we focus on. Customer demand -- first and foremost, we have to meet their demand. But within those major Cap classes of aerial, reach forks and earthmoving, there is different mix that we can get to meet demands and, at the same time, improve our returns. And that is what our team is focused on as far as CapEx spend for 2014 and beyond.

Okay. And should the cadence through the year be pretty traditional or do you think it will be more front-end loaded or backend loaded this year relative to historical?

We expected it to be similar to what we did in 2013.

Okay. Thank you very much, guys.

You're welcome.

David Raso, ISI Group.

I know it's a little bit of you can't please everybody, but trying to balance growth and hitting the cash flow and return on capital targets, when you speak to CapEx base case flattish in 2015, utilization this year -- you are looking at 6[%] to 8.5[%], how are we thinking about growth though in 2015 with the flat CapEx?

I'm just trying to make sure -- yes, clearly the re-rating in the stock -- giving away little bit of growth is worthwhile for an improving return on capital and cash flow, but at the same time, if I don't have CapEx growth in 2015, structurally how are we thinking about where rates can go in that somewhat restrained CapEx environment? Where can utilization go? I'm just trying to make sure we don't lean too far to the cash flow, return on capital story and forget about leveraging the cycle.

Thanks, David. I guess I would point out that if we spent let's say $1.650 billion again in 2015, we are still growing the fleet, right? That is still mid- to upper single digits growth on the fleet overall. And if you layer on top of that a little bit of improvement in utilization, that is a nice level of growth -- basis for growth even before you get any rental rate increases on top of that.

So I guess I would despair of growth in 2015 with that level of capital spend. And what we want to do is to make sure that we are leveraging the capital we already have plus any new capital that we spent as much as we can. And so we've balanced it maybe a little bit more towards profitability improvement and return improvement than some would like, but I think it is going to really bear fruit as we go down the road in improving the returns and profitability of our business.

(multiple speakers) Dave, I just wanted to add two other things to that that Bill highlighted on. And I agree with what Bill said. There's other avenues that -- we are kicking off a lien process to change our processes and to figure out how we can make sure that we can grow our revenues by expanding our time utilization and also getting our OEC not available down. So that to us is also another way in which we can get that trapped cash and have it start working for us.

And sort of related to this on page 52, the bridge to the high returns, it does speak to 6% growth in rental CapEx per year. So is it safe to assume, trying to model out a few years, there is going to be some growth in CapEx, even if you flatten out in 2015, to hit this 10.8% hurdle for return? I assume there is some pick up in CapEx as you look further out. And what are the EBITDA margins that are baked into this return analysis on page 52? Just so I can get a feel structurally where you think the incremental margins are from here to there, call it 2017?

Yes. So I will leave the exact margin numbers to your imagination, but I think it is fair to say that they continue to improve throughout the timeframe that we are talking about here. And, yes, as you look further out, we probably would add a little bit more growth CapEx -- beyond 2015 I'm talking -- a little bit more in CapEx, assuming the market continues to move positively, just to sustain a decent level of growth for the business overall. Incremental margins as we go forward, again, as a modeling exercise, right now I would just say keep using 60% -- a number right around 60% and that is probably a fair way to think about incremental margins going out.

Alright I appreciate it. Thank you.

Ross Gloudi, Bank of America.

I wanted to elaborate -- given your focus on returns and your comments on continued deleveraging and returning cash, should we assume that large acquisitions have moved lower on the priority list?

This is Mike. I've always said this that there is a lot of opportunities and growth opportunities out there. We are in a position where we don't have to do anything to execute our strategy of growing profitable. We always have a hurdle, I'd say several hurdles. We call it the three-legged stool around here. Is it the strategic fit? Financially, does it make sense and if the benefits will yield and the cultural fit?

I would say that the bar has been raised and will remain high on those three hurdles and we will have a very disciplined approach. We have had opportunities and we've passed on them. So could there be something in the strategic or in the specialty side? I mentioned that we are looking at both organic and inorganic ways of growing that business. Could it? I don't know but rest assured, the bar is high and it has to hit those three hurdles.

Great. Thank you. And then just wondering if you can comment what you are seeing out of the major OEM dealerships with respect to rental? Clearly the rental channel is growing very fast. Your average OEM dealership amongst the majors is not seeing that level of growth right now. So are you seeing the OEMs respond aggressively by adding more to the rental fleet or any color there would be helpful?

Sure, Ross. This is Matt. We have not seen a major expansion. There may be -- any growth at all would be significant because most of the OEMs don't have large rental fleets. I their participation selling into the rental channel will continue.

And I think as I think about our top vendors, it is already a large part of their business. And maybe some of the next tier vendors for us might get more into the rental channel. I don't anticipate dramatic changes in any of those results.

I would also add that most of the OEMs that you are talking about from a dealership standpoint would be earth moving. And that is -- it is an area of our sector that we have grown, we'll continue to invest in.

But the heavy side of it is something that we are not -- we have a big footprint on. So they may in their -- expand their rental portfolio. But it is probably going to be within their core competency.

Okay. Thanks very much. That's helpful. Thank you.

Ted Grace, Susquehanna Financial Group.

Congratulations on a great quarter.

Thank you.

Mike, could you just talk about your view of the macro? I know you touched on it initially, but what is the most important metrics you guys are looking at internally whether it is rates or time utilization, to feel as good as you do? The customer survey has been the flavor they might provide on either growth by verticals, so retail, lodging and office. Where do you see the best opportunity for you from an end-market perspective and then regionally how are you feeling about it?

Yes, I will take the high-level and the detail in region I will give over to Matt. Let me just say that it was in our investor presentation, I think it is page 12, we have our customer survey.

This survey that we just performed in December comes at the strongest results that we've ever seen. We only have 2% of the more than 228 customers we surveyed that see 2014 going down. 98% see 2014 going up or equal to 2013. So that is probably one of the strongest results that we've seen since we started the survey process.

From an external data, we do listen and we talked to and follow the global insight. We follow, obviously, the GDP. The ABI index -- and I know there's some -- I got some questions about the ABI. The one thing I would just ask everyone to take a look at, if you go back to 2010, we had nine months that were negative.

In 2011 we had five months that were negative. In 2012 we had four months and then last year, 2013, we only have three months. So you can see that trend continues to improve which goes back to our comments.

We don't see this as being a hockey stick but a gradual improvement and I think that is playing out. All indications are, for all external resources, that private non-res is starting to come back. Again, we don't see it being a very -- a big uptick or a hockey stick, very gradual. So I will shift over to Matt and let him talk from a regional perspective.

Thanks, Mike. Yes, Ted. So when you look at it from a region perspective, we had very broad-based growth. 13 of our 14 geographic regions had year over year growth and half of those had double-digit growth. And if we wanted to round up a couple of tenths of a point, we would actually add a couple of more regions into the double-digit category.

Eastern Canada remains -- we've talked about it little bit and the team up there is working hard, but they are not getting any macro tailwind up there. So they are not in a growth mode, although their real results, their actual results, are still very good results for the organization.

We are seeing the hot spots where you would imagine, oil and gas is a hot sector, anywhere where there's power is hot and we're seeing our double-digit growth in those segments. But when you look broadly overall and you look at the way we closed the fourth quarter on our key metrics of time utilization, rate improvement and used sales improvement in both margin and volume, specifically the retail portion of our volume, which we really put an emphasis on and the demand is there, it really has us feeling very bullish on 2014 demand.

Okay, that is great. And then the follow-up if I may, to tag along on David's question. If the market were to be up 8% hypothetically and URI outgrows it and net CapEx is up, let's say 5.5%, just looking at the simple numbers, would it be fair to infer that the time utilization improving 30 basis points may be conservative or is there something I'm missing just in that high-level math?

Ted, I always hesitate to say things are conservative, but that improvement that we talked about is not huge. And it particularly should be gauged on what the market is doing, but also on what we're doing inside the Company, right? The lien initiatives that we are implementing could give us the opportunity to do better than that.

So I certainly wouldn't go lower than 0.3 improvement in 2014. And if you're having a problem reconciling something then -- and if increasing the year over year improvement in utilization helps you reconcile, then if I were in your shoes, I would probably be biased to bump it up.

And so few roll that forward to David's question and you are in a flat CapEx environment in 2015, can you just talk about where you think you ultimately can get time utilization to over the next -- I guess whatever is embedded in page 52 in the return profile?

Sure. We can --

Can we get to the low 70%s? Is that -- could we be calibrated there or --

Ted, this is Mike. And I have said this before both on the road and whatnot. In my 35, 36 years in the industry, I would've told you that where we stood being around 70% would be probably a threshold. Having said that and gone through the Kaizen event, which I actually spent a week out on the road in Atlanta. It opened my eyes, as it did to management, that there is opportunities to exceed that.

We are putting in investment to roll out 200 branches this year. Some of our largest key areas to touch them to roll out our lien process. It is hard to quantify right here and now. We will update as we go forward.

But I would tell you that I can see areas where we can do over 70%. How far up between 70%? I don't know right here and now but I can tell you that it can go up. The headwind we would only have as we grow the specialty side of the business, that is a business that time utilization is not really a big component to get those returns.

But I can tell you that intrinsically we've got it baked in. There is going to be higher time utilization opportunities.

And, Ted, just to add a little bit more. The improvement in utilization that we assume on the RIC bridge, slide 52, obviously doesn't get you there, right? It doesn't get you to 70% if you just add 20 basis points a year over even five years. So we are putting in a number there for discussion purposes.

To Mike's point, the opportunities will play out as they play out. We are optimistic on our ability to drive utilization and so we certainly feel like there is an opportunity, relative to slide 52, there is an opportunity for upside.

Okay that is super helpful, guys. Congratulations, again, and best of luck this year.

Steven Fisher, UBS.

Just on the rental rate growth going forward, how much do you think is tied to the extent of underlying nonresidential construction market growth? Obviously, you grew just over 4% on flattish markets in 2013. So I guess I'm curious how much is Company specific rate initiatives versus underlying market growth?

Yes, I would broadly characterize it as a mixture of both. We had carryover that was somewhere between 2% and 2.5% just coming in. And certainly the market helped carry us up to that 4.2% that we realized for the full year.

But we are very focused on making sure that we manage rental rate actively. So it is hard to separate out and say half of it is from this and half of it is from that, or 30% and 70%. That is a very difficult split to make.

But I do think that both are contributing and both will continue to contribute as we go forward. And in fact, if the market accelerates, as many forecast has it doing in 2014 and 2015, then you would think the share from market dynamics gets greater and we can continue to drive the specific rate initiative -- rate management initiatives that we have. And we hopefully can realize even better than the 4.2% that we got in 2013.

Okay, that is helpful. And then on sales of used equipment, is that more a poll where clients are coming in specifically looking to buy used equipment or a push where you are diverting people to used equipment? I am just curious wondering what you're interpretation of increasing used equipment sales says about market conditions.

Sure, Steven. This is Matt. It is definitely a focus for us, pushing our reps to participate more in retail sales but I don't think that is converting people from rental to own. As matter fact, every other metric that we measure our business and with our existing customers tells you otherwise.

I think folks were buying through other channels and we just needed to brand ourselves and position ourselves as a leader in used equipment opportunities for our customer base. So it is really just selling into our existing customer base who are also growing their rental at the same time. As there demand picks up, it will continue to grow both the rental and the used equipment side.

Okay. It can coexist. That's great.

Absolutely.

Thank you.

Nicole DeBlase, Morgan Stanley.

Another question on rate, how should we think about 1Q rates given that I think you are facing a little bit of tougher comps? So should we expect lower rates in the first of the year and acceleration into the back half of the year?

Sure, Nicole. It is Matt. It's actually when you look from a year over year perspective, you are not going to get -- we don't anticipate getting major swings within that 4% guidance. If we've got up-size then you will see more swings in Q2 and Q3 as our peak demand periods, let's say May through October, is where our opportunity to get sequential improvement always lies. But from a year over year perspective, although there is some choppiness and comps, we are not forecasting or planning for anything more than 10 or 20 bips variance quarter-to-quarter.

Okay. Got it. That's really helpful. Thanks. And then now that you moved past the period of negotiation on price with your suppliers, what are your expectations for fleet inflation next year -- this year I guess?

This year it is somewhere between 1% in 2%, call it 1.5% just for discussion sake.

Okay. Perfect. That's all I had. Thank you.

Scott Schneeberger, Oppenheimer & Co.

Congratulations, guys, on your year. Bill, you mentioned no longer discussing cost synergies from RSC. Could you address revenue synergies? That is something we haven't touched base on in a while.

Sure. Actually, Matt, do you want to talk about that one?

Sure. We have -- once we've got to our fourth quarter run rate, we feel that very comfortable that we've achieved our $50 million EBITDA goal. Remember that is an EBITDA goal, not a rent revenue goal, of our revenue synergies. And that is net.

The (inaudible) synergy that we had of almost $40 million early on during the integration from the store closures. It's mostly been driven by cross-selling of our specialty products, entrenched power HVAC as well as cross selling the total control solution service that we got with the RSC acquisition.

So we feel comfortable that we've achieved our revenue synergy. We will build it into our plans. As a matter fact, it is built into our guidance going forward. And we are excited that we reconnected with the local customer base.

When you look inside -- just to give a little color -- when you look inside the customer base numbers, our unassigned accounts, which were the area that we lost, the local customers, when we closed those stores, we put over 100 more sales reps on the street to reconnect with those customers. And when you look at our fourth-quarter results, those customers grew at 12.6%.

So we are encouraged that we recaptured those lost synergies. And that was -- the leak in the bucket was really our largest concern and we are feeling good about that.

Great. Thanks for that. And then following up on the prior question with regard to used sales. Bill or Mike, I think you mentioned expanding international distribution for used sales. Could you please elaborate on that? Thanks.

Sure. Right now that whole channel of the market is really a collection of our various brokers and then it goes through the auction channel. We are establishing a specific areas where we think that there is growth opportunity in foreign environments that would benefit. We've made sales. We continue to make sales.

We have had a used sales that go overseas and we are expanding on that by building the relationships in a much broader base. We want to make sure that it is an avenue channel. As we grow, we are going to be -- we are the largest producers of used equipment and quality used equipment.

And we think it is prudent for us to think through that growth down the pike. And we are putting a capital investment and they are yielding benefits from their efforts already.

Yes. Just to add to that, we are hiring dedicated sales reps and focusing them on different regions around the globe. We know that there has been good demand for our equipment offshore. We have just been reaching it through brokers and we think there is an opportunity for us to do it direct. So we've got a focused effort, as Mike said, and we expect that to continue to support our focus on driving used sales through our direct channels and realize the benefit there of.

Thanks. Good luck, guys.

Neil Frohnapplen, Longbow Research.

Thanks. Congratulations on a great quarter. Did you guys reprice a lot of your national accounts that you only negotiate annually during the fourth quarter? And if so, were you able to increase rate more than in recent years -- that gives you guys confidence in the 4% price realization for the full-year?

Neil, this is Matt. I'm not -- we don't want to speak specifically about any customer segment. I would say that broadly, all of our customers sets are routinely under review.

We did go through a major contact harmonization, as you all know, during the integration. That is 100% complete. And now it will just be part of our regular renegotiation cycle with our contractual accounts, specifically, and they will mostly be in the first quarter.

It varies by customer and some of them are actually quite rigorous and long negotiations and contractually obligated or gone through an RFQ system. But overall we don't see a lot of variability within customer sets and I think you will see a similar result within all of our customers sets that we had guided to and that I answered when Nicole asked the question about the seasonality.

Okay. Thank you. And then, Mike, just going back to your commentary on the ABI, it's declined the last two months and I'm just wondering if you're seeing any slowdown in quoting or any thing that gives you concern that the non-res recovery will be slower than expected this year?

No. Again, as I outlined the pattern from 2010 to 2013, we have had less and less negativity and it goes back to I don't see this being a hockey stick. I see this as the gradual improvement and I think that we'll have to see how 2014 plays out.

My sense is that we will still have a positive outcome. Nothing has changed my mind. And I expect some volatility or some changes between month-to-month. And if you go back, you had four months in 2012, consecutive months, but yet 2013 was a pretty good year for everybody.

So, again, it continued. The trend, overall trend, continues to improve and we are -- we have a diversified portfolio, about 50/50 industrial and in construction, so I think we are well-positioned.

Great. Thank you very much.

Thank you. That does appear to be our time for questions. This will conclude our time for question. I would like to turn the program back over to Mr. Michael Kneeland for any additional remarks.

Thank you, operator. I just want to tell everybody that, first and foremost, thank you for joining us today. I urge you to get the latest presentation on our investor website. It has been completely refreshed and a lot of new content, I think you will find it most intriguing and helpful.

We also launched our first national advertising campaign this week and customers will see a powerful message about our commitment to their success and you can watch the commercials on our website as well. If you have any additional questions or have any opportunities to visit any of our branches, please reach out to Fred Bratman. And as always, look forward to the next quarter call. Thank you.

Thank you, presenters, and thank you, ladies and gentlemen. Again, this does conclude today's call. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect at this time.