Essex Rental Corp. CEO Discuses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: Essex Rental (ESSX)

Essex Rental Corp. (NASDAQ:ESSX)

Q1 2013 Earnings Call

May 8, 2013 09:00 AM ET

Executives

Kory Glen - IR

Ron Schad - President and CEO

Marty Kroll - CFO

Analyst

Matthew Dobson - J. West

Arnie Ursaner - CJS Securities

Seth Weber - RBC

Operator

Good day everyone and welcome to the Essex Rental Corp First Quarter 2013 Conference Call. At this time I would like to inform you that this conference is being recorded and that all participants are currently are in a listen-only-mode.

I will now turn the conference over to Mr. Kory Glen of Essex Rental Corp. Please go ahead, sir.

Kory Glen

Thank you operator. Good morning and thank you for joining us today. Our speakers today will be Ron Schad CEO and Martin Kroll CFO of Essex Rental Corp. Laurence Levy, Chairman of our Essex Rental Corp will join us for the question and answer session of the call.

Before we get started I would like to review the Company's safe harbor statement. Remarks made on this call may contain forward looking statements within the meaning of Section-27A of the Securities Act of 1933 as amended and Section-23 E of the Securities Exchange Act of 1934 as amended.

All forward looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events for future performance of the company. Listeners are cautioned not to place undue reliance on these forward looking statements, which are only predictions and speak only as of the date hereof.

In evaluating such statements, perspective investors should review carefully various risks and uncertainties that are identified in this conference call and matters set in the Company's SEC filings. These risks and uncertainties could cause the company's actual results to differ materially from those indicated in the forward looking statements.

Essex assumes no obligation to update our supplement forward looking information discussed on this call, whether they reflect change assumption, the occurrence of unanticipated events or changes in future operating results or financial conditions or otherwise.

I would now like to turn the call over to Ron Schad President and CEO of Essex Rental Corp. Please go ahead Ron.

Ron Schad

Thank you Kory. Good morning and welcome to our first quarter 2013 conference call. Marty Kroll our Chief Financial Officer and I will summarize first quarter results; share our insights on our expectations for the remainder of 2013 and then open up the call for your questions.

Adjusted EBITDA before non-cash compensation and non-recurring expenses for the quarter ended March 31, 2013 increased 68.7% to $4.4 million, compared to $2.6 million for the quarter ended March 31st 2012. While our results are encouraging, I believe that we are still in the early stage of what will be a gradual recovery for the type of assets that we have wrapped.

Our 2013 first quarter financial results marked the fifth consecutive quarter in which we have realized an improvement in our operating results compared to the comfortable prior year quarter. Our first quarter is typically the weakest quarter of our fiscal year as it is the most negatively impacted by the seasonality.

From a rental revenue perspective, both utilization and average monthly rates have increased on a year-over-year basis across all of our asset categories. This marks the third consecutive quarter in which all of our asset categories have increased utilization on a year-over-year basis. While utilization levels are consistently improving, we have only begun to increase rental rates on selected asset categories.

For example, average rental rates across our crawler crane fleet, which are function of both and rate and mix are up by 11% versus the lows experience in this current economic cycle and remained 20% to 40% below the rates we enjoyed in 2006 to 2008 period.

We estimate that given the inherent operating leverage of our business, a $1 increase in rental rate results on average in $0.93 of incremental EBITDA. Although all our crawler crane rental business is improving, this portion of our rental fleet is highly dependent on significant infrastructure and industrial projects, many of which are discretionary and required continued confidence in North American industrial and energy owners to expand and invest in their facilities.

Within our crawler crane fleet, we are encouraged by the utilization trends for our hydraulic heavy lift crawler cranes. These hydraulic crawler cranes have higher dollar rental rates and account for 70% of the value of our crawler crane fleet and approximately 50% of the over $350 million orderly liquidation value of entire fleet.

Utilization of our fleet of heavy lift hydraulic crawler cranes for the quarter ended March 31, 2013 with 60.5% and has now been above 60% for the past three quarters. Furthermore, utilization of this asset class has increased in each month of this year and is currently an excess of 69%.

Given this level of utilization, we are selectively increasing rental rates in this subcategory of assets. Conversely, utilization for the remainder of our crawler crane fleet which is comprised of midsized older equipment continues to be approximately 30% to 35%, which is consistent with where it has been for the last 36 months. First it was approximately 60% to 70%.during the 2006 to 2008 period.

Furthermore rental rates for this category of equipment still remain approximately 20% below the rates we experienced during the 2006 to 2008 period. This sub-asset category accounts for approximately 22% of the total orderly liquidation value of our fleet. We continue to actively endeavor to reduce the amount of invested capital that we have allocated to mid-sized crawler cranes/

As we mentioned in prior conference calls, our monthly crawler crane bookings are indicative of future utilization and earnings. Throughout 2012 we received more orders for more rental months and revenue compared to the prior year. This trend has continued in the first quarter of 2013 in comparison to the first quarter of 2012. Specifically expected rental rate revenues on crawler crane orders received in the first quarter of 2013 increased by approximately 13%, compared to the first quarter of 2012.

Although this year over year improvement is a positive indicator, our expectations for orders were somewhat higher that those booked thus far. Average monthly crawler crane rental rate increased by $742 or 4.6% to $16,975 for the quarter ended March 31, 2013, compared to $16,233 for the three month period ending March 31, 2012. Average monthly crawler crane rental rate decreased by $972 sequentially, compared to $17,947 for the quarter ended December 31, 2012. The fluctuations in average rental rates are primarily attributable to the mix of cranes and rent.

Rough terrain crane utilization increased to 58.4% for the quarter ended March 31, 2013, compared to 54.8% for the quarter ended March 31, 2012. Average monthly rough terrain crane rental rate increased $2,363 or 24.5% to $12,022 for the quarter ended March 31, 2013 compared to $9,659 for the quarter ended March 31, 2012. Approximately one half of this increase in average monthly rental rate is due to the mix of rough terrain cranes on rent, with the remainder of the improvement due to increases in rental rates.

Our rough terrain cranes benefit from a broad array of markets that they can serve. Demand has been particularly strong for infrastructure and maintenance related power and petrochemical projects. Boom truck utilization increased slightly to 43.4% for the quarter ended March 31, 2013, compared to 43% for the quarter ended March 31, 2012. This first quarter is our seasonally softest quarter and within our rental fleet boom trucks are the assets that are most susceptible to seasonality, due to the nature of the work associated with their demand.

Power crane utilization continues to improve, particularly in larger lifting capacity classes and in elevator lifts. Utilization of these assets increased to 58.4% for the quarter ended March 31, 2013 from 47.9% for the quarter ended March 31, 2012 and 56% for the quarter ended December 31. 2012.

The increase in tower crane demand is mainly related to commercial construction projects. While average rental rates of tower cranes have improved by approximately 5% on a year over year basis, we believe that this asset class will provide similar rental rate improvement to that which we expect for our crawler cranes.

I will now turn the call over to Marty Kroll to discuss our financial results.

Marty Kroll

Thanks Ron, I will now review the financial results for the first quarter of 2013. Equipment rental segment revenues were $17.8 million for the quarter ended March 31 2013, versus $18.1 million for the quarter ended March 31 2012. Equipment rental segment revenues include rental, transportation, used rental equipment sales and repair and maintenance of rental equipment.

Excluding proceeds from the divestiture of the aerial work platform assets of $400,000 and $3.6 million for the quarters ended March 31 2013, and 2012 respectively, equipment rental segment revenues actually increased by 22.2 % or $2.9 million.

This increase is due to $1.2 million increase in equipment rental revenue driven by higher utilization and average rental rates for all of our core asset categories, and a $1.7 million increase in rental equipment sales, excluding aerial work platform assets. Gross profit for this segment increased by 118% to 4.4 million for the quarter ended March 31, 2013 from $2 million for the comparable period 2012.

The majority of the improvement in gross profit is due to the $1.2 million increase in equipment rental revenue. Additionally, approximately $600,000 of the increase in gross profit within the equipment rental segment is due to an increase in gross profit on used rental equipment sales.

Equipment distribution segment revenue, which includes retail distribution of new unused equipment but excludes the proceeds received from the sale of used rental equipment was $3.7 million for the quarter ended March 31, 2013, which represents a $2.8 million or 305% increase compared to $900,000 for the quarter ended March 31, 2012. Equipment distribution segment revenue for the three month period ended March 31, 2013 was 91% of the revenue for this segment for the full year of 2012.

While we do not believe that our year-over-year equipment distribution segment revenue growth is sustainable, we anticipate continued year-over-year improvement in this segment, based on the orders already in hand. While we have orders in hand for new equipment sales, it is difficult to predict the exactly when these sales will occur resulting in variability in our quarterly results for this segment of our business.

Equipment distribution gross profit was $400,000 for the quarter ended March 31, 2013. Equipment distribution segment gross profit generated for the first quarter of 2013 exceeded the total amount of gross profit generated from this business segment in 2012.

Parts and service segment revenue was $3.5 million for the quarter ended March 31, 2013, compared to $4.7 million for the quarter ended March 31, 2012. Gross profit was $900,000 for the quarter ended March 31, 2013 compared to $1.3 million for that quarter ended March 31, 2012.

Although we are disappointed with parts and service revenue for the quarter ended March 31, 2013 we are pleased that the initiatives that we have implemented to cut costs throughout 2012 helped to increase gross profit margin in this segment.

Gross profit margin has averaged to approximately 30% since the beginning of 2012, compared to approximately 18% throughout 2011. Consolidated gross profit increased by $2.3 million or 68% to $5.7 million for the quarter ended March 31, 2013, versus $3.4 million for the quarter ended March 31, 2012. Gross profit margin was 23% for the quarter ended March 31, 2013, versus 14% for the quarter ended March 31, 2012.

Selling, general and administrative expenses decreased by $900,000 to $6.1 million for the quarter ended March 31, 2013, compared to $7 million for the quarter ended March 31, 2012. The decrease is primarily related to a reduction in salaries, professional fees and consulting fees.

The decrease in salaries and temporary labor expenses is a result of several cost reduction initiatives, including the previously discussed consolidation of certain back office functions completed at the beginning of 2012.

The steady improvement in utilization and average rental rates, along with the implementation of a number of initiatives geared towards reducing expenses and improving our operating performance has resulted in an increase in adjusted EBITDA before non-cash compensation and nonrecurring expenses of 68.7% to $4.4 million for the quarter ended March 31, 2013, compared to $2.6 million for the quarter ended March 31, 2012.

Adjusted EBITDA before non-cash compensation and non-recurring expenses for the trailing 12 month period ended March 31, 2013 was $19 million, doubling the $9.5 million for the trailing 12 month period ended March 31, 2012.

There were no nonrecurring expenses and $100,000 of non-cash compensation for the quarter ended March 31, 2013. There was approximately $600,000 of nonrecurring expenses and $400,000 of non-cash compensation for the quarter ended March 31, 2012.

We continue to focus on the sale of rental assets to both reduce and re balance our fleet mix. In January 2013, we sold the remainder of our aerial work platform fleet. Throughout 2013, we continue to actively market rental assets for sale including crawler crane's which were underutilized even during historic peak demand periods.

During the quarter ended March 31 2013, we sold $3.8 million of rental equipment at the approximately 114% of liquidation value. Consistent with our objective to reduce leverage, the proceeds received from the sale of these assets were used primarily to pay down debt with a portion used to replenish rental assets.

As previously announced, we completed the re-financing of all of our operating company debt in the first quarter of 2013 and extended majorities to 2016 and beyond. Our weighted average interest rate was approximately 4.53% as of March 31, 2013.

I will now turn the call back over to Ron.

Ron Schad

Thanks Marty. Our 2013 objectives include improving asset utilization and rental rates across our entire rental fleet to enhance our return on invested capital. Disposing of under-utilized equipment and using the proceeds to reduce debt and capitalizing on a number of identified opportunities to improve the profitability of our new equipment distribution and our parts and service business lines. Thus far in the second quarter of 2013, we are continuing to experience a gradual increase in utilization across all of our asset classes as compared to the first quarter of 2013.

Based on April orders received and current demand, we expect utilization to continue to increase in the second quarter of 2013. Specifically, crawler crane utilization has increased each month thus far in 2013, while crawler crane quoting activity related to contractors that have been awarded construction projects has been lower than our expectations thus far in 2013.

Our win rates on these quotes has been better than expected. We will continue to closely monitor quoting activity as we believe it is an important indicator of future business performance. As Marty mentioned, adjusted EBITDA before non-cash compensation and non-recurring expenses was $19 million for the trailing 12 month period ended March 31, 2013.

In closing we reaffirm our previously provided guidance and we are expecting EBITDA before non-cash compensation expenses for the year ended December 31, 2013 to be in the range of $21 million to $26 million and we expect interest expense and net capital expenditures to be approximately $10 million and $2 million respectively.

We would now like to open up the call for your questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question and answer session. (Operator Instructions). Our first question comes from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question. Your line is live.

Unidentified Analyst

This is Donald filling in for Scott. I want to touch on the end markets to start with. Utilization is continuing to build nicely year-over-year. Can you discuss the end markets you see strength for the crawler cranes and the second part of that question is, is there specific dynamic you are seeing currently that would accelerate the utilization and rental rates going forward?

Ron Schad

Okay so first Dan on your question about end markets, the end markets that are particularly positive right now are transportation related end markets which are primarily work coming from the highway bill for large bridge and highway project as well as industrial marine work. In that sector we see work in the offshore fabricators returning related to oil production as well as other industrial facilities and then we are seeing nice amount of work in the petrochemical energy sector as well.

Power currently is a bit down year over year for us on our crawler crane demand but that is primarily because of the impact of the slowdown in wind related energy projects which there was a rush of throughout 2012 because of the energy credits that were running out and then have now been reapproved. We expect that work to return later and is returning later this year and into 2014 going on. So power is one segment that currently on a year-over-year little bit down but we expect to be back up.

The rest of the sectors even including things like sore and sewer and water and projects are seeing a nice increase, general building as well. So all in all I think crawler crane demand is pretty widespread across all the sectors we participate in.

As far as the ongoing dynamic, again we predicted North American confidence in particularly infrastructure and energy projects continue, we’ll continue see that demand rise and as that demand rises we’ll be able to continue to increase rental rates.

Unidentified Analyst

I’m sorry if I missed this, the duration on inventories in the quarter?

Ron Schad

They’re staying at about the same in that expected rather new rate of seven to nine months on a typical order and that’s a good question that you bring up. When you look our rate increases and the ability for us to raise rates, you need to keep in mind that we have backlog of cranes on rent with the average rental duration contractually going for that nine months. So when we book a new order we’re raising the rate on that crane but we have this backlog of cranes on rent, which is significant at this time of orders that were booked at a lower rate period.

Unidentified Analyst

Okay one last for me and I’ll than past on. On the close integration what kind of synergies are you seeing? Can you take us a little deeper in it please?

Ron Schad

That’s been very good, we’re seeing all kinds of opportunity. Of course first on the selling end where we have mutual customers with strong relations geographically on the west coast with coast present helping us on our crawler crane rental business, but then even on our rental delivery service and support side for both fleets we have the synergies going of where our service people on the crawler crane are helping them take service work for crawler cranes in the geography on west coast where they wait.

The coast guys wouldn’t be able to do that in the past and vice versa they’re using their resources to support us in doing the maintenance and ongoing repair work for our rental customer. So that’s working on nicely and we think in positive dollars to hit the bottom line will still be coming from that.

Operator

Our next question comes from the line of Matthew Dotson with J. West. Please proceed with your question. Your line is live.

Matthew Dobson - J. West

Can you talk just a little bit about or maybe give us some stats for April. You mentioned that the crawler crane hydraulic was I think 69% in April, it finished. Is that right I just wanted to verify it and if it is could you also give us kind of what the traditional, the rough terrain, the boom, you know the self-erecting in the city and other were in April.

Ron Schad

Yes, I don't have exactly in front of me all of that, but I can tell you, yes, you are correct; 69% was the hydraulic crawler crane aspect. I think the midsized traditional cranes older cranes were still in that 30% utilization, we didn't see much of a pickup there. We did see a significant pick up in our boom trucks and so although we were down quarter over quarter and our boom truck utilization year-over-year quarter we were up and were up even further than that in April. So we are seeing them bounce back. Obviously the weather's getting better. So boom trucks, rough terrain cranes, those cranes a significant amount of their work is related to maintenance type work and we're seeing increases in utilization on those fleets. The tower cranes likewise we expect them to continue to increase utilization.

Matthew Dobson - J. West

Okay, the hydraulics at close to 70%, shouldn’t it be close to the threshold of being able to push price there? Can you talk a little about that? H&E (ph) was talking about on their call in their hydraulic side that they were roughly at 80 and they were actually going to buy some new equipment because they were seeing strong demand on the hydraulic side and it sounded like pricing was getting pretty positive. So could you talk a little bit about?

Ron Schad

So you were mentioning H&E had approximately 80% I think you said.

Matthew Dobson - J. West

Correct, they said that in April.

Ron Schad

Matt, a couple of things there, first of all when they're talking hydraulics they're most likely talking about their rough terrain fleet. They have very few crawlers to my knowledge in their rental fleet, so that's a little bit of an apple and an orange, plus utilization's not a GAAP measurement. So everybody looks at that a little differently depending upon whether you count all of the cranes in the fleet including those that are listed for sale or not.

But back to the heart of your question, yes, at 69% utilization we are looking at opportunities to raise rates and are doing so. But as those new rates come in, you've got to be aware that those are the long duration assets, sis to nine month or longer rentals. So we have again a backlog of rentals with lower rates. So to move the average rental rate, we have to have a period of time where we can flush some of those older rentals out and reload with new higher rental rates. Does that make sense?

Matthew Dobson - J. West

Yes, it makes sense. And then can you talk just a little bit; one of brokerage firms Thompson Research put out recently that they think some of the TIFFI (ph) awards will be let in July and August of this year. I assume if TIFFI (ph) awards are let that should have positive ramification for your crawler the tradition or the lower ended. Is that right? Should we see as that road work picks up that you should start to see better utilization in the traditional side?

Ron Schad

Yes it should and that’s the type of work that could start improving our mid-sized crawlers. The highway work, the larger highway project take significant amount of the nation's rental fleet of those mid-sized crawlers and that mid-sized crawler is the broadest capacity of cranes in the total rental fleet and contractor owned fleet. As that works picks up and the contractors use up their capacity, they go to the rental capacity and the rental capacity starts to shorten and we will see higher utilization and rate opportunity from that type of work. So that’s perfect work for that type of crane.

Matthew Dobson - J. West

Okay but those are such low utilizations right now, you can’t push price right now, you are just trying to get those utilized, is that correct?

Ron Schad

In the mid-size crawler crane we won’t see a lot of price push for some time.

Matthew Dobson - J. West

Got it and then last question I have for you is can you just talk a little bit about the boom trucks. Sequentially they were down in utilization pretty significantly. You have mentioned weather and then you have said the boom trucks had gotten better already in April. I assume most of your fleet is out in the West and I assume with housing a strong as it is in the west that is a positive market for the boom trucks. Can you talk a little bit about that relative to boom trucks and then can you also help us understand what kind of utilization you have to get to before you could start to push rental rates on the boom truck side?

Ron Schad

That’s good question, you are right that is our boom truck fleet is predominantly in the west, you are correct that the utilization is increasing. Boom trucks, by nature they are a crane mounted on a commercial truck. So it’s very easy for contractors to have them on rent, to put them on rent and take them off rent. That’s why they are the most affected by seasonality of weather and holidays et cetera because contractors turn from monthly rentals to daily, weekly rentals when they don’t have the visibility of upcoming projects.

The residential pickup that particularly for some of the larger multi-storey rental facilities that are being built in the west are very good business for the people who rent those trucks, as well as lot of the maintenance work that’s going on, in everything from industrial projects to municipalities are picking up work because of the increasing economic situation in the west. So thus far in the quarter, particularly in April we have seen a nice pick up in boom truck utilization.

With regard to when we can re-increase rates, Boom trucks, by nature again, because there is more weekly and daily rental, the utilization in the way we measure it out is days basis; it can be lighter but if we are getting most of our trucks out every week, even on weekly rentals, then we will move that weekly rental rate up, even though the utilization may be below the 60% to 65% rate.

So we are moving rates up as we can there. And that asset class, like many of our other asset classes, the new equipment prices that we are seeing from manufacturers are higher, and give us justification to move those rates up, even though –

Matthew Dobson - J. West

And I am sorry you’re alluded too that it had gotten much better. Can you give us any sense of how much better it’s gotten in April?

Ron Schad

Yes, in April our Boom trucks are reaching a 60% utilization level. So that’s up dramatically from the low 40s that we were in the first quarter.

Matthew Dobson - J. West

And I do apologize, one last question. Your partner services which is down year-over-year, H&E's business was up, I know it’s different. But, do you think you are losing share, is that just timing because it’s relatively small business for you. Help us understand that? I know you did a good job with the gross profit but you had to be disappointed with the sales being down year-over-year.

Ron Schad

You are correct. We are disappointed. We have done quite a bit of analysis. It’s a little bit of situation where first quarter of last year we had some very large projects. Again the first quarter is normally somewhat a seasonal process where contractors, if they don’t have to work, probably don’t bring the crane to have it repaired unless they are really confident of the future. And last year at this time we had some customers who had accidents with the cranes, and we had some unusual big billing and big repair opportunities.

So we don’t believe we are losing share there but we are watching that very closely and working very hard to bring in good margin business, but at the same time make sure that we increase our parts and service share on the West Coast where predominantly we have that big service offering.

The other point I would mention there is, we as you saw by the numbers, we delivered significant amount of new cranes to customers and a significant amount of cranes out of our rental fleet. When we sell those cranes there is a bit of our service activity that has to go with the sale of that crane to ready the crane; to deliver the crane and so some of that service activity that would have been available for billable work to customers was instead used for the support of our sale and rental activities.

Operator

(Operator Instructions). Our next question comes from the line of John Tanwanteng with CJS Securities. Please proceed with your question. Your line is live.

Arnie Ursaner - CJS Securities

It's actually Arnie Ursaner backing up John. Ron in your prepared remarks; you made a statement of a dollar increase and then missing the next part of it would lead to a $0.93 in EBITDA. What was the piece I missed please?

Ron Schad

No, a dollar increase in rental rates? So, if we move rental rates a dollar, most of that is actually an EBITDA dollar because although we have some commissions and insurance and other fixed charge costs associated with that, most of our rate increase drops right to the EBITDA cash flow of the business.

Arnie Ursaner - CJS Securities

So, trying to follow-up to previous questionnaire 17 or 18 questions are however you may ask. Basically, the question we are all grappling with is utilization and rate. Typically, you lag early in a recovery since as you pointed out, the long term nature of an agreement seven to nine months. So what percent of your equipment is coming off in the next three quarters from leases and if you could remind us of where rates were nine months ago, for example in a hydraulic crawler crane , where it is now?

Ron Schad

Yes, so nine months ago as we said our average hydraulic crawler crane rates were down about 11% and so there is a rise in that rate. It’s a little hard to say of how that fast that fleet will rotate through because when we report the expected rental period of a crane and say it's eight to nine months, we often times have contractors that amend and extend those rentals and take them another 10, 12, 13months. At times we are in a position to raise rates and we do but we’ve got to be careful of that, that we don’t chase the rental opportunity away.

So I would say if things continue we will see over the next year a significant improvement and our ability to raise rates on those higher utilized assets like our hydraulic crawler cranes, Many of our classes of rough terrain cranes are in the same category and you can see we raised rates as well 12%, because we said half of it was rate due to mix and half of it due rate and some of those classes were even higher than that. So we teach our guys every day to look for opportunities to improve the rate and also improve the ancillary offering returns as well, things like freight and delivery and maintenance cost et cetera.

Arnie Ursaner - CJS Securities

So, assume I have a contract that expires next month and I want to renew it, do I renew with the previous rate or do you renegotiate the rate. In other words, again you ought to have very specific numbers on the percent your fleet coming off contract and why wouldn’t you be able to raise price if the customer keeps it for longer period?

Ron Schad

And so to answer of the question, if you had a crane coming off and you were booking another project another part of the country, you’re taking the similar crane again you would see a rate increase probably in the 10% to 15% of what you’ve booked that crane maybe a year ago for.

So the difficulty in telling you exactly where all that’s going to go is because although we have specific periods of the rental leases, contractors are much like they are for any type of construction. Their ability to predict when the project will end exactly moves a lot and when we rent a crane we have a minimum period and then we have an expected period and then we have the actual period that occurs and in our industry we’re probably one of the few people that have taught our customers that if rates are rising and you go beyond the expected period of the lease and want to keep the crane we may have to raise the rates.

Sometime market pressure don’t allow us to do that because there is other people ready to rent a crane at a lower rate. Maybe then we even had it on rent to that customer for. So it’s still driven somewhat by market conditions.

Arnie Ursaner - CJS Securities

Okay and just if you could take a minute and remind us in your various categories of equipment, what utilization typically would you need to get noticeable price increases?

Ron Schad

In a type of asset class we typically say we need utilization for that asset class to be above 60%. That means that within that group, when we talk about an asset class there is various sizes and types of cranes within that asset. Each of them have their own respective rental rate and then there is rental duration that affects rate. So when we have an average asset utilization of above 60%, we know that within that class some of the assets have rate utilizations higher than that approaching 70%, 75%. Once we are in that typical area we are able to raise rates.

But at the granular level we look at each of these deal by deal and particularly on our crawler cranes and our tower cranes, these are large assets. There is limited assets available we try to know what the status of our competition’s fleet is available, where it is available what their quoting at and we try to push our rate increases, as well as push our utilization up.

So there is a lot of geography to cover. It's not easy with crawler cranes or tower cranes or a lot of our cranes to move them quickly from one geography to another because the freight costs are very significant. So you have to be aware of that geography and what the rental rate is of and what the competitive threat is and then try to get the best deal possible for that asset.

Arnie Ursaner - CJS Securities

Final question from me. Between the various EBITDA guidance of 21 to 26, what are the factors that would drive it to the low end and what are the factors that would drive to the high end?

Ron Schad

Well you just talked about a couple of them. Rate and utilization certainly play a big role in that but as well as how much equipment out of the rental fleet we will sell and what our price particularly crawler crane sales and mix of cranes we are able to sell there and then the operating margins off of our parts, service and distribution sale of retail equipment all impact that. The retail business as you saw in the first quarter was very good.

We had sales of all types of assets, some big sales, some small sales, fairly good margins on those sales, compared to what we had budgeted. So if we produce some quarters of similar nature with good retail sales and parts and service improve you'll see the number towards the top higher end of that range.

Operator

Thank you, our next question come from the line of Seth Weber with RBC. Please proceed with your question. Your line is live.

Seth Weber - RBC

I just wanted to make sure I'm understanding your comment in the Press Release about the quoting activity being lower than expectations. Is that a function of new awards, industry awards or just coming around more slowly than you expected or is there something going on from a mix issue or financing issue or, I'm just trying to understand what you're trying to convey there?

Ron Schad

We watch those numbers a lot. As I said our win rate was actually higher than our quoting level and we're talking about quotes to contractors that have been awarded. One of the things that we think actually may be a positive is that the end user, the contractors, the owners that rent from us are recognizing that there are less suppliers and they are may be not be going out for as many quotes.

So we may not be quoting as broad an activity, some of the shorter durations and things that are not maybe particularly well suited for bare rental, maybe not being quoted by bare rental companies such as us, but then therefore our win rate has been higher. So as we look at it, we think, as we look at the demand and the work that's being put out there, that it is increasing and our forecast had predicted that our order activity would be increasing, and our win rate is better. We're just a little bit, just telling you like it is, that our quote rate was a little lower than expected.

Seth Weber - RBC

But big picture, do you think the construction environment is sort of progressing as you would have thought?

Ron Schad

It is progressing again. I think the whole country, just seasonality, there was a lot of weather, a lot of rain. West coast had a significant amount of weather, we do a lot of activity in the northwest and the north east and then Canada and it was a long hard spring for construction. That could be kicking projects off a little behind, the timing that one would expect it.

But when we look at the macroeconomic of things like the ABI Index and our Peck & Dodge (ph) reports that talk about industrial projects being released and typical work that has been released in the bid process to public offerings all of that look positive there. So at the end we think we are in the continued early stage recovery for these light projects.

Seth Weber - RBC

Okay that’s helpful, sorry if you touched on this but used crane pricing, can you just talk about, I mean it sounds like you are sort of signaling that your used equipment prices are actually pretty good. Is that fare characterization?

Ron Schad

Yes they are and as you saw we did on average of 114% of the (inaudible). Bear in mind typically we are selling the stuff is under-utilized and rental fleet and is we are making way for some replacement cranes coming in to the fleet in the case of boom truck et cetera. So the higher prices we are getting, I think are indicative of improving environment in the construction site to sell those assets. I think that’s also spread by the fact that the manufacturers throughout the cycle including the down cycle were forced to raise prices because they were forced with some higher commodity and energy prices to build these cranes. Their cost didn’t go down. So that ability to catch up on the pricing is, we are seeing that in our used pricing as well, in our rental fleet pricing.

Operator

Our next question comes from the line of Matthew Dodson with J. West. Please proceed with your question your line is live.

Matthew Dodson – J. West

Just one follow up, can you talk a little bit about yourself relative to the industry? I think there are five players roughly. Do you think utilization across your asset categories are pretty much similar throughout the industry or do you think you are losing share at all?

Ron Schad

Five players you are talking about, rental players, is that…

Matthew Dodson – J. West

Yes I am sorry correct.

Ron Schad

Yes we think against our rental competitors we are maintaining and if possible growing share on the bare side on, our bare rental businesses. It is what we do. So we don’t believe we are losing share to any other major players/

Matthew Dotson - J. West

And then the last question I would have for you is, Manitowoc, on their conference call was pretty bullish about the outlook going forward, some of their orders had slipped and it sounds like this quarter will be much better but I guess the question I have for you is, where rental rates are currently, it doesn’t justify buying new equipment. So why are people buying new equipment, not renting?

Ron Schad

Yes, we struggle with that a little bit as well and some of those sales for Manitowoc, you got to bare in mind are all terrain cranes. We don’t have those in our rental fleet. That’s an asset that rents Man. So you know the rental rates maybe better on that asset class but certainly for taller cranes and crawler cranes, the rental rates are still at a place where it be hard to justify of purchasing a crane, if you are a rental company or even a contractor who had long project.

So we are out there showing that to customers every day, to contractors, explaining to them the advantage of rental through a cycle and making that story. The rough terrain cranes, their rates are higher and depending upon how you look at that asset and it maintains a fairly high residual value. I could see where, the rates are getting to a point where people would, for certain projects of longer duration be able to justify purchasing those cranes but we share with you Matthew some of the same concerns about, at least in North America right now, how you could justify buying some of those assets versus renting them. Renting them seems to be a much better plan for the contractors who are landing work.

Operator

Mr. Dotson, your line is still alive sir.

Ron Schad

Matthew?

Operator

Sir, he has removed himself from the queue. There are no further questions at this time. I would like to turn the floor back over to management for any additional remarks you may have.

Ron Schad

Well thank you all for joining us today and for your continued interest and investment in Essex. If you have any additional questions, please feel free to contact Marty or me at any time. Thank you and have a great day.

Operator

Ladies and gentlemen, this does conclude today’s conference. You may disconnect your lines at this time and we thank you all for your participation. Good day.

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