United Rentals, Inc. (URI)

Investor Day 2012

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Dec 4, 2012

Thank you. Terrific. Well, thank you for joining us for the United Rentals Investor Day. My name is Fred Bratman, and I handle investor relations for the company. No. Sorry. There we go. Thank you. That's the lawyers. In addition to those who have joined us here at the Yale Club today in person, this event is also being webcast. All of the presentations that will be used today will be available also on the investor relations part of the United Rentals website, and those presentations will be archived, as they always are, for 90 days. We believe that today's presentations will offer you a deeper understanding of the company's strategy and our long-term vision. We're very excited about the story and your attendance here today. For those of you who are joining us in person here, in the back you'll see some display monitors of various projects we have underway, such as Total Control and FAST, our logistics system. I encourage you, after the meeting, to take a look at them. I also invite you to join us for refreshments after today's sessions. I think we're going to be on the rooftop, and given the weather in December here in New York, I encourage you to join us. After each presentation, we will take questions from the audience. As a courtesy, please wait for the microphone before asking your question. I will also be taking questions from the web, and we'll get them up here as well. We'll end the day with Michael Kneeland, our CEO, and Bill Plummer, our CFO, taking your questions after all the presentations are completed. Again, thanks very much for your attendance and your interest. Now let me hand it off to Dr. Jenne Britell and Michael Kneeland. Thank you. I have to lower this after having Fred here. Hello, everyone. I'm Jenne Britell, and I'm the Chairman of the Board of United Rentals. I'm very glad that you were able to join us today, and I'll extend my welcome to those of you listening on our webcast. Thank you for your interest in United Rentals. If you've been following the market trends in equipment rental, you know that our company, and in fact the entire industry, have more opportunities ahead of us than ever before. With me today is another board member, Jim Ozanne. Jim, where are you? There he is. Many of you know, Jim served as the Lead Independent Director of RSC, and he's now a part of our United Rentals board, as are two of his colleagues, and we are very proud to have them with us. In fact, we are one board, as you will see and hear about, one company. Let me say, it is wonderful to have this chance to address you at a time when we are so excited about the future of United Rentals. Our board, and that is why I am here, has worked closely with management to bring the company to this point. In doing so, we were in agreement that we would not be limited by preconceived notions of how to create value as an equipment rental provider. That was the key point, and I know I have had a number of conversations, as have my colleagues, with a number of you. We knew that we were unlikely to achieve our goals by merely conducting business as usual. Yes, we were and are the leader, but being the biggest was only meaningful if it fostered returns for our shareholders. With that understanding, we and our colleagues at then RSC engineered a transaction that grew our operations to more than $4 billion this year, and equally as important, generated steady improvements in value creation. Simply put, United Rentals has never been more prepared to drive profitable growth than right now. I know that I speak for our entire board when I say that it is exhilarating to work with a management team that is so inspired by challenges and so receptive to a diversity of perspectives, and that is true of our board as well. There is no question in my mind that those qualities flow from the top. For that reason, I want to express my personal admiration for the gentleman I am about to introduce. You all know Michael Kneeland as the company's President and Chief Executive Officer. I am sure that you would agree that his leadership over the past four years has been remarkable. Furthermore, his ability to inspire performance from a base of more than 11,000 employees is unique in my experience, and I know a number of you have been out to our branches and talked to a number of our managers, and you have seen it with your own eyes and heard it with your own ears. It has been immeasurably valuable in binding this company together. It is with a great deal of pleasure that I ask Michael to share his comments now. I will have to raise this. Thank you, Jenne, for those kind words, and thank you everyone for coming here this afternoon. We appreciate the time you have taken out of your busy schedules to be with us today. In holding this Investor Day, we hope to emphasize the importance that we place on giving visibility and understanding of United Rentals. It is not just about the leadership, it is about our thinking, as Jenne mentioned, our strategy. It is about our progress, and it is also Think about the historic change that we have overtaken or undertaken this past year. We have used the quarterly calls as a way to keep you all informed of the bigger picture and the progress we have made on our financial performance. Today, we are going to dig deeper. You're going to have accessibility to look underneath the hood, as we would say, of how we're running the new United Rentals. As you know, we're a very different company than we were seven months ago, and I'm very proud of that. When we first gave you the first integration update of the RSC integration, and we've made a lot of progress since then. Many of the goals that we've outlined have become a reality and beyond that, and others are very much on their way. Things are going very well according to plan, and we made sure of that by looking at the transaction of jettison old ways of thinking. As Jenne mentioned, we are willing to embrace new and better ways of running the company while staying true to our strategy. 2012, to me, has been a remarkable year of progress on a lot of different fronts. We leveraged our new leadership strength of United Rentals with a continued recovery in our end markets as we see 2013 and build onto 2014 and beyond. Equally as important is the bulk of the integration effort that is behind us. Today, when you look at the company, we are focused as one organization going forward. That's why I can reaffirm the pro forma full-year outlook that we had previously provided. Total revenue in the range of $4.6 billion-$4.7 billion. Adjusted EBITDA in the range of $1.95 billion-$2 billion. Rental rates up approximately 7% year-over-year. For those of you who know me, we'll always go, if we can grab more, we will. Time utilization of 67.5%. Net rental capital expenditures of between $1.075 billion and $1.125 billion, and after gross purchases of between $1.5 billion and $1.6 billion. However, we expect to be at the very low end of that range. Finally, free cash usage of $25 million to $75 million, excluding the impact from the merger-related costs. Now we've engaged Scott Hazelton to kick off this meeting with a forecast for the equipment rental industry. Scott, many of you have probably met Scott or have heard about Scott, is an economist with IHS Global Insight and the forecasting service used by the American Rental Association, the industry's trade group. Scott's views or his outlook are his own and do not reflect on the company's views and outlook. With that, I want to ask Scott to come up here, and we can get right into the presentations. Over to you, Scott. Thank you. Thanks, Michael. Good afternoon. It's a pleasure to be here in warm New York. As was mentioned, IHS Global Insight began working with the ARA back in 2005 on a fairly simple market sizing project. 2006, we actually launched our first sort of industry report, which some of you may have seen over the years, has been issued first in book form and then in online form now since, well, since 2006. The first couple of years, of course, were great fun with the economy firing on all cylinders. The next few years, less fun when things turned down, and of course, now we're looking at a recovery once more. The good news, though, is we actually had forecast that recession back in 2005. We've sort of warned the industry that there's downturn coming. Now we see an upturn coming, although some uncertainty about the exact timing, courtesy of our friends down in Washington. The top-line story here is that we have an economic expansion that is still growing, just not growing as fast as we might like. We do not perceive a sort of an instant recession, even though you see some new numbers coming out that are a little on the bleak side. Certainly, exports and CapEx have decelerated. A lot of reasons for that. Part of it is uncertainty at home. Part of that is issues in Europe. Part of that is slowing growth in Brazil, India, and China. So lots of headwinds that are sort of holding recovery back from where you would normally expect us to be at this point in an expansion. However, housing markets are key to recovery. They are recovering, in fact, last numbers we have seen a little bit better than we expected. Car sales are also recovering. Some of that was related to Hurricane Sandy. In fact, I heard last night the best sales ever for BMW, which must say what you got, if you drive out in New Jersey. Solve the fiscal cliff. If we do not get that, we have a recession. We will discuss that a little bit more in a minute. What we are seeing in Washington, in our view, is probably what is also most of your views, it is kabuki theater. Neither side can afford to give in too soon, or they look weak to their base. They will take this until Christmas Eve or New Year's Eve. So get used to this kind of suspense in the media, I suspect. But they will, we believe, realize just how critical this is and create some kind of a compromise. If we are about to worry about the forecast risks, they are certainly legion. Fiscal cliff is the biggest one. Deeper Eurozone recession, which certainly would be more likely if we go off that fiscal cliff. And of course, slowing in China, and if we had any kind of Middle East oil disruption, which that kind of threat depends from day to day. So what is our baseline forecast? You see here, GDP growth in the blue bar. Red line is unemployment rate. So the good news is GDP growth is growing. It is kind of stagnated. You see the forecast line, last quarter, not terribly strong, next quarter, not terribly strong. In fact, most of next year, not terribly strong. That is growth. That is growth in the 1.9% range, 1.8% range, and certainly good enough to create new construction demand, new housing demand, new rental demand, but not the gangbuster growth that you might expect in about year three of recovery. We do think 2014 and 2015 get much stronger. That unemployment rate you see tailing off, but certainly any return to the good old days of 4% is not in our forecast. Oops. So, looking at the components of the forecast, real GDP, I mentioned this year, we are expecting 2.1%. Next year, that falls back to 1.8%. We have a new forecast that will be due out along about Friday. That may become 1.9% because we have had some better housing numbers than we thought. But you get the idea for the 10 next year. With almost 3% growth in 2014 and looking beyond that, also in the high 2s to 3 for 2015. Consumer spending, not the biggest demand for rental typically, but certainly improving as time goes by, in contrast to the business fixed investment, where you see this year, pretty good, 7.5%. Next year falls to 4.3%, recovers again in 2014. Why is that? Well, there is a lot of uncertainty. We have already seen a weak Q3. The signs indicate a weak Q4 this year. So this year has been slowing. I do not see any reason to think that next year's Q1 and Q2 look a whole lot better than this year's Q4. Once Congress and the President resolve differences, we do get a much better second half of the year. So there is a back-loaded growth rate next year on fixed investment, you see it going to 8.2%. That is really key to rental because that was what creates demand for new buildings and new installations of equipment, and in fact, higher capacity utilization in our factories. Housing starts this year, about 750,000, next year, moving to about 900,000, 950,000. We should be building 1.5 million housing starts in this country. We do not do that till 2015. So even with an improving forecast, housing is on the weak side. As you see here, even with our assumptions on the fiscal climate, negative growth that is, contractions in federal government spending and drizzle of growth in state and local government spending, that has got certain implications for infrastructure, as we will see in a minute. You see the trade picture. I mentioned housing starts recovering. Housing starts have a huge multiplier impact on the economy. Apart from the fact that you build houses and you may rent equipment for that, you also have the knock-on effects that within so many months, you have to build the new retail plaza, the new doctor's office, the school expansion. So housing is a good leading indicator of growth and heavier construction, and ultimately in roads and water and sewer to hook these things into the network. Certainly, multifamily has got the strongest near-term potential. A lot of reasons for that, which we will not do in a very few minutes, but basically, it is dealing with large numbers of underemployed youth. As recovery gains momentum, get their jobs, the first thing they do is rent. So the tenant demand currently involved in housing will see itself manifest first in the multifamily construction, which actually is good news for rental because you tend to use more equipment of a rental nature in apartment buildings and condos than you do in single-family homes. Look at the construction perspective. We see residential growing strongly from very, very poor levels. So when you see numbers like 13.5%, 22.8%, they are exciting if you remember where we are coming from. But there is a mix in here. Part of this is housing starts, and part of this is finally seeing home prices stabilize, and in fact, increasing. So residential construction is a combination of the units and the price of units, both of which move in a positive direction in the forecast. Commercial construction is where you see our view of next year, I think, most clearly there, and probably manufacturing as well. This year, quite strong growth relative to past performance. But if we had a graph here of levels, you would see that we are someplace around 2001 levels, and we had the peak of the market in 2007. So we are growing this year about 7%. Good news. Next year, 4.2%. News. But you really see 2014 is when things take off in terms of office, hotels, and the broad commercial market. Manufacturing, that is the construction of new factories, and also the renovation of factories. So this year at 16.5% was largely a function of companies deciding to improve productivity, not necessarily build all new structures. So it was a great year for those companies installing new machinery, electrical, high tech, anything that would boost productivity that requires modernization of a plant, and therefore construction spend. Next year, that also kind of tails off. Still positive, but slower growth, picking up in 2014. Healthcare, that is not really a function of the Healthcare Reform Act. That really is a function of what is going to happen to state and local budgets and federal budgets next year. So negative 1.2% is mostly a function of funding, not a function of healthcare. And you see the other categories that rely upon public funding being weaker next year as tax revenues recover with the better employment, better incomes, you see they improve in 2014. State by state, we have got some pretty strong variations. I wanted to at least point it out to you. This is the employment growth rate for the next five years, where 2011 is actually technically history. Blue is weak growth, but at least it is growth. This graph a year ago had contractions. The red, of course, is the best markets. Not surprised to see Texas there. North Dakota because of the energy plays, as in Arizona, Utah, Colorado, Idaho, and Florida rounding out that picture. A little bit of an asterisk on Florida. It actually fell so bad in the recession that the growth rate is a little misleading in the forecast. What I find actually somewhat helpful to look at is this next slide, which is when we return to peak employment. So you can get very strong growth from a very poor level and it will look good. This is really what happens given the peak employment in that state, whatever that might have been, when does it get back to that level of employment? So gray is they are already there, North Dakota. Blue, Texas actually is already there. But within the next year, we expect to see those other blue states hit that same level of activity. The really useful thing here is the red states. That even with very strong growth in Nevada, the bottom is so deep that as far as we can see in our forecast, they do not get back to their old peak level. Same for Maine. That is a population issue. Michigan and Ohio with manufacturing base issues. Similarly with Illinois, although Illinois also has state debt problems to compound its issues. I want to hit Canada very quickly there, because it is important to rental in the U.S. Many of the U.S. companies rent into Canada. Depending upon the company, it can be 10%, 15% or more of revenue. Certainly, they have had a downshift of their growth under 2%, partly the function of America, partly a function of Europe. They did not really have a housing boom and bust as the U.S. did. They had a fairly decent level of construction the past couple of years that is in fact tailing off. In their case, mortgages are getting tighter. In our case, they are getting looser. Oil prices are high enough to support tar sands development. Our view is oil next year is $88, $89 a barrel. If we have the fiscal cliff, that falls to $76 a barrel. Canada takes a hit next year if we have a downside risk to our financial house. Canada does require, rely increasingly on commodity exports. Of course, if you follow the news, China, Brazil, India, all slowing, which also creates a little weakness for Canada's commodity. But in general, they will grow, just more slowly. The western provinces have a circle of the growth. They will keep on doing that, apart from Newfoundland, which with an energy play, does well. Look at the growth by sector very quickly. You see the housing starts slowing down. The key thing for rental here is that real non-res fixed investment. That is a picture where in the U.S. it is good this year, a little weaker next year, and then it takes off. In Canada, good this year, a little weaker next year, and then actually it tails off. The story in Canada is different once you get past 2014 for the U.S. It is growing but nowhere near at the same rate. What does it all mean for rental? That is what we are here today to talk about. Here we have a forecast for the construction, industrial equipment space, and general tool. The work we do for the ARA, we break into construction and industrial equipment. The big stuff, typically price tags over $10,000. It is backhoes and excavators and trucks and your larger compressors and generators. That is construction and industrial equipment. General tool is smaller items, tended used in factories and on job sites. Welding equipment, smaller compressors and gen sets, tile saws, which you might be using in residential construction. Those things are general tool. For the ARA, we actually forecast them separately. For today's presentation, we have combined them together. Actually, for the ARA, we also forecast party and event. If anybody compares this graph to other graphs in the ARA, this is smaller by a little bit because party and event is about 10% or so of the total. Those are the footnotes. The growth rate this year we expect coming in around 9.8%. 12. You see the forecast next year, it tails off a little bit. That is about 7.5% next year. It is good growth, just not stellar growth. In fact, compared to the past history, it is actually pretty good. But things take off from that point because we have an economy next year that really is not firing on all cylinders. In 2014, it is firing on all cylinders. We have a confluence of housing and non-res construction and industrial production and infrastructure growth once more. There is no real down element in 2014 or 2015 as there is next year to weigh down that growth rate. You get growth rates in double digits for 2014 and 2015. Of course, that cannot last forever. Economies do slow down a little bit, and you see that 2016, that growth falls back to around 6%. But certainly the next three years, we are looking at very good potential for this marketplace. Looking at it regionally, there actually are some clear differences. In this case, the 5-year historical track record is in red, and the 5-year forecast is in the dark blue. Looking at the forecast growth rate alone, you say, "Well, Pacific is the best region." For growth it is, and Mountain, of course, is there as well. But remember, Mountain has Nevada. A lot of that growth is coming off a weak level. If you take a look at the red bar, that's where they've been in the recession. Really kind of red plus blue is where you're looking at in terms of the potential for using fleet in the coming 5 years. In that case, the clear one becomes West South Central, which is Texas, Louisiana, Oklahoma, and Arkansas. Probably close behind, we would have the Mountain, which has got such strong growth potential. I think we'll probably be making a forecast a little bit higher for Mid-Atlantic, courtesy of Sandy. The sheer volume of work to be done in Q3 and Q4 will probably boost that a little bit. To make this work happen, we require new investment in fleet. This is our view of what's happening with investment in equipment in the coming years. You see last year, actually quite strong. Last year strong, this year stronger, next year stronger still, but 2014 and 2015 actually achieving new highs in terms of investment into rental fleet. Even with that, the green line shows you the share of revenue going into fleet. Those are very big numbers for investment and good news for the OEMs that supply that equipment. But for the industry, they're going to be investing about what they were investing in 2003, 2004, 2005. It's not a clean level of investment in terms of reinvestment of revenue. We need that fleet to sustain the revenues that we forecast for a strong economy, and in fact, an industry that is gaining in penetration, which we can discuss in, I'm sure, in a second. I just figured out the mystery here. Sometimes you hold it down at work, sometimes you just keep on trying it. There we go. I went past the last slide. Let's look at Canada. As I mentioned in the economic perspective, the past is really kind of the best in Canada. The growth rate slows down as we go forward. The rental revenues actually keep on hitting new highs because we don't have any contractions coming up, just the growth is slowing. The picture of Canada is one of slow, steady growth, but the real opportunities exist in the American side of the market. Since I mentioned penetration, I'm sure there will be a question if I don't answer it. The view of how has the rental industry outperformed the economy so strongly this year, last year, and again next year, is partly a function of penetration. From a forecasting standpoint, we have no why. If you are a contractor and you win the new job today and your current fleet is all currently on job sites, do you feel confident enough about the next job, next quarter, to go out and buy a new excavator? Probably not. Anecdotally, we know that rental is doing better because of a lack of contractor confidence in the construction and industrial pieces of the U.S. economy. In fact, industrial production, I didn't cover in that last slide, but this year about 3.7% growth, industrial production. Next year, that falls to 2.0%. That does come back up, 2.7%, 3.5%. Same kind of story as for construction spend. Whether you're looking at machines going into factories for rent or onto job sites for construction spend, next year is a little bit weaker than this year, and it takes off from there. A lot of it is a function of the economy pulling down total rental market. But rents are growing at 7.5%, when in fact, construction is growing at 4.3% and industrial production at 2.0% because they're gaining penetration. We are currently working with the ARA on a penetration study to actually quantify this. There are currently a couple of measures out there. One is sort of new fleet penetration, which I'm sure you've seen, which just looks at what's been bought by rental fleets versus total, and that's around 50%. That's interesting, but to us, more interesting is what's happening with total fleet that's out there in the marketplace. That's what drives total revenue. In that case, the best data we have so far is from the BEA, the Bureau of Economic Analysis, and that shows a trend where rental tends to increase in recoveries because of that lack of confidence. You're getting more work as a contractor, you're getting more business as a factory owner, but you don't want to go out and buy stuff just yet, so you rent. So you get an increasing trend in penetration at that point. It tends to plateau when the economy's on all cylinders, everyone feels good. In fact, people may be buying their own equipment, but they can't, in fact, meet demand with their own stuff. They actually rent too. So you get a plateau of penetration in the peak of the expansion. Then the next downturn, it tends to fall back a little bit, and that's actually a good thing because rental companies can react more quickly to the down market and dump fleet that they can't rent. So you see a little bit of a dip into penetration just because they can react faster than the average contractor. The next cycle you see it comes back up again. This data exists back to 1992, I believe it is. So there's a couple of cycles in there where we see it. The problem with the DA data is it's a little messy. It has some leasing in it you have to take out, and it's also very dated. It stops in 2010 right now, which is not very helpful for today's questions. We're building our own series, which takes a look at the time series of construction equipment, industrial equipment shipments in the U.S. economy over the past, 1992, so the past 20 years. We basically build a fleet in total. We actually build a rental fleet, and we get a penetration number. Unfortunately, we aren't quite done with that yet, so I don't want to reveal the thing today. But suffice it to say that the forecast will show increasing penetration for the next couple of years. Certainly this year, next year. About 2014, it will probably plateau again. The ARA will release those results at their annual meeting in February, so we'll have a final number then, and you'll see the exact numbers, but I can't betray that confidence just yet. I guess I can anticipate one of the questions on the fiscal cliff, since Fred Bratman told me I probably would get it. If we get a fiscal cliff, we have a pessimistic forecast for the economy. GDP growth this year, you may recall, was 1.8. Sorry, GDP growth next year, I said was 1.8. That becomes -0.5. This assumes a very modest fiscal cliff. This is actually a serious business, and you see articles telling you that our view is a serious business. All it takes is for Congress and the President to be deadlocked for about three to four weeks of January to cause a recession. It doesn't need to be a three-month, six-month protracted, drawn-out fight. A fairly modest impasse will create a recession, and not only for next year, but 2014, where we had GDP growth of 2.9%, that becomes 1.3%. In terms of what is near and dear to our hearts, in terms of rental, business fixed investment, so that structural investment, that's 4.3% next year, -0.1, and the year after, the 8.2 becomes 3.9. Industrial production next year is 2.0, becomes -1.2, and 2014's 2.7 becomes a 1.0. We can do permanent harm to the economy for about two years if we were to not resolve our financial situation. Now, our pessimistic assumes just that we have a modest January impasse. If it's worse than that, the forecast gets much worse. However, I suspect that regardless of one's personal feelings, if you're a congressman or the president, you put that aside about middle January when you see what's happening. I don't think we get a protracted impasse. Our baseline actually is not for an impasse at all. Okay. I'll wrap it up there, and any questions? Yes. Your forecast with regard to the cliff, that's really just an arithmetic impact? Not so much that behavior will be permanently changed by a three or four-week impasse, but just that you tank the first quarter, and then by the time you kind of linearly move out of it, the numbers are the numbers. If you tank the first and second quarters, both become negative. That's where you get a typical recession with two quarters of GDP contraction. Certainly, there's a prolonged impact after that domestic GDP doesn't ever recover in 2014 to the same degree. So yeah, it's not a permanent change of behavior, but there's a permanent cost to the economy. If there is no impasse tomorrow or the next day or if there's pent-up demand that gets released, and you have a big Q1, Q2, or how are you thinking about that? Our perspective is that if this were going to be tomorrow and there's some kind of euphoria, I suppose you could get that. But our view is we kind of expect, baking into our economy right now, is a resolution to the crisis. So the baseline is the baseline if there's some kind of a deal struck, and I think the probability of one being struck tomorrow, from what I'm hearing in the news, we're all hearing in the news, is quite remote. Are you indifferent to the way they resolve the fiscal cliff? Do you care if it's all taxes or all spending cuts? Okay. Well, the question is if, I presume not personally, but as an economist, if we're indifferent to the fiscal cliff whether it's all taxes or all spending. We actually have run a bunch of sims. We actually do a lot of work with financial institutions, both consumer and commercial. So we've been doing stress testing, and I know we've done tests of what if we only affect payroll tax, and every other tax decrease stays. We increase payroll tax, what happens? What happens if we pass tax increases across the cut? I don't know all the variations, but in general, the economy does better when you've got capital being put to work. So depending upon where the cuts come from, you expect that you would do better with cuts than with tax increases, because tax increases are going to be hitting things like capital gains, which directly affects investment. They will hit the payroll tax, which directly affects consumption. I think whereas the spending cuts affect defense, but also a potpourri of programs across the board. I think we probably modestly favor the If you have to do one or the other, the cuts are the better. But in reality, we have to do both. The deficit is annually $1 trillion, and even the proposal that was issued by the administration, $1.2 trillion in tax increases. That's over 10 years. That's not one year. $600 billion in spending cuts, $200 billion in increases to civil spending offset the cuts. So you're looking at, on balance, $400 billion in cuts, $1.2 trillion in tax increase. So you get a $1.8 trillion impact over 10 years. So on average, $180 billion. A deficit of $1.2 trillion. We don't really solve the problem, even with those proposals of both spending and taxes. Long answer, I think you have to do both. Two quick questions. One, could you just walk through your methodology for the modeling? Sure. Is it a top-down econometric? Is it bottom-up? Secondly, you've done this forecasting since 2005, so eight years. If you back-tested, how predictive are you guys? Two good questions that also Frederick, who could do forecasts, which I'm going to get them both. The first one, it is a top-down model. We have rental revenues historically from 1997 to the present. Basically, you're fitting a regression econometrically of revenues against drivers in the economy, which tend to involve things like construction spending, capital, industrial production, consumer spending for the party and event space. You get the idea. It's a top-down model, classic econometric forecasting model. In terms of accuracy, you can do it. There aren't a lot of interim guideposts is kind of the problem, because there's not an annual number that you can back out. You do have numbers in 2002 and 2007 and 1997 that you can tie back to. We actually did very well. If you back-tested the models within about 5% for 1997 and 2002. 2007, of course, we didn't foresee the magnitude of that collapse, so we were off by a little bit more in that year. We had forecast the downturn correctly. In fact, I was at a company where I said, "You're going to look at a housing market with fewer than 1 million starts in 2006." They told me I was nuts. We actually had starts at about 600,000. We forecast directionally correctly, magnitude a little bit off, but generally speaking, within about 5% or so with the forecast. That was on your rental revenue forecast? Right. But if you look at the sub-components, like non-res construction Oh, yeah. Are you accurate there? From a macro standpoint, non-res construction is tough. I do not know off the top of my head the answer. I would guess close to 10 and 5. Typically, the investment numbers are highly volatile, so to nail them within 5 is difficult. Okay. Thank you. That is why you actually use a potpourri in your equations of things like GDP, consumer spend, things that are reliable. It minimizes your error when you put in things that are highly cyclical. Yeah, maybe just a quick follow-up on that. It looks like you have non-res spending decelerating next year, but rental revenue accelerating. Can you talk about that? Actually, everything is accelerating next year. Rental revenue and investment spending and non-res construction spending, they all are growing next year. They all are growing next year slower than this year. I think it is a pretty consistent story that the growth- I thought rental revenue was growing faster than this year, next year. No, this year growth is around 9.8%, next year around 7.5. Okay. Next year it is slowing down. Okay. All the drivers slow down. That's why it does, too. I think that we'll wrap it up. I'm around for a little longer if you want to find me afterwards for questions. Thank you. No, thank you. Matt. Somebody setting this slide? Great. Good morning or good afternoon. For those of you I had not met yet, my name is Matt Flannery, and I am the COO of United Rentals. No matter how many times I look at this slide, I think I am a 25-year-old kid knocking on trailers asking people to rent equipment. I have been in the business since February of 1991. I worked for a local company based out of Fairfield, Connecticut, and in 1998 became an acquired asset of United Rentals, and proudly so. Since that time, I have had the good fortune to be at many levels in the organization: a sales manager, a branch manager, district manager, through the region vice president role, and now helping Mike out up at corporate for the last four years running operations. You could say I kind of came through the foreign system. This past January, Mike had asked me to lead the integration for the RSC merger. I knew this was going to be a big undertaking, and it was going to be quite a bit of work on top of my day job. It was one that I was very happy and proud to be part of, to lead a team of over 100 members from both organizations to build a company of a scale and scope that, candidly, our industry had never seen before. It was very exciting, and I would like to show you some of the progress we made because I think the team has done a great job. First, let me remind you why we did this deal. As with any of the over 250 acquisitions that United's done in its lifetime, there's a couple of boxes we want to check, a couple of things that we want to accomplish. First is scale, right? We want to make sure that we get some scale in the markets that the acquired company operate in. I think we've clearly done that with over $7 billion worth of fleet and $4 billion worth of rent revenue pro forma in 2011. Second is talent. I feel that this is one of the areas that I was pleasantly surprised. When you compete with another company, sometimes you don't fully recognize how much talent your competitors have as well as your own organization. We're fortunate enough to have one of the members here today. But throughout the organization, we found the talent to be very complementary and very great additions to our United team. Then third is the economics have to work. We're off to a great start with that with the over $280 million of synergies that we identified. We certainly feel that we've shown, especially in the early going here, that the economics of the deal are working well for us. But equally important is the teams have to have complementary skills, and they have to complement each other in some way. The more we dug into it and we looked at the combination of RSC's strong industrial presence, combined with United Rentals' very strong presence on major projects and with key accounts, we feel we had the opportunity to build a very powerful business model for the future. So where are we today? Well, some of you have heard some of these stats, but throughout the third quarter, we successfully consolidated our whole team onto one IT platform. When we first got together to plan about the integration, we thought this would be, we always knew it would be either an enabler or an inhibitor. We thought maybe three, four months after close. Well, he's pretty modest about it, but I'd have to say the IT team, led by Dale Asplund, got this done in five weeks. It was just a tremendous achievement and one that allowed us to accelerate all of our cost synergies going forward. That enabled us to close 187 stores by the third quarter. We predicted maybe 60% of that number we'd get done by year-end. It enabled us to harmonize over 1,000 different sales territories, which was a lot of overlap and had risk of being a lot of confusion to the customers in the markets, as well as harmonize our overlapping contracts with our major accounts. Today, we've got about 90% of those either signed or agreed upon, and by January, we'll get the rest done. All of these things were just tremendous accomplishments from the team. But probably one of the most encouraging things we got to do during the integration process is back in June and July, Mike, myself, Bill, and David Ledlow, who's actually under the weather and wasn't able to make it today. He was my counterpart at RSC and a big part of our ongoing success. We went out and hit the road and did town hall meetings. We would meet with hourly employees. We covered over 50 different markets in the U.S. and Canada. What we found was a very engaged workforce. When you think about how much change there was for that employee population during this to come away, I felt like that was our scorecard of, okay, we got the cultural part of this right. We are communicating well, and we did a great job. I think that has been the baseline of our success that we have had in this integration since then. I think that number also shows up in our turnover. Our turnover this year is a little over 5%, and it is actually a smidge down from what we were independently last year. We have seen great retention from our labor force. I referred to cost synergies earlier. In the third quarter, we accomplished $45 million in realized cost synergies. You see in the pie chart there the big buckets where we got that money. The takeaway for me on this slide is how well that acceleration of all these efforts staged us for our commitments to $200 million in 2013, and then to continue to look for cost synergies beyond. We could easily have still been putzing around with our IT platform. All the hard work that was done and all the heavy lifting done has really staged us for success in the future. This merger brought a lot more to the table than cost synergies, and we are certainly driving towards realizing them. I feel that our new strong United combination fills a lot of strategic buckets for us as an organization. Both companies were very well-aligned on their commitment to safety. We are, as a result, the safest company in the industry today, and we will talk about that a little bit later. We have combined one of the most experienced, connected to the market sales teams in most industries, but certainly the most experienced in our industry, and we think that that is going to reap quite a few dividends. Operationally, we have some great best practices. Some of the stuff, hopefully, you guys get to take a look at it in the back of the room, like our FAST technology system, as well as some tools for the sales force and the CORE optimization and Total Control tools. We feel are world-class, and really can help accelerate our growth in the future. Then last, but certainly not least, is the fleet offering. The scale and the breadth, the broadness and the density of the fleet that we have in each one of these markets just allows our branch employees to say yes to the customer more often. It is really not any more complicated than that. That snowball kind of just keeps rolling downhill and builds and builds and builds when you get that kind of density in a marketplace. We feel comfortable with all the complementary offerings that both companies had, all the tools that we feel that the combined entity brings to our team and our sales force, that we will be able to utilize. I am sorry, realize our revenue synergies and gain $50 million of incremental EBITDA throughout full year 2014, as we previously noted. A lot of that's going to be done by cross-selling Total Control, by cross-selling our specialty regions, which Paul McDonnell, our Senior Vice President of our specialty region, will speak to that a little bit later. These are new opportunities that didn't exist in the previous company. As we move beyond the initial integration process, we'll remain focused on three major areas. First, from a morale perspective, we're going to have the whole leadership team, 1,200 leaders, managers in the organization at our annual meeting this January in Indianapolis. We're very excited about that. That means each region Vice President, for the first time, gets their entire leadership team from the branch level on up in one room, and then we get the same thing for the whole organization. It's a great event, and one that I can't wait to get going and kick off our first full year as a combined entity in our strategy. Second, we're going to continue to focus on capturing not just the cost synergies that we've committed to, but continuing to look for more costs and more operational efficiencies. Third, we're going to get back to gaining market share. We grew this year, but candidly, this was, and had to be, making sure we stabilized the base business that we had. I'm looking very forward to having all these contracts harmonized, having all these sales territories set, and letting our team loose to go out and take market share and grow the business and gain new customers. We're looking very forward to that. I'd like to pivot and update you all on our ongoing operations. With all the heavy lifting that we just discussed, it would've been easy for us to take our eye off the ball and forget about our day jobs and stop running the day-to-day business. I'll tell you that our field team didn't allow that to happen. I hope you see that in our results. I think that they kept the focus on serving the customers, and that's the platform that we'll leap off of going into 2013. As we discuss operations at United Rentals, we start every meeting off with safety. I'll do the same here. What this chart shows is our OSHA recordable rate over the last three years. Even the fact that this chart used to have a 10-year trend, and we used to be at about 11%, tells you how we've moved on mentally. We don't care. How bad we were then isn't a comp we're looking towards anymore. Now we're looking to continue to get incremental improvement. As I stated earlier, we have the best stats in our industry. We are the safest rental equipment company, statistically, in the industry, but our team's changed their goal. It's no longer about being the best pup in a bad litter, so to speak. It's to make sure that we create a world-class safety organization. This isn't just important from a human resources perspective and making sure that all of our customers and our employees are safe when they're operating with our equipment, but this is actually a big part of our strategy, and this is a critical element for continued industrial penetration. There's many reasons why safety is paramount in our organization. Now, to kind of level set everybody to where we are today after all the maneuverings of 2012. We've got 848 branch locations in 49 states and 10 Canadian provinces. We have a presence in 99 of the top 100 MSAs in U.S. and Canada. The lone holdout being Honolulu, but we do have a long line of managers offering to run a cold start there. I think I saw Fred even put his name in for that one. We have almost $7.5 billion worth of fleet, which is an increase of 10% year over year, and over 11,000 team members serving customers. This map shows you where our branches are. As you can see, we're very strong on the East Coast and the West Coast, and very deep present along the Gulf Coast. One of the interesting things, I don't think either company would've got there on their own. That density has really driven some tremendous financial improvement in the organization. So it's something that when you step back and you look at these decks as you're building them, we've really got the best of both in those markets and didn't have to close a lot of stores, and that population of revenue, the scale has really driven some great performance for us. I think that's indicative of the whole organization. Now, we divide the operational responsibilities for these stores through 12 geographic regions and two specialty regions. One being Trench Safety, Power & HVAC that I spoke about. We also created a new tool region this year run by a legacy RSC Vice President, Pat Lowry. It's our smallest region. They're strictly focused on more of a distribution model of helping our sales reps in our existing branches deliver tools, additive products, specialty industrial products to our customers. So it's something that we're growing. We'll have nine distribution points by the end of 2013. We think there's a real customer entanglement opportunity here, as well as these are all high ROI assets. So we're looking forward to growing this business and seeing where Pat and his team can take it. But within those 14 field leaders, it's a very balanced group. We have seven legacy RSC Vice Presidents in the field, as well as seven legacy United Rentals Vice Presidents. I think that speaks volumes in Mike's commitment from the outset of this, of being the best of process here, putting the best team on the field, and that's added to the stability that we've got in our labor force. I don't think the two are disconnected in any way. So we're very encouraged with the balanced leadership within our team. Now, we feel strongly that the initial integration operating principle that we put in place when we met way back in January, the first thing we discussed after being the safest company in the industry, was that we were going to view all the changes that we put the field through the eyes of the customer. I think that was a real important step towards achieving what the goals that we did. If we hadn't made that our top priority and top guiding principle, I don't think we would've seen the results you see here on this chart where we grew fleet on rent by 11% year-over-year. These are all pro forma numbers, obviously. While through the third quarter, adding 7.5% rate increase and well on track to the 7% that we committed by year-end. That makes us feel very comfortable about our ability to continue to grow and the demand in our end markets. We think this creates an opportunity for us to achieve robust growth for the next few years. Now, turning to 2013. I think I went too far. There you go. Turning to 2013. As COO, there's three priorities I want the team to focus on. First is continuing our strategy of Operation United that we put in place since 2009, and that's growing our key accounts and our industrial business. Second is to leverage our scale to get a competitive cost advantage. Then third is to optimize our fleet, and make sure we have our eye towards improving our return on capital. On the next few slides, I'm going to speak to these individually if I could. I'll start off as always with the customer first. As you can see here, through our Operation United strategy we put in place in 2009, we grew our national accounts, our key accounts by 17%, more than double the rate of the rest of our customer base. We believe this is a huge reason why we were able to get the EBITDA flow-through that we've enjoyed this year. I think that this continuation of penetration in these targeted markets is going to be a pivotal way for us to, regardless, I know Scott had some choppy slides there. We think there's opportunity for us by focusing on the right end markets to outperform the market over the next five years. How do you accomplish this? Sounds great saying it up here at the podium, but how does the field accomplish this, and how do we accomplish that growth with those targeted accounts? It's pretty simple. This hasn't changed for as long as I've been in the business. We did a customer survey back in 2009 when we kicked off this event of Operation United, our annual meeting, and the customers told us there's five things that are important to them. Fleet availability. They want us to have the fleet when they call for it. Then they want us to do what we say we're going to do and deliver it on time. If and when something breaks down, because you're dealing with equipment, it's going to break down, we just need to respond quickly. When they're done with it, they want us to get it off their site for many reasons, and not only does it help the customer, but it helps us for our turns, to help us say yes to more customers. Then it's not business until it gets paid for, right? So our portion of that is making sure that our invoices are accurate. These sound pretty simple, but it's amazing how many of our competitors don't get this done on a regular basis. We made it a focal point, and each and every one of our 848 branches gets a scorecard pushed to them with these five elements every day. This is a major focal point, and it is the keep-it-simple methodology a customer. Since we put this kind of rigorous measurements behind it, what gets measured gets accomplished, right? The field has really responded, and I think you have seen it in our customer growth. The last thing I will say on that topic is we have got a customer, and maybe Juan will speak to it in his. We have got a customer version of this scorecard. So we are very transparent about actually taking the scorecard to the customer and saying, "Here you go, ma'am. Yeah, we were 92% on time delivery. We had two-hour response to service calls. We did have a few problems in this market serving you, and we had a couple of late deliveries." The fact that you are bringing that to them adds credibility to the whole program. Some of the best experience I had in presenting these to customers is when you are showing them your mistakes, not the positive stats of what you did right, because it lends credibility and lets them know that you are really watching over your business and your customer service metrics. So our second area of focus is costs, and this is a graphical. This thing is tricky. This is a graphical depiction of our cost per day versus our revenue per day. We feel strongly that by continuing to focus on our operational efficiencies, we can widen the gap between the two lines here. Some of the other metrics that we measure, we can only achieve this through rigorous review of our operational practices. You look at our revenue per full-time employee and the amount of growth that we have had in our branches. We have had 30% average growth. The average OEC in our store is up 30% year-over-year on a pro forma basis, and the employees to serve that fleet is down by more than 5%. So it really is showing the whole team that we can actually change the way we do things and create some real leverage. One of the ways that we are looking to do that, and you will probably hear more about this moving forward into 2013, is our metro model. This is something that we rolled out in the beginning of 2012. We had 12 stores that were on the metro model program for the full year, and we have seen anywhere from one to three points of EBITDA improvement in these stores where we have employed this. This is basically if you take a couple of stores in a 60 to 90 mile area, and you have them share resources. We create a central repair hub so that all the major repairs are being done in the store that has the proper facility and the proper talent to do them efficiently and effectively. Then what it allows the other stores in the area to do is just do the quick turn business, charge the batteries, oil the machine, and get it out to the customer. We feel that as we deploy this throughout more of our organization, along with central dispatch, central service dispatch, and even some localized, centralized call centers, we can cut out a lot of the back office administrative costs and put our labor dollars where they matter for the people that touch the customer. This is something you will hear more about in the future and something we really like. We feel that technology, as you see in the back of the room, is a big enabler for us to get operational efficiencies. Dale will speak a little more to this. I will pass through this slide, but we expect to have this rolled out to all the stores in our network by the second quarter of 2013. Last, and certainly not least, is fleet. For as long as I have been in this business, I was told years ago that you have success in this business by managing people and fleet. Those are the two key variables. I feel that by continuing to improve our fleet lifecycle management process and taking a comprehensive look when we buy an asset and what kind of asset we buy, a cradle-to-grave look, so to speak, is something that we are going to put more resources in and continue to look at. This is the only way that we are going to drive an improvement on our capital deployed. It is important to note that all of our managers are equally aligned, as this is a big part of their comp program. We look forward to updating you on continued progress on our fleet returns. In conclusion, I hope you all come away today comfortable with a few things. Number one, we feel we are very successful, and we will continue to focus on a successful completion of our integration with RSC and achieve the synergies that we have committed to. Number two, as a leader in this industry, we are not going to react to other people's metrics. We are not going to react to how other people do things. We are going to create the standards. We are more than twice. We are a multiple of size of our next nearest competitor, and it is on us to set the standards in safety, in sales, and operations. That is how we will be driving going forward. Then third is that our entire team has a focus on generating higher returns, whether it is profitabilities or return on capital. That is what we are here to do and give a return to our shareholders. Before I invite Juan Corsillo to the podium, does anybody have any questions? Well, I guess you are going to have to wait for Donna. You were talking about the benefits of increased density. What was your sort of out-of-stock position or however you measure it previously, and what is the improvement that you have seen with the greater density? 2011 was our baseline. To answer the most recent baseline to the previous question was our highest, was record time utilization. We feel comfortable that overall we can run higher than we were this year. What is optimal and where we are going to be next year, we are not giving guidance on today, but we will end the year at about 67.5%. We think somewhere over the next few years in that 68%-70% range is where we want to get to to get the return on capital where we need it to be. Yes, sir. Could you comment on the industrial business? It is an attractive high-margin business, and specifically what you acquired from RSC. They brought you a lot of customers in that arena. What was the contract life like with what you acquired? Is it one year, three years, or are a lot of those rolling off contract? Are you going to have to fight for that business, or do you feel confident that those customers are going to remain with URI? They cycle through, and Juan can maybe speak to this a little bit further, but they are all over the board. A lot of them are two to three-year contracts. I do not think we really got any that we inherited that are beyond that. But some of them have been rolling for 10, 12 years, some real strong legacy contracts all the way back to the Prime Equipment days that was an RSC acquisition. It varies depending on where the plant is. We have renegotiated some of them already and very successfully and very accretive along with the lines that you have seen of our rate increases for the overall company portfolio. I think I am getting the hook. One more? Hi. I saw on your last slide, one of the goals was to extend the asset life and reliability. Just wondering if you could give us any color on what you think the age of the fleet will likely look like several years from now versus to where it was in the past and how you are able to do that. One of the biggest variables to that would be fleet composition. Because depending on the individual asset, how old you can age it, somewhere in that 5-8 year range would vary. We are comfortable that we have got headroom to where our fleet age is today. As far as extending the life, we think there are some products where so much of the cost of the product is the core base steel that it makes more sense to refurb some of them. We are going to continue to look at that, and we expect to increase our refurb volume versus new capital in the future. Matt, just quickly, I know you mentioned that FAST will be rolled out by the second quarter of next year. In terms of the introduction of CORE to all the RSC legacy stores, can you just kind of walk through that timetable and how the benefits may play out next year? It is actually all done. Ken Mettel and his team rolled it out. I think we were done by July. Ken? July. So by July, we were fully rolled out to every branch. I am very happy to say they did a great job. It is a non-event today at the store network. So all the RSC sales reps and stores have been fully implemented since July. Okay, thanks. Great. Thanks. Thanks for your attention. I now turn it over to our Senior Vice President of Sales and Marketing, Juan Corsillo. Thanks, Matt. Good afternoon. Thank you very much. And I am the new acquired asset as Matt was, I guess, 13 years ago. I have been in the industry now for about just over 2 and a half years. I held this role at RSC Equipment Rental. And if we can just get my pitch up here. As the new guy on the block, I have to tell you, it has been very refreshing being the acquired asset, that the company has really gone above and beyond when it comes to what Matt and Mike spoke about in terms of taking the best of both worlds. We really have looked at all of the processes across all of the functions, but of course, also in sales and marketing to ensure that we're capturing the best processes, the best approaches, so that we can be much more successful out in the marketplace every year. As I mentioned, 2 and a half years in the industry. I spent the whole of my career, actually, in sales and marketing leadership roles at GE Capital prior to joining RSC. I want to start out with a riddle. When does renting less equipment actually deliver more revenue for United Rentals? When it really comes right down to this, it really comes down to when you partner with your customers to solve their biggest issues as opposed to being an iron pusher. That's a very provocative idea that we're really trying to push in the industry, is moving away from being oftentimes looked at as a commodity to being a true partner to our customers that can actually help them drive better solutions around productivity and around consumption management. Let me give you one example of a customer that we worked with early in 2012. Global Driller in the Marcellus Shale, very complex operation, lots of active and remote sites, all doing their own thing when it came to equipment rental. As a result, you have a lot of different sources of equipment, a lot of different approaches to doing that, lots of lost equipment, lots of underutilized equipment. As a result, this company was spending about $19 million a year just on rental loss. We were approached to meet with them and immediately saw an opportunity. An opportunity to show them how they can run their business more effectively and not be looked at for just another equipment rental quote. Because when you're asked for just another equipment rental quote, then you start talking about price. What we delivered for this company is we brought our new solutions to bear. Total Control being the primary solution, which is our exception-based fleet management system unique to United Rentals. Couple that with GPS, we were able to help the customer create new rental processes that allowed them to see what they have on rent, when, at the point of need, so that they could help to reduce their own expenditures as well as have full visibility into what was going on across all of their different sites and create more accountability for their employees. The net result is 3 months after we rolled out the new processes with this new technology, we were able to save the company about 38% on their total equipment spend. The net result for us was picking up a brand-new customer that we had not done business with before, signed a multi-year, single-source agreement at very reasonable rates. This was a big win for our company. It was a big win for the customer. Net customer is saving a ton of money compared to what they were spending before, and they're doing it all through one source, whereas before they may have had 15, 20 different sources of equipment rental. This is a huge competitive advantage in our opinion, and it is really what Matt spoke about earlier, how we're raising the bar in the industry. We're changing the customer conversation to really focus on their biggest problems. If you look at our typical customers, they have huge spends in these categories that they shouldn't be spending money on. They have huge issues with respect to productivity that we can help them with. Tools like Total Control, which I'll talk about more in the coming slides, can help them to achieve that. All right. Now that I've given you a little bit of a teaser as to Total Control, I'd really like to focus on 2013 and our priorities for the company. There's really three areas that we really want to focus on in 2013 that we believe is going to help us outperform the industry for years to come, and that's key accounts, the industrial accounts, as well as enhancing our value proposition. When it comes to key accounts, Matt Flannery mentioned the importance of key accounts for us. It's become a very important part of our business over the years. We've done a great job in creating the biggest key account program in the industry. Not only do we want to protect it, but we think we have great opportunity to grow it, particularly by bringing all of our products to bear on this important customer segment. On the industrial side, we have a very rich history in industrial on the legacy RSC organization. We're going to continue to drive growth in industrial, and I'll show you how, particularly around under-penetrated industrial verticals, where we still see a lot of opportunity for growth. Last but not least is certainly our enhanced value proposition. I gave you a little bit of a glimpse as to how we're changing the customer conversation in the industry. Everyone talks about availability, reliability, and service. But those are table stakes. Customers expect that you're going to deliver that. Customers are choosing United Rentals because we are offering more, and consumption and productivity solutions, which I'll get into, are one of the ways where we're completely differentiating ourselves from everyone else in the industry to gain more share, to win more deals at premiums. Let me hit on key accounts to begin with. Just to set the baseline, key accounts for us are defined in three buckets. We have national accounts, which tend to be accounts that have opportunity of over $500,000 of rental a year, generally dispersed across multiple geographic regions. We have strategic accounts, which tend to be opportunity of $100,000-plus, generally relegated to one region, multiple states, but potentially in one region. Then we have our assigned account base, which generally is very local accounts with large potential. Why are these accounts important? Well, there's four numbers I want to share with you that tell the story as to how important these accounts are: 22, 2.5, 62, and 17. Very important, the first point, 22%. In the last recession, these accounts fell by 22% less than our unassigned accounts. They act as somewhat of a hedge in a down cycle, helping us work through the revenue reductions that are inherent in an economic down cycle. The other important point is 2.5 times. These accounts not only rent more, but they rent for longer periods of time, 2.5 times longer. This results in a lower cost of rental. Less touches of the equipment for servicing, cleaning, and transportation means less cost, means more profitability for us. 62% of our revenues today as of the third quarter emanated from key accounts, up from 51% in 2009. Lastly, these accounts grew 17% quarter-over-quarter in the third quarter, which is twice the level of our non-key accounts in the rest of the company. When you think about this, there is really three reasons that key accounts are very important to our strategy going forward and why we expect this strategy to help us outperform the industry. If I can only get my clicker to work. It really comes down to stability, profitability, and growth. A lot about stability, profitability, and growth, and many of our strategies are geared towards delivering against this particular pillar. The next thing I would like to talk about is industrial. Today, industrial and non-construction represents 50% of the company's revenue. This is an important fact to talk about. Legacy United Rentals had been focused on industrial over the last couple of years. It was really the bread and butter of the legacy RSC organization, and we feel we are very well positioned today to continue to win in this segment. Like key accounts, very strong performance during a down cycle. These accounts, actually industrial accounts, fell by half as much as construction accounts during the last downturn. Very important in terms of providing that mitigation to any down cycles. The other important point to make about them is around volume. These are generally very large accounts that sign multi-year agreements that are generally single source. Very important to note. In the construction area, generally what you have is multiple providers. A construction company will sign two or three preferred supplier agreements, and then you have to duke it out in the job sites on a daily basis. Price becomes a factor, and so it becomes harder to maintain that business. When it comes to industrial accounts, once you have signed it, as long as you service it, you are in a very strong position. Many times, as Matt Flannery mentioned, we have rolled over contracts for 10, 15 years in a lot of our industrial customers because the customer is happy with the service that we are providing, and it becomes very difficult to unseat the incumbent. Following the merger, nine of our top 10 customers are now industrial, and 17 of our top 20 are. The last reason is that we still have significant growth opportunity in industrial. We have gone through an exhaustive data-driven process to identify all the industrial verticals where we feel we are under-penetrated vis-à-vis our entitlement market share that we expect, and where we feel these verticals represent high-profit opportunity that align well with our value proposition. You could see some of the verticals that we plan, and we are actually already focusing on, both in power, midstream, upstream oil and gas, and industrial manufacturing. These are verticals that we are putting a lot of resources on to further our growth over the coming years. All right. Now, one of the ways in which we can continue to drive growth, both in industrial and key accounts, really comes down to the depth of our offering, cross-sell. You will hear more from Paul McDonnell in a little bit, talk about the value that our specialty businesses bring to bear on our customers. Here I am showing you the top 10 customers of United Rentals the day we closed. Nine of these 10 were legacy RSC customers. Very little penetration from the specialty businesses in terms of selling into them. In fact, much of the revenue, you could see 5 out of the 10 had been doing some level of business with Legacy United Specialty Group, and generally was overflow business that one of their primary providers was not able to deliver. In 6 short months, we were able to penetrate 100% of customers, where all top 10 are now doing business with our specialty business group. You could see revenues have increased 350% since we closed the merger, and we think we are just scratching the surface. In fact, much of this has really just happened by osmosis. We actually just rolled out a whole initiative in the beginning of November, a whole cross-sell initiative to attack our top 100 customers for the company by training our salespeople on the expanded value proposition and actually picking accounts with specific targets of what we want to rent to them, when we want to rent to them, and our national account team and our key account team is all over going after these accounts to try to bring the expanded value prop to them. It is an important point because only 25% of the current top 100 actually purchase or rent one additional product from our specialty business group today. We think there is a lot of opportunity on the cross-sell side. The other area, as I mentioned earlier, is the pursuit of new verticals. What I want to share with you is an example of a vertical we chose to pursue in 2011 as Legacy RSC. This is a vertical where we were growing in line with the industry, but we saw a big opportunity, both in terms of our value prop alignment with the needs of that customer. We decided to put a customized offering for our customers, train our salespeople on how to really deliver value and really be knowledgeable in front of these customers, gave them tools in terms of leads and promotional material that they could utilize with these customers, and then actually dedicated resources, both in terms of people and fleet. In a very short period of time, in 12 months, we were able to triple our growth in this particular space and outpace the industry growth by over 8 times. The point I wanted to make here is when we target, we deliver. What we have done now is we have gone through, like I said earlier, an exhaustive process of choosing additional verticals, and we are taking the same tack in terms of going after these additional verticals like we did in this particular vertical last year. We talked about the areas where we want to focus our efforts. But just as important as to where we're going to focus our efforts is how we're going to win in these places. And our value proposition is critical to that. Why do customers choose United Rentals? First thing I wanted to start with is something I mentioned at the beginning of our discussion. We want to change the customer conversation. Matt mentioned we are raising the bar in the industry as to how to look at what our offering is. This is a study, actually, that was completed by, it's a 5-year study completed by the Construction Industry Institute, and it speaks to the problems that customers face. While everyone talks about availability, reliability, and service in the industry when they're pushing equipment, we're changing the conversation to talk about the customer's biggest issue, which is time. Let me share with you, 29%, according to this 5-year study, 29% of a typical laborer's time is spent turning wrenches. Only 29%. 19% of the time is spent waiting for tools and equipment. The rest of the time, as you can see, is spent on travel, personal material handling, waiting, and prep work. This is the opportunity that our customers have and should be focused on if they really want to move the needle when it comes to improving their profitability. The discussions that we're going in and having with either procurement managers or frankly, actually, we're trying to go higher, is to say, how can we help you attack the wrench time issue versus providing you a quote on a piece of equipment for the day, week, or the month? Because that's not where the money is. The typical customer spends 1%-2% of their revenues on equipment rental, but they spend 25% of their revenues on labor. If we can take that 19% of time that is spent waiting, fixing, finding tools and equipment, that's where we're going to make a huge impact for the customers, and it's really resonating with them. It's resonating in a big way. Let me share with you why we think our value prop aligns to the whole focus around improving wrench time for our customers. The first one, being something that Matt talked about, is our footprint and our solutions. I talked about key accounts. Key accounts do business in multiple geographies. They want surety of supply, consistency of service wherever they're working. The footprint and the depth of our solutions is critical to them. We have 3 times the footprint and 3 times the fleet than our next nearest competitor. No one is as well-positioned as we are to serve that important customer base. The other thing that's important to them is one-stop shopping. Why deal with 3 or 4 different companies to get all the different products that your laborers need to execute on their jobs when you can deal with one that will bring all the assets to bear to get you to be as productive as possible on that job site? We really believe that this is a critical differentiator when it comes to improving customers' wrench time. The next one is also something that Matt talked about. He shared the scorecard that our branch managers are held accountable to, but he also mentioned that we have a scorecard for our customers. This is the scorecard we use with our customers that we take to our customers to show them how are we doing against these critical metrics that help to drive wrench time for them. I mentioned earlier, everyone says they have great service. There's no rental company that's going to show up to your door and say, "We suck." Right? They're going to say, "Yeah, we deliver on time, we have very reliable equipment, and our equipment is available when you need it." But the fact of the matter is there's a lot of empty promises made, and the way we're raising the bar in the industry is by backing it up with numbers. We're exposing ourselves and showing the customer how we're doing because we want them to be trained to ask everyone for this kind of data. Don't just tell me that you're good, show me that you're good. We really believe that this is another critical differentiator for us because it's helping to change the perceptions of customers as well as for them to demand more from our industry. Another area where we're helping to drive wrench time is with on-sites. On-sites were a huge differentiator for the legacy RSC organization. It really was born of the industrial segment. These are stores within the fences of a customer's premises. Think about a big refinery. We actually set up a store within their refinery. Everything the customer needs is there. We fix the equipment there, we clean it there, we take orders there. These tend to be great opportunities to improve a customer's productivity because the equipment is, you don't have to wait for it to be delivered, and you don't have to wait for it to be fixed. It's done on the spot. We have employees in each of those areas. We've been doing this for over 20 years. We have over 60 on-sites across the country today. They're generally with our largest customers, and they're generally also multi-year agreements that have just kept turning over and over again. Many of our on-sites, we've been there 10-plus years. Once you're in, it's very hard to be unseated unless you're doing a poor job for the customer. Big opportunity for us also because it drives better profitability. Our utilization levels at our on-sites are generally 10 to 15 points higher than the company average, which means we need less capital, less assets to serve those customers. We have on-time delivery because it's delivered literally, a worker comes into the yard, drives that piece of equipment off. High volume, high utilization opportunities for us. The next area that I want to touch on, we talked about rent time, and that is about increasing the productivity of their labor force, is around consumption. We believe that there's a lot of waste when it comes to equipment rental. You saw the example I gave earlier of the oil and gas driller renting a lot more equipment than they needed because they lack the visibility and the processes to manage their business, at least their equipment rental portion of their businesses effectively. I want to share with you a survey that was done by Texas A&M University last year, and they surveyed both commercial and industrial decision-makers and asked them different questions about the equipment rental process. 82% of those decision-makers said that they acknowledge that an increase in equipment utilization would drive increased operational return on investment, right? That's a tracking opportunity. But the same survey, 46% of those surveyed don't track rental utilization at all, which means it's an accountability issue that exists and an opportunity for us. In our own study in United Rentals, 24% of all rentals go past the expected equipment return date on the contract by an average of 15 days. This speaks to a visibility issue as well as an accountability issue that many customers are having to deal with. So they're renting too much equipment for too long. Many of our customers know that, but they've been unable to deal with it. How do they tackle it? Our solution for that really comes down to Total Control. Total Control is a fleet management system that is exception based. It is a system that taps you on the shoulder at the point of need when you're about to make a costly mistake. Let me walk you through how we tackle the different challenges that customers face around tracking, accountability, and visibility. When it comes to tracking, we're helping customers real time monitor the utilization of their equipment. One, to determine what they have on rent, what they're about to rent, what they're about to take off rent, and whether or not the equipment is actually being utilized if it's equipped with GPS. On the accountability side, the system has workflow approval processes built in so that at the point of a decision that's going to be made in the field, whether it's renting a new piece of equipment or extending an existing piece of equipment, the appropriate approver has to be advised. Right? If you think about a typical refiner, for example, you might have 35, 40 people that can order a piece of equipment. You have Joe here ordering a 60-foot boom when there's five other 60-foot booms in the refinery that he knows nothing about, and so he orders another boom. That's how come you end up having so many pieces of equipment in a large facility or on a large job site. Total Control will immediately alert Joe that there's five other booms, and two of them are underutilized, and here's who's got them. How about you share them? That level, that workflow approval process, that workflow process which sheds light and transparency on it, now makes Joe a better steward of the company's resources. Because historically, either Joe didn't know about it or Joe doesn't like the procurement approval process, so he'll rent it anyways. Another problem that Joe often faces, or the company faces because of Joe hoarding equipment. Right? You have complex approval processes in these large organizations. Joe has a piece of equipment that should have been returned today, but he knows he is going to need it in two weeks, so he parks it out back and lets the contract lapse, and then he will use it again in two weeks. Total Control taps Joe on the shoulder and says, "Hey, you said you were going to return the equipment in 24 hours. Do you want us to pick it up or you want to extend it?" If he clicks, I want to extend it, his boss now knows about it, and his boss can hold him accountable. Says, "Well, wait a minute, you originally told me you were going to return it tomorrow." That level of transparency creates accountability in the field, and that is really what it comes down to. We believe there is a lot of overspend in the industry. This helps our customers run their businesses more effectively, lowering their actual spend. There is a lot more money to be saved by the customer lowering their consumption than by lowering price. When we talk about this with them, it really resonates with them because they know that this is a problem. They just haven't figured out how to tackle it. We really believe Total Control provides us with a competitive edge. Not only does it reduce the cost, but it increases our share of wallet. In fact, most of our customers that are on Total Control are large customers give us 100% share of wallet once we have installed it. Let me share with you one example of how Total Control makes a difference. The chart on the right was equipment utilization. The way we are calculating equipment utilization here is very simple. You have a piece of equipment, it can work for 40 hours in a week. How many hours were put on it in that week? Non-Total Control customers, the average across our company is about 20%. Total Control customers, this particular customer here is a six, seven-year Total Control customer with an onsite, 43%. Twice as much utilization because of the visibility and accountability and the dashboards that we provide our customers and the exception-based alerts that we provide our customers. One of the things that is important to note here is every major competitor has a system. We are the only ones with an exception-based system. What everyone has is a reporting system, and with a reporting system, you are a slave to the system. With Total Control, Total Control is a slave to you, right? If you want to work in a system that looks 30 days back, you will not be able to affect consumption in any meaningful way. Furthermore, customers are so busy they do not have time to live in a system. With Total Control, customers do not live in Total Control. Total Control just sends them alerts or emails when the time is needed, when they are about to make a costly mistake. Lastly, we talked about the value prop. You could have a great value prop but not be articulating it properly with your customers. I think it is important to talk about the investment we are making in sales and marketing in order to align our salespeople with our value prop and ensure that we are covering our markets effectively. We have invested heavily over the last six months. Matt talked about the territory optimization work we did. We actually reprioritized and rejigged 1,200 sales territories 30 days after closing. We did it using market sizing data down to the ZIP code level to ensure we had a balance of coverage, a balance in terms of earning opportunity for our salespeople, but also that we were maximizing our coverage in the marketplace. We identified many spots where we were under-covered, if you will, because of using this data-driven approach. We also invested in real-time lead generation and campaigns for our salespeople through our CRM system. We launched our lead generation campaigns in July, and since then we've put $135 million of fleet on rent with dormant accounts. We also invested in productivity tools like salesforce.com and iPhones. After we're done, you're welcome to see a demonstration of salesforce.com in the back as well as the Total Control. We also created a deal desk to take our salespeople away from the office, having to deal with RFQs and proposals, and have more active selling time. We've invested in sales management to ensure that our salespeople are more engaged and coached in order to perform more effectively. New training was rolled out across the organization from the day we closed around negotiations, around helping our salespeople message more effectively, as well as around the onboarding process. Lastly, we've continued to invest in our pricing tools. Matt mentioned that we rolled out CORE pretty much 35 days after we closed, as well as created a whole new set of pricing analytics to help our key account managers make better decisions in the field every day. In conclusion, I think our customer engagement strategy can be summed up in four words: unparalleled, unique, unmatched, and ultimate. Certainly, this clicker is not unparalleled. When you think about our offering with $7.4 billion of fleet, 849 locations, three times the next largest competitor, unparalleled. Our solutions are unique to us, both in terms of breadth as well as our technology solutions, like I mentioned, around Total Control and our industrial and commercial leadership. Really, when it comes to our service levels, we believe we're unmatched not only in the level of service, but it's backed by technology that no one else has and backed by data as well. Then lastly, we have the ultimate in sales coverage with 2,500 salespeople and a concerted focus on those areas that have gotten us to where we are and that we think are going to get us to a pace of growth that's going to outperform the industry. All in all, we call this our UR to the power of four strategy. We think that it positions us for outpacing the industry growth, and I'm very excited to be part of this new team, and I'd love to take any questions at this point. Juan, can you just talk to what some of those target verticals are that you're currently approaching? Beyond the three to five verticals, how much opportunity is there out there? Well, the three that I mentioned are oil and gas, particularly around midstream and upstream. Those are areas, actually, we've already started working on. Power, particularly nuclear and fossil fuel. Then there are several industrial verticals like food, for example, that we're going after. We've actually analyzed all of the verticals out there, and those are the ones we prioritized and we're focused on for 2013. But we believe there's significant opportunity beyond those. There's just only so much that one can take on at any point in time. Thanks, Juan. Can you talk a little bit about, in the Total Control, you talked mostly about your customers' rental spend. How effective can that be in convincing customers to stop purchasing equipment and renting it instead? If you could give some examples or what your expectations are. Sure. Absolutely. I think it's a great question. In fact, the example I showed here was a Fortune 100 company. That same company asked us to analyze their owned equipment. So they have a fleet of about 400 owned pieces of equipment. We did the same study for them that we did, the hour utilization study. They showed that their 400 pieces of equipment were only being utilized 6% of the time. So they've now come back to us and said, "We want out of the ownership of most of the equipment classes other than these three classes. Can you either sell it for us? Can you buy it from us, and then we'll just rent from you?" So actually, we're going through that process with that customer. Because Total Control allows you to put in all your owned equipment as well, we actually help them manage their entire fleet. We have many customers where all their owned equipment, as well as third-party equipment, is in there, okay? So those customers that we do that for, we actually manage their third-party rental spend. For example, we will have customers that we source their porta potties for them because they do not want to do it, right? We are happy to do it, and we manage it through Total Control for them. We think there is a great opportunity, to answer your question, in terms of helping them see that maybe even their owned equipment is not viable for them. We are going to continue that study that we just did for them. We are actually looking to do it for a big construction company, hoping that we will see similar results. One more question. Yes. Quick question on the in-house operations. How should we think about utilization of that equipment, as it compares to if it is not dedicated to a single customer? I am sorry, can you expand on that? Well, if you have an in-house operation Oh. -in your facility Yes. -I assume there's some dedicated equipment all the time. Yes. How do we think of the utilization of that versus if it was not dedicated? What we generally tend to see is about a 10-15 point spike in our on-sites. Again, it all depends on how long we've been there and how well we understand their operations. I would say a brand-new one might not be any different than our typical store. But as we begin to understand their rental patterns and what they need when they need it, we're managing that fleet based on the ups and downs in their business, right? If you think about a refinery, they go in cycles based on turnarounds, et cetera, and so we'll stock that on-site based on those cycles. But generally, we're seeing 10-15 points better utilization in those areas. Great. Thank you very much. I'll be here to answer any questions afterwards. Now, I'd like to introduce Paul McDonnell. Good afternoon. My name's Paul McDonnell. I'm the Senior Vice President of Operations for our Power, HVAC, and Trench Safety businesses. I've been in the construction industry for over 20 years. I've been in the construction equipment rental industry for the last 18 years, and I, too, am an acquired asset. I came to United Rentals through the acquisition of a specialty trench safety rental company back in 1999 called D&L Steel Plate Rental. I've, like Matt, come up through the farm management system, from district manager for NorCal Trench Safety. I was promoted to Regional Vice President of Trench and Power in 2005 when the company decided to consolidate all of the specialty businesses into one region. Then I was promoted again to Senior Vice President of Operations with responsibility for our specialty businesses, specifically Trench Safety and Power and HVAC, sorry, thank you, in 2008. I'm excited to be here today to talk about the specialty businesses and why specialty is an attractive investment for our company. Over the next few slides, I want to give you a strategic overview of the businesses, including the financial performance, the strategic fit of specialty, and the growth opportunities that we have in front of us. Historically, the trench safety business has been an attractive investment for the company with strong margins. ROCA on a year-to-date basis through Q3 is at 37%. Now, we calculate ROCA internally as EBITDA divided by controllable assets, largely made up of our rental, non-rental OEC, or original equipment cost, inventories, and accounts receivable. Some of the contributing factors to why the trench safety business provides strong returns for the company is that it's a solution-based sale that's combined both with employee safety that's regulated by OSHA and innovative new technologies that are advancing productivity for our customer base. OSHA requires that contractors provide protection for workers in excavations deeper than 5 feet. What we do is we provide the products, the services, the solutions, and the training to keep contractors safe. OSHA also requires that a contractor has a dedicated competent person on a job site, and to be deemed competent, a contractor has to go through excavation safety and confined space entry training. United Rentals is the largest trainer of contractors in this type of training in North America. We launched contractors in this required training for our customer base. In fact, we trained north of 14,000 contractors just this year alone. Training is important for many different reasons, and it's core to the value proposition within the company and certainly within Trench Safety. Number one, we're the only national, or should I say North American resource for this type of required training for our customer base. Two, it's revenue-based. We charge customers for the training that we provide. And three, we estimate that 70% of the contractors that complete our customer training programs end up renting Trench Safety products within 90 days of course completion. Oh, there we go. The other side of safety, Juan talked a lot about productivity for our customer base and our ability to be able to enhance customers' production on a job site. The Trench Safety business is core to that value prop within the company. New product technologies are really revolutionizing how contractors perceive and use protective systems as a cost-effective alternative when working in underground excavations. This particular project with the yellow hydraulic bracing system is called the Groundforce MEGA BRACE. This was a project that we delivered at the Chicago O'Hare modernization earlier this year, where the contractor had bid this project to self-perform using his old welded in place structural steel products. We were able to meet with the contractor early in the sales process and sell him on the cost benefits of this particular system, which is a lot more productive. It's modular. There's less labor involved, less welding involved. The contractor ended up finishing the project 2 months ahead of schedule. He planned to do the job in 7 months. He was able to deliver the solution in 5 months. It's a win-win for many different reasons. One is it takes the contractor out of owning equipment on a go-forward basis, because these solutions are, as I said, much more productive and self-performing, as well as we generated over $300,000 in revenue on the product. Other products that we rent include trench boxes, confined space entry, and steel road plates. Many of you are, I'm sure, familiar what a steel road plate looks like. 1 inch thick, it's got low maintenance and a very strong return. We own 30,000 road plates. I think Matt touched on earlier the life cycle of steel road plates. Well, it's hard to determine what the life cycle is. We believe it's somewhat infinite if it could be. If a plate gets damaged, we just cut it in half, and now we have two road plates. I tell the story that I get a warm and fuzzy feeling every time I drive over one of our 30,000 steel road plates. Oops, let me skip back here a second. The customers that we typically service are infrastructure, gas pipeline, and industrial sectors. The other business that I have responsibility for is our Power & HVAC business. Similar to the Trench Safety business, it's an attractive investment that's provided attractive returns for the company. ROIC year-to-date for the Power & HVAC business is at 26%. It's important to highlight that within that number are five cold starts. Clearly, as the cold starts mature, the margins will continue to grow. Now, what we do in power and HVAC is we provide turnkey services and solutions among other products that include large power generation up to 2 megawatts, electric fuel-fired heat, air conditioners, chillers up to 400 tons. The markets that we typically do business in are industrial, commercial, government, and emergency response markets. Juan touched a lot earlier about our focus on industrial. I can tell you that the power and HVAC business is core to our industrial strategy as a company. In fact, pre-coming together of RSC and United, we were leveraging our power and HVAC relationships to compete and to differentiate in that area of our business. We made the investment of an industrial rental company, if you recall last year, called GulfStar Rental Solutions, which was primarily an industrial rental business. That combined with the synergies that Juan highlighted earlier with respect to the cross-sell synergies that we're seeing today with RSC in the industrial space are driving robust growth in our key account industrial sector, with revenues on a year-to-date basis through Q3 are up over 94%. Also, you're all very familiar with what happened with Sandy, and I can tell you the power and HVAC group have been incredibly busy with respect to making sure that we have the appropriate resources deployed throughout the Northeast. We've actually pulled in over $10 million of rental OEC. We brought in over 20 technicians from across our power and HVAC branch network. We delivered two very large camps, one in Brooklyn and one in Jersey Shore, in response to the National Guard coming in as well as utility crews coming in where they needed power and generation as well as heat to power up the camps. We've also deployed our emergency response unit, which we call our ERU, to Seaside Heights, and John Humphrey is going to talk a little bit about how we respond and how we're using our emergency response unit in a coordinated effort to cross-sell up to two businesses. Now I want to tell you how the businesses enhance our value proposition as a company. From a customer's perspective, we have a dedicated team of subject matter experts and broad capabilities that are unmatched within the equipment rental industry. From our company's perspective, as Juan touched on earlier, we're driving more share of wallet with key accounts. We see the specialty business as a competitive differentiator. We're the only construction equipment rental company in North America that has general rentals, aerial trench safety, power and HVAC, and industrial tools. Matt touched on the fact that we're able to use these specialty areas of our business to not only differentiate, to compete, but to further entangle our customer base. From an investment perspective, they're profitable businesses with attractive returns. We estimate that on a combined basis, that trench and power and HVAC will end the year with a ROCA of 32% and EBITDA margin of 42%. This slide just kind of reinforces the value prop of specialty. Juan has focused a lot in his presentation around our focus as a company on driving more share of wallet with key accounts. I think Juan highlighted the fact that 63% of our revenues as a company derive from key accounts. It is the same story for Trench Safety, Power & HVAC. 63% of our revenues on a year-to-date basis through Q3 are tied to key accounts, and we are seeing robust growth in our key account customer base, with revenues positive 37% on a year-to-date basis. Within the key account revenue number also is a very strong national account base. 42% of our revenues within specialty derive from national accounts. Again, we are seeing robust growth in our national account revenue, where national account revenues are up 39% on a year-to-date basis. We will continue to leverage the cross-sell and the value prop as a company to drive more cross-sell synergies as we go forward. In fact, we got, I think Matt Flannery mentioned $50 million of EBITDA by the end of 2014. We estimate that we will generate an additional $15 million of incremental revenue through the focus on cross-sell through the end of 2014. Some of you might recall, during the last Investor Day back in February 2011, I laid out a very strong value prop as it relates to specialty and committed to accelerating the growth in the business, and as you can see, we have been successful in doing so. This chart breaks down the growth from 2010 through 2012, and same-store sales accounted for half of that growth. The balance was made up of a combination of acquisitions, cold starts, organic growth, and cross-selling synergies. All of these areas of the business, all of these drivers of the business, will play a very important role for the growth on a go-forward basis. We talked about the growth drivers and the strategic steps. These next three charts show that our specialty businesses have been a source of profitable revenue growth for United Rentals and contributed to overall EBITDA and EBITDA margin improvement. On a CAGR basis, the business has grown 36%. EBITDA has grown on a CAGR basis of 49% during the same period, and our EBITDA margin has grown from 33% at the end of 2010 to an estimated 42% full year 2012. I want to take a moment just to pause and highlight the footprint of our trench safety network. We have grown our branch network from 52 locations at the end of 2010 to 68 today. We have done this through, as I mentioned, cold starts and acquisitions, opening three cold starts in 2012, one in Manchester, New Hampshire, one in Watford City, North Dakota, and then we just recently opened a third cold start in Edmonton, Alberta. We also did the acquisition earlier this year of a company called Kobel Trench Safety, which was a leader in the trench safety business in the Mid-Atlantic. Really great acquisition for us, and we have integrated it very successfully, and very excited about the added value that Kobel provided to our business. We have been aggressive in not only protecting our relative market share position within trench, but actually growing our market share to now where we estimate that we have four to five times relative market share to that of our nearest competitor, and we will continue to add additional cold starts as we go forward into 2013. Click, click. Here we go. We estimate that the trench rental market to be just shy of half a billion dollars today, and we represent approximately a third of the defined market. As I mentioned earlier, we are the only national player in our space, and we have relevant scale in the markets that we do business in. As a result, we are setting the standards for creating operations. We believe also that given our national footprint and the innovative solutions that we are bringing to market, like the Groundforce MEGA BRACE system that I showed you earlier, gives us the right to take more share from the other two-thirds of the market, which today are primarily serviced by a fragmented assortment of players. We are also very enthusiastic about the material opportunity that exists in the non-compliance markets, where contractors are self-performing or working out of compliance. While we have seen robust growth in the trench safety business over the last two years, we believe the markets are still very much in the early stages of development. We also believe that given our partnership with OSHA, innovative solutions, leverage on our cross-sell, while also focusing on the economic benefits of renting and safety that will continue to drive growth in the trench safety business in 2013 and beyond. The other business, Power and HVAC, we have grown our branch network from just eight locations in 2005 to 28 locations today. We completed the successful acquisition, as I mentioned earlier, of GulfStar Rental Solutions in 2011. We opened five cold starts in 2012, and we have got a plan to continue to add cold starts to Power HVAC with the addition of seven cold starts in 2013. It is fair to say, though, given our footprint today, while we only have 28 locations, the Power and HVAC branches typically service large geographic footprints. We are doing business pretty much in 48 of the 50 states. We just opened a cold start, 48 of the 50 U.S. states. We just opened a cold start in Western Canada in Edmonton. So now we are servicing Western as well as Eastern Canada. In combination, we estimate that the Power and HVAC markets total approximately $1.4 billion in rental. These markets are serviced today by a combination of some large national players and smaller regional competitors, where today we are the third-largest player in the market and growing. We have identified three key ways to continue to accelerate the business's growth. One is organically through supporting business, internal cross-sell, while also penetrating our industrial markets. Secondly is to open new cold starts, in particular, where we can leverage our leadership in other business units. Third, through acquisitions that we would deem to be strategic and accretive to our overall growth strategy. Again, we are confident that with the strong value proposition that the company has and the strong value prop that we have within Power and HVAC, that we will continue to accelerate growth in that business. In conclusion, we need a new clicker. In conclusion, though, the rental business is an important strategic pillar for United Rentals as the company continues to drive growth, margin improvement, and returns on capital. Our broad product lines and capabilities and footprint are unmatched within the rental industry. We certainly believe that the specialty business is a competitive differentiator and is very much aligned with our focus on winning with key accounts. We are excited about the growth opportunities that we have in front of us and believe that the strong value proposition that we currently have in Trench Safety, Power & HVAC, that we can double the size of the business over the next three to five years. I want to thank you for your attention and answer any questions that you might have. The tech opportunity, the $1.4 billion of market opportunity, do you know what percent of that is actually occurring at your existing customer base, which really is, they already have that need, and you already serve them in other capacities? Yeah, I think if we were to break it down, I. Sorry, what size of the HVAC market is currently in place today with our customer base? Yeah. With our customer base. I think we have identified that the size of the market, it is about a half a billion to $600 million, Tony, in HVAC, and the balance is made up of Power and HVAC. Sorry, Power. So do you think half that market opportunity is occurring at your existing customer base? Yeah, I wouldn't be able to break it down to that level. I will say that the opportunity is large, where I think Juan highlighted earlier, the growth that we're seeing on the cross-sell, where Power and HVAC was under-penetrated with industrial accounts, where our competitors were. We're number three. The other two large national players have market share and are penetrated with those key accounts. I think we'll start to transition that business over, leveraging the cross-sell focus that we have as a company. Don't you have a market share target today out for you? Yeah. But I don't know if I'm comfortable saying what that is today. But I will say that I think the strategy that we've laid out has shown that we're accelerating growth in that space, and we'll continue to You mentioned, I think it was $10 million moved to the region for Sandy. Could you speak to what you see intermediate term with regards to Sandy, and also your ability to shift equipment around the country? Thanks. Yeah. I think John Humphrey will talk more as it relates to gen rents. From my space, we have no issue deploying assets as long as we have the assets available to rent. With respect to the $10 million that we brought in, we shipped product basically that was available from our entire network of branches and deployed it here into the Northeast. With respect to resources, same thing. We pulled 20 technicians, service managers, operators, and branch managers to come in to support the fleet that we've put on the ground. We're extremely busy right now with respect to what we're seeing in response to Sandy. We expect as these camps start to shut down and power starts to come up, that the power business will start to slow down with some carryover into next year. I think that the bigger opportunity, not just for my business, but for the company as a whole, is the rebuilding effort as we go through into 2013 and beyond. Infrastructure is a significant issue, and that infrastructure needs to be repaired and replaced. On the topic of infrastructure, but beyond Sandy, any feel for how closely the Trench Safety business is tied to federal infrastructure dollars, and anything your customers are saying about the new federal highway bill, and whether that might become a driver in the spring building season? Yeah. So, good question. I think the reauthorization or the expansion of the federal highway bill has been a comfort to contractors that are tied to infrastructure, particularly road-building projects. I think that allocates about $110 billion-$120 billion over the next two years. Certainly, it will help. I don't have to tell anybody in this room, I'm sure, that there's a problem with the age of our nation's infrastructure. I think that we're ranked somewhere like 16th in the world with respect to the quality and the grade of our infrastructure. The American Society of Civil Engineers just did a study back in 2009 and gave us a D-minus. I think that some of the numbers that the American Society of Civil Engineers has put out there is that we'd have to invest $2 trillion in infrastructure over the next 10 years just to get to a C-plus. Clearly, the challenge that we have is: where's that money going to come from, and who's going to pay for the repairs? But you wouldn't defer maintenance on your home for 100 years, and that's a significant issue that we're seeing today. I think the money's going to have to come from somewhere to fix the problem. That being said, we are, I would say, seeing a lot of traction around the secular shift with respect to trench, where we're penetrating those customers that now recognize the productivity advances that we bring to market that's driving growth in the business. The other area of our business that's seen significant traction is what we're seeing around the gas distribution repair work. There's been a couple of very high-profile explosions in transmission and distribution lines over the last couple of years, and the federal government have stepped up and now mandated that utility companies go in and check those lines to make sure that they're safe. So that's an area that even with the headwind around infrastructure fiscal issues, we can see some of that being offset by those other sectors. Okay. One more question. Any more questions? Okay, well, I'll pass it over to Dale Asplund, who's our Senior Vice President of Business Development and our CIO. Good afternoon. Like Paul said, my name's Dale Asplund. I am the Chief Information Officer and Senior Vice President of Business Services. In a minute, I'll show you what that group entails. I've been with the company now since 1998, and I've held various positions between the IT organization as well as many of our operational groups. So real quickly, what is our business service functions, and how do we look at things today? First, procurement. We'll talk in detail about that and how we go about the process of procurement. Second, fleet management. Our number one asset besides our people is obviously the fleet we rent. We need a new remote control, as everybody's been told. Third, used sales. Fourth, the logistics of our fleet, as well as the management of our delivery fleet. Fifth, the repair, maintenance, and warranty support for our field. Sixth, contractor supplies to support our business. Seventh, many of the shared service functions, such as AP, that interacts with our vendors. As a business, we look at that as great functions that wrap around our technology group. That is how we leverage our IT group to be part of our overall business service team. What that has given us, as you have heard today, to incorporate the two companies' post-integration. 38 days to get everybody on one common IT platform. We did that by working with our sales, marketing, operations, and of course, our finance team. This is important, as you heard all day today. Why? Because it helped us drive synergies. Probably more importantly, it enabled us to take that number one asset outside of our people, the fleet we rent, and start using that across that full branch network of branches across the company. You have heard the number several times today. $7.4 billion of fleet. Over 410,000 pieces of equipment. Until we got on that common IT platform, there was no way for branches in a market to easily share that equipment. 38 days post closing the deal, we were able to quickly let every branch in the country see every piece of equipment, no matter where it was at, which drives us to that fleet sharing we so desire. When you talk about our fleet, obviously everybody comes up with the question: what is the impact of Tier 4 on the equipment that you buy? The emissions control standards will create regulation changes in our industry. I put up here a quick slide of what engine sizes impacted each year to go from Tier 3 to interim Tier 4 to final Tier 4. We have done a great job as a company to buy into whenever there is a change in a specific engine size. We buy as many Tier 3 as we can, as we exit the Tier 3 availability years, and then we will buy similar with interim Tier 4 and final Tier 4 to help us mitigate the impact of those price increases we could see from that product. Today, as we sit, we have still integrated roughly $240 million of final Tier 4 engine product and $1.3 billion of the interim Tier 4 engine product. Great progress that we have made, and we have got a very young, very well-maintained fleet. You have asked questions about our fleet age, and I would remind you, when you look at our fleet age, the impact as we look into prolonging the life cycle of those assets with refurbishment will impact that fleet age because we treat those assets as if they were originally acquired at the original date, despite refurbishing it and lowering basically the overall age of the fleet by putting in new components to it. Now let us talk about procurement. We can start with that. When we go to procure assets, there are a lot of things we talk to our vendors about. Number one, most important probably is the pricing. Number two, the lead times for the assets. Can we get the availability for it? Freight. Do the vendors charge us freight, or do they allow us to organize the freight? Warranty. The duration of the warranty, the labor rate for them to reimburse us when we do have potential issues under the warranty period. EDI. Do the vendors send us paper invoices all day long, or are they capable of exchanging data with us electronically? Careful with the water, right? Technical support, parts discounting, retail ability, and of course, training support. All these things are critical in the process of when we talk to our vendors. This is a full negotiation topic. That is when we get the full picture of who our strategic partners are, all of them. You have all seen what happens when this business has a little bit of potential impact from the economy. Our business model allows us to drastically reduce our spend during the lower turn of the economy. You can see what we have transitioned on a pro forma basis with the two companies combined from 2006 through 2011. I think what we have done, most importantly, is during that time, by consolidating our suppliers, we are taking out a huge amount of volume of our transactions between those suppliers, roughly 30% to date. How do we do that? The majority of our POs today, if you look at our spend, obviously, it is driven by the large OEMs and the large equipment we buy. Over 80% of the transactions we do with our suppliers are to buy parts to support that fleet that we have out there. 80% small transactions. We have integrated a system with our OEMs that is not only good for the rental company, it is good for our major partners on the OEM side. It drives efficiency right through our process. For example, let me give you a few ways that it helps our branches operate more smoothly. Number one, our mechanics have real-time availability to schematics online. Real-time availability. Number two, they have the accurate ability to look up parts, not only in their branch but across their network, as well as at the OEM's facility. Number three, we have self-populating POs to make sure all of our pre-negotiated pricing shows up on the purchase order. Number four, real-time technical data for the mechanic in the field, so when he needs to maintain a piece of equipment, he has the availability of information to do that. What does that drive when we put all these variables in? It really allows us to look at the total cost of ownership by brand. You look at what the acquisition cost is, down to what the residual value is long term, along with the annual maintenance. We can look annually to see which products are the best products for us to invest in. Not just looking at which one may have the lowest acquisition cycle. If we actually add in the revenue that we generate off those assets, we can come up with a full lifecycle return and what our internal rate of return is on those assets. This is an example of an asset we keep for roughly eight years that cost us $50,000. This availability, by using the data we have across our network, allows us to make the right purchasing decisions between different OEMs that offer us products. It is important to know what happens during the process. We look to transfer first and buy second. The process for transferring, you are going to hear in a minute from one of our district managers, John Humphrey, and he will tell you about the detailed process to go through. Our branch managers will request fleet. Before anything is procured, our district managers review that order, and then that gets bounced up to our regional level, which before it actually gets procured, we go one more level to review it at the corporate level. Four different levels of approval in order to make sure we cannot transfer a product, and we need to procure it. What that does for us, if you really do the math, every month, 15% of our fleet starts the month at one branch and ends it at a different branch. That is a real large number for us. That is over $1 billion of original equipment cost that is moved across the branches between month to month. When it is time to dispose of the asset, we have a targeted process we go through. We target different things that we see in the market, whether it is revenue trend, repair data on a specific product, time utilization, anything that is causing breakdowns, and obviously, where the residual value markets are today. Those targeted asset lists are sent to our regional fleet directors to review to come up with a targeted list of assets to sell based on all those variables. Once we get those assets defined, we will actually set the price based on what we see at different hurdles. Where are we at on hours and age? Does it show up on the list? Based on what we see in the market for utilization, we will actually set our pricing above that level, that targeted level. Our goal is to drive returns on our used equipment sales, primarily through the retail channel, at or above the fair market value that we feel are out there for the traditional asset in that age group. Let me switch over to talk about some things in our IT group. I think many of you heard through all the presentations you have heard today how important technology is for our future growth. Technology today, you have heard from our sales organization with Total Control, salesforce.com. You have heard all about our data warehouse that provides our customer statistics, allowing us to focus on Operation United. We have some other great things happening that we see in our industry. Right now, telematics is starting to become a big item. As these engines become more involved with error code defaults and so forth on Tier 4, we need to start integrating some more advanced telematics services. You heard Juan talk about the example that he had in the Pennsylvania area where we have leveraged GPS technology to service our customer better. This technology will continue to advance. When you look around the room, you see how many people have a smartphone today. That technology can be leveraged to further allow us to service our customers because that is what this is about. It is allowing us to provide better levels of service in the delivery and pickup to our customers' equipment as well as service. Outsourcing of many of our IT functions. There will continue to be opportunities as we move forward with outsourcing. We have done so much to leverage different companies. You heard from Juan on salesforce.com earlier today. This allows us to allow another vendor to provide us a service and allows us to focus on our core rental business, which is really where our primary focus should be. You have heard a lot about the data we use, and as you can see through our procurement process, data is critical to our business. We have a very robust electronic data warehouse. In the past, people would do reporting. Today, people want to do more advanced analytics. We have to be able to look at our business as we go forward, looking at what is going to happen, not just what did happen. You heard Juan talk about where we can target our customers using this data. Our sales and marketing team is using data to drive to where we should put all of our effort with the sales force to allow us to outpace the market on sales as we go forward. This allows us to create greater efficiencies as well as make better decision with our business today. Of course, one that you are going to see in the back of the room, I would ask all of you to stop by one of the three technology booths. We have our FAST logistics system that you heard from Matt. This technology enables us to start doing more of that metro model and centralizing our dispatch of equipment by allowing dispatchers to manage a much greater fleet, creating better efficiency, and improve our customer service. In quick summary, number one, we leverage IT to create a competitive advantage for us. Number two, our vendor negotiations and number three, total cost of ownership is used to evaluate where we should buy from our OEMs. Number four, our used equipment sales are driven off full lifecycle management. Number five, we have integrated a system with our OEMs that allow us to improve ordering processes and create efficiency on both sides. With that, I will open it up for questions if anybody has some questions. Okay. Then it is my pleasure, we have Juan Don. Everybody is always competing, both as companies and also in your role. Without necessarily naming names, talk about who else is doing similar things like this in terms of IT, and if they are behind, how far behind, and how long it would take them to catch up? Because it looks like you are really trying to build on a little sustainable competitive advantage, but there is always somebody on your tail. Yeah. Great question. What I would tell you from a technology side, obviously, when we find ways to integrate with our OEMs, that can be leveraged by some of our competitors. Both companies use the same procurement system interacting with the OEMs. But what I would say is, it takes somebody with our size that allows you sometimes to convince the vendor to integrate into that system. I think what you'll see is, I think Juan said it best: everybody has a similar technology, the Total Control, that they'd like to compare, but I think it's the depth of the technology that we have that allows us to have a competitive advantage today. Anything else? Okay, with that, it's my pleasure to introduce to us today our district manager for the New York Metro area, who's been supporting all of our customers with the recent Superstorm Sandy storm. Please welcome me to welcome Mr. John Humphrey. Thank you, Dale. Good afternoon, everybody. I'm very excited to speak to you all today about telling you what a district manager does with regards to the vision and the strategies and the value propositions that you've been hearing from senior management throughout the course of the day. I, too, am an acquired asset from July of 1999, with about 27 years experience in the industry. I'm one of 86 district managers at United Rentals, and I've been in this area doing the same job since 1998. My district extends from the city of Philadelphia up through New York, including Long Island, and everything in between. There's 10 locations, three area locations, seven general rental locations, and my fleet size has grown from 2009 from $96 million to $151 million. Rental revenue has increased $23 million, and the margin has increased 8.1%. Let's talk about Superstorm Sandy. I'm sure everybody in this room felt it either directly or indirectly over the last couple of weeks. As we all watched the weather forecast, the storm going up the East Coast took a direct left right to the center of my district. Prior to that, we got together with the teams at United Rentals to start discussing our game plan of how we're going to take care of the most affected areas. Prior to the storm, obviously, some fleet came off rent in the area from our contractors, as they were preparing for the storm. But once the storm hit, the first thing I did was I took a look at all of my facilities and my people. That was the most important thing I took care of. Once that was safe, my first call was to Paul, actually, because I needed two larger size generators to power two facilities in my district, one right at the Jersey Shore and one in central New Jersey. Once that was taken care of, the employees in my district really went to work. That is where United really shines, and I am proud to say that. We all came together, we banded the fleet, and we started to deploy that fleet in the most affected areas. I brought in approximately $10 million worth of original equipment cost equipment as far south as the Jersey Shore and up through Long Island, including Queens and Staten Island. What I am most proud of, as Paul mentioned earlier, is our emergency response unit. I first saw that at our annual meeting in St. Louis this past January and was totally impressed of what this particular unit can do. Never having or ever wanting to ever use it in a disaster situation, but obviously when the storm hit, my first call was to Paul and his team, and we deployed it to the Jersey Shore to ground zero. What that did was it allowed all of United Rentals business divisions to work together to assist in the deployment of the fleet, and more importantly, gave a sense of relief to the people that we were servicing. The comments and concerns from the FEMA group, from Office of Emergency Management and the state police, what this unit does, it kept people connected to the outside world. We all know we had no power. I myself had no power for almost eight days. I actually live on the Jersey Shore. So they were able to see satellite news, full comforts of an office, so they can get to the affected areas quickly, start the cleanup process, and start the rebuilding process. Let me talk about what I do in the field as a district manager. The most important thing I do is communicate with the team. I visit each branch, as I said, approximately 10 branches, approximately twice a month. But more importantly, I communicate on a weekly basis with all the branch managers, operations personnel, and our service managers, where we discuss fleet needs, opportunities, and anything that may be needed to operate the business more effectively and efficiently. I similarly have those calls with our outside sales personnel. Here we talk about rates, we will talk about construction projects that we are presently on, future projects, anything that we need from a competitive standpoint. I also want to spend some time on safety. Safety is actually the most important thing that I do on a daily basis. Out of the 208 employees, my sole responsibility is to make sure they all go home the same way they come to work each day. It is a tremendous customer entanglement opportunity, as was mentioned earlier in a couple of presentations. I have two on-site facilities in my district, and if we did not have a good safety record and safety practices and policies, we would not be allowed to work in conjunction with those customers. Every meeting that I start and every meeting that I go to on these refineries starts with safety and ends with safety. They demand us to have good safety records. From a fleet standpoint, I think Matt mentioned it earlier, I focus on two things. It comes down to people and the fleet. It is my responsibility to put the right people at the right place and provide them with the tools to do their job most efficiently and effectively. And constantly, always look at the fleet to maximize our return. Look where we are strong in terms of bringing fleet in, and also, on the contrary, moving fleet out if the return is not where we thought it would be when we originally brought it in. To Dale's point, it leads us to transfers of fleet. The first thing we want to do is utilize the fleet we already have to save precious CapEx dollars. When we do need additional fleet, I have brought in about a little over $22 million worth of fleet into my district year-to-date, through September. And the majority of that is, from an aerial point of view, is a replacement on the aerial side, and I have grown some of the general rental assets such as light towers, pickup trucks, dump trucks, generators, small generators, industrial straight mast forklifts. Used equipment sales, a very, very important part of our line of business for United Rentals and for my district. We focus on the retail channel in disposing of our equipment. We talked about fleet life cycles in an earlier presentation. 63% of my used equipment sales goes through the retail channel, 33% goes through the broker channel. And more importantly, it keeps the fleet fresh, and we keep rotating the fleet. I have moved out approximately $14 million worth of OEC at $7.2 million worth of revenue, and more importantly, a 44.5% margin. That is up from 34% back in 2009. And excuse me, when I say I, it is not me. I have a team of 208 employees. They are the ones that make it happen. Let us talk about some of the employees and some of the sales. I regularly meet the top customers in the district. I meet them on job sites, I meet them in their office, they come to our facility. Actually, I recognize some faces in the audience here that have come and visited our locations also. I oversee 30 sales professionals in the tri-state district, and I take particular concern with our national accounts. They are our largest and our most profitable customers. I also ensure that everybody in our district understands when they are coming and what they are doing. We monitor, as I said, the competitive landscape. How do we keep our competitive edge versus our competition? What differentiates ourselves from our competition is the constant theme of those discussions, and I will show you some results in the next slide or so. We monitor our assigned and strategic account growth. That, Matt mentioned earlier, was an initiative that the company put forth in 2009, where we put a single point of contact to the majority of our key accounts. So we are always in constant discussions with those accounts to keep them united, and then we always focus on our new accounts, which is the future of United Rentals on top of that. And as Juan mentioned, we vigorously renew our dormant accounts. Moving to branch operations and increased productivity and efficiency, which all leads to cost reduction. It all starts with the order. We take the order from the outside sales representative or the inside sales representative. The next step is we take a look at our fleet. We took a look at our process of our fleet not available. We look at it in three buckets. We look at it when fleet is scheduled for pickup, fleet that has got to the shop that needs to go through the shop for a regular PM, or fleet that may need a little extra TLC that would have to sit off to the side, and we may need a part or something. The sweet spot there we have come to find out is about 10% of the fleet. Today, the tri-state district is roughly, we hover around that 10%, sometimes 11% right now. More importantly, just about two years ago, that number was about 18% or 19%. If you do the math on the fleet that I have today, I am now deploying $15 million more fleet on a regular basis to our customers, based on managing these metrics on a day-to-day basis. Dale mentioned our FAST technology, our dispatch technology. Here we take a look at our on-time delivery and our hours to pickup. I am going to emphasize hours, because two years ago, it was not unusual for a 19-foot scissor lift to be called off rent on a Monday in my district, and it would still be sitting there on a Wednesday or a Thursday, not generating any revenue, not doing anything. I am proud to say out of that $151 million, it takes us about 12 hours to pick that equipment up. We are also training our customers to do the same thing. It was not long ago where customers would take 60 or 80-foot booms off rent on a Friday afternoon because they knew we would come on a Monday or Tuesday to come pick them up. We are now showing up on Friday afternoon, and they are saying, "Wait a minute. I am not done yet." We say, "Well, here it is on that handheld." We show them the pickup ticket right there, and it goes back on rent, increases our utilization, increases our productivity, increases our profitability. More importantly, our field service response time. Matt mentioned earlier that the equipment is mechanical, so it does break down from time to time. From the time that the customer calls to the time that we respond, we track that. I am proud to say that the tri-state district is a little over three hours, and this really does two things for us, or to me in my mind. It cements the processes and the practices that we have at the branch level prior to the delivery of the asset. More importantly, it increases the productivity and the profitability of our customers with less downtime on the job site, less moving and swapping of equipment because they become accustomed to us responding in a much quicker fashion. From a financial point of view, obviously from a district point of view, we monitor our month and our year-to-date versus our plan and our forecast as we go through the year. We do a deep dive on our fleet with the entire team in preparation for our budgeting for 2013, or as we do our annual budgets. At the same time, utilize the industry data for our forecasting for our non-residential, non-building, and residential construction, put in place construction statistics along with our fleet. I will oversee the audits of the branch because it is very important to me in the organization that the revenue that we put in there, the integrity is there, and the dollars are there when it is put through the system. We also benchmark ourselves. You have heard the themes throughout every presentation is that we want to constantly improve. So we would take certain aspects of our financial or our metrics, take a look at, say, delivery recovery as a percent, fuel recovery, accounts receivable, overtime, that nature, and benchmark ourselves to our peers to try to constantly improve our results. In conclusion, I execute the corporate strategies and objectives, build revenue through enhanced profit, and continue the improved efficiency and productivity at the branch. But more importantly, I truly believe that everything that you have all heard here today has made a difference today than my 27 years of experience. The tools that this organization has provided to us or to the field in talking with our employees and our customers is absolutely making a difference, and that to me, is what separates United Rentals from our competition. I am proud to be an employee of United Rentals in the past and being a part of setting the bar even higher. We are always going to continue to improve, and we are always going to try to do the best things we can for our customers. But I want to leave you with one number. We talked about all of these processes and improvements. The number is 41%. That number reflects the tri-state district's EBITDA percentage today versus 31% in 2009. Thank you. Any questions? It is a big city, and there are some really big projects here. When you have something like the Freedom Tower or the Tappan Zee Bridge or the reconstruction at the Shore, how do those bids come about? You have multiple resources that you are bringing against that now from the company with the specialty capabilities, et cetera. Can you just walk us through what those bids look like? You're asking how do I evaluate the project? Who gets awarded the bid? Yeah. How you compete for that bid or that project. It starts with the sale. It starts with the relationships with our field sales personnel. They'll go, and they'll be talking with the customers on a regular basis. They'll know if they're going to be bidding on the project or not, and we'll talk to all of the bidders. We take the whole gamut, not just one particular bidder or trade. And those are the types of things we discuss on our weekly calls with the sales team and our monthly organizational reviews, which also sets the stage of the fleet that we might need and how we're going to deploy that fleet going forward. Matt, one more? Oh. Okay. John, you talked about asset productivity and picking up the assets faster. You talked about your EBITDA margin improving 1,000 basis points. Could you just maybe frame your return on controllable assets for your district and how you think they'll be maybe the next few years versus history and what that improvement has looked like? I think they'll be equal or slightly better than what they are today going forward with the productivity because we're going to continually enhance how we take the product to market. Could you maybe just frame what they look like today? I think the 20% hurdle rate is what you target internally, but- Internally, if I remember correctly, it's just north of about 22% is my ROIC up through September 30, 2012. And if we look back at maybe 2004 to 2008, what would those numbers look like? Specific number, but I can tell you it was less than that, and I will get you the exact number. Okay. There has been just tremendous improvement on the returns since 2009. Yeah, tremendous improvement. Okay. Yeah, perfect. Thank you. Now I'd like to introduce Irene, the United Rentals Treasurer. Thank you, John, and good afternoon, everyone. My name is Irene Moshouris, and I'm the Treasurer of United Rentals, and I also have the distinction of being the final presenter who's standing between yourselves and the rooftop bar. Let me start by really thanking all of you for attending, not only here but also on the webcast. We think these are very exciting times for United Rentals, and we appreciate your interest in our company. Before jumping into my presentation, just a few words on my background. I began my career as a tax attorney. One would think I should probably be in Washington right now helping out there, but I began my career as a tax attorney and holding various positions at both Arthur Andersen, Sterling Winthrop, and Avon. Since joining United Rentals six and a half years ago, my responsibilities increased, and now I have responsibility for also tax credit and collection, as well as real estate. Turning now to our capital structure. Underlying our operations and our strategies for growth is a strong capital structure. Let me take a few minutes just to discuss how we view our capital structure. Our view really is guided by a few basic principles. First, our asset base, that is our fleet, supports us having a reasonable amount of debt on our balance sheet. Why do we believe this? One of the reasons is our business consistently generates free cash flow. Since the company's inception and throughout the business cycle, we expect this to be only the second year for the company that we will not be generating positive free cash flow, and this was a strategic issue this year. Even during the Great Recession, the company generated positive free cash flow, and as I will discuss later on during the presentation, we expect to generate significant free cash flow over the next few years. Another fundamental principle guiding us in our capital structure is to manage the maturities of our debt portfolio. What we want to do is to avoid any excessive refinancing in any one year. So we actively monitor the markets for cost-efficient opportunities to refinance and extend our maturities, and we've taken actually some recent actions in that regard. So in October, we issued a bond which matures in 2023, and we used that to refinance a bond that was maturing in 2016, and I'll talk a little more about that later on. Also, another principle that we look at is diversifying our investor base. This helps us to promote access to alternative investors, as well as to avoid reliance on any one particular investor base. We believe that these principles provide a balanced approach to managing our capital structure, a structure really which is the foundation for supporting our future growth. Moving to our debt maturity profile. This chart illustrates how we have spread the maturities of our debt out from as early as 2013 all the way out to 2028. A majority of our debt actually matures after 2017. I just want to point out that for this slide and for the remaining slides in my presentation, we have incorporated the refinancing I just referred to, the October issuance of the bond, and we pro forma-ed all the slides for that. Getting back to this chart, what is the takeaway? What is the message? The message really is that we have no significant near-term maturities expiring. If you look at the tower, the first tower in the 2013, that is our AR securitization facility. That is a 364-day revolving credit facility. We refinance that annually. Really, if you look, the next largest tower is our ABL facility or our asset-backed loan facility. We just refinanced that in 2011. It matures now in 2016. As we get closer to refinancing this particular facility in the next few years, we will look at things like the cost, the size, all within the context of the ABL market at that time. We certainly have enough collateral to support a facility of equal size, if not larger. Our main focus will be, when we do refinance, to retain the same amount of flexibility and liquidity that we currently benefit from with our current ABL. Managing the maturities of our debt portfolio reflects really, again, a balanced approach. Moving over to the next slide. This is our debt structure. It is a listing of our debt structure. At the end of September, we had $7.5 billion in debt. There are many components to this portfolio. If you just look down the slide, it really is a ranking of where each particular debt falls within our capital structure. If you start all the way at the top, we have our senior secured bank facilities, our ABL and AR securitization facilities. Then moving down, we have a senior secured note. Then we have numerous senior unsecured notes, a subordinated note, and then two convertible securities. Many of these notes were issued or were assumed in connection with the acquisition of RSC. As I mentioned earlier regarding our capital structure, in taking a balanced approach to our capital structure, we really look at maintaining a diversified investor base. I think as you can see from this listing, we have a broad base of investors. Just turning over now to liquidity. Looking at our ABL facility and our AR securitization facilities, these two facilities really provide us with our source of daily liquidity. At the end of last week, just to give you a point of reference, we had $650 million in liquidity. That included some cash, but it was predominantly the ABL facility that was providing that liquidity. The ABL is an important facility to us, so I just wanted to highlight some of the key features of this particular piece of debt. The size of the facility is $1.9 billion, and it is secured by our rental equipment. As of the end of September, there was suppressed availability of over $2.3 billion, or said another way, the facility was over-collateralized because of the large amount of rental equipment that we have now in our fleet. The average borrowing cost under the ABL is approximately 225 basis points. These are very attractive rates for us. While there are some financial maintenance covenants in the ABL, they only apply if the availability falls below the greater of 10% or $150 million. Another point of reference, at the end of last week, we had 31% availability on our ABL. You could see there's a lot of room there in terms of cushion to the covenant. Next, our accounts receivable securitization facility, that is a $475 million facility. It's secured by our receivables. The borrowing costs are a stunning less than 1% cost. This is our lowest cost of financing, and we try, as you can expect, to utilize it to its capacity. When you put this all together, we have ample liquidity, low-cost financing, and flexibility to support the growth in our business. Oh, and there we go. We've had so much activity with respect to our capital structure over the last year, that we just wanted to highlight some of the key actions that we've taken with respect to our capital structure. Most of the activity related to the RSC acquisition, we issued three new notes, the secured note, and two unsecured notes, and then we assumed two unsecured notes from RSC. A lot of activity associated just in early May with respect to RSC. Subsequent to the deal, we've also been active managing our capital structure. We upsized our receivables facility from $300 million to $475 million to incorporate the receivables that came over with RSC. Most recently, in October, we issued a new $400 million, 10 and a half year senior unsecured note, with a 6.125% coupon. We used the proceeds from this note, as well as drawing down from the ABL, to pay off a 10.625 note that we had outstanding at the time. That was the one that was maturing in 2016. What did this refinancing get us? We pushed out our maturities all the way to 2023, and we expect annual interest savings from this refinancing of $26 million. I will also mention that in refinancing the 10.625 note, you will see a charge, a one-time charge in the fourth quarter, and that is between $70 million to $72 million, and this associates with the premium that we paid to take out the 10.625, the write-off of the deferred financing, as well as deal related costs. This might be a good time just to explain, just briefly and at a high level, how we look at opportunities to refinance our debt. There's no doubt that this year, the high-yield market has been very favorable, and we've spent a considerable amount of time evaluating opportunities to refinance. It really starts with the net present value of the flows. If the NPV is positive or close to breakeven, if we have the ability to push out the maturities, and if the interest cost is less, then that is a good time for us to be looking at that opportunity to refinance debt. That is just a high level of what we look at when we are considering refinancing. What is ahead in terms of our capital structure? We have the annual renewal of the AR securitization facility. We have also up to a $200 million share repurchase program that was authorized by our board in connection with the RSC transaction. At the end of the third quarter, we had purchased $112 million. We have $88 million left on this program, and we expect to utilize that over the next coming quarters. Of course, we will always be monitoring the markets for opportunities to refinance. If I bored you over the past couple of slides, this is probably the slide that you should pay attention to. Of course, it is not coming up. See? There we go. Free cash flow. As mentioned, one of the features of our business is our ability to generate free cash flow. Over the next few years, we expect to generate meaningful, significant free cash flow, and this is what really excites us about our business. Let me just set the stage a little. In connection with the RSC transaction, both United Rentals and RSC shared long-term projections. These projections were produced well over a year ago now, and were disclosed in our S-4 filings. What we have done here for you, we have layered on some additional public disclosures that we have made. Matt spoke to you earlier about the synergies and the cost to achieve synergies. We layered on the synergies that Matt spoke about, plus the cost to achieve, and if you look at the bottom line, what that tells you is that we expect that over 200, I am sorry, $2 billion in free cash flow over the next few years. I really want to caution everybody in the room, as well as on the webcast, that we are not giving formal guidance here, but rather this is directional. Not only were these forecasts produced well over a year ago, but also some of the amounts have not been tax affected. While we expect to be in this general area of free cash flow, again, this information is intended to be directional. We have given guidance, which is set to 2013, and in that regard, we have stated that we expect free cash flow to be between $400 million to $500 million. Okay. What are we going to do with this free cash flow? In the near term, we will use the free cash flow to reduce our debt. We have said that, and you will see in the next slide what that means for certainly our leverage ratio. On longer term, we will be reviewing ways to return cash to shareholders. Of course, we will always invest in the growth of our business, whether that is organic, whether that is being done through acquisitions. Paul spoke to you a few minutes ago regarding the specialty business. That is something that we are very interested in, and if a right business comes at the right price, that is something that we definitely would like to invest in. Leverage ratio. Thank you. As I just mentioned regarding free cash flow, we intend on paying down debt in the near term, and this slide illustrates what is expected to happen. We're expecting a rapid decline in our leverage. You know that the footnote actually on this slide is as large as the chart is itself, but it does bear mentioning that this footnote, like the slide before, really referenced S-4 related information, so you should view this slide as being directional. On a pro forma basis, we expect to be about 3.7 times by the end of this year, and then quickly down to about 3 times by the end of next year. I think the interesting point here is if you look at the slide, on a standalone basis, United Rentals at the end of 2011 was at 3.3 times, and in less than two years, and with acquiring a significant company, we will expect to be down to 3 point or in the 3 area. You'll also note that our target leverage ratio is 2.5-3.5 times. In the past, we've talked about target leverage ratio more in the order of 3.5-4.5 times. So we moved it recently, and we believe reducing the leverage ratio of our company will help to a reduce in the volatility associated with highly levered companies. But we also believe that this leverage range will still allow us to retain enough flexibility to comfortably invest in future growth strategies for the company. Just a little levity, taxes, and interest for 2013, for those of you building models, just a few points of reference here. On taxes for 2013, under normal circumstances, our operating tax rate for the company, we would expect to be in the mid to high 30s area. From a cash tax perspective, you should know that we expect our net operating losses to continue through 2014. We still have some cash taxes associated with Canadian taxes and sales, state and local taxes. But federal taxes, we expect to be in an NOL position through 2014. On the interest expense side, we expect that for next year, interest expense to be between $450 million-$500 million, and cash interest, excuse me, to be in the lower end of that range. I'm not sure how I could Boy, we definitely need a new clicker. The last topic I'd like to cover is ROIC. Can you Okay, use your imagination. There we go. Thank you. Our industry has been criticized for not generating returns in excess of our cost of capital for a while now. So let me just spend a moment on our cost of capital. We view our cost of capital to be in a range anywhere from 7.5%-9.5%, depending on the methodology you use. We've asked numerous banks and financial institutions really to come in and talk to us about what they think our cost of capital is, and it's amazing the spread that you get. And we understand that there are different ways of looking at what your WACC is. They're all acceptable ways. So the way we look at it right now is that we believe it's someplace in the 7.5%-9.5% range. And I think that's appropriate. I think equally as important is what our hurdle rate is, which we use to target what our returns should be. So we target a hurdle rate of 10%. As you can see from the bridge schedule right here, at the end of the third quarter, our ROIC was at 7.4%. Over the next 2 to 3 years, we see a path to exceeding our hurdle rate. If you were to try and bucket how we will achieve the hurdle rate, you can attribute it to increases in our rental rates. We still haven't reached a peak in rates from the last cycle. Another bucket of how we would achieve the hurdle rates would be investing in our fleet. The last bucket that you see there are the synergies that we are going to enjoy from, and enjoying right now, from the acquisition of RSC that Matt mentioned earlier today. These are somewhat offset with our used sales margin as well as inflation, but at the end of the day, over the next few years, we would expect to exceed our hurdle rate. In conclusion, boy. We're optimistic about the business environment, and we're really even more optimistic about our expanding leadership role in this industry. We feel that our capital structure is properly positioned to support the growth of the business and the strategies that we're employing. We also believe that our capital structure is flexible enough to adjust to support the business in any of the stages of the business cycle. I think that finally, I'll also return back to what we expect to be very meaningful free cash flow over the next few years. In the interest of time, I think we said that I would be inviting both Bill and Michael up to answer questions. I'll be up here as well for your attention and your interest in our company. Do you want me to take this mic? No, that's okay. I think we can talk loud enough. Oh, you have a question. Could you address, I guess more for Bill, with the long out to 2015 free cash flow guidance, could you discuss what's implicit in fleet, in CapEx expectations there? Then could you bridge the gap versus what we would've seen in the S-4 back in January versus what we just saw there? Thank you. The underlying forecast is the same as what you saw in the S-4 back in January. We just reiterated it here. When you look at the assumptions implicit there, maybe I'll start at some of the operating metrics. Without giving the exact numbers, we assume our rental rate performance in that S-4 view of being, we're going to get the 7% this year. Next year, we haven't said exactly what our rate performance expectations are, but it'll be less than 7%. It's not going to zero, but it'll be somewhere in between. So it steps down a little bit in 2013. It steps down just a little bit more in 2014 to what we think of as a sustainable long-term rate expectation. I've said this to some of you in the room, that number is somewhere around 2%-3% a year. So 7% this year, down a little bit next year, down to about that 2%-3% range for 2014, 2015, and beyond. That is rate. Time utilization is in the area of where we are right now, plus or minus. Nothing major going on in time utilization. When you look at the fleet investment that is assumed under those S-4 assumptions, I think, again, I have said this to many of you in this room, we are going to be $1.5 billion-$1.6 billion this year toward the lower end of the range, as Michael Kneeland said. The assumption next year is something very similar to that, maybe down a touch, and down a touch means something like $50 million or so, if we go down next year. That is a big if. And that $1.5 billion kind of number is right around what is underneath the 2014 and 2015 assumptions in that S-4. That will give you a broad sense of the assumptions that underlie the S-4. Obviously, Irene Moshouris showed you, we add the cost synergies, and I emphasize cost synergies, in 2013, 2014, and 2015 in that cash flow scenario. As you mentioned, we did not tax effect it. We did not tax effect 2013 and 2014 because we are still using up NOLs in those years. You can argue with me whether we should tax effect the synergies in 2015. Okay, fine. Sue me for $50 million bucks or whatever the tax impact would be. But those are the high-level assumptions underneath those free cash flow projections, and we put it out there so that we would have something to talk about that is more concrete than just saying, "Free cash flow is going to be great over the next few years. Trust us. And just as a quick follow-up on that, though. You just stressed cost synergies. Any consideration revenue synergies in there? That is baked in what is existing out there already? It is not baked in revenue synergies. You heard Matt Flannery say earlier that we expect our revenue synergies to be something in the area of $50 million of EBITDA impact in 2014. So again, this is all kind of talking about high-level forecast, but if you wanted to, you could add another $50 million of pre-tax impact in 2014 from revenue synergies as well. Thanks. I think David's right behind you. Yeah. Hi, Bill. Obviously we haven't seen how you put out the synergies before on the cash flow to 2015, and I was curious, the revenue numbers we used to see in the S-4 through 2015, and actually consensus for 2013 and 2014 revenues are awfully close to those numbers. When you did your cash flow analysis, have you adjusted, I mean, any real magnitude, the revenue assumptions for the business that drove that cash flow? Not in any significant way. We certainly are looking at the market and trying to update our thinking about what the revenue environment looks like, but we haven't adjusted that revenue forecast in any major way. Okay. I mean, the math is what it is. I mean, you have your free cash flow as a percent of sales going from roughly 9% next year to 11% to almost 15% in 2015 if you're still using those old S-4 revenue numbers. Maybe I should cover better companies, but I've not of a company anywhere near 11%, 15% type free. I mean, that is the math, so I guess the answer would just be yes. I mean, 15% free cash flow as percent of sales seems like a tall order. Yeah. I mean, it's- I mean, unless it's a year that's down, but you just said rental rates growing 2%, 3%, CapEx flat. The only year you've ever done that is 2009, and that was 15.1 because it was a year where sales and earnings were collapsing, CapEx got cut. The cycle is a very powerful actor in our results. We are right now in a very high fleet investment mode in our company relative to the size of our company. If we keep our gross CapEx somewhere around $1.5 billion-$1.6 billion kind of range, as the company grows in size, it's going to throw off some pretty positive free cash flows over the next few- Only over the next several years, it could be a pretty good story. Dave, I would just only say that, if you recall, the company has gone through a significant cost reduction since 2009. We took $500 million, which is about half of that, in earnings. That will reflect on these numbers. That is still there. Okay. Not to pin you to numbers here, but the fleet in 2015 in this analysis, can you give us some feel for what you are forecasting the OEC will be or the fleet age? Just trying to get a feel of that billion five. How are you viewing, call it a billion three to a billion five on gross CapEx? How much is that growth versus replacement? Because obviously, as the fleet grows, a bigger percent of that 1.5 becomes just replacement. You are challenging my memory of the numbers, but let me put it this way. The assumption, as I said, on gross CapEx, is somewhere around $1.5 billion a year, $1.6 billion, in that range. The assumption on used sales out of the fleet over that period, Kenny is over there, so he is going to call me a liar any second, but it is something close to the $450 million to $500 million proceeds number, that we expect something like $450 million this year. It is in that range over the next several years as well. If you use a reasonable assumption for proceeds as a percent of OEC, you can back into the OEC of the fleet. Just gross it back. I just don't remember the number. Just gross it back up. Yeah. Okay. Thank you. Hey, guys. First I have a big picture question for Michael. Michael, you've often talked about how cycles unfold. We see recovery in used equipment prices, and we see utilization rates go up. We see then rates pick up. We kind of hit all of those now, and yet we haven't really seen great recovery in construction spending yet. In that context, how do you see the cycle unfolding over the next few years? Well, I think that one of the things that when Scott was here, talking about what he sees over the next several years, we see a similar picture to some degree. Obviously, Juan talked about some of the verticals that we're going to go after. We've stated that we want to outgrow the market, and we think we have a clear path of doing that. So you're right, we've been able to achieve all things in an environment where our primary market hasn't recovered. And the big component of that has really been the shift away from owning to renting. And as Scott mentioned, what Dave could typically see is a plateau on that. So you're building off a bigger volume going forward. And we try to keep as close as we can to our customers. The actions that we're doing and the value proposition that we're trying to go forward with as a company is completely different than the way we were in the past. Hopefully, Juan articulated that we're trying to become more of the partner. We're trying to take away the commodity end of the equation and be more of a solution to our customers. At the same avenue, earn more share of their wallet. I think that the macro level that we see is very similar. Now, can there be variables, fiscal cliff being one of them? Yeah, and we'll have to judge those as they come. If I may, just one other question. On procurement, can you talk about how your leverage has changed in relation to the OEMs? Are you getting any better pricing now or better terms now that you've combined URI and RSC under one figure and size? Yeah. The answer is yes on probably all fronts. We had to harmonize and bring forward and when we did the integration, Dale and his team started having discussions with vendors right then and there. Going to multi-year contracts. We didn't have that before. If we did, it was de minimis by numbers. Terms and conditions, analyzing all of those, and looking at all the things that we measure. We just don't measure just only on price. It is warranty, it's the services, the connectivity, EDI, all those things get involved. I think the other thing is that our leverage, our size of asking our vendors to get on EDI, to get on a platform of SmartEquip, ePRO, to help simplify our process down to the field level. Those are the things that we can leverage based on our size. Okay. Yeah, just to follow up to one other question. What are the additional buckets of synergies that we might see as maybe complete the integration with RSC? What are other areas where you think that you can pull down cost or drive more revenue? Well, and Bill, please chime in as well. We have 848 locations or 860 locations, whatever the numbers are. They are moving targets, but we are a quartile of best in class. Elevating and bringing the bottom level up is a task. Matt discussed about the metro model concept. There is one to three points that we have seen of EBITDA improvement in those markets where we have those, and then we have had them for over six to eight months where they are working very well. So we see those opportunities, and we are going to further push those down inside the organization. Leveraging technology, turning our equipment quicker, faster, and just developing a process around that we have not nailed down yet. We are on that path, starting out with 5S. We are implementing that to the whole organization, and it will be completed certainly by the second quarter of next year. Then we are going to roll out FAST. But I think, Matt, it is going to be taking the leverage, the best in class. There are significant opportunities to drive further improvement in efficiencies. Nothing to add except, I think we are early stage, right? And we have seen opportunities that have developed faster in this integration than we thought. And to Mike's point, as we roll out all of those new technologies and approaches, the opportunity is to drive those synergies further than maybe we thought initially. And that is what we have seen so far, and we will keep looking for opportunities to drive them further as we go forward. Yeah, just a quick follow-up. Years ago, you guys aspired to 3% EBITDA margins. Obviously, you have accomplished that goal, but how should we think of an aspirational EBITDA margin target? I think some of your competitors are at 47.5. Thoughts on that? Higher. I would say higher, but I would also say with the caveat that one of our aspirational goals is to get over our ROIC and be able to sustain that on average over a cycle. I don't think that's been achieved in our industry. Bill's right. It's higher. There's a question in the back, Donna. If I ask something about the tailwind over the last- It's turned on. Yeah, microphone's not on. All right. If you think about the tailwind Down over the last few years, the growth of the rental fleets overall has really been concentrated in the larger buyers, given their access to the capital markets and better access to capital and lending. If you think about that trajectory over the coming years, do you see that changing and more of the smaller fleets being able to lease fleet and enter the market more aggressively as well? Well, I would just say that I think one of the challenges that is going to be out there for the smaller players is getting to Tier 4. We see that as also another opportunity. Once we can do that, we can do it quicker. The well-capitalized companies can use that as a marketing tool as well. It's the market that we see that we're going after. We're more focused on what we can do. Yeah, it's interesting to understand what the smaller players are out there. But clearly, we have a line of sight on our value proposition and where we intend to go with the company. It's hard for smaller companies to participate because you need a broad footprint, and you need a wide variety of equipment, and you need the other services to enhance that core. We think that we're in a unique position, but I'm not going to take that as saying that we've got everything. I'm always cautious, but I do think that we have a good story. On your longer-term pricing goal of 2%-3% in 2014 and beyond, what would be some of the inhibitors to getting pricing that's even a little bit better than that? Because I would assume that market, the growth rate of your end markets is going to be projected to be accelerating at that time. I would assume that inflationary costs would also be accelerating at that time as well. I'm making that assumption. But with this presentation your division leaders have presented, it's adding a lot of value, and you're becoming more entrenched in the secular growth story. It seems that 2%-3% is a little on the moderate side. It is a modeling scenario. If you forced us to put down a true belief, I would agree with you. I think if the market is accelerating in the way that maybe Scott Hazelton thinks it is, I think that's light in terms of the rate that we could actually realize. But as a modeling exercise, we said, let's look at the business with what we think of as a longer-term, sustainable rate improvement, and see what we look like in that environment. But we certainly feel confident that a strong market will give us an opportunity greater than 2%-3% for rental rate appreciation. Mike, Phil, I wonder if you wouldn't mind commenting on your aspirations as it relates to the used equipment auction that you'll be conducting later this week. How much equipment will be on offer? Will it be just URI equipment? Will you be offering equipment for other vendors? How has that equipment been sold in the past? What has the cost of distributing that equipment been? I mean, is there a commission that you paid to Ritchie Bros. or some other organization in the past? Do you see this as a way forward for the enterprise if this auction's successful? I will answer that. You are speaking of the one that we have been advertising, the nationwide used equipment sale that we are doing at our facilities. It is all self-performed. It will only be our equipment. It will all be used equipment, and we are really just taking a best practice and organizing it on a national level. We had had some individual markets that were doing this on their own with great success, and it is just another example of with this big new company and the scale that we get, you get a lot of learnings on best practices. Our expectations, I do not know, Juan, did we— I probably do not want to communicate our expectations. This is the first year that we have done it en masse all at the same time. I could tell you that the end market for used equipment remains strong. We are online for our projections for the full year, and this will be part of the way that we are going to get there. This is really replacing what we may have done in auctions. Although it is not going to be a huge piece of our full-year used equipment sales, the piece that it will replace, we expect this to be more profitable. What is the average cost of auctioning equipment when you have used a more traditional auction format? Well, no, there is more than that because there is transportation. It is somewhere, and you do not want to give that number. It is somewhere in the 12%-15% range. It obviously varies on the size of the equipment because the transportation cost would have a heavier weighting based on the size of the OEC. The other benefit is that, unlike an auction, those customers are going to be coming to our facility. So we have a closed opportunity to sit there and actually promote our value proposition, and these may be potential renters down the road for us as well. So there's a silver lining in it. Hey, Mike. There's a lot of talk today about. Sorry, I guess I'm going. There's a lot of talk today about leveraging the new platform to ultimately drive higher returns and higher margins. Once you get beyond the $230 million-$250 million of synergy that you expect to get from the RSC deal, I'm just curious what normalized incremental EBITDA margins could look like. Is it possible that we could be looking at a structurally higher incremental EBITDA above the typical 60%-70% that we would normally see? I think what I would say is that structurally, we would be higher than we've been in the past. I don't know how much higher, but I wouldn't say it's going to be 70% where it used to be 60%. It's probably something a percent or two better. I think part of what we'll get out of the integration and the synergies is just a structurally lower cost base overall. But on a year-over-year comparison basis, you're still going to have a reasonably similar proportion of fixed costs, and that's still going to allow profitability to drop through in a reasonably similar way to the past. So in the past, if we were, pick a number, 65%, in the future we'll be somewhere between there and 70%, would be my gut feel with no analysis. For Matt, you guys have talked about a changing fleet mix over the last year or so. Do you expect that mix to continue to change through 2015, particularly with the focus on industrial power and HVAC and things like that? Is that how we should think about it, continuing to move away from certain categories? Yeah, it wouldn't be as much moving away. I think I'm good without that. You guys can probably hear me. It wouldn't be about moving away from any specific assets as much as moving towards them, right? So we wouldn't want to be undersized in any business, any of our product categories, but we have been more aggressively broadening our fleet offerings, specifically in the specialty business where we've always got small brush over the big road plates. But if CapEx is flattish, right, and you're trying to- It is. There will be a mix. Okay. Thank you. It is all over that mix. I want to keep my moving away from areas we have been more towards different products. I do not know if there is any more questions or not. I think that is it. I would only ask, obviously, there is the rooftop upstairs. There is some refreshments up there. Please join us. There are other members of the team that are here that did not present. Also would ask you to take just a moment to go through, and we have got some experts over there that can show you some of the technology that we are rolling out there that differentiates us as an organization. But on behalf of the company, the senior management team, and the board, I want to thank you all for coming to today's meeting, and please join us upstairs.

Data Source: Quartr Last updated: Dec 4, 2012

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