M&A announcement

Mar 10, 2014

Good morning, and welcome to the United Rentals conference call. Please be advised that this call is being recorded. Before we begin, note that the company's press release, comments made on today's call, and responses to your questions contain forward-looking statements. The company's planned acquisition, business, and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the release. For a more complete description of those and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2013, as well as subsequent filings with the SEC. You can also access the filings from the company's website at www.ur.com. Please note that United Rentals has no obligation to make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations. You should also note that the company's release investor presentation in today's call may include references to free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA, each of which is a non-GAAP term. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer, and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin. Well, thanks, operator. Hello, everyone, and thank you for joining us on short notice. As the operator stated, with me today is Bill Plummer, our Chief Financial Officer, Matt Flannery, our Chief Operating Officer, Paul McDonnell, our Senior Vice President of Specialty Operations, and other members of our senior management team. Yesterday, we made our first strategic announcement of 2014. We have agreed to acquire National Pump for approximately $780 million in cash and a small amount of stock. National Pump is a privately held company with $211 million in trailing 12-month revenues. It will make us a leading pump supplier in North America with a footprint of 35 dedicated locations, including four in Canada. More importantly, it is a strong fit with our strategy we outlined to you in January. That is that we are placing a strategic priority on growing our specialty operations. Specifically, our target is to expand our specialty rentals businesses to $1 billion in revenue by 2015. As you may recall, we opened 18 specialty branches in 2013 and have plans to open another 13 branches this year. So we are committed to organic growth as part of our strategy. Now, with National Pump, we are executing on M&A as well. This was not a quick decision, and we have a very high bar for M&A, and we put each proposed acquisition through a rigorous and disciplined process. The fit has to be strategic, financial, and cultural. In this case, National Pump meets or exceeds all of our criteria. First, it is a high-margin business. Pump Rental has an average EBITDA margin of nearly 50% with very high returns, and that is in line with some of our most profitable specialty offerings. We think pumps will become our highest margin business. Second, the pump sector serves high-growth markets with a current emphasis on energy, including upstream oil and gas, petrochemical, and mining. Commercial contractors account for just 6% of their revenue. That is one reason why the cross-selling opportunity is so significant. Third, National Pump has a prominent industry position as the second-largest provider of industrial pump rentals in North America. The company has the right scale to have an impact on our business and be a platform for growth. In fact, National Pump has been on an impressive growth trajectory over the last three years with a CAGR of approximately 50%. The next two points are service and safety. With pump rental, like all equipment rental, the strength of our value proposition depends on how well we service our customers. National Pump's reputation for customer satisfaction is well known in the industry and has earned them both loyalty and a strong price position. Their safety culture is equally strong. In 2013, their recordable rate was just 0.88. We also share a similar go-to-market strategy with a focus on large accounts. National Pump has an established base of over 2,000 customers with robust sales channels. Their top 20 customers represent about 35% of revenue. 84% of revenue came from repeat business in 2013, which is a good indicator of their success with customer relationships. A high rate of repeat business and our complementary service offerings represents a major opportunity for our combined sales organizations. Once the transaction closes, we will be able to rent pumps to our customer base at United. That is a major benefit to our customers. National Pump customers will have immediate access to general rental, power, HVAC, trench safety, and tools through a single source. In addition, they will have full access to our Total Control technology, our training resources, and our on-site services. Finally, we like how this business will enhance our ability to drive our return on invested capital over time, and it should be immediately accretive to both free cash flow and earnings. Bill will walk you through our financial model and metrics that are most relevant to our strategies in a moment. These are some of the key factors in our decision to move forward with this acquisition. We have the unanimous support of our board, and we have already started the integration planning process. As you know, we went through the ultimate integration experience with RSC just two years ago. We have a very disciplined process in place with a lot of experience that is relevant here. We are looking at closing early in the second quarter, and we expect to have the integration largely complete by July. Let me share our expectations for this transaction longer term. We will be adding almost $200 million of revenue with National Pump. We want to double the size of the business to $400 million of revenue within five years and achieve a modest increase in margin beyond the current high level. By 2016, we expect our pump operations to deliver return on invested capital above our internal rate of 10%, with returns over our cost of capital well before that point. Furthermore, our bridge to these numbers is a disciplined march in which this acquisition is just one step. It is a pivotal step and one that we are very excited to take. Furthermore, we are also buying National Pump at the right time. Our primary end markets are forecast to show a significant improvement for at least the next several years, and many of our customers will need pumps. This demand, together with our organic growth from National Pump's current customers, should create numerous avenues for profitable growth. We see the majority of this growth coming from end markets outside the oil and gas sector, and we have a plan to drive organic growth through cross-selling and cold starts. To get us there, we have some of the strongest leadership in the industry focused on the pump opportunity. Matt Flannery, our COO, is instrumental in leading our company-wide operations. Paul McDonnell heads up our specialty businesses. Paul's had a lot of success driving up our profitability in power and HVAC and trench. He's taken our specialty operations from a standalone mindset to a key role in our strategy. We are also fortunate to have Bill Kiker, who is President of National Pump and will continue to lead the business. Bill's been with the company for at least seven years and has played a key role in its success, and he's also been in the pump business for over 27 years. In fact, their entire management team and employees have done an impressive job of building a national business with attractive value creation, and we look forward to providing them with the resources for their continued growth. We are in good hands. Now I am going to turn the call over to Bill Plummer, who will walk through the financial aspects of the deal, and then after that, we will take your call and questions. So over to you, Bill. Thanks, Mike, and good morning to everyone. Just real briefly on the financial aspects. As you saw in the press release and heard in Mike's comments, we are acquiring National Pump for $780 million in value, of which $15 million will be paid in restricted stock as part of a retention agreement with certain key employees. So $765 million in cash, $15 million in restricted stock. The purchase includes four entities, National Pump in the U.S., Canadian Pump in Canada. There is also Gulf Co, which is a small two-branch gen rent entity and a part of a services business that was attached to all of the above. The transaction is structured as an asset purchase, and as such, it creates a significant tax benefit for us. I will get to that in a second. If you take the $780 million purchase price and divide it by the $103 million of acquired EBITDA on a trailing 12 basis, we view the purchase multiple as 7.6 times trailing 12-month EBITDA. Fairly attractive when you look at other specialty acquisitions that happen in the 8.5-9 times area. The tax benefit I mentioned is the result of a step-up in basis in the acquired assets and the ability to amortize those for tax purposes. We have valued that tax benefit at about $110 million, and that reflects the impact on cash taxes, reduced cash taxes over the next 15 years or so when you include amortization of all the intangibles and the step-up in basis of the real assets. So that $110 million represents a significant enhancement to the value of this business. In fact, if you net it out against the $780 million purchase price, the purchase multiple from an economic perspective looks something more like 6.5x trailing EBITDA. We mentioned that there's an earn-out structure in the transaction. The earn-out is structured as a two-tier earn-out, the first being up to $75 million, which would be paid at the end of 12 months post-close. That $75 million max payment would happen at a trailing 12 EBITDA of $134 million 12 months out. You can see it would be pretty robust growth in order to maximize that earn-out payment at the first tier. The second-tier earn-out is an incremental $50 million. It would be paid at the end of 18 months on a trailing 12 EBITDA of $161 million. The ramp-up in EBITDA in order to hit the earn-out payments, I think, reflects the confidence that the management team has in its ability to really grow. We feel very comfortable with the structure representing real value. In fact, if we paid the maximum earn-outs, the purchase multiple on a trailing 12 EBITDA at that point would come down significantly into the 6.5x for the tier 1 earn-out payment, and down around 5.5x if we paid the full tier 1 and tier 2 earn-out payment. So very attractive characteristics overall with the earn-out structure. In terms of the impact of the transaction on United Rentals, I'll update our outlook for 2014, which includes the nine months, we're assuming nine months of impact from the acquisition of National Pump. The update to our outlook is really just a straight add of the National Pump performance on top of the previous standalone United Rentals outlook that we've given. We have not changed our outlook on the core United Rentals in this revised set of outlook numbers. For revenue, we expect that National Pump will add about $200 million of revenue, and therefore, our revenue guidance range is going up to $5.45 billion on the low side, $5.65 billion on the high side. For adjusted EBITDA, we expect National Pump to add about $100 million of EBITDA in 2014, and our adjusted EBITDA range is therefore going up to $2.55 billion, up to $2.65 billion. On free cash flow. Free cash flow, the transaction will be immediately free cash flow accretive in 2014, and so we're raising our free cash flow range to between $425 million and $475 million of free cash flow. We will add some CapEx, in order to fund the growth of the business, and therefore, we're raising our CapEx guidance, gross CapEx guidance for the full year to the $1.7 billion area. Again, that includes CapEx for National Pump. In terms of impact on leverage, it's a modest impact for the company. Leverage from the transaction will increase about 0.2 of a point in net debt to EBITDA leverage, and we expect that that will continue us on the trend, though, that we've been on of reducing our leverage. So by the end of 2014, we expect our net debt to EBITDA leverage to be at about 2.9x. That is up from the 2.7 to 2.8 range that we talked about previously. That net debt leverage, by the way, includes the execution of our share repurchase program. There is no change to our plan for the share repurchase. We expect to do $450 million of share repurchase this year, and to complete the entire $500 million authorization by the end of April in 2015. In terms of ROIC impact, Mike hit on the key points there already. We certainly think that the returns here are very attractive, and we expect it to be accretive to our return on invested capital very shortly. In fact, in 2016, we expect the returns from this investment to be above our 10% hurdle rate. It will be nicely above our cost of capital, which, as we said before, we view as between 8% and 8.5%. It will be nicely above our cost of capital, even quicker than the 2016 timeframe. All in all, when you step back and look at it from a financial perspective, we really feel like this is a good, smart deal. It positions us strategically very well. We think it will help our return profile. It does not do any significant damage to our leverage prospects. We think overall it will really enhance United Rentals' position with our key customers. Maybe I will stop there, and we can open up the call for Q&A. If there is anything I missed, please do ask a question about it. We will ask the operator to open up for questions. Operator? Hello, ladies and gentlemen. If you have a question or a comment at this time, please press the star then the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We also ask that you limit yourself to 1 question. Our first question comes from David Raso with Evercore ISI. Hi, good morning. Good morning. Just thinking about National Pump, obviously historically pretty oil and gas-centric, and that's where the locations obviously have been centralized. If you think of taking this business to more broad construction, municipal, end markets, and this is a legitimate business platform for you now, is there further consolidation or further acquisitions that you can make that quickly build out a national footprint? There just seems to be some companies out there, from Rain for Rent to a variety of others, that maybe don't have the same kind of Texas Gulf Coast-centric locations that National Pump has. Well, David Raso, this is Mike. I would tell you just pointed out that those opportunities or those possibilities exist. For right here and now, we're focusing on the organic side of building it out. We have a lot of locations internally ourselves at United Rentals that we can leverage. To your point, those are possibilities in the future. How about also the breadth of the customer's wallet? Some of the other players in the industry from steel tanks for storage for groundwater, frac water, or so forth. How broad do you see this effort? Should we think of this as it's a pump business, that's the opportunity that gets us excited. We don't want to get too far into the water solution-type applications. Well, I would just say that, the experience that I have seen and how we looked at this, I think to your point earlier, there is opportunity to focus on other areas, and not so much upstream, but maybe downstream, in the industrial sector where we have a strong position with our current customer base. This is one of the highest re-rent items that we have internally. So that is one. The other area to focus in on, as you mentioned, agricultural and also in the sewer bypass municipal market. All those we can leverage our current sales force and our current footprint that we have, and also in particular, our national account customers. So, this bolts on very well. Where they have strength, obviously is in the upstream, and there is also the opportunity for them to cross-sell our general rental and other products, to their current customer base, where we do not have the crossover. So to me, it is a win-win scenario. Last question, and a quick one, Mike. Now you have this pump base, does it change at all your view of the build-out of power HVAC? And just simply, going where the dollar returns best. Should I think of pump now clearly more the platform will be seeing the focus, or has this not made an impact at all on your interest in power HVAC being built out? No, I think that the Tools and Industrial Solutions, the power, the trench safety, the HVAC, all are businesses that we focused on. As I mentioned before on my opening comments, we had 18 locations. We have already dedicated 13. All of those locations are separate and above and beyond the pump. We will add locations for pump, specifically for their line of business. But all of these bode well for our customer base. If you stop and you think for a moment, our current customers that we are out there with, and we learned this through the RSC transaction, that there were significant opportunities to expand our product mix. And that is exactly what we are doing, and all of these are very important to our path forward. I'm sorry, one last question. When I think of the share repo, it was good that you still committed to the share repo. But given now that you're creating some incremental platforms to grow, just as a base case, should we assume after the share repo, looking to 2015, 2016 and beyond, there's maybe a little more lean back towards acquisitions than after this repo, base case, sort of not continue to think of it as much share repo. It's about building out these new platforms? David, I think what we would say is let's talk when we got this repurchase done. We see ourselves on a nice path toward de-leveraging. And so that gives us firepower to do either acquisitions or repo or perhaps both. The acquisition front is going to be driven heavily by the targets that make sense, right? We're not going to go force anything. We're going to look for opportunities that make sense strategically, economically, and culturally. And so those come as they come. The thinking about share repurchase and how we manage the capital structure will respond very powerfully to the path that we're on for leverage. And as you know, it's a good one. So we'll talk again in April when we've got this 500 done. All right. Thank you very much. I appreciate it. Thanks, David. Our next question comes from Ted Grace with Susquehanna. Hey, guys. How you doing? Great, Ted. Hey, Ted. I was just wondering, Michael, if I heard you correctly, it sounded like the goal is to double specialty rental in the next 2 years, so by the end of 2015. It looks like you guys did about $327 million of revenue last year. If you add $200 or so from National Pump, it means you got to grow that business 35% over the next 2 years. Did I hear those numbers right? How should we think about the organic strategy versus acquisition strategy to hit that billion-dollar revenue mark? Ted, it's a great question, and we have a path forward. That's why we did the 18 locations last year. We got the 13 locations this year, all organic. As we go through the market, could there be a small bolt-on? Yes. Nothing meaningful. Clearly the Tools and Industrial Solutions is also another segment that is growing, along with the pumps, along with the power, and along with the trench safety and the HVAC. So right now, we're trying to control our own destiny, and our destiny is around organic growth. We've brought these businesses together. We've got good management. We're getting economies of scale, and we're leveraging the acquisition with RSC. So we'll continue to grow. If we come across an acquisition, everything will have to go through the same process that we've outlined. That rigor is not going to stop. Okay, just giving you guys are now a $17 billion enterprise company, does $800 million qualify as small or mid-size or a large acquisition? Hey, Ted, it's Bill. It's hard to say $800 million is a small anything, but I'd characterize this as a mid-size acquisition for us. I think we've done the $50 million, $75 million, $100 million kind of deals in the past. Those, I would say, you just tuck in and keep moving. This one requires a little bit more focus and thought, so we really drill into it very deeply and make sure that it really fits in all the ways that we want it to fit. This one does. So we're very comfortable doing a deal like this, even if you do characterize it as mid-size. Okay. The second question I was hoping to ask is, you mentioned doubling the size of National Pump over five years, which would get you a CAGR of about 15%. Can you just walk us through the slope of revenue growth in 2014 and 2015, how you're thinking about it, how you would encourage us to think about it? How much is market-driven, how much is share capture, and how much of that growth is going to be non-energy driven? One of you guys want to take that? No, I will. Go ahead. I think we're looking for opportunity for growth across all of those dimensions. We're going to open those new locations. That'll open us up to being able to serve new customers, but also take greater share from existing customers. I think those will be important levers for us. When you're talking about growing as rapidly as we are, you really do have to pull all the levers. You want to add anything? No. When you look at the cross-sell opportunity, as well as if the market is expanding. I think we have somewhere in the deck that we're seeing 8%-10% growth in the end market on top of our ability to cross-sell. We feel very comfortable with that trajectory. I would add to that and say that when you look at Western Canada, National only has four, or should I say Canadian Pump only have four locations today, and we see a significant opportunity to cross-sell into Western Canada. That was Paul McDonnell speaking. Yep. All right. Well, thanks a lot. Congratulations. Best of luck. I'll get back in queue. Thank you. Thanks, Ted. Our next question comes from Jerry Revich with Goldman Sachs. Hi, good morning. Jerry, good morning. Good morning. This is Mark Deluzio on behalf of Jerry Revich. Could you frame for us the market structure for pumps and where you see rental penetration rates for these products? Well, I will tell you that the rental penetration, we don't have that level of detail right here and now. I think when you take a look at the ARA metrics, pump is a subset of that industry in the industrial sector. So that shows it's kind of all captured into that. That's how I would look at it. It is a solution-based business. This isn't just a matter of supplying a pump. It's a matter of what fluids you want to move, how far you want to move them, and how fast you want to move them. So, it is very much an engineered solution type selling concept. Got it. Thanks. Based on your integration experience, can you talk about the level of improvement in fleet availability you can deliver here and any other performance metrics that you think are meaningful opportunities? Sure thing, Mark, this is Matt. I think that there is an opportunity as we leverage our broader footprint and our more dense customer base to drive higher time utilization and candidly higher penetration in with certain customers, specifically our large key strategic customers. I think that with the growing market and what is relatively, compared to the broader general rental market, lower penetration, gives us a lot of headroom for growth. Got it. Thanks, guys. Thank you. Our next question comes from Seth Glover with RBC Capital. Hey, good morning, guys. Good morning. I guess going back to Ted's question on the visibility of the business, can you give us some sense for how you write contracts for this business? Is it a longer duration contract relative to your current business? Can you give us some flavor for what rates have done over the last year or year to date, something like that? I'm just trying to get comfortable with this 9% market growth number. Obviously, that's a pretty big number. What do you think is embedded in that from a commodity market perspective? I'm going to ask Paul to chime in. As I told you, Paul heads up our specialty businesses. Yeah. Hi, Seth. Good morning. How are you? With respect to both time and dollar utilization, time utilization of this business runs around 71%, but there are, I think, over 8 to 10 of the branches that run time utilization closer to 80%. What we've identified is that the average rental of a contract is about 150 days. Typically, when contractors rent pumps, they rent them for a longer period of time. Does that answer your question? Yes. That's helpful. Thank you. Is there a rate metric that you're willing to share for year-over-year change over the last year or year to date? Yeah, I would say, Seth, that's something that we're not going to discuss on the call today. But I'll punt that one for the next conversation that we have. But we did, Seth, in our investor deck, talk about the overall dollar utilization of this business, which is very high. Right. That's pulling in both time and rate. Right. The business generates nice revenue for the amount of capital that you invest. It's been able to sustain that, and we expect to be able to sustain and grow that as we go forward while we're also doing the cold start thing and driving volume growth at the same time. All of that is at play here, and it explains the growth rate that we believe that we can keep this business on. The only other comment I would have on the rate is that aside from the pump, it's all the ancillary items that you bring with it, and that is the connections and the piping, what type of piping, what diameter, what length, how far you want to go, all those things. Again, think of it more as an engineered solution. Right. When you're fleeting up a cold start, what's a fair dollar number to think about to get the branch open? Seth, I'll take that one again. It's Paul. I would say that on average, not that different to our Power and HVAC branches. Typically, rental investment of fleet is in the range of about $3 million for cold start and maybe an additional $1 million for non-rental fleet. Okay. Do those break even pretty quickly then? Yeah. I won't speak specifically to NP or CP today, but I can tell you that one of the benefits that we've had in the 18 locations that we've opened in 2013 is your ability to ramp up quicker through the cross-selling processes that we have in place today. So we are finding that our break even is being accelerated because of the success that we're having in cross-sell, and we expect the same result with National going forward. Okay. Then just last question, is there a secondary market for this type of equipment? Should we expect the same kind of, it has a 10-year life, you'll typically use it and sell it seven or eight years in? Or is this just kind of you use it until it dies? Yeah, I'm actually going to ask Bill Kiker, President of National Pump, to answer that question. I can tell you, though, that from where I sit today, one of the attractiveness of this business is the long-life assets. Right and very similar to Power and HVAC too, but Bill, maybe you could talk specifically to that. Okay. Well, thank you. This is Bill Kiker. First of all, I would like to say that myself and our management team are glad to be on board with United Rentals, and we are very excited about the future we have with United. You asked about the secondary market. The pumps that we have today have a very young age. I think our average fleet age is 30 months or so. If we run the pumps out to, say, 10 years, we have several options. We have a secondary market if we wanted to sell the product, but we can also repower and extend the life. We have several options for extending the life of these rental fleets. That is one of the reasons that I find this very attractive because the pump is just a matter of, as Bill mentioned, you just refurbish it, and you have got a pump for an extended period of time, and it continues working and returning very nice returns for your investment. Sure. Thank you very much, guys. Appreciate it. Yep. Take care, Seth. Our next question comes from George Tong with Piper Jaffray. Hi. George. Could you talk about the potential revenue and cost synergies of the deal, and then give us a sense of where you'd like the end market mix of your pump business to evolve to over time? I'll take that, George. This is Matt. This is really a growth play. This is not a cost play integration. There may be some back office save somewhere in about the $5 million range, just putting our processes and leveraging some of our back office as we grow the business. But the real play here is doubling the size of the business over the next five years. When we think about sectors, if you saw the slide seven in the deck that we put out, we're over 51% oil and gas, and most of that's upstream, as Mike pointed to before, and another 16% petrochem. We continue to see growth in that, so we're not taking that down to 25% as we double the business. We still feel that between petrochem and oil and gas, we're going to be in the 50% range combined. And then the additional cross-sell opportunities to leverage our footprint and our customers in the municipal and commercial businesses is really a great growth opportunity over and above the natural growth that we'll get in the power sector. That's very helpful. Thank you. Our next question comes from Scott Schneeberger with Oppenheimer. Thanks. Scott. Hey, guys. Just a housekeeping one to assess real quick. So really de minimis used sales at this point, and I assume very little new sales in the business model? Yeah, that's correct. That's a good assumption. All right. Thanks. Just switching up. What are gross margins for National Pump? If you can just talk to that in the breakout of SG&A. Thanks. Hey, Scott, it's Bill. We haven't broken out that level of detail in our other specialty businesses. We're likely to take the same approach here. I'll defer on responding specifically to that other than to say margins everywhere in the P&L are attractive, as you see from the overall EBITDA margin of roughly 49%. You could say something similar about gross margins, and commensurately, SG&A as a share is a very sensible place for this kind of a business. Okay, thanks. I appreciate that. Then, just kind of following up there, Bill, if you take the midpoint of guidance when you guys gave it for annual for EBITDA and revenue- it was something a bit lower than 60, and you clarified on the last conference call that it was 60. I think you have the same dynamic here. Any comments? I imagine this is very nice flow-through. Nice flow-through, and we're still very comfortable thinking about flow-through at 60% for the year. Okay. Thanks a lot. Thank you. Thanks, Scott. Our next question comes from Joe Box with KeyBanc Capital Markets. Hey, good morning. Hey, Joe. Mike, if I heard you right, I think you mentioned earlier that right now pumps are a pretty large re-rental cat class. Can you maybe just give us a sense of what you are doing in terms of total pump re-rent, and then how much of that was with National Pump versus some of their competitors? We typically do not give that level of detail out. But I would just say that it was the order of magnitude of somewhere around $10 million is what our re-rent expense would be. Okay. Not huge. Then maybe switching gears, I am not too familiar with the pump supply chain. Can you maybe just talk to the number of vendors there? Maybe put some color around supply growth in the market, trying to get a sense of if some of your competitors are aggressively ramping pump fleet. Well, the vendor that we partnered with is the one that National has partnered with, which is Pioneer. Again, part of their success is standardizing their fleet so that they can bring that to the customer base. I do not see there is any changes to that. Unless Bill or Paul you want to- No, in fact, National has a very strong strategic partnership with Pioneer to build a quality product. They are established in the marketplace through National Pump and the relationship I expect to continue same way going forward. Great. Just to be clear, you think that Pioneer has the type of capacity to support the revenue growth that you guys expect going forward? Yeah, we've had meetings with Pioneer in recent weeks, as we have had with NP's senior management team, and they're fully committed, and we're confident they have the resources to be able to service the plan to double the size of the business over the next four years. Great. Thanks, guys. Thank you. Thank you. Our next question comes from Karl London with Goldman Sachs. Hey, guys. Karl London over here. Thanks for taking my question. Yeah. I am focusing a little bit on the balance sheet here. With this acquisition, you are moving temporarily to the higher end of your target range. I know you expect to come below 3x by the end of 2014, but how should we think about your willingness to move temporarily outside of your range if an opportunity presents itself? Hey, Karl, just to be clear, the leverage range that we targeted as normal operating is between 2.5 and 3.5. We are today, right at the middle of that range, and by the end of the year, we will be just slightly below that midpoint. Right. That's how we're thinking about the leverage range. If I misunderstood your question, please ask it again. Right. I knew that you were kind of stepping up briefly. It's kind of the 3.3 times, kind of moving towards the higher end. I think another acquisition, just kind of similar mid-size acquisition may get you above that range. I'm just trying to understand if that's kind of a hard set range or to the extent you're willing to move above that if another opportunity presents. Yeah. Again, 2.5 to 3.5 is the range, and we feel comfortable moving around within that range. Certainly, this transaction takes us above where we would've been otherwise, by roughly two-tenths, as I said. We view that as a very minor increase in leverage. Because of the free cash flow characteristics of this business, we think that that will be addressed very quickly over the course of the next couple of years. As we said, we'll be something like 2.9 times by the end of this year, and we'll continue to trend downward from there in 2015 and thereafter. The leverage picture is still a very attractive one for us. Yeah, I would only expand that if we were to add any other acquisition that would add to that leverage, it would have to be on the merits of the strategic rationale, the financial aspects, and the cultural aspects. That hurdle is not going to go away. The way in which we look at M&A has to pass through those three buckets. They're very important to us, and that's how we make our decision. Strategically, financially, and culturally. Okay. That's very helpful. Just in terms of the cost of financing, how should we think about your ability to use the credit facilities to finance some of this versus new debt? Does that change your priorities about reducing the cost of capital in other parts of the cap structure where you have high coupon debt, for example? So, this is of a scale that we wouldn't want to absorb our ABL facility to acquire it. We would issue new debt to finance this, and we think that's a very prudent way to manage the capital structure. In terms of cost of debt, you probably know the cost of a high yield issuer like us issuing better than I do. So I'll leave a little bit of that to your imagination. We're still looking at the final terms of what it is that we want to issue in order to finance this one. Excellent. Thank you very much for the time, guys. Thank you. Thank you. Our next question comes from Steven Fisher with UBS. Hi, good morning. Hi. Bill, could you just talk about how and when you will accrue for those contingency payments? We will accrue at purchase the expected value of the contingency payments and record that as part of the purchase price when we close the transaction. We're talking about the earn-outs, right? The potential earn-outs? That's right. We make our estimate of what we believe the most likely earn-out payment is, and we'll record that as part of initial purchase price in the initial accounting. Okay. Then maybe I missed this earlier, but can you just talk about why this is a customer base that you don't have penetration in already? I think primarily, first off, is the spaces. Specifically, the upstream oil and gas is a growing sector for us, but is a primary sector for National Pump. They were the leading pump provider in that space. So just by their increased penetration, that space gives us opportunity. Secondarily, we can convert some of these not only to rental but from other rental suppliers. I think that creates a great opportunity both ways. I would also add that with the acquisition comes the management and the subject matter experts, also getting the scalability of their business so that customers feel confident that they can get their services and demand met is very important. That's not unlike some of the other businesses that we're in, but just really, we didn't have that expertise in-house. I would further add to that one of the attractiveness of this is there is a tremendous amount of customer overlap and very little product overlap. So when you look at the customers that we do business with, we have penetration with a lot of large accounts that rent pumps, and we don't always rent them. We are renting or re-renting today, but there's a significant upside to cross-sell these customers going forward. Great. Thank you very much. Yep. Our next question comes from Ross Seymore with Bank of America Merrill Lynch. Yeah. Thanks, gentlemen. Good morning. Good morning. Michael, you are paying what appears to be a very reasonable EBITDA multiple, whether you include the tax benefit or not. I guess if I look at the multiple of original equipment cost, it is 3x-4x. How did you get your head around the buy versus build decision for this transaction, given that National Pump seems to have gotten where they are right now in a relatively short period of time? I guess, in other words, what is so special about National Pump that you could not replicate their business with a substantially lower investment over the next several years? Well, to be clear, it was the subject matter experts. It is the people. We can buy equipment, we can rent real estate, but what stands between us and our customers is the people. This was a focus for them, specifically, around this one avenue. It enables us to get the credibility to serve that national platform. We deal with a lot of industrial accounts. You cannot go in there with an experiment. You have to go in there with concrete evidence that you can support them, and make sure that you have got the rigor and the support to be able to satisfy their needs, and be able to achieve any kind of hurdle that may come your way. That is one of the reasons. Yes, you could have done this through a greenfield start. I would have been paying for people, and I would have had to gone out there and taken an awful long time to get that level of confidence with the sophisticated customers that we're dealing with. This does both for us. We get that credibility. They get the footprint. They get the liquidity that we have to be able to grow. And they have some of the other services and our Total Control capability to be able to tap into that customer base. I think on balance, it's a win-win for both of us. Okay. Thanks a lot. Then, how much, if any, goodwill will you have on the balance sheet from this transaction, and what would be the amortization period? Do your comments on EPS accretion off the bat include goodwill amortization, or is that more of a cash EPS type comment? The EPS comment is any way you'd like to slice it, Ross. But it was specifically a GAAP EPS comment. But cash EPS, adjusted EPS, whatever you want to look at, it will be accretive in 2014. The amount of goodwill and the amortization of the amortizable intangibles will have to come out of our valuation work to be done after we close. Why don't I defer that until we've got more input from our valuation consultant, we've nailed down the allocation of purchase price so that we can get a good, solid goodwill number for you. Okay, great. Then just one more, if I could ask the management team from National Pump, or maybe you guys could address it. Just what areas of your business have you most excited, and is that 50% growth that you talk about, annualized growth over the last several years, was that all organic? Bill, would you answer that? Yeah. This is Bill Kiker again. Thank you for the question. You said what areas of the business have us most excited. Yeah. I think it's the cross-selling opportunities, the opportunity to expand geographically, and especially up in Canada, where we only have four stores today. So we see a tremendous advantage of, I guess, tagging on to the United Rentals footprint across the entire United States. Like they mentioned earlier, we have a number of markets that we participate in. I think there'll be new customers that we'll get based upon this deal. If memory serves me correctly, I believe that their 50% growth was mostly organic in the last few years. Yes, absolutely. Okay. Thanks so much. Yep. Thanks, Ross. Our next question comes from Justin Jordan with Jefferies. How are you doing? Thank you, guys. Good morning. Morning. Sorry, I would be remiss of me not to just reference a little bit on the current trading, if I could be so rude as to do so. Obviously, well done on the acquisition. Can you just comment a little bit on, obviously, the harsh weather that the business has endured in January, February, and whether that should be something we should be thinking about in terms of Q1 rental revenue and EPS for the business? Okay, Ross, you win the prize for the first one to use the weather word. Excuse me, Justin. We said back in our earnings call back in January that the weather we had seen to that point had not changed our view of the year, and we would say the same thing right here and now. Obviously, the weather has been more challenging than normal. We have got some of that we can anticipate. We have got some of that that we can offset, whether it is by moving fleet or other actions. We have been pulling those levers as we have gone through the first two months. As we sit here now, I would say the same thing that I said back in January. Still the same view of our performance this year, even given the weather challenges that you all know about. Fantastic. Thank you. Thanks, Justin. Our next question comes from John Healy with Northcoast Research. Thank you. Just wanted to ask just about how you plan on using the brand on National Pump going forward. Is there a thought process in terms of how you will introduce United Rentals backing this concept into the market, or should we expect you guys to put the URI brand on things pretty quickly? Then a couple housekeeping on just customer concentration. Are there any meaningful customers within National Pump that represent a disproportionate part of the revenues? How much does Canada represent as revenues? I know you disclosed branches, but was curious about revenues. I'm going to ask Paul to talk about most of those questions. Then what he doesn't answer, we'll pass around. Yeah. So with respect to the brand, I think certainly National Pump has a strong brand. But what we found out is really the brand is with the people. Really, it's a key retention of the senior management team, which we're excited to have the senior management team come on board. And there's general enthusiasm today on both sides with the coming together of both companies. We will transition. We will leverage our brand. We will leverage our specialty individual business units, whether it be Tools and Industrial Solutions, as well as trench safety and power and HVAC. And we will have a transition from National Pump and Canadian Pump to our brand over the next short period of time. We're working very closely with the senior management team to find an agreeable name that will make sense both to our employees and to our customers. With respect to Canada, it is a relatively small percentage today. I believe it's 14% of the total business. But we see significant upside as we look forward over the next 12, 24, 36 months. And a lot of our growth is going to come from Canada. And I think the other question was with respect to mix. We have today a significant percentage of our revenues that derive from oil and gas. But as we continue to leverage things like cross-sell and our footprint and scale, we expect to build those other vertical markets faster. Great. Thank you, guys. Thanks, John. This concludes the question and answer session of today's conference. I'd like to turn the call back over to Michael Kneeland for closing remarks. Well, thanks, operator. Again, this transaction is an important step to our strategy to create a company that delivers strong financial results through the cycle. I'm very excited. If you take a moment on our website, we do have an investor presentation around this transaction. As always, if you have any questions or comments, please contact Fred Bratman. Otherwise, I look forward to talking to all of you next month on our Q1 results. Thank you very much. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.