Kevin S. Inda - H&E Equipment Services, Inc. John M. Engquist - H&E Equipment Services, Inc. Leslie S. Magee - H&E Equipment Services, Inc. Bradley W. Barber - H&E Equipment Services, Inc..

Faheem F. Sabeiha - Longbow Research LLC Nicholas Andrew Coppola - Thompson Research Group LLC Seth Weber - RBC Capital Markets LLC Joe G. Box - KeyBanc Capital Markets, Inc. Steven Michael Fisher - UBS Securities LLC Sean M. Wondrack - Deutsche Bank Securities, Inc..

Good morning and welcome to the H&E Equipment Services Fourth Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Kevin Inda, Vice President of Investor Relations. Please go ahead, sir..

Thank you, Rachel, and welcome to H&E Equipment Services conference call to review the company's results for the fourth quarter and year ended December 31, 2016, which were released earlier this morning. The format for today's call includes a slide presentation, which is posted on our website at www.he-equipment.com. Please proceed to slide 1.

Conducting the call today will be John Engquist, Chief Executive Officer; Brad Barber, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to slide 2.

During today's call, we'll refer to certain non-GAAP financial measures, and we've reconciled these measures to GAAP figures in our earnings release, which is available on our website. Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of the federal securities laws.

Statements about our beliefs, and expectations and statements containing words such as may, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. These risks include those described in the risk factors in the company's most recent annual report on Form 10-K.

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call. With that stated, I'll now turn the call over to John Engquist..

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services' fourth quarter 2016 earnings call. On the call with me today are Leslie Magee, our Chief Financial Officer; Brad Barber, our President and Chief Operating Officer; and Kevin Inda, our Vice President of Investor Relations.

I'll direct my comments this morning to our fourth quarter results, our business and overall market conditions. Then Leslie will review our financial results for the quarter and year. When Leslie finishes, I will close with a few brief comments. At that time, we'll be happy to take your questions. Proceed to slide 5, please.

The fourth quarter capped a solid year for our business and industry, as the non-residential construction markets remained solid. While we believe the current growth cycle would continue into 2017 with good demand for rental equipment, we are even more optimistic as a result of the new administration.

The potential for a significant infrastructure stimulus plan as well as other pro-business initiatives supported by the new administration could result in a reset and an extended cycle. I'll provide some additional thoughts on potential impacts in greater detail later in my comments.

Lastly, the oil patch is showing signs of life, as activity in the Permian and Eagle Ford Basins picked up significantly during the fourth quarter. Let me quickly review our fourth quarter results.

Total revenues decreased 10.6% to $244.3 million, primarily due to the continued weakness in our distribution business, specifically very low demand for cranes. New and used crane sales were down $23 million on a combined basis. Gross margins were strong, up 160 basis points from a year ago. Net income was $12.4 million, or $0.35 per diluted share.

EBITDA was $78.9 million versus $81.3 million a year ago. Demand for rental equipment remained strong with rental revenues of $115.2 million, up slightly from a year ago. Margins also increased slightly to 47.7%. Physical utilization was 70.3% while rental rates decreased 1.1% from a year ago.

Sequentially, rates increased slightly from the third quarter. Dollar returns were solid at 34.3%. Please proceed to slide 6. This slide illustrates our nationwide footprint, various regions, 78 branch locations in the 15 greenfield sites that we have opened since the beginning of 2013.

In November we opened our Suwanee, Georgia branch to expand our presence in the vibrant Atlanta market. In January, we opened a new branch in Beaumont, Texas, as the industrial and petrochemical activity along the Houston to Lake Charles corridor is very strong. We expect to open three more branch locations in 2017.

We remain focused on executing our greenfield strategy to expand our footprint and grow our business. We believe the overall performance of our greenfields has validated this strategy. Lastly, let me provide a quick update on the major industrial projects in our Gulf Coast region.

These projects continue to move forward with more than 30 major ventures currently underway that are expected to continue into 2018 with several expected to continue into 2019. More than 20 major industrial projects are also reported to be at or near breaking ground stage and are estimated to span from 2018 to 2020.

These projects encompass LNG, ammonia, ethane crackers, methanol, refining and other petrochemical related projects. So we continue to believe the environment in Louisiana and along the Gulf Coast, in general, remains a significant opportunity with the industrial activity expected in 2017 and beyond. Please proceed to slide 7.

Our oil patch exposure at the end of the fourth quarter was roughly 5% of our total revenues. But, for the first time since oil price has plummeted in 2014, we are very encouraged by activity in the oil patch, specifically, in the Permian and Eagle Ford Basins. Shale drillers typically can generate positive returns in low-to-mid $50 oil.

And as a result, more rigs are once again working. Also, for the first time since 2014, we opportunistically moved fleet back in to select energy-focused markets during the fourth quarter to meet the increased demand. We are also encouraged that U.S.

oil producers have announced 2017 capital spending plans that call for increased spend (07:07) new wells. In January, ExxonMobil announced it will pay approximately $5.6 billion in stock to acquire companies owned by the Texas Bass family that control parts of the Permian Basin in New Mexico.

The purchase roughly doubles Exxon holdings in the basin, adding acreage with an estimated 3.4 billion barrels of recoverable oil equivalent. The deal is largest oil and has acquisition in the U.S. since oil prices crashed in 2014, according to industry publications.

Utilization in our four Texas branches with heavy exposure to the oil patch averaged 71.7% during the fourth quarter on a combined basis, up 170 basis points from the third quarter.

While the improved conditions will have a more immediate impact on our rental and parts and service business, I want to caution that this increase in activity may not result in a significant increase in new crane sales. We believe, $60 oil on a sustained basis, will pull the trigger on pent-up demand for new cranes.

But, overall, we believe improved conditions in energy markets will be an incremental benefit to our business in an already solid non-residential Texas market. Please proceed to slide 8.

Let me conclude with a few additional points on current major market indicators, which continue to be extremely favorable in our view, as well as our thoughts on the new administration's potential impacts on our industry.

The Dodge Momentum Index continues to forecast solid levels of non-residential construction projects in 2017, with index running at eight-year highs. Non-residential construction starts and puts in place continue to indicate solid activity continuing in 2017. Total construction employment data indicates demand for skilled workers is increasing.

A January report released by the Associated General Contractors of America found that 60% of the companies polled expected their staff to increase by as much as 25% this year.

We believe the pro-business stance of the new administration will be positive for our industry in some shape or form as customer sentiment has improved even more post-election according to many metrics.

The details are far from certain and we do not anticipate any benefit at this point from infrastructure spending plan until 2018 at the earliest, but a significant infrastructure plan could certainly extend the cycle for years to come. At this point in time, I'm going to turn the call over to Leslie for financial review..

Good morning, everyone. Thank you, John. I'll begin on slide 10 to discuss our financials in greater detail. As John discussed, demand in the non-residential construction markets remained healthy during the fourth quarter. Trends in our rental business continue to be positive. However, the distribution side of our business remains weak.

To summarize, total revenues decreased 10.6% or $28.9 million compared to the same period a year ago to $244.3 million. New and used equipment sales on a combined basis accounted for $28.1 million of this decrease. Gross profit decreased 6.1% or $5.6 million to $84.6 million compared to a year ago on higher margins of 34.6% compared to 33% a year ago.

As for the rental segment, rental revenues increased slightly to $115.2 million compared to $115 million a year ago. Physical utilization remained healthy, with average time utilization based on OEC of 70.3% for the quarter compared to 72% a year ago.

Demand for AWPs remained solid at levels consistent with a year ago, and the decline in utilization resulted from weaker demand for cranes and earth-moving equipment in our rental business compared to a year ago. To no surprise, new equipment sales were again weak, declining 28.5% or $17.8 million to $44.9 million.

New crane sales decreased 45.1%, representing $16.3 million of the total $17.8 million decline. Used equipment sales also decreased compared to a year ago, down 29.2% or $10.3 million to $24.9 million, and largely a result of lower used crane and used AWP equipment sales.

Sales from our rental fleet comprised 89% of total used equipment sales this quarter, consistent with a year ago. Our parts and service segments delivered $42.5 million in revenue on a combined basis, down 1.6% from a year ago.

And total gross profit for the quarter was $84.6 million compared to $90.2 million a year ago, a decrease of 6.1% on a 10.6% decrease in revenue. Consolidated margins were 34.6% compared to 33% a year ago.

For more detail by segment, rental gross margins for the quarter were 47.7% compared to 47.5% last year, with a slight improvement, again, due to lower maintenance and repair costs. Margins on new equipment sales were 9.9% for the quarter compared to 10.4% a year ago, largely due to lower margins on new crane and earth-moving sales.

Used equipment sales gross margins were 31.9% compared to 30.2% last year. Margins on pure rental fleet-only sales were 34.1% compared to 32.5% a year ago. Parts and service gross margins on a combined basis were 41.5%, the same as a year ago. Slide 11, please.

Income from operations for the fourth quarter decreased 10.8% to $29.9 million compared to $33.5 million last year on a margin of $12.2% compared to 12.3% in the fourth quarter last year. The decrease in income from operations is due to lower revenues compared to a year ago.

Net income was $12.4 million or $0.35 per diluted share in the fourth quarter compared to $12 million or $0.34 per diluted share in the same period a year ago. Our effective tax rate was 26.3% compared to 41.6% a year ago, due to a discrete item in the fourth quarter related to a change in our deferred state tax rate. Please move on to slide 13.

EBITDA was $78.9 million in the fourth quarter compared to $81.3 million a year ago, and EBITDA margins were 32.3% compared to 29.8% a year ago. Slide 14, please. SG&A was $55.7 million, a $1.9 million or 3.3% decrease over the same period last year. SG&A as a percentage of revenue was 22.8% this quarter compared to 21.1% a year ago.

Of the $1.9 million decrease, $0.9 million was related to increased branch expansion costs compared to a year ago. Next on slide 15, our gross fleet capital expenditures during the fourth quarter were $27.6 million (14:56), including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $5.5 million.

At the end of the fourth quarter, the size of our rental fleet based on OEC was $1.3 billion, a 3.7% or $47.4 million increase since the end of 2015. Gross PP&E CapEx for the quarter was $6.6 million and the net was $5.5 million. Our average fleet age as of December 31, was 33 months.

We generated $57.6 million of cash in the fourth quarter compared to $72.5 million a year ago, and we've included a free cash flow GAAP reconciliation to net cash provided by operating activities in the appendix at the end of the presentation, reconciled free cash flow for the same period is presented here on the slide. Proceed to slide 17, please.

At the end of the fourth quarter, our outstanding balance under our $602.5 million ABL facility was $162.6 million. And, therefore, we had $432.1 million of availability up quarter-end, net of $7.7 million of outstanding letters of credit. Slide 18. Let me quickly review our full year 2016 results.

To summarize, 2016 was a solid year given ongoing weakness in the energy markets and several significant weather-related challenges. Total revenues were $978.1 million, a 5.9% decrease over last year. Gross profit was $335.6 million, a decrease of 2.9% or $10.1 million.

With conservative fleet spending time utilization remained high at 69.7% and rental rates decreased 0.6% for the full year compared to 2015. Income from operations was $110.8 million on an 11.3% operating margin, compared $128.2 million on a 12.3% margin in 2015.

Net income was $37.2 million or $1.05 per diluted share in 2016, versus $44.3 million or $1.25 per diluted share in 2015. We finished the year with EBITDA of $302.3 million on a margin of 30.9% compared to $316.2 million on a margin of 30.4% a year ago.

We generated $62.6 million of free cash during the year, and we also continued our dividend payment each quarter, with total dividends paid of $1.10 per common share during 2016. I'll now turn the call back over to John for his conclusion..

Please proceed to slide 20. Thank you, Leslie. I've addressed all of these points in my previous comments. But, in summary, we are extremely encouraged about the trends in the equipment rental industry and opportunities for our business in 2017 and beyond. Lastly, as Leslie referred to, we paid our 10th consecutive quarterly cash dividend on December 9.

And in addition, the board recently approved our upcoming dividend to be paid on March 10. At this point, we'd like to take your questions. Operator, please provide instructions..

Thank you. We'll take our first question from Neil Frohnapple from Longbow Research..

Hi. Good morning. This is actually Faheem on for Neil..

Good morning..

Good morning. So I was wondering if you could provide some color as far as equipment that you moved back into the energy markets.

And, how would you describe the current rental rate environment in these select markets that you moved the equipment into?.

Sure..

I'll let Brad take that..

Yeah. So, the products we're moving in are broad based. They're all typical products we offer in the rental fleet, aerial work platforms, Telehandlers, General Equipment, including air compressors and some smaller earth-moving equipment.

The pricing is generally better in these select market oilfield markets, than it is the – more traditional commercial construction market, so good pricing. We're seeing prices increase in these markets and exceptional utilization in these market places..

Okay.

And, as a follow-up, what are your thoughts in the current supply/demand situation? And do you think your fleet is well positioned to meet higher demand in energy markets if it were to further accelerate given the backdrop of robust non-residential demand? And your comments in the slide, that you're taking a conservative fleet investment approach this year?.

Yeah. I mean, I think, the supply/demand is balanced out. I think, it's in a good shape. I think people are going to be showing solid utilization levels and we certainly think we can meet the needs of our end users in energy market as demand increases..

Okay. And just one more question if I can.

Can you provide any more color on what drove the drop in our service revenue in the quarter? I mean, was that primarily from weak crane demand? And what are your expectations for after-market business in 2017?.

It is from weak crane demand. We're just not doing any rebuild-type work, which is typically a big driver of our crane parts and service business. We're not getting that right now, so it's certainly crane-related, and our expectation's for next year for modest growth in our product support business..

Okay. Thank you. I'll pass it along..

We'll take our next question from Nick Coppola with Thompson Research Group..

Hey, good morning..

Hey, Nick. Good morning..

So, wanted to dig in more on rates. And, so 110-basis point year-over-year decline there, which was a deceleration from the previous quarter.

So, any way to think about the rate environment currently given that backdrop of that market's getting stronger and that excess fleet being absorbed? So, how to think about rates in the quarter and what are your expectations are for 2017?.

Well, look, the fourth quarter, you hit seasonality, you get into the holiday season. Your utilization starts to decline. So, you start to get some rate pressure there and the first quarter is always a tough quarter for rates. But, Brad is going to give you all some color on rates.

But, our expectation this year is that, as we progress into the year, we're going to see rates turn positive at some point this year. I think, you're going to see strong utilization levels and that is our expectation.

Brad, if you want to give some color on that?.

Yeah. Nick, I think I can give you a backdrop that will help a lot of folks on the call. Sequentially, Q3 I'm going back to – I'm talking in 2016. Q3 was sequentially improved over Q2. Q4 was sequentially improved over Q3, and you just referenced where we landed year-over-year for the year. But, we've been seeing these modest sequential improvements.

We spoke about it regionally before, we spoke about our product type. January, one month is not an indicator, but I can report to you that in January our rates were sequentially up over December. And that, as we sit today the eighth week of the month, that our utilization is ahead in all product types, where it was the same week last year.

So, as John just said, our view of rental rates to think that's coming to balance that the competitive landscape is more disciplined than it had been. Our utilization is running somewhat ahead of what it was the same time last year.

We have it – while we were disappointed with the year-over-year decreases in rental rates, we are encouraged by the sequential improvements and we expect those to continue at some modest level and at some point this year rates to turn positive for us..

Okay. That's great to hear. And then, want to shift gears to the industrial expansion in the Gulf. And so you had some commentary there.

Certainly, the opening of the Beaumont branch sounds like a vote of confidence, can you just talk more about the industrial expansion and how you expect their equipment needs to flow through your business in terms of rental and new equipment demand in 2017 and beyond?.

Look, Nick, I think everybody's been focused on how much construction starts have declined in the Gulf Coast, and they have. Of course, it's against a just a brutal comp that they're going up against. But, we're having some of these big projects wrap up right now and some of them are going forward to then and construction starts have slowed.

But, in visiting with large industrial contractors that we do business with, we're very confident there's another wave of industrial expansion coming to the Gulf Coast, primarily Louisiana and Texas.

And, that's the feedback we're getting and I can tell you it seems like every other week or so there's another project being announced in going into permitting and that sort of thing.

So, I think, we'd see a little lull here for six months or so in activity as some of this big stuff wraps up, but we're pretty confident there's another wave of it coming and that is certainly the expectation of the large industrial contractors that we deal with..

Okay. Great. Thanks for taking my questions..

Thank you..

We'll take our next question from Seth Weber with RBC Capital Markets..

Hey, good morning, everybody..

Hey, Seth..

Good morning..

Hey. Good morning. So, I think just a couple clarifications. First, the Texas, the energy – the Texas energy fleet utilization was 71.7%.

Was that up year-over-year? I know you gave us the sequential improvement, but is that up year-over-year as well?.

It is. Seth, if you look at our most exposed markets to the energy, I mean, utilization's running in the 80% range there right now. That environment has improved significantly. I don't want to tell you everything is rosy in the oil patch, but it has improved significantly..

Okay. That's great. And then, I guess, I think in previous calls you had talked about some collateral damage from pricing, from the larger national operators kind of coming into the Gulf market, on some of the bigger industrial projects, is that – just, previously, John, you said pricing is rational.

Does that include kind of these bigger industrial projects? Are you still seeing this, I guess, aggressive pricing that's from the bigger national guys that are coming into the local market or has that gone better as well?.

No. There is tremendous price pressure on these big projects. I mean, look, they're long-term projects, where you can put a lot of equipment and it stays there for an extended period of time. So, that is the most aggressive pricing we're seeing anywhere across our footprint is in the Gulf Coast on these big projects. It's still very aggressive pricing..

Okay. Okay. Thank you. And just lastly, CapEx. I know you don't like to guide on CapEx, but sort of this – you guys have been flattish here for the last couple of years.

Is that a fair way to kind of start thinking about the year that you're going to keep levels pretty consistent until you get some better indication one way or the other?.

Yeah. Seth, I mean, look, I think we're going to continue to be conservative with our capital spending until we see rates turn positive. I think that's always been a trigger point for us. With that said, I think, you'll see a little fleet growth for us this year. Our gross spend may be down a little bit, but we're not going to sell as much fleet.

And that's not a market issue. That's by design. We've got a very young fleet age and we don't have a need to sell that stuff. So, I think you'll see our fleet grow kind of mid-single-digit growth..

Terrific. Thanks very much, guys. Very helpful..

Thank you..

We'll take our next question from Joe Box with KeyBanc Capital Markets..

Hey, good morning, everyone..

Good morning..

So, John, I appreciate your comments on the current industrial pipeline. I guess, you know, now that we're a few years into the construction of these facilities, can you maybe just talk to your share on these projects.

And, maybe if you think that share changes going forward with a little bit less headwind in the oil patch?.

Yes, Joe. Look, our share is not – I mean, we do well on those projects, but it is not a big driver of our rental business. We're on a lot of those projects. I don't know how to calculate our share. It's meaningful to us, but it's not a huge driver of our rental business. I can tell you, it soaks up a whole lot of equipment in this marketplace.

Sometimes it's at rates that we're not willing to participate at, but it's important to us for a lot of reasons, but it's not a huge driver of our rental business..

So the perceived benefit going forward would be more of an indirect benefit in terms of absorbing some of the excess capacity and maybe projects that are derivative, smaller projects?.

I think that's fair. Now, look, I don't want you to think we aren't on these big projects. I mean, we have a lot of equipment on Sasol (30:13). We do participate in these projects, but we're not – our performance on the rental side is not heavily reliant on those projects..

Got it. Maybe switching gears, with the energy business bottoming, can you maybe just talk a little bit about crane activity? I certainly appreciate the comments that it may take $60 oil for people to pull the trigger on orders.

But, what I'm trying to understand is if the crane business is completely washed out now within new and used and even the rental business..

The crane business is tough right now. I mean, I'm sure you guys listen to Manitowoc's call. The demand is weak. We have no expectation that we're going to see significant improvement in 2017. I do think oil can be a trigger point to really move the needle there, but rates are weak.

Demand is about as soft as I've seen it and we have no expectations for significant improvement in 2017. I think it's probably going to be in 2018 before we see that..

Is it bottoming though?.

I think so. Yes. I don't see it can get much worse than it is. I think it's probably bottoming and I think it's going to bump along the bottom for a while, at least through 2017..

Okay. So, if that's the case, maybe switching gears to the SG&A side, question for Leslie. How should we be thinking about SG&A in 2017? I guess, on a dollar basis, can we just look at 2016 as a baseline and then think about maybe a few million dollars of growth from new locations.

And then, maybe a little bit more incentive comp, just trying to kind of nail that down in the model..

Yeah. I think that's fair. I mean, with the greenfield expansion that we've got included in our model, I think you'll see some pressure as a percent of revenue. So, that kind of gets you back to what you're saying. Slight....

Okay..

...slight pressure as a percent of revenues..

Got it. And then, maybe one last just last general question for you. So, just curious what the service backlog looks like right now, if it supports growth in 2017 and what that tells you about the broader construction backdrop..

And you're talking about on the service side of our business?.

Yeah. Just – I know some of those have longer lead times and just curious if there's any sort of read-through that could be made to what's going on from a construction standpoint..

Sure. Joe, a big driver of our parts and service business, as we've spoken about before, is cranes, and there's very limited visibility. We have seen increased quote activity on stagnant products that customers own and they're waiting to fulfill contracts and get a little better visibility.

So, that could be one of the first indicators that the crane business is really meaningfully starting to improve, because we're having those conversations, how will that materialize.

You know, what we've said, I think, just a little earlier is that we expect modest improvement in our overall parts and service business this year and that has an opportunity to do maybe better than not achieve that number and it would be tied to cranes.

But right now, it's more the same, limited visibility, but there's plenty of potential should things start to gen up for (33:57) these crane customers..

Appreciate it, Brad. One more if I may, so just when we think about the used equipment sales, I get it that you have a pretty young fleet and there's not a lot to sell.

But, can you help us, from a modeling standpoint are we looking at down 10% plus again in terms of used sales? And maybe how we should think about the change in used prices and how that could impact the segment?.

So, let me speak to pricing. I think, you can expect similar pricing. Pricing's been pretty good and you know there's been a little bit of speculation around poor pricing, but you got to take it by the product segments. In our view, pricing's been pretty good and it remains very steady.

Now, if we were to go out and try to dispose of large quantities of our crane fleet in an auction or something like that, I think we would not like the pricing. We're not going to do that.

We're going to just stick with it as we have, but around the declines, I'm not sure if Leslie wants to comment or give guidance around what declines we're looking at, but we're going to sell less fleet in 2017..

Yeah. And, again, Joe, I want to emphasis that's not a market-drive. That's based on design. We just -as we don't want to sell that fleet at the level we have been, so we're going to reduce that. And as I've said earlier, you'll see a little fleet growth out of us. We will spend some growth capital this year..

Fair enough. Thank you, guys..

Thank you..

We'll take our next question from Steven Fisher with UBS..

Thanks, good morning..

Good morning..

Good Morning, 2016 was certainly a solid year for your rental business, but the rental revenues and profits have kind of flattened out year-over-year. And I know you won't give us quantitative guidance, but I'm just trying to put all the pieces together to help at least determine a direction.

And so, if I heard you correctly, it sounds like you've got a little bit of fleet growth. You've got an expectation that your utilization will be up year-over-year, but partly offset by declining rates for the full year, even though it will -as they will turn positive at some point during the year.

So does all that add up to flat or up or down? How should we think about that? Did I miss any of the pieces?.

One, we're not telling you rates will be down year-over-year. That is not our expectation..

Okay..

I think, we should expect some modest increase by year-end. And our rental business will absolutely be up year-over-year..

Okay. But, when you say modest increase by year-end, you mean for the full year is what you're saying....

For the full year..

Okay. Great. And then, in terms of crane utilization, I know you were talking about it kind of bouncing around the bottom, utilization hit its kind of a double-digit percent decline year-over-year in the fourth quarter.

What should we expect for utilization of the crane fleet in 2017?.

Yeah. So, I think 2017 will be better than 2016 with physical utilization. At the same time, I think, you need to keep in perspective that our crane fleet's about 9% of our overall investment. So, I mean, it matters to us. It's important to us, and it certainly did not help us. It was a detractor last year in our overall utilization declines.

But, to answer your question, 2017 is, we believe, likely to be better with physical utilization of cranes, but keep in mind that's 9% of our overall rental fleet..

Okay. And then lastly, John, and you mentioned $60 oil is what it would take to get crane sales going.

What is it about $60 oil versus low-to-mid $50s that that will get crane sales going? Is it sort of just a psychological thing or is there a specific category of projects you're thinking of that that need that bit more of economics to really get over the hurdle?.

Look, there's nothing magic or scientific about that number. That's a number we use. I think it is maybe somewhat psychological and nothing magic about it. But, in talking to oil producers and oil field service companies, they feel like that that's a trigger point. If we can get to $60 or above and stay there, I think, it makes a material difference..

Steve, (38:57) let me add onto John's comment. He just said stay there. Stability is the issue. When we're renting products and we're seeing our rental utilization increase and we're starting to grow our rental fleets in these oilfield markets, those are shorter term deals and they're pure rentals.

When we talk about purchases of cranes, these could be $1 million or multi-million investments and these are long-term decisions that these customers are making. So, I think, it's all about the stability that they see in the marketplace. And so, I think the $60 is a number, where we feel comfortable from interacting with our customers.

They can make nice profit levels. At the same time, stability is going to be the issue for them to have meaningful purchases..

Yes. That makes sense. Thanks for the color. Appreciate it, guys..

You bet..

Thank you..

We'll talk our next question from Sean Wondrack with Deutsche Bank..

Hey, there, John, Leslie. It's Sean Wondrack..

Hi, Sean..

Couple of quick questions about the O&G market. So when you look at time utilization, down slightly year-over-year.

How did your O&G markets impact time utilization during the period?.

Positively..

I think the performance was fairly similar to the overall utilization and....

Yeah. I don't think it hurt us..

Yeah. It was positive, but it was similar..

Right. Can you talk about maybe....

Not a big push up. (40:30).

...a couple of the categories that were stronger and some that were weaker within your fleet during the period, please?.

Just specific to oil and gas or just our overall rental (40:42) fleet..

In general, whether it's earth-moving dirt or AWP, you said was strong.

Just even within the different categories?.

Yeah. Cranes were the weakest. We spoke about that and everything else was probably pretty similar slightly down incrementally across most products, but – and I was speaking of Q4..

Right. Okay. And then when you think about the oil and gas markets, you guys said you were 5% exposed during the quarter.

How much have you fallen in terms of your exposure, call it, two-and-a-half years ago to now or two years ago to now? What did that number used to represent?.

At the peak, it was about 13% of our total revenue. Today it's 5%..

Okay. And then, one of your competitors talks about just generally speaking kind of the size of the opportunity if that that market should kind of return to more of a normal kind of state.

Do you guys have any kind of estimate of how much – should the oil and gas market begin to rebound and stabilize, what that kind of potential demand could mean for you guys? Would that be $13 million of (42:03) revenue....

Okay. I'm thinking it could go back..

Yeah. Look, it could be really good for us is the answer as it was before. What I would tell you is that, as we reenter or add to our existing inventories in these oil and gas markets, we're going to continue to do so at more premium pricing..

Right..

Which would give us premium returns on our assets, so we're going to be maybe a little bit more cautious. Although, I think we did a pretty nice job in the last cycle of both, ramping up and then moving those assets out in a timely manner when the market's contracted.

I think something also that you should keep in mind is, we said that our products are fungible across our footprint. We represent no specialty products, right? We're not in things that are special after (42:50) oil and gas or even things that could be heavily tied like pump.

So, our products that we rent in the oilfields are the same products that you'd see on an average commercial job site..

And your sales force or people out in the oilfields, what are the dynamics they're seeing out there? Are they seeing some drillers and frackers who were previously hanging around waiting for oil prices drop out? Has the competitive intensity declined at all? Are you seeing more activity out of the bigger guys? Can you talk a little bit about how that's been trending please?.

Yeah. Well, previously, I mean, there were some folks who didn't make it. I mean some folks were insolvent and were liquidated, so I think there's probably less competition today. We see more activity out of the smaller drillers to-date, but there is also activity with some of the larger firm..

Great. Thank you. That's very helpful. And then, just quick question, I don't know if you guys have this offhand.

What is your current restricted payment capacity under the 7% unsecured notes?.

I do have that calculation, but that's not something really that we have disclosed in the past, so..

Okay. Fair enough. And then just lastly, when I look at your bonds, the 7% notes are callable in 2017. Have you guys thought about potentially refinancing them? Peers are – they're trading yield to call already.

What are your thoughts on that, please?.

Yes. Well, like you say, they're callable in, I think, September at 103.5 (44:33) and that's something we're constantly looking at and evaluating. And, we'll make that decision on refinancing at the appropriate time..

All right. (44:50)..

We're always looking at that..

Thank you. John, I was very encouraged by your remarks on the call today. Thank you and good luck moving forward..

Thank you..

That concludes today's question-and-answer session. At this time, I would like to turn the conference back to John Engquist for any additional or closing remarks..

Look, we are encouraged by what we're seeing. We think the construction markets are going to be solid. We believe that, although there may be a lag here in industrial activity in the Gulf Coast, there is another round coming that's going to be significant. So, we feel good about where we're positioned.

Appreciate you guys being on the call and we look forward to talking to you next quarter..

This concludes today's conference. Thank you for your participation..