In the Right Direction

June 1, 2006
RER: Any particular achievements by NationsRent in 2005 that you feel most proud of? Jeff Putman: Several things come to mind: 2005 was a breakthrough

RER: Any particular achievements by NationsRent in 2005 that you feel most proud of?

Jeff Putman: Several things come to mind: 2005 was a breakthrough year for both safety and profitability. We won two National Safety awards and we recorded a net, after tax, profit. These might not sound like huge victories to those who are unfamiliar with the history of the company, but, to those of us who worked through the emergence from Chapter 11 in 2003, it looks pretty good. We made big progress toward our goal of being “employer of choice” in our industry with the reinstatement of our 401(k) match, the re-engineering of all our compensation programs and the formation of the NationsRent Employee Relief Fund. Also, we instituted a new policy that provides pay or pay differential to our employees who were called upon to defend our country by serving in Iraq and Afghanistan.

On a personal basis, I'd like to say that I'm extremely proud of the way our employees stepped up to the challenge of the devastating storms that hit Florida, Alabama, Louisiana and Texas. I really think we made a difference in many of the affected communities.

In what ways did NationsRent improve the most in 2005?

There were many improvements, but I believe the most dramatic improvement was in the age, condition and mix of our fleet. We took advantage of the strongest used equipment pricing in many years as we sold and concurrently replaced about 25 percent of the entire fleet. We also used this opportunity to adjust the fleet mix and continue on our path toward brand consolidation. Consistent with our strategy to offer our customers more products and services, we became authorized dealers for premium brands such as JLG, Gradall, Skytrak, Case, LBX and Sullivan in specific markets.

Were any particular market areas or customer segments particularly strong in 2005?

As you might expect, the storm-impacted zones in Florida and the Gulf Coast were very strong. We were up in all regions, but those areas stood out. As far as customer segments, I think we did quite well in our national accounts growth. This continues to be a focus for us in 2006.

Your volume grew in 2005. Were profit margins comparable?

Yes. Margins for all revenue streams went in the right direction. The one category where margin dollars were up and margin percentage was down was in new equipment sales, but this was not unexpected. We grew that revenue stream by more than 100 percent year-over-year and that was accomplished by selling more equipment and larger pieces of equipment. The margins on the larger pieces of equipment were very acceptable but they did have a downward effect on margin percentage compared to the prior year.

Did any type of software or technology have a particularly strong impact in 2005?

It was a big year for technology shift at NationsRent. We successfully converted our point-of-sale system to RentalMan (Wynne Systems). We installed PeopleSoft (Oracle) as our platform for human resource management. We ramped up our “telematics” programs (Lojack and Qualcomm) during the year, which resulted in big improvements in the area of equipment recovery that paid for our investments thus far. Also, we expanded our relationship with SmartEquip and their OEM partners (JLG, Multiquip, Sullivan, Wacker and others). We ran a very promising pilot program in one region with SmartEquip, which we plan to replicate throughout the company.

Do you plan to open new branches or are you more focused on further penetration of the markets you're already in?

We've relocated several stores and made one small acquisition in the Northeast, but our primary focus has been, and continues to be focused on serving our customers' needs safely, refreshing our fleet (lowering our fleet age), adjusting the mix of our fleet to meet market demand, and gaining operating efficiencies. That said, we believe that we are in a good position to grow organically or by acquisition if the right opportunity presents itself.

Our best return on investment in the short term will be to further penetrate the markets that we currently serve. We still have significant capacity to grow inside our current footprint and infrastructure.

Anything new from the equipment/fleet perspective? Did you get involved in new product segments in 2005 or do you plan to in 2006?

As I mentioned before, our highest priority from the fleet perspective is investing in quality, as opposed to growing the fleet. We have lowered the fleet average age to about 40 months, we have accomplished significant brand consolidation and we have made numerous “mix” adjustments to match local markets. Of course we are always looking for new and innovative products that provide customer solutions. An example would be the track skid-steer loader. We've made a major shift toward that product with great results. As the markets shift, we intend to move with them.

Do you anticipate becoming dealers for additional lines?

Yes. As opportunities arise, we would like to continue expanding our product and service offering … and that means more dealerships. Our core business is rental but our full-service concept, which is not a new idea, has been embraced by customers across the country.

Any particular areas that NationsRent plans to concentrate on or improve in 2006?

Yes: Quality of product; quality of training and benefits for our employees; quality of customer service. Also, we will continue to pursue business intelligence initiatives that will ultimately lead to rate/price and productivity improvements.

Most people in the industry expect 2006 and 2007 to continue very strong. Do you feel the same? Any projections on the market?

All of the leading indicators that we watch are positive except interest rate spreads and housing starts. Since our primary markets — non-residential and industrial construction — look to be headed up during the 2-year period, we conclude that the environment for equipment rentals, sales and service will be good. We've positioned our company to endure the next recessionary cycle … but I don't see that coming anytime soon.

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