Good morning, and welcome to the United Rentals Third Quarter 2017 Investor Conference Call. Please be advised that this call is being recorded. Before we begin, note that the company’s press release, comments made on today’s call and responses to your questions contain forward-looking statements. The company’s business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company’s earnings release. For a more complete description of these and other possible risks, please refer to the company’s annual report on Form 10-K for the year ended December 31, 2016, as well as to subsequent filings with the SEC. You can access these filings on the company’s website at www.ur.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that the company’s earnings release, investor presentation in today’s call include references to free cash flow, adjusted EPS, EBITDA and adjusted EBITDA, each of which is a non-GAAP term. Please refer back to the company’s earnings release and investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; William Plummer, Chief Financial Officer; and Matt Flannery, Chief Operating Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

Hello, everyone, and thanks for joining us this morning. I want to open the call by saying that we are extremely pleased with the strong third quarter results we reported yesterday. It was a pivotal quarter and one that require disciplined execution in light of many different dynamics at play, both internally and externally. Some of our strategic actions we took to grow the business, others were market conditions that were broadly positive for our industry where we could realize more value through scale. And then there were the hurricanes, which created immediate challenges and longer-term opportunities. Now our third quarter results and our new full year guidance were shaped by these dynamics. Well, I’ll start by recapping some of the financial highlights. Now as a reminder, the year-over-year numbers are pro forma for the acquisition of NES in April, pro forma meaning the combination is presumed to be in effect for the third quarters of 2016 and 2017. Now one of the reasons we give pro forma numbers is to be as transparent as possible about how the business is performing, and in the third quarter our performance exceeded expectations. Now here are our four key metrics that reflect well in our execution in the quarter. One is our volume of equipment on rent; we delivered volume growth of 7.6% year-over-year. This was a solid step up versus the prior two quarters. Second is rates; a major one in the quarter. We generated positive rental rates both sequentially and year-over-year for every month in the quarter. This is the first period since the second quarter in 2015 that rates were positive year-over-year. If you recall last quarter I said that our rate trend looks encouraging, but we wouldn’t rest. Well, we didn’t rest, and I can promise you that…

Thanks, Mike, and good morning to everybody. As Mike said, there’s a lot going on in this quarter, so I’ll get to the bridges pretty quickly and then we’ll try to address some of the other items that are present in the quarter. Starting with rental revenue. As usual, let’s go with the third quarter of 2017 totaled $1.536 billion, that’s up $214 million over last year or 16.2% as you’ve seen. We had a nice result in the quarter for ancillary and re-rent revenue, up $24 million on ancillary and $9 million on re-rent. And really that increase reflects the impact of NES along with the higher volume across our business overall. So ancillary is things like delivery, fuel our rental purchase protection program and so forth, nice increase there up about 18% over the prior year, and re-rent is re-rent of equipment that was up 19% as well. The OER increase totaled $181 million. Volume was a major driver there. Volume attributed $208 million of increase year-over-year, and then rate added another $1 million on top of that. And the deducts were replacement cost inflation calculated in our usual way, that cost is about $17 million in the quarter. And then mix and everything else was a headwind of about $11 million there as well. So those are the key pieces for the revenue change. The only other highlights for revenue include the impact of the storms. Michael mentioned that we recognized about $6 million of revenue incrementally for storm affected areas in the quarter, that’s in the year-over-year change. Looking ahead that $6 million should grow to something like $20 million of storm-related revenue impact in the fourth quarter. Moving to used equipment sales. $139 million of proceeds in the quarter, that’s on a sale of $238…

[Operator Instructions] Our first question comes from the line of David Raso from Evercore ISI. Your question please.

Thanks very much. I was just trying to think through what you just reported and what you guided, how does it sort of influence how I think about your earnings power next year? And what caught my eye was the implied fourth quarter. You have an incremental EBITDA margin implied around 47%, which is actually a little lower than the 51% you just did. And I’m just thinking about the incentive comp drag, I would think would be a little lower than we just went through. Neff stand-alone comes in at higher EBITDA margins than 47%. And maybe most importantly, if we’re thinking about 2018, it seems like the fourth quarter maybe the first time in, I don’t know, two years, three years where your rate growth year-over-year could be as much or more than your fleet utilization growth, which historically is a positive mix for profitability. So can you help us understand why the incremental EBITDA margins will be worse in the fourth quarter than the third quarter?

Thank you, David. I’ll start on that one. Regarding our bonus accrual, you’re right. It shouldn’t be as high as what it was in the third quarter. But I do remind you that we gave ranges. And the ranges, I would argue, if you look at the extreme of the ranges, it might be a little bit more normal in terms of the incrementals in Q4.

Okay. So thinking after then to the 2018 thought process, the way you thought about CapEx and given what appears you’re going to have some carryover from rate utilization, obviously, is also going to be healthy with -- especially in the hurricane areas in the fourth quarter. When you set up the framework for 2018 and it’s framework, it’s early, is next year a year where the framework is rate growth should be higher than your utilization growth? Just given how hot the utilization is and how we’re exiting the year, I would think that would be base case. But just so I understand so again I think about the potential implications on incremental margins.

Sure. So I don’t make a link between rate growth and utilization growth the way your question implies. What I would say separately is that our utilization growth has been pretty strong over the course of this year and actually going back into last year. And it’s, in my view, not reasonable to expect that we’re going to continue to deliver 160, 180 basis point improvement year-over-year forever and ever. So I wouldn’t be surprised to see that year-over-year comparison come down a little bit in 2018. And so that’s the way I would think about that. Rate growth, we’ve established momentum in the right direction, right? The question is how far can that go? And that’s really going to be handed to us by the market as well as our execution. I feel confident that our execution and focus on rate is going to be good. Will the market continue to offer up the kind of year-over-year improvements that we started to see here? Time will tell. So those two components I think about separately. But I think in any case, both of them are set up nicely going into 2018. And we’ll execute as best we can in 2018 to take advantage of what’s there.

And with this, just sort of clear, though, you’re thinking separately, but fundamentally, rate provides a better incremental margin than utilization, correct?

Absolutely. We certainly want to get as much rate as we can and do it within the operational framework that allows us to deliver time utilization improvement, right? That’s how we’re thinking about it. The question is, is the market environment there that allows us to do it? If it is, I think we can deliver pretty effectively as you saw in Q3.

All right. I appreciate the time. Thank you.

Thanks, David.

Thank you. Our next question comes from the line of Tim Thein from Citigroup. Your question please.

Great, thank you. And Bill, just to follow up on rates, can you update us in terms of where you are today in terms of repricing the NES contracts? It would -- at least, based on the pro forma you gave last night, it would appear that you did make further progress in terms of narrowing that spread. But just kind of want to get an update there as to where we sit today on harmonizing those contracts. And then just as related to that, where, based on the midpoint of your revenue guidance for 2017, what would the carryover impact be at the midpoint in 2018 on rates?

So Tim, this is Matt. I would say as far as NES contract harmonization, they didn’t have a lot of fixed price business in NES. So that would be an area where you would actually technically go to the customer and harmonize any gap that would exist between the two. We don’t -- we’re not really tracking, at this point, any NES stand-alone metrics. The business is so fully integrated right now, as Mike had mentioned in his opening, that the customers are seeing it all as one. And most of the pricing is spot pricing at this point. I will say that wherever there are gaps, they’re all in one price zone right now. So you continue to see movement towards -- much closer towards United historical pricing. But we’re also very cautious that these are relationships that we value and we paid a lot of money for, and we’re going to maintain those relationships. So it’s not directly answer your question, but I think directionally, you’ll see in the rate results that we’ve done a good job of creating a lesser gap.

Yes. And Tim, on carryover, I mean, you guys can all fill out a spreadsheet as well as we can and make your own assumptions about how the rest of this year finishes out. But if you make any reasonable assumptions, I think you’re going to be a point of carryover, if not a little higher going into next year if this year finishes out with anything decent. So the backdrop is a good starting point, but that’s not where we want to rest on our laurels, right? We want continue to try and manage the rate and do it in the context to what the markets offer.

Okay thanks a lot.

Thank you. Our next question comes from the line of Rob Wertheimer from Melius Research. Your question please.

Thank you operator and good morning everybody. So you are effectively achieving record time utilization. And you guys have worked hard and getting rate also, which is lovely. You guys have worked hard on operational improvement. Can you see at a branch-by-branch or region-by-region level whether you can actually push time utilization higher than you might have thought two and three and four years ago, and therefore, you can get more out of less fleet? Or do you think you’re actually at pretty good levels here and if the market’s strong, you’ll continue to add fleet to keep it at this level?

Yes, Rod. So we’re certainly are at pretty good levels and considering we’re at record levels. So we already enjoyed significant time use advantages over the industry benchmarks. I think that we ask our questions all the time is how high can we go? Density helps us with that, and I think that some of what we’re seeing is we’ve grown to be a bigger company. Density and marketplace certainly gives us the opportunity to drive higher time than you could have in the past. It’d be difficult for me to say that we’re going to beat the record year next year, but I guarantee you, that is our goal is to continue to push time use as high as possible.

Look at September, right, 73.6% utilization in the month of September. Imagining operating at that kind of level all year long, it’s certainly something that would be great to see. But it’s a real challenge, right? It’s tiring to operate at that level. As we continue today, our lean initiatives and our focus on improving our operations are all about getting us more a capability of operating at higher levels of utilization. I think it’s fair to say a few years ago the thought of being at 73.6% in September might have been intimidating to some people. Well, we just did it, and so there’s opportunity to do better. That’s what we’re trying to do on a continual basis.

That is wonderful. Can I ask you a little bit of a more, same idea but a little bit more of a structural one? Can you see yet results from Total Control that go beyond anecdotal and served indicator or not that you can widen your competitive gap versus the industry and how you’re able to provide better efficiency to your customers’ utilization or otherwise? I mean, just maybe see if that is widening out on the data versus industry results.

Yeah absolutely Rob. Our penetration with our TC customers continues to grow. It’s a big differentiator for those customers that value that tool. And we will continue to separate further by enhancements to those tools. Technologies moving quickly, and we have to keep up with it. If you think about just GPS alone, we have over 200,000 with GPS, telematics on it right now, and our goal is now 270,000 with the addition of the extra Neff and NES fleets. So we continue to fill out that value prop to our customers on technology, telematics, and TC is a big part of that.

Thanks, I will turn it over. Appreciated.

Thanks.

Thanks.

Thank you. Our next question comes from the line of Scott Schneeberger from Oppenheimer. Your question please.

Hey Scott.

Good morning everyone. Two quick questions. I’ll ask them both upfront. One, on the CapEx pull-forward, I understand that the storms in strong demand environment. Could you discuss is there any pricing benefit to that with OEMs since we’re in that season and how we might think about that as a pricing perspective next year? And then the second question is with the mention of the resumption of the share repurchase program, are we taking a step back here from the M&A pipeline? Just curious the implications of that. And if not, kind of areas you’re looking at.

Yeah Scott, I will take the second. I’ll start with the second. And then, of course, Matt and Bill can jump in on the first one. But no, I think Bill outlined it, as we talked about a little bit of housekeeping. But we look at every acquisition on its own merits. The team has done a wonderful job of providing lots of dry powder for the company, and we’re very disciplined about our approach. That will not change. I’ve talked about it ad nauseam about how we think about strategic fit financial and cultural. And we will continue to look and see what those opportunities bring. We’re not afraid to do an acquisition, and we’re not afraid to pass on them either. So I think the disciplined approach that we’ve had has yielded great benefits. And you’re seeing that in some of our results. As far as the first question, I’ll pass it over to Matt.

Sure, so we most of the fleet that we buy are from strategic partners that we set up on an annual basis. And we don’t leverage them in a last-minute order, and they don’t leverage us when things are tight. So there’s really no movement there in pricing. These are more important longer-term relationships that we have with our vendors, and we’re very pleased with the way we’re treated.

Thanks very much guys.

Thanks Scott.

Thank you. Our next question comes from the line of Joe Box from KeyBanc. Your question please.

Hey good morning guys. So maybe just to dovetail off of Scott’s question. I mean, it seems like utilization is pretty tight across the entire space right now. Curious to your sense for maybe the industry’s appetite to grow fleet. And then related to that, is there any risk right now that the OEMs actually can’t deliver on your $200 million CapEx increase?

So Joe, we – no, we have POs aligned, slots aligned we got everything we need to execute on that. If the demand remains, we’ll go all the way up to that $200 million. If not, it’ll be towards the 70 50. But we’re all dialed in with as far as slots and deliverables from the OEMs.

The market dynamic will be the market dynamic. We don’t know what the competition will do or not. We are myopically focused on our customers and the value proposition that we can bring, but we’re cognizant of it. We watch it. And again, we are very disciplined around our capital spend.

So maybe just a follow-up. I’m just trying to understand some of the moving pieces for CapEx and free cash flow for next year. Certainly, not asking for guidance, but directionally, how should we be thinking about total replacement need here? Obviously you guys have added Neff, which probably need some replacement. And then are we thinking more or less replacement needed as we started to climb out of maybe the lack of purchases from 2009 to 2011.

Yes. So Joe, regards replacement, if you think about it as the legacy United business needing to replace, we’ve been selling something like $1 billion of OEC before the NES deal. So that continued with a little bit of growth, plus you add a need for replacing, let’s say, 100 each for NES and Neff, just to use round numbers, that gets you up to $1.2 billion kind of replacement spend on an OEC basis. And obviously, the inflation impact there, you have to add in, right? Because you’ve got every unit that you buy today replaces a 7, 8-year-old unit at 15% lower price. So you add 15% on top of that, you’re probably in the neighborhood of $1.4 billion kind of replacement need out of your CapEx next year. So that’s a rough starting point. And then we’ll debate, of course, growth on top of that, and that will get us to a 2018 CapEx number. We’re going through that process right now, our budgeting process. So clearly, we haven’t decided on the final number. But in terms of replacement spend, that’s the logic that’s pretty good starting point.

That’s helpful.

Thank you. Your next question comes from the line of Ross Gilardi from Bank of America. Your question please.

Hey good morning guys. I wanted to ask you guys just a couple of macro questions. Just first on interest rates in general. I mean, we’ve obviously been in this low interest rate environment seemingly forever now. What happens to the business in the rental industry if we get a spike in interest rates? How should we think about your position versus some of the smaller players and so forth and just the overall growth dynamics?

So we’ve always said it depends on what caused the spike in interest rates, right? I mean, obviously, the cost of interest goes up, but if the spike is driven by incremental economic activities across the economy, then in construction, you would expect the benefit from that. And so the net-net impact might be positive associated with a spike in interest expense. As it relates to sort of the competitive position of us versus the rest of the rental industry, well, I certainly feel great about the position that we’re in, right? We’ve got a very low level of floating interest in our overall debt structure. And so we would feel an impact, but I’m going to go out on a limb here and say it might be less of an impact than some of our competitors. And so that should put us in a little bit more advantage position in terms of financial performance. Could it stress some of our competitors to the point of them impacting the actions they take in the marketplace? I guess, it could, but it depends on the individual competitor that you’re talking about.

Okay, thanks Will it is helpful. And then do you think the repricing on NES and I imagine you’re going to go through some of that with Neff as well, do you think the repricing of the contracts because they’re pretty big players in the grand scheme of things after you and Sunbelt, I mean, is that contributing to the general pricing environment that we’re seeing in the market?

Ross, this is Matt. There are some contribution to it, right, from NES. Neff, we’re pretty aligned across the board about our pricing, our pricing methodology and the culture around pricing. But with NES, we got a little bit of lift from that. I think more importantly even in our non-NES overlap markets. We have seen similar pricing increases. So although it’s not a driver for the macro, it is certainly a couple of bps improvement over the normal.

Thanks guys.

Thank you.

Thank you. Our next question comes from the line of Joe O’Dea from Vertical Research Partners. Your question please. Joe O’Dea: Hi good morning. First just thinking about some of the EBITDA lifts next year related to Neff and NES. Could you talk about what’s remaining on the stub portion there just with some of the seasonality that we could see in 4Q or 1Q and stuff that wasn’t captured with them. What your thinking as we roll into 2018 on that? And then any additional contribution on some of the realized synergy savings.

Joe, it’s Bill. I’m going to have to ask you the question again. I’m missing your question. Joe O’Dea: Sorry. So really just looking at the tailwinds to EBITDA from Neff and NES, as you get full realization of those next year and then on top of that, you get some cost synergies?

So I think if your question is about sort of the full year effect next year of adding NES and Neff, we’ll have an extra quarter of NES next year. This year, that number was about $30 million. So that could be a good starting point. So call it $30 million of impact from adding a quarter of NES. For Neff, call it $150 million for adding the three quarters that we didn’t own it next year. And then the synergies for NES, I called out north of $20 million of synergies realized this year. If you had a 45 run rate, you call it 25 realized this year, that nets out to an incremental 20 year-over-year. So that’s a benefit next year. For Neff synergies, let’s – you can pick your own number, right? We said 35 of synergies fully realized at the end of two years, I think, it was. So $25 million, $30 million of synergies realized during the course of next year. You pick [Audio Dip] that’s an impact there that we might see. Is that helpful? Joe O’Dea: That’s perfect. Thank you. And then just in the press release, it noted fourth quarter market activity would exceed normal seasonality. And just any additional context on that. In particular, how do we think about if there is such a thing as normal seasonality for rates and based on EBITDA margin that’s implied, it doesn’t look like you’re suggesting better-than-normal rate experience?

Yes, Joe. This is Matt. I think that was more referring to demand and partially an explanation of why you saw an increase in the capital spend ranges. We normally wouldn’t spend that much in a Q4, so we thought it noted an explanation. But that demand is there, and it’s not all just storm-related. As far as rate, I mean, we’re going to always push to do more, but we all understand the seasonal patterns of rate, and all of this is embedded in the guidance that we just updated. Joe O’Dea: And can you add anything just on the months? I mean, normally, sequentially, I think we’d still see growth in October, maybe a little bit November, December, sometimes under a little bit of pressure. Anything that you could do in terms of adding numbers to that?

Yes. Normally, the normal – what’s normal but if you go back over an overview as you would see a positive October. November can go either way, depending on the year that you’re in, and December typically would be a slight negative. But how much on each of those is always the challenge, right? So I’ll leave that to your imagination. Joe O’Dea: Perfect. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Seth Weber from RBC Capital Markets. Your question please.

Hi, Seth?

Hey, good morning guys. Hi good morning.

Hi, Seth.

So just going back to the CapEx pull-forward question. Is it safe to assume that most of that is tilted towards Gen Rent versus specialty? And I guess, the spirit of my question is if you look at dollar utilization for the quarter, it was actually down for booms and lifts and forklifts as well year-over-year. So I mean, earthmoving was up. So can you give us any flavor for where that incremental CapEx was going and maybe any color on why dollar

Sure, Seth. Well, first, I think you’ll have to remember, if you’re looking on a year-over-year basis, we did – you’re looking at a comp that didn’t have the NES boom business in it and then does in Q3 this year. So that was a little bit of drag on the age that we’ve been moving down and a little bit of a drag on the dollar but which will continue to improve that spread as well. As far as the pull-forward spend, it looks very much like what our normal spend would be, maybe a little more heavily weighted on specialty. Because some of the immediate response that we needed and a little less on booms and reach forks for the same exact reason we have more of those around. So other than that, it looks similar to our profile. Almost all of it core fleet and very fungible assets.

Okay. So more on specialty, Matt, is that what you said?

Yes, a little bit more on specialty just because some of the remediation, some of the power. And we might even got some more pumps, as busy as pump was to help.

Okay. That’s great. And then maybe, Bill, just a quick follow-up on Project XL. Appreciate the disclosure of the 10 – I think it was $10 million or $11 million from that one initiative on the used sales. But can you just give us an update kind of where you’re at? And we’re getting close to needing to have some sort of line of sight to that $200 million number. Can you help us frame out the steps to get – how should we think about the cadence to get to that $200 million run rate number versus where we’re at today?

Sure, Seth. So we’ve discussed this every quarter since we’ve talked about Project XL. And we debated about the best way to tell the story in a way that’s useful, right? And the way that’s useful is what’s the incremental impact on our profitability, right? And the challenge that we have – and I’m giving you a background here, but the challenge that we have is that the individual projects each have their own set of metrics. And those metrics may not necessarily directly tied to an incremental EBITDA impact. And so we’re looking at ways, various ways to try and back out the things that you shouldn’t count as incremental EBITDA. That’s a long-winded way of saying that I don’t have a specific number for you right here now on the incremental EBITDA impact of each of those projects. What we’ve tried to do is to pick out the ones where we feel like there’s clarity around the incremental EBITDA impact. So obviously, improving the utilization of equipment versus fair market value is true cash flow impact. And so we wanted to show that, wanted to show a little bit more of what we’re doing. But I’ll ask for further patience as we try to look for the best way to give you what you’re asking for, which is more concrete pacing about how we’re getting to the $200 million impact.

But is it fair to assume that 2018 is going to be a bigger benefit versus 2017 just to – as you ramp to that $200 million number? I mean, that seems like a reasonable assumption.

Absolutely. That’s fair. The exact quantification of that is what we want to put some more thought to. But what I can say is this, Seth. As we look at how the projects, in aggregate, are tracking versus the targets that were laid out when we kicked off Project XL, we’re performing very nicely against those targets. So the ramp-up on the metrics at each initiative uses is, in aggregate, nicely ahead of the targets that we’ve laid out. But we want to – when we communicate something out, we want to make sure that it’s useful and clear. And right now, there’s just too much analysis and discussion we would have to give in order to relate the measures that we have to the $200 million run rate that we’re targeting. So we’ll ask you again for your patience.

Okay. I’ll ask you again next quarter then.

I’m sure, you will.

By then, it should be embedded in our guidance.

All right, thanks guys.

Thanks Seth.

Thank you. Our next question comes from the line of Steven Fisher from UBS. Your question please.

Steve?

Thanks, good morning.

Good morning.

I know you guys said that you don’t know what the market’s going to do in terms of CapEx going forward, but to what extent are you actually seeing some discipline and restraint in the market today? And if you are seeing some general discipline, is it more on the pricing side or on the CapEx side? And I’m wondering if given the robustness of the conditions that you’re seeing out there if you would have ordinarily expected to see other players already putting more CapEx into the environment where we are.

Steve, this is Matt. I would say that we’re seeing both – we are seeing discipline. We measure it by absorption, and we’ve been seeing that for the entire year, really starting fourth quarter last year that the discipline on the capital spend versus the incremental demand has yielded positive absorption. And we think that’s played out into stabilizing rate and given us the opportunity to get pricing where it was pre-2015. So I would think that the industry has been disciplined on both fronts.

Is consolidation having any real impact there? And what else do you think is driving it?

Yes. That’s a hard one to quantify. I would say sort of based on basic economics that consolidation could be helping. How much? It’s hard to say. What we try to do, though, is just to make sure that we’re looking at the market realistically and we’re taking actions in a disciplined way. And if we continue to do that and if the rest of the industry continues to do that, we certainly think that it should position the industry to perform better.

Okay. And then can you just remind us the timing of repricing of all your National Account contracts? And if it’s around the next couple of months, what extent would this quarter’s results set you up for stronger pricing as you head into those discussion?

So it’s not really on a calendar schedule anymore, Steve. We actually intentionally try to address those throughout the cycle. It makes it easier for our team and with the acquisitions that was just some triggers that actually made it necessary to harmonize some set pricing at different times. So there’s not really an annual trigger like maybe four, five years ago where we’re doing everything in Q4 and Q1. It’s a little more spread out.

Okay. Thank you.

Thank you.

Thanks.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Mr. Kneeland for any further remarks.

Well, I want to thank everyone for joining us on today’s call. Our third quarter investor presentations are available online if you haven’t had a chance to see it. Obviously, you can reach out to Ted Grace, our Head of IR, with any additional questions. It’s been a busy year, and we’re looking forward to starting 2018 with a lot of momentum, so stay tuned for our next call. Thank you, and have a great day.

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.