United Rentals, Inc. (
Q4 2011 Earnings Conference Call
January 26, 2012 12:00 PM ET
Michael Kneeland – President and CEO
William Plummer – EVP and CFO
Henry Kirn – UBS
Peter Chang – Credit Suisse
David Raso – ISI
Joe Box – KeyBanc Capital
Scott Schneeberger – Oppenheimer
Emily Shanks – Barclays Capital
Ted Grace – Susquehanna
Seth Weber – RBC
David Wells – Thompson Research
Jerry Revich – Goldman Sachs
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Good morning and welcome to United Rentals Fourth Quarter and Full Year 2011 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 risk 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 10-K for the year ended December 31, 2011, as well as to subsequent filings with the SEC. You can access these filings on the company’s website at www.ur.com.
Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
You should also note that today’s call will include references to free cash flow, adjusted EPS, EBITDA and adjusted EBITDA, each of which is a non-GAAP term. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer and William Plummer, Chief Financial Officer.
I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.
Thanks operator and good afternoon, everyone and welcome. With me today, as the operator mentioned, is our CFO, Bill Plummer and other members of our senior management team.
I’m going to start out with a quick recap of our fourth quarter results, which as you know, gave us a strong end to a very good year. And then we’ll look forward to 2012. This is obviously an important year for us.
We have the RSC deal on the table and we also have a strong outlook as a stand-alone company. So, I want to focus on the fourth quarter metrics that serve as potential indicators for our operating environment in 2012.
For the fourth quarter, we reported rental revenue up nearly 19% compared to last year; rates up 6.7% on higher volume of equipment on rent; and time utilization of more than 70%, which is a fourth-quarter record for us, once again.
Now all of this contributed to an adjusted EBITDA that was significantly higher at $281 million, an increase of 55% over the fourth quarter last year. All these metrics tell a very compelling story about our ability to exceed the expectations created by our operating environment.
We know from the Department of Commerce that spending on non-residential construction declined slightly year-over-year in October and was basically flat in November. And yet, we were able to drive our revenues and rates higher and our time utilization went up on a larger fleet.
So here’s what’s happening. First, despite the external reports, our sales force is finding that customers are more active and optimistic than a year ago. Our own survey confirms this. So we think there is an early upswing that’s not fully reflected yet in the government data.
Second, as we mentioned before, there is a secular shift towards renting and just this week several industry reports came out that support this. So there’s no question that the recession is encouraging customers to rely more on rental and less on capital purchases. And once they make that shift, they saw that it could enhance their balance sheet and liquidity. And we believe that this is the most rapid penetration our industry has seen in a long time and we expect most of it to stick as the conditions improve.
And third, we think that we’re getting a bigger share of pie. Changes in share can be difficult to measure our industry because it’s so fragmented and largely private. But clearly, our segmentation strategy and customer service initiatives are working. And you can see it in our fourth quarter numbers. We had 21% growth in rental revenues from key accounts compared to last year, including 22% growth in National Accounts.
Key accounts were 55% of rental revenues in the quarter and National Accounts was 35%.
And rental revenues from industrial were up almost 20% year-over-year and if we remove the impact of acquisitions, industrial was up still a solid 17%. And we are at a point in the cycle where the better run, well-capitalized rental companies can outperform both the environment and the industry as a whole. And we expect to turn another good performance in the first quarter.
While it’s all very positive, it’s still a tricky cycle and we know that and we are managing the business very closely. But it’s encouraging that we are getting the push in several areas. At the macro level, the leading forecasters predict a rebound in non-res construction of just over 2% on average in 2012 and about 6% in 2013. And this is supported by the architectural billing index, which came in above 50 for every month in the fourth quarter in our sweet spot the Commercial and Industrial sectors.