H & E Equipment Services Inc (HEES) Q4 2018 Earnings Conference Call Transcript
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H & E Equipment Services Inc (NASDAQ: HEES)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the H&E Equipment Services Fourth Quarter 2018 Earnings Conference Call. Today's call is being recorded.
At this time, I would like to turn the call over to Mr. Kevin Inda, Vice President of Investor Relations. Please go ahead, sir.
Kevin S. Inda -- Vice President, Investor Relations
Thank you, Nicole. And welcome to H&E Equipment Services conference call to review the company's results for the fourth quarter and year ended December 31, 2018, which were released earlier this morning. The format for today's call includes a slide presentation which is posted on our website at www.he-equipment.com.
Please proceed to slide 2. Conducting the call today will be John Engquist, Executive Chairman of the Board of Directors; Brad Barber, Chief Executive Officer and President; and Leslie Magee, Chief Financial Officer and Secretary.
Please proceed to slide 3. During today's call, we'll refer to certain non-GAAP financial measures and we have reconciled these measures to GAAP figures in our earnings release and in the appendix to this presentation, each of which are available on our website.
Before we start, let me offer the cautionary note. This call contains forward-looking statements within the meaning of the Federal Securities laws. Statements about our beliefs and expectations, and statements containing words such as may, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties which could cause actual results to differ materially from those contained in any forward-looking statement. Some of these uncertainties including in the Safe Harbor statement contained in the company's slide presentation for today's call and also includes the risks described in the Risk Factors in the company's most recent Annual Reports on Form 10-K and other periodic reports.
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. 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 -- Executive Chairman and Director
Thank you, Kevin and good morning to everyone. Welcome to H&E Equipment Services fourth quarter 2018 earnings call. As we announced in November of last year, effective January 1st Brad, was appointed Chief Executive Officer and President, and I assume the role of Executive Chairman of the Board of Directors.
Brad has been instrumental in H&E's success over the past 21 years, and we look forward to his leadership and his contribution to the company's future growth. As Executive Chairman of the Board, I will lead H&E and its strategic planning, and oversee merger and acquisition opportunities on a full-time basis. I will continue to work with Leslie to ensure we have the appropriate capital structure to support our growth plans and to maintain the financial health of the company.
So let me now turn the call over to Brad.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you, John and good morning everyone. Before I share my comments about the fourth quarter and our full year 2018, I want to thank John for his leadership and for his friendship. For more than 20 years, I've worked as part of a team with both John and Leslie. Our roles are changing and we will continue to work as a team in support of one another and the continued growth and improvement of H&E Equipment Services. Thank you, John.
Slide 4 please. My comments this morning will focus on our fourth quarter results, our business, including growth strategy and overall market conditions and then Leslie will review our financial results for the quarter and year. When Leslie finishes, I will close with a few brief comments, after we will take your questions.
Slide 6, please. Our results for the fourth quarter were strong as our rental business benefited from the ongoing broad-based demand in the non-residential and other end-user construction markets we serve across the country. Our distribution business also performed well with new equipment sales exceeding expectations in the fourth quarter over what we believe to be a very strong comp a year ago.
New equipment sales were up 7.1% in the fourth quarter from a year ago. Total revenues increased approximately 17.4% to $346 million in the fourth quarter. Our gross margin increased 35. -- to 35.6% from 34.2% a year ago, primarily due to revenue mix and strong performance of several business segments. Adjusted EBITDA grew 26.2% to $114.6 million and margins improved to 33.1% from 30.8% a year ago. In the fourth quarter pre-tax income was $34.8 million, a 26.1% increase from a year ago. Net income was $25.1 million or $0.70 per diluted share compared to $85.9 million or $2.40 per diluted share a year ago.
We recorded income tax expense of $9.7 million versus an income tax benefit of $58.4 million a year ago. Our effective tax rate was 27.9% in the fourth quarter of 2018 versus a negative 211.7% a year ago. Leslie will provide more details on the year-over-year comparison and prior period tax benefit, which was the primary driver of the difference in net income, income tax expense, and our effective tax rate versus the prior fourth quarter.
Slide 7 please. Project activity in the non-residential construction market remains healthy and we continue to achieve great improvement in our physical utilization levels. As a result, rental revenues increased 27.6% to $163 million in the fourth quarter. Dollar utilization was 37% compared to 36.2% a year ago, and rates increased 2% year-over-year and 0.5% sequentially. Lastly, we remain focused on improving the quality of our rental revenues. We expect to continue, leading the industry with our physical utilizations while we also improve our rental rates.
Slide 8 please. This slide illustrates our existing footprint in various region, 96 total branch locations, including the 20 Greenfields sites that we've opened since the beginning of 2013. The eight branches we acquired in the CEC and Rental Inc. acquisition in 2018, as well as the six locations we gained with the We-Rent-It acquisition in Texas, which closed on February 1st. As you can see from the locations on this acquisition map, we are pursuing opportunities that improve our density in existing growth markets, expansion opportunities into the new markets with solid construction growth characteristics are also being evaluated. The pipeline for both of these acquisition opportunities is healthy.
Slide 9 please. I'd like to make a few comments regarding the data on this slide, which at -- which details the revenue generation on a last 12-month basis by end-user market in our fleet mix as of the end of the year. The key takeaway is, we believe our focus on non-residential construction market is a strategic advantage for our business. We believe our results have validate the strength in this market. The other end-user markets we serve remain strong as well. And on the next slide, I'll highlight the positive trends in the market conditions. We also have a diversified customer base that is involved in a wide variety of types of construction projects. We believe the fleet mix and age continues to be a competitive advantage for our business as well. We are one of the youngest fleets in the industry 34.5 months compared to an industry average age of 45.4 months.
Slide 10 please. We believe the outlook for construction markets we serve remain solid for 2019. Both industry indicators and customer center have been a positive. Dodge Data and Analytics reported that its momentum index for the full year 2018 was up 4.3% from 2017. The index measured non-residential building projects that have entered planning and have shown to indicate construction spend in the next 12 months. The Architectural building -- Billing Index also continues to indicate expansion markets with 15 consecutive months above 50 threshold. The American Institute of Architects is also projecting residential spending to grow 4.4% in 2019.
US public construction spending grew year-over-year for the 11th consecutive month in November 2018. The American Rental Association is forecasting continued rental industry revenue growth in North America through 2022 with increases of 5.5% in 2019, 5.9% in 2020, 5.1% in 2021 and 4.7% in 2022. The energy market remained solid despite fluctuation in oil prices. While our exposure to oil and gas industry is low at 7% of total revenues, demand on energy-related projects remains strong.
During the fourth quarter time utilization in our oil and gas focus markets was 75%. As a result of increased energy related activity in the Permian and Eagle Ford basins, our branches that serve these markets are also benefiting from increase in general non-residential construction projects to support the elevated energy activity.
Another wave of large-scale, industrial projects along the Gulf Coast is beginning to occur, with several projects being announced since our last call in October. The growth of the Gulf Coast liquefied natural gas industry is also expected to accelerate in 2019 with energy research from Wood Mackenzie forecasting several new LNG projects injecting $20 billion into the region over the next four years.
Lastly, and very important to me. Our customers remain confident about the level of projects in their pipelines. Overall, our outlook regarding the end-user market demand is positive for this year.
Now I'll turn the call over to Leslie for our financial results in more detail. Leslie?
Leslie S. Magee -- Chief Financial Officer and Secretary
Good morning, everyone and thank you, Brad. I'll begin on slide 12 to cover the financial results in more detail. We were excited to end 2018 with such strong results, and our business performed well for many respects. So I'll just go ahead and move into the details of the quarter at this time.
Our total revenues increased 17.4% or $51.3 million in the fourth quarter compared to the same period a year ago to $346 million, largely driven by the strength in both our rental and distribution business. As Brad mentioned, rental revenues increased 27.6% to $163 million. Physical utilization remained high with average time utilization based on OEC of 72.9% for the quarter, compared to 74.2% a year ago. The decline in physical utilization was mostly due to lower AWP physical utilization of 74.1% on an OEC basis, compared to 76.6% a year ago, which was the result of the significant expansion of our AWP fleet in 2018, combined with a challenging prior year comp.
Conversely both crane and earthmoving utilization increased compared to last year. Our rental rates improved again this quarter 2% year-over-year and rates improved in all product lines except lift truck. Rates also increased 0.5% sequentially increasing in all product lines except lift truck. With strong utilization in rates are dollar returns were 37% versus 36.2% last year.
New equipment sales increased 7.1% or $5.3 million to $79.7 million compared to $74.4 million last year. The net improvement in new equipment sales was primarily driven by higher aerial and crane sales, which were up 95.5% and 5.7% respectively. Used equipment sales increased 17.8% or $5.7 million to $37.8 million, largely as a result of higher use AWP sales. Sales from our rental fleet comprised 88% of total used equipment sales this quarter, compared to 93% a year ago. Our parts and service segments delivered $45.8 million in revenue on a combined basis, up 4.6% from a year ago.
At this time, I'll move on to gross profit and margin. Our gross profit increased 22.1% or $22.2 million to $123.1 million from $100.9 million a year ago, and our consolidated margins were 35.6% compared to 34.2% a year ago, primarily as a result of shift in revenue mix to higher margin in rental revenues combined with improved year-over-year margins in rentals and new equipment sales.
Gross margin detailed by segment. Rental gross margins for the quarter were 51.5% during the quarter, compared to 51% in the year ago quarter, primarily due to higher rental revenues and lower maintenance and repair costs and other rental expenses as a percentage of rental revenues. Margins on new equipment sales increased to 12.7% for the fourth quarter compared to 11% a year ago, largely due to higher margins in all product lines. Used equipment sales gross margins were 29.1% compared to 31% last year and margins on pure rental fleet only sales were 32.3% compared with 32.5% a year ago. Parts and service gross margins on a combined basis were 40% compared to 41.5% a year ago.
Slide 13 please. Income from operations for the fourth quarter of 2018 increased 26.4% to $50.9 million, a 14.7% of revenues compared to $40.3 million or 13.7% of revenues in the year ago quarter. The increase was primarily a result of revenue mix and strong margin results in our rental and new equipment businesses.
Proceed to slide 14. Net income was $25.1 million or $0.70 per diluted share in the fourth quarter of 2018, compared to net income of $85.9 million or $2.40 per diluted share in the fourth quarter of 2017. And as a reminder, we recorded an income tax benefit of $58.4 million in the fourth quarter of 2017 as a result of a one-time revaluation of our deferred tax assets and liabilities, due to the decrease in the corporate federal income tax rate enacted in December of 2017.
Our effective income tax rate was 27.9% in the fourth quarter of 2018 versus a negative 211.7% a year ago with the primary difference due to the decrease in corporate federal income tax rate from 35% to 21%. Note, the pre-tax income was $34.8 million, an increase of $7.2 million or 26.1% from a year ago.
Please move to slide 15. Adjusted EBITDA was $114.6 million in the fourth quarter compared to $90.7 million a year ago, an increase of 26.2%. Margins expanded 230 basis points to 33.1% this quarter compared to 30.8% a year ago. Margins increased for the reasons previously mentioned on the income from operations margin discussion on slide 13.
Next slide 16. SG&A expenses for the fourth quarter of 2018 were $73 million compared with $60.5 million in the prior year, a $12.6 million or 20.8% increase. SG&A expenses in the fourth quarter of 2018 as a percentage of total revenues were 21.1% compared to 20.5% a year ago. The increase in SG&A was due to higher labor wages incentives, related employee benefit costs and other employee expenses of $8.1 million largely related to the CEC and Rental Inc. acquisitions completed in 2018. A larger workforce and higher compensation related to our improved profitability. Labor costs, and facility rent expenses increased $0.5 million and $0.8 million respectively. In addition, our results for the fourth quarter of 2018 increased $0.9 million of amortization expense associated with the recognition of intangible assets resulting from the CEC and Rental Inc. purchase price allocation. Expenses related to Greenfield branch expansions increased $0.4 million compared to a year ago.
Next on slide 17. Our gross fleet capital expenditures during the fourth quarter were $66.4 (ph) million, including non-cash transfers from inventory and net rental fleet capital expenditures for the quarter were $33.3 million. Both PP&E CapEx for the quarter was $7.9 million and net was $6.6 million. Our average fleet age as of December 31st was 34.5 months. Our free cash flow for the fourth quarter was $59.8 million and this compares to free cash flow of $43.4 million a year ago, and we've included the GAAP reconciliations at the end of this presentation.
Next on slide 18. At the end of the fourth quarter, the size of our rental fleet based on OEC was $1.8 billion, a 25.7% or $361 million increase which includes fleet growth related to acquisitions from a year ago. Average dollar utilization was 37% compared to 36.2% a year ago.
Proceed to slide 19 please. At the end of the fourth quarter the outstanding balance under the amended ABL facility was $170.8 million. We had $571.5 million of availability at year-end, which is net of $7.7 million of outstanding letters of credit. On February 1st, we amended our ABL facility primarily to extend the maturity date on December 2022 to February 2024, and to lower our interest rate grade by 25 basis points. We maintain a strong balance sheet with ample liquidity and are very comfortable with our capital structure, and it continues to support our growth strategy.
Proceed to slide 20 please. Let me quickly review our full year 2018 results, which we believe reflects solid operational execution, increased demand in our end-user markets and follow through on our stated growth strategy. Total revenues increased 20.3% or $208.9 million to $1.2 billion in 2018 from $1 billion in 2017. Gross profit increased 21.8% or $78.6 million to $438.5 million from $359.9 million in 2017. Income from operations in 2018 increased 20.8% to $166.6 million or 13.5% of revenues compared to $137.9 million or 13.4% of revenues in 2017. The year-ago period, included $5.8 million of merger breakup fee proceeds, net of merger cost, excluding the net proceeds 2018 income from operations increased 26.7%.
Our net income was $76.6 million or $2.13 per diluted share compared to net income of $109.7 million or $3.07 per diluted share in 2017. We recorded income tax benefit of $50.3 million in 2017 due to the one-time remeasurement of our deferred tax assets and liabilities, resulting from the decrease in corporate federal income tax rate from 35% to 21% as I previously mentioned. The effective income tax rate was 26.8% in 2018 compared to a negative 84.8% in 2017. And adjusted EBITDA for 2018 increased 23.9% to $405.4 million from $327.1 million in 2017. Adjusted EBITDA as a percentage of revenues was 32.7% compared with 31.8% in 2017.
Our free cash flow was a use of $279 million in 2018 compared to free cash flow of $73.1 million in 2017, largely as a result of higher net fleet investment of approximately $180.3 million and $196 million used to complete our two acquisitions during the year. We also continued our dividend payment each quarter with total dividends paid of $1.10 per common share during 2018.
And at this time, I'll turn the call back to Brad.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you, Leslie. Please proceed to the slide 22. 2018 was a good year for our business and I want to thank all of our employees for their hard work and dedication. We remain focused on additional growth through acquisitions, warm-start to same-store opportunity. Lastly, we paid our 18th consecutive quarterly cash dividend on December 7th. As always future dividends are subject to Board review and approval each quarter.
Operator, please provide instructions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) We'll take our first question from Neil Frohnapple with Buckingham Research.
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
Hi. Congrats on a great quarter. And John and Brad congrats to both of you.
John M. Engquist -- Executive Chairman and Director
Thank you.
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
First, could you just talk about plans for capital allocation in 2019. You invested a significant amount in fleet in 2018 given the strength in underlying demand, your fleet age is extremely low. But time utilization is running higher year-over-year. Currently it sounds like on a significantly larger fleet and you have obviously a positive outlook for '19. So could you just talk about how you've planned to manage this dynamic and whether and how you're thinking about growth CapEx in 2019 at the moment?
John M. Engquist -- Executive Chairman and Director
Sure, Neil. We plan -- our current view is to moderate our growth -- fleet growth. We're certainly going to continue to grow our fleet. We're well focused on improving the quality of our rental revenues as a stated in my prepared comments. We're going to get a heck of a benefit from the full-year investment. We've got these acquisitions that are performing very well and growing. But the commentary we give you at this point about 2019 capital investment would be more moderated from last year, but we're certainly going to have some level of growth and expect to see improved metrics within the revenues.
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
Okay, great. And then Brad, could you provide more granularity on what drove the stronger-than-expected new equipment sales in the quarter, especially the higher crane sales year-over-year in light of the extremely difficult comparison? And then just sort of your outlook for this business going forward?
Bradley W. Barber -- Chief Executive Officer, President, and Director
As we said for a few years, cranes can be really difficult to pinpoint. Some of these are very large assets, $1 million, $2 million, $3 million assets and we were able to capitalize between a good availability quality product from Manitowoc and customer demand late in the quarter which we were able to seize those deal, so it remains a little lumpy, we've been saying for a couple of years it's getting more consistent and it certainly has been. We exceeded our own internal expectations, I can tell you that as it pertains to crane sales in Q4.
John M. Engquist -- Executive Chairman and Director
Yeah. And I think, the crane market has been in a trough for so long and the recovery has been pretty modest, and I think there have been some pent-up demand there, that we probably capitalize on in the fourth quarter.
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
Okay. Thanks for that. And just as a quick follow-up to that. I guess what drove the strength in the new equipment gross margin in the quarter. Was that primarily a mix or was some positive pricing coming through, just any thoughts there? And I'll pass it on. Thank you.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Yeah. We certainly are focused on trying to improve our margins to the extent we can, but it is always an impact from mix. And I would tell you that our team has been very focused on improving the quality of revenues in every revenue source, including new sales.
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
Great. Thank you.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you.
Operator
And we'll move on to our next question from Steven Ramsey with Thompson Research Group.
Brian Biros -- Thompson Research Group -- Analyst
Hey, good morning. This is actually Brian Biros on for Steven.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Good morning Brian.
John M. Engquist -- Executive Chairman and Director
Good morning.
Brian Biros -- Thompson Research Group -- Analyst
(Technical Difficulty) I wanted to start, are there any areas across the US that might see too much fleet or rates are underperforming, overall it's a generally positive environment, but is there any pockets across the US that are perhaps underperforming or just not as strong as the total company?
Bradley W. Barber -- Chief Executive Officer, President, and Director
No, not really, and I'd tell you, when we look at geographies, we look at product type, we look at revenue source, and even within rental. It's pretty equally spread. Our performance for improvement is pretty equally spread, our utilization period over period is pretty similar across all geographies and product mix. So no, as it pertains to concern of over population of equipment, I'll tell you that we see our competitors being very rational and focused on the quality of their revenues as well. And our outlook for 2019 is going to be very similar to our -- I believe our 2018 results, meaning positive growth but discipline as it pertains to the quality of our revenues.
Brian Biros -- Thompson Research Group -- Analyst
Got it. And then a quick follow-up. Overall outlook 2019, pretty positive across the board. We've had some context share that they're a little more cautious about the back half of 2019 or even 2020, not negative just cautious. I was wondering if that's something you guys have seen or heard maybe that's a regional trend or any color on that topic would be appreciated?
John M. Engquist -- Executive Chairman and Director
Yes. This is John. Look, we think the environment is very positive, with that said there is some macro issues out there that I think, give some people calls for concern. There some trade issues that we hope gets resolved. The housing market softened a little bit. Oil has been kind of volatile. So I think everybody's paying attention to those things, but overall, we think we're in a very positive environment.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Yes. I'd also add, that our outlook for the Gulf Coast for 2019 is actually increasing and not decreasing. So we cover most of the country, but not all of the country, and I think we're probably in the best footprint we could possibly be in. So that may also be an offset to things you could hear from somewhere else. But our geographies, the view is remaining strong throughout 2019.
Brian Biros -- Thompson Research Group -- Analyst
Got it. Thanks. I'll hop on.
Operator
And we'll take our next question from Seth Weber with RBC Capital Markets.
Brendan Shea -- RBC Capital Markets -- Analyst
Hi. This is Brendan on for Seth. I was wondering if the current SG&A levels, is that sort of the 21% of sales, is that the new kind of run rate as we should think about it or does that step back down?
Leslie S. Magee -- Chief Financial Officer and Secretary
So I was a bit more -- if you look at the full year 2018, we ran at 22.5% as a percent of revenues, and I do expect that we'll have some moderate -- some slight pressure on SG&A as a percent of revenues looking into 2018. And the factors that contribute to that is going to be primarily our new locations, whether that be acquisitions and warm-start, that certainly contributes to that. And then also as you know, we have a focus on growing our rental business. And when we grow our rental business, it just takes more people to run that portion of our business, and it does the other segments of our company. So that's the other factor that I would point to. So we will see some slight pressure in SG&A as a percentage of revenues in 2019, but rather look more at that, 2018 as a base when I am speaking to that.
Brendan Shea -- RBC Capital Markets -- Analyst
Okay. Thank you. And then if I could touch on the crane market, just very quickly again. Obviously your outlook is positive there kind of coming off of the bottom. I was wondering if you've seen any rebuild activity picking up from here?
Bradley W. Barber -- Chief Executive Officer, President, and Director
We have seen some minimal rebuild activity, but still nowhere in the range of traditional or typical. So yes, we have. We continue to do considerable repair on structural damage type products. Some rebuild, but we're still not seeing the level that we've enjoyed historically.
Brendan Shea -- RBC Capital Markets -- Analyst
Okay, thanks. Then, one last one if I can. What was the contribution to sales from your acquisitions in the quarter?
Leslie S. Magee -- Chief Financial Officer and Secretary
We haven't really broken that out separately for the public, just because, we do operate those as really all -- they're fully integrated and so we're consolidating branches if necessary, transfer and equipment that sort of thing. So it's really not a pure number. I would just tell you for the quarter, If you were to remove the contributions from the acquisitions, you know, the company is still up double-digits, very, very solid, so that's about as much color as I will get on that.
Brendan Shea -- RBC Capital Markets -- Analyst
Okay. Thank you.
Operator
And we'll move on to our next question from Stanley Elliott with Stifel.
Stanley Elliott -- Stifel -- Analyst
Good morning guys. Thank you for taking my question. When we think about kind of the expansion or growth plans into next year. I mean, is there a preference for you all from an M&A or from a Greenfield perspective, and then kind of would leverage it to 7 (ph) I guess, where are the comfort levels I guess -- my feeling is that hasn't changed, but just to kind of get your perspective would be great.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Sure. Let me answer your -- the last part of your question first. Our perspective on leverage is not changed, nor do we expect it to change, as far as our comfort. As it pertains to how do we view acquisitions versus Greenfields or, we are more typically referred to now is warm-starts. We're opportunistic. If it's a new market, where H&E does not have a presence, we don't have locations, people are warm customer base, we're more likely to enter through acquisition. As opposed to, when we look at our Greenfield or what more frequently refer to the warm-start strategy, we look at existing territories where we have some existing customers, some existing employees, some name recognition, we really have a finger on the pulse -- first hand. So that's how we're looking at the growth and expansion.
We certainly, as you can tell by looking at the map, we're happy to fill in our existing geography with acquisitions as well. But, we would enter a new market through an acquisition. We're not likely to enter new markets through Greenfields. But we're going to continue to do a balance of both.
John M. Engquist -- Executive Chairman and Director
Yes. One comment I would add to that. We think we can do two to three of these smaller acquisitions tuck-in type acquisitions a year and not move our leverage in any material way.
Stanley Elliott -- Stifel -- Analyst
Yes. No. I agree and the payback on those has been pretty impressive. On the crane sales, do you get a sense that people are expanding their fleets and you mentioned kind of the $1 million, $2 million to $3 million in size. So those seem to be some of the larger sorts of projects. Any thoughts around that and some of that I guess anticipation of some of these larger Gulf Coast projects that you had mentioned coming on in 2019?
Bradley W. Barber -- Chief Executive Officer, President, and Director
So, none of it's around the 2019 projects in the Gulf Coast as of yet. And it's -- Stanley, it's really more of a product mix issue. The market had really heated up and been better on the altering product and the price point for that product starts at about $1 million, generally speaking and moves up from there. Crawler cranes is still spotty. No, we are seeing some increased activity for quoting these products, in anticipation of some of the works you referred to that we spoke about in the late 2019. And on the rough terrain side, it's still again very spotty. We're seeing some additional fleet sales out of our rental fleet on the RT cranes, but just not a heck of a lot of activity on new RT products, so it's limited. We are selling some new products, but that's the one area, we've not seen -- move forward faster. That's kind of surprised us to this point.
Stanley Elliott -- Stifel -- Analyst
Perfect. And last from me, on the slide, you had mentioned infrastructure bill. We're starting to hear some more positive commentary about the potential percent later in the year. I'm assuming that you are kind of hearing that same sort of thinking coming out of Washington and it's hard to handicap D.C. But do you have any sort of confidence or any further thoughts that would be great?
Bradley W. Barber -- Chief Executive Officer, President, and Director
I'm like you, it's hard to handicap obviously on infrastructure bill would be huge for the entire rental sector. It would be a very positive development, but you know how to handicap the chaos going on in Washington is beyond us.
John M. Engquist -- Executive Chairman and Director
Yes. Look the one thing I would add is we talk to our regions, our employees that are in the field. Their view is very bullish and they're getting this from the -- from their customer base. So we are absolutely here in the same thing we're hearing it from both directions the end-user, as well as some of the reported material.
Stanley Elliott -- Stifel -- Analyst
Perfect. Thank you very much. Congrats on a nice year.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you, sir.
Operator
(Operator Instructions) We will move on to Erika Jackson with UBS.
Erika Jackson -- UBS -- Analyst
Hi. I had a question digging more into your rental revenue expectations for 2019. I know you said you're focus on improving the quality of them. I mean growing them with discipline. So, I guess just kind of thinking about like the puts and takes within rental rates and time utilization and dollar utilization. I know the comps are kind of hard, but are you expecting all three of those metrics to be up year-over-year next year?
Bradley W. Barber -- Chief Executive Officer, President, and Director
I think all three could be up. You know, rental rates, we continue to remain positive. We expect we're going to continue that trend. Probably we will be similar to our 2018 performance. Utilization, we started the year of running ahead, year-over-year with physical utilization, current weather conditions have kind of got us flattish year-over-year. Right now we think that the short-term scenario, and that will likely recover, and I do believe we can inch out incrementally improve fiscal utilization in '19 over what we achieved in '18. So yes, I do think, all three have a reasonable chance to continue to improve for 2019.
Erika Jackson -- UBS -- Analyst
Awesome. That's great. Thank you. And then just one more. A broader question kind of on the industry. Have you seen any impact, I guess, but just industry consolidation, that you guys are acquiring companies other rental buyers are making concessions (ph) as that industry consolidation kind of affected the competitive landscape at all? And then similarly, have you seen any -- maybe increased competition from new players that maybe or in your traditional rental players?
Bradley W. Barber -- Chief Executive Officer, President, and Director
Not really. It's more of the same. There is always going be opportunity with some of the larger companies similar size to ours are acquired. We seem to find opportunity with employees and select customers. More competition from new players no, we get the same cast of players out there, and I suspect we will and the good news is, everyone is operating in a very disciplined way and I believe we're all collectively focused on improving the quality of our revenues.
Erika Jackson -- UBS -- Analyst
Okay. Got it. Thank you.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you.
Operator
And we'll take a question from Michael Feniger with Bank of America.
Michael Feniger -- Bank of America Merrill Lynch -- Analyst
Hey, guys. Yes. Thanks for taking my question. We're seeing some of your suppliers really complain about higher cost inflation, higher raw materials and with the strong rental backdrop. Are you seeing the suppliers getting aggressive on pricing in 2019? I know you guys invested heavily in the fleet in 2018 and should benefit. Is this what you're seeing from the supplier base on equipment pricing is that changing your view at all on CapEx?
Bradley W. Barber -- Chief Executive Officer, President, and Director
It's not. I mean we're seeing from no increase to 1% to 2% probably as an average. There's certainly a few suppliers who have been a little heavier than that. We've got alternative sources. So no, they need to get some price increases and we need to get ours, but we can -- they're not asking for anything that's unreasonable that would deter from our view of growing our business in a healthy way. So you know very, very mild price increase.
Michael Feniger -- Bank of America Merrill Lynch -- Analyst
That's helpful. And just lastly, are you seeing anything abnormal in the used equipment market? Just anything with values that as really changed over the last few months across your equipment categories?
Bradley W. Barber -- Chief Executive Officer, President, and Director
No. Everything is kind of been seasonally adjusted. But our used equipment values remain very healthy.
Michael Feniger -- Bank of America Merrill Lynch -- Analyst
Thanks guys.
Operator
And we'll take our next question from Bill Mastoris with Baird & Company.
William Mastoris -- Robert W. Baird -- Analyst
Thank you. I'd like to go back to some of your earlier comments, John. When you talked about two to three, maybe tuck-in acquisitions annually without significantly impacting the leverage, which I assume is still in the 2 to 3 range as you articulated a little bit earlier. But if you did find the right acquisition, that could substantially move the needle and change your business, how far are you willing to stretch the balance sheet?
John M. Engquist -- Executive Chairman and Director
We would be comfortable with 4 turns leverage in a transformational acquisition.
William Mastoris -- Robert W. Baird -- Analyst
Okay. And then on the crane side, I hate to beat this to death. It appears as though the crane sales since the end of the year, given your comments have slowed down just a little bit. Is that an accurate portrayal or might there be those sub-segments which maybe you see signs of picking up just a little bit?
Bradley W. Barber -- Chief Executive Officer, President, and Director
Well, I would tell you, I mean, we've got one month under our belt. So it's kind of hard to call one month as the slowdown or pickup. I will tell you that our short-term view is that our sales of volume will probably be very similar in crane sales in Q1 of this year as compared to Q1 of '18. We don't normally get in the quarters, no doubt, want to in the future. But to give you the fair response to your question, we're not feeling that it's going to slow down. We just don't have visibility of that it's going to pick up, particularly on the larger crawler product. Quoting activity continues but as we've said for many, many quarters now it's spotty in the crane business, but it certainly has been improving the whole time and we don't necessarily think that will continue, but that's what I can offer you at this point.
William Mastoris -- Robert W. Baird -- Analyst
Okay. Thank you. That's helpful. I appreciate it.
Operator
And we'll take our final question from Seth Weber with RBC Capital Markets.
Seth Weber -- RBC Capital Markets -- Analyst
Hey, guys, good morning. It's Seth here. Just on the back of the Rental Show last week, I guess earlier this week there is a lot of talk about anti-regulations on equipment. I was wondering if that's factoring into your CapEx decisions at all trying to get out in front of the antsy (ph) rags or if you feel like you can actually charge a higher rate, if you are getting antsy certified equipment going forward? Thanks.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Yes. So obviously everything is already certified is the change in the regulation, Seth. And the answer is, we will make those determinations on a shorter horizon. We've been opportunistic in the past with Tier 4 Interim, Tier 4 final where there were substantial increases on certain products and kind of pulled orders forward. Are we going to get all the difference from our customers because of a federal regulation that changes that add some cost, the answer is not quickly, but like steel charges like the Tier 4 final and others before that it absolutely believes through over a period of time, I mean, we're in a return on invested capital business, and as our costs go up, we are forced to push our pricing up. What I can tell you is we do not plan on allowing that to eat into our dollar utilization or margins in anyway.
Seth Weber -- RBC Capital Markets -- Analyst
Okay. Thank you very much guys. Appreciate it.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Thank you, Seth.
Operator
And at this time there are no further questions in the queue. I will turn the call back over to Brad Barber for any closing remarks.
Bradley W. Barber -- Chief Executive Officer, President, and Director
Sure. We'd like to thank everyone for taking time to get on our fourth quarter and full year call, and we look forward to providing you with more solid results at the end of Q1. Thank you.
Operator
Thank you. Once again, ladies and gentlemen, that does conclude today's conference. We appreciate your participation. You may now disconnect.
Duration: 45 minutes
Call participants:
Kevin S. Inda -- Vice President, Investor Relations
John M. Engquist -- Executive Chairman and Director
Bradley W. Barber -- Chief Executive Officer, President, and Director
Leslie S. Magee -- Chief Financial Officer and Secretary
Neil Frohnapple -- The Buckingham Research Group, Inc. -- Analyst
Brian Biros -- Thompson Research Group -- Analyst
Brendan Shea -- RBC Capital Markets -- Analyst
Stanley Elliott -- Stifel -- Analyst
Erika Jackson -- UBS -- Analyst
Michael Feniger -- Bank of America Merrill Lynch -- Analyst
William Mastoris -- Robert W. Baird -- Analyst
Seth Weber -- RBC Capital Markets -- Analyst
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