Robert S. Brunn - VP-Investor Relations & Corporate Strategy Robert E. Sanchez - Chairman & Chief Executive Officer Art A. Garcia - Chief Financial Officer & Executive Vice President Dennis C. Cooke - President-Fleet Management Solutions John Diez - Senior VP-Dedicated Services J. Steven Sensing - President-Global Supply Chain Solutions.

David G. Ross - Stifel, Nicolaus & Co., Inc. John R. Mims - FBR Capital Markets & Co. John Barnes - RBC Capital Markets LLC Ben J. Hartford - Robert W. Baird & Co., Inc. (Broker) Scott H. Group - Wolfe Research LLC Jeffrey Kauffman - The Buckingham Research Group, Inc. Kevin W. Sterling - BB&T Capital Markets Tom Kim - Goldman Sachs & Co. Todd C.

Fowler - KeyBanc Capital Markets, Inc. Matt S. Brooklier - Longbow Research LLC Justin Long - Stephens, Inc. Casey S. Deak - Wells Fargo Securities LLC.

Good morning and welcome to Ryder System Incorporated's Third Quarter 2015 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce Mr.

Bob Brunn, Vice President, Corporate Strategy and Investor Relations for Ryder. Mr. Brunn, you may begin..

Thanks very much. Good morning, and welcome to Ryder's third quarter 2015 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors.

More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer and Art Garcia, Executive Vice President and Chief Financial Officer.

Additionally, Dennis Cooke, President of Global Fleet Management Solutions; John Diez, President of Dedicated Transportation Solutions and Steve Sensing, President of Global Supply Chain Solutions are on the call today and available for questions following the presentation. With that, let me turn it over to Robert..

Good morning, everyone, and thanks for joining us. This morning, we'll recap our third quarter 2015 results, review the asset management area and discuss the current outlook for our business. Then we'll open the call for questions. With that, let's turn to an overview of our third quarter results.

Comparable earnings per share from continuing operations were a record $1.74 for the third quarter 2015, up from $1.63 in the prior year. This is an improvement of $0.11 or 7%. Comparable earnings per share excludes non-operating pension costs of $0.05 in the third quarter of this year and $0.03 last year.

Our results were below our initial forecast range of a $1.82 to a $1.87, but were in line with the top end of our revised forecast range, announced early last week.

Our forecast for the third quarter was revised recently to reflect a $0.06 impact from a temporary maintenance execution issue, and a $0.05 impact from less robust supply demand conditions in used vehicle sales. We experienced a higher than planned number of out-of-service vehicles during the quarter.

This occurred because maintenance technicians were supporting new levels of fleet growth across all product lines, while at the same time, we were continuing to drive further productivity within the maintenance organization. We've made significant progress on this issue, and expected to be fully resolved this month with no ongoing impact into 2016.

In used vehicle sales, we saw lower volumes and reduced pricing, particularly in September. I'll discuss used vehicle sales trends in more detail later in the call. Operating revenue, which excludes fuel and subcontracted transportation revenue, grew by 6%, to a record $1.4 billion for the third quarter and was higher in all business segments.

Excluding the impact of foreign exchange, operating revenue grew by 8% for the quarter. Total revenue declined primarily due to lower fuel costs passed through to customers. Page five includes some additional financial information for the third quarter.

The average number of diluted shares outstanding for the quarter increased to 53.3 million shares, up from 53 million last year. In January, we temporarily paused repurchase activity because our balance sheet leverage was nearing the high-end of our target range of 225% to 275%.

Repurchase activity remains paused because our leverage is now just above the high-end of our target. We'll continue to evaluate the appropriate timing to resume anti-dilutive share repurchases going forward. Excluding pension costs and other items, the comparable tax rate was 35.3%, generally in line with the prior year.

Page six highlights key financial statistics on a year-to-date basis. Operating revenue was up 6% to $4.1 billion. Comparable EPS from continuing operations were $4.47, up 12% from last year.

The spread between adjusted return on capital and cost of capital widened to 140 basis points, up 50 basis points from the prior year, driven primarily by higher leverage. On a full-year basis, we expect the spread to be 150 basis points. I'll turn now to page seven and discuss some key trends we saw in the business segments during the quarter.

Fleet Management Solutions operating revenue, which excludes fuel, grew 6%, driven mainly by the growth in full service lease and commercial rental. Excluding the impact from foreign exchange, FMS operating revenue was up 8%.

Full service lease revenue increased by 6%, or 8% excluding FX, due to fleet growth and higher rates on replacement vehicles, reflecting the higher costs of new vehicles. The lease fleet grew organically by 7,400 vehicles year-over-year. Sequentially, from the second quarter, the lease fleet increased by 1,900 vehicles.

In addition, we had near-record new lease contract signings in the quarter. These continued strong sales levels, later in the calendar year, provide us with great fleet growth momentum into 2016, as these units get built and delivered to customers typically four months to five months later.

Based on our strong contract signing activity and sales pipeline, we expect record lease fleet growth of 6,000 to 6,500 vehicles for the full year 2015, above our prior forecast of 5,000 to 6,000 vehicles. Miles driven per vehicle per day on U.S. lease power units declined 1% versus the prior year, but continue to run at normal historical levels.

Contract maintenance revenue increased 4%. Our contract maintenance fleet grew by approximately 200 vehicles from the prior year, but was down 500 vehicles sequentially. Looking ahead, we expect sequential growth in this product line, as we signed a significant new customer in July that will start up in the fourth quarter.

Contract-related maintenance revenue was up 5% from the prior year. Included in contract-related maintenance are 8,200 vehicles serviced during the quarter under on-demand maintenance agreements, an increase of 32% from the prior year.

During August, we also – we more broadly launched this new product at our annual carrier conference and have geared up expanded sales efforts to respond to strong customer interest.

We have significant opportunity to increase volumes within customers that have already signed up for the service and are engaged in discussions with multiple new prospects. Commercial rental revenue was up 7% for the quarter or 9% excluding FX. The increase was driven by higher demand and pricing in North America.

Rental revenue was particularly strong in the U.S. which was up 12% for the quarter. Higher rental demand is being supported by growth in our lease and national rental customer base. The average rental fleet grew by 7% from the prior year.

Rental utilization on power units was 76.4%, down 160 basis points from the prior year, but still at a strong level. This decline was due to the higher number of out-of-service rental vehicles discussed earlier as these unavailable units are included in the denominator of the utilization calculation.

Global pricing on power units was up 2% below the forecast of 3% for the quarter. Our market rates were in line with expectations; however the overall realized price increase reflects a different fleet mix and a higher proportion of rental vehicles being used by lease customers at lower rates.

Used vehicle results were negatively impacted by lower volumes, partially offset by higher year-over-year pricing. I'll discuss those results separately in a few minutes. Overall, FMS earnings increased due to higher full service lease results and strong rental performance, partially offset by lower used vehicle sales results.

Better lease results reflect fleet growth and vehicle residual value benefits. Commercial rental performance benefited from higher demand in pricing on a larger fleet. These benefits were partially offset by used vehicle sales results. Earnings before taxes in FMS increased 5%.

Earnings as a percent of operating revenue were 12.8%, down 20 basis points from the prior year. Lower gains on used vehicles sales negatively impacted the growth in pre-tax earnings percent in FMS by 60 basis points. I'll turn now to Dedicated Transportation Solutions on page eight.

Operating revenue grew 9% due to new business, higher volumes and increased pricing. Total revenue was unchanged reflecting lower fuel costs passed through to customers. DTS earnings increased 12% due to new business and increased pricing, partially offset by higher self-insurance cost.

Segment earnings before taxes as a percent of operating revenue were 7.2%, up 20 basis points from the prior year. Higher self-insurance costs negatively impacted EBT margins by approximately 80 basis points.

We expect improved margin comparisons in the fourth quarter, driven by new business and as we move past the high self-insurance costs we experienced during the year. I'll turn now to Supply Chain Solutions on page nine. Operating revenue grew by 5% due to new business, higher pricing and increased volumes.

SCS operating revenue grew 9% excluding the impact of FX. Total revenue was slightly down, reflecting lower third-party purchase transportation costs and lower fuel costs passed through to customers. SCS earnings before taxes were up 9% due primarily to higher pricing and higher volumes.

Segment earnings before taxes as a percent of operating revenue were 8.3% for the quarter, up 30 basis points from the prior year. Page 10 shows the business segment view of the income statement I just discussed and is included here for your reference. Page 11 reflects our year-to-date results by business segment.

In the interest of time, I won't review these results in detail, but I'll just highlight bottom-line results. Comparable year-to-date earnings from continuing operations were $239 million, up 12% from last year. At this point, I'll turn the call over to our CFO, Art Garcia, to cover several items including capital expenditures..

Thanks, Robert. Turning to page 12, year-to-date gross capital expenditures were $2.1 billion, up nearly $370 million from the prior year. This increase reflects planned investments in our lease and rental fleets in light of new lease contracting activity and a strong rental demand environment.

We realized proceeds primarily from the sale of revenue earning equipment of $321 million; it's down $75 million from the prior year. The decrease primarily reflects planned lower volumes of vehicles sold. Net capital expenditures increased by about $440 million to nearly $1.8 billion.

Turning to the next page, we generated cash from operating activities of about $1.1 billion year-to-date, up by $90 million. The increase was driven primarily by higher cash-based earnings. We generated $1.4 billion of total cash year-to-date, up $19 million from the prior year.

Cash payments for capital expenditures increased by about $350 million to just under $2.1 billion year-to-date. The company's free cash flow was negative $644 million year-to-date versus the prior year of negative $317 million, reflecting capital expenditures to grow our lease and rental fleets. Page 14 addresses our debt-to-equity position.

Total debt of approximately $5.5 billion, increased by $720 million from year-end 2014. As a reminder, last quarter, we revised the accounting treatment for prior sale leaseback transactions to reflect them as balance sheet debt rather than off-balance sheet financing.

As such, we are eliminating the total obligations measure we previously used as balance sheet debt is now substantially the same as total obligations. Our primary leverage metric and target of 225% to 275% now refers to debt-to-equity. Debt-to-equity at the end of the quarter increased to 279%, it's up from 260% at the end of 2014.

Leverage increased primarily due to vehicle investments to fund growth as well as foreign exchange. We expect leverage to be at the higher end of our target range at year-end. Equity at the end of the quarter was $1.95 billion that's up $133 million from year-end 2014, primarily due to earnings, partially offset by foreign exchange and dividends.

At this point, I'll hand the call back over to Robert to provide an asset management update..

Thanks, Art. Page 16 summarizes key results for our asset management area. Used vehicle inventory held for sale was 6,100 vehicles, up from 5,800 vehicles in the prior year and 200 vehicles above the second quarter. Used vehicle inventory was at the low end of our target range of 6,000 vehicles to 8,000 vehicles.

The number of used vehicles sold during the quarter, were 4,400, down 12% from the prior year and down 6% sequentially. Year-to-date, we've sold 13,400 vehicles. Used vehicle pricing growth moderated on a year-over-year basis, particularly in September, when we lowered pricing as a result of somewhat slower sales volumes.

Compared to the third quarter of 2014, proceeds from vehicles sold were up 5% for tractors and up 8% for trucks. From a sequential standpoint, tractor pricing was down 3% and truck pricing was down 4% versus the second quarter of 2015.

With the heavy fleet replacement cycle that occurred in the overall market this year, there are significant number of 2011 and 2012 model year Class 8 tractors currently available. Prices on these units are under pressure due to the performance challenges with the newer engine technology.

While we're not selling many of these model years ourselves, these price pressures are trickling down somewhat to the seven-year to eight-year old tractors we typically sell.

The number of lease vehicles that were extended beyond their original lease term decreased versus last year by around 620 units or 13% year-to-date that is well below recessionary levels. This reflects a lower number of lease contract expirations this year.

Early terminations of lease vehicles decreased by a 100 units year-to-date and remain well below recessionary levels. I'll turn now to page 18 to cover our outlook and forecast. During the third quarter, we delivered solid year-over-year revenue and earnings improvement across all business segments.

We're particularly encouraged by continued momentum in lease sales and fleet growth, strong rental demand and solid performance in our Dedicated and Supply Chain businesses. In full service lease, we've realized strong sales activity throughout the year and have a robust new business pipeline.

As mentioned earlier, for the full year, we expect to achieve record lease fleet growth of 6,000 vehicles to 6,500 vehicles, above our prior forecast range of 5,000 vehicles to 6,000 vehicles. We've continued to see around a one-third of our new truck leases coming from customers new to outsourcing.

As a reminder, capital on lease trucks is only committed after the customer signs the contract with us and these contracts are generally for the full expected operating life of the vehicle.

As we look into next year, these strong lease sales, particularly those in the back half of 2015 provide nice year-over-year revenue and earnings momentum, as we will realize a full year of revenue and earnings contribution in 2016 as opposed to partial year of contribution in 2015.

In rental, we're pleased with the strong demand we've seen this year, which is being supported by growth in our lease and national rental customer base. Demand has been stronger in all vehicle classes, but relatively more in trucks and less so in tractors.

We're seeing solid rental reservation request from our seasonal shipping customers for November and December. We've made significant progress on our out-of-service issue and expect to fully return these vehicles to service this month, with no ongoing impact into 2016.

We now expect our full year average rental fleet to grow 7% versus our prior forecast of 6%. Our outlook for rental pricing is a 3% increase for the full year. In the fourth quarter, the average rental fleet is expected to grow by 8%, with pricing up 2%.

We expect year-over-year utilization comparisons in the fourth quarter to be similar to those that we saw in the third quarter, reflecting vehicles out of service in October and strong prior year-end results. We're planning for seasonal rental de-fleeting at year-end particularly for tractors to prepare for the first quarter.

We'll evaluate the demand conditions as we head into 2016 for next year's fleet planning. We're pleased with the continued strong market interest in our new on-demand service and introduced the product to a significant number of prospects at a large carrier conference that we hosted in August.

With the IT work to support the product behind us, we've expanded the sales team who can sell on-demand. We also have significant opportunities to realize higher volumes within the fleets we've already signed. In used vehicle sales, we've adjusted our pricing due to a less robust supply demand conditions we saw late in the third quarter.

We're in a good position with lean inventories today and with a normal percent of lease expirations over the next couple of years. While used vehicle prices across the board are being pressured by the supply of newer, but less desirable units from a technology standpoint, prices on our older, well maintained units are holding up relatively better.

For the fourth quarter, we're assuming a further modest decline in pricing as compared to what we realized in September. Overall for the fourth quarter, we expect year-over-year gains on used vehicle sales to be down by the same magnitude as the third quarter with improved volumes offsetting lower pricing.

As we look ahead into 2016, we're likely to see lower gains on sale due to pricing. However, we should see a benefit in depreciation due to higher residual values using our five-year rolling average methodology.

We are currently conducting our annual residual value analysis and will provide an earnings benefit on this on our fourth quarter earnings call. In Supply Chain, we're expecting modest fourth quarter revenue growth due to lower volumes, while strong earnings performance trends are expected to continue.

In the Dedicated segment, we expect strong earnings growth in the fourth quarter driven by new sales and lower self-insurance expense. Looking ahead to next year, Dedicated revenue growth is expected to remain in the high single-digit level and benefit from several large deals we anticipate closing by year-end.

Our fourth quarter comparable EPS forecast is a $1.72 to a $1.82 versus the prior year of a $1.59 or an increase of 8% to 14%. While we expect rental and used vehicle results to be, as I've described this morning, the low-end of our forecast range contemplates the potential for a modestly weaker environment in these areas.

Our full year EPS forecast is $6.17 to $6.29, an 11% to 13% increase from our prior year of $5.58. That concludes our prepared remarks this morning. At this time, I'll turn the call over to the operator to open up the line for questions.

In order to give everyone an opportunity, please limit yourself to one question and one related follow-up if clarification is needed. If you have additional questions, you're welcome to get back in the queue, and we'll take as many calls as we can..

Thank you, speaker. The first question for today is from Mr. David Ross from Stifel, Nicolaus. Sir, your line is open..

Yes. Good morning, everyone..

Good morning, David..

Just, I guess, to talk about Fleet Management Solutions a bit.

The average age of your lease fleet, is that still declining, or is that kind of bottomed out in the 40-plus month range?.

Yeah, actually, it's declined one month this quarter. So, we are down about 38 months, I think now. I think, the key point though as we've been saying for the last few quarters is that the benefit related to maintenance cost from the decline is really subsided.

We're kind of at a point where you're not getting that benefit that we had seen; we were back in the 54 months down to 38 months. So, it has declined, but that's basically because of the growth. We are about 38 months..

And then when you talk about miles per vehicle per day driven, the lease fleet down about 1% year-over-year, is that kind of reflective of what you're seeing in the overall economy or with your customers in terms of general growth out there is non-existent or flat, sluggish, slightly down? And then you guys are just growing through that? Is there something else going on with the decline in the utilization of the lease fleet?.

Hey, David. It's Dennis. No, I would say, just it's in the normal range. I wouldn't correlate it to anything in the economy..

And then when you look at the Dedicated side, you mentioned that the self-insurance issues should go away. I guess those were some bad accidents that hit your deductible level. Where do you expect them to get – I mean, they would have been 8% in the quarter, absent those SIR (25:19) issues.

So next year, are we looking at kind of an 8%-plus dedicated margin, is that reasonable rate off of growth?.

Hey, David. It's John. With regards to our long-term targets, I think they still remain the same. We're looking at that 8% to 9% range long-term. But to your point, I think in the near-term, you will see some improvement once we get past these insurance headwinds we've had the last two quarters..

And David, I'd also – but it's not just accidents in the period, it's also development of past claims year-over-year since we're self-insured. So, that's actually been probably the lion's share's of it..

Okay, excellent. Thank you..

Thanks, David..

Thank you, speaker. The next question comes from Mr. John Mims with FBR Capital Markets. Sir, your line is now open..

Great. Thank you. Thanks for taking my questions. So, Robert, let me ask you first on the maintenance side. And I understand as the lease fleet grows, the demand for the maintenance tax increases.

But when you look at the longer term growth story, so much of it is about on-demand maintenance and on-site maintenance and just you're being able to serve that market.

So, can you go into a little more depth here in terms of the overlap between those two products, the regular way lease and rental maintenance versus what you can offer customers on a standalone basis? And then in terms of what you've done to fix that now, kind of where are we in that process? Are you training a bunch of new guys that have to ramp up or are you buying more experienced techs? Just anything to help us kind of understand at of what's going on in the maintenance side would be really helpful..

Okay. Well, first as it relates to some of the new products on demand and some of the new things that we're coming up with versus our traditional full service lease and contract maintenance, the most important thing, I think is that it's leveraging that same infrastructure that we have, 800 shops, 5,500 technicians.

The changes and all the work that we did the last couple of years in prepping not only the billing system, but also the techs and getting them used to the idea of having to give an estimate for on-demand and then having to document the work more thoroughly, I believe, is behind us.

So, the way that those products work together, they really leverage the same expertise and capability that we have in full service lease and rental.

I think to address kind of what happened in the quarter, as it related to some of our maintenance execution challenges is really, it comes down to we added over 10,000 vehicles year-over-year, which is the most growth we've seen probably in the last couple of decades at one time.

At the same time, we've been adding technicians, but more importantly at the same time, Dennis and his team have really been trying to drive continued productivity. We have 5,500 technicians. We spend over $900 million a year maintaining trucks. So, any little bit of productivity that we can get in that operation is a lot of money.

And Dennis and his team have really paid dividends, I mean, it's really paid off over the last couple of years the work they've done to drive productivity. The only thing that happened in the third quarter was, we got a little bit ahead of ourselves.

We were trying to drive some additional productivity while the trucks were coming in, and probably overshot it a little bit. You're really talking about a very small percentage of an overshoot, it's 0.5%, right, it's about 1,000 units really that started to sit.

By the time -- we thought we are going to be able to get it done in August and September; it didn't get done. We've now worked on fixing it. It's very simple to fix.

Obviously, you add techs, but even simpler than that, just allowing the techs that we have to work more hours, having them come in on the weekends or work overtime, get those trucks back on the road. The good news is that most of that work is already done. So, by the end of October, I'm confident we're going have it all finished.

Probably about 80% of the way there, as we sit here today. So, I'm confident we can do that. We're obviously learning from this one. It won't happen again, and we are ramping up getting more of the technicians on board so that we can handle the growth that we're seeing..

No, that's helpful.

How long does it take a new tech on average to ramp up?.

John, it's Dennis. I would say to become fully productive, you're looking three months to six months, in that range depending on the technician, put him through training and get them familiar with the Ryder processes and so forth, so in that range, three months..

Awesome. Great. Thanks, Dennis. And then as a quick follow-up, when I look at the Supply Chain revenue, big deceleration in the high-tech. That's been running in the high teens. This quarter the revenue growth was down in the low single digits.

And I know you said some moderating revenue in fourth quarter, but is there anything particular that's going on in high-tech that's something we should be modeling different going into 2016, or is that still a kind of teens type of growing segment and there's something going on in the short-term? Thanks..

Yeah. No. I think, as you look back into last year, we did some network optimization, rationalization for customers, so you're seeing some of that benefit this year to that customer base, but nothing that we're seeing in the technology sector..

Great.

So, you're looking at just kind of mid single-digit revenue growth for the whole suite of services in Supply Chain?.

Yes..

Great. All right, thanks a lot..

Thank you, speaker. Our next question comes from Mr. John Barnes with RBC Capital Markets. Sir, your line is now open..

Hey, thank you. Thanks for taking the question. A couple of things here. Number one, going back on what John just asked in terms of getting the technician side of it corrected, could you just provide us a little color as to how you got behind and why? I mean, you kind of have been ramping up the growth forecast all year.

I mean, I think if I go back and look every call, it's been a little bit more growth on the lease fleet.

Knowing that that was coming through and knowing that you've done this for as many years as you've done it, what part of the process broke down that allowed you to get this far behind and why was it so easy to correct?.

Well, I think the issue was we knew we were somewhat behind for a few months. However, we felt pretty comfortable that we were going to be able to get the productivity out of the techs in August and September and get the vehicles fixed. It didn't happen.

I think what we're learning is -- remember we're trying to manage productivity for 5,500 techs who are maintaining new technology vehicles. And the team has over the last several years really driven more and more productivity, which has helped us offset some of these higher maintenance costs that you see in the technology.

We got to a ceiling, if you will. We got to a point we realized, wait a minute, that's it, it's not going any further. And to give you an idea of what we're talking about, you're talking about 0.5%. You're talking about 1,000 vehicles on over 200,000 vehicles that we maintain.

And we really thought that we could squeeze a little bit more out of the team and get it done. It didn't work out. So, we know now this is the limit of what we're going to based on the mix of vehicles that we have, and we're making that correction.

And the reason why it was easy to maintain is, once you realize that that doesn't work, you just open up....

Overtime..

...overtime and allow them to do maintenance in other ways. So, I don't want Dennis and the team to take their foot off the pedal when it comes to continue to drive productivity. But clearly, we got to a point here with all the initiatives that we got going on that we got a little bit ahead of ourselves..

Okay, and I guess we've gotten a lot of questions around the ability to grow the on-demand product maybe as quickly as you want. Is there any limitation there? I mean, look, if your existing techs are fully productive, you're having to open overtime.

Is the opportunity as profitable if they are having to do it via overtime, or do you see having to maybe – where we thought before this on-demand rollout was leveraging the existing technician base, is there going to be – you have to be a step up in the technician base in order to handle whatever you do on the on-demand side?.

Well, remember the strategy around on-demand isn't so much to leverage the technician base; it's to leverage the infrastructure, the management, the locations all of the infrastructure that supports them. The rule of thumb is for every 35 or so vehicles you add in full-service lease or rental, you're going to add a technician.

That's just the productivity and the capacity. So, I expect that to continue, we've been adding techs, a lot of techs over the last few years. As we continue to grow, we expect to continue to add techs. I think that's a good thing, because at the end of day, that's really our product.

If those guys are great at what they do and leveraging their expertise in an environment that has gotten much tougher for folks that are trying to do this on their own is very important. And I think it's important also to say that the issues we're having are not related to an inability to find techs. We can find them.

This was just a real drive to get more productivity as we've been doing year-after-year-after-year and got to a point now we realized we've got to back off a little bit.

So, Dennis, I don't know if you want to add to that?.

Yeah. John, I would just add to that, obviously it is more profitable to serve these customers without having to use the overtime.

So, what we're looking at is what's the technician model that we need for all the growth that we're staring in the face of, and that's changing, as we put out in the press release, where we're looking at that and looking at how many techs we need, because we want to serve those customers without having to use an exorbitant amount of overtime.

So, that's exactly what we're looking at right now..

Okay. All right, that makes sense.

And then lastly, just on the – the more – I guess the pieces of business that are viewed as more economically sensitive between the rental piece and the used equipment, could you talk a little bit about – have you been able to parse out between how much of your rental growth has been with existing customers or lease customers that are coming on line that you're having to backfill until the lease equipment comes in, and then can you talk a little – have you been able to parse that out? And then what percentage of it is coming from just a pure lease customer, or I'm sorry, rental customer and what are you seeing in those trends? And then maybe the same on used equipment.

I mean, is it more of a macro issue or is this a Ryder-specific equipment mix, less equipment available, just how do you parse it out between the macro implications and what's Ryder-specific?.

Yeah, I'll let Dennis elaborate in a second.

But I think, to answer broadly, the growth that we're seeing in rental, a lot of it is coming from national rental customers, and also additional lease customers as we add more customers to our portfolio, and I would say not only lease, but obviously on-demand on these other products that we're bringing out. So, we're seeing that.

We're certainly seeing more of the demand growth, I mentioned in my statements from, right now from straight trucks versus tractors. But in the third quarter, really they both grew.

But I think, that's really, what's driving that demand, and I don't think that is a Ryder-specific phenomenon, I think, if we look at other companies that are renting the same types of vehicles as we are, you're going to hear some of the same things.

On the used truck side, it is clearly not just a Ryder issue, I think what you have there is an oversupply of a certain type of vehicle, primarily it's the 2011's and 2012 tractors that have had some more challenges around technology, a little less desirable.

So other companies that are selling those, we don't have a lot of those that we're selling at this point, we're selling mostly 2009 and 2010.

But as they've lowered the prices and try to move those vehicles, they have had some trickle-down effect on our vehicles, and we've made those adjustments to our pricing in the third quarter that we expect now to see us get some additional volumes in the fourth quarter. So Dennis, I don't know if you want to add....

Yeah. John, let me just provide a little quantification for what Robert described earlier. So when you look at our rental revenue in the third quarter, 40% of it was for lease support, 40% of it was for national customers and 20% was for local customers.

So, you've got 60% that's for what we call pure rental where it's not associated with a lease support customer, and when you look at what's growing, frankly national and local are growing.

So, you've got lease support that's growing double-digit, you've got national that's growing double-digit and you've got local that was growing high-single digits, now that's for the U.S. I just gave you U.S. growth. Globally, the growth was a little less, what globally ex-FX, we were at 9% in the U.S., we are up 12%.

So, to answer your question, national is growing nicely, local is growing, as is lease support as the lease fleet grows..

Okay, all right. That's great color. Thanks so much for your time today..

Thanks, John..

Thank you. Our next question comes from Ben Hartford from Baird. Your line is now open..

Hey, good morning, guys. Robert, maybe thinking about next year FMS margins, I think the last quarter you had talked about confidence in exceeding prior peak margins in FMS given the growth that you had seen.

With used truck pricing and values taking a step down in the third quarter and probably this baseline being the appropriate one that we should think about for the foreseeable futures until we lap those comps, obviously full service lease fleet growth is growing above expectations, you've got the offsets you talked about with regard to residuals next year, so a lot to be determined, but how should we think about your confidence or what is your confidence as it relates to exceeding prior peak margins in FMS given the growth given some of the takes that we have this quarter?.

Yeah. I mean, if you think about margin percent, the EBT percent, we're going to some headwinds from gains. Because obviously gains impacted bottom line down without change in the top line. But let me – without giving you a forecast for or guidance for 2016.

Let me just maybe go through a few of the puts and takes as I see them today for 2016 just to kind of put things in perspective.

First, I want to make sure we're clear that, we have not seen any change in all those the secular trends that we've talked about for the last several years, about outsourcing really being in favor, the fact that we are – we are in the outsourcing business for fleet and supply chain, which are two things that are becoming more complex due to regulation and the search for cleaner air and safer roads.

I don't see that changing and it is getting a lot of tough – a lot tougher for those do-it-yourself versus that 90% of the market. Our lease fleet growth was 7,400 units in the quarter. That's the most in at least the last couple decades.

We expect as we get into 2016, I would tell you, I would expect that even with the declining OEM production, I would expect us to continue to grow our lease fleet. Why is that? Well because of the secular trend that we just talked about.

I think, we're in a time where the relationship between lease sales and OEM production is changing, and it's going to decouple.

And if you think about that in terms for next year, a tailwind, if we're able to grow 5,000 units, 6,000 units, if you just do the simple math on that in terms of margin at a 30%, you're looking at about $30 million of incremental profit just on the growth side. We continue to see good success in up-selling customers to Dedicated.

Remember, that adds four times to five times of revenue, two times to three times the profit. So, I expect to see that top-line growth that you saw this quarter to continue to be there, and maybe even increase. Our pipeline is very strong, both in lease and in dedicated and in on-demand.

If you look at the sales that we're seeing in lease today, those units are probably not going to hit us until the beginning of next year.

So, you're going to have a full year of revenue for those and all the years that we've – all the units that we've been – serviced in the last two quarters, you're going to – or in the last quarter you're going to have a half the year. So, we already have a lot of the stuff I would say somewhat in the bag on the lease side.

And again, we still have a very strong pipeline, a lot of customers that are coming to us looking for a solution to some of their fleet headaches. On the rental demand side, I'd say we still are seeing good year-over-year growth, especially around the trucks.

We're seasonally de-fleeting in the fourth quarter to prepare ourselves for what is always a lower, seasonally lower first quarter. If the demand does soften, we are well positioned to downsize the fleet quickly as we did in 2012.

You've got low used truck inventories, you've got our centralized asset management process that we've added this rental to lease program, which by the way we have already stepped up in the – in case things do soften, and we also can limit our rental CapEx for next year.

I think, it's clear that we're probably going to spend less money on rental next year than we did this year, and you should see us – we should be able to make that decision here over the next couple months. So, again we have levers that we can pull to adjust if that does happen..

Okay. That's good. So you addressed a lot in there, and the second part of the question was just about your confidence to growth next year and going forward in a declining market.

And I guess, if we go back to the prior cycle 2007 (44:01) build was down, but you guys still grew the fleet, that was probably a function of some of the wins later in the cycle layering on, but the point is you feel confident that this environment can be a little bit different, do you have traction with new customers that can support a decoupling of the – that growth, I just want to clarify that remark?.

Absolutely, absolutely. We do – I do feel that – I do feel that, just based on what I'm seeing in the conversations we're having with customers, I don't see that slowing down, because I think that this secular trend that's really helping us, is going to continue.

I think, the – on the flip side, I would tell you that, clearly the used truck side, we're seeing some sequential softening. I believe that, that's more – like I mentioned earlier, rise in this supply. We're forecasting now for the fourth quarter about a 7% drop in proceeds and pricing relative to our Q2 peak, if you will.

That's probably consistent with what you're hearing from some of the industry research firms, so just to put that in context, we sell about $400 million. If you look at our cash flow statement, we do about $400 million in proceeds. So, 7% puts you right around $28 million, $30 million.

As I look at that, and I say, all right, I'm going to absorb some of that this year in the third quarter and in the fourth quarter. So, I'm probably looking at $20 million next year of some headwind just if the pricing is there, because they are more maybe $30 million.

As I look at that, even though, we have not finalized, I've got to caveat this, we haven't finalized our depreciation policy analysis.

Looking at a five-year rolling average, I think, it's reasonable to assume that our depreciation policy benefit would mostly offset something of that magnitude, right? So – you would, the benefit in depreciation expense should mostly offset a reduction of that range, 7%, I'd say even 5% to 10% mostly or partially offset.

So, the question then is, what is – the headwind that we have in UVS, which again even if it got a little bit worse, the rental uncertainty and then the positives around the rest of our business, the net of all that, I still think is going to be good revenue and earnings growth in 2016.

We're not ready to say how much, but I think, especially given our ability to also be able to manage overheads, that's really the way I would see the business going into 2016, again without giving you all the numbers. We'll be ready to do that in February..

Got it. That's helpful. Thank you..

Okay..

Thank you, speaker. Our next question comes from Scott Group with Wolfe Research. Your line is now open..

Hey, guys, good morning, thanks. So, I think....

Good morning, Scott..

...those last couple of questions were the crux of what we need to know. So I just want to make sure, I'm understanding everything.

You are saying that, you think, based on what you are seeing in used truck pricing right now, gains on sales down on the order of magnitude of $30 million seems fair for next year and you think, you can offset most of that with residual value of asset..

Right. Scott, I think, what we're saying is that, if you think about a price decline in that 5% to 10% range, gains are going to drop, let's say roughly $30 million.

Some of that we've absorbed already in the second half of this year, the remainder will be absorbed next year, and what we're saying is that, in that environment, we would expect our residual value uptick to probably offset the decline that's going to occur in 2016..

Some of the $30 million has been realized obviously in the takedown in UVS in the third quarter and fourth quarter. The remainder would come through in 2016..

Yeah. I think, if you look at the numbers that would be this year, we had a residual or depreciation policy benefit of about $40 million. It's not going to be $40 million next year..

The year before it was $25 million..

And the year before it was $25 million. So, you start to think about a $20 million, $25 million benefit, I think that's reasonable. We haven't finalized it yet though, so, I can't commit to anything. But I think that's really kind of what, the way we're seeing this sort of likely to play out..

And Robert, are you still of the belief that you can get back to those that 13% kind of past peak margin or better than that or given the changes in the used truck market, is that unrealistic now?.

Yeah, I think, we can get back, I think the timing of it is going to change. I think, it's going to be – certainly going to be tougher to get back next year. If we have a headwind of call it $20 million, $30 million in used vehicle sales.

Because, if you think about it, the total revenue for FMS is probably $4 billion next year, probably somewhere in that range. So, if you've got headwind of $20 million that's 50 basis points right there..

Yes, yes, yes.

And then just last thing, on the leasing fleet for next year you said, if we can grow 5,000 units, 6,000 units, is that kind of a good ballpark or boogie to be thinking about for the next year on the leasing fleet, based on what you see in the sales side right now?.

It's probably early, it's probably early to say – I'm using that as what we're – kind of what we started this year. But, yeah, what I will tell you is, I will expect us to continue to grow even in an environment that is declining..

Hey, Scott, this is Dennis, I'd just add to that. When you look at our term outs heading into next year, they're actually down and we're not pulling back on our sales and marketing as we may have historically, in fact, we're going to increase it. So what's going to happen is we're going to free up people to do more hunting.

So, we're driving for more fleet growth..

Got you. All right. Thank you, guys..

Thank you, speakers. Our next question comes from Jeff Kauffman with Buckingham Research. Your line is now open..

Thank you very much. Hi, guys..

Hello..

Hey..

Hey. I mean, first of all, congratulations, it is a tough environment out there and you got hit by some odd things. But I want to go back to the larger question here. You are growing and you are signing new contracts, yet cash flow year-to-date isn't any better than last year.

I'm starting to see mileage per unit on your rental side down, I think, 1% year-on-year you're talking about, and I'm looking and a couple years ago the rental fleet relative to the lease fleet was about 31%, yet to the day that's up to 34%.

So, the rental fleet has grown in relation to lease fleet, and I know you said some of that is – a fair amount of that is full service lease support.

But is the disconnect here that the vehicles are more expensive and we're not necessarily pricing those vehicles, so that cash flow is up the way our capital spending up, or should I think of it more as you guys see what's in the pipeline we don't and we're going to see that cash flow start to catch up to the spending?.

Yeah. I think, and I'll let Art address it in more detail..

Okay..

But, I think, Jeff, I think, the key thing is that we have a rising rate of growth in our fleet. Right, so we grew, remember two years ago we grew our lease fleet 1,700 units..

Right..

Last year, we grew at 3,200 units. This year, we're growing 60 – 6,000 units to 6,500 units, so double. So, the issue is every one of those additional vehicles, I buy is another call it $90,000 to $100,000 of CapEx. So, the earnings being generated – the cash earnings being generated get offset pretty quickly by the growth that we're seeing.

So that's the big, I think the biggest party of the story. I think, also clearly, we can't lose sight of the fact that over the last several years, we have had some headwind from maintenance cost that does – that has put pressure on earnings from that standpoint.

The offset has been we've also been selling vehicles for a lot less than what we had expected. So net-net they were – they've been offsetting each other. I would expect that for more than we expected – for more than we expected.

So I would expect that, even with the slowing UVS environment, that's still going to continue relative to what those vehicles used to go for before. So I think the net of all that is you're getting the free cash flow.

The timing of it might be a little bit different, but the biggest headwind that we have on free cash flow is the growth, and if the growth were really to temper down, you would see that improve..

Right..

Well, so if I kind of read between the lines on what you're saying, I should probably see that ratio of rental vehicles to lease vehicles start to slide back down again, and you mentioned rental CapEx will be a little lower next year.

Should I in theory see total capital spending start to pull back a little bit then even though the full service lease fleet is still going to be growing at a good clip?.

It depends how much we – how much growth we're able to get, right. If we're able to get more growth than we did today, I would – I think, it's reasonable to assume that rental spending will probably be less. Now – if I end – and if I end up growing lease at the same clip that I grew it this year.

Yeah, net will probably less because you won't have an offset. If I grow it more, then it will – it could offset what I'm going to save in rental.

What I would tell you on that rental growth outpacing lease, we have a – what we monitor is rental revenue as a percent of total FMS revenue, and we've always talked about, we keep it in a range of 20% to 25%. What you're pointing out is true.

We've got – we're now in the high-end of the 25%, but we don't have any intention, have never had intention of going beyond that. So if anything, over time that number will probably start to come down..

All right. Yes, I'm sorry, go ahead..

we're growing faster every year, over the last few years, and that really impacts that free cash flow metric, if you think about this year, we got free – growth capital the way we measure it at that about $1.1 billion, $1.2 billion, and that's really what's driving that negative free cash flow..

Guys. Thank you..

Okay..

Thank you..

Thank you, speakers. Our next question comes from Kevin Sterling with BB&T Capital Markets. Your line is now open..

Thank you. Good morning, gentlemen..

Good morning..

Good morning..

Robert, little bit talk about the technicians and you're ramping up, and where do you hire technicians from? Do you hire within the industry or can you go outside of the industry to bring on technicians?.

Go ahead..

Yeah, Kevin. This is Dennis. I'll take that one. So, there's really three sources that we look at. First is obviously the trade schools, where we have good relationships. We got a great relationship also with the military; we've had great success there in bringing our folks home and giving them civilian jobs. And then we promote from within.

We take people who are on the fuel island who want to become technicians, and we take them through our training program and bring them in as what we call our first level technician and give them the opportunity to grow from there. So those are our three sources, and we do pretty well at recruiting folks.

We – as Robert said earlier, we haven't had a problem staffing, and we don't anticipate seeing that. It's just a matter of us balancing the productivity we're going to get with the fleet growth we're going to get and then bringing the technicians on at the right time..

Great. Okay. Thank you, Dennis. And Robert, you know, a lot of talk about the used truck market.

I think it was a couple years ago, you had to move some of your – I think, some of your rental inventory into the wholesale market in the wholesale channel, and do you envision, do you think you have to do that this time if the used truck market continues to slow or kind of you're at a balance with the inventory where you can continue to sell through the retail channel?.

Yeah, obviously with low inventory levels, we have a lot more options in terms of being able to sell more, continue to sell more through retail. The period you're talking about was probably the time we had like 9,000 vehicles to 10,000 vehicles in inventory. Think about, we only – we have about 6,000 now.

And in that environment, yeah, you had to find other channels, but I think the combination of low inventory levels in used trucks, and all of the asset management programs that we have in place, particularly this – our ability to lease trucks out of our rental fleet and really ramping that up, really can help us adjust the size of the rental fleet pretty quickly, and without having to maybe leverage the wholesale market..

Got you. Okay. Robert, thank you so much. And gentlemen, thanks so much for your time today..

Thank you, Kevin..

Thank you..

Thank you, speakers. Our next question comes from Tom Kim with Goldman Sachs. Your line is now open..

Good morning, gents, and thanks for the time here.

I wanted to ask, with regard to the leverage, you are obviously at the high end of your target, and I'm wondering to what extent does the balance sheet become an inhibitor to growth? I guess, how much – how willing are you to let the loads, sort of debt loads exceed sort of target range?.

Well, Tom, I would tell you, our business just tends to de-lever over time. This year is little bit of an anomaly. We've been impacted by FX, which is an unusual item. We don't expect that to continue, and even pensions worked against us to a certain extent.

So for our business, really negative free cash flows almost needed to require the business to maintain current leverage at $2.50 to $2.75. So that's why over time you've seen us go down well below target. So I think right now I'm really not concerned, I think we can more than handle the kind of growth that we've been talking about this year.

We've grown the lease fleet 6,000 units, 6,500 units, grew rental 2,000 plus. So, we were able to handle that still within target range..

That's helpful.

And then I guess just with regard to M&A, I mean how should we think about your potential opportunities to seize on anything does come along that would be interesting? What sort of ways in which you'd be – would you be considering opportunistic M&A if it were to come along?.

I think if you look at the type of M&A we do in FMS is really a more of a rollup and tuck-in of smaller competitor sites, company sites. I'd see us be able to continue to do that without a hitch.

Around supply chain again, it's been more around – and dedicated, it's going to be more around new capabilities or new verticals that we may want to get into. Again not very large acquisitions. So I don't see us really being inhibited there.

Obviously, if we found something great that was extremely compelling, we could always issue equity if we needed to. So I don't see us doing that. I think the majority of the acquisitions that we do are smaller tuck-ins and roll-ups that we can handle..

Can I just ask a follow-on to that. So obviously you've been really focused on organic growth, and you've been growing very nicely to this point.

Is this been more of a deliberate sort of approach to just focus on organic growth opportunities as opposed to letting some of the opportunities sort of pass or is it just that there haven't been as many opportunities for you?.

No, it hasn't been one or the other. It's just what's been available. But I've got to tell you what's exciting about our business is that we're not relying on acquisitions, right. We're in an environment that is really healthy for sales and for growth, and I'll take that all day. That's actually I think the easiest and best way to do it.

But we also have the capacity, if acquisitions come up, we're going to do them. But as you know, there hasn't been anything in – especially in the FMS side, there really has been no M&A activity. If something does come up, we're certainly going to be in the game.

And on the logistics and dedicated side, anything that we are looking for hasn't come up either. So that's really the environment and that's really why I think we're fortunate to have the organic growth environment that we're in..

That's great. Thanks, guys..

Thanks, Tom..

Thank you. Our next question comes from Todd Fowler of KeyBanc Capital Markets. Your line is now open..

Great, thanks and good morning. I just wanted to follow up I guess on the leverage question. I guess, realistically, how much would you expect to be able to deleverage maybe going into 2016, assuming maybe that 2015 is kind of the peak from a lease writing activity and the lease growth starts to slow a little bit.

How much can you deleverage just by seeing less CapEx? And then what level of leverage would you need to get back to to resume the antidilutive share repurchase?.

Yes, Todd, it's hard to say exactly, probably a similar kind of free cash flow. We would expect to deleverage because we don't expect the FX headwinds and hopefully not the pension headwinds, you may go down 15 points, 20 points I'd say at most. I think in one year, over a period of time, our business would delever much more than that.

So I think relative to your question about share repurchases and the like, typically that's not going to happen unless we're well under our target leverage range to do any kind of discretionary. I think on the anti-dilutive, we're going to look at that. Every quarter we've been looking at that and whether we can....

Right..

...reinstate that. So I would expect us once we're within our target ranges, we would probably turn that back on..

Okay. That's helpful, Art. And then just one quick follow-up, if I could.

Did you give a estimate of what you think the impact of the out of service vehicles were on rental utilization in the quarter? So the 76.4% if you didn't have the out of services issues, do you have an idea of where rental utilization would have been excluding that?.

Yes. The way I would look at is, if you look at the combined number of units that were out of service, it's close to 1,000, right? So that's....

Okay..

So with 1,000 units on our fleet of 35,000 is probably about three percentage points..

Okay. I can work into some of that math.

But it seems like that you would have been maybe up a little from a utilization standpoint versus the third quarter of last year then?.

Yes. It gets a little tricky because some of those leased units that are being substituted it's in the utilization number, but it'd be right around where we were last year. I would say flat with last year..

Okay. That's helps, Robert. Thanks for the time this morning..

Okay. Thank you..

Thank you, Todd..

Thank you, speakers. Our next question is from Matt Brooklier with Longbow Research. Your line is now open..

Hey, thanks. Good morning.

So question on your seasonal rental business, how much visibility do you have there on the portion of the business that's more transactional, I guess, that the national account and the local accounts versus the rental trucks that go to support the lease business?.

Yes. I think, I had mentioned it in the script, but we are seeing strong rental reservations from our seasonal customers, as you might imagine, the guys that are ramping up for the holiday, the parcel type companies for November and December.

So, as we get into that season, the units are available, which we would expect to have those units rented out to those folks. So I would tell you what we're seeing is good, strong, reservation activity from those customers.

If anything, the only thing maybe different than last year, some of it might be a little bit later than we saw last year, which last year they picked them up sooner in the quarter, but we're looking at November and December..

Okay. And any thoughts – it sounds like the straight truck portion of the market is feeling stronger versus the tractor portion and I think that runs also into your rental business you saw similar trends.

Any thoughts as to what's driving I guess greater demand or less supply in the straight truck portion of your business versus the Class 8s?.

Well, some of it is seasonal. This time of the year you've got the parcel companies who are going to pick up more of the straight trucks than the tractors. But it could be various things. I think what we're doing is we're kind of viewing as an opportunity to really de-fleet and get ourselves prepared for the first quarter.

So we're in the process of doing that with the rental lease program and then also with some of the things that we're doing around out-servicing vehicles and putting them at the used truck lots..

Okay. Appreciate the time..

Thank you, Matt..

Thank you, speakers. Our next question comes from Justin Long with Stephens. Your line is now open..

Thanks, and good morning, guys..

Good morning..

You've talked about some longer-term objectives for revenue growth by segment, some targeted annual improvement in margins. When you put together all the pieces, it seems to imply double-digit earnings growth.

Over the longer term, do you still think that's a good framework for thinking about the business, even if you take a more pessimistic view on the used truck market in the next couple of years?.

Yes, I do. I think, we've said high single-digit generally on the top line, and I would expect to get some leverage and get double-digit growth on the bottom line.

Obviously, if you've got some headwind on the gains line, that's going to put some pressure, maybe bring it down to the low end of the double-digit, maybe even high-single digit, but I would expect over the cycle clearly to have double-digit earnings growth along with that high-single digit top line growth..

Okay. That's helpful. I know it's been a long call, but the last question.

I was wondering if you could talk about the role you think Ryder can play in the e-commerce trend, maybe you could talk about the exposure you have to e-commerce today and looking ahead what opportunities you see across your businesses?.

Yes, I think, I'll let Steve kind of elaborate on that a little bit, but I think clearly on the truck – wherever there's trucks needed, we can play a role on the FMS side and with all the different product offerings that we have, which e-commerce certainly all that – the deliveries to homes is a big part of that.

On the logistics side, I think there's a lot of stuff, if you think about the offerings that we have running distribution centers, our ability to manage orders from customers and really what is called the omni-channel and our ability to actually execute that for customers that need it.

We've got great expertise and capabilities there, but I'll let Steve to elaborate a little more on that..

Yes, I would just add, we do that today for many of our customers across multiple verticals. We have the capability to not only deliver into retail DCs but into store fronts through cross dock networks and last mile as well as to consumers' homes.

So I think we've got a really good model right now for our key customers and we're going to continue to focus on additional capabilities to expand that..

Okay, great. I'll leave it at that. Thanks for the time..

Thanks, Justin..

Thank you. Our next question comes from the line of Casey Deak with Wells Fargo. Your line is now open..

Thank you. Good afternoon, guys..

Hello..

Hey..

Just wanted to go back, when you talked about the rule of thumb, Robert, of 35 vehicles to one tech being hired.

Have you seen that compress over time as you've rolled out on-demand maintenance and more transactional businesses? And then more strategically, when you're looking at that transactional piece of the business, how are you modeling out the staffing needs there? I would think that that would be a lot harder to know how many techs you'd need with the uncertainty of how many trips those trucks are going to be making to your shops..

Yes, well, what I would tell you is the number over the last several years has actually grown. As we've improved productivity, you're getting more trucks per technician on our base fleet. On the on-demand stuff, you're right.

It's a little trickier, but you have a general idea of where the trucks are, and the amount of work that a technician does on an on-demand truck is typically a lot significantly less. So that's where you're able to leverage some of the capabilities.

When we get a large on-demand customer, though, we'll have a contract and we'll know where the vehicles reside, and where we need to staff up then we staff up, and we can adjust that as needed. Dennis, you want to add anything to that..

Yes. I would just add that as we're viewing it, as we bring a technician on, if the on-demand revenue of the truck doesn't come in, we're looking at the technician running more road calls, which our customers like, versus using a third-party. We're looking at rather than sending work down the road to a vendor, keeping it in-house.

We're looking at increasing our PM currency even more. We're looking at lowering over time. So the point is, you can bring the technician on. There is a lot of work to be done, which then you can free that up if the on-demand truck comes in. So....

Yes, we have other ways of flexing....

Right.

...to be able to utilize the tech..

Okay. I guess, that's helpful.

And I was thinking, if this business really does ramp as you'd expect it to with the full rollout and continues over the next few years, is this something that three quarters, four quarter down the road you get more of a backup in your maintenance as you did in this quarter, or you feel much more comfortable with where you are in your level of staffing and ability to flex that? Thanks..

Yes. I think, obviously, this quarter has taught us a lesson. So we're obviously looking at the modeling. But I don't seen an issue with where we're going of maintaining the staffing and the work is there to flex as more on-demand comes in. So we see real opportunity to continue growing this product line..

Okay. Thank you, guys..

Thank you..

Thank you. Our next question comes from Nicole O'Brien at Stockpoint (1:12:27). Your line is now open..

Okay.

Is Nicole (1:12:42) on?.

Yes, but his or her line isn't speaking right now. All right. So, sir, at this time, I would like to hand the call over to Mr. Robert Sanchez..

Well. Okay, we're sorry about that, Nicole (1:12:57). Maybe we'll pick up your question later. Well, listen, I think that concludes the call. We're actually about 15 minutes past the top of the hour, but I wanted to make sure we got everybody's question in, considering the type of quarter that we had.

So look forward to our call again in a few months as we discuss 2016. Anyway, have a safe day and we'll see you on the road..

Thank you, speakers. And that concludes today's conference. Thank you all for joining. You may now disconnect..