United Rentals, Inc CEO Discusses Q2 2012 Results - Earnings Conference Call

United Rentals, Inc (URI)

Q2 2012 Earnings Call Transcript

July 18, 2012, 8:00 am ET


Michael Kneeland – President, CEO

William Plummer – EVP, CFO

Matt Flannery - COO


Henry Kirn – UBS

Peter Cheng – Credit Suisse

Set Weber – RBC Capital Markets

David Raso – ISI Group

Manish Somaiya – Citi

(Nick Kopla – Thompson)

Philip Volpicelli – Deutsche Bank

Ted Grace – Susquehanna



Good morning and welcome to the United Rentals second quarter 2012 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 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 the 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 not 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 includes references to free cash flow, adjusted EPS, EIBTDA and adjusted EBITDA, each of which is non-GAAP term. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; William Plummer, Chief Financial Officer; and Matt Flannery, Chief Operating Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may be gin.

Michael Kneeland

Thanks, Operator. Good morning, everyone, and welcome. With me today is Bill Plummer, our CFO, and Matt Flanner, who became our Chief Operating Officer in April with other members of our senior management team.

We'll take a look at the quarter review and we're going to update you on the RSC integration and give you our thoughts on the balance of the year. And after that, we'll take your questions.

The second quarter, as you know, was a transformation for us. It includes one month of our results as a standalone company and two months in combination with RSC. That meant our employees had to manage an incredible amount of change during the quarter and they still turned in some great results despite the attention required by the integration.

As we reported last night, we had a 61.3% increase in rental revenue year-over year, a 7.4% increase in rates and a 63.7% increase in rental volume and $418 million of adjusted EBITDA and an adjusted EBITDA margin of 42.1%. That's seven points higher than a year ago and it's a company record for us.

Time utilization came in a little softer than we expected in the quarter and it was down by two-tenths of a percentage point year-over-year. That's primarily tied to the deployment of our fleet and we brought $1 billion of fleet into the market and it performed very well for us with the exception of a few regions.

We felt it was prudent to adjust our outlook for time utilization while we assess the markets for our new combined footprint. We now expect full year time utilization to be at 68% on a Pro Forma basis and this is the same as last year, which is a record for United Rentals.

The other Pro Forma targets we issued last night are an increase in rental rates of approximately 6.5% year-over-year, up 0.5 points over our previous outlook and net rental cap expenditures of about $1.1 billion after gross purchases of between $1.5 billion and $1.6 billion and negative free cash flow in the range of $90 million to $140 million and that excludes the impact of the merger-related costs.

All of these numbers are based on the assumption that full-year results for 2011 and 2012 reflect a combination of operations of United Rentals and RSC.

Now there are a number of reasons our confidence in this outlook, especially when it comes to rates. One is rental penetration. If we look at how we performed over the last few years, you can see the impact of the change in market behavior.

Our end markets are still evolving toward rental. That's one reason why we've been able to outpace the construction recovery quarter after quarter. The other advantage is we have an expanded value proposition. Our footprint is going to end up around 850 branches with a fleet size of more than 7 billion in regional equipment costs.

In addition, we now offer new site services like tool management and new customer facing technologies and we have a much stronger industrial presence. As a result, we've been able to engage our larger customers in discussions about serving more of their needs.

I'm particularly proud of how quickly we were able to align jour sales organization once the transaction was complete. Transition of our national accounts an strategic accounts has been nearly seamless.

Our rental revenue from national accounts grew by more than 20% in the quarter year-over-year and that's on a Pro Forma basis. Now this should give you an idea of how well we managed the combination.

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