I want to take a moment and talk to you about a real key metric that is used in the rent to rent business, actually throughout the rental industry, and it's called financial utilization. And that term is describing the revenue that's generated by a dollar of investment. I'll say that again. It is describing the yield or how much revenue is being generated every year by the dollar that I have invested in equipment. So the formula for financial utilization is to take my annualized rental revenue, that's the rental revenue over a 12-month period, and divide it by the original cost of my fleet. Not my depreciated value, not my net book value, but the original cost of my fleet. So it might look something like this. If you had a rental fleet that was valued at $3.7 million and you were able to do $1.2 million worth of rental revenue in a 12-month period, then your financial utilization on your fleet would be 31.7. So then the question is, is that good or bad? Well, it depends. So when we talk about putting together the right mix of equipment, we are trying to generate the highest financial utilization we can possibly get using the same core products that we are constrained by. So our items, you may have some items in your fleet or that you represent that you put them into rent-to-rent and you may only get 20% financial utilization a year. And you think, boy, gosh, at that rate it takes me five years to pay for the item. And that is correct thinking. But it could be that the nature of those items don't require much in the way of maintenance and repair, and in terms of market value, they don't depreciate very much. So you could be okay with something like that. It could be some type of attachment that goes on a heavy piece of equipment. And you have that thing, and it just sits out in the yard. It goes out every once in a while, and you make approximately 20% a year top line before you take out any expenses. And then you could have some other items that are really popular. And maybe they go out a lot, and maybe they are rented typically by the day of the week. There are products that fall in this range. They could be small generators. It could be small saws. It could be pumps. It could be small lighting equipment. There's a variety of things that the reason that a customer would be willing to pay a high price for a relatively low item is because they're interested in the service associated with it, and they have a short-term need, and they don't want to own it. So when we talk about fleet mix, we're going to have a blend of items that could have a range something like that, 20% to as much as 170%. So when we think of organizing a rent-to-rent fleet, I think what is reasonable for you is to consider a target of trying to get north of 40%. And if you can get close into the 60s, that's better. Just for a baseline so that you'll have some sense of what the industry does. Most of the guys that are in the major rental companies, almost all of those guys are in the 55% to 65% range. So that'll give you some sense of what that industry norm is. But in many cases, some of those guys do not have the large heavy equipment that you do, so there's a blend that needs to happen between the smaller equipment and the bigger equipment to give you a higher yield. So we're going to start by looking through each of the major categories of equipment, and I have kind of arbitrarily drawn a line in the sand to describe these particular groups. There's nothing magical about it. It's not necessarily an industry standard. It's just for our discussion purposes to be able to show you that the equipment behaves differently, all of these categories behave differently in terms of how they return revenue on investment. So our exercise, we're going to look at heavy equipment, those machines that cost more than $150,000, large equipment that costs between $100,000 and $150,000, medium between $50,000 and $100,000, small equipment between $20,000 and $50,000, and then light equipment less than $20,000, and then we also have a variety of attachments that go with equipment, and those are items that are generally valued less than $10,000. Starting with our heavy equipment, that's equipment that costs more than $150,000. I'm going to show you some characteristics of this equipment. Typically, this type of equipment is rented for longer-term rentals, and the market rental rate oftentimes is somewhere between 3% and 4% of the dealer net. So let's just say you had a $150,000 item. In terms of the monthly rental rate on that thing, it could potentially be 3% of $150,000. So $4,500 might be the rate, or you might be as high as $6,000, but it's just kind of a guideline. That's not telling you to price your item that way. That's just an observation. As we look in the marketplace, it's pretty competitive out there. So these items would be considered a shopping good, and a shopping good because they are so big, and generally people are using this equipment for such a long period of time that they will spend an enormous amount of time trying to get a better deal. And so they'll spend a lot of time trying to line up this piece of equipment because it is critical to the overall project that they're doing. And then lastly, this type of equipment generally doesn't throw off much profit during the short term in owning this stuff, but it does give you good margins when you get ready to sell the equipment on the backside. I'll give you an example. So the financial utilization on a piece of heavy equipment, let's say that you paid $185,000 for it, and the market rental rate was $5,500 for a four-week period. If you're billing in the four-week periods, that means that you've got 13 periods in the course of a year to potentially earn $5,550 every four weeks. So if you could keep it busy 100% of the time, you could generate $72,000 for the year. But it's not reasonable that you'll keep that busy 100% of the time. A more reasonable time utilization might be something between 60% and 70%. So for this example, I'm using 70%. See it highlighted and underlined in red. Even 70% is a really high time utilization. You might can do better, but I would suggest that this is probably the best you could expect. So if our potential for the year was $72,000, but more reasonable is that we kept it busy about 70% of the time, then we'd have 70% times the $72,000, and that means that we could probably expect about $50,000 a year out of this machine that we paid $185,000 for. And so our financial utilization target would probably be right around 27% a year. So based on that, those types of machines, it would probably take us pretty close to four years to pay for the machine and get our money back. And this is top line. Remember, financial utilization is revenue generated against your original equipment cost. This has nothing to do with maintenance and repair costs. Overhead is not in this. Interest and depreciation is not in this thing. This is just a top line measurement to give you an idea of how this equipment is performing. Now let's take a look at the category just under that, and this is equipment that was in the $100,000 to $150,000 category. This equipment also is used for long-term rentals, and the market rates are very similar. Depending on supply and demand in your marketplace, you may be able to get a little bit better than 4%. There was a day that you could get 5%, but competition is keen out there. So you can probably expect realistic for the 3% to 4%. This type of equipment is also considered a shopping good because people are out there looking for competitive rates. And so this has good potential resale value as well. We'll take a look at the financial utilization on the large. So if my unit costs $115,900, the market rate for a 4-week period was $4,045. That means I'd have a potential of 13 4-week periods to earn a maximum of $52,000 for this item. In this particular example, I used a lesser time utilization. The last example I gave you was between $60,000 and $70,000. In this particular case, I put $65,000. So now I've got 65% of my potential of $52,000. So reasonably, I could expect about $34,000 revenue out of this type of machine for the year. And so when I look at financial utilization, I take my $34,180 and divide it by my original cost and I get 29.4% financial utilization if I keep it busy at 65% of the time. If that number was to drop to 50% of the time, then the 29.4% is going to go down. If I somehow was able to keep it busy like 70% of the time, then the 29% might even get up close to 30%.

Financial utilization

Rental industry

Revenue generation

Investment

Equipment categories