We just finished with a long list of KPIs, or key performance indicators, and in my opinion as a rental veteran, I believe that if you could only have one measurement for describing how well your rental fleet was doing, it would be this particular measurement called financial utilization, which is an indicator of your top line revenue against the value of the equipment that you are given responsibility for. So this has nothing to do with depreciation expense or your net book value. It doesn't have anything to do with maintenance and repair costs. What it does give you an indication of is how the market is responding to your offer. In other words, both in your pricing activity as well as how busy the equipment is. Because obviously the higher the number in terms of financial utilization, that's a strong indicator that your investment has a real good chance of making money with all other things being equal, such as maintenance and repair costs, overhead costs, and depreciation. So it's almost like comparing golf scores, 72 is considered par. So when two people, two different amateur golfers, talk about how good they are at golf, one of them is saying I'm a 4 handicap, the other one says I'm a 10. That is real clear as to how well they perform on the golf course. So if I'm a financial manager, and I've given you some money, and I give one guy $3 million worth of fleet, and another one I give $20 million worth of fleet, and I ask them how they're doing, if they gave me a revenue number, it wouldn't be relative. But if I said, okay, the guy that I gave a $3 million dollar fleet to, he's earning 50% utilization, and the other guy is only earning 37% financialization, that would give me some indicator about how well they were doing with managing the asset that I gave them. So for our purposes here, and for your ability to manage a fleet and communicate with your senior management, financial utilization, I have heard a few people through the years refer to this as dollar utilization, but it's the annualized rental revenue. So over a 12 month period, how much rental revenue did you bring in, divided by the original cost of that equipment. And for a fleet mix, so for your entire fleet, I believe your minimum target should be 40%. And I would suggest that 65 is probably on the real high side of that, and that would be like some of your national rental companies that have everything from scissors and booms, to wheel loaders, down to small trash pumps, small compaction equipment, and cut off saws. But obviously the bigger equipment that you have, and the less equipment that you have in the small and medium size, your financialization is going to be less. So on the left side of the screen, you can see the graphic there, you would have some items in your rental fleet, potentially that only earn 25% a year, financialization. And that could be something like a backhoe, believe it or not. Now that could be an excavator, where the rates are very competitive, and it's hard to make a lot of money. But you could also have some smaller items in your rental fleet that are quite popular, and the annual return on those things could be anywhere from 150 to 200% of its cost, and you earned it back in one year. So the range of items can be all over the place, even attachments, a hydraulic hammer, something like that, that you may get 20 or 25 cents on the dollar per year, but the reality is it doesn't cost you much for that thing to sit there, it doesn't require hardly any maintenance to it, so it's okay. So financialization, I'll give you a couple of examples to practice the formula. There's a fleet value of $3.5 million, the annual rental revenue is $1,235,000. When you do the math on that, that particular fleet, the financialization was 34.82%. I can look at another example of this, and on an $11 million fleet, the annual rental revenue is $4.3 million, and the financialization turns out to be $37.5. Neither one of those are north of 40. If I was managing this fleet, I would be trying to find ways that I could drive that north of 40. I want to revisit the impact of FleetMix and how it drives your performance as far as financialization. So look at the six different categories of equipment that we have here, and I want you to see the timeout utilization, and then look at the financialization. So heavy equipment, because of its nature, and the smaller, as a percentage, the rental rates are smaller, or as a percentage of the cost of the machine, I'd have to keep that thing out 70% of the time to get an annual financialization of 24%. And so you can look at the large equipment, and the same kind of thing, I'm getting a little bit better rental rate on those things as a percentage of the cost, and the medium equipment almost performs exactly the same way. The smaller equipment, I don't have to keep it out as much, and I can actually earn a higher yield. And then on the light equipment, again, maybe 50% time utilization, and I can get almost 60 cents on the dollar. So what I want you to be able to see in the column that says percent of the fleet, is you can see that if I did heavy, large, and medium, that's like 80% of the fleet. If I had it tied up in those dollars, and I added some small stuff, maybe about 15% of the cost, I could actually get, check it out, almost 30% of the revenue, in other words a 2 to 1, 14 and 8 and 6 is 28, it's almost 30% revenue that I could generate by taking a fleet that had heavy, large, and medium equipment, and then spending about another 15% of that fleet, I could change my financialization significantly by creating a different mix of fleet. So when I talk to you about being a good asset manager, you're not going to get to dictate the rental rates out there for large equipment. You're going to have to go with what the market is. So you have to find other avenues to try to make your overall investment perform better. So let's look at the calculation for time utilization. So time utilization, the formula is the total time rented out versus the potential time. And so let's just say I've got 12 units, 12 backhoes, and I've got 22 billing days in a month, then my potential number of days for the machines to be out would be 12 times 22, or 264. And what actually happened was, during that time period, I had 7 monthly rentals that gave me 154 days out, I had 5 weekly rentals that gave me 25 days out, and then I had 20 daily rentals that gave me 20 days out. So that combination gave me 199 days of machines out on rent out of a potential 264. So when I divide 199 by 264, that group of machines stayed out 75% of the time. Now why is it that time utilization in and of itself is not such a great measurement? Well, because it has nothing to do with how much you paid for the equipment and how much money you're taking in. All it means is that it was out. So I can tell you from first-hand experience, if you put a low enough price on an item, it will go out. Somebody will rent it at a lower price. And so some people, some managers, they get a little bit caught up in the idea that, well gee, my fleet is rented out 70% of the time. Well, it could be that your rates are too cheap, and that's one of the reasons why it's out there, that maybe your salesmen are discounting the machines too much. So the financial utilization is the better measurement, but time utilization is also very important to see how hard is the equipment working to earn the money that's being created. We mentioned this measurement when we were looking at the KPIs. And just so to go over it, I think it's a really good indicator for you in your business is to understand the utilization of your fleet company-wide. And so the original equipment cost of the machines that are actually on rent on this particular day, this is a snapshot type of measurement. So you could take it on every Monday or every Friday or however you choose to do it, and you could start to see a trend over time, but it is a snapshot. So the value of the machines that's out on rent at their original cost versus the original equipment cost of the entire fleet. So your equation would look something like this. The total value of my fleet is $3.5 million, and I've got $2.3 million on rent right now. So that means I've got 66% of my fleet out on rent. And another example would be $11 million fleet, $11.6 million, I've got 5.9 out on rent. And so I've got 51% of my fleet value out on rent. I believe that your target should be north of 60. If it's less than 60, you've got real work to do. I happen to know specifically that a couple of the national rental companies, they are working real hard to be between 70 and 72% of their fleet out on rent all the time. They feel very good about things if it's in that range. If it goes below 70, they start getting very excited and start putting pressure on rental managers.

Financial utilization

Dollar utilization

Key performance indicator

Revenue generated

Rental fleet