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H&E Equipment Services, Inc. (NASDAQ:HEES)

Q1 2014 Earnings Conference Call

May 1, 2014 10:00 am ET

Executives

Kevin S. Inda - IR, Corporate Communications, Inc.

John M. Engquist - CEO

Leslie S. Magee - CFO and Secretary

Bradley W. Barber - President and COO

Analysts

Joe Box - KeyBanc Capital Markets

Neil Frohnapple - Longbow Research

Nicholas Coppola - Thompson Research Group

Seth Weber - RBC Capital Markets

Steven Fisher - UBS

Sean Wondrack - Deutsche Bank

Operator

Good day and welcome to today's H&E Equipment Services First Quarter 2014 Earnings Conference Call. Today's call is being recorded. And at this time, I would like to turn the call over to Mr. Kevin Inda. Please go ahead, sir.

Kevin S. Inda

Thank you, Lisa, and welcome to H&E Equipment Services conference call to review the Company's results for the first quarter ended March 31, which were released earlier this morning. The format for today's call includes a slide presentation which is posted on our Web-site at www.he-equipment.com.

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

Please proceed to Slide 2. During today's call, we'll refer to certain non-GAAP financial measures and we've reconciled these measures to GAAP figures in our earnings release, which is available on our Web-site.

Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of federal securities laws. Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. These 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'll now turn the call over to John Engquist.

John M. Engquist

Thank you, Kevin, and good morning everyone. Welcome to H&E Equipment Services first quarter 2014 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer, and Brad Barber, our President and Chief Operating Officer.

Proceed to Slide 3 please. This morning I will give an overview of our first quarter performance and also discuss activity within our regions in current market conditions. Leslie will then review our first quarter financial results in more detail. When Leslie concludes, I'll discuss our outlook for 2014 and at that time we'll be happy to take your questions.

Slide 5 please. The first quarter represented a strong start to the year for our business despite challenging weather conditions. We see the recovery in the commercial construction industries gaining momentum as end user demand continues to increase at healthy levels compared to a year ago. This continued momentum can be seen in the strength of our rental business in the first quarter.

Rental revenues grew 14.4% from a year ago and delivered solid gross margins at 45.2%. Fleet utilization remains at a high level, even with a much larger fleet, at 69.2% based on OEC compared to 67.9% a year ago. Rental rates also increased 2.5% compared to a year ago.

Demand was also very strong for equipment purchases by end users during the first quarter, resulting in a solid performance for our distribution business. New equipment sales increased 30.4% as demand for cranes and earth moving equipment was significantly higher than last year. The used equipment market also continues to perform at strong levels.

In terms of the financials, total revenues increased 11.7% to $237.2 million versus last year and the gross margin was 30.7%. Income from operations increased 31.4% to $24.6 million and EBITDA increased 22.2% to $62.7 million compared to a year ago. Net income for the quarter was $7.4 million or $0.21 per diluted share versus net income of $4.8 million or $0.14 per diluted share a year ago. We're extremely pleased with our performance and our team's continued ability to capitalize on improving market conditions, especially considering that the first quarter is historically our most challenging quarter.

Proceed to Slide 6 please. There are a few key takeaways on this slide. Activity in our industrial markets along the Gulf Coast and in the Intermountain region is extremely high and we expect end user demand to increase further throughout 2014 due to continued expansion in the petrochemical and oil and gas related industries. We also expect to benefit from the historically high level of capital spending relating to new projects in these industries in our Louisiana and Texas markets. While our Gulf Coast and Intermountain regions generate the majority of our revenue and gross profit, activity in our less industrial regions is also expanding and is generating higher levels of revenue and gross profit than a year ago.

Slide 7 please. This slide will come as no surprise to everyone on this call and reflects the positive trends in market conditions we've been seeing in our business. These key market indicators all point towards a significant recovery in the commercial construction industry. As I mentioned previously, there is an unprecedented number of industrial projects that are expected to begin breaking ground this year in Louisiana to construct new petrochemical and manufacturing plants, and we expect these backyard projects to be another strong driver of our performance on our Gulf Coast region.

At this time, I'm going to turn the call over to Leslie for the financial review.

Leslie S. Magee

Thank you, John, and good morning. I'll begin on Slide 9. We are pleased to report another quarter of strong results this morning, and as John mentioned, our total revenues increased 11.7% to $237.2 million and gross profit increased 12.9% to $72.8 million compared to the same period last year. The drivers of our revenue growth this quarter were increased rentals and new equipment sales.

We'll now dive deeper into results, beginning with our rental business, first coveting revenues and then gross profit highlights for each of our segment. Rental revenues were $86.2 million for the quarter, a 14.4% increase over the same period a year ago. We have continued to invest in our fleet which has increased approximately $126.5 million or 14.1% from a year ago based on original equipment costs or OEC.

Although our fleet size has grown significantly, we have maintained high utilization levels with average time utilization based on OEC of 69.2% for the quarter compared to 67.9% a year ago. In addition, based on number of units available for rent, average time utilization was 64.5% compared to 63.6% last year. Also, average rental rates increased 2.5% over a year ago, driven by increases in rate on aerials. As a result, our dollar returns were 34.1% compared to 33.9% a year ago.

New equipment sales were $69.5 million, up 30.4% from $53.3 million a year ago, and as John indicated in his remarks, this was primarily the result of higher demand for cranes which increased 38.7% and strong demand for earth moving equipment which increased 29%, in each case over a year ago. Used equipment sales were $29.3 million, a $2.8 million or 8.7% decrease over the first quarter of 2013. The net decrease was primarily due to lower used crane sales.

Although business activity in our parts and service segments were consistent with the prior year with revenues of $39.5 million, this segment of our business was impacted more severely due to the harsh winter conditions in the first quarter.

Let's move on to a discussion of gross profit by segment. Total gross profit for the quarter was $72.8 million compared to $64.5 million a year ago, an increase of 12.9% on an 11.7% increase in revenues. Consolidated margins were 30.7% compared to 30.4% a year ago, with every business segment delivering improved margins from a year ago.

Our rental business delivered margins of 45.2% compared to 44.6% a year ago, due to lower rental expenses as a percentage of comparative revenue. Margins on new equipment sales were 11.2% compared to 10.5% in the same period last year, reflecting higher margins on new crane and earth moving equipment sales. Gross margins on used equipment sales were 30.4% compared to 29.2% in the same period last year. Parts gross margins were 29.1% compared to 26.6% a year ago and service gross margins were 65.3% versus 60.5% a year ago. And margins on other revenues were 4.9% compared to 3.4% in the first quarter of last year.

Moving on to Slide 10 please, income from operations for the first quarter increased 31.4% to $24.6 million or a 10.4% margin compared to $18.7 million or an 8.8% margin a year ago. The driver of the increase was the strong performance of all of our business segments combined with the control of costs at the SG&A line despite the negative impact from a shift in our revenue mix.

Proceed to Slide 11. Net income was $7.4 million or $0.21 per diluted share compared to $4.8 million or $0.14 per diluted share in the same period a year ago. Our effective tax rate was 39.3% compared to 31.3% a year ago, due to lower benefits from permanent deductions in that time period.

Please move to Slide 12. EBITDA was $62.7 million or a 22.2% increase over the same period last year, and EBITDA margins were 26.4% compared to 24.2% a year ago, driven by the same strong operating results previously mentioned.

Next, Slide 13. SG&A was $48.9 million, a 5.6% increase over the same period last year, and SG&A as a percentage of revenue was 20.6% this quarter compared to 21.8% a year ago. Our greenfield initiatives added $1 million or approximately 38% of the total $2.6 million increase in SG&A this quarter compared to a year ago. Further, we incurred increased wages and incentives largely due to the growth in the business.

Slides 14 and 15 include our rental fleet statistics. Our fleet based on original equipment cost at the end of the first quarter was $1,024 million versus $898 million a year ago, an increase of 14% or $126 million. During the first quarter, we increased the size of our fleet by $23.3 million based on original equipment cost.

Our gross fleet capital expenditures for the quarter were $65 million, including non-cash transfers from inventory. Net rental fleet capital expenditures for the quarter were $40.2 million. For the quarter, gross PP&E CapEx was $6.1 million and net was $5.4 million. Our average fleet age as of March 31, 2014 was 34.4 months.

Next, Slide 16. At the end of the first quarter, our outstanding balance under the ABL was $124 million, and accordingly we had $272 million of availability at quarter end under our ABL facility, net of $6.5 million of outstanding letters of credit.

I'll now turn the call over to John to discuss our 2014 outlook, and then we'll open the call for questions.

John M. Engquist

Thank you, Leslie. Please proceed to Slide 18. Let me quickly close by saying that our business is off to a strong start this year. Despite challenges caused by the harsh winter, our first quarter results improved significantly from a year ago. Current end user demand in our markets is outpacing the activity levels we experienced this time last year, which we believe reflects that the recovery in the commercial construction markets is gaining more momentum. High levels of demand in our rental and distribution business as well as increased construction activity in our less industrial markets also reflect our view that our industry is in the midst of a significant expansion cycle.

With our strong first quarter results and the positive current trends in our markets, we continue to believe that 2014 will be an exciting and positive year for our industry and our business. Our focus remains on solid execution, improving operating leverage and cost control to continue to improve our market position and capitalize on the significant market opportunities in 2014.

At this time, we'll be glad to take your questions. Operator, please provide instructions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Joe Box with KeyBanc Capital Markets. Please go ahead.

Joe Box - KeyBanc Capital Markets

Question for you on the rental rates in the quarter, I know you guys calculated rental rates a little bit different from the ARA method, so can you just put maybe a little bit more color on the 2.5% increase year-over-year? Curious did you sign more long-term contracts or was there any noise that maybe pushed that rate down a little bit.

Bradley W. Barber

Joe, I'd point out a couple of things. One, I think we're up against a really tough comp. If you look at what we did a year ago, we were up double-digits, and I don't think any of our peer group was up that level. So it's a tough pump, and probably more importantly, we're aggressively growing our fleet right now, we've had a lot of product come-in in the first quarter that you saw the fleet expansion, and frankly we're being very protective of utilization right now. It certainly shows in our year-over-year improvement in utilization. So, heavy growth, improved utilization, and I think that's probably the bigger driver there.

Joe Box - KeyBanc Capital Markets

Understood, and then I apologize if you mentioned earlier, but did you say where rates were at sequentially in 1Q?

Bradley W. Barber

I did not, no. I don't know. Leslie, do you have anything on that?

Leslie S. Magee

Yes, they were down 80 basis points in the quarter.

Bradley W. Barber

Joe, basically utilization was flat. Like Leslie just said, they were down 80 basis points in the first quarter. Probably more important, today we're sitting at north of 73% physical utilization based off of OEC, the dollars invested that are on rent, and I could tell you, throughout multiple cycles now we've proven that we are very disciplined when it comes to rates, we remain very focused as it comes to rates. And as John said, we're up against a very difficult comp. We were low double-digit growth this time last year in a year-over-year measurement. So we anticipate continued rate improvement, we're very focused on it, focused on rate, on growth and on ultimately the margin. So, good question, we're focused and you'll continue to see some incremental gains on the rental rate front.

John M. Engquist

And, Joe, the first part of your question, you asked if any product was going on long term projects, and I think that is the case with some of our crane product where we've seen a slight decline in rates, and some of these industrial projects are kicking off and some of these cranes are going on to long-term projects that are rate-sensitive, but their equipment is going to be out a long time and the yield will be good on those projects.

Joe Box - KeyBanc Capital Markets

Thanks for the color there, and we noticed the dollar utilization numbers going up too. So we're not going to [indiscernible] that 2.5% too much. And you had mentioned margin earlier, so maybe just to dovetail on that, I know that there was some weather in the quarter and maybe a little bit less contribution from price, but if you look at the rental incremental gross profit margins, it's a little bit light of our expectations. Would you say that's a one-time blip or is it fair to be thinking about that in the mid of 50% range this year?

John M. Engquist

I have no expectation that you'll see any change in our incremental margin on rentals over the course of the year. I think we'll be where you expect us to be.

Joe Box - KeyBanc Capital Markets

Okay, great. And then, John, you mentioned earlier, it seems like commercial is gaining some momentum. Can you maybe just put a little bit more color around this, is it about project type or geography?

John M. Engquist

I'll tell you, Joe, from a project standpoint or geography, it's very broad-based. I mean the markets that were really tough for us for a long time, they've really come back. I mean if you look at Florida, Arizona, Nevada, I mean the Vegas market has really come back and Southern California. So geographically and from a project standpoint, it's broad-based. I mean it's very, very encouraging what we're seeing right now.

Joe Box - KeyBanc Capital Markets

Excellent. I'll hop back in queue. Thanks.

Operator

We'll take our next question from Neil Frohnapple with Longbow Research.

Neil Frohnapple - Longbow Research

Good morning and congrats on a nice quarter. Just to follow up to Joe's question on rental rates, I don't want to beat this too much into the ground, and Brad, you were kind enough to provide color on physical utilization, where we are today, so did you mention that customer demand accelerated significantly in the month of March and is there any way to provide additional commentary on rental rate performance in the month of April, was the growth rate higher than what we saw in the first quarter?

Bradley W. Barber

Look, we don't provide monthly guidance, but let me say this, John alluded to in his comments particularly on the crane side, our crane fleet has continued to grow at some level as the rest of the fleet has grown, and we're faced with probably a little more pressure with that product tight than others, and so the weighting as it goes to the whole mix, it yields a result. And so, look, I don't think anyone should be overly concerned about rates. We see opportunity to continue to raise rates, we see our competitors continuing to raise rates, and I think we're going to be okay there.

I mean, again, utilization is at a very healthy level, we've got pretty meaningful fleet growth going on at the same time, whether you look at that on a sequential or year-over-year basis I think those are impressive, metrics that say something about our business, and I assure you that we're well focused on rental rates, as are our competitors. So the marketplace I think is in good condition for all of us to continue to see incremental rental rate increases.

John M. Engquist

You know, it's always a balancing act between rate and utilization, and we think we're in a pretty good spot right now.

Neil Frohnapple - Longbow Research

Great. Thanks for the color on that, I appreciate it. And, John, as you take a step back and look at the opportunities on the horizon in the Gulf Coast over the next few years, are there any other equipment rental product categories or distribution areas you're not in currently, maybe potentially interested expanding into, either organically or through M&A?

John M. Engquist

Obviously, some of the specialty rental stuff is interesting to us and that's something that we may look at, at some point, but we got a lot of opportunity in front of us with our existing product lines and a lot of growth opportunity. So, when we look at the right opportunity to get into some of the more specialized room, absolutely if the right thing comes along, but we got ample opportunity in front of us with what we currently have in our fleet.

Neil Frohnapple - Longbow Research

Great. And then just one final one from me. Pertaining to crane sales activity, are there certain crane categories that are outperforming or is the strength really broad-based at this point?

John M. Engquist

Yes, the all-terrain cranes are exceptionally strong right now, crawler cranes are showing some improvement and certain truck crane models are very strong. And probably the soft area right now would be rough terrain cranes. That's the softest category we're looking at right now. But overall, we're seeing lot of demand, lot of inquiries on the crane side, but it's heavily weighted to all-terrains, crawlers and truck cranes.

Neil Frohnapple - Longbow Research

Great, thanks very much.

Operator

Our next question comes from Nick Coppola with Thompson Research Group.

Nicholas Coppola - Thompson Research Group

Looking for a little bit more color on how weather impacted you in Q1, and your network doesn't really extend too much in the Northeast or Midwest, but clearly the South had some tough weather too. Any thoughts about how weather impacted you in the quarter?

John M. Engquist

There is no question that it impacted us. I know at one point in time, Brad and I looked and we had 25% of our stores were closed due to an ice storm and stayed closed for two or three days, and that happened more than one time. So we had some harsh weather. I think it probably impacted our parts and service business more than it did other categories, but that's something hard to quantify but I can absolutely guarantee you, it didn't help us any in any of our business segments. So, a little bit hard to quantify but there was certainly a negative impact.

Nicholas Coppola - Thompson Research Group

Okay. And then second question, transitioning a bit into new sales, and understanding that piece of your business is lumpy, what are your – if you can give us any color on your expectations throughout the year? I mean you got a big hurdle in Q3, Q3 was up 84% year-over-year last year, how are you looking at new sales and are you looking at industrial activity in the Gulf as really a key driver there to get some positive year-over-year comps?

John M. Engquist

Yes, I mean I don't think there's any question what we're seeing in Texas and Louisiana is going to drive new equipment sales, there's no question, and our expectation is that we will be solidly up year-over-year in new equipment sales.

Nicholas Coppola - Thompson Research Group

And do you have any commentary on what crane increase would look like maybe through April?

John M. Engquist

Yes, I think strong. Brad? [They've got more cause] (ph) they've been strong.

Bradley W. Barber

They've been strong. I mean in quarter, the order intake is starting to improve. When you talk about one single quarter and understanding how heavily weighted we can get to cranes, and particularly large cranes, I think John's comment is spot on and really good guidance for you. I think you need to think in broader terms and more of a total full year performance. But I can tell you that inquiry on earth moving, inquiry on all types of cranes is dramatically improving. Now, what is that net within this year and in a particular quarter, that's still difficult to estimate. But again, on a full year basis, we feel pretty comfortable that we're going to perform better than last year with new sales.

Operator

Our next question comes from Seth Weber with RBC Capital Markets.

Seth Weber - RBC Capital Markets

Just I guess first, just a clarification, Brad, this 73% number that you shared, is that a utilization kind of where we're at through April, was that an April number I guess?

John M. Engquist

It's a snapshot.

Bradley W. Barber

That's a snapshot this morning, Seth. 73.3% of our inventory at OEC is on rent today.

Seth Weber - RBC Capital Markets

Today, okay. Great, thank you. So, I have a question on, sort of it relates to pricing, but for Tier 4 rate, the OEMs are trying to push through Tier 4 pricing, and you guys are absorbing some of that. I mean how should we think about that, the price/cost dynamic to you and the ability to push that through? I mean is that going to sit on your – weigh on your margins a little bit here as that starts to kind of become a bigger part of your fleet, or is that just not something that I should be worried about?

John M. Engquist

I don't think you should be overly concerned about it. I think initially on certain products, it could have a margin impact. If you look at a reach lift for example, I mean that's a big impact to cost there, it could be 10% on a product like that. In other product categories, it's really not an issue on a crane, it's such a small dollar amount it's easily passed on. Over time, the market will adjust to the cost short-term because it has a short-term impact on certain models probably. Brad, you got anything else?

Bradley W. Barber

No, I think those examples are good examples. Seth, I mean the smaller the product, the larger the impact. So, air compressors that fit within the requirement, it can be 30%, 40% type of price increases. That's not a big component of what we do. History tells us, whether it would be steel or technology changes, those costs get pushed through and generally do not reflect in our margin. So while we could have some isolated cases with a particular product line or a mix within a product line, we don't have any large concerns about that at this point in time.

Seth Weber - RBC Capital Markets

Okay. On the AWP business, do you feel like you are absorbing that whole price increase or is some of that shared pain with the OEM?

Bradley W. Barber

Yes, so that's probably one of the products that we are sharing a little bit of the pain, right. I mean I think it's certainly impacting the OEMs. You could speak to those guys and they can convey that more clearly than I can. But from our standpoint, a customer when they run a 60 foot boom or 80 foot boom or pick a product, they don't care about the [tier prices are sent] (ph). And the fact that we've got a very young rental fleet, I think 34.5 months, so it's caused some economic headwinds for us that we're going to continue to work to.

Seth Weber - RBC Capital Markets

Okay. And then, I just wanted to go back to a comment, I think your used equipment sales were down in the quarter and I think I heard you say, you sold fewer cranes. I mean is that – should we interpret that to mean that you're going to be, your CapEx, your rental fleet CapEx will be, you'll be adding more cranes to your fleet this year relative to last couple of years or are you just selling fewer?

John M. Engquist

I think, again our CapEx this year will be similar our gross spend what we did last year. But with that said, our expectation is that we sell less fleet, and that is by design. Our fleet age, as Brad said, is 34 months, very young fleet. We just don't have the need to sell the level of equipment we did the last couple of years. So we're going to pull back on that.

Seth Weber - RBC Capital Markets

I'm just trying to understand, if your CapEx, if what you're buying, if the mix of what you're buying is changing.

Bradley W. Barber

You should think about our mix being very similar to what it has been, Seth.

Seth Weber - RBC Capital Markets

Okay, great. Thank you very much, everybody.

Operator

(Operator Instructions) We'll take our next question from Steven Fisher with UBS.

Steven Fisher - UBS

I got on the call a little late, so I apologize if you covered these points already, but the $5 million cash balance, I know you've got some credit line flexibility, but how do you think about what the right amount of cash is to have on the balance sheet, is this sort of – I assume it's kind of been a low point here?

Leslie S. Magee

We don't really maintain cash when we have funds drawn on the ABL because we're just in – any funds we collect are going to pay down, automatically sweep and pay down the ABL. So that's just a timing situation.

Steven Fisher - UBS

Okay, so you're perfectly comfortable with having this level of cash for running the business?

Leslie S. Magee

Our ABL is pretty much – I mean we use it as a working capital line basically, depending on what our needs are, but – I mean this is how we've operated forever and we're completely comfortable with it. We have tons of availability under our $403 million ABL facility. It's supported by assets of north of $800 million and it's just the way the arrangement is set up, that if funds are collected, they are automatically swept to pay down the loan. And so, any cash that's sitting on the balance sheet at any point in time is strictly a timing situation of funds that were collected but aren't considered collectible and will be swept the next day to pay the line down. We don't maintain cash of a balance zero.

Steven Fisher - UBS

Okay. You mentioned in the release about continued market penetration. Are you referring to the shift to rental in the overall marketplace, and if so, how should we view that against the strength of your commentary on strong equipment sales in the quarter and increase going forward?

John M. Engquist

I mean I think when we refer to penetration, we're talking about all of our business segments, and the distribution side and the rental side.

Bradley W. Barber

Steve, we're a fairly large commodity distributor in a couple of states of our footprint. Those markets are growing and our market share is improving year-over-year. So as John said, we're really talking about all product types, but each one individually we're seeing growth in, both from a revenue category, meaning rentals versus retail, as well as the particular product line that may be part of the distribution, earth moving and crane.

Operator

We'll take a follow-up question from Joe Box with KeyBanc Capital Markets.

Joe Box - KeyBanc Capital Markets

Just a couple of quick follow-ups for you. On the last call, you guys talked about SG&A as somewhat flattish year-over-year as a percent of sales. This quarter, it was down 120 basis points year-over-year. Should we think about that as maybe normalizing over the next couple of quarters to get you to that flat year-over-year percent or are we just going to see better leverage at this point?

Leslie S. Magee

I think the guidance that we have given to this point on SG&A, I think that will hold true. I mean you may see a tad of leverage by the time the year is up, but I think for all material purposes, the guidance we've given is adequate.

Joe Box - KeyBanc Capital Markets

Okay, perfect. And separate topic here, can you maybe just talk about the rental activity that you're seeing in some of the Gulf Coast shale plays? Just curious if that's been a big driver recently or if there's been a lot more competition in that area.

John M. Engquist

I mean the liquid plays are just phenomenal. You know, anything tied to oil is really good. If you look at our stores in Midland and you get into those kind of plays, it's really, really strong, and our expectation is that it will remain so.

Joe Box - KeyBanc Capital Markets

And then just one last one for you if you don't mind, somewhat of a follow-up to Nick's question, you guys put up a really strong sales number on top of a tough comp, it seems to me like maybe your tone is changing a little bit on this business. I'm just curious, does it seem like we're actually at a point now where we're going to see a sustainable recovery in the new equipment business or do you think that it still could be choppy and we'll have quarters where it's down significantly and other quarters where it's up significantly?

John M. Engquist

Just the nature of new sales, I mean it tends to be a little bit choppy at times, but again, it is our expectation that year-over-year we're going to be up solidly in new equipment sales. So, I mean we're not forecasting anything to flatten or start levelling out. I mean I think we are in the beginning of a nice recovery in that part of our business.

Bradley W. Barber

So, let me add this and maybe this will be a little helpful. The smaller or let's just call it the more average-sized product that we retail, we're seeing much more consistency with more customers, the small to medium sized customers. I think the thing that causes us a little concern is the large crawlers, these $4 million to $6 million individual sales or groups of sales that can really swing that revenue number a substantial amount. But I can't tell you that we're seeing a much steadier, healthier feeling stream of business with our small and medium-sized consumers, but I think our trepidation on the revenue number and really speaking to it is four, five, six cranes at $5 million a pop can really move the needle one way or another.

John M. Engquist

But Joe, again, just the nature of equipment sales, you could have a lumpy quarter here and there, but overall I think we feel pretty good about the year-on-year equipment sales.

Joe Box - KeyBanc Capital Markets

Understood. Thanks everybody.

Operator

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

Sean Wondrack - Deutsche Bank

Sean Wondrack on for Phil Volpicelli. Great quarter. Just a couple of quick follow-up questions and just a housekeeping question. When you talk about rental rates, I believe you said that aerial basically led to 2.5% increase. Can you talk about some of your other categories and how they performed during the quarter?

Bradley W. Barber

Sean, I don't know – it's not what we said. We said we had a 2.5% increase year-over-year but that cranes were a larger drag than the other products, unless I'm misunderstood.

John M. Engquist

Yes, cranes were down a little bit, aerials were up more than other categories. So the strongest performer from a rate perspective was the aerial business, and cranes was the weakest performer.

Sean Wondrack - Deutsche Bank

Okay, crane is the weakest. And then was everything else roughly flat year-over-year or were they up as well?

John M. Engquist

Other products are basically flat. And again, I think cranes, there's a lot of competition in this market with the work that's coming here and there are some long-term projects that are rate-sensitive, although again, your equipment will be out a long time and the yield on those projects is good. So, that's impacting crane rates.

Sean Wondrack - Deutsche Bank

Okay, thank you. And then when you look at your physical utilization during the quarter, did you say it improved as the weather improved? A lot of the companies we've spoken to saw a steep uptick in margin in April. I know you said that you're at 73% now. Can you kind of describe what the cadence was from month to month please?

Bradley W. Barber

On utilization?

Sean Wondrack - Deutsche Bank

Yes.

Bradley W. Barber

It's very consistent. I mean there has been weeks, in the last three or four, we may have had larger growth in the preceding three or four weeks, but it's been fairly consistent for us.

John M. Engquist

73% this time of the year, that's very high, that's very strong utilization and it's just been kind of steady growth.

Sean Wondrack - Deutsche Bank

Okay, how does that compare to last year in April?

Bradley W. Barber

Leslie may have that. I would think we were probably…

Leslie S. Magee

Last April was under 70% on average for the full month.

Sean Wondrack - Deutsche Bank

Great, despite the huge fleet growth, so it's very good sign there. Okay, and then just another real quick one. On the last call, John, you sounded like you were more open to considering a larger acquisition or an acquisition in general versus greenfields, I know you plan to open roughly five greenfields this year. I guess my question is, with all this free cash flow coming through, what are your priorities? Do you expect to open five greenfields and then look for other opportunities or have you chosen those locations, how are you thinking about applying your free cash flow this year?

John M. Engquist

We are definitely focused on our greenfield initiatives and I think Brad intends to open five or six stores this year and that is our focus. With that said, we've got a very strong balance sheet, we've got a lot of liquidity, the right thing comes along – and I certainly didn't mean to imply that my focus has changed towards acquisition, that's not the case. I'm really trying to be consistent and tell you that if the right thing comes along, we will certainly look at it and would look at it, and I think we've got the balance sheet and the ability to do an acquisition if something makes sense. Right now, our focus is on our greenfield strategy.

Sean Wondrack - Deutsche Bank

Great, and I would agree with you. I think you're [going to help] (ph) these companies out there with what you're doing, which is why given your expectations for continued growth and synergies, companies becoming healthier and deleveraging, if you're seeing opportunities, they have become a little bit more attractive that you might think about a little bit more versus a year ago when you were more focused on organic. And I know you're still focused on organic but have opportunities become more attractive?

John M. Engquist

Look, we've looked at some stuff and we have not found the right situation for us. But again, we're going to be opportunistic and if the right thing comes along, we will certainly take advantage of that opportunity.

Sean Wondrack - Deutsche Bank

Okay, thank you for that. And then just last one, housekeeping. What was the balance in your [indiscernible] tables please during the quarter?

Leslie S. Magee

56.3 million.

Sean Wondrack - Deutsche Bank

Okay, great. Alright, thank you very much. Good luck in next quarter.

Operator

We have a question from Neil Frohnapple with Longbow Research.

Neil Frohnapple - Longbow Research

Just a quick housekeeping follow-up. Leslie, is the 39% tax rate a good run rate to use for the remainder of the year and then out years?

Leslie S. Magee

Yes, I would use that for the remainder of the year at this point, and then going forward, I don't think that's unreasonable. We would just have to update you as we know more information looking forward. I mean anything in that 39% to 40%, the way we view it today is probably reasonable.

Operator

That concludes the question and answer session. I would like to turn the conference back over to John Engquist for any additional or closing remarks.

John M. Engquist

I appreciate everyone being on the call. Again, I think we're in a solid environment and looking forward to the rest of year. We think it will be a positive year for our sector and our business and look forward to it and we'll talk to you on the next call. Thank you.

Operator

And that does conclude today's teleconference. Thank you for your participation.

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