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Executives

Kevin Inda – Corporate Communications

John M. Engquist – Chief Executive Officer

Bradley W. Barber – President and Chief Operating Officer

Leslie S. Magee – Secretary and Chief Financial Officer

Analysts

Seth R. Weber – RBC Capital Markets LLC

Neil A. Frohnapple – Northcoast Research Partners, LLC

Eric Crawford – UBS Securities LLC

Nick A. Coppola – Thompson Research Group LLC

Joe G. Box – KeyBanc Capital Markets

Philip Volpicelli – Deutsche Bank Securities, Inc.

Matthew Dodson – J West LLC

H&E Equipment Services, Inc. (HEES) Q4 2012 Earnings Call March 5, 2013 10:00 AM ET

Operator

Good day and welcome to today’s H&E Equipment Services Fourth Quarter 2012 Conference Call. Today’s call is being recorded. At this time I would like to turn the call over to Mr. Kevin Inda. Please go ahead.

Kevin Inda

Thank you, Kemiyah, and welcome to H&E Equipment Services conference call to review the company’s results for the fourth quarter and year-ended December 31, 2012 which we released earlier this morning. The format for today’s call includes PowerPoint presentation which is posted on our website at www.he-equipment.com.

Please proceed to slide 1; conducting the call today will be John Engquist, Chief Executive Officer; Brad Barber, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Secretary.

Please proceed to slide two. During today’s call we will refer to certain non-GAAP financial measures and we’ve reconciled these measures to GAAP figures in our earnings release which is available on our website.

Before we start, let me offer the cautionary note, 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 the forward-looking statements. These risk factors are included in the Company’s most recent annual report on Form 10-K.

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

With that stated, I will now turn the call over to John Engquist.

John M. Engquist

Thank you Kevin and good morning everyone. Welcome to H&E Equipment Services fourth quarter 2012 earnings call. On the call with me today is Brad Barber, our President and Chief Operating Officer and Leslie Magee, our Chief Financial Officer.

Proceed to slide three, please. This morning, I’ll give an overview of our fourth quarter performance including an update on the specific regions we serve in current market conditions. Brad will then discuss several key operational initiatives. Brad was promoted to President in addition to his duties as Chief Operating Officer in November of last year and we’re excited for Brad who has joined us on this call. Brad’s participation will add value to this call, given his deep knowledge of our company and the industry.

Leslie will then discuss our fourth quarter financial results in more detail and summarize our 2012 yearly results. When Leslie concludes, I will provide our thoughts on 2013 and at that point we’ll take your questions.

Proceed to slide five, please. In summary, the strong performance and momentum that we experienced in the first three quarters of 2012 continued through the fourth quarter 2012. I believe our results demonstrated our ability to capitalize on strong or improved demand throughout our end markets. Our rental business continues to benefit from an overall secular ship towards rentals in the industry. As a result of strong rental demand, we continued to invest in our fleet during the quarter. Lastly, every one of our business segments delivered year-over-year revenue growth.

In terms of the financial highlights, total revenues increased 15.3% to $250.1 million in this quarter on a year-over-year basis with significant growth of 28.9% in our rental business. EBITDA increased 39.2% or $17 million to $60.4 million compared to $43.4 million a year ago.

Net income for the quarter was $10.7 million or $0.31 per share compared to net income of approximately $7.9 million or $0.23 per share in the fourth quarter of 2011.

The momentum in our Rental business continued as our utilization levels remain near record levels at 71.8% based on all we see versus 72.3% a year ago. Let me remind everyone that our fleet size a year ago was meaningfully smaller, so matching utilization from the fourth quarter of 2011 was challenging. Rental revenues grew 28.9% while rental gross margins grew to 48.1% compared to 44.5% a year ago. Rental rates improved 10.1% from a year ago and dollar utilization also increased to 36.4% from 33.9% over the same period last year.

Please proceed to slide six. The key takeaway from this slide is that our regions with significant oil and gas activity continue to be our most productive geographies. This is evident in our Gulf Coast and the Intermountain regions, which account for 68% of our revenues and 67% of our gross profits. With that said, we are pleased to see solid year-over-year improvement in our other less industrial markets. We believe this is indicative of improving construction markets.

Slide seven please. We continued to operate in a positive environment as evidenced by our fourth quarter and 2012 results. The industrial markets we serve is strong and we expect that will remain strong for the foreseeable future. The residential construction markets have improved dramatically and market indicators point to improving non-residential construction markets for the next several years. We feel positive about the growth opportunities we see for our business moving forward.

At this point in time, I’ll turn the call over to Brad to discuss several key operational initiatives.

Bradley W. Barber

Thank you, John and good morning. I look forward to share my operational perspectives with you moving forward. I'll begin on slide nine. With our current footprint on 66 locations in 22 states, we are excited about our new initiatives for existing branch expansion and the new Greenfields and markets with attractive growth opportunities and high and increasing levels of demand. Our focus would be on market that poses and that are expected to continue to possess, commercial construction and industrial including oil field opportunities.

I thought it would be beneficial to discuss our process of determining what existing markets to expand our new market standards. We take a simple but effective approach to market identification. We look for markets that have a mix of construction and industrial including oil and/or gas related business, realize analytical information’s such as DOT construction estimates, oil and gas rig counts, and Moody’s market information including various valuations that plays on the health and vitality of particular MSAs. We use feedbacks from our existing customer base and factoring their views as we enter these markets.

Last but not least, we look for experienced leadership within the specific markets we have identified.

Slide 10 please, we continue to expand and diversify our rental business with the general rental products. We have historically supplied AWP, crane, earth moving and fork lift rental products, while the general rental component has always existed we implemented a focus plan for growth this past year.

These rental products, general rental products items like air compressors, generators, light towers and more accomplish three primary objectives for the company. First, they allow us to increase our customer base as we can participate on existing job sites with new contractors who may not be regular users of our four traditional product types. Second, they allow us better penetration of our existing customer base by supplying more of their rental needs. And last, these products generally yield better returns on invested capital.

For the reasons I mentioned, we believe these are meaningful benefits to be realized and continue to growth this rental component and in the 2012, we increased our investment in the general rentals by more than 50%. This also benefits our national account growth plan by broadening our product offering to certain customers.

The final topic I’d like to discuss briefly this morning is our CRM tool. I believe iConnect, our proprietary opportunity management software has helped drive our impressive rental rate gains in 2012, rental rate gains that outpaced our competitors. iConnect is a fully integrated sales management software we developed in house to assist our sales force and branch manger with opportunity management.

iConnect empowers our sales force to recognize and act on cost selling opportunities, which is key given our diversified business model. iConnect has significant capability for our managers. Our managers quickly identify opportunities and shift focus as a result of effective delivery of appropriate information. We’re continually enhancing iConnect’s capabilities and our next phase will address the opportunities facing our product support sales representatives.

I’ll now turn the call over to Leslie.

Leslie S. Magee

Thank you Brad, and good morning. I’ll begin on slide 12. As John indicated, we’re very pleased to have ended the fourth quarter and full-year with continued momentum. First from a high level our fourth quarter total revenues were $250.1, million an increase of 15.3% and gross profit was $73.5 million, an increase of 31.1% in each case compared to the same period last year.

Taking into the details a little deeper, I’ll begin with our rental business and provide more details behind the numbers. First on the revenue basis and then I’ll provide some highlights on gross profit by segment.

Rental revenues were $80.7 million for the quarter, a 28.9% increase over the same period a year ago. Due to the strength of the demand for rental equipment, we have a much larger rental fleet available for rent compared to the fourth quarter of 2011. We have increased our total fleet by approximately a $146.4 million or 19.9% based on original equipment costs or OEC over the last 12 months. Average time utilization based on OEC was 71.8% for the quarter, compared to 72.3% a year ago based on number of units available for rent, average time utilization was 66.6% compared to 67.3% last year. And additional revenues were higher as a result of a 10.1% increase in average rental rate in comparison to the fourth quarter a year ago, and 0.4% compared to the third quarter of last year. The improvements have also been in broad based across all product lines.

Our dollar returns improved to 36.4% compared to 33.9% a year ago. This 250 basis point improvement was due to a higher average rental rate compared to a year ago and continued strong time utilization on the larger fleet. New equipment sales were $87 million essentially flat over the prior-year period. Used equipment sales were $29.5 million and $9.8 million or 49.6% increase over the fourth quarter of 2011. The increase was primarily due to $6.3 million increase in aerial sale. Business activity in our parts and service segment improves as revenues increased 8.5% on a combined basis to $40.4 million with both segments up from a year ago.

Moving on to gross profit by segment, our total gross profit for the quarter was $73.5 million, compared to $56.1 million a year ago, an increase of 31.1% on the 15.3% increase in revenue. From a gross margin perspective consolidated margins were 29.4% compared to 25.8% a year ago. Expanse in our consolidated gross margins was largely driven by improved performance from our rental business and higher used equipment margin.

Our rental business delivery margins up 48.1% compared to 44.5% a year ago, strong demand which is driving higher volume in rate combined with control of our rental expenses continue to result in rental gross margin expansion.

Margins on new equipment sales were 11.2% compared to 10% in the same period last year due to higher margins on new cranes sale. Gross margins on used equipment sales increased to 30.2%, from 25.9% in the same period last year. Parts gross margins were 27.4% compared to 27% a year ago, and service gross margins were 59.4% versus 60.2% a year ago.

Margins on other revenues such as equipment, hauling, and parts freight revenues were 1.7% compared to negative 2.2% in the fourth quarter of last year.

Slide 13 please, our results again reflects significant operating cost leverage. The improvement in profitability as reflected in a 61.2% increase in income from operations for the fourth quarter of 2012 to $28.5 million or in a 11.4% margin compared to $17.7 million or an 8.1% margin a year ago.

Proceed to slide 14 please, net income was $10.7 million or $0.31 per diluted share compared to $7.9 million or $0.23 per diluted share in the same period a year ago, our effective tax rate was 36.1% compared to 26% last year due to higher pretax income in relation to our permanent differences.

Please move to slide 15, EBITDA was $60.4 million or 39.2% increase over the same period last year, which again outpaced our revenue growth of 15.3%. EBITDA margin was 24.1% compared to 20% in the same period a year ago in expansion of 410 basis points.

Next slide 16, SG&A was $45.1 million, a 16.7% increase over the same period last year. SG&A as a percentage of revenue was 18.1% this quarter compared to 17.8% a year ago; the increase was primarily due to higher commission and incentive pay combined with a larger workforce associated with the growth in our business.

Slide 17 and 18 include our rental fleet statistics. Our fleet based on original equipment costs at the end of the fourth quarter was $883 million versus $736.6 million a year ago, an increase of 19.9% or $146.4 million. During the fourth quarter, we increased the size of our fleet by $12 million based on original equipment costs. Our growth fleet capital expenditures for the quarter were $56.4 million including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $30.9 million. For the quarter, gross PP&E CapEx was $10.4 million and net was $10.2 million. Our average fleet age at the end of December was 38 months.

Next on slide 19; at the end of the fourth quarter, our outstanding balance under the ABL facility was $157.7 million and accordingly we had $238.3 million of availability at quarter-end under our ABL facility, net of $6.5 million of outstanding letters of credit.

Subsequent to quarter-end in February, we successfully completed an add-on notes offering of $100 million of 7% senior unsecured notes due 2022. The notes were issued as additional notes under an indentured date as of August 20, 2012 pursuant to which we previously issued $530 million of 7% senior unsecured notes due 2022.

We used the proceeds from the offering to repay indebtedness outstanding under our ABL facility and for the repayment of related fees and expenses. The offering enhanced liquidity profile, was leveraged natural and was priced favorably at 108.5%, or ineffectively be about 5.6%.

Next slide 20, let me briefly review our full year 2012 results. To summarize, momentum in our business increased throughout the year resulting in total revenues of $837.3 million or 16.2% increase in revenues, a 33.5% increase in gross profit and a 400 basis point expansion in gross margin.

And as I highlighted earlier, as a result of the increased demand, we have invested in the rental fleet and increased the size by approximately $146.4 million, a 19.9% to $883 million in total OEC. While growing our fleet, we operated at near-short peak typical utilization levels in the latter half of the year and we raised our own rates 2.5% on average for the full year.

The income from operations increased to $89.2 million on a 2.7% operating margin compared to $40.1 million on a 5.6% margin in 2011. Net income increased to $28.8 million or $0.82 per diluted share in 2012 versus $8.9 million a $0.26 per diluted share in 2011. Adjusted net income of $35.4 million or $1.01 per diluted share in 2012.

EBITDA increased $56.2 million or $196.5 million on a margin of 23.5% compared to $140.3 million on a margin of 19.5% a year ago. And adjusted EBITDA increased $56.4 million to $206.7 million on a margin of 24.7%.

2012 was a positive year for our business, these are outstanding execution by our entire organization which allowed us to successfully capitalize on improved market condition. Our capital structure provides us with the flexibility to take advantage of market improvement.

I will now turn the call back over to John to discuss our 2013 outlook and then we’ll open the call for questions.

John M. Engquist

Thank you, Leslie. Please proceed to slide 22. 2012 can be summarized as an impressive year for our company where we delivered significantly improved results from 2011. Based on the current trends in our business, we’re expecting 2013 to be an even better year for our company, as our customers are more confident in the recovery and demand and our end user market remains strong.

We expect solid growth in our rental business accompanied by continued rate increases. Although difficult to predict, we remain optimistic about our distribution business. This segment delivered strong results throughout 2012, and we expect that the extension of the bonus depreciation deduction should have a positive impact on machinery sales during 2013.

As a result of the ongoing strength in our industrial markets and the improving trends in commercial construction in our non-industrial markets we’re focused on expansion plans to capitalize on the strength and improvement.

In closing, we undertook several steps during the year to strengthen our balance sheet and enhance our liquidity, substantially increase our fleet size and overall better position our company for future growth opportunities. Our goals remain consistent, we’re focused on solid execution, operating leverage, cost control and leveraging marketplace trends to deliver strong results and enhance shareholder value. Once again I congratulate our employees for their excellent performance.

This time, we’d like to take your questions, operator please provide instructions.

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll take our first question from Seth Weber, RBC Capital Markets.

Seth R. Weber – RBC Capital Markets LLC

Hey, good morning everybody.

John M. Engquist

Good morning Seth.

Seth R. Weber – RBC Capital Markets LLC

So just a couple of questions on the rental business, the sequential rate increase that you called out in the quarter, can you talk about whether that has continued here in January and February, whether you’ve seen sequential rate increases monthly January and February? And then the follow-up question to that would be, if you did not raise these rates at all for this year, kind of what’s your starting point? What would be the rate increase for 2013, just kind of based on where you’re starting the year from the increases you pushed through last year that make sense?

John M. Engquist

Sure, look first on, we’re continuing so far this year to see year-over-year rate increases in double digit range, and January and February we saw sequential rate increases, which I believe are more important than year-over-year. So we are very pleased with that, we think we’re going to show really solid rate increases this year. I don’t have the number in front of me, but I suspect we have baked in a 2% to 3% price increase, if rates just stayed flat from where we ended this year. Again we are continuing to see double digit year-over-year increases and we saw a sequential increase in both January and February, which is really…

Seth R. Weber – RBC Capital Markets LLC

Okay, that’s helpful, thanks. Right, absolutely understood and would you expect utilization to be or flattish year-over-year, I expect you are going to continue to add some fleet here, how are you thinking about that?

Bradley W. Barber

I would not expect time utilization or physical utilization to be up, I mean we're are operating on a much larger fleets, so I really expect this to take peak at similar levels to down slightly.

Seth R. Weber – RBC Capital Markets LLC

Okay, and if I could just slide in a quick question on the distribution business, you mentioned that margins on the distribution business were up related to the cranes, I guess, is that a function of better pricing or is it mix, can you just help us understand that?

John M. Engquist

I think it's largely mix, our cranes sales were heavily related to the hydraulic side of the business, and crawler cranes were soft and crawler cranes generally have lower margins so I think a lot of that was mixed.

Seth R. Weber – RBC Capital Markets LLC

Okay perfect, thank you very much.

John M. Engquist

Thanks Seth.

Operator

And we'll take our next question from Neil Frohnapple, Northcoast Research.

Neil A. Frohnapple – Northcoast Research Partners, LLC

Hi guys congrats on another nice quarter.

John M. Engquist

Thank you.

Neil A. Frohnapple – Northcoast Research Partners, LLC

John you just mentioned that the large crawler crane business is still weak, but I think historically it's kind of the lag the hydraulic crane business by 6 to 8 months, and I think you’ve had a quite a few quarters now on a row of solid hydraulic crane demand, I'm just wondering if this is beginning to translate into improve quoting activity or are you seeing any signs of life on a large crawler crane demand market yet.

John M. Engquist

I would refer to Brad on that, look we hope to see some improvement in the second half of the year, but Brad you may have some color on.

Bradley W. Barber

We’re seeing, we're hearing optimistic talk by those crane users. As you referred it’s normally a six to eight month lag time, we’ve exceeded that obviously at this point. And we’re not fixing, start selling a whole bunch more lattice boom cranes next month. However optimism is there, we think with the energy sector continuing to benefit that we plan as Manitowoc walked us, Q3, Q4 we’ll start to see some benefit and expansion of the crawler products.

Neil A. Frohnapple – Northcoast Research Partners, LLC

Great, thank you. And maybe another question for you Brad, you mentioned that expanding existing branches, what is this entail, are these branches at or our capacity from a parts and service perspective or does it involve hiring additional sales personnel and maybe just a little bit a color there sort of startup costs or CapEx associated with those.

Bradley W. Barber

Sure it’s actually both of what you mentioned. We are in some markets where we’ve just exceeded our opportunity with the infrastructure. We are in markets that are expanding and we are adding sales coverage, parts and service both to support those other elements of the business. So it’s really all of the above. We are just looking at market that we see existing opportunity that has expanded, that we expect to continue to expand, where we can grow our presence internally.

Neil A. Frohnapple – Northcoast Research Partners, LLC

Great. And then one last one if I may, John on the equipment rental business I think Sunbelt mentioned earlier this morning that its rental revenue is benefiting from a temporary disruption in the market as the United and RSC merger. Are you guys experiencing similar positives in the near-term, with new rental business, and if so how long do you think this could last? Thank you.

John M. Engquist

Well, I think we’ve seen several benefits to the merger, one there has been some good people come available and we picked up some people because of the merger. I think they’ve created a huge entity there and in many cases I think end users are looking forward. They either used United or RSC as their first call and the other one for a second call. So now, they’re looking for a strong second call participants so that is definitely benefited our rental business, I think it will continue to.

Neil A. Frohnapple – Northcoast Research Partners, LLC

Great, thanks a lot guys.

John M. Engquist

Thank you.

Operator

We’ll take our next question from Eric Crawford with UBS.

Eric Crawford – UBS Securities LLC

Hi, good morning.

John M. Engquist

Good morning.

Bradley W. Barber

Good morning.

Eric Crawford – UBS Securities LLC

I wanted to get a bit more color on the bonus depreciation commentary, did you see anything unusual on the Cadence in 4Q, it’s just a pull forward in demand is that shaped your view on 1Q at all?

John M. Engquist

Brad, you want to take that you may or better I don’t think so…

Bradley W. Barber

It doesn’t shape how you own in the first quarter is the answer, and then I would say that I think we have had some level of benefit in the fourth quarter. So with the bonus depreciation and since it’s going to be expanded through this year likewise we should see the same.

Eric Crawford – UBS Securities LLC

Okay. And then switching over to the rental business, past couple of years, we’ve seen a sequential up tick in your 4Q rental gross margins. Can you talk a bit about what you saw there and what was different this time?

Bradley W. Barber

Just exceptionally strong demand and you’re talking about in Q4?

Eric Crawford – UBS Securities LLC

Right.

Bradley W. Barber

Yeah. I just think that just very, very strong demand more of the same in, we were able to maintain near historical levels of physical utilization drive rates hard. So it’s really just the demand issue more than anything.

Eric Crawford – UBS Securities LLC

Okay, and if I could get one more, I appreciate the color you’ve given on time utilization, in light of your investment, to take advantage of growth opportunities, this dollar utilization now become a more telling metrics than time?

John M. Engquist

I think dollar utilization is always a more important measurement than time utilization. It’s a function of rate and physical utilization, but I mean that’s what drives our financial performance. Yeah, we always look at dollar utilization more than we do physical utilization.

Eric Crawford – UBS Securities LLC

Perfect, thank you very much.

Operator

We will take our next question from Nick Coppola, Thompson Research Group.

Nick A. Coppola – Thompson Research Group LLC

Hey guys.

John M. Engquist

Hi, Nick.

Nick A. Coppola – Thompson Research Group LLC

On new equipment sales in the quarter, you guys certainly met a tough comp from Q4 ‘11, and it is a second year in a row where there was a big sequential increase from Q3 to Q4? Is that treating by that as a benefit of the bonus depreciation or is there something else going on there? I know you said that the crawler were particularly so and so, I don’t know if there was any kind of lumpiness in that quarter, do have any thoughts around that?

John M. Engquist

I think that the bonus depreciation is definitely a significant driver of that year-end buying. I think most of our end users are profitable today, they are making good money and they are taking advantage of the bonus deprecation, so I think that is a significant driver of what we have seen in the last couple of years, particularly in December.

Nick A. Coppola – Thompson Research Group LLC

Okay, that makes sense. And then following up on kind of the operational update and the market expansion; on the Greenfield side, I understand maybe you guys didn’t want, may or may not want to disclose exactly where you are looking, but just to think about the magnitude of that, I mean how many branches do you think you could reasonably open in ‘13, I guess how significant of expansion are we taking about?

John M. Engquist

We expect to open six locations. We actually had a press release put up this morning to announce the opening of Fort Worth, Texas. So we opened Seattle, January 1, and we announced the opening of Fort Worth yesterday evening or this morning. And we think we can accomplish likely four more locations this year.

Nick A. Coppola – Thompson Research Group LLC

Okay, that’s helpful as well. And then last question can you talk about how much fleet are you expecting to add in ’13?

John M. Engquist

Look our fleet investment is going to decline in absolute dollars and our growth rate is going to come down a little bit. Nick we don’t give CapEx guidance because we try to make very short-term decisions there based on opportunity, but we will have fleet growth this year, although at a lower level than which we saw last year. We grew our fleet 20% last year, it won’t be that significant a fleet growth and our absolute dollars that we spend will be less.

Nick A. Coppola – Thompson Research Group LLC

Okay, all right. Thank you.

John M. Engquist

You bet.

Operator

(Operator Instructions) And we’ll take our next question from Joe Box with KeyBanc Capital Markets.

Joe G. Box – KeyBanc Capital Markets

Hey good morning guys.

John M. Engquist

Hi, Joe, good morning.

Joe G. Box – KeyBanc Capital Markets

John, I just wanted to ask you about the Gulf Coast. Obviously, it’s been pretty strong region for you over the last couple of years. Can you maybe just talk about where you see us in the evolution of the Gulf Coast from a demand standpoint and a supply standpoint as well, so just kind of curious maybe what inning you think you are in?

John M. Engquist

Well, in short, I just see tremendous opportunity coming to the Gulf Coast over the next few years, like Charles is looking at probably the largest industrial expansion we have ever seen in Louisiana in the next few years, largely related to some large LNG plants, but just tremendous activity there, same thing in Corpus Christi, just tremendous industrial activity there. So I feel there is a lot of runway in front office in the Gulf Coast and a lot really exciting stuff coming up.

Joe G. Box – KeyBanc Capital Markets

And do you think that the demand that is going to clearly outpace the amount of supply growth in market, does it seems like there is clearly some guys moving assets down there and in growing locations.

Bradley W. Barber

I think though, yeah, I mean everybody is here now. I mean everybody is aware what’s going on, we’re not short on any competitors, but I think the market opportunity will certainly support the projected fleet growth. Yeah, there is a lot coming up in the Gulf Coast.

Joe G. Box – KeyBanc Capital Markets

Great, okay that’s good color. And maybe switching gears to your dealer business, can you maybe just talk to where customer sentiments is right now and may be put a little bit more color on what drove the solid parts and service pick up in the quarter.

John M. Engquist

Yeah. I’ll let Brad speak to that.

Bradley W. Barber

Yeah, I think the sentiment is still somewhat mixed depending on product type. We talked about the crawler crane markets and so you can suspect what the comments of those customers are. On the earthmoving side, we think some additional optimism, and expect that it will continue to growth. Parts and service obviously are weighted fairly strong to our earthmoving and crane distribution business, and I can say that we see plenty of opportunity for that to continue to expand throughout 2013.

Joe G. Box – KeyBanc Capital Markets

Great. Okay maybe circling back on the rate question, obviously you guys had solid rental rate performance last year, it sounds like a lot of that momentum as continued so far early this year. If you look at I guess one of you peers specifically, they’re looking for about a mid-single digit improvement in 2013, now given your footprint in some of this newer software that you’re talking about. Do you think that you can nicely outpace the industry again, on rates in 2013?

John M. Engquist

Yeah. I think we’ll certainly outpace that projection, that mid single-digit and in fact I think they will too. But yeah, we’re going to do considerably better than that?

Joe G. Box – KeyBanc Capital Markets

Okay. Thanks and maybe last one, this is really kind of the first quarter and call it eight quarters, where you didn’t really get solid SG&A leverage. Were there any one-time factors that may have impacted the quarter or are you just kind of at that point now where you need to put some G&A in place to support the higher revenues?

John M. Engquist

Yeah. I have a couple of comments and Brad or Les, they may want to add some color. But if you go back and you look at ‘11 and ‘12, Joe, I mean we had some very, very significant top line growth and really kept our headcount pretty flat, and we’re just at a point now that from an efficiency standpoint, we’ve got to add some people. So I think it’s kind of caught up with this, and we’ve got to add some people. And a lot of that is just related to performance, its incentive type stuff, but there’s no question we’ve reached a point, we have to start adding some headcount.

Joe G. Box – KeyBanc Capital Markets

Can you maybe give us a little bit of help then on maybe what an appropriate SG&A run rate would be then?

John M. Engquist

Percentage wise?

Joe G. Box – KeyBanc Capital Markets

Either on an absolute dollar basis or should we think about it creeping up throughout 2013 on a percentage basis or would you expect it to be flat on a percentage basis, just any color there?

Leslie S. Magee

I wouldn’t be surprised to see it creep up, its add as a percentage of revenue basis maybe in 2013. That again, it’s going to be, it’s a top line issue, so it remains to be same on distribution side of the business too, how some of the – as Brad was talking about, how some of the per capita yield plays out on the crane side of the business.

Joe G. Box – KeyBanc Capital Markets

Perfect. That’s really helpful. I will turn it over and welcome to the calls Brad.

Bradley W. Barber

Thank you.

Operator

We will take our next question from Philip Volpicelli, Deutsche Bank.

Philip Volpicelli – Deutsche Bank Securities, Inc.

Good morning John, Leslie, and Brad.

John M. Engquist

Hi, Philip.

Philip Volpicelli – Deutsche Bank Securities, Inc.

First question is for Leslie. Can you give us the floor plan financing at the end of the year?

Leslie S. Magee

Sure. It’s $50.8 million.

Philip Volpicelli – Deutsche Bank Securities, Inc.

Okay. And going back to the CapEx versus time utilization question for 2013, I get it that you’re going to spend a little bit less on CapEx, but how do you manage that? Is it time utilization as a result of the amount of CapEx, you’re adding based upon the demand you are seeing in there or you are managing to a time utilization number?

Bradley W. Barber

I think we have spend dollars based on demand and what we see in the marketplace, I don’t think we manage to a time utilization number, we do not. So we certainly – there is some drivers like our fleet age, where we have some initiatives, for rotation, we can factor in and from a timing standpoint, we want to time those purchases with the disposals, but genuinely speaking as John was, we’re going to look at the opportunity that presents themselves and our time utilization is just a factor of the resulting performance.

Philip Volpicelli – Deutsche Bank Securities, Inc.

Okay, that’s great. Thanks, Brad. And then I always ask this question; mergers and acquisitions, clearly the market, there is several smaller players, one in bankruptcy, couple of others with capital structures that become callable this year, you guys have previously focused on Greenfields or have said your focus will be on Greenfield, is that still the case or you consider M&A?

John M. Engquist

I think our focus will be on Greenfields. With that said, if the right thing came along, it’s the right multiple we will certainly look at it. I mean I think we’ve done some good stuff with our balance sheet and we’ve got a lot of liquidity, but our focus is on Greenfields right now. We’re having good results. We think it’s a real sound strategy and what we’re going to continue to pursue that.

Philip Volpicelli – Deutsche Bank Securities, Inc.

Okay, great. John, how high would you take leverage if you did do an acquisition?

John M. Engquist

I would not want to take leverage, much beyond where we are and I think we told the market that when we went out and sold notes in the recent past and we’re going to look to deleverage over the next year.

Philip Volpicelli – Deutsche Bank Securities, Inc.

Great, thanks very much. Good luck.

Operator

We’ll take our next question from Matthew Dodson with J West LLC.

Matthew Dodson – J West LLC

Can you talk a little bit about your growth in fleet from Q4, Q1, you’ve been adding sequentially every quarter for the last six or seven quarters. Can we expect that trend to continue?

John M. Engquist

As we’ve talked about, that level will mitigate itself, moderate to some level. We just saw typically, Q4 we were not in a growth mode, but the dynamics existed for us to be opportunistic and do so. And so as we enter Q1, our seasonally soft quarter, we’re continuing to look. But as we’ve stated, we will grow the fleet throughout the year, but at a slower rate.

Matthew Dodson – J West LLC

Gotcha. And then can you talk a little bit about the competitive dynamics, are you seeing the mom-and-pop shops adding significantly to their fleet?

John M. Engquist

We’re not aggressive, they’re not aggressive, they’re smaller regional players who have a nice presence, but even those folks by and large are not adding fleet, they’re certainly not growing and in some cases, they’re not even de-aging, they’re otherwise very aged rental fleets, so no…

Matthew Dodson – J West LLC

And then can you talk about your pricing, is it unusual for prices to grow sequentially, in January and February from Q4, I mean is that abnormal seasonality?

John M. Engquist

It is a little abnormal. I think it speaks to the discipline in our company, the discipline in our industry. And certainly to some degree, the continued strength of the marketplace, but yes it is abnormal.

Matthew Dodson – J West LLC

Gotcha, thank you.

Operator

(Operator Instructions) And it appears there are no further questions in the queue.

John M. Engquist

Thanks everybody, I appreciate your attendance and your questions and we look forward to speaking to you on our next call. Thank you.

Operator

This concludes today’s conference, thank you for your participation.

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