United Rentals Inc. (URI) Q2 2010 Earnings Call July 21, 2010, 11:00 am ET Executives Michael J. Kneeland − President and Chief Executive Officer William B. Plummer − Executive Vice President and Chief Financial Officer Analysts Henry Kirn with UBS Scott Schneeberger with Oppenheimer & Co Seth Weber with RBC Capital markets David Wells with Thompson Research Chris Doherty with Oppenheimer Emily E. Shanks Barclays Capital Inc. Philip Volpicelli- Deutsche Bank Presentation Operator Good morning. And welcome to the United Rentals Second Quarter Investor Conference Call. Please the advised that this call is being recorded.
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Michael KneelandThank you operator, good morning everyone and welcome. On the call with me today is Bill Plummer our Chief Financial Officer, and other members of our senior management team. I want to start with a quick overview of the results we reported last night and then focus on the metrics that indicate changes that are starting to take effect on our markets and in our company, I will talk about the drivers of change and the seasonal cyclical and our strategy in particular and share some insights into what kind of demand we expect to see over the next 6 to 12 months It’s still too early speaking absolute but the second quarter did shed some light on the cycle, as you saw on our press release we have a strong quarter and the environment is better Our strategy is taking hold the more optimistic than we have been for some time and we appear to be seeing early stages of an upturn and while we continue to bear down on cost our focus is now on growing the business so let’s start with the results. We made money in the second quarter, last year revenues were slightly higher in the period but gross profit was lower and earnings per share was negative so it’s clear that we have improved the business from top to bottom. EBITDA is up, we reported a significant increase in adjusted EBITDA margin for the quarter from 24.4% last year to 32.1% this year. There is a lot of discipline behind those numbers starting with the revenue line our rental revenues outperformed the operating environment in the second quarter total non-residential construction spending which includes both private and public construction was down 16.1% in April year-over-year and down 15.2% in May, when you compare that to our rental revenues which were down less than 1% for the quarter, at the same time our same store rental revenues were actually up 2.7% so going hard after the business that’s out there implementing our market strategy, identifying and going after the right types of customers and winning more profitable jobs but we are staying very aware of the quality of our $11 million of SG&A expense out of the business compared to the second quarter last year, we also brought down our costs of equipment rentals ex-depreciation by $4 million, Bill will talk in just a moment about where we are in these initiatives and what we see for the balance of the year, with CAPEX we have a lot of bandwidth how to react to the market conditions.
We bought a $125 millions of new fleet in the second quarter, we also sold $80 million of used OEC a 24.3% margin, and at the end of the quarter a $3.8 billion of fleet with an average age of 45 months We are very disciplined about the use of our capital in CAPEX, at the same time managing our liquidity very carefully despite buying more fleet than we originally planned we still generated positive free cash flow of $8 million in the quarter, now I’ll spend a few minutes to talk about the two dynamics that drive our numbers rental aids and utilization, as you saw rates were down 2% in the quarter year-over-year still a lot of pressure on pricing out there, but if you dissect the quarter the sequential trends are promising.We continue to focus very intensely on rates, there is huge priority for our business, I would say for the industry as well, we estimate that every point of rate is worth about $18 million of annual EBITDA to us so I can assure you we do everything in our power to reverse the year-over-year trend on rates, our approach is very informed and very disciplined, we are working to achieve an optimal price on every contract, we are also walking away from unprofitable deals and we are implementing the price optimization software which we call Chor, but if you recall this is about dynamic pricing a pricing each price subject to that type of customer and Chor is currently rolled out to 75% of our branches and will complete by the end of August Right now short term transactional business is trending upwards as it always does in the Spring and Summer Smaller construction projects are coming online they typically are daily or weekly rentals and they involve less price negotiation better rates 70% of our business was monthly, monthly rents always going to be recovered last because if it stays out for longer periods of time at fixed rate. Monthly rates are still a good long term strategy for us and a more profitable overtime but they also recover last. Read the rest of this transcript for free on seekingalpha.com