M&A announcement

Sep 10, 2018

Good morning, and welcome to the United Rentals Investor Conference Call. Please be advised this call is being recorded. Before we begin, note that the company's press release and comments made on today's call in 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 controls, 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 company's press 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, 2017, 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 about subsequent events, circumstances, or changes in expectations. You should also note that the company's press release, investor presentation today, and today's call include references to free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA, each of which is a non-GAAP term. Please refer to the company's recent investor presentation to see reconciliation for each non-GAAP financial measure to the company's comparable GAAP financial measures. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer, Matt Flannery, Chief Operating Officer, and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin. Well, thanks, operator, and good morning, everyone. Thanks for joining us on today's call. I know it's a busy week, so I'll get right to it. This morning, we signed an agreement to acquire BlueLine Rental, a leading North America rental company, and as you saw, it's a cash deal for approximately $2.1 billion. This follows three large M&A announcements we've made in the last 18 months, all of them valuable additions to our company. BlueLine represents another significant step forward in our execution of our growth strategy. You've seen the strong rationale for this deal in the press release. Matt and I will touch on the key points and Bill will run through the numbers, and then we'll move over to the Q&A. BlueLine has been an interest for us for some time. It's an operation that's right in our wheelhouse, and they've done a good job of blending M&A with organic growth. When the owners of BlueLine announced their intent to explore strategic alternatives early this year, we definitely saw the potential. Since then, a lot of thoughtful dialogue and analysis has gone into this deal, and we're very pleased that we reached an agreement, and now we're excited to move forward. Here are some of the most compelling points. Strategically, this acquisition is exactly what I mean when we talk about growing the core. That was true of NES and Neff as well. BlueLine augments our core competencies of construction and industrial rentals by expanding our capacity in key end markets. They have deep roots as a pure-play general rental provider with a focus on local and mid-size accounts. Many of their customers require specialty rentals, and we can provide that by cross-selling our specialty fleet. It positions the combined company to be a better partner to the legacy BlueLine base. Financially, the deal looks just as good. We are buying BlueLine at an attractive price using a combination of newly issued debt and bank borrowing. We expect our leverage ratio to be below 3 by year-end with a clear path for de-leveraging going forward. In addition, we expect the combination to be broadly accretive to our earnings, revenue, EBITDA, and free cash flow with attractive returns. Like NES and Neff, BlueLine is an excellent use of our capital to drive profitable growth both now and in the future. The third thing we insist on for M&A is a cultural fit. It is baked into our expectations for long-term value creation, and the best way to sustain growth and profitability is to have everyone pulling together towards the same goals. Some of the cultural attributes we look for are pillars of the business. For an example, a world-class customer service mentality. Other attributes are more focused, like hiring military veterans and being a good neighbor in your communities. These things have been a part of our culture for a long time at United Rentals, and BlueLine has made the same commitment. I will give you one more proof point that relates to the most important aspect of our culture, safety. Last year, BlueLine had a very low recordable rate of less than one. Our rate at United Rentals was also less than one for the same 12 months. That is no fluke. Both companies have been driving towards a goal of zero accidents, so we are clearly in lockstep on safety. Strategically, financially, and culturally, the BlueLine deal is everything we look for. It is great timing as well. Throughout 2018, we have expressed our confidence in the staying power of our markets, and we are acquiring BlueLine at a favorable time to create superior value for our customers and our shareholders. With that, it is over to Matt to speak about the operations. Matt, you are on. Thanks, Mike. BlueLine is definitely a great fit with their focus on safety, people, and customer service, and it comes at a time when our end markets are expanding. We are already growing at a good clip organically. This acquisition is going to accelerate that growth. I will give you a quick rundown on the combination from an operations standpoint, starting with the similarities As Mike said, BlueLine is squarely in the business of our core competencies, construction and industrial rentals. Within that scope, they have a solid presence in many of the key verticals that we target at United, and they also have a balanced revenue split that is about 50/50 construction and industrial. This is almost a mirror image of our own mix. In addition, BlueLine's field operations are similar to our own. They utilize many of the same technology systems we do, including the RentalMan system. This will go a long way into facilitating the integration and onboarding of their team. Finally, we will be gaining over 46,000 units of quality fleet with an original cost of about $1.5 billion. BlueLine's fleet is about seven months younger than ours on average, which is another positive. In addition to these similarities, BlueLine complements our operations in some important ways. For example, we like their branch footprint a lot. Every deal has some overlap, but the majority of BlueLine's branches are based in areas where we want and need to add capacity. It would be a much longer process to open cold starts and hire employees when our customers in the market need us now. We see BlueLine's people as the most important part of this equation. That is where the biggest benefit comes in for our customers. We will be adding 1,500 talented branch employees from BlueLine to help our customers succeed. BlueLine's customer base is strongly complementary to our own. They mostly serve mid-size and local accounts, whereas we are a little more weighted towards larger accounts. While both companies have roughly the same revenue mix of construction and industrial, the combination is going to diversify our base in a direction that has been on our radar for a while. Plenty of value to be realized from BlueLine, plus some significant value from our end. First, we think that cross-selling could be a substantial revenue synergy. Many of BlueLine's gen rent customers need specialty solutions, and it will be more efficient for them to rent everything they need from one source. On the cost side, we cast a wide net with our economies of scale and purchasing power. There is an opportunity to reduce costs in the areas of corporate overhead, fleet procurement, and operations. In a minute, Bill will put some numbers to these synergies. First, my final point, and it is a big one. We bring a great deal to the table as operators. Every customer in our base, every branch in our network, benefits from the fact that we are both willing and able to make large investments in technology, fleet, safety, process improvements, and most importantly, employee training and engagement. BlueLine is not a company that is in the midst of improving its performance, and they have a talented team of quality people who are committed to profitable growth. We see ways to accelerate the path that they are on by making them part of our larger organization and giving them access to our resources. That support will start on day one of the integration. We will be using the same disciplined playbook we have developed over 20 years of acquisitions and integrating the business at an ideal time of lower seasonality. The heavy lifting should be behind us by the spring season, positioning us for another strong year in 2019. We are excited to complete the transaction and welcome BlueLine to the team. Bill, over to you for the financial review. Thanks, Matt, and good morning to everyone. You all have the press release and the investor deck that we released, that has some of the key elements of the financial view of this deal. What I think I will use my time to do is just to add some more color to those key elements, and then certainly we can address any questions in the Q&A session that I do not hit for you. Starting with the purchase price, $2.1 billion in cash, is a price that we think is very attractive and aligns with a return picture that makes this deal one that we are excited about. In addition to that cash outflow, the deal brings along a value inflow, associated with the tax benefits. We present value the NOLs, which BlueLine has accumulated over the years, at $169 million. So, that value nets against the $2.1 billion purchase price. I mention that because I think it is important, as you think about valuation, especially looking at the multiples. The trailing 12-month multiple we called out is 6.7x. But when you adjust the multiple for the operating expense synergies and the value of the tax benefits that we are acquiring, it nets out to about a 5.4x multiple. One of the questions we have already had this morning is: "Well, Bill, that multiple sounds a little higher than some of the other deals that you have done, NES and Neff, over the last couple of years. What is going on there?" Well, what is going on there is that you have to give effect for a very significant tax benefit that we have had from tax reform. Those 14 percentage points of lower federal tax rate are a pretty significant positive impact to this deal. In fact, when you look at the internal rate of return, which we think is the best way to judge a deal like this, the internal rate of return of this deal is very similar to the IRR that we saw in the NES and Neff cases, even with a slightly higher purchase price multiple. Speaking of the synergies, $45 million of operating expense synergies is a number that we feel very comfortable with here in this deal. Broken out, $37 million from corporate overhead saves, and the remainder from operating improvements. That is important because the corporate overhead saves are more identifiable, more controllable in terms of the extent and the timing that they will be realized. And so we feel comfortable that we can deliver that $45 million in operating expense by the end of year two, as we priced into the deal. There's also about $15 million of fleet procurement benefits in this deal, really owing to the purchase leverage that United Rentals has accumulated, given its scale. That is not priced into a multiple view of this deal, and I think that's important to keep in your mind as well. We also expect that we'll realize cross-sell synergies in this deal, as we've done in all of our deals recently. We're calling that number out at $35 million once we've fully established the cross-sell mechanism here by the end of year three. A pretty good synergy story for this deal that factors into our view of an attractive return story overall. Real quickly on leverage. As a result of this transaction, we expect leverage by the end of the year on a pro forma basis to decline to 2.8 times. It'll be about three times, on a pro forma basis, right at the close, and we expect that it's important to recognize the de-leveraging that'll happen by the end of this year on a pro forma basis. That de-leveraging continues as we go forward into 2019, and future years thereafter as well. It aligns with how we've been approaching managing the leverage of our business. We're willing to see that leverage step up a little bit, in this case, for the initial closing of the deal. But it will rapidly de-lever as we go forward over the next year or two. We expect to fund this transaction with the issuance of debt as we have in previous transactions, and the specifics of that plan are being discussed as we speak. More to come as we get a little more focused on exactly what type of debt and maturity and so forth that we think makes sense here. Maybe the last point I'll make before we open it for Q&A is around our share repurchase program. You saw in the announcement that we intend to pause the repurchase program, and this is very similar to the thinking that we brought prior to the NES transaction last year. Excuse me, in 2016, actually, is when we started the pause. The notion is, let's give ourselves the opportunity to get the transaction closed, begin the integration process, and make sure that there are no real surprises in terms of the cash flow impact of this transaction. And then restart the repurchase program thereafter. And we think that is a prudent approach to take in this transaction. We're going to pause. The anticipated program is to pause for several months in order to assess the program. But we'll certainly make that assessment as we go along and, of course, keep you all informed as we do our scheduled earnings calls. I'm going to stop there and ask you all to certainly address any questions that I haven't touched on in the Q&A. But for right now, I think it's fair to say that the company's very excited about this transaction. We think it's an attractive one from an investor's perspective. We're very well positioned to be able to integrate it and drive the company going forward. And so we look forward to being able to get this closed and moving forward as a combined company. With that, I'll ask the operator to open up the call for questions and answers. Operator? Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone lines, press star and then one on your telephone keypad. We ask everyone who is participating in today's Q&A session to please limit yourself to one question and a follow-up to allow everyone a fair chance to ask. If during today's call your questions have been answered and you wish to remove yourself from the queue, simply press the pound key. Our first question will come from David Raso with Evercore ISI. Your line is now open. Hi. Good morning. Hi, David. Hey, sort of a big picture question. What does this deal size, multiples, whatever it may be, however you want to describe it. What does this deal say about your view of the current cycle, the organic business, the core business? Where do you think we are in the cycle, what you're seeing in the core business? David, this is Mike. It is hard to pinpoint where exactly we are in the cycle. What we basically are looking at is what we feel the outlook looks good. The key macroeconomic indicators broadly remain positive. You see what we see. The U.S. leading economic index has been strong. Key construction indicators have remained strong, both the ABI, construction employment, contractor backlogs. Key industrial indicators is another way we look at it. If you take a look at the ISM, the manufacturing PMI was 61.3 in August. That is the 24th consecutive month above 50, and it is the highest reading since 2004. Also, if you take a look at United Rentals, our breadth of strength across our own business that we saw both in Q1 and Q2 was very broad. We see this continue to play out as we go through next year. Our surveys are also another way that we keep in touch with our customers, and Matt is very close with the customers. They continue to see a positive momentum. Touching on the deal itself, not considering any cross-sell specialty to BlueLine customers. Just literally their mix of businesses being in the geographies they are in, the growth rates they have. Is there a way to quantify what does BlueLine do to the organic sales growth profile of URI? Maybe also rental rates, right? Some of the prior deals, maybe the opportunity to raise rates were greater for some acquisitions than others. Just trying to get a sense of what you just bought into geographically and markets, as you said, more mid-size customers. How does this impact your organic profile? Sure, Dave. This is Matt. As we discussed in the opening comments, and you could see it on page 7 of the deck, you see where their locations are, right? They are in markets where we are seeing strong growth, strong opportunity, and frankly, we are not sure that we have all the capacity to continue to grow at the pace we would like to. That is why this is very attractive to us. As I stated, the people first and foremost are the capacity that is the hardest to get, and then the fleet and the facilities. They are positioned very well for that. As far as some of their operational metrics, whether it is time or rate, we got to wait till we get under the hood to look at it. But per our last few acquisitions in the same gen rent space, we feel that we're a better owner of these assets, and we think making them part of our broader network gives you opportunity in both areas, whether it's a better value prop to sell with our full line, including specialty businesses, or whether it's the logistic opportunity of being in a tighter network and operating cost. So we certainly modeled the opportunity for ourselves. We think it's there, and we're very excited to add them to our team. I mean, Matt, maybe more directly, the geographies they're bringing you. Think about your own business in those geographies. Are those above company average organic growth rates that we're getting more exposure to or not, I guess, is a better way to ask it? Yeah. I would say, as we said in the past, our growth is very broad, so I wouldn't want to overweight it, but we think these are the markets where there's more opportunity. And the reason why you hear me hesitating just answering it directly with a direct answer is we're seeing growth in most of our markets. So that's why I'm hedging there, but we certainly like this profile. We think there's at least equal or more than growth opportunity to our average in those markets. And last two quick ones, I guess, more for Bill. Bill, if I missed it, I apologize. Cash flow per share accretion and EPS accretion, can you quantify that? And lastly, how do we think about the target at the end of 2019, net debt to EBITDA? We certainly didn't quantify the accretion. The statement we made was around adjusted EPS accretion. I think it's fair to say that it's in the. No, I'm going to hold off on giving a specific number. It's accretive to this year, and I'll stop there, unless somebody tells me that they want to share more. No, let's stop there. I'm asking you to share more. I was looking around the room. Matt on the phone, Dave. The cash flow in particular gives the EPS guidance. That's kind of hard to then say the accretion. Yeah. How about on the cash flow, I do not know the schedule of the $650 million or so of NOLs, how quickly you can use them. What I am trying to run the math, how much of the NOL can I utilize next year? Just to give us some framework of the, say, at least the cash flow per share accretion. Well, without going through the specifics of the timing of the NOLs, I think it is fair to say that we should be able to use the NOLs in general over the course of the first few years, I will say. Call it three to five at the most. Okay. All right. I appreciate it. I will get back in queue. Thank you so much. Thanks, David. Thanks, David. Thank you. Our next question will come from the line of Ross Gilardi with Bank of America Merrill Lynch. Your line is now open. Hi, Ross. Yeah, good morning, guys. Morning. Morning. Can you give us a sense of last six months EBITDA at BlueLine, and would a run rate based on these figures be a better baseline for predicting the future earnings than their LTM figures since their margins have been going up pretty rapidly? Ross, we're not going to give the exact performance, but you're dead on. They've been improving their business. Excuse me. If we look at their LTM versus their 2017 numbers, you're seeing improvement based on most of their financial metrics. That's great because that means they've got the hard work started, which is mentally focusing on profitable growth. We find that as a positive. It's something that we'll report out more once we own them, can dissect their numbers and compare their metrics and make sure they're matching up with the way that we communicate them before we give you any details. But the tone of your question is accurate. They are improving their business, and we think that's great that they started that momentum already. Okay. Thanks, Matt. What have been the sources of margin improvement at BlueLine already, and where's the low-hanging fruit from here? I think as you see in the slide deck that we put out there, the easiest low-hanging fruit to get is overlapping corporate synergy. Other than that, you can imagine all their operational metrics are improving across the board. It's really pretty broad. It's just a focus that they have on improving their business that's done it, and that's why I think you're seeing it so broadly. We'll get the low-hanging fruit quickly of the overlapping corporate costs. That is part of the synergies we've laid out. Okay, got it. What is your willingness to test the high end of your capital structure targets if another bigger deal comes along that makes sense? Well, we have always said that we would be willing to go up to, and truthfully, above the high end of the 2.5-3.5 range for the right deal with the right characteristics. That means strategically, it solidifies our position. The deleveraging comes in pretty quickly after going above that 3.5 level. I think we are very comfortable that any transaction that might reasonably come along, we are positioned to be able to do from a capital structure perspective. Let's go off and look for the deal because the balance sheet is ready to go. Then just lastly, guys, will you be coming out with any longer-term EBITDA targets at your investor event? I think you are having one in December. This deal will take you over $4 billion in pro forma EBITDA. It does not seem like a long time before you get to 5 if the cycle holds up. Any thoughts on that? Yeah. We are still in discussions about exactly the topics that we will address at the investor day. I think it is fair to say we will talk about some of the high-level ideas about where we can drive the company. Stay tuned. We will let you know if we are going to get more specific about sort of a future financial outlook. All right. Thanks very much, guys. Thank you. Thank you. Our next question will come from Rob Wertheimer with Melius Research. Your line is now open. Morning. Hey, good morning, everybody. Morning. Just a question on synergies. General and specific. Is there anything structural in BlueLine that would keep you from achieving the sort of margins and overtime, obviously, and time utilization that you achieve in your current operations? Dollar utilization, there's a pretty decent gap there that I'm not sure is in your synergies on dollar utilization. Then just 8 million operational efficiency compares to, I don't know, probably you've achieved a little bit more than that at URI the last three or four years. Just wanted to test the assumptions there. Sure, Rob. There's certainly nothing structural with their business that concerns us about improving their margins. It's a business we're familiar with, very familiar with, both the products, geographies, customer set. As far as what areas we can improve on, we certainly believe we'll get some operational improvement based on being part of a broader network. As we stated, we certainly believe that they'll get better purchasing power, which is another big input to that dollar utilization is the base cost of the asset. So there's nothing structural at all that we think will prevent us from running our playbook that we run in these integrations and realizing higher margins than they're operating at today. Perfect. I know it's a lot of little dials to turn, but is there anything in your announced synergy numbers, the revenue synergies seem to be related to specialty, that includes sort of improving their operations up to the time ut/dollar ut that you guys enjoy today? There's some synergies and dis-synergies that we've got to be careful about. As you know, we'll have some overlapping customers. We have to harmonize those prices and be conscious and careful about doing that cautiously and fairly. Then there'll be the opportunities that you mentioned. I'd say most of the opportunities will be operational in nature. We haven't even got a chance to look at pricing. That wouldn't be fair to even comment on. But we just think that the net of those right now is to be cautious, and if we find more opportunity, we'll update after we get into the weeds and after we own the asset. Okay, great. Thanks, everybody. Thanks, Rob. Thank you. Thank you. Our next question will come from Courtney Yakavonis with Morgan Stanley. Your line is now open. Hi. Thanks, guys. Just curious, you mentioned that you guys are already utilizing many of the same technologies. Can you just help us get a sense for how long it took to get those technologies in place at NES and Neff and what that kind of means for the pace of some of your cost synergies going forward here? I don't remember the exact day count for NES and Neff switching over. But very rapidly, we switched. I'm thinking about the frontline system, RentalMan. We switch over to our version of RentalMan, which is materially more complex than any other version that we've seen. You're talking about in the first month to two of making that transition, and that's probably the biggest change for the people who join United Rentals is getting up to speed on our version of RentalMan. We would expect that it would be a similar time frame for the BlueLine employees. It's a great starting point to have them on RentalMan already. We just need to transition them to the bells and whistles that we've added to it over time. Meanwhile, they've got an advantage in using Cognos as their business intelligence system to report out throughout the organization. That'll be familiar to them as well. They just have to learn sort of the specifics of how we apply it. They've got a head start in using salesforce.com, for example, for their CRM activity, and that'll be a fairly straightforward transition as well. Those are the things that give us a lot of confidence that we can hit the ground running here and realizing synergies pretty quickly. Great, thanks. You also commented that they're mostly more focused on midsize and local accounts versus larger accounts. Can you just talk a little bit about UR Control and also the learnings that you had from Total Control for some of your large customers and how you can kind of use that to impact this customer base and whether there's any upselling there? Sure, Courtney. It's a great point because even today, as we sit, all of our customers have the opportunity to use UR Control, and it gives them great visibility. It's a great advantage to them. Total Control as a double-click on that. Even for larger customers that want more alerts, more functionality, they have that opportunity. But bringing that to this customer base, we think, would be a great advantage for the customer to get complete visibility, transparency to transactions, and some alerts that can help them be more efficient. We'll certainly take that to this set of BlueLine customers. Thanks. Sorry, just lastly, it seemed like there was a lot of store concentration in the Gulf Coast. Just curious if you could quantify the oil and gas exposure relative to URI in general. Yeah. Their oil and gas exposure is 4% upstream, and ours is about 5%. So no material difference or change in the combined company's profile, and no concerns from our part about that level of exposure. Great. Thanks. Thanks. Thank you. Thank you. Our next question will come from the line of Joe O'Dea with Vertical Research. Your line is now open. Hi. Good morning. Good morning. First, could you just talk about what you anticipate the CapEx needs relative to $1.5 billion OEC for BlueLine? Given the young age of that fleet, do you see opportunities to age that out a little bit more and maybe take down some of the CapEx trend lines that they were on? If you think about the underlying CapEx needs of the business as in the neighborhood of, I will give you a range, 150-200. I think that is a good range to think about BlueLine bringing along with the $1.5 billion of fleet that they bring. Do you see that as a fleet that you might age out a little bit, or do you kind of like the 40, 41 months age there? Yeah. We've had a lot of experience on the United Rentals side in looking at how we can manage the age of our fleet. I think it's fair to say there's room to age out the BlueLine fleet a little bit relative to what they've been doing recently. We just need to make sure that we get a complete picture of the specific Cat Classes and makes of equipment so that we can then start applying our experience and our useful life analysis to their fleet. I think it's fair to say there's some room to age it out a little bit. Okay. I think you touched on this a little bit, but just given the nature of the customer mix and more of a small midsize customer orientation, how does that impact URI's traditional rate premium versus competitors? Do you see that as something that you can sustain, or when you talk about harmonization of the customer base, do you need to maybe be a little bit more flexible with that premium? Joe, we consider ourselves flexible already, but thank you for the comment. The real opportunity here is to value sell. When you think about pricing premium, you really have to look at that individually by customer set asset, like we do in our core system. To use a single number to try to decide that is very misleading. We need to get into the weeds on their rates, their customer set, and see where the opportunity is. Ideally, we don't have to do anything inordinate to harmonize rates. What we do is value sell the additional products and offerings that we have. We really right now don't want to take a swag at it because this is a very important part. Customer retention, customer service is going to be a big focus of this deal, and then growth. We are going to hold off until we get to look at the detail to answer any questions. Yeah, Joe, the only thing I would add to that is our job is always about creating value proposition. In a competitive world, we have to make sure that we are always thinking about that. Regardless of what happens with how we integrate this acquisition, it really comes back to United Rentals and the value prop that we can bring forward collectively as a team. That is going to be something we always focus on. Got it. Just a clarification, Bill, on the pause in the share buyback. Is that pause effective now, or is that effective upon close of the deal at whatever time in the fourth quarter? Think about it at close. Okay. We'll pause at close. All right. Thanks very much. Thank you. Thanks, Joe. Thank you. Our next question will come from the line of Neil Frohnapple with Buckingham Research. Your line is now open. Hey, Neil. Hi. Thanks. Hello. Maybe a question for Bill to start. Could you talk more about the timing of realizing the $45 million in annual cost synergies? It looks like a higher percentage of the total cost synergies for this deal stems from corporate overhead savings versus the Neff and Baker acquisition. Could you experience a higher portion of the total synergies in 2019 from BlueLine than in other deals you've done recently? I think you alluded to that earlier, Bill, and just trying to get at if you could give us a number for 2019. Yeah. Not a specific number for the full year. Why don't we say it this way? You can look for us to be at the $45 million run rate by the end of next year. Okay, that's helpful. Thanks. Does this deal plan to open more specialty branches in 2019 than previously expected to support the cross-sell into BlueLine, or will there be a step function change in growth CapEx? Do you expect to invest in specialty over the next 12 to 18 months? Yeah. As always, we've got a lot of cold starts on the slate already. As a matter of fact, we just reviewed a bunch for next year, Bill and I, just last week. There's already an aggressive growth plan for specialty, and we expect to fund that. We see this as an opportunity to make sure that's realized. Great. Thanks. I'll pass it on. Thank you. Thank you. Our next question will come from Scott Schneeberger with Oppenheimer. Your line is now open. Scott. Thanks. Good morning, guys. Good morning. Yeah, just on integrating this, obviously, you have BakerCorp in motion as well. Curious, can you give us a progress report on that? Is there any way over this time period of integrating for cross-sell? I'm guessing traditional happens before specialty. Do they happen simultaneous? Do you mix it with BakerCorp, or do you keep these two transactions separate as you integrate? Thanks. As far as cross-selling, Scott, when you say traditional, I assume you mean gen rent. They have a pretty broad offering of gen rent products. The number that you see there, the $35 million over the first three years that we targeted, is really all specialty. As far as how that mixes in with the BakerCorp integration, the team, Paul and the pump team, which is now the Fluid Solutions team, are running that playbook really well. We have some cross-sell there that we could serve independent of this deal. Maybe some of the gen rent product into their customers gets a little bit of a bump. It will make it a little bit easier logistically with this broader branch count, but no real change there for the BakerCorp. As far as integrating BlueLine in, we think the specialty team in its existing footprint can achieve these numbers, but the cold start to net growth will just help. Thanks. Appreciate that. Then, obviously, a lot of the highlight of this is about the small and the mid-size customers. Would you, if you can, give us a sense of mix at BlueLine of how much maybe is a percentage of what is small that is new, versus URI, versus what is overlap with URI? Then also, if you could follow with kind of a history of ever since RSC, there was a step back from the small and mid-size customer. Could you give us a little bit of a progress report of how you have gotten to here, and then what you think occurs going forward with serving those size customers? Thanks. Sure. First let me just correct one thing. Local versus small, right? So we are not chasing homeowner business. We are not selling weed whackers and carpet kickers. That is not our goal. So we are not necessarily going at the low end of the market, but the local part of the market is very helpful for our branches. This is something that we have been doing for years, but we see it as when you look at our business at 60%-65%, what we call strategic larger customers, and then the remaining, the local mid-size customers, we see that as a great growth opportunity. We have been focused on this in our Project XL work over the last year, and we are probably the largest player in that space today just by value of how many markets and how many stores we operate in. But we still think that that is a growth opportunity, and we feel NES, Neff, and even BlueLine feed into that opportunity. It is not really an either/or. The either/or part would be if we started getting into homeowner business. That is something that we consider small and not really part of the strategy that we are deploying, nor is it part of the customer base at BlueLine. So I just wanted to clarify that. Yeah, no, Scott, the key is being able to serve that customer segment in a way that does not interfere with our larger customer focus first, and then in a way that offers attractive returns. The Project XL experience, I think, has shown us that there is more of an opportunity. So the BlueLine customer base will give us a greater scale to be able to go at that customer base and serve it effectively. All right. Thanks, appreciate it. I will turn it over. Thanks, Scott. Thank you. Just as a reminder, ladies and gentlemen, if you would like to ask a question over the phone, please press star then one on your telephone keypad. Our next question will come from Kathryn Thompson with Thompson Research. Your line is now open. Good morning. This is Steven on for Kathryn. Thinking about BlueLine specialty and gen rent breakout, has BlueLine invested much into their specialty fleet in the past couple of years, even though it is smaller and kind of on their fleet age? Has their strategy been to maintain fleet age low, or did that happen in the recent past? Steven, yeah. I do not recall what the path of their fleet age has been. If anybody remembers here, you can sing out. I think it is fair to say that they have been focused on growing and repositioning their fleet to fit better with the customer base that they have and to fit better with the operational processes that they are able to support at a given level of profit. I think their decisions have been driven more by what is the right fleet, more so than, "Hey, let us try and hit a targeted fleet age." It just so happens that their fleet age, as it sits, is somewhat lower than ours today. As far as specialty, Steven, they do not have it. This is a pure play gen rent business. They do not have any specialty fleet. Great. Thinking about just similar sort of question on their location count. Have they expanded locations much in the recent past, or have they kind of implemented a strategy similar to peers of flooding the most populated growth Geographies. They've been on a path of really trying to optimize their business overall, and that includes looking at the footprint. Again, I don't have the history committed to memory of the number of branches, but they certainly have been very focused on focusing in on the branches that offer them the best profit and return performance and the best opportunity going forward, and exiting branches, either through sale or closure, those that were weighing them down. I think that's the backdrop that's allowed them to start to move up their margin performance, as you saw in the history that we presented in the material. That's part of the opportunity that we can continue as United Rentals as a way to realize the returns that we're expecting. Excellent. Thank you. Thank you. Thank you. Thank you. We have follow-up questions from the line of David Raso with Evercore ISI. Your line is now open. Hi. I am sorry. I need to take the opportunity while we have you on the phone. Sure. Matt, with Hurricane Florence getting more attention this morning, has there already been anything within the company on working toward impact, be it initially negative on job slowdown to getting more fleet in the region? It just seems like from Virginia down to Georgia is almost 11, 12% of your branches. I am just trying to understand, as this will become a bigger issue the next couple of days, so while we have the platform here to ask, is there any things in motion within the company how to think about equipment being put into the region, or is it still a little early? Yeah. We've had our team, as early as a couple of days ago, already start having calls, already start positioning fleet, specifically our power group, right? And pump groups getting ready to help out. As far as repositioning out any fleet because any concerns or job sites, we have not hit that stage yet, nor have we. It is a very dense part of our business, just as Texas was last year in Harvey. We're not really trying to peg yet what the net of that would be. But I think the most important part is we are positioning immediate need type fleet that'll help the folks down there once the storm hits. And we're having daily calls on that. Actually, we're putting a whole disaster recovery plan, that disaster response plan in place with a new leader in that that I'm going to announce later today. Yeah, I know it's a flooding issue in Texas. I mean, in hindsight, it was probably better to get the trucks out than to bring the trucks back in instead of maybe losing some of the truck availability. This seems like more of a flooding issue at the moment. So right now, I assume we're taking the experience from Texas and applying it to this, and we're already in motion to, again, try to get power and everything lined up for the end of the week. That's- Absolutely. Already in motion. That has been our experience every time, right? That is where the team is ahead of the game on this one for positioning fleet. So great point, and more importantly, we hope everybody comes out of this safely. All right. Thanks a lot. I appreciate it. Thanks, David. Thank you. There are no further questions in the queue at this time. Now it is my pleasure to hand the conference back over to Mr. Kneeland for any closing comments or remarks. I want to thank everyone for joining us today on such short notice. If you haven't had a chance, the investor deck that outlines the BlueLine transaction has been posted. If you have any additional questions, please feel free to contact Ted Grace, Vice President of IR. That ends today's call, and we look forward to speaking to you on our quarterly call in October. Thank you. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.