Good morning, and welcome to the H&E Equipment Services Fourth Quarter 2018 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, Nicole, and welcome to H&E Equipment Services conference call to review the company’s results for the fourth quarter and year ended December 31, 2018, 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 2.

Conducting the call today will be John Engquist, Executive Chairman of the Board of Directors; Brad Barber, Chief Executive Officer and President and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to slide 3.

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, and in the appendix to this presentation each of which are available on our website. Before we start, let me offer the cautionary note.

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.

A summary of these uncertainties including in the Safe Harbor statement contained in the company’s slide presentation for today’s call, and also includes the risks described in the risk factors in the company’s most recent annual reports on Form 10-K and other periodic reports.

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 2018 earnings call. As we announced in November of last year, effective January 1, Brad was appointed Chief Executive Officer and President, and I assumed the role of Executive Chairman of the Board of Directors.

Brad has been instrumental in H&E’s success over the past 21 years, and we look forward to his leadership and his contribution to the company’s future growth. As Executive Chairman of the Board, I will lead H&E and its strategic planning, and oversee merger and acquisition opportunities on a full-time basis.

I will continue to work with Leslie to ensure we have the appropriate capital structure to support our growth plans and to maintain the financial health of the company. So let me now turn the call over to Brad..

Thank you, John and good morning everyone. Before I share my comments about the fourth quarter and our full year 2018, I want to thank John for his leadership and for his friendship. For more than 20 years, I’ve worked as part of a team with both John and Leslie.

Our roles are changing, and we will continue to work as a team in support of one another, and the continued growth and improvement of H&E Equipment Services. Thank you, John.

Slide 4 please; my comments this morning will focus on our fourth quarter results, our business including growth strategy and overall market conditions, and then Leslie will review our financial results for the quarter and year. When Leslie finishes, I will close with a few brief comments, after we will take your questions.

Slide 6 please; our results for the fourth quarter were strong, as our rental business benefited from the ongoing broad-based demand in the non-residential and other end user construction markets we serve across the country.

Our distribution business also performed well with new equipment sales exceeding expectations in the fourth quarter, over what we believe to be a very strong comp a year ago.

New equipment sales were up 7.1% in the fourth quarter from a year ago, total revenues increased approximately 17.4% to 346 million in the fourth quarter, our gross margin increased to 35.6% from 34.2% a year ago, primarily due to revenue mix and strong performance of several business segments.

Adjusted EBITDA grew 26.2% to 114.6 million and margins improved to 33.1% from 30.8% a (inaudible) ago. In the fourth quarter, pretax income was 34.8 million, a 26.1% increase from a year ago. Net income was 25.1 million or $0.70 per diluted share, compared to 85.9 million or $2.40 per diluted share a year ago.

We recorded an income tax expense of 9.7 million, versus an income tax benefit of 58.4 million a year ago. Our effective tax rate was 27.9% in the fourth quarter of 2018, versus a negative 211.7% a year ago.

Leslie will provide more details on the year-over-year comparison and prior period tax benefit, which was the primary driver of the difference in net income, income tax expense, and our effective tax rate versus the prior fourth quarter.

Slide 7 please; project activity in the non-residential construction market remains healthy and we continue to achieve great improvement in our physical utilization levels; as a result, rental revenues increased 27.6% to 163 million in the fourth quarter, dollar utilization was 37% compared to 36.2% a year ago, and rates increased 2% year-over-year and 0.5 point sequentially.

Lastly, we remain focused on improving the quality of our rental revenues. We expect to continue leading the industry with our physical utilizations, while we also improve our rental rates.

Slide 8 please; this slide illustrates our existing footprint in various region, 96 total branch locations, including the 20 Greenfields sites that we’ve opened since the beginning of 2013. The eight branches we acquired in the CEC and Rental Inc.

acquisition in 2018, as well as the six locations we gained with the We-Rent-It acquisition in Texas, which closed on February 1.

As you can see from the locations on this acquisition map, we are pursuing opportunities that improve our density in existing growth markets’, expansion opportunities into the new markets with solid construction growth characteristics are also being evaluated. The pipeline for both of these acquisition opportunities is healthy.

Slide 9 please; I’d like to make a few comments regarding the data on this slide, which details the revenue generation on a last 12 month basis by end-user market in our fleet mix as of the end of the year. The key takeaway is, we believe our focus on non-residential construction market is a strategic advantage for our business.

We believe our results have validated the strength in this market. The other end user markets we serve remain strong as well, and on the next slide, I’ll highlight the positive trends in the market conditions. We also have a diversified customer base that is involved in a wide variety of types of construction projects.

We believe that fleet mix and age continues to be a competitive advantage for our business as well. We have one of the youngest fleets in the industry at 34.5 months, compared to an industry average age of 45.4 months. Slide 10 please; we believe the outlook for construction markets we serve remain solid for 2019.

Both industry indicators and customer center are in a positive. Dodge Data and Analytics reported that its momentum index for the full year 2018 was up 4.3% from 2017. The index measured non-residential building projects that have entered planning and have shown to indicate construction spend in the next 12 months.

The Architectural Billing Index also continues to indicate expansion markets, with 15 consecutive months above 50 threshold. The American Institute of Architects is also projecting residential spending to grow 4.4% in 2019. US public construction spending grew year-over-year for the 11th consecutive month in November 2018.

The American Rental Association is forecasting continued rental industry revenue growth in North America through 2022, with increases of 5.5% in 2019, 5.9% in 2020, 5.1% in 2021, and 4.7% in 2022. The energy market remained solid despite fluctuation in oil prices.

While our exposure to oil and gas industry is low at 7% of total revenues, demand on energy related projects remains strong. During the fourth quarter, time utilization in our oil and gas focus markets was 75%.

As a result of increased energy related activity in the Permian and Eagle Ford basins, our branches that serve these markets are also benefiting from increase in general non-residential construction projects to support the elevated energy activity.

Another wave of large scale industrial projects along the Gulf Coast is beginning to occur, with several projects being announced since our last call in October.

The growth of the Gulf Coast liquefied natural gas industry is also expected to accelerate in 2019, with energy research from Wood Mackenzie forecasting several new energy projects injecting 20 billion into the region over the next four years.

Lastly, and very important to me; our customers remain confident about the level of projects in their pipelines. Overall, our outlook regarding the end user market demand is positive for this year. Now I’ll turn the call over to Leslie for our financial results in more detail.

Leslie?.

Good morning, everyone and thank you, Brad. I’ll begin on slide 12 to cover the financial results in more detail. We were excited to end 2018 with such strong results, and our business performed well from many respects. So I’ll just go ahead and move into the details of the quarter at this time.

Our total revenues increased 17.4% or 51.3 million in the fourth quarter, compared to the same period a year ago to 346 million, largely driven by the strength in both our rental and distribution business. And as Brad mentioned, rental revenues increased 27.6% to 163 million.

Physical utilization remained high, with average time utilization based on OEC of 72.9% for the quarter, compared to 74.2% a year ago.

The decline in physical utilization was mostly due to lower AWP physical utilization of 74.1% on an OEC basis, compared to 76.6% a year ago, which was the result of the significant expansion of our AWP fleet in 2018, combined with a challenging prior year comp. Conversely, both crane and earthmoving utilization increased compared to last year.

Our rental rates improved again this quarter 2% year-over-year and rates improved in all product lines except lift truck. Rates also increased 0.5% sequentially, increasing in all product lines except lift truck. With strong utilization in rates, our dollar returns were 37% versus 36.2% last year.

New equipment sales increased 7.1% or 5.3 million to 79.7 million, compared to $74.4 million last year. The net improvement in new equipment sales was primarily driven by higher aerial and crane sales, which were up 95.5% and 5.7% respectively.

Used equipment sales increased to 17.8% or 5.7 million to 37.8 million, largely as a result of higher use AWP sales. Sales from our rental fleet comprised 88% of total used equipment sales this quarter, compared to 93% a year ago. Our parts and service segments delivered 45.8 million in revenue on a combined basis, up 4.6% from a year ago.

At this time, I’ll move on to gross profit and margin; our gross profit increased to 22.1% or 22.2 million to 123.1 million from 100.9 million a year ago, and our consolidated margins were 35.6% compared to 34.2% a year ago, primarily as a result of shift in revenue mix to higher margin in rental revenues, combined with improved year-over-year margins in rentals and new equipment sales.

For gross margin detailed by segment; rental gross margins for the quarter were 51.5% during the quarter, compared to 51% in the year ago quarter, primarily due to higher rental revenues and lower maintenance and repair costs and other rental expenses as a percentage of rental revenues.

Margins on new equipment sales increased to 12.7% for the fourth quarter, compared to 11% a year ago, largely due to higher margins in all product lines. Used equipment sales gross margins were 29.1%, compared to 31% last year, and margins on pure rental fleet only sales were 32.3%, compared with 32.5% a year ago.

Parts and service gross margins on a combined basis were 40%, compared to 41.5% a year ago. Slide 13 please; income from operations for the fourth quarter of 2018 increased 26.4% to 50.9 million, a 14.7% of revenues, compared to 40.3 million or 13.7% of revenues in the year ago quarter.

The increase was primarily a result of revenue mix and strong margin results in our rental and new equipment businesses.

Proceed to slide 14; net income was 25.1 million or $0.70 per diluted share in the fourth quarter of 2018, compared to net income of 85.9 million or $2.40 per diluted share in the fourth quarter of 2017, and as a reminder, we recorded an income tax benefit of 58.4 million in the fourth quarter of 2017, as a result of a one-time revaluation of our deferred tax assets and liabilities, due to the decrease in the corporate federal income tax rate enacted in December of 2017.

Our effective income tax rate was 27.9% in the fourth quarter of 2018, versus a negative 211.7% a year ago with the primary difference due to the decrease in corporate federal income tax rate from 35% to 21%. Note that pre-tax income was 34.8 million, an increase of 7.2 million or 26.1% from a year ago. Please move to slide 15.

Adjusted EBITDA was 114.6 million in the fourth quarter, compared to $90.7 million a year ago, an increase of 26.2%. Margins expanded 230 basis points to 33.1% this quarter, compared to 30.8% a year ago. Margins increased for the reasons previously mentioned on the income from operations margin discussion on slide 13.

Next slide 16; SG&A expenses for the fourth quarter of 2018 were 73 million, compared with 60.5 million the prior year, a 12.6 million or 20.8% increase. SG&A expenses in the fourth quarter of 2018 as a percentage of total revenues were 21.1% compared to 20.5% a year ago.

The increase in SG&A was due to higher labor, wages, incentives, related employee benefit costs, and other employee expenses of 8.1 million, largely related to the CEC and Rental Inc. acquisitions completed in 2018, a larger workforce and higher compensation related to our improved profitability.

Labor costs and facility rent expenses increased 0.5 million and 0.8 million respectively. In addition, our results for the fourth quarter of 2018 increased 0.9 million of amortization expense, associated with the recognition of intangible assets resulting from the CEC and Rental Inc. purchase price allocation.

Expenses related to Greenfield branch expansions increased 0.4 million, compared to a year ago. Next on slide 17; our growth fleet capital expenditures during the fourth quarter were [$66.4] million, including non-cash transfers from inventory and net rental fleet capital expenditures for the quarter were 33.3 million.

Gross PP&E CapEx for the quarter was 7.9 million and net was 6.6 million. Our average fleet age as of December 31 was 34.5 months. Our free cash flow for the fourth quarter was [59.8] million, and this compares to free cash flow of 43.4 million a year ago, and we’ve included the GAAP reconciliations at the end of this presentation.

Next on slide 18; at the end of the fourth quarter, the size of our rental fleet based on OEC was 1.8 billion, a 25.7% or 361 million increase, which includes (inaudible) growth related to acquisitions from a year ago. Average dollar utilization was 37%, compared to 36.2% a year ago.

Proceed to slide 19 please; at the end of the fourth quarter the outstanding balance under the amended ABL facility was 170.8 million. We had 571.5 million of availability at year-end, which is net of 7.7 million of outstanding letters of credit.

On February 1st, we amended our ABL facility, primarily to extend the maturity date from December 2022 to February 2024, and to lower our interest rate [risk] by 25 basis points. We maintain a strong balance sheet with ample liquidity and are very comfortable with our capital structure, and it continues to support our growth strategy.

Proceed to slide 20 please; let me quickly review our full year 2018 results, which we believe reflects solid operational execution, increased demand in our end-user markets, and follow-through on our stated growth strategy. Total revenues increased 20.3% or 208.9 million to 1.2 billion in 2018 from 1 billion in 2017.

Gross profit increased 21.8% or 78.6 million to 438.5 million from 359.9 million in 2017. Income from operations in 2018 increased 20.8% to 166.6 million or 13.5% of revenues, compared to 137.9 million or 13.4% of revenues in 2017. The year-ago period, included 5.8 million of merger breakup fee proceeds, net of merger cost.

Excluding the net proceeds, 2018 income from operations increased 26.7%. Our net income was 76.6 million or $2.13 per diluted share, compared to net income of 109.7 million or $3.07 per diluted share in 2017.

We recorded income tax benefit of 50.3 million in 2017, due to the one-time re-measurement of our deferred tax assets and liabilities, resulting from the decrease in corporate federal income tax rate from 35% to 21% as I previously mentioned.

The effective income tax rate was 26.8% in 2018, compared to a negative 84.8% in 2017, and adjusted EBITDA for 2018 increased 23.9% to 405.4 million from 327.1 million in 2017. Adjusted EBITDA as a percentage of revenues was 32.7%, compared with 31.8% in 2017.

Our free cash flow was a use of 279 million in 2018, compared to free cash flow of 73.1 million in 2017, largely as a result of higher net [free] investment of approximately 180.3 million and 196 million used to complete our two acquisitions during the year.

We also continued our dividend payment each quarter with total dividends paid of $1.10 per common share during 2018. And at this time, I’ll turn the call back to Brad..

Thank you, Leslie. Please proceed to the slide 22; 2018 was a good year for our business, and I want to thank all of our employees for their hard work and dedication. We remain focused on additional growth through acquisitions, warm start to same store opportunity. Lastly, we paid our 18th consecutive quarterly cash dividend on December 7.

As always future dividends are subject to Board review and approval each quarter. Operator, please provide instructions..

[Operator Instructions] We’ll take our first question from Neil Frohnapple with Buckingham Research..

First, could you just talk about plans for capital allocation in 2019? You invested a significant amount in fleet in 2018 given the strength in underlying demand, your fleet age is extremely low, but time utilization is running higher year-over-year, currently it sounds like on a significantly larger fleet and you have obviously a positive outlook for ‘19.

So could you just talk about how you plan to manage this dynamic and whether and how you’re thinking about growth CapEx in 2019 at the moment?.

Our current view is to moderate our fleet growth. We’re certainly going to continue to grow our fleet; we’re well focused on improving the quality of our rental revenues as a stated in my prepared comments. We’re going to get a heck of a benefit from the full year investment.

We’ve got these acquisitions that are performing very well and growing, but the commentary we give you at this point about 2019 capital investment would be more moderated from last year, but we’re certainly going to have some level of growth and expect to see improved metrics within the revenues..

And then Brad, could you provide more granularity on what drove the stronger-than-expected new equipment sales in the quarter, especially the higher crane sales year-over-year in light of the extremely difficult comparison, and then just sort of your outlook for this business going forward?.

As we said for a few years, cranes can be really difficult to pinpoint, some of these are very large assets, 1 million, 2 million, $3 million assets, and we were able to capitalize between a good availability quality product from (inaudible) and customer demand late in the quarter, which were able to seize those deal.

So it remains a little lumpy, we’ve been saying for a couple of years it’s getting more consistent, and it certainly has been, but we exceeded our own internal expectations, I can tell you that as it pertains to crane sales in Q4..

And I think the crane market has been in a trough for so long and the recovery has been pretty modest, and I think there has been some pent-up demand there that we probably capitalize on in the fourth quarter..

And just as a quick follow-up to that, what drove the strength in the new equipment gross margin in the quarter, was that primarily a mix or was some positive pricing coming through, just any thoughts there? And I’ll pass it on. Thank you..

We certainly are focused on trying to improve our margins to the extent we can, but it is always an impact from mix, and I would tell you that our team has been very focused on improving the quality of revenues in every revenue source, including new sales..

And we’ll move on to our next question from Steven Ramsey with Thompson Research Group..

This is actually Brian Biros on for Steven.

Are there any areas across the US that might see too much fleet or rates are underperforming, overall it’s a generally positive environment, but are there any pockets across the US that are perhaps underperforming or just not as strong as the total company?.

No, not really. And I’d tell you, we look at geographies, we look at product type, we look at revenue source, and even within rental. It’s pretty equally spread. Our performance for improvement is pretty equally spread, our utilization period-over-period is pretty similar across all geographies and product mix.

So, no as it pertains to concern of over population of equipment, I’ll tell you that we see our competitors being very rational and focused on the quality of their revenues as well, and our outlook for 2019 is going to be very similar to I believe our 2018 results, meaning positive growth but discipline as it pertains to the quality of our revenues..

And then a quick follow-up; overall outlook 2019, pretty positive across the board, we’ve had some [contact] share that they’re a little more cautious about the back half of 2019 or even 2020.

Not negative just cautious, and I was wondering if that’s something you guys have seen or heard, maybe that’s a regional trend or any color on that topic would be appreciated?.

Yeah, this is John. Look, we think the environment is very positive. With that said there are some macro issues out there that I think, give some people calls for concern. There some trade issues that we hope get resolved, the housing market softened a little bit, oil has been kind of volatile.

So I think everybody’s paying attention to those things, but overall, we think we’re in a very positive environment..

Yes. I’d also add that our outlook for the Gulf Coast for 2019 is actually increasing and not decreasing. So, we cover most of the country, but not all of the country, and I think we’re probably in the best footprint we could possibly be in. So that may also be an offset to things you could hear from somewhere else.

But our geographies, the view is remaining strong throughout 2019..

And we’ll take our next question from Seth Weber with RBC Capital Markets..

This is [Brendan] on for Seth. I was wondering if the current SG&A levels, is that sort of the 21% of sales, is that the new kind of run rate as we should think about it or does that step back down..

So (inaudible) if you look at the full year 2018, we ran at 22.5% as a percent of revenues, and I do expect that we’ll have some slight pressure on SG&A as a percent of revenues looking into 2018, and the factors that contribute to is going to be primarily our new locations, whether that be acquisitions and warm start, that certainly contributes to that.

And then also as you know, we have a focus on growing our rental business, and when we grow our rental business, it just takes more people to run that portion of our business, than it does the other segments of our company. So that’s the other factor that I would point to.

So we will see some slight pressure in SG&A as a percentage of revenues in 2019, but I will look more at that, 2018 as a base when I am speaking to that..

And then if I could touch on the crane market, just real quickly again. Obviously your outlook is positive there, kind of coming off of the bottom. I was wondering if you’ve seen any rebuild activity picking up from here..

We have seen some minimal rebuild activity, but still nowhere in the range of traditional or typical, so yes, we have, we continue to do considerable repair on structural damage type products, some rebuild, but we’re still not seeing the level that we’ve enjoyed historically..

And one last one if I can, what was the contribution to sales from your acquisitions in the quarter?.

We haven’t really broken that out separately for the public just because we do operate those as really all, they’re fully integrated and so we’re consolidating branches if necessary, transferring equipment that sort of thing. So it’s really not a pure number.

I would just tell you for the quarter, if you were to remove the contributions from the acquisitions, the company is still up double-digit, very, very solid. So that’s about as much color as I will give on that..

And we’ll move on to our next question from Stanley Elliott with Stifel..

When we think about kind of the expansion or growth plans into next year, is there a preference for you all from an M&A or from a Greenfield perspective? And then kind of with leverage it to (inaudible), where are the comfort levels, my feeling is that that hasn’t changed, but just to kind of get your perspective would be great?.

Let me answer the last part of your question first; our perspective on leverage is not changed nor do we expect it to change, as far as our comfort. As it pertains to how do we view acquisitions versus Greenfields or, we are more typically referred to now is warm starts, we’re opportunistic.

If it’s a new market, where H&E does not have a presence, we don’t have locations, people are warm customer base, we are more likely to enter through acquisition, as opposed to when we look at our Greenfield or what we more frequently refer to the warm start strategy.

We look at existing territories where we have some existing customers, some existing employees, some name recognition, we really have a finger on the pulse first hand. So, that’s how we’re looking at the growth and expansion.

We certainly, as you can tell by looking at the map, we’re happy to fill in our existing geography with acquisitions as well, but we would enter a new market through an acquisition, we’re not likely to enter new markets through Greenfields, but we’re going to continue to do a balance of both..

And one comment I would add to that, we think we can do two to three of these smaller acquisitions, tuck-in type acquisitions a year and not move our leverage in any material way..

I agree and the payback on those has been pretty impressive.

On the crane sales, do you get a sense that people are expanding their fleets, and you mentioned kind of the 1 million, 2 million to 3 million in size, so those seem to be some of the larger sorts of projects, any thoughts around that, and some of that I guess anticipation of some of these larger Gulf Coast projects that you had mentioned coming on in 2019?.

None of it’s around the 2019 projects in the Gulf Coast as of yet, and Stanley, it’s really more of a product mix issue. The market had really heated up and been better on the all-terrain product, and the price point for that product starts at about $1 million, generally speaking and moves up from there.

Crawler cranes are still spotty, now we are seeing some increased activity for quoting these products in anticipation of some of the works you referred to (inaudible) spoke about in the late 2019.

And on the rough terrain side, it’s still again very spotty, we’re seeing some additional fleet sales out of our rental fleet on the RT cranes, but just not a heck of a lot of activity on new RT products. So it’s limited, we are selling some new products, but that’s the one area, we’ve not seen move forward faster.

That’s kind of surprised us to this point..

And last from me on the slide, you had mentioned infrastructure bill, we’re starting to hear some more positive commentary about the potential percent later in the year. I’m assuming that you all are kind of hearing that same sort of thinking coming out of Washington, and it’s hard and handicapped.

But do you have any sort of confidence or any further thoughts that would be great?.

I’m like you, it’s hard to handicap, obviously an infrastructure bill would be huge for the entire rental sector, it would be a very positive development. But you know how to handicap the chaos going on in Washington is beyond us..

Look the one thing I would add is, we talk to our regions, our employees that are in the field. Their view is very bullish and they’re getting this from their customer base. So, we are absolutely here in the same thing and we’re hearing it from both directions; the end-user as well as some of the reported material..

[Operator Instructions] We will move on to Erika Jackson with UBS..

I just had a question digging more into your rental revenue expectations for 2019. I know you said you’re focused on improving the quality of them, and growing them with discipline.

So, just kind of thinking about like the puts and takes within rental rates and time utilization and dollar utilization, and I know the comps are kind of hard, but are you expecting all three of those metrics to be up year-over-year next year?.

I think all three could be up. Rental rates, we continue to remain positive, we expect we’re going to continue that trend. Probably it will be similar to our 2018 performance. Utilization, we started the year of running ahead, year-over-year with physical utilization, current weather conditions have kind of got us flattish year-over-year.

Right now we think that’s a short term scenario, and that will likely recover. And I do believe we can inch out, incrementally improve fiscal utilization in ‘19 over what we achieved in ‘18. So yes, I do think, all three have a reasonable chance to continue to improve for 2019..

And then just one more, a broader question kind of on the industry, have you seen any impact on industry consolidation, that you guys are acquiring from companies, other rental players are making acquisition.

Has that industry consolidation kind of affected the competitive landscape at all, and then similarly, have you seen any maybe increased competition from new players that maybe are your traditional rental players?.

Not really, it’s more of the same. There is always going be opportunity with some of the larger companies’ similar size to ours are acquired. We seem to find opportunity with employees and select customers. More competition from new players? No.

We get the same cast of players out there, and I suspect we will and the good news is, everyone is operating in a very disciplined way and I believe we’re all collectively focused on improving the quality of our revenues..

And we’ll take a question from Michael Feniger with Bank of America..

We’re seeing some of your suppliers really complain about higher cost inflation, higher raw materials, and with a strong rental backdrop, are you seeing the suppliers getting aggressive on pricing in 2019? I know you guys invested heavily in the fleet in 2018 and should benefit.

Is this what you’re seeing from the supplier base on equipment pricing, is that changing your view at all on CapEx?.

It’s not. We’re seeing from no increase to 1% to 2% probably as an average. There are certainly a few suppliers who have been a little heavier than that, but we’ve got alternative sources.

So, no, they need to get some price increases and we need to get ours, but they’re not asking for anything that’s unreasonable that would deter from our view of growing our business in a healthy way. So you know very, very mild price increase..

That’s helpful, and just lastly, are you seeing anything abnormal in the used equipment market, just anything with values that has really changed over the last few months across your equipment categories?.

No. Everything is kind of been seasonally adjusted, but our used equipment values remain very healthy..

And we’ll take our next question from Bill Mastoris with Baird & Company..

I’d like to go back to some of your earlier comments, John, when you talked about two to three, maybe tuck-in acquisitions annually without significantly impacting the leverage, which I assume is still in the 2 to 3 range as you articulated a little bit earlier.

But if you did find the right acquisition, that could substantially move the needle and change your business, how far are you willing to stretch the balance sheet?.

We would be comfortable with four times leverage in a transformational acquisition..

And then on the crane side, I hate to beat this to death, it appears as though the crane sales since the end of the year, given your comments have slowed down just a little bit.

Is that an accurate portrayal or might there be those sub-segments which maybe you see signs of picking up just a little bit?.

Well I would tell you, we’ve got one month under our belt, so it’s kind of hard to call one month as a slowdown or pickup. I will tell you that our short-term view is that our sales of volume will probably be very similar in crane sales in Q1 of this year as compared to Q1 ‘18.

We don’t normally get in the quarters, nor do I want to in the future, but to give you the fair response to your question, we’re not feeling that it’s going to slow down, we just don’t have visibility if that is going to pick up, particularly on the larger crawler product.

Quoting activity continues, but as we’ve said for many, many quarters now, it’s spotty in the crane business, but it certainly has been improving the whole time and we don’t necessarily think that won’t continue, but that’s what I can offer you at this point..

And we’ll take our final question from Seth Weber with RBC Capital Markets..

It’s Seth here. Just on the back of the rental show last week, or I guess earlier this week, there’s a lot of talk about anti-regulations on equipment.

I was wondering if that’s factoring into your CapEx decisions at all trying to get out in front of the ANSI regs or if you feel like you can actually charge a higher rate, if you are getting ANSI certified equipment going forward?.

So, obviously everything is already certified, it’s the change in the regulation, Seth, and the answer is, we will make those determinations on a shorter horizon. We’ve been opportunistic in the past with Tier 4 interim, Tier 4 final where there were some substantial increases on certain products and kind of pulled orders forward.

Are we going to get all the difference from our customers because of a federal regulation that changes that adds some – answer is not quickly, but like steel charges, like the Tier 4 final and others before that it absolutely bleeds through over a period of time.

We’re in a return on invested capital business, and as our costs go up, we are forced to push our pricing up. But what I can tell you is, we do not plan on allowing that to eat into our dollar utilization or our margins in anyway..

And at this time there are no further questions in the queue. I will turn the call back over to Brad Barber for any closing remarks..

Sure. We’d like to thank everyone for taking time to get on our fourth quarter and full year call, and we look forward to providing you more solid results at the end of Q1. Thank you..

Thank you. Once again, ladies and gentlemen, that does conclude today’s conference. We appreciate your participation. You may now disconnect..