United Rentals, Inc. (URI)

Investor Day 2016

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Dec 1, 2016

Afternoon. My name is Ted Grace. I run investor relations for United Rentals. On behalf of our board of directors, our management team, and all our employees, we want to welcome everybody to our 2016 Investor Day. Just a couple of quick things before we get started. First, just want to touch on safety, which is always important to us. On the right side of the room, you can see the exits that lead to the stairwell in the event people need to evacuate. Just want to make sure you know where those are. The stairwell leads downstairs. Hopefully, no need. Secondly, before we get started, just wanted to be sure that everybody sees our safe harbor statement. I'd also add that some of the presentations today contain forward-looking statements. Inherent to those forward-looking statements are certain risks and uncertainties. You can see a list of certain risks and uncertainties in this introductory information slide and in our 2015 annual report on Form 10-K, as well as our subsequent filings with the SEC. Finally, I just want to touch on format today. The day is scheduled to run till 4:00 to 4:30. It's going to be two to three hours of presentations by our management team, followed by an hour of Q&A. We recognize there will be a lot of new material we're excited to share with you, and there are going to be questions that inevitably come up during the presentations. We've decided to push all the Q&A till the end of the day for the sake of convenience. For those who would like to email me questions as they come up, if that's convenient, we wanted to offer that as an alternative way to keep things easy for you. My email is tgrace@ur.com. At the end of all the presentations, we'll compile any emails we receive. We'll do our best to address all those as part of the Q&A that we touch on. Consistent with all our prior investor days, the investor decks will be available at the end of this presentation on our website. With that, I'm very pleased to introduce our chairman, Jenne Britell. We have to figure out how one goes on. Come on, Ted. Thank you. Okay. Yes. Thank you. Okay, everyone, I'm going to add my welcome, and as you know from the introduction, I'm Jenne Britell, and I'm the chairman, proud to be the chairman of the board of United Rentals. To those of you attending here in New York and to everyone on the webcast, again, welcome to our 2016 Investors Day. We're very glad. We know you have lots of things you could do with your day and your time. Very glad to have you join us. With me today are Michael Kneeland, our President and Chief Executive Officer, and our company's senior management team. Michael and I also are joined by a number of our fellow board members, and we're fortunate to have nearly all our directors here today with us. Could I ask the directors to stand? Okay. Jason, where do I. Okay. We have five or six in addition to us of our total 11 board members. Someone had asked me at lunch if there were others here as well as me, and there are. It relates really to our wanting you to know that the board takes communication with the investment community very seriously. We think it is important that you understand how we expect to run the company over the next several years in order to maximize operating results. While our financial performance is obviously paramount, we also work very hard to ensure that the company operates as a good corporate citizen within a framework of ethical governance and best practices. Attributes such as diversity and safety, as Ted mentioned, are part of our value proposition, and we believe it makes us more marketable to customers. That is why we are here today, to share our vision and drill into the many important initiatives we have underway for greater efficiency, operational excellence, and financial performance, all of which add value for our investors. I speak for the entire board when I say that we are very proud of what Michael and his team have achieved and continue to achieve in guiding every aspect of the business. We are making great headway, and you will see this in executing on our strategy. Michael is a leader in every sense. He is a visionary, he is engaging, he is innovative, with an enthusiasm for our industry and a belief in our company that is truly inspiring. His team has done an excellent job of transforming United Rentals into a more nimble and responsive company. Their navigation, we talked about this with some of the people at lunch, the navigation of the global financial crisis ensured that we emerged in a strong position to capitalize on the positive market cycle our company enjoys today. It is my great pleasure to introduce our CEO, Michael Kneeland, and invite him to give you his thoughts. Michael, thank you. Thank you, Jenny, and hello, everyone, not only here, but also on the webcast that we have that is ongoing. I want to thank everybody for joining us today. I am going to direct my remarks on the potential of United Rentals for 2017 and beyond. This may sound like a surprising place to start a company that is approaching its 20th year in the industry, where we have achieved tremendous success. It is my privilege to have been with the company in one role or another for pretty much most of that time. We never look back at the company, we always look forward. I can tell you that I am more excited about United Rentals now, going forward, than at any time in our history. Sometimes our opportunities for profitable growth are not fully apparent from the outside, and that is one reason why everyone is here today and also on the webcast listening. We know what we are capable of accomplishing. Our stance has always been to tell you what we can achieve and then achieve it. When we said we could reach and sustain an adjusted EBITDA margin of more than 40%, we have done that consistently for over the past five years. We said that we could operate above our cost of capital, and that is where we are today. That is a major step forward. We are not resting there. Our long-term goal remains to operate above our cost of capital across a full cycle. We said we could transform United Rentals into a full-cycle free cash flow engine, and we have delivered on that. Now, I want to elaborate on that last point. I get that question quite often amongst several of the analysts. I am often asked, "What does not the investment community appreciate or understand about United Rentals?" The answer I give is most often is free cash flow. We are no longer a company that generates free cash flow only in the down cycle by selling off fleet. Today, we generate free cash flow throughout the cycle and manage our debt ratios at lower levels. All in all, we are a significantly more profitable and efficient company today than ever before. Now, this is the very definition of a well-run and financially solid company. A company that delivers on its promises, a company with good governance, great communication, and engaged workforce. A company that is not just focused on profitable growth, but is structured to create its own opportunities. You are going to hear some of those today. There is also a strong element of balance in our vision. It goes right to the heart of how we manage ourselves and our business as stewards of United Rentals. I use the term steward in the most inclusive, engaged sense as possible. To us, stewardship involves much more than the mindful of expectations we address during each earnings period. It also means managing our future vision. In other words, we keep our house in order today while still pursuing the aspirations full-born. Today, we are going to take you through numerous initiatives that we have underway, and they all add up to near-term results and outsized growth profitability in the long term. Now, these include new avenues for cost rationalization and process efficiencies, a new digital strategy, new cross-sell initiatives, new customer services, and many well-defined steps on the bridge to continued profitability. That is the value of an event like this, and you get to see the wheels we have in motion. We want you to see firsthand how we are shifting our company up, lifting the gears, increasing that gear. How our strategy is underpinned by levers that we believe are most entirely within our control and are well-prepared for anything that comes our way. Some of you may be familiar with the term VUCA. V-U-C-A. It's an old military term that nowadays is associated with strategic leadership, thanks to the insight of Bob Johansen, internationally known leadership pioneer. VUCA stands for volatility, uncertainty, complexity, and ambiguity. Kind of sums up where we are in today's world. They characterize the majority of business operating environments today, regardless of the product, service, or industry. Johansen describes them as noise. Volatility, uncertainty, complexity, and ambiguity shape the way business leaders view the current and future state of their companies. Simply put, if an organization is resistant to change, uncertainty is a constraint. It slows down decision-making and stifles opportunity. If an organization embraces change and welcomes the chance to innovate beyond traditional boundaries, as we do at United Rentals, uncertainty is the opposite effect. It sharpens our ability to plan and to move ahead because we know how to manage risk and solve problems in new ways. This is also a time to thank our more than 12,000 employees who bring their best efforts to work every day for our customers. They serve not only our company's vision, but also the business objectives of our customers. They share our excitement in taking United Rentals to a new level of performance. Our employees are, quite simply, the lifeblood of our business, and I'm immensely proud to lead this team. I'm also grateful for the invaluable support we receive from the board under Jenne's leadership, and we have a board of exceptional directors with diverse skill sets and a strong belief in our vision. The excellent working relationship between the board and executive team makes the most of their guidance on strategic issues. Finally, I'm proud of how we put our company in a position to attract world-class talent at every level. Individuals who have their pick of companies and industries. They see the drive for innovation and our passion, and they also want to get on board with the best. We're building a culture that makes the customer even more central to our business than in all of our activities. That's my message today. We're unlocking a whole new level of potential at United Rentals. Our strategy will be touchstone throughout the afternoon, but we also want to come away with today's event with a strong understanding of the tactics that we're employing to raise the bar in every area of the business. We've already achieved a great deal, and that's just a springboard, and I do believe in that. We believe that we have a tremendous amount of profitable growth still ahead of us. As you'll see today, we have a firm grasp on everything that takes to unlock the next level of potential. I want to thank you again for your interest in the future of United Rentals, and we're going to make the best use of your time today, starting with a brief video. Good afternoon. Thanks to everyone for coming today. Appreciate the time, and I know the team really appreciates it. I am excited for the rest of our teammates to come here and present to you all today. I have met many of you, but for those who I have not met, my name is Matt Flannery. I am the Chief Operating Officer of the company, and I have been with the company through legacy acquisition for over 25 years. In those 25 years, I have held multiple stops along the way. I started in sales and was a branch manager and then a district manager, and through the management ranks to my current role, which I took on in 2012. I would say what gets me most excited, even after 25 years and all that we have accomplished from quite a different company in 1998 that Mike referred to and where we are today, is the fact that we still have lots of opportunity. Not only the opportunity, but we have the vision and the people to create new industry standards. That is exciting for me. If you get a chance to go out to see our field team, and I do not know how many of you have got to go out to go to the branches, but that is who we are. If you have not, please get together with Ted and go do a branch visit because I will do a poor job compared to what the teams in the field will do when you will see the culture of yes and the can-do culture that exists in our branch network. You go and see it will do a better job than anything I am going to do about a slide. Many of you are familiar with the four pillars of strategy because it has been a consistent framework for us over the past five years. I think we rolled it out in 2012. Throughout today, the different team members will speak to topics that touch on each one of these pillars. I will get to a little bit later how that rolls up to opportunity of continued margin improvement. I think that the consistency of these four pillars and the consistency of our strategy is what has driven our performance up to date. We continue to build upon this strategy, but the core structure is what makes us win in the market every day. So we are very tied to it and very pleased with it. I am very pleased with the recent results we have had, despite some uneven macro headwinds and opportunities. It has just been a little bit choppy out there for the past 18 months, and I think we all recognize that. When I think about the positives of what we have been able to achieve, first and foremost, our commitment and investment in our specialty business has paid off tremendously. It has paid great dividends, and it is a strategic part of our value to our customers. We have not just grown that business through cold starts and pump or some of the 17 or 18 cold starts we opened this past year, but also with the cross-selling into our existing customers. That is really what helps drive customer entanglement. But also additionally, on the coast, our GenRent regions have done a great job taking the extra capacity that has been freed up from the challenging end markets in Canada and in some other parts of the U.S. Specifically, we have all talked it to death, but oil and gas markets. But they were able to take some of the non-res activity and the strong demand in their marketplaces and turn it into an offset into some of the challenges. And net, I feel that we are well-positioned going into 2017 for continued growth. And it is no surprise to anybody in this room that one of the major levers we have to pull on for that type of performance is our $9 billion worth of fleet. And capital allocation, as we talked about this January 2016 on our first quarter call, was how disciplined we were going to be about capital management. I am very pleased to present these charts that are on the slide because it is one thing to have the goal and another thing to have the results. So the slides that you see here are all year-over-year Q3 results. And I would like to talk a little bit to each of them. When you look at the strong time utilization improvement in each of our business units, and we called out specifically in the center there, the Canadian general rental business. We have talked a lot about the challenges that Canada has had, but we feel like we have right-sized that business, and they have had quite a time utilization improvement. And I think that is important to call out. And that would not have happened if we did not have the rigorous focus that we had on absorption. It was not a new term, but a reinvigorated term for us this year, where we were going to make sure that we were not going to put fleet into a market unless it was going to go on rent. We were not going to bet on the come. We were going to, I do not want to say a just-in-time inventory management style, but we really were going to be close to the vest on this. And that has created that 90% absorption in that center chart for a company's incremental capital. And that is when you are talking about business units of anywhere from 50% to 70% time utilization in Q3. And at times during the period, that absorption rate was over 100%. And we felt that that really went hand-in-hand for that time utilization improvement. But the chart I am most pleased about is the far right chart. That talks about where we are very rigorous and very disciplined about our capital spend. And we said we were not going to chase growth for growth's sake. Well, in order to maximize that capital that you are going to put into the business, you have to put it in the right place. And when you look at that right chart, those are our districts stack ranked by ROCA, and we put them into quartiles. And ROCA is return on controllable assets. It is our proxy for returns at the branch network. And when you see that, our first quartile, so our top quartile of return branches grew by 12%. And equally important, we did a lot of that, not by investing in new capital, but that bottom quartile reduced by 7%. And I think that shows the discipline and the rigor that we instituted on capital management this year. Another area that we really had the field focus on is operational excellence and continuous improvement. Helge will present. Helge Jacobsen, our Vice President of Ops Excellence, will present later on this afternoon in a little more detail. I wanted to share these two charts to show that productivity is still on the forefront of our minds and something that our field managers, from the district manager to the branch manager to the service managers, are very focused on. I point specifically to that left chart. That is rent revenue per headcount. It is a very simple metric. You can get any of our other public peers, and you could look at their total rent revenue and their total headcount and do the math yourself. It is not any more complicated than that. We have enjoyed, for quite some time, quite a gap between our competitive set that you may be able to look at. That does not stop our team from chasing improvements. When you look at the improvement in 2016, it would be quick to dismiss 20 basis point improvement. When you think about the already 30% plus improvement we have on most of our comps, and the fact that we absorbed the 2% rate decline to drive that in rent revenue, that 20 basis points times 12,000 plus employees, those nickel and dimes add up to real money pretty quickly. I really wanted to call out that and just to show the advantages of scale and the focus on productivity in our organization. Why do we do all this work? It is for profitable growth. You have heard us talk about that many, many times. It is often said that a picture can paint a thousand words. I would say that a simple line graph could do quite a job as well at times. When you look at this, and I have been fortunate enough to be here throughout this whole timeline. I will tell you that in 19 or in 2007, 2008, at 32%, 33%, we actually thought we were pretty good. We worked hard to get to that number. Then we went through the Great Recession, and coming out of it in 2010, Mike had set a goal, and some of us thought he might be crazy. We were not sure of 40% EBITDA. That was our goal. We are going to drive 40% EBITDA. We quickly exceeded that goal with the RSC integration in 2012. We did not stop there. We kept driving. Now to think that 50% is right around the corner and within our grasp really speaks to what Mike talked about in his opening about the transformation of the company. I also think it talks to not just the gains in margin, but these are not just pumping more revenue through a smaller pipe. These are structural gains that we think brings resiliency to our company throughout different points in the cycle as we go forward. This is something we are really proud of, and I wanted to make sure I spent some time on that. So where does that leave us today? You have heard us say it before. We think the cycle still has legs, and we think we are well positioned to take advantage of that. We think that the company and really the industry has done a good job of working through the excess capacity that we've been talking about for the last 18 months. Working through that as we're going into 2017 has added some relative stability to the important metrics that we focus on, like time utilization and rates. We're happy about that. We've also got some additional opportunity in what's been a big part of conversation even at lunch today, is potential stimulus packages, and more specifically in infrastructure. We don't know if it's going to be a trillion-dollar infrastructure spend over 10 years. We're sure it's going to be huge. I don't think that we need it to be a trillion dollars. If it's half that number, it's significant for us. What we do know is that the need for infrastructure spend has been there for quite some time and is apparent to all. It has bipartisan support and is a big mandate for President-elect Trump and the Republican Party, and that this can have a meaningful impact on our industry. If you calculate it's a trillion-dollar construction industry, think about that even half of the trillion-dollar number that Trump threw out there. Even at half of that, at $50 billion a year. That's a 5% increase on growth on a year, just for $50 billion more of infrastructure per year. It could have quite an impact. I'm not sure we're going to see too many shovel-ready projects in 2017, but I feel strongly that beyond that, this is going to be a real economic driver for the industry. We're not going to just wait for macro tailwinds or stimulus packages. One of the things that we've spent some time here in the fourth quarter rolling out, and the entire senior management team's been engaged in it, is what we call Project XL. What Project XL is, are eight specific work streams led by a senior manager and sponsors at the executive level that we feel are going to drive incremental margin for the company for years to come. We dusted off the old RSC integration playbook that we went to get about almost $250 million of integration costs, and we dusted off that playbook, and we're using that similar cadence and laser focus and charters in each one of these work streams. Chris and Helge and Dale and Paul will speak to some of these work streams throughout the presentations today. I think the bottom line that I'd like to have the takeaway for you all is that by the end of 2018, we think there's $200 million of incremental EBITDA. Not billion. I know we want trillion numbers around here. I got a little ahead of myself. $200 million of incremental EBITDA, and that's an exit run rate by Q4 2018. We don't need tailwinds. We don't need stimulus factors to do that, and I think it speaks to the fact that our team doesn't rest on their laurels and doesn't just catch what comes blows in the winds for us. We're going after margin enhancement that doesn't require outside help. That's really what I wanted to just set up the team to present to you today. We're going to get into some more detail in each of the presentations as well as Jeff will talk a little about M&A, and Irene will talk about our favorite subject, free cash flow. I hope that you're all going to leave today with a better understanding of why we feel good about the business and why we feel good about the company. Thanks for your attention, and I hope you have a great day and enjoy the rest of the presentations. My name is Paul McDonnell, and I'm excited to be here again this afternoon to talk to you about our specialty businesses and why our specialty businesses are a continued and important strategic focus for the company. A little bit about my background. I joined the company back in 1999 through an acquisition of a specialty trench safety rental company called D&E Steel Plate Rental. Like Matt, I kind of progressed through the field management system from district manager to regional vice president to my current role of Senior Vice President of Specialty Operations when I was promoted in 2008. I think it's fair to say that the specialty businesses have evolved significantly since 2008, when we were primarily just the trench safety business. Today, we have four business units, trench safety, power and HVAC, our Pump Solutions business, as well as our Tools business. Each of the specialty business units is led by a team of industry veterans that are doing a fantastic job in both building and executing against our specialty strategy. I'm going to get into a little bit more detail on the strategy. First, I want to touch on what specialty is and what it is here at United Rentals. As I mentioned, we've got four different business units. In our trench safety business, we provide excavation support systems and confined space entry for customers working in underground excavations. Trench is typically first on the job, which enhances our ability to cross-sell our general rental business as well as our other specialty businesses to utility contractors, infrastructure contractors. We anticipate that, as Matt mentioned earlier, with the increased focus around infrastructure, in particular, our trench safety business should benefit from an increase in infrastructure spending if and when it happens. Our rapidly expanding power and HVAC business delivers large power up to 2 megawatts, industrial air conditioners up to 80 tons, desiccant dehumidification up to 15,000 CFM. We service customers in industrial, government, commercial, restoration, sports and entertainment, and disaster management. Our Pump Solutions business provides pumping solutions whenever our customers are transporting water and/or fluids. Pump Solutions is the leader in downstream and industrial applications, but is rapidly expanding into other construction verticals through the cross-selling effort that Michael and Matt mentioned earlier into municipal utility, infrastructure, and commercial construction. Our Tool Solutions business provides both short- and long-term project support, whether it's a single tool or a ProBox tool or a fully stocked managed tool trailer. Our tools division is helping our customers improve their wrench time or increasing their uptime. Now that we've discussed the businesses, I want to kind of shift gears and talk a little bit about the strategy and why the specialty businesses continue to be an attractive business and attractive investment. Number one, as we think about our scale and our growth in specialty, it enhances our value proposition as we cross-pollinate these business units with our general rental businesses. We've heard time and time from our customers that they would like to do business with fewer suppliers. We believe that by providing that single source where we can solve all the problems across multiple product lines, it makes it easier for the customer to do business with us and gives us a competitive advantage. In addition, these businesses provide an engineered solution, so it's more of a technical sale. As we bundle these solution sales with our other product categories, again, we believe it gives us a competitive advantage. We see significant runway for growth, which I'm going to talk about later in the presentation. Then finally, as we think about the return profile for our specialty businesses, Matt touched on ROCA earlier, and ROCA being an internal measurement of EBITDA over OEC in a single year. These businesses generate very attractive returns on invested capital for our shareholders. Now, in each of the businesses, we have a simple, specific strategy that's differentiated ourselves in how we think about our go-to-market in terms of what it's going to take to be number one in each of the areas that we do business in. Now, in Trench Safety, we are the number one. We're the market leader. For trench, it's historically been defending our market leadership position while also growing our market share position. We do this through a combination of bringing new products to the market, being innovative, as well as providing customer training to our loyal customer base in excavation safety and confined space entry training. We'll train over 25,000 customers in confined space and excavation safety in 2016 alone. Our Power and HVAC business and our Pump Solutions business is really about building our network and opening cold starts, expanding our footprint. It's also equally important that we're attracting talent. Talent acquisition, talent development is a key work stream, a key focus of the build-out of the Power and the Pump Solutions business. Particularly in a specialty business, having that institutionalized knowledge and that specialty or engineering experience is critically important when it comes to solving our customer pain points. In addition, cross-selling, which we're going to get a little bit deeper into our cross-selling later in the presentation. Cross-selling has certainly helped growth in our Power and HVAC and in our Pump Solutions business. Then in tools, it's utilizing our general rental footprint to increase share of wallet with high-returning cat classes of equipment, while also focusing on our managed tool business, which I touched on earlier. These are fully stocked managed tool trailers, which we've had some traction in that part of the business this year. It puts us in front of the customer. It keeps us in daily communication with customers in industrial turnarounds and/or large capital projects, which then in turn allows us to funnel other products from other business units to the customer opportunity. I talked about footprint expansion and our cold starts. We have a proven track record of opening cold starts within United Rentals, and particularly in specialty since 2012. We've grown our footprint by 79 locations. We carefully select the markets that we want to open locations in as part of our strategic process. It's very forward-looking, and I think we've put a lot of rigor around building out our network and to be focused on what it's going to take to win and get these branches to be profitable pretty quickly after the branch is open. As you can see from the slide, these branches are turning a pre-tax profit within six months of being open. In addition, they're driving a high return on invested capital within 12 months of being open. Even more importantly, we're growing the revenue in those branches north of 50% in the second year of the branch opening. We've taken our total branch network today to 214 locations. We've opened 14 cold starts in 2016 across all business units. We plan to open an additional 19 cold starts in 2017, and we anticipate opening another 60 cold starts by 2020. Today, as we think about the growth in our specialty businesses, we service a diverse set of industries and customer verticals, as you can see from this slide here. We've built the capability to design engineer a solution across multiple customer verticals and multiple industries. It's important to highlight that because it's uniquely different as you cross different customer verticals. For example, we can turnkey an engineered solution for industrial process cooling to a downstream industrial account, and/or we can turnkey a large sewer bypass pumping solution combined with trench boxes or engineered trench solutions to an infrastructure account. We can take those solutions and capabilities and package them and bundle them with our other products and services to deepen that customer penetration and drive profitable growth and share of wallet. I think that the cross-selling thing continues to evolve as a core competency of United Rentals, certainly as we've built scale in the business. I'm going to ask a couple of our team members to come up and give you some examples of how cross-selling is enhancing our value proposition. Antwan Houston is a District Manager for the Southeast Power and HVAC business, and then Blake Smith is a Regional Sales and Marketing Director. He manages sales for all of our trench safety business. These two individuals are company and industry veterans, but more importantly, they're military veterans. Guys, thank you for your service. They are two of over 1,500 military veterans that we have today within United Rentals. Antwan, thank you. Thanks, Paul. Good afternoon. As Paul mentioned earlier, I spent 10 years in the Marine Corps, and it definitely positioned me for the role that I am in today. Today, I am responsible for 14 locations across the Southeast. Out of those 14 locations, we have seen same store year-over-year growth north of 33%. We have also opened three additional cold starts across the Southeast with growth north of 39%. Vertically challenged, right? Teamwork. There you go. Thanks, Paul. As you have heard earlier, we use words like engineered, turnkey solutions, cross-selling. Those are the cornerstones of what we do. So what do they mean? I will walk you through it on the slide. So within the Power and HVAC division, when we receive a phone call from the customer, 9 times out of 10, they do not understand what they need. So the goal for us is to give them a solution, and this is what we did for them. So the largest data center in Texas lost their cooling system. Now, all of you in the room understand the data center and the process. That is key, right? That is critical. So the team in Dallas immediately developed a solution. This solution consisted of two 3,000-ton cooling tower systems, multiple sticks of PVC pipe, 24 gallon per minute GPM, 24 GPM pumps, large transformers to reduce the power. Also, I touched on a couple words, cross-selling. So by Power and HVAC hitting the job site, we were able to bring in another business unit, and that was our general rentals business unit. So we brought in forklifts, skid steers, backhoes, and also the Tool Solutions group that Paul mentioned earlier. So now we have customer entanglement, and that is the key. So this was a six-month project where we generated revenue north of $1 million. So if we look at this project and you ask the question, where are we today? Well, by leveraging the relationship that we have with this customer, we now have projects across North America with this same customer, and we are also serving one of the world's largest search engines across North America with the recent acquisition of Quanta's power in Atlanta, Georgia. We are able to give the customer the load bank solution. And if you know anything about a data center, they need load banks to test the grid. Now we can go in and not only provide the power and HVAC, but also provide the load bank solution, as well as the general rental component that we have, entangling that customer, right? So this is just one of many projects that we have going on across the Southeast. I am truly excited about the outlook for 2017. It is definitely robust. And what I would like to do at this point is turn it over to my colleague, Blake Smith. Blake Smith is a Regional Sales and Marketing Director for Trench Safety. Thanks, Antwan. Good afternoon, everyone. As Paul mentioned, I am the Sales and Marketing Director for our Trench Safety region. I am responsible for overall sales in our engineering department. I have been with the company now 16 years. I just recently celebrated my anniversary. As Antwan mentioned, and Paul, I spent four years in the United States Air Force prior to joining the company. As Paul mentioned earlier, we are the leader in the trench safety industry space. In addition to that, we are the leader in the innovation of engineered solutions. I believe you will see this project today highlights not only our solution, but the total company value proposition in entangling a customer from the very beginning to the very end. What is unique about our industry is the fact we get to work with the customer prior to the project ever breaking ground. That is extremely important. We will spend time a year in advance or six months in advance deciding what is best for this customer. We are problem solvers through challenges. The challenges on this particular infrastructure project had many. We had soil conditions that were going to be unknown. We had a public airport that had to stay within use, so any types of vibrations, any type of public traffic was a concern. We focused very early on what would be the solution. The team spent many hours trying to solve the customer's problem around what would be the best scenario, and the customer decided on our hydraulic bracing. Hydraulic bracing is very unique. If you look at the upper-right picture, in a normal condition, you would have some form of a static welder. Excuse me, static beam, where they would spend many hours, countless, of labor and steel input into that project. In this particular case, we were able to convince the customer of installing a hydraulic brace. Its ease of use, its modular components allowed the customer to build out a much more aggressive schedule. In this particular case, not only was the solution of something that they could produce immediate production, but 10 months into the project, the customer was 11 months ahead of schedule. You think, how does that math work? That math worked through. They had seven months estimated in that particular area of the job prior to looking at a different solution. That is extremely powerful. What did it mean for the rest of our teammates? It meant that prior to breaking ground, we were able to align our general rental team and our specialty tools department. Through the life of the project, we were able to invoice over $200,000 in engineering solutions and an additional $300,000 in general rental and specialty tools. Great project. Where are we today and where do we go in the future? This customer is active today on 12 different projects throughout North America. Two, in particular, infrastructure projects in Denver and in California are very much a mirror of this opportunity, and we're currently providing those solutions. I hope this highlights the benefit of the trench safety team being on the job first and how we entangle our customer for the future. I want to thank you for this opportunity, and I'll turn it back over to Paul. Thank you. Thanks, guys. Thanks, Blake. Thanks, Antwan, and great job. It kind of gives a different perspective. Love the passion, love the excitement of the innovation around how these businesses operate. This is just two examples of many different cases of how we're solving customer problems by being innovative and bringing new products to the market. I think the key takeaway here is it's not just about the individual specialty business units, although certainly, as we're deepening our expertise and capabilities, we're growing in specialty. It's how it's helping bolster the broader company strategy as we think about customer entanglement and differentiation. Studies have shown that we talk about cross-selling a lot, and I want to kind of highlight some of the key successes in cross-selling and also kind of why we continue to focus on cross-selling as a key critical or key component of our customer strategy. Studies have shown that acquiring new customers is eight to 10 times more expensive than doing business with existing customers. Customers are also more likely to continue to do business with United Rentals if they're renting across multiple product lines. Cross-selling continues to keep the customer relationship fresh, even if one product category is down one year over the next. As you can see from this slide, we're winning in cross-selling. We've experienced strong CAGR growth in our national account cross-selling going back to 2014 across all of our specialty business units. This next slide highlights our journey, going back to 2012, when we were a little less than $300 million in revenue, with just two business units, Trench and Power and HVAC. We added our tools business in 2013. We added Pump Solutions in 2014. We'll deliver north of $1 billion in specialty revenue in 2016. We're not done yet. We still see opportunity for growth in our core specialty businesses. We've talked a lot about the infrastructure opportunity. We know that our nation's infrastructure is aging and crumbling, and we do believe that we'll see a significant uptick in investment in infrastructure in the outlying years. Our Power and HVAC business continues to benefit from an aging electrical grid system, as does our trench safety business. As they take down those utility lines, we provide the supplemental power, and as they put them underground, we provide the trench protective systems that support our contractors' needs. We're seeing a more diversified mix with a lot of opportunity for growth in our Pump Solutions businesses. We've expanded that part of our business to focus both in industrial but also in municipal and utility opportunities. For Tool Solutions, we see a significant opportunity to grow as we're driving that behavioral shift away from ownership to rental. This next slide kind of highlights more of what I just said in terms of the opportunity for growth. The overall specialty market, as we've defined it, exceeds $16 billion in revenue. As you can see on the left-hand side of the slide, even though we have experienced robust growth in each of our specialty business units, we still have market share growth to pursue. We'll do that with the strategy that I discussed earlier in the presentation, with a focus on talent acquisition, continued build-out of a footprint, cross-selling across all these different business units. While we are the market leader in trench safety, we believe that we can grow faster than the market by bringing new products and services, like Blake mentioned, and being innovative in shifting contractors away from self-performing to recognize the true cost benefits of renting our engineered solutions, as well as being an advocate for what's required in terms of OSHA safety. So as being a resource around compliance training to help our customers to stay safe in their workplace. I'm not going to get into the specifics around adjacencies and our M&A strategy in terms of how we think about bolt-on acquisitions. Jeff Fenton, our SVP of business development, will do a deeper dive in that in his presentation. In summary, we have an industry-leading value proposition here at United Rentals, and we believe that through the growth of our specialty businesses and the scale that we're creating in a high-margin, attractive return business, that will continue to strengthen and deepen our value proposition and drive significant opportunities for growth on a go-forward basis. The macro outlook is positive for the business, and we're excited about that, and we have an aim to grow our specialty businesses to be $2 billion in revenue by 2020. Thank you for your attention. I'm now going to ask Chris Hummel, our CMO, to come up and talk about our digital strategy. Thank you, Paul. Good afternoon, everyone. My name is Chris Hummel, the Chief Marketing Officer for United Rentals. Obviously, given some of the background of the people who've already come up, I'm the new guy in town, having just joined the company earlier this year, but very proud to be a member of this exceptional management team and this company. I've had the fortune in my career of actually participating in a number of different industry and even global transformations. I spent the 1990s in Russia and Eastern Europe working on creating new economies there, building infrastructures. Spent the turn of the century in the 2000s in Asia, working on the growth of Asia. Participated in a lot of the shift in software and communications over to the cloud. Even more recently, in my last job, was working on a lot of the nascent development in the Internet of Things. It's that same sort of spirit as I started to talk to Michael and the rest of the management team, that United Rentals has showed that kind of innovation in its history and continues to show it going forward. When we have, in the rental industry, which is in many ways a business model transformation as it got started, we're taking that same leadership really into the digital space. When we look at the digital space, there's clearly the commerce side of it, right? The transactions and how can we grow transactions? How can we attract new customers? Those transactions, and then, of course, the interactions that grow from that, start to build the foundations of relationships. Business being built on relationships is a core part of our value proposition that now digital opens up all kinds of possibilities as well. Then the third is this area of business model innovation, where we can now start to talk about different ways of approaching the customer, different consumption models, different ways of working with the customer to deliver value for them. Our digital strategy is really to create a win-win situation. Our customers, they gain productivity. They have the opportunity to increase efficiency by managing their contracts better, managing the equipment, delivering their jobs to their customers better. They get a better opportunity to interact with us, to have a more transparent relationship, to get a better customer experience. Of course, they get the intelligence and the data from now all these digital streams to start to do their work smarter and where we can together collaborate to help to again drive this productivity. At the same time, for us, we gain benefit out of this as well. We start to see our performance increase. We can attract new customers, gain market share. We can start to drive efficiencies in our own business and how we serve those customers in opening new channels. Of course, so important to this, deepen the relationships and start to build relationships that have less friction, less obstacles, and the ability, as Paul was even talking, to start to support the cross-sell of the broad portfolio of products that we have. Earlier this year in July, we launched what we call our online rental system. That system essentially is online order processing. There's a lot of things that it does that you would expect an electronic or an e-commerce storefront to do. There were two major things that were sort of leap forward or steps forward, at least in what we did versus what we had seen in the industry. The first was the ability to work with customers to deliver touchless transactions. Meaning, historically, what's happened in the equipment rentals is that you've gone online and you've made a request for a quote. We now built a system where you were able to make a reservation at any time during the day and get a confirmed reservation back. That may seem like a small step, but if you're trying to work faster and delivering a lot of orders and rent a lot of equipment, that becomes important. The second part of it is we opened it up not just to customers who have accounts with us, but actually to customers who wanted to pay credit cards. Again, this may sound like if you're talking about Amazon, this is not a major leap forward, but this is something that was very critical, and we'd heard from feedback from our customers. It was an important part of what they wanted us to do to serve them. We did that. We built that in. We launched the system. We opened it up and used our UR Jobsite application to actually get mobile access to it, because in our industry, obviously, a lot of our customers are working remotely on job sites, wanted access, the ability to do these things while they were on the job. In fact, we've now committed in January, this is now going to support multiple languages, French and Spanish to start with. The early returns are pretty positive. We're pretty happy with what we've seen so far. Now we set this up, we launched it. We haven't really released the full engine in the sense of the capability is all there. We've been working with customers, we've been getting the volume flow to go up. But the marketing side of me hasn't really launched the campaign, haven't driven all the awareness. We wanted to make sure it worked. We wanted to make sure it had all the features, functionality, we could get the scale going through it. And so far, we have. We've seen continued growth every month. In fact, even as our business cyclically and seasonal will start to drop off in the winter months, we've actually seen our digital commerce maintain and continue to grow its pace. So there's more than $60 million of equipment out there. Lots of people coming, visiting the site. Most important, though, was that the target for this that we set internally was primarily to go and attract new customers, to bring new customers to us, whether it was ones that just wanted to operate online or ones that had been working through email or whether it was digital citizens or whatever it was. And so far, in the results that we have seen in the last four or five months, nearly half of the customers who've come and used the system and transacted with us have been net new to United Rentals. People we did not do business with prior to that transaction with them. So that gives us a lot of positive feeling, I guess, about the direction that this is going, the continued kind of approach we're taking. And we've set a target that by the end of 2017, this system will have attracted more than 10,000 new customers. Now, it's working with our existing customers as well, but as I said, the focus is really on bringing those new customers in. To give you an example of one of those customers. There was a small company out of the Midwest that had a project with a major national big box retailer. And they needed to go do a number of installations, physical installations of POS system, point of sale systems in these retailers. They had to do it all across the country. They had to do it in a very quick turnaround and timeline. They came to us. They were not a major account. Of course, they had done some business with us. But in talking to their sales rep, they actually learned about this online capability, and they have been one of our largest orders or largest customers through the online channel. Because what they realized was now, as a small company in one location, they could manage all the orders for all the different locations they needed to go to. They could get those 200 pieces of equipment and make the rentals and get confirmed reservations right away. They could schedule the delivery and pickup because they had very short windows to get in, get out to do these installations. So they were able to do that through our system. So that was the convenience that was for them. For us, what happened is we were able to capture their entire project business. So whereas before they would have called individual branches, they would have checked on availability, they may have gone to different vendors. They were now coming to us for this one order, and we captured the entire business for that project. Also, what we have been able to learn from this small example is we actually found a customer profile that we realized there are many other customers like this. So what we have now done through our intelligence and through our analytics is started to look for other customers, other companies that look like that have those same kind of needs, and actually target them with a solution to try and draw them in and capture their business as well. But a digital strategy is not just about transactions. Digital strategy is also about providing more values to the customers in a way that we can make ourselves more important to them. My job, my position on the team is essentially to wake up every morning and think about: How do I expand the customer base? And how do I increase the value that we deliver to those customers to make ourselves more important as partners to them? And many of you who followed us over the years are surely already aware of some of the investments we have done in this area. But we have two major offerings to customers digitally. Our United Rentals Control, UR Control, which is essentially a rental management application, where they can do all of the kind of transactions that they want, rent something, take it off rent, extend the rental contract, look at their bills, pay their bills, all those kind of things that we call sort of rental management. And that is available to everybody. So there are tens of thousands of users out there for that. For our top customers, we have what is called Total Control. And Total Control essentially extends that into the area of fleet management, where they are able to manage the equipment they not only rent from us, but even their own equipment. They can actually put their own equipment into the system and use all the same features to manage the location, exception alerts, dashboards, reporting, all those kind of things that drive more value to them. To give you some idea of what kind of value this drives or what kind of productivity, I have up here just some of the unique features, really, of Total Control that we do not see anywhere else in the industry. A number of these, to give you some example, are we actually integrate GPS information that if a piece of equipment is not being used for some period of time, you can set an alert that automatically sends a message to the user that says, "Warning, this piece of equipment has not been used in a certain period of time." The idea is to help trigger that customer to say, "Hey, I forgot about that piece of equipment," or, "It is coming off rent," or, "Why is nobody using it? I thought we had to go rent some more. Let me go back and look at this and more efficiently use the dollars I am spending on my equipment. Let me manage that better. Maybe I have another job over here I can use it for temporarily." So that kind of very simple concept of giving an alert on low utilization is actually driving immediate productivity and efficiency for the customers. Another one would be some of the things we are doing in specialized billing around split account codes and split billing and that kind of thing, where somebody is using a piece of equipment on a project and then wants to shift that piece of equipment over to another project. We give them the tools where they can simply start accounting for that piece of equipment under a different project code or a different account code, so that they can actually track their spending without having to take the piece of equipment, bring it back to our branch, and then start renting it again and start the clock ticking again. So that kind of productivity gain is something that our customers have continued demand for from us. I think part of the reason why is we see very tangible results from it. We did kind of an audit using both our field resources as well as, again, the GPS data, the telematics data that we have to take a look at what the difference was of our Total Control customers and their utilization of the equipment, meaning how often was the motor running effectively of the piece of equipment versus customers who were not using Total Control. What we see across the board was improvements. Improvements in effect that they were using the equipment more often. They were getting more value out of the equipment from us just by being able to manage it better. Now, in some cases, okay, it is a 10% increase. Pennies count, right? When you start to multiply this by multiple tens, hundreds, sometimes even more of equipment, that can start to really add up as an economic benefit. In some cases, we even saw many times improvements. If you look there, it's the scissor lifts. We saw a dramatic increase in the amount of usage of the scissor lift, for example. But across the board, we were seeing customers actually get real economic, tangible economic value out of using this rental management and fleet management capability. That's driven, thankfully, quite an attractive adoption curve. We measure the adoption of Total Control by number of users. We measure it by number of sites. We measure it by how much revenue is represented by those customers. But one metric that you see here is penetration. So what percentage of our total rental revenue do our Total Control customers represent across any given year? If our revenue goes up or Total Control, we've seen consistently over the last four or five years a continued growth. Right now, in 2016, if we project forward through the end of the year, we expect that the customers using Total Control will represent more than $1 billion worth of revenue to us. So that's a significant amount of our business that is actually using this kind of capacity and continues to grow. That segment, those customers that are using Total Control, we've also seen them grow about 7% this year in revenue. So those are customers that are using us more, getting more value out of us, and in turn, obviously driving more business and better performance for us. You can see some of the statistics of where it's gone, but the last point I'll just make is this is not for a particular individual. This is not just for a procurement manager to go and do their work. This is for a fleet manager as well as a site manager. This is for somebody who manages their rentals centrally through a procurement kind of headquarters and people who do it on the job site as well. We actually have the profiles and the adaptability of how they use it that we can watch and give them the tools to do it. That's important for us to continue to spread this value broader across our base. An example of this would be in a case where there was a multi-site refinery operation, oil refinery operation, part of a larger enterprise that was one of our national account, is one of our national accounts. They were struggling in that they had so much rent, so many pieces of equipment all across their operations, more than 2,000 pieces of equipment, that they were struggling in managing the contracts and figuring out where they were, what they needed to add, what was coming off, or what was on late penalties, where these things were. We were able to, as part of the initiative with the larger parent company, install Total Control, work with them to leverage it, configure it, set it up for their usage, and actually help them save more than $500,000 in terms of fees that they would have accrued, equipment that they would have had to rent otherwise. We actually showed them $500,000 in efficiency. Now you may ask, "Okay, well aren't you kind of cannibalizing your own sales? You are giving them productivity. But in fact, what was happening is we were helping the customer gain more efficiency, generating a more valuable relationship with them overall, and they were starting to transition more of their business to us. If we looked at the parent company and the overall situation, they actually increased their sales or their business with us from $10 million to $30 million over a relatively short space of a couple of years. That does not mean that they increased their rental spend. What it meant is they increased their spend with us because they saw us as a more important partner. That really is the crux and the major message that we are taking our digital strategy forward with, is we are not just talking about transactions, we are trying to do something much broader. Give ourselves a unique, defensible position in the industry that is beyond any of our peers by driving both the efficiency and productivity for our customers through transactions and e-commerce, and as I said, we are seeing quite positive returns there, but also by increasing the value that we are able to deliver them. So at the end of the day, we are driving efficiency and productivity for our customers while making ourselves essentially an indispensable partner to them in creating that creative mode. So that is just the sort of start of our digital strategy, but we are quite proud of sort of what we have been able to do in a relatively short period of time over the last few years, and look forward to sharing the results with you over the next few years. Thank you. There is a video coming up. Thank you. Good afternoon. I am Helge Jacobsen, Vice President leading operational excellence. For us, that means driving improvements of operations to improve and make our customer experience more consistent. We have been on this journey for a little bit more than three years now. When we started this transformation, it was on the heels of the integration with RSC. Both companies had a whole host of initiatives, all of them successful: FAST, 5S, Metro, and so forth. But it was clear to us that we needed to take a more fundamental look in streamlining our core processes. This view is just a simple view of a typical lean transformation process. Last time I was in front of you two years ago, we were just coming out of the first wave of deploying our lean tools in the field. We were excited about the opportunity to start scaling it and deliver results. Today, I am here to talk a little bit about the performance and the results we have had the last two years, but more important, give you a sense of our excitement of the opportunity going forward and why we are doubling down and are intending to accelerate this process going forward. At the very outset of this initiative, we wanted to apply the same rigor of tracking the benefits as we had in the integration. So we created a very detailed model of how and where the benefit was going to come, certain assumptions of benefits and adoption. You can see our initial view as a light blue shaded area, and we dotted our actual performance against that. In 2015, we learned an important lesson that we had an implicit assumption of growth in our initial model. In 2015, we had to make corrective actions, and we had to take harder cost actions for us to realize the benefits of the work that we had done. I am excited and proud to say that the team are on track to deliver more than $100 million run rate benefits at the end of this year. Underneath the surface, if you open up the covers, you will see we have large variation between our locations. This illustration on the left is just a very simple chart of our main locations ranked from the best lean benefits to the worst. As you can see, it is a massive spread and a large variation. On the two extreme sides of the chart, these are mostly driven by market conditions, either very good or very bad. In general, we have less than 16% of the variation is explained by external factors. The good news is that majority of the benefit and the opportunity that is left for us is within our own control. We learned through the process that when we only implement a few of the tools, one or two, we tend to move and kind of sweep the waste from one process to another. Only when we are implementing a suite of tools across the platform are we starting to realize the benefits. The next phase of the program and where we are taking this next is really all about consistent adoption of known tools with known benefits. I will walk you through quickly some of the tools we are using, such as best practice rollout kits, how we are embedding it into the operating structure, and how we are leveraging together with IT mobile technologies to do that. I put this slide in just to remind you that our biggest challenge when we are talking about this initiative is all about change management. We are running a very vast operation and distributed operation that makes change management incredibly hard versus where I have done it in the past in manufacturing. Since we met last time, we have developed a real core competence in driving that, and we are leveraging formal change management tools and frameworks. When we are developing a best practice rollout or a BPRO, it is not just an email with, "Here is the best practice, please follow it," but it is a very detailed toolkit that will have training material, facilitation training. It will have guides for the branch managers and district managers, as well as exercises and tools for the individual associates. It is a systematic way for us to enable the local leadership teams to not only implement a best practice, but to really lead the change throughout the organization. I talked about before how when we see the benefits, it is when the tools are implemented in suites and done together. As you can imagine, over the last two years, with a host of best practice toolkits and almost 900 branch managers, we have many ways and orders where those tools have been implemented. In 2016, we made a real priority to start finding what is the most efficient and smartest way of deploying those tools and created a framework where we have maturity of process improvement for each one of the branches. A framework where we can assess by branch and by branch manager exactly where he is in the journey and give him or her very specific steps that they have to take for them to realize the benefits. We are very excited about rolling that out in 2017 as a way for us to accelerate or help the teams really accelerate the benefits. When we spoke two years ago, and I was up here, the lean transformation was very much a corporate initiative. We had just rolled it out in the field, but it still was very much led and driven by a corporate team. Since then, we have created a more formal framework for continuous improvement. It is very simple. You see it, discover, validate, create the toolkits, roll it out, drive the results. More importantly, we have invested in dedicated resources now that are in the operating structure. They are leading the transformation. They set the priorities, and they execute the rollout and are responsible for the results. This lean transformation, as much as it is a process improvement initiative, it is a cultural transformation. I am excited, and I think it is one of our biggest accomplishments over the last three years, that continuous improvement is quickly becoming part of how we do business, not only at executive or management level, but throughout the organizations for all our associates. Thirdly, I want to talk about how we are leveraging technology. Similarly to Chris talking about how we are investing in mobile technologies and smart technologies to create a much better experience for our customers, we have invested in technologies to make a better experience for our employees and associates. For each one of the core parts of our process, we have developed together with IT, a set of mobile applications. These mobile applications are not just a simple replication of all the capability that we have in our core system. These applications are coming out of the process work and the Kaizens and the feedback that we are getting from our associates and are very tightly linked to how we want them to operate the best practice. Not only are these mobile applications making it easier for our employees to do their daily job, but enables us to create a better, consistent set of processes as they are enabling and enforcing the best practice. Each one of these applications are in various stages of development, but we already have almost 4,000 mobile devices deployed to our frontline associates that they are using to do their daily job. In 2017, that pace will continue, so most of our frontline employees will be using very modern tools as part of their day-to-day work. The last three pages was a lot about how we are going to take known tools and known benefits and implement them faster and accelerate the benefit. But I also want to give you a little bit of a sense of into the future and some of the work we're doing from a more R&D or development standpoint. We have rolled out Metros, I think, five, six, seven years ago, we started that process. As you may recall, for us, Metro meant a hub-and-spoke system where we centralize certain functions in hubs to service the spokes and gain efficiency. Even though we haven't talked a lot about it the last three years, the team has continued to make modifications, make upgrades, we continue to make marginal improvements to our Metro framework. Through the Kaizens and all the work we had done over the last three years, it's just become more and more obvious the tremendous amount of waste we have between our branches, so to speak, and the opportunity we have to optimize the network versus optimize the individual branches. This slide is just a peek into some very early analysis we did a year or a year and a half ago. We took two years of transactional data for one district, and we simulated, what if we take all the equipment and we centralize it into one location? As you can see on top, by centralizing and pooling the fleet, you obviously get tremendous impact on the efficiency on the fleet, and you get very significant improvements in time utilization. But as we are trying to depict in the bottom, you also get additional cost for serving that market. So what we found was that the optimal solution is really depending on the demand profile of that specific cat class, the density of the market, and the cost of the equipment. It showed to us the immense power when we combine analytical capability with process and technology. We are just finalizing our first iteration of a more scalable set of tools built on this analytics and are piloting how to best operationalize it. But I wanted to give you this sneak peek that there's going to be more to come as we continue to develop a new step function change in what we call Metro 2.0. Hopefully, I've given you a sense for our excitement for the results that we have accomplished so far. Hopefully, you're getting a sense for that we're even more excited about the immediate results we're going to get the next year or two, and the opportunity beyond that as we continue to use the same tools combined with analytics and developing a whole new set of or breaking an operating barrier. So thank you for your time, and I would like to introduce Dale Asplund. Thank you. Thank you, Helge, and good afternoon. My name is Dale Asplund. I serve the capacity of operating many of the back office functions at United Rentals, including as the company's CIO. Years ago, when I hear Matt say he's been in the business 25 years, I would think that was a long time ago. I was lucky enough to join the company right at the inception of the company, which makes it, next year will be my 20th year with the company as we continue to grow. Today, I'm going to talk about one function of my job, and that's the management of our fleet, because I think it's really important. You heard Michael mention our 12,000 plus employees, which is our number one asset in any service business. But where we spend our capital and our second most important asset is our fleet. Our fleet of assets that supports everything you heard Paul talk about in our specialty business that we can service our customers. The fleet of assets that we have that has a broad range of products that allows all of our business units to service those customers and cross-sell across our business units. As we go through the cycle of those assets, it's a full journey. We look at it in the form of six steps. What I want to do is walk you through how you can look at that six-step process from the acquisition to the disposal of an asset. Let's start right at the beginning of what do we look at when we go to buy an asset. The first step, which we've been doing over the last several months, is to negotiate the annual agreements with your suppliers. Obviously, price is a big first step in that. But there's so many more pieces involved in this. It includes, can they get us the products when we need it? What are their lead times? How does their freight system work? Will they use our logistics program? What's the warranty? What's the warranty labor rate reimbursement that they're going to give us? What is the length of the warranty? This is very important. With the volume we spend, we expect to get extended warranties with our product. Do they have capability? You heard Chris talk about the integration we have with many of our customers. We do almost 1 million parts orders a year. We have to have electronic integration with our top suppliers to take inefficiencies out of our shop. What are the payment terms? This is important. Our capital that Bill will talk about in a little bit is a very important thing to us, and we have to continue to manage that. Technical support. We have over 3,400 mechanics out there. How do we make sure they have the understanding of the products they need to work on? This has been especially important over the last several years, as many vendors and engine capabilities have migrated to Tier 4 engines. Parts discounts. As we buy an asset, it's important what we pay for it up front, but we're going to keep that asset for many years, and we have to make sure we get the right pricing to support that product as we go forward. Are they integrated with our purchasing system? Can we retail the product if that's something we want to do? Do they give us training support at some of our centers of excellence? How do they work with us at time of disposal? It is all those factors that when our suppliers look at us, that is how they become one of our strategic partners. When you step back and you say, "How do you decide which product to buy?" It is not always based on which product has the lowest cost. We look at every one of our assets in the form of total cost of ownership. Let me walk you through one of these examples. Every year, once we have negotiated our annual agreements, we know what the new cost is to buy a new asset. You will see that in the acquisition cost. We can then, using historical analytics, determine what is the average amount of parts and labor that we are going to put into that to maintain it over the life of that asset. Then with the robust amount of information we have had that shows our sales history, we can determine what our anticipated residual value will be for that asset. It is that evaluation that will determine which asset is the best asset to buy. It is not always the least expensive. In many cases, this one happens to be the least expensive, but in many cases, one of the more expensive units over the course of the asset is a much better purchase for us than the lowest cost. The second phase, we have got our deals ready. We are ready to buy equipment. How do we make sure we are continually focused on buying the right fleet? We step back, and many of you have seen examples of, you can buy one asset, which can cost upwards of several hundred thousand dollars, and you can compare that to a fleet mix of several smaller assets. That same capital can return very different revenue and return results. In this example, you can see an asset that basically spending the same capital, you can get over double the returns on that asset just by focusing on different fleet mix. This is very important. Last time we were here in 2014, we showed you how we look at this by putting our products, every product we rent, into four categories. A category that we should focus on, do we want to defleet that category in the bottom left? Category right above that, where we need to focus on rental rates. We have great time utilization, but we are not getting the returns we want. If you shift over to where our returns grow across the bottom, we had an area of sales penetration. These are products we are getting good returns, but we still do not get the time utilization that we could. The more we can rent those, the better the returns will be. Then the green section that you see in the top right, our returns are great. Our time utilization is great. We have to invest our fleet. You saw Matt Flannery talk about our markets that we invested and grew our fleet in. This is the same with the fleet we have. What have we done over the last two years? I'm happy to say the biggest area of improvement is in that top right corner, where almost half of the fleet we have today is positioned where we should invest in that fleet to grow it. We've shrunk the sales penetration area, and despite the rate challenges we've seen in many markets, we actually have less products in the category where we should focus on rate. We've made the strategic decision not to defleet some of our products that support our specialty business, but I'm going to talk about that in a minute of what that means to oil and gas, and that's caused a little growth in the areas where we would look to defleet. The third step, we have the assets. We've gone through the process. We know what we want to buy. We bring it in. Now we have to manage those assets that we have. Time utilization is a big area of focus. As you can see, after a slow start this year, we've had improvements year-over-year in every month after January since we've seen that. We got off to a slow start. But as we go to purchase an asset, before we do any of that, we have several steps. First, we look at can we transfer it before we buy? We take that purchase of that capital and making sure it's right, very important to us. Do we have excess fleet that's untapped for us? It's unavailable, so it hasn't been picked up, or it's in a maintenance status that we should get back into service so we can rent it. Our goal is profitable growth. That's always going to be a balance between rate and time. Profitable growth is the most important decision we have to make with what we buy. As that second step, let's talk about where we saw the challenges in time utilization over the last couple of years. This is important because I know Matt talked about, we've talked about this several times. But we, at one point, grew our fleet in our branches that focus on the oil and gas segment. We grew that fleet to over $1 billion of fleet. We have defleeted to now below $700 million. One could argue we may have wanted to go faster and defleet it a little quicker in 2015. But at the end of the day, today, we've right-sized that fleet. You can see on the right, although our time utilization in those branches may not be at where it was at in 2014 today. If you look at just our general rental branches, where we defleeted and had them focus on other products, our time utilization, which was just under 71% in 2014, is back to almost 70% today. This is a great change as they diversified to go after other business that may not keep the equipment as long as the oil and gas markets traditionally do. The point of this message is one thing. We have a group of people that is ready to service that business when it returns, and it will return. And we have capacity in facilities with well-trained people that can support our customers in every area that can drive revenue for us. There's $400 million almost waiting to be put back on rent. When the demand is there, we will get the product, and we have the resources to put it back on rent. Rate. That's the next step in our cycle. Like I said, this is a balance between time and rate every day. When we saw our slow start this year on time utilization, one can imagine our rate became a little bit of a challenge as we went trying to get more business and putting our fleet on rent. We quickly saw that in the second quarter, where I showed you our time utilization became an increase year over year. Matt and our operational team did a great job to manage us through that rate issue and get our rates back up, showing sequential increases across Q2. Q3, same as just like we see seasonally. When you look at rates, this is an important message. We use a lot of analytics. We use market input from our managers. Understand, these rates are set by market, by Cat Class, which includes thousands of them, by customer segment. When we say we have a slight increase or a slight decrease, it can be the mix of the products we're renting. This does not mean every rental went up or down by that price. This is a lot of data. It's a lot of markets. Understand, we manage rate so critically in conjunction with our time. Once again, every product we have, how do we manage it for profitable growth? Unfortunately, every asset comes to a point where we have to figure out when's the right time to dispose of it. This too can be done using analytics. This is not just everything's for sale, let's sell what we can when we can. We can actually look at an asset, and using data, determine what's going to happen to the future revenues of that asset, usually set by more downtime as an asset gets older. How much does the maintenance increase as we go forward in that asset as we age it? What's the residual value decrease is going to be? You add in how much it costs to buy the new asset, and you can analytically come up with when's the best date to sell that asset and set a rental useful life for that asset. That's how we target which assets are available to sell out of that 9-plus billion dollars of fleet we have. Now it's time to sell it. What do we do to make sure we sell this asset at an optimal price? We don't use accounting depreciation. We don't use net book value. We don't use some arbitrary number. We use real data to set a price so we can get the optimum returns at the disposal of that asset. We have a third party that we work with that gives us what they see as a fair market value. We then look at every asset to say, "Has it hit that rental useful life hour or age?" If it has, we'll then look at it and say, "What's our target hours for that asset? Does this asset have more or less hours?" We'll set a variable against the price for that. We then step back and say, "What's the market demand right now for that product?" If it's high, you can guess, we do raise the price. If it's something we have to liquidate a little sooner, we lower the price a little bit. There is math that'll help us. We get great returns on our used equipment. It is a profit center for us. We use a retail channel the majority of the time because we have analytics that help us drive what to sell and how to sell it at the right price. Once again, we look at that life cycle of the fleet process very rigorously. It starts from the time we are going to buy it, and it ends at the time we sell it. But each one of those steps includes analytics and includes the evaluation of the data. With that, I say thank you. Good afternoon, everybody. Hopefully, everyone is hanging in there and enjoying the presentation so far. I am Jeff Fenton. I lead the Corporate Business Development group. Our BD team supports the business in three key areas: strategy development, strategic initiatives, and M&A, which I will talk a little bit more about today. I have worked with United Rentals since 2009, first as an advisor, and then coming on board in my current role in 2012. Prior to joining United Rentals, I have held various operating executive positions at GE and within private equity, including roles as CEO of ModSpace and Maxim Crane. For those of you that have followed our company's history, you know that M&A has long played a key role. Over the last 20 years, our company has completed about 275 acquisitions, both large and small. As a result, we have a good sense of what works and what doesn't. Today, I would like to share with you how we leverage that experience to support the four strategic pillars that Matt Flannery discussed earlier and create an effective process for analyzing potential transactions. It starts with our annual strategic planning process. This process helps stretch our thinking, to frame alternatives, and to set priorities. This is a dynamic process that includes our field team, our senior management, our board of directors, as well as our external advisors and various subject matter experts. Reaching outside the company and the industry for ideas and best practices has become the norm. We evaluate a broad range of alternatives that could be impactful near term as well as the longer-term horizon. Developing strategy is one thing, but executing on strategy, as you all know, is much harder. We give careful consideration to balance opportunities with the resources needed and available. Many of the initiatives reviewed today, as well as the recent M&A transactions completed, are a result of this process. Over the last five years, we have completed 13 acquisitions and one minority investment. In total, they represent approximately $2 billion in revenue, furthering our industry leadership position while also accelerating the diversification of our business. The majority of transactions fall into scale and bolt-on categories. They build on our existing businesses, creating value through increased market penetration and margin enhancements. RSC has been the largest transaction to date. Ontario Laser, Gulfstar, Cobalt Trench, and Blue-Stream Services have been critical additions to our trench safety and power HVAC specialty business units. We also look to invest in adjacent segments with a strong customer overlap and the potential for cross-selling new products and services. National Pump, which we've talked about earlier today, provided a unique opportunity to acquire an industry-leading platform in an attractive adjacency. We'll take a deeper dive into RSC and National Pump in a few moments. This year, we've completed 2 acquisitions, Quantis in March and Rochester Portables in September. Antwan talked about Quantis a little bit earlier. Quantis is a leader in load banks, which are used to test electrical power systems. It's a great fit with our power HVAC business, providing a complementary product offering to many of our same customers. Rochester Portables, our first acquisition in the portable sanitation adjacency, also serves many of our customers across a broad customer base, including commercial, industrial, and special event segments. The fourth category investment is minority equity investments. We see potential value in investing in companies with innovative technologies and business models. Taking a minority position allows us to participate in the development and application of new products and services while limiting the risk associated with early adoption. Our investment in 5D Robotics, focused on robotic applications and positioning systems, is an example of this approach. We have learned over time what factors are most critical to success and how to minimize risk. We are certainly not perfect, but believe that we have shifted the balance towards getting it right. Many of you may be familiar with our three-legged stool used to screen potential investments. Each leg is critical by itself, but when combined, provides a consistent method to evaluate potential investments. For instance, our strategic screen is used to define our investment rationale, where and how value will be created. Capturing and aligning on these strategic synergies is critical at the onset of the process and as a guide through the diligence and integration planning processes. The financial screen blends the strategic synergies with a range of potential purchase values. We use a balanced set of metrics that weigh growth and returns over the cycle. Before approving any transaction, detailed models are built that reflect our assumptions. The last screen ties the people component into our evaluation process. We've talked a lot about people today. Matt shared with you earlier our vision and values. As we invite others to join our team, it is critical that there is a cultural fit and we're not mixing oil and water. The fact is that we only fly one flag at United Rentals and aligning on culture is critical. We go through this process no matter the size of the deal. While we look at many deal books, few make it through the screening process. Let me share 2 case studies that illustrate how this all comes together. The acquisitions of RSC and National Pump represent 2 of the largest acquisitions completed in the rental industry. The $4.2 billion acquisition of RSC, completed in April of 2012, and a $780 million acquisition of National Pump was completed in April of 2014. As we look back on each, we view both as very strategic acquisitions, and the integrations were both well executed. RSC has outperformed our original investment thesis, while National Pump has hit some market headwinds, impacting near-term results, but we remain bullish on the longer-term prospects. I'd like to just go a little deeper into each one. On RSC, strength with large industrial customers and key accounts was a natural complement to United Rentals product portfolio. Like United Rentals, RSC shared a commitment to safety and operational excellence, which brought several of the best practices to the combined company. By leveraging best of both processes and tools, we think the acquisition positioned United Rentals to have an unrivaled key account value proposition. A large-scale integration like RSC required careful preparation and execution. We've referred to that a few times today. There were risks, such as attrition of customers and talent. The good news is that we were able to retain talent from both organizations and also capturing over $250 million of cost synergy, and synergies are continuing to accrue. This experience has refined our playbook for larger acquisitions, which we think will come in handy for other scale M&A opportunities. As we take a look a little deeper into National Pump, this was a very different type of acquisition for United Rentals. National Pump increased the scope of our product offering. Instead of cost synergies, the primary driver of return on investment was growth in the business through cross-sell and through additional locations. As Paul referred to earlier, National Pump was heavily tied to the upstream oil and gas sector, and at the time, it accounted for 55% of the revenue of the company. Our primary investment thesis was a bet on our ability to diversify end markets through cross-selling into our customer portfolio. We recognized the risk in oil and gas and stress-tested a variety of downside scenarios, including as low as $50 a barrel for oil, which was even more conservative than the conventional wisdom at the time. As we all know, oil prices fell further, faster. On the flip side, the cross-sell we've generated in the pump business has exceeded our expectations. Our success in cross-sell, combined with the 17 cold starts Paul highlighted, has partially offset the decline of over 60% in the upstream market. In fact, we are forecasting year-over-year revenue growth in the pump business this year. We are also very pleased with the talent we retained from this acquisition and believe the benefits of the acquisition go well beyond the pump business. Pump Solutions has strengthened our value proposition with our key accounts and created a template for us to create value through adjacent acquisitions. As we think about our pipeline, we cast a wide net to ensure that we leave no stone unturned to create value through M&A. We look to scale, bolt-on, and adjacency entry opportunities in both our gen rent and specialty businesses. What's more, we explore disruptive technologies that could impact our company in the future. Our investment in 5D Robotics is one such example, but there are others. Finally, we also evaluate opportunities internationally, especially when it would build on the current customer relationships that we have. This year, we've assessed over 50 different opportunities, and obviously, with two completed so far, we've set the bar very high to get across that line. In summary, I think it's clear that our M&A experience has honed our ability to execute and create value in a wide range of transactions. We'll continue to develop a robust pipeline and explore a broad set of investment opportunities. Every transaction must pass our strategic, financial, and cultural screens in order to get across the finish line. I hope you have seen we take seriously that we are guardians of investor capital and approach M&A in a rigorous, disciplined, and thoughtful way. Thank you. I'd like to invite, I think Irene and Bill are coming up to talk about financials. Good afternoon. I'm Irene Moshouris. I'm the Treasurer of United Rentals. I joined United Rentals in 2006, and prior to that, I had various positions in tax and treasury at Avon Products, Sterling Winthrop, and Arthur Andersen. I wanted to spend a few moments discussing our capital structure. Our capital structure is a critical component to executing our operational strategy. We manage the capital structure with an eye towards retaining maximum flexibility and liquidity to service the strategy. As Matt and the team have discussed this afternoon, over the last several years, we've made significant improvements to the operations. The same can be said of our capital structure. Beginning with our debt portfolio, over the last years, we've actively managed our debt, focusing on a few factors, including extending the tenor of our debt, avoiding any near-term significant maturities, avoiding large maturity towers in any one year, and reducing the cost of debt. This slide is a comparison of our debt maturity profile at the end of 2008 and where we were at the end of September of this year. It illustrates that since 2008, our average maturity has been pushed out by almost two years. Also, look at that space in between the next real large maturity, which is in year six. So no near-term significant maturities, and there really are no very large maturity towers in any one year. So we feel strongly that we're in a position to address our operational needs. Moving now to interest expense and management of interest expense. We actively manage our debt and have refinanced opportunistically. Over the last few years, we've reduced the average interest cost from a high of 8.1% to 5.3%, which is where we are right now. That's a 280-basis-point reduction. This is lower interest cost that has a direct impact on our cash flow. In fact, this year we were very active in the markets, and in 2016, we redeemed three issues, either partially or wholly, and we expect, because of those actions, to significantly reduce interest in 2017. I know there's some cynics in the audience that may be saying, "All right. Yeah, yeah. The Fed has helped you a lot with respect to their low interest rate policy. But I would submit to you that we have also benefited from the fact that we have a better credit profile because of our consistent free cash flow generation and because of the consistent business results that we've had over the past several years. Also because of the confidence in the investment community, I think that we have generated over the last several years. While it's difficult to illustrate directly, we believe that we refinance at levels better than companies with similar profiles. One way that we see this is by looking at the new issue premium that we pay when we issue new debt and comparing it to the average premium. We consistently pay less. My apologies in advance, that was a shameless plug for the treasury department. Moving over to net leverage management. Since 2008, we've managed our net leverage from the peak during the crisis of 4.8 times to the level of 2.8 times. The only interruption that you'll notice is from this effectively a straight line down to where we are now is in 2012, and that was when we acquired RSC. But as you can see, we quickly resumed the pace to lowering the leverage. Just as a reminder to the group, we have set a targeted net leverage range of 2.5 to 3.5 times over the cycle. But as with the RSC acquisition, where we find an acquisition where it's appropriate, we're willing to briefly exceed the higher end of that range, as long as there's a clear path to lower leverage within a short period of time after. Moving now to share repurchase programs. After the RSC acquisition, we announced our first share repurchase program in the third quarter of 2013. There have been three programs, including our current $1 billion program, which has approximately $375 million remaining and which we expect to complete by the second quarter of next year. To date, we have repurchased approximately 22 million shares related to these programs. These repurchases have reduced the fully diluted share count by 19%. While the obvious impact has been to our EPS, what is somewhat less obvious is the impact the reduced share count has to our weighted average cost of capital. For that discussion, as well as discussions on ROIC and capital allocation and free cash flow, I would like to introduce Bill Plummer, our CFO, who's going to bring us home with the final presentation. Thank you very much. Thanks, Irene. How's everybody doing? You guys still with us? It's been a stretch without a break, I know. The seats are hard. That's why I'm glad to be standing up and you're all are sitting down. But I did want to finish out the day, and it won't be long here before we get to Q&A. I think I know everybody in the crowd, but if I miss somebody, I'm Bill Plummer, I'm the CFO for the company. I joined United Rentals in 2008. In fact, it was on December 1st of 2008, so it's exactly eight years ago today. So you can wish me a happy second birthday. Responsible for all the usual CFO functions, including a lot of the refinancing activities. I probably have the most dangerous task today, because I am going to stand in front of a group of 150 investment professionals and talk about returns and economic profitability and cash flow and how all that relates to valuation. I like a good challenge, so please do challenge some of the ideas that you see here. Just a couple of thoughts that I wanted to offer out on return on invested capital, on our weighted average cost of capital, on our cash generation capability, how we allocated cash flow, and what all that means to the company today and in the future. I will start with just a Okay, we had an edit here. With just a slide showing you how we think about the notion of weighted average cost of capital. Many of you have asked, "Well, what do you guys think of your WACC?" Right? You have heard us say in the past, we use a hurdle rate of 10%. That is a different statement than saying that we believe our weighted average cost of capital is 10%. I mention that to emphasize that difference, because sometimes it gets lost. I have heard some investors say, "Well, you guys say your WACC is 10% and your ROIC is, what was it, 8.3% at the last quarter? That means you are destroying economic value." Well, there are two issues with that statement. One is that a hurdle rate is not WACC, right? 10% is the hurdle rate. Our WACC is more like 7.2% as we calculate it today. Then the second point surrounds ROIC. Return on invested capital is a useful measure. It is one that correlates highly with returns and with valuation multiples, but it is not the right measure, if I may, to compare directly to WACC and determine economic profitability. Why do I say that? These points. Return on invested capital is an accounting-based measure. It is a backward-looking measure. It is a measure that is driven by book values instead of market values. It only covers one period and gives no benefit for growth. Those are real limitations when you are thinking about a measure that should be compared to WACC. WACC is cash-based. It uses market values for all of the components of invested capital, looks at the entire future, takes into account growth, and so forth. So they are very different things. Comparing the apple of ROIC with the orange of WACC is something that you have to do with some trepidation. That was a point that I think really gets lost in the discussion sometimes. I know it gets lost for good reason. Many companies talk about ROIC as the measure of return. That is important. Many investors think about it as the measure of return. But I do want to caution everyone that if you are thinking about it for making judgments about how a company's returns look compared to its cost of capital, you got to go beyond just taking a normal book value-based calculation of ROIC to do that comparison. I will show you in a second what the world looks like if you do. In fact, I will go there now. If you do make some adjustments. If you decide that you want to address probably the biggest issue here, which is the market value weighting of debt and equity in your ROIC calculation, you come up with a fairly significant difference between the ROIC you get there and the ROIC that you get from using normal book values. We took a shot at doing that right here. Here you see the ROIC that we calculate. Actually, this is the wrong one. The order of my slides have been shuffled around, so this is going to make it really interesting. Let's get to it. There it is. The light blue line shows you the ROIC that we calculate when you adjust it for the impact of using market weights in the invested capital denominator. As opposed to, you see the heavy dashed green line up above that ends at 8.3%? That's the ROIC that we report on an ongoing basis. We've gone back and looked at every quarter of our reported ROIC, and that's what's plotted there. You can see that there's a pretty significant difference between those two lines. I put both of those calculations of ROIC up against the dark blue line, which is the calculation of weighted average cost of capital. What this says to me is that when you take a more market-focused, and what I think is a more directly usable view of ROIC, and then compare that to our weighted average cost of capital, United Rentals is a company that actually does generate economic profitability. Now, there are a lot of assumptions here, so I don't want to go too far with this notion. This is a very academic kind of discussion, so I don't want to bore you all too much with all the assumptions that went into it and the challenges that those assumptions might bring. But I do think it's important to register the point that when you're thinking about the economic profitability of our company, there is a reasonable basis for saying they're generating economic profitability, they've grown nicely, they've improved their margins, and they generate a boatload of free cash flow. Those are all very attractive characteristics of a company for investments today and in the future. Then the question goes, can they sustain it? I think you've heard a lot from the team today about initiatives and areas of focus that will help us sustain it as we go forward. I find this to be a very interesting and exciting time in the history of United Rentals, and I just wanted to call your attention to some of these ideas. I'm going to shorten my comments to just a couple more slides here. Maybe if anybody's interested, we can come back to this discussion in Q&A, or if you're not interested, then we can talk about it after we wrap up here. Let me offer one more thought before I leave, which is around the cash flow generating capability of our company and what that does for us today and in the future. Many of you have seen this slide or something very much like it in our investor materials over time. And just to set it for you, on the left-hand side, the two bars, we show you since 2013, the third quarter 2013, which is coincident with the share repurchase program that we started after we got past the RSC acquisition. We have generated cash flow from operations along with a small amount of net debt issuance of about $6 billion. The bar on the right shows you how we've used that cash flow in that time period. So cash from operations plus net debt issuance, we've taken 53% of that cash flow, and we've invested it in CapEx to grow our business organically. Another 15% went to the acquisitions that Jeff showed you just a little bit ago. Then about a third of it has gone to share repurchase. That spread of use of cash flow, I think, is indicative of what we try to do as a company as we think about how you manage the capital structure, how you support the strategy and market position of the company, and how you reward shareholders. We're looking for that balance that will allow all those views of our company to be attractive for customers, for ourselves versus competitors, and for all of you as investors. I think we struck a pretty good balance. The boxes on the right show you the way we think about how to make the decisions that lead to that source and use of cash on the left. You've heard us talk about leveraging our business in the range of 2.5 to 3.5 times on net debt to EBITDA. That's the underlying highest priority as we think about how to use the cash flow that we can generate as a business. We want to make sure that our business is well-positioned with regard to leverage so that there is no concern about our ability to support the strategy of the business, and to be able to do the things that we want to do as a company, as Irene said. So that's the starting point. Where are we in leverage? Where do we want to go in leverage? How quickly do we want to get there are the first decisions. That'll tell us how much of the cash that our operations are going to throw off we want to devote to managing our level of debt, right? Paying down debt or increasing debt. So that's how we got to the starting point, then we say, okay, once we get comfortable with the leverage decision, then we start looking at how much capital do we want to use to support the organic investment of our business, right? How much are we going to take to go out there, buy a new fleet, and compete in the marketplace? We'll keep doing that. We'll keep investing that organic CapEx until we believe that we've reached a point where we can't invest more effectively and efficiently, right? We're always asking that question. We can always spend more on CapEx, right? We got the cash flow. We can always do that. What we say is, how do you spend CapEx as efficiently and as effectively as you can and not waste it? That's an ongoing debate, right? We wrestle over that all the time. That's the second decision that we make after we get past the leverage call. We're going to fill up our organic capital need as much as we can. If there's cash flow left over after that, then we ask the question: Are there M&A opportunities that we want to take advantage of right here and now? Are there any that we expect to come in the near term? We always have the opportunity to go out and borrow more in order to do M&A. But when you're talking about some of the smaller bolt-ons that Jeff did, you can definitely think about financing those as all-cash acquisitions without new borrowing. That's where that line of thinking comes in, is how much cash do we want to use for acquisitions? Once that's satisfied, you look at what's left over, and you say, "That's extra." In fact, that's free cash flow after acquisitions. What do you want to do with it? Do you want to pay down more debt? Well, that could make your cost of capital inefficient. Do you want to buy back shares? Yeah, that could be interesting. In fact, as Irene said, we've been doing a fair amount of that. There may be reasons to buy back shares that revolve around the notion of managing your capital structure more efficiently. This slide illustrates one view of why you might want to do more share repurchase. What we've done here, the solid blue line at the bottom shows you the calculation of weighted average cost of capital that I talked about before. There's that 7.2%. The dashed light blue line shows you what our WACC would have been if we had not done the share repurchases. The notion here is instead of taking out the shares, we're going to put the shares back, but we're going to also reduce the amount of debt in the capital structure. When you don't do the share repurchase, effectively, you're shifting the mix of debt and equity more toward equity, and that has a really powerful impact. That 90 basis points difference, well, you can think about it however you want, but a difference of 90 basis points, if you just put that on a perpetuity at whatever annual cash flow you want, it's a lot of money. I've been challenged. I've gotten the question directly: What have you gotten for your share repurchase? There are some people who would argue we've gotten nothing for our share repurchase. I think this says that there is a pretty powerful argument for doing the share repurchase. This has nothing to do with, oh, you increased your EPS and you multiply it by a PE, and that'll tell you. This is about the power of setting the leverage level in your capital structure where you want it, and it can be a very powerful thing indeed. That's another view. Last point, promise. You've seen this slide at least partially before, right? The line there is what Matt showed you on our margin over the last number of years, right? I cut it off at 2008. He went further back. That is a very powerful picture. And sometimes, Michael mentioned, people ask him, "What do you think is underappreciated about the company?" For me, this slide encapsulates it. The margin improvement of this company has been incredible. The cash flow that we've done while we're improving the margins has been just as incredible. That combination is very powerful. That combination, especially when viewed in light of some of the economic profitability discussions that we just talked about, the relative position of ROIC and WACC, says to me that United Rentals has delivered a tremendous amount of value to you as the shareholders in our company. That's something that I don't think has been fully appreciated. It certainly has been appreciated, no doubt about it. Looking at the stock price, it's appreciated more every second, I think. But I think that if you really step back from it's a pretty powerful story. So that's something that I would offer up as, again, you've all seen it before, but a way to kind of pull it together and a way to emphasize what we think about as we think about how do we deliver value going forward. We're not giving you a forecast yet of sort of where these things go, but I think we can be very comfortable in saying that we view free cash flow generation as being an important aspect of our business, and we want to do it wherever and whenever we can, as long as it's consistent with supporting our strategy, our position in the marketplace, and our competitiveness for the long haul. This slide says that we've done a pretty good job of it over the last number of years, and I take tremendous pride in that. I'm going to stop right here and lead us into the Q&A section. I guess Michael and Matt and I are going to subject ourselves to being up front here, and you guys can fire questions at us. But I just wanted to wrap up by offering my thanks to all of you for coming out and being patient through the presentations. I look forward to your questions and your challenges and the discussion that's coming up here in just a second. So thank you. Thank you. Yeah, I'm telling you. It was kind of something. I came this close to getting- We're going to have microphones circling around the room. As we have the microphones come down, we got an email question, so I'll just- It was to the panel. The question was, your fleet tends to be more aerial weighted. Infrastructure projects are perceived to be more dirt heavy. When people think about the opportunity of a potential infrastructure bill, how do you think you're positioned with your fleet and your customers? That was the gist of the question. Sure. Well, I'll take that one. I think it depends specifically on what type of infrastructure project we're talking about and how broad you're going to use that context. Obviously, if you're talking about airport expansion and new builds, those are huge rental opportunities. Even any kind of elevated roadway, not just bridges, of which we have quite a few going on in the New York Metro here, for those of you that have been traveling around, if you live here or if you've been visiting, I think we've got four major bridge projects going on today, which has huge rental penetration. But elevated roadways, for instance, if you look at Spaghetti Junction in Atlanta, or if you look at the whole 95 corridor between New York and Boston, I'd say about 80% of that's elevated. So those all have opportunities for some core rental product. If you're talking about just paving projects, I will admit that that's probably not going to be a huge, other than maybe some temporary power and temporary light, not going to be a more big element, not going to be great business for us. But we think infrastructure overall, including road and bridge, is a great revenue opportunity, of course. The only thing I might add, Matt, is obviously, there's a lot of uncertainty on what an infrastructure package could look like. If you read a lot of the white papers, they've talked about things like bridges, roads, highways, but also things like power plant conversions, water, sewer lines. Paul talked about some of the exposure we've got to those product segments and the cross-selling and the client base and that. Agreed. I think it's even a larger opportunity for our specialty business when you think about all of these projects, even some of the road projects that may be less aerial usage. You're going to have need temporary power. You're going to probably need to move some water in some parts of it. You're going to need pumps for that, and you're going to need a trench for any kind of excavation. I think that we feel very good about the opportunity these will bring us. Okay. Questions, raise your hands. You got Cliff, right? David, do you want to- Cliff Ragsdale, Ransom Research. Thank you very much. I was particularly intrigued. I've been a sort of a student of your lean journey. This emphasis on kind of stepping up, I'll use the word you avoided, the non-negotiability of lean thinking, which is really important. But I'm struck that you're not using policy deployment or Hoshin Kanri. Is there a reason for that? Not a specific reason, Cliff. I think we're looking at our journey on lean as being a journey and starting to step into the concepts as we can get the cultural change to happen across the organization. I think we'll get to some of the more developed concepts around lean as we go forward. Right now, we still see tremendous value from sort of the basics. You saw the variation that Helge put up. There's still a tremendous opportunity for us just to do the basics. Think about just Kaizens. That basic concept of lean, we haven't done at every location at United Rentals. We certainly feel like we've engaged the organization. Essentially, the district manager category at United Rentals has been very deeply exposed, and they've taken some of those concepts out to locations that haven't had Kaizen events, but that very basic concept is still not fully deployed across the organization. Maybe it's taking a little bit longer than some others might do, but we feel like we're on the right path, and we'll get to some of the more deep and involved concepts as we go. Just a quick follow-up, if I may. Traditionally, businesses like yours have been able to support leverage ratios significantly higher than over the cycle of 2.5 to 3.5 times. Is that a constraint that this room has put on you, or is that a business decision? It's a reflection of what we think is a prudent way to approach the volatility of our business. We are very deeply volatile relative to almost any other industry that you can name. We try to be mindful of that and not operate at too high a level of leverage as a result. If it were a privately held company, I like to say if it were Bill Plummer Inc., my level of risk tolerance might be a little bit higher than some others. And why? Because I know what we can do to manage cash flow. I know what we can do to manage leverage. But you've got to be mindful of all the risk tolerances that are at play in a company. And sometimes that means that you take a little bit less aggressive approach to something like leverage. I think we're in a good spot. I think it gives us plenty of room to do what we want to do as a company. The strategies we want to pursue, the acquisitions we want to do, we can do them all with that 2.5-3.5 times range, and we feel very comfortable with that. Jerry Revich. Good afternoon. Thank you. Can you folks talk about where you think we are in the rental pricing cycle? If the infrastructure package in some form goes through, do you think rental rates can re-accelerate? Or what's the trigger to drive us into positive territory enough to offset the inflation headwind from a mix standpoint? Or do you think we're going to plateau at this good level of rate from here? Well, I hope we don't plateau. We want to make sure, as Matt pointed out, over the last couple of years, we had a disruption in our core business that the industry had to overcome. I think the industry responded actually rather prudent as far as the way in which they went about it by defleeting and taking back their capital spend. It's hard to predict the future of where rates may or may not go. I think there is a propensity that we have to get rate because inflationary factors will actually chime in. I think over time, people will have a need to get that because equipment goes up, your infrastructure costs are going to go up over time. Yeah, you can offset that through productivity, but you still have to think about the net acquisitions. As far as the infrastructure, the infrastructure's not going to give us anything, in my opinion, in 2017. It may extend the cycle and give us a more uplift. I also would say we're not giving a lot of press to the potential tax consequence if they adjust the business tax. That may have more of a longer-term economic uptick to this cycle. If in fact, they were able to do something quicker, in 2017. I think that will have an effect where people will want to invest more here. That will bring demand. With demand, the supply and demand ratio will determine where rates go. It's hard to make that a crystal ball. I do think that, as we pointed out, we do believe there's legs ahead of us. There's opportunities. Regardless of what we painted here, Jerry, we see opportunities that we can do within ourselves, that are what I call self-help, regardless of the economics. Barry? Thanks. Hi. I had two. Maybe first one for Bill. If we leave out EBITDA forecast for next year and just talk about free cash flow directionally in terms of things like CapEx, working capital source or use, are there any other extraneous things that might affect free cash flow next year? Just any thoughts you might have on that. Then I've got one follow-up. We've talked about cash taxes is going to be a significant change for us next year. We've used up our NOLs. We're using up our NOLs this year. We'll move into a cash taxpayer position at the federal level next year, first time in a long time. As Irene, first time in the history of the company, we paid federal? No? Okay. First time since I've been here, I think. That's a pretty significant change. It will be a little bit of a headwind against free cash flow. Outside of that, obviously, CapEx is another major mover, depending on where we put CapEx for next year, we'll determine its impact on cash flow next year compared to this year, say. That's being discussed right here and now, so more to come in January on CapEx. Outside of those two major factors, obviously, the refinancings we have done in the debt, we have disclosed those two refinancings that we have done throughout the course of this year and their impact on cash flow for next year. They will be favorable impacts next year. That will be a positive. The other lines of free cash flow are probably unchanged. Obviously, I am leaving out cash from operations, the operating profit result. So working capital, I do not think you are going to see a dramatic change. The non-rental CapEx number, I do not think you will see a dramatic change there. Is that helpful? Great. Yeah, perfect. That is exactly what I was looking for. Second, I had a question on the digital initiative and some of the new customers that you have talked about getting so far from that initiative. I wonder if you have any color on whether they are coming from other larger competitors or more mom-and-pop competitors. Then if any of the other larger competitors are doing a similar thing, or you have not seen them move to a similar kind of platform yet. Thanks. I will let Chris jump in if I am not speaking. Maybe you want to give him a mic, Don. I would say that we do not have that kind of granularity on the new customers yet. If you recall Chris' presentation, half of the revenues being driven by existing customers and half new customers. I do not think we have that granularity of where they are coming from, but we are excited that it has opened a broader customer base for us. As far as have we seen anybody else do it, I am not aware of anybody else that can do end-to-end without any confirming phone call the order, but Chris, I do not know if anything has developed on that recently. Yeah. On the profile of the customers, it is very wide. It matches very much our base is what we have seen. But the newer customers are tending to be smaller, medium local customers, which is based on the targeting we have. In terms of competition, as Matt said, we have not seen anybody who has been able to do the touchless transaction and to take the credit cards, and then nobody has sort of extended that fleet beyond that. Their focus is on sort of asynchronous transactions where there is a request for quote and then a response back. Joe? Hi. Could you just kind of wrap together some of the targets you were talking about today? I think when we talk about Project XL and $200 million there in EBITDA, the $1 billion in specialty revenue at presumably a pretty good EBITDA margin. When we start thinking about 2020, and that doesn't even embed any general rental growth or infrastructure, what kind of EBITDA opportunity are we talking about at an enterprise level? Yeah. So maybe I'll start with XL, and Matt, you can offer some thoughts on specialty. The $200 million, just to reemphasize, the $200 million that Matt called out on Project XL is an end of year run rate for 2018. We'll build to that at a steady pace between now and then. I'll remind everybody that the $200 million, not only is it the run rate at the end of 2018, but it's compared to a 2016 baseline. The $200 million of incremental EBITDA, and that's an EBITDA number, will come on top of 2016, and obviously it will be part of what we do to offset things like inflation, and whatever happens with the rest of the business outside of these XL projects. You can think about it as $200 million of extra EBITDA, but think about it as filling the bucket that gets emptied by inflation and other dynamics in the business. You've got to make a decision about what you think the rest of the business is going to do separate from Project XL. Regards specialty, we've talked about the top line growth prospects. We haven't given a forecast for what EBITDA impacts for that growth might be. I guess we'll leave you to your own devices to translate that top line into EBITDA. I don't know if you want to offer any thoughts. No, and Paul and I speak about this frequently, and if anybody wants to speak afterwards with Paul, he's got more detail to offer. But that $2 billion goal, which is what you're referring to, Joe, I'm sure on the slide, there's going to be some M&A in there. We don't know how much because we don't know what targets and what products we'll go after. But if you think about $1 billion of growth between the end of this year and then roughly maybe half of that, we would assume would come through M&A. It may be more, it may be less. But that definitely has an M&A component to it to get the specialty business to $2 billion. Hopefully, that answered your question. Ross? Keep going. Oh, yeah. Thanks. Sorry about that. I am just wondering about pump. You guys have done a great job cross-selling and moving your fleet out of the oil patch, and you have been successful at that. Now as you showed, you have got only like 12% of your fleet tied to upstream oil and gas. What happens when that market comes back? Could we have shortages here? Do you have to bring fleet back, or do you have CapEx, incremental CapEx that you have got to spend to now service that market properly? You referenced earlier that you think you have plenty of capacity when it does come back, but obviously you have reallocated a lot of fleet. I have another question. Sure. We still have quite a bit of capacity in that space, and specifically in some products that are, I wouldn't say they're only used in upstream oil and gas, but primarily used in upstream oil and gas. If you remember Dale's chart on the bottom left corner of fleet that was in red, going from 4% to 9%, that's largely driven by a decision that we've made that we're going to keep a decent amount of capital that is pump capital for the oil and gas. We're going to keep it and hold it rather than monetize it. Frankly, it would've just been a great buying opportunity for somebody else to use it later on. Those products still have much more life left on them. So we have extra capacity in our existing fleet to take a decent amount of incremental growth in oil and gas for the pump business. The good news is that a lot of the equipment that gets used is fungible, right? So, we can still shift equipment back into the oil and gas areas if we needed to, and that'll help utilization overall. We always have the option of buying more equipment, and I think we can get pretty good response as well. So if upstream oil and gas comes back rapidly, that's gravy on top of what we think is a good business that's well positioned right here and now. Great. Thanks. Then just on capital allocation, you guys went through great lengths to explain how your free cash generation has structurally improved over the years and how the buybacks have improved your WACC, but why not just pay some kind of dividend to just really drive that message home that the free cash flow is kind of here to stay, that you're confident that you guys have farmed out all your maturities and everything's good? Yeah. Flexibility, I think is the one word that I'd point to, right? We've been pretty, I think, pretty straightforward in returning capital to our shareholders in the form of repurchase. A dividend commits you in a way that just takes a little bit of flexibility off the table. Even though we believe that we can cash flow our way into a dividend at this point, it doesn't seem to offer a lot of upside versus the flexibility that you retain if you give the cash flow back in the form of share repurchases. So it's a judgment call. Acknowledge. There are lots of people who believe firmly that a dividend would be the thing to do. We've debated that question numerous times. We've got six directors here, I'm probably going to debate it again on the way out the door. But we've always come down on the side of maintain the flexibility of giving the cash flow back in the form of a share repurchase rather than dividend. Thanks, Bob. Yep. Joe's right there. I want to go back to an earlier question on Project XL. You're calling out $200 million of incremental EBITDA regardless of the macro scenario. If we start to get into 2017, 2018, and we actually do see some re-acceleration of the macro, could we get into a situation where the flow-through rate would go north of a typical 60%-65% flow-through rate? Or is that not necessarily something that you guys would sign off on just yet? Yeah. It's hard to say that it would go significantly higher. First, where did that 65 come from? We always say 60. Yeah. But if it's going to be above 60, He's trying. It's going to be driven by rate, obviously, is the main lever that would drive it significantly higher. We think we've got opportunities for productivity enhancements, but it's a tough slog, right? Every year, inflation grinds away at you. Inflation in operating costs and inflation in your equipment procurement. So that's a tough slog and we could be absolutely brilliant in driving productivity through our lean initiatives, and still not move that flow-through needle up significantly higher. We just want to be mindful of that reality. So I'd say don't go looking to drive your flow-through estimates significantly higher as you model the future. But if we can deliver the top-line growth that we're talking about and get a little bit of enhancement in our flow-through, it can still be pretty impactful to our profitability and returns as a company. Thanks. Donna. In the back. Okay, somebody in the back, and then yeah. Chuck Harris at ClearBridge. The slide that you put up around, I think in the digital world, where you are able to increase your overall business from $10 million to $30 million simply because there was a customer that was now able to use multi-site more effectively, eliminate some local guys, use you. I work on the assumption that you probably have more than a few customers that might be able to provide that type of upside opportunity as you show this. Can you give us or frame out a little bit what the opportunity set might be there? Because nothing is easy, but this should be pretty direct in being able to sell that across multiple sites to a single customer. Certainly. I will take that one. You are absolutely right. When you saw the growth curve that Chris presented from our Total Control audience, that is exactly what we have been doing. We have not had that type of growth in our existing base, but we are getting great growth for these customers that value that. When this was originally proposed years ago, the tagline was, "Rent less, do more." Exactly what Chris said was a concern, you are going to cannibalize your own revenue. If you can figure out how the customer can be more productive, and then therefore get more of their spend, that case study proves out you will more than outrun any cannibalization. So we are well on the path in many of our large national, and specifically industrial accounts in growing that revenue, and there is more headroom to go. I am not going to quantify it right now for it, but there certainly is. Yeah, let us put the mic back. But there certainly is that opportunity. It is a little bit overly competitive for me to talk on an open mic about that. Yeah. I would just only point out that it's a different selling process. Typically, most of our general rental locations, they're dealing with the end user who's doing a specific job. With the Total Control, you're talking about middle to upper management, and in some instances C-suite, in order to find ways to drive that efficiency. It's changing their process, and it's changing their thinking. It is a completely different selling process. But as you can see, the benefits are pretty strong out there. Once we get in there and we can show how we can take, and to Matt's point, less is more. So we took cost out for them, less revenue for us and maybe others, but that we were able to gain more market share by broadening ourselves across North America. But your instincts are dead on. Yeah. Hi, Bill. You showed a chart with cost of capital and ROIC and hurdle rate. So I was thinking about that hurdle rate and how do you use that? Your recent projects or capital investment has been better than those 10% hurdle rate? They have. I think if you look at our investor material, we didn't have it here, but we show an example of, for an organic investment, a choice to invest in a piece of fleet. We do an internal rate of return calculation, and that's how we use the hurdle rate, right? We use that as a general guideline for the IRR that we want to see out of that unit of fleet in order to decide to go ahead and invest in that unit of fleet. Typically, those IRRs for fleet investments come in the teens, some of them in the high teens, but generally in the low to mid-teens. That's how we use the hurdle rate to govern investment decisions throughout the organization. Hurdle rates are, in my view, more about governance than they are about the exact return that comes out of an investment decision. You want to make sure that people are thinking about investments in a disciplined way, and that's why you set the hurdle rate within the organization. You can argue, and I would not argue against it, you can argue that 10% is too high right here and now. But if you remember that slide, if you went back to 2013, I think it was, our WACC was 10%. We set the hurdle rate to take into account the variation that we might have over time, and to make it easier to communicate the kind of investment decisions we want to be made throughout the organization. Hopefully that's responsive. Justin. Thanks. We have a new President-elect, obviously, who has made some bold statements in the campaign regarding potential infrastructure spend. Who knows what will become reality, but is there anything we should be thinking about in terms of the evolution of URI, in terms of fleet mix or other potential M&A that you may have to do to best position URI for potential infrastructure opportunities? Can you share with us any thoughts you have on that, and equally, your view, as you said today, on the timeline potentially, or the quantum that we may see of any infrastructure benefit? I'll touch on some of the fleet opportunities and whether it came through M&A, which I'm not sure is necessary on any kind of large scale. I think we're pretty well-positioned already. Then maybe Bill will touch on what he thinks that means for the future. But I think that other than some unique products that we're already talking about now, that in some markets we already have pretty good penetration on certain of those products that are specific for infrastructure. We'll continue to invest those, and we actually have some programs about growing those product sets across a broader audience, where we know there's already some infrastructure volume, not related to the stimulus package that's going on. But we do think there will be, and Mike alluded to it earlier, 2018 and beyond, some significant improvement. I don't think anybody knows when just quite yet. There was a huge project announced last week for the Brooklyn-Queens Expressway, for those of you who live here, a $1.7 billion project. That's not even starting for two years. I think we'll see a lot of that. So I think it'll be 2018 and then even stronger as we go through. But I'll have Bill try to do the math on what exactly that's going to look like. Yeah. We haven't publicly quantified or talked about the exact timeline, but I think timing is likely to be more of a late 2017 into 2018 event than the earlier part of 2017. The size, I think, will be governed by how effective we are in positioning ourselves with those customers and those projects, right? We're discussing how to think about our capital investment program for the next several years right now as we go through our planning process for 2017. We're thinking about how to make sure that we've set aside enough notional capital to support the growth. But we haven't landed on a number yet. But I think as regards to the infrastructure projects, we've got to get ourselves positioned so that we've got an effective approach to those projects and those customers. Then once we do, we'll spend what we need to spend in order to support the business that we're able to bring in. We think that's the right way to go at it, right? That's the capital discipline that we try to implement. But unfortunately, it means I don't have a number to give you right now, Justin. Cliff? Go ahead, Cliff. To your right. Yeah. She wanted to do some valuated work. Thank you very much. You got to watch Amanda. She sneaks up on you. A couple of just nitty-gritty questions. Are there any equipment types which look to be in tight supply or that you're going to worry about first? Are there any manpower requirements, things like mechanics or welders, that look to be tight? As far as equipment, Dale alluded to it. The pipeline and the lead times for our suppliers are paramount to who does business with us. I'm not sure how they always accomplish it, but they always accomplish the lead time. That's part of your negotiation now. Absolutely. Whether Dale does this great job of us getting prioritization or jumping in line or however they do it, we've got a real good relationship with them. Our forecasting ability is part of that ability for them to supply. We don't worry about that. Outside of infrastructure, outside of anything, I think you follow the industry pretty well, labor is definitely something that we're constantly trying to cultivate, specifically mechanics, technical labor, drivers to a lesser degree. That's a challenge. Someone asked about product mix earlier. I don't think we're going gangbusters on large, big, AED-type yellow equipment. That would require a whole another level of mechanical set outside of what we have in mass in our organization. When we're getting to the midsize, 200-size excavators and around there and then below, we've already got the skill set. It's just a volume issue, and that's our growth in all our businesses. We have to continue filling that pipeline of mechanical labor. Cliff, we actually run a couple programs with the military, bringing in military personnel coming off duty through our training programs into areas and redeploying them throughout our network. I think that, again, when you think about infrastructure and spend and what that could lead into, similar to housing, where there's a shortage of technical or qualified carpenters or whatever, it will lead to the need for productivity. Our equipment, and people forget about this, aerial and all the things we talk about, specialty, it's about safety and productivity. That's what we're selling. We're trying to make them more productive, and we have to make sure whether it's an engineering solution or within our tools that we supply to help them manage that job better, to find ways to drive productivity through that. I think it works for our advantage in one aspect, then from the mechanical side, it may have a shortage, but we continue to look at ways in which we can train, bring people into the organization. We actually are thinking about how we can make that issue an opportunity for us in other ways, right? Our customers own fleet, and their fleet needs servicing. We have service techs. Yeah, it's tough to find them, but we can find them. So why not offer that as an opportunity to generate more revenue with your customer base? That's one of the opportunities that we're looking at of taking the mechanics that we have already and saying maybe they can generate more revenue by servicing customer fleets. We're looking at all of these challenges, not only from the standpoint of how do we address the challenge for United Rentals, but how do we flip it into an opportunity to enhance our customers? Then the last question, have you changed any of your thinking on high reach or concrete cement? Say more. Well, high reach crane type rental is a highly specialized area, limited number of players. Some of them are in trouble. Concrete delivery, cement delivery, whatever you want to call it, is another kind of unconsolidated area. No, we haven't looked at it, and we still only have, what, 12% market in that range. There's a lot of opportunities for us in our current business model. Hi, Nick Coppola, Thompson Research. Hey, Nick. Can you talk about where you believe oil prices, rig count, however you want to talk about it, need to go for you to see significant improvement in rentals in those oil and gas markets? It's hard to pinpoint because to Matt's point, there's a lot of surplus. A lot of surplus in the Pump Solutions side, the process of the fracking area. There's a lot of untapped capacity right now. No pun intended. It hasn't been utilized. We have been seeing rig counts improve month-over-month-over-month-over-month. We don't think it's going to get back to the levels that we once saw. The process has changed a little bit, and they've also got more efficient on how they pump and do the process themselves. So it's hard to determine. I don't know that it's going to go as crazy as it once was because I think we all learned from this, including the oil companies as well. Yeah. We can't forecast it. I think the key for us is to maintain the flexibility that allows us to respond whatever oil prices do, even if they decide to go down lower. Yeah. Let's be ready to respond and to do it perhaps more quickly than we did in 2015 to the comment made earlier. But certainly, if they're going higher and drilling activity spikes up, let's be able and ready to respond to that to take advantage of it. Is it fair to say no real benefit yet? We're not planning on any benefit. If we get it, great. We're not planning on any decline either. So we're taking the position in our planning process here that this is a pretty flat event from a sequential point of view, and if we get some tailwind, which we do think there's more opportunity for tailwind than headwind, frankly, then great. We're ready for it. We got some existing capacity to take advantage of it. Okay. Thank you. Yep. Thanks. Phil? In the back. Hi, Phil Volpicelli, GSO Capital. I actually had a question for Jeff, if that's okay. You said there were 50 acquisitions you looked at this year. How does that compare to last year or a normal year? Can you tell us within the four buckets you mentioned, are any of those scale acquisitions, or are you guys really focused on the other three buckets? Well, I'll answer the last one. This is a wide range, correct? So we look at both scale and bolt-on opportunities. Scale, just in general, there are fewer of them. So quantity-wise, you're not going to see that many scale opportunities versus bolt-ons. Very fragmented, lots of bolt-on opportunities. I would say from a cycle perspective, if I look over year over year, we haven't seen a meaningful change. At this point, what's happened in the political environment, et cetera, I don't know how it's going to manifest itself from an M&A perspective. So we'll stay tuned for that. But it's been, I'd say over the last couple of years, relatively consistent. Oh. Jeff? Just to follow up on that, you mentioned culture as a major qualifier for M&A. What, from a cultural perspective, would be disqualifying for you on an M&A? Well, Mike talked about safety and productivity for our customers. I would start with that one as being pretty simple. If they don't share a similar safety philosophy, that's very difficult for us to go in and change that, and that would impact our core business. I would say that's one characteristic that's maybe easier. There are some softer elements of evaluating cultural fit, and we usually do that. For many of the companies that we may know or compete with today, we know how they operate. We see them, we compete with them, so we may have a better idea. Some of the ones, maybe in the adjacencies, we're not as familiar with. So during the due diligence process, we spend a lot of time with their management team. We end up having access to their team members, et cetera. As we go through that process, we'll just need to get ourselves comfortable. Sometimes it's a bit of a gut call at the end, but things like safety are relatively straightforward for us. Yeah, things like the controls environment, right? We maintain a very rigorous control environment. We don't want an acquisition that brings along a lot of risk on that dimension. Environmental exposures, right? We don't want to be put in a position where we got a lot of environmental exposure. We're pretty rigorous about how we address those. Just how people operate with their customers, with their employees. Just making sure that we feel comfortable bringing in an organization into United Rentals, which is, in our view, disciplined, structured, and a very respectful place to work, right? So those are the dimensions that we'd make sure we're comfortable with. Seth? Thanks. Another question on M&A. I think I heard a comment about potential for international M&A. Can you talk about what the returns look like in the international markets? Do you have an appetite to go into international markets if it's a lower return just to get a foothold and just help us understand how you're thinking about that. I would just say that, I think Jeff articulated the three-legged stool, that financially, we have to see a return that we put a hurdle rate on. We have to see that return. We have to see strategically if we want to go there. And then we also have to see the cultural fit. All three of those would play out. He basically mentioned that we have customers, we have some larger customers. We're saving customers money. They want us to go to other places. We've resisted that. But it's not going to be forever. But we have to understand, if we were, how do we do that? How do we get a return on that? And then how can we maintain the levels of services that we provide here, there? But I think that we have to keep an open mind. We can't sit there and tell our customers day in and day out, day in and day out, that we'll never be there because never is not a useful term. We will be there eventually. I don't know when, because our customers are demanding it. Thanks. Barry? Yeah, just one other one on the cross-selling. Could you just review from an incentive comp point of view, how you incent the cross-selling, whether it's part of individual compensation, whether there are any sort of cross-divisional incentives that come into play? You've had some good successes, but how does it work financially from an incentive point of view? Thanks. Paul, you want to take it? Sure. I am not sure how far, Craig, I would want to go on the compensation piece, so stop me if I go too far. I would say definitely our strategic account sales managers, as well as our national account managers, we got over, I think, 26,000, 27,000 accounts that are under this kind of a single point of contact through our strategic account and national account program. And the compensation plan is incentivized to sell across all business units. In addition, we have an incentive for our general rental sales reps. Not going to get into the specific of how much it is, but there is an overlay on their commission plan where they get an incentive if they cross-sell to the specialty business units. There are some questions in the very back as well. Thanks. Yeah, a couple. First one, just following up on the acquisition topic. When we were here two years ago, there was a lot of talk of a lot of dry powder available into 2017, and certainly, you have created that with the free cash flow, and the leverage is at a very reasonable level. So are we going to see a lot of acquisition activity this year? And Bill, if you could just remind us on limitations to buyback and where you would get capped out as part of that contemplation. Thanks. Yeah, on the limitations, we still have got plenty of room. Irene is going to correct me, $590 million, $600 million of available capacity, either through limitations under the debt covenants or the debt indentures, or cash held at the holding company at the very top that is not restricted. So plenty of room to finish up the current program. And remind you that that limitation gets replenished quarterly as we generate profitability. In terms of the acquisitions, the capacity to do acquisition is not really a constraint. That is not a driver. So if we have got lots of capacity, we are not going to run out and actually do acquisitions just because of that. The three criteria still stand, right? We have got to make sure that they get over those three hurdles, and then we ask, what is the capacity to do the deal? We turn it on its head and make sure that any deal that we do makes sense, then we'll fit it into the capacity for cash-driven acquisitions after that. Hopefully that's responsive. If not, Scott, ask another question. Thanks. Appreciate it. Then just as a follow-up, in getting a little nearer term here, to the extent you care to discuss, because obviously, with the infrastructure discussion, you guys have mentioned probably something late 2017 or beyond before we see that. But Bill, if you could remind us, just thoughts on, you're not going to provide rental rate guidance into the next year. Recapping third quarter call, where are we? We're a month later. How are we finishing up the year? How's it going to look heading into next year from what you've seen? If you don't want to go all the way on answering that question, just what you're seeing right now with regard to your competitors and them acquiring fleet, and if any change since the election in anticipation. Thanks. So you're going to be that guy, huh, Scott? You know it. We talked about it, and we're not going to offer any more commentary on October or November. I'll leave it at that. In terms of after the election and competitive environment, I'll let the operators talk a little bit more about that. Too soon to see any change. You get asked about the industry overall, and we'd mentioned it in our presentations. We feel the industry's doing a good job, and has already done a good job, working through the capacity that was out there, the excess capacity, and there's nothing that we've seen so far. Everybody else will announce their quarter at the end of the year, and we'll find out if we learn something we didn't know. But there's nothing that changes that tone, or we wouldn't have put it out in the presentation. The only thing I would tell you, Scott, that's changed since the election, other than all the news that's out there, is how obviously the markets reacted, number one. But also how business leaders are being a little more optimistic than they were beforehand. I do believe that some of that has to come into play with the potential cutting of the business tax, I think is something that they see as a real opportunity that that actually could occur. So I do see the only tone I would tell you is a little more optimism than before the election. Yeah. Some of the proposals that you've seen out of President-elect Trump or the GOP in the House could be very powerful impacts to a company like us, right? The corporate tax rate coming down with immediate expensing of CapEx, with some of the other proposals. As you think about that, as you think about the infrastructure spending, you have to be more optimistic. We're thinking about how we can take advantage if those things come to pass. But we're also thinking about if they don't, where do we go? Where's the opportunity? We think that there still is robust opportunity even if they don't happen. Again, those things will be gravy on top. Yeah. Hi there. This is Sean Wondrak with Deutsche Bank. Just given the run-up in your stock price and your more constructive tone regarding GenRent acquisitions, would you consider executing more of a transformational acquisition like you did with RSC, using a combination of cash and stock? If it made sense strategically, if financially we can get there, and the culture, we're not afraid of a transformational. We did one. By the way, we did it very early on in the cycle. We think that doesn't come up that often. But I think we're positioned to do if we need to, if it makes sense. But again, I think we try to articulate, and I often get the question on acquisitions, I was talking to some of you at lunch. The purpose of having Jeff talk about it is to show you how we are looking at it, the discipline and the rigor that we put behind it. We are very good at integration. We've had lots of practice, 275 acquisitions. We don't do it for sport. We do it, actually, we want to make sure strategically it makes logical sense and that we can find a way to get a return on it. I don't want to buy something for the sake of buying it. I want to buy something that I can make money with and that my shareholders can be proud that we purchased it. RSC fits that bill. I think when you take a look at what happened with pump, obviously with oil, that stepped us back. But we did pressure test ourselves to say the what if scenario. And we did have a what if scenario, and we were able to implement that even faster than we thought and exceeded that expectation. I think the other thing from the acquisitions that we've done, it's very easy for us to say We're going to get $200 million, and we got $250 million of cost synergies. We take that to the bank, but we don't get much credit for cross-selling. And that's something that really we wanted to showcase, to say that's coming forward. But to answer your question, if it's transformational, it makes strategic, and it hits all three of those, yeah, we would not shy away from it. As for the cash and stock component, it just depends on the deal, right? We put some stock in the RSC deal because that's what made sense to do that deal. You saw us immediately buy that stock back in the market thereafter. Whatever deal that we're talking about, we'll set the consideration where it needs to be set in order to make the deal make sense. Then we're going to go back to managing the capital structure the way that we have, which we think is the right way, the prudent way for the company go forward. Just as a quick follow-up to that, do you think with the RSC acquisition, you stopped sort of the arms race of people building up fleet early in the cycle and gave you a little bit more control over the market environment? Do you feel like that had anything to do with it? No. I think more of the economic credit tightness had more to do with it than what we did. I think from a standpoint of, for us, it was broadening our customer base and taking the best of both worlds is where we thought that we could make a difference. We've been able to capitalize on that, and with our specialty, that's what's funding that growth that we're seeing in there. Because our customers, when you do an acquisition, you say to yourself, "Sounds good on paper. Are they really going to change? Are they really going to convert?" Afterwards, the answer was overwhelmingly yes, that we were able to consolidate a lot of their rental by expanding our specialty side of our business. Thank you. Yep. You've expanded into a bunch of other adjacent markets. One you haven't gone into are two, mobile storage and modular office. Any opportunities there? Obviously, it seems to fit with your customer base, but it's obviously a different animal as far as the market goes. Well, I think there's always opportunities. We put them up there because we wanted to show the size of the specialty market. There's other slices of specialty that are inside that umbrella, and you could add scaffolding, cranes, and a few others. We just kind of parse them out just to really, in the spirit of showing the size of the specialty business. It depends upon our customers, and if we can get returns, but we never say never. There may be a logical reason for us to do something like that down the road. But those opportunities will have to be on their own merit. There's some of these additional products, adjacencies, that we'll test organically before we go both feet in with an acquisition. Yeah. There's a lot of things that Paul and the team have a very strong strategic process, and new product development is a big part of that. And to date, you haven't done any trials on mobile storage or modular office, have you? Yeah. No, that's not something we would discuss if we did, because it's not anything of any scale that we would talk about. Thanks. Any other questions? Going once, going twice. I just wanted to tell Look, I know a lot of you have gone to a facility. We do have facilities in close proximity to New York. It's fair to say we have facilities in almost every MSA that you're in, except for you, Jason. I know that it's very hard for Justin. It's hard for you. But I do welcome you to go to a facility for a tour, whether it's of our GenRent or our specialty facilities. Talk to Ted, but we'd love to have you come out and take a look. Great. So on behalf of the board and the management team and our whole company, we thank you. Any follow-up, please feel free to call me. We look forward to speaking to everybody in January with our fourth quarter results. Thank you. Thanks, all. Have a great holiday.

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