Herc Holdings Inc. · NYSE:HRI
Herc — Investor Day (November 2023)
75 slides from Herc's investor day presentation, Nov 2, 2023
Slide 1: Herc Holdings Inc Investor Day 2023
Herc Holdings Inc Investor Day 2023 NOVEMBER 2, 2023 | NYSE: HRI
Slide 2: Safe Harbor Statements and Non-GAAP Financial Metrics
Safe Harbor Statements and Non-GAAP Financial Metrics Forward-Looking Statements This presentation includes forward-looking statements as that term is defined by the federal securities laws, including statements concerning our business plans and strategy, projected profitability, performance or cash
Slide 3: The Herc Rentals Team – Today's Speakers
The Herc Rentals Team – Today’s Speakers Larry Silber Mark Humphrey Aaron Birnbaum Leslie Hunziker President & Senior Vice President & Senior Vice President & SVP, Investor Relations, Chief Executive Officer Chief Financial Officer Chief Operating Officer Communications & Sustainability 3
Slide 4: Today's Agenda: Investing for Scale and Sustainable Growth
Investing for TODAY’S AGENDA Scale and Sustainable 1 Company Overview and Strategic Briefing Larry Silber, President & Chief Executive Officer Growth Leveraging culture / Benefiting from transformation / Investing for scale 2 Financial Framework Mark Humphrey, Senior Vice President & Chief Financial
Slide 5: Herc Rentals
HercRentals
Slide 6: Company Overview and Strategic Briefing
Company Overview and Strategic Briefing Larry Silber President & Chief Executive Officer 6
Slide 7: Our Purpose, Mission, Vision and Values
Our Purpose, Mission, Our Vision and Values Vision We aspire to be the supplier, employer and investment of choice in our industry. Our Our Values Mission We do what’s right. To ensure that end We’re in this together. users of our equipment We take responsibility. and services achieve We achieve res
Slide 8: Committed to Safety
Committed to Safety Continued focus on health and safety of our employees, customers and communities Health & Safety Management System helps us work more safely and streamlines reviews and audits Achieved 97%1 Perfect Days at our branches Investing in training and new tools for working safely 8 1 YT
Slide 9: Our Key Strengths
Our Key Strengths A leading equipment A market consolidator A technology-enabled Multi-faceted Significant headroom rental solutions quickly building equipment-services diversification to invest in growth provider delivering density, scale, provider creating strategy offers above-market growth capab
Slide 10: A Leader in a Large and Growing Industry
A Leader in a Large and Growing Industry $76B addressable market Market to INCREASE Incremental Industry $86 at a CAGR of GROWTH The $83 year-over-year $80 $10B 1 GROWTH RATE 5.3% 1 4% 1 $76 for 2024 is estimated at 2023 2026 2023 2026 Players of SCALE KEY DRIVERS have taken share 40%2 Infrastructur
Slide 11: Industry Transformation: Driven by Discipline, Data, Diversification
Industry Transformation: Driven by Discipline, Data, Diversification Consolidating market Professionally managed industry leaders Technology enabled to capitalize on data-rich industry Proprietary, modern pricing tools Availability of industry benchmarking data Secular shift to rent over buy continu
Slide 12: Herc Rentals Transformation: Scaling for Resilient, Profitable Growth
Herc Rentals Transformation: Scaling for Resilient, Profitable Growth Growing North America presence; recession-resilient urban-market focus Expanding through greenfield locations and strategic M&A Shift from equipment provider to rental solutions provider with diversified offering and capabilities
Slide 13: Building a Track Record of Growth
Building a Track Record of Growth Average OEC Total Revenue Adj. EBITDA Margin ROIC 6,039 3,236 44.2% 10.5% 43.2% 9.6% 37.1% 34.5% 1,999 2,073 6.0% 3,844 3,864 3,508 1,555 2.8% 2016 2019 2021 2023 2016 2019 2021 TTM 2023 2016 2019 2021 TTM 2023 2016 2019 2021 TTM 2023 8% CAGR ▲ 11% CAGR ▲ 970 bps ▲
Slide 14: Herc Rentals Today
Herc Rentals Today ~7,000 Team members 382 42 States Branches 5 Provinces 58 Years of Business Founded 1965 14
Slide 15: Delivering Value Across Markets and Customers
Delivering Value Across Markets and Customers Local: Contractors: 58% 36% $3.2+B Q3:23 Industrial: Q3:23 Revenue by Local vs. Total Revenue1 Customer 26% National Mix One of the leading equipment rental suppliers Other2: in North America Infrastructure/ Government: 23% National: 15% 42% 15 1 TTM Sep
Slide 16: Driving Customer Engagement with an Expanded Offering
Driving Customer Engagement with an Expanded Offering $6.2B Diversified Mix of Equipment in Fleet (OEC)1 General Rental: Aerial – Elevated Work Platform Earthmoving Earthmoving: Other: Air Compressors and Tools Lighting 12% 22% Compaction and Paving Material Handling Concrete and Masonry Landscaping
Slide 17: How We Win
1 Grow the Core How We Win Increasing fleet and locations in urban markets drives revenue, scale and operating leverage 2 Expand Specialty Accelerating secular shift from ownership to rental and a service-driven model leads to higher utilization and returns 3 Elevate Technology Ongoing investment in
Slide 18: New Operating System Supports Growth through Continuous Improvement
New Operating System Supports Growth through Continuous Improvement Standardized business processes Easy … to do business with Expert … at what we do Continuous improvement Organizational learning Efficient … in serving our customers Launching an interconnected system, efficiently delivering superio
Slide 19: E3OS Will Drive Every Aspect of Culture and Performance
E3OS Will Drive Every Aspect of Culture and Performance Operating Culture Operating System Superior customer experiences Applies expertise and adopts best powered by a culture of practices across the network to achieve continuous improvement consistent, sustainable performance E3OS is our vehicle to
Slide 20: Macro Trends Driving Next Decade of Growth
Macro Trends Driving Next Decade of Growth Federal Stimulus Reshoring Trend Toward Rental Reshoring a Boon to Top 4 Reasons to Manufacturing Construction Rent Equipment Avoid a large down payment, $ in billions U.S. Non-Residential Starts1 1 interest rates and monthly payments 500 450 Rent the newes
Slide 21: Committed to Corporate Citizenship
Committed to Corporate Citizenship Circular consumption: Worker well-being: Renting instead of buying Fostering a positive culture, equipment benefits our customers energizing environment, and job We equip our and ensures maximum utilization of existing resources satisfaction for our employees custo
Slide 22: 2022: Significant Progress Made and Being Recognized
2022: Significant Progress Made and Being Recognized Employee satisfaction score 2022 America’s 2022 EcoVadis MSCI Military Friendly Most Responsible Silver Sustainability exceeds ‘A’ Sustainability Gold Award Companies Rating benchmark Rating 2023 Water intensity Non-toxic waste Scopes 1 & 2 GHG do
Slide 23: We are on Track to Meet or Exceed Our 2030 Goals
We are on Track to Meet or Exceed Our 2030 Goals 2030 Sustainability Goals Baseline Year 2019 Reduce Scope 1 & 2 Reduce non-toxic Total Recordable greenhouse gas waste to landfill Incidence Rate of emissions by 25% intensity by 25% 0.49 or better 23
Slide 24: Scale Matters: Playbook for Sustainable Growth
Scale Matters: Playbook for Sustainable Growth Invest for Scale Leverage Assets and Technology Generate Higher Returns Fleet growth Purchasing power Reinvest in business Product line expansion Urban market density Increase shareholder value Network growth Fleet and operational efficiency (M&A, Green
Slide 25: Key Takeaways
The foundation is set to achieve our 2026 goals…. Right people and Vision defined by a clear resources in place and purposeful strategy Key Takeaways Delivering solutions Resulting in record levels for customers of net new business …while unlocking future growth. 25
Slide 26: Financial Framework
Financial Framework Mark Humphrey SVP & Chief Financial Officer 26
Slide 27: 2021 Investor Day Targets: Strong Progress Through Year 2 of 3-Year Plan
2021 Investor Day Targets: Strong Progress Through Year 2 of 3-Year Plan 2021 – 2024 2021 – 2023 2021 – 2023 Metric 2016 – 2020 Organic Targets1 Organic Results2 Organic + M&A2 Key Drivers Rental Revenue CAGR3 3.4% 12% to 15% 17% 23% § Greenfield locations adding to urban Adjusted EBITDA CAGR 6.5% 1
Slide 28: 2024-2026 Targets: Continuing to Drive Growth As We Scale Our Business
2024-2026 Targets: Continuing to Drive Growth As We Scale Our Business 2024 – 20261 Metric Organic Increasing scale drives: Rental Revenue CAGR 10% to 14% Revenue growth that outpaces the market Adjusted EBITDA CAGR 11% to 16% Diversified customer base reduces cyclicality Adjusted EBITDA Margin Rang
Slide 29: Revenue Growth: Outpacing the Market
Revenue Growth: Outpacing the Market Base Market Growth § ARA1 projects 4% CAGR market forecast for 2024 – 20262 4% ▲ § Herc Rentals’ pricing outpaces inflation + = § Greenfield openings, 20-30 Share Gain targeted per year Organic Rental Revenue Growth 10 – 14% § Outsized mega project activity ▲ 6 –
Slide 30: Macro Economic Data: Supports Future Base Market Growth
Macro Economic Data: Herc Rentals has grown ~2.6x the Industry Rate3 Supports Future Base and will continue to gain market share Market Growth $ in billions U.S. Non-Residential Starts1 ’24-’26 CAGR 10-14% 500 450 400 350 ’24-’26 300 CAGR 4% 250 ’24-’26 CAGR 4% 200 2016 2017 2018 2019 2020 2021 2022
Slide 31: Share Gain: Scaling Through Customer Retention and New Business
Share Gain: Scaling Through Customer Retention and New Business New Greenfield Locations Acquired Branch Locations Targeting 20-30 Openings Per Year Disciplined Approach to a Robust Pipeline 2016 2017 2018 2019 2020 2021 2022 2023E 2020 2021 2022 2023E Customer Retention New Business Wins § National
Slide 32: Mega Project Opportunity: ~$300M Annualized Rental Revenue
Mega Project Opportunity: ~$300M Annualized Rental Revenue Government Stimulus Equipment Industry Rental Herc Rentals Opportunity and Private Investment Rental Share Opportunity ~$350B ~2% $7B ~$300M 2024 estimated project of total or ~$2.3B annually over annualized starts greater than $250M project
Slide 33: Focus on Scale and Efficiency for Margin Expansion
2024-2026: Focus on Scale and Efficiency for Margin Expansion Adjusted REBITDA Margin Target 48% to 51% Operating Operational Used Equipment Fleet Mix Technology Leverage Efficiency Sales Channel Shift § Benefits of scale § Shift toward higher § Investment in customer § Process improvements § Shifti
Slide 34: Raising the Bar on Margin: Margin Preservation Through Economic Cycle
Raising the Bar on Margin: Margin Preservation Through Economic Cycle Downside Scenario REBITDA Margins Assumptions Preserved Through § 7% revenue reductions in both § Capex reduced and fleet aged 2024 and 2025 years § Increased fleet disposals § Revenue recovery in 2026 market § M&A allocation paus
Slide 35: Key Takeaways
The foundation is set to achieve our 2026 goals…. Revenue Growth Increasing Density through Outpacing the Market Greenfields and M&A Key Takeaways Strategic Mega Scaling to Expand Project Participation Margins …while unlocking future growth. 35
Slide 36: Delivering Above-Market Growth
Delivering Above- Market Growth Aaron Birnbaum SVP & Chief Operating Officer 36
Slide 37: Management Team of Industry Veterans
Management Team of Industry Veterans 10 Regions Region Vice Presidents’ average experience: • 26 years within industry • 23 years with Herc Rentals Field Support Center Senior functional leaders average experience: • 26 years within industry • 17 years with Herc Rentals 37
Slide 38: Herc Rentals' Competitive Advantages
Herc Rentals’ Competitive Advantages Business Safety Fleet Culture Expertise Technology Intelligence Leading safety culture Large broad diversified Strong team provides Broad & diversified Customer-facing Data driven & with commitment to fleet providing quality solution, consultation customer base w
Slide 39: Dynamic Industry Favors Scale
Dynamic Industry Favors Scale Herc Rentals Herc Rentals Herc Rentals Investor Day 2nd Investor Day becomes independent, Technology investments, Herc Rentals delivers publicly traded business intelligence on 3-year plan and company HRI and M&A investment announces next phase Herc Rentals Herc Rentals
Slide 40: Driving Revenue Through Strategic Investments
1 Branch Network Growth 2 Fleet Investments Driving Revenue 3 Customer Vertical Expansion Through Strategic 4 Sales Capabilities Investments 5 National Accounts & Mega Projects 6 Technology 40
Slide 41: Branch Network Growth: Building for Scale
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 1 Branch Network Growth: Building for Scale Business At Spin (2016) Expansion Locations Since Spin 268 114 physical locations physical locations 293 1 241 1 profit centers profit centers 382 Physical Locations with 534 Profit Centers Highly Concentrated
Slide 42: Branch Network Growth: Expanding Through M&A and Greenfields
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 1 Branch Network Growth: Expanding Through M&A and Greenfields M&A Greenfields Current State 2023 Target top 100 markets Target top 100 markets New Locations Legacy Location Strategy and be opportunistic to add specialty and geographies that fill gaps to
Slide 43: Fleet Investments
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 2 Fleet Investments Growing the Core Specialty Greenfield & M&A Mega Projects Technology 43
Slide 44: Fleet Investments: Life Cycle Management
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 2 Fleet Investments: Life Cycle Management Business Intelligence Tools Integrated Fleet Planning Fleet Acquisition Fleet Operations Fleet Distribution Fleet Disposal Define optimal fleet mix, Demand based rotation & incremental Acquire quality products I
Slide 45: Fleet Investments: Growth Across All Fleet Categories
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 2 Fleet Investments: Growth Across All Fleet Categories 2023 Rental Revenue 2016 Growth of 24% 18% $3.6B $6.2B 1 110% On Fleet 83% 76% Growth of Core 1 Specialty Original Equipment Cost based on ARA guidelines, and fleet as of September 30, 2023 72% 45
Slide 46: Customer Vertical Expansion: Diversifying for Resilience & Opportunity
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 3 Customer Vertical Expansion: Diversifying for Resilience & Opportunity Diversified Customer Base to be more Recession Resilient Herc Rentals’ Customer & Project Reach Infrastructure Commercial Construction (36%) Industrial Facilities (26%) Other (8%) &
Slide 47: Sales Capabilities: A Well-Equipped Sales Force
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 4 Sales Capabilities: A Well-Equipped Sales Force Enables Us to Build Local Relationships Black & Gold Academy Professional Sales Training Go-To-Market Strategy Territory Optimization Technology Enabled Tools 47
Slide 48: Sales Capabilities: Investments in Teams, Training and Tools Drive Growth
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 4 Sales Capabilities: Investments in Teams, Training and Tools Drive Growth Local Local Sales Force Growth Revenue Growth 39% 132% National National Sales Force Growth Revenue Growth 48% 97% 48 Note: Growth rates for the period from 2016 to 2023E
Slide 49: National Accounts & Mega Projects: Capabilities Matter on Large, Complex Projects
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 5 National Accounts & Mega Projects: Capabilities Matter on Large, Complex Projects 29 Average Tenure Years National Account Service Capabilities Large, complex Mega project solutions Customer vertical Professional fleet Customized solutions, Customer pr
Slide 50: National Accounts & Mega Projects: Well-Positioned Network
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 5 National Accounts & Mega Projects: Well-Positioned Network for Outsized Market Growth 2024-2025 Planned Project Starts Mega Project Strategy Strategically managing opportunities while staying disciplined to our local market strategies Herc Rentals’ bra
Slide 51: National Accounts & Mega Projects: A Sampling of Activity
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 5 National Accounts & Mega Projects: A Sampling of Activity EV OEM & Battery Plant Data Center Project Length: 3 Years Project Length: 18 months initially + expansion Percent Completed: 15% Percent Completed: 5% Construction Value: $10B Construction Valu
Slide 52: Technology: Digital Tools Enhance Sales Effectiveness
DRIVING REVENUE THROUGH STRATEGIC INVESTMENTS 6 Technology: Digital Tools Enhance Sales Effectiveness Herc Rentals Proprietary Systems Optimus Customized Digital Tools 52
Slide 53: Optimizing Operational Efficiency
1 Market Density Benefits 2 Comprehensive Logistics Management Optimizing Operational 3 Strategic Used Equipment Channels Efficiency 4 Technology: ProControl Next Gen 5 E3OS Operating Model 53
Slide 54: Market Density Benefits
OPTIMIZING OPERATIONAL EFFICIENCY 1 Market Density Benefits Higher Higher REBITDA Margin Dollar Utilization Operational Specialty Efficiencies Synergies 54
Slide 55: Comprehensive Logistics Management
OPTIMIZING OPERATIONAL EFFICIENCY 2 Comprehensive Logistics Management Delivery Service Safe Practices Recruitment Optimization Logistics Tools Revenue New vendor partners Recruiting to fill Centralized large-market Technology enabled Integrated delivery to increase safety, capacity gaps & logistics
Slide 56: Strategic Used Equipment Channels
OPTIMIZING OPERATIONAL EFFICIENCY 3 Strategic Used Equipment Channels Proprietary Search Engine Used Equipment Optimization Sales Apps Organic Targeted Go-To-Market Marketing Expertise Optimal Life Channel Mix (Retail / Wholesale / Cycle Management Auction) 56
Slide 57: Technology: ProControl NextGen
OPTIMIZING OPERATIONAL EFFICIENCY 4 Technology: ProControl NextGen Critical data insights Real-time utilization at your fingertips and diagnostics to or scheduled improve efficiency Browse and rent Live tracking of fleet equipment anytime deliveries and pickups from anywhere to grant access Power to
Slide 58: Herc Rentals
HercRentals
Slide 59: E3OS Operating Model
OPTIMIZING OPERATIONAL EFFICIENCY 5 E3OS Operating Model To ensure the optimal customer experience at every potential touch point 59
Slide 60: Key Takeaways
The foundation is set to achieve our 2026 goals…. Growing Strategic Operating Scale Fleet Investments Key Takeaways Disciplined Ongoing Investment Go-to-Market Strategies in People and Tools …while unlocking future growth. 60
Slide 61: Capital Allocation Priorities
Capital Allocation Priorities Mark Humphrey SVP & Chief Financial Officer 61
Slide 62: Balanced and Disciplined: Capital Allocation Priorities
Balanced and Disciplined: Capital Allocation Priorities Invest for Organic Growth Strategic M&A Dividend Surplus Capital Invest in growth through the Pursue strategic opportunities with Committed to quarterly dividend Deployed for additional fleet capex disciplined use of capital to attractive retur
Slide 63: Investing Into the Cycle: Targeting Ongoing ROIC Expansion
Investing Into the Cycle: Targeting Ongoing ROIC Expansion Average Fleet at OEC and Returns Focus on growing the core and increasing specialty product lines $ in billions 14.0% $8,000 Average Fleet at OEC 13.0% Improve operating leverage through network of existing 12.0% $6,000 locations with curren
Slide 64: 2024 to 2026 Free Cash Flow Scenarios
2024 to 2026 Free Cash Flow Scenarios: FCF Driven By Investment Plans 1 Outsized Market 2 Double Market 3 Pessimistic Growth; HRI Target Growth1 Scenario Scaling for $2.8 to $3.7B $2.0 to $2.5B $1.0 to $1.4B Sustainable Net Fleet Cap Ex Net Fleet Cap Ex Net Fleet Cap Ex Growth Equipment Rental 10% t
Slide 65: M&A Journey to Date: Consolidating a Fragmented Market
M&A Journey to Date: Consolidating a Fragmented Market Vancouver Edmonton Boston Our Acquisition Strategy Portland Toronto Pittsburgh N. New Jersey / NYC Philadelphia Detroit Build out footprint in Top 100+ markets Chicago Washington, D.C. Bay Area Salt Lake City Denver St. Louis Improve $ utilizati
Slide 66: Opportunity to Invest: Maintaining Leverage and Liquidity
Opportunity to Invest: Maintaining Leverage and Liquidity Expected Organic Leverage1 Invest in Fleet 3 Maintain leverage within Opportunistic Use of Increase M&A target range of 2x-3x Surplus Capital Activity 2 Additional Greenfield 1 Opportunity Share 0 2024 2025 2026 Repurchases 66 1 Net leverage
Slide 67: Key Takeaways
The foundation is set to achieve our 2026 goals…. Investing for Disciplined Above-Market Growth Leverage Key Takeaways Strategic Return to M&A Shareholders …while unlocking future growth. 67
Slide 68: Key Takeaways / Q&A
Key Takeaways/ Q&A Larry Silber President & Chief Executive Officer 68
Slide 69: 2026: Key Takeaways
2026: Key Takeaways Focused Multiple Drivers Enhancing Strategically Business for Growth Margins Deploying Capital § Commitment to culture § Large and § Digital focus § Strong balance sheet attractive markets § Tenured, deep § Expansion of § Increasing fleet investments management team § Significant
Slide 70: Q&A Scale Matters
A customer focused approach Q&A A diversified product line A flexible fleet plan An agile operating system A clear business strategy Unlocking Sustainable A solid network infrastructure Growth A strong financial foundation Scale An experienced management team Matters 70
Slide 71: Appendix
Appendix 71
Slide 72: Glossary of Terms Commonly Used in the Industry
Glossary of Terms Commonly Used in the Industry OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs
Slide 73: Adjusted EBITDA and Adjusted REBITDA Quarterly Trend
Adjusted EBITDA and Adjusted REBITDA Quarterly Trend $ in millions Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Total Revenues $568 $640 $745 $786 $2,740 $740 $802 $908 Less: Sales of rental equipment 28 19 21 57 125 71 83 124 Less: Sales of new equipment, parts and supplies 8 9 1
Slide 74: Adjusted EBITDA and Adjusted REBITDA Annual Trend
Adjusted EBITDA and Adjusted REBITDA Annual Trend $ in millions 2016 2017 2018 2019 2020 2021 2022 Total Revenues $1,555 $1,756 $1,978 $1,999 $1,780 $2,073 $2,740 Less: Sales of rental equipment 123 190 256 243 198 113 125 Less: Sales of new equipment, parts and supplies 68 53 49 44 28 31 36 Equipme
Slide 75: Historical Fleet at OEC
Historical Fleet at OEC 1 $ in millions FY 2018 FY 2019 FY 2020 FY 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2022 Q1 2023 Q2 2023 Q3 2023 Beginning Balance $3,651 $3,777 $3,822 $3,589 $4,381 $4,593 $5,097 $5,421 $4,381 $5,637 $5,915 $6,211 Expenditures $774 $627 $348 $725 $253 $327 $311 $327 $1,218 $3