Herc Holdings Inc. · NYSE:HRI
Herc — Q1 2018 Earnings Presentation
40 slides from Herc's earnings presentation, May 9, 2018
Slide 1: Herc Holdings Inc. Q1 2018 Earnings Call
Herc Holdings Inc. Q1 2018 Earnings Call For the period ended March 31, 2018 May 9, 2018 ©2018 Herc Rentals Inc. All Rights Reserved.
Slide 2: Agenda
Agenda Elizabeth Higashi Welcome and Introductions Vice President, Investor Relations Strategic Update and Larry Silber Industry Outlook President and Chief Executive Officer Mark Humphrey Q1 2018 Financial Review Chief Accounting Officer and Interim Chief Financial Officer Larry Silber Bruce Dresse
Slide 3: Safe Harbor Statements
Safe Harbor Statements Forward-Looking Statements This presentation contains statements, including those related to 2018 Guidance, that are not statements of historical fact, but instead are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We cau
Slide 4: Business Risks - Continued
Business Risks - Continued o our success depends on our ability to attract and retain key management and other key personnel, and the ability of new employees to learn their new roles; o we may have difficulty obtaining the resources that we need to operate, or our costs to do so could increase sign
Slide 5: Business Risks - Continued and Non-GAAP Financial Measures
Business Risks - Continued and Non-GAAP Financial Measures • Risks related to the securities market and ownership of our stock, including that: the market price of our common stock could decline as a result of the sale or distribution of a large number of our shares or the perception that a sale or
Slide 6: Our Strategy is Delivering Results
Our Strategy is Delivering Results ✓ Our safety metrics continued to improve ✓ Our initiatives drove volume growth and improved price, mix and flow-through ✓ We continue to invest in people, training and operations ✓ We are raising our 2018 adjusted EBITDA guidance NYSE: HRI ©2018 Herc Rentals Inc.
Slide 7: Vision, Mission and Values
We are a customer-centric Our organization focused on Vision safety, efficiency and We aspire to be the supplier, employer and profitable growth investment of choice in our industry. Our Our Values Mission We do what’s right. To ensure that end users We’re in this together. of our equipment and We t
Slide 8: Focus on Safety
Focus on Safety • Total Recordable Incident Rate (TRIR) continued to improve o Q1 2018 improved by 55% YoY o Rolling 12 months improved 27% YoY • Introduced the concept of a “Perfect Day” o No OSHA recordable incidents o No “at fault” motor accidents o No DOT violations • Year-to-date through April,
Slide 9: Delivering on Our Strategic Initiatives
Delivering on Our Strategic Initiatives Expand and Improve Enhance Disciplined Diversify Operating Customer Capital Revenues Effectiveness Experience Management ✓ ✓ ✓ ✓ Broaden customer Focus on safety, Provide premium Drive EBITDA base labor productivity, products and margin growth ✓ and warranty s
Slide 10: Summary of Q1 2018 Results
Summary of Q1 2018 Results $369.1 million Equipment Rental Revenue +15.1% YoY Average Fleet1 Growth +3.3% YoY Pricing +2.8% YoY ($10.1) million Net Income (Loss) +$29.1 million YoY $132.7 million Adjusted EBITDA2 30.8% Margin, +570 bps YoY 35.3% Dollar Utilization +330 bps YoY Adjusted EBITDA: $630
Slide 11: Strong Q1 Results on Modest Fleet Growth
Strong Q1 Results on Modest Fleet Growth YoY Rental Revenue Growth YoY Pricing Change 18.0% 2017 2018 16.2% 3.5% 2017 2018 16.0% 15.1% 14.7% 3.0% 3.0% 2.8% 14.0% 12.0% 2.5% 10.0% 2.0% 1.7% 8.0% 7.0% 1.5% 1.4% 6.0% 1.1% 4.2% 4.0% 1.0% 2.0% 0.5% 0.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY Change in Average
Slide 12: Successfully Expanding Products and Services
Successfully Expanding Products and Services Classic ProSolutionsTM ProContractor Our classic fleet includes Our industry-specific solutions- A wide variety of tools and aerial, earthmoving, material based services include: equipment that supports handling, trucks and trailers, • Power Generation va
Slide 13: Improving Fleet Mix to Drive Growth
Improving Fleet Mix to Drive Growth Fleet Composition As of March 31, 2018 • $ Utilization increased 330 bps YoY to 35.3% Trucks & Trailers Other • Continued to diversify equipment in key 12.7% ProSolutionsTM Material 8.6% categories to drive higher $ Utilization Handling 13.6% 17.1% o Increased mix
Slide 14: Improving Customer Mix and Diversification
Improving Customer Mix and Diversification Local vs National % Mix1 in Q1 Revenue by Customer 58% 2017 2018 Other 56% 18% 54% 54% Contractors 52% 34% 52% 50% 48% Infrastructure 48% and Government 46% 18% 46% 44% Industrial 30% 42% Local National Strong Q1 YoY Revenue1 Growth 2017 2018 22% 19.4% 18%
Slide 15: Enhancing Operating Effectiveness
Enhancing Operating Effectiveness Direct Operating Expense Initiatives Maintenance • Increased focus on utilizing national contract pricing for branch purchases of parts and services • Expanded usage of SmartEquip software to improve parts management, reduce costs and optimize equipment downtime o I
Slide 16: Enhancing Customer Experience through Technology
Enhancing Customer Experience through Technology ProControl • ProControl provides account management, location tracking, utilization and service updates • Focus on developing customized solutions to assist customers in being more efficient, effective and safe Herc on the Go Herc on the Go • “Herc on
Slide 17: Enhancing Customer Experience
Enhancing Customer Experience Establishing New Accounts1 • E-Apply enhances turnaround time of online credit account approval process • Q1 North America credit applications more than doubled in 2018 vs 20171 o 60% of our applicants received approval in less than 15 minutes o 99% of applicants receiv
Slide 18: Disciplined Capital Management
Disciplined Capital Management Q1 Adjusted EBITDA Margin1 • Increased Q1 2018 adjusted EBITDA 36% YoY to 35% 1 30.8% $132.7 million 30% 25.1% • Improved adjusted EBITDA margin by 570 bps YoY 25% to 30.8%1 20% • $ Utilization increased 330 bps YoY to 35.3% 15% 10% 5% 0% 2017 2018 Net Leverage1 4.5x 4
Slide 19: Strong Industry Outlook Supports Our Growth
Strong Industry Outlook Supports Our Growth NonA-rchiteResidenctutreial BillingsStarts 3 Index1 N.A. Equipment Rental Market 2 ($ in billions) as of April 2018 as of February 2018 March 51.0 $59 $62 $56 $51 $53 $47 $49 50 $44 $41 $38 $38 $35 $31 $32 Mar-17 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 M
Slide 20: Q1 2018 Financials
Q1 2018 Financials NYSE: HRI ©2018 Herc Rentals Inc. All Rights Reserved. 20
Slide 21: Q1 Financial Summary
Q1 Financial Summary $ in millions, except EPS Q1 2018 Q1 2017 % Chg. Equipment Rental Revenue $ 369.1 $ 320.6 15.1% Total Revenues 431.3 389.4 10.8% Net Income (Loss) (10.1) (39.2) NA Diluted Earnings (Loss) Per Share (0.36) (1.39) NA Adjusted EBITDA1 $ 132.7 $ 97.8 35.7% 1. For a reconciliation to
Slide 22: Q1 Total Revenues
Q1 Total Revenues $ in millions Q1 Total Revenue Bridge 460 • YoY total revenues increased 10.8% or $42 million in Q1 2018 440 $46.4 $0.4 $431.3 $7.4 420 • YoY equipment rental revenue increased 15.1% in Q1 2018 400 $389.4 $2.5 o Continued improvements in volume, price and mix 380 o Substantial YoY
Slide 23: Q1 Net Results and Adjusted EBITDA
Q1 Net Results and Adjusted EBITDA1 $ in millions Net Results Q1 Net Results Bridge 0 • Favorable interest expense due primarily to (5) costs incurred in Q1 2017 of $5.8 million $30.6 related to the redemption of Notes (10) $(10.1) (15) • Spin-off costs were $4.9 million for Q1, down (20) 35.5% or $
Slide 24: Fleet at Original Equipment Cost (OEC)
Fleet at Original Equipment Cost (OEC)1 $ in millions Fleet Expenditures at OEC • Average fleet at OEC for the period ended $250 2017 2018 $217 March 31, 2018: $198 $200 o Increased 3.3% YoY in Q1 2018 $150 $119 $126 o Average age of fleet was 49 months as of March 31, 2018 $100 $62 • $ Utilization
Slide 25: Q1 Debt and Liquidity
Q1 Debt and Liquidity Net Leverage1 Liquidity $ in millions, as of 03/31/18 ABL Facility $1,750.0 4.1x Outstanding (1,050.0) 3.3x Letters of Credit (22.8) Availability from ABL $677.2 Cash & Cash Equivalents 43.0 Total Liquidity $720.2 Q1 2017 Q1 2018 • Net leverage improved to ~3.3x1 Maturities $ i
Slide 26: 2018 Full Year Guidance
2018 Full Year Guidance Previous Current Adjusted EBITDA $620 to $655 million $630 to $660 million Net Fleet Capital Expenditures $525 to $575 million NYSE: HRI ©2018 Herc Rentals Inc. All Rights Reserved. 26
Slide 27: Initiatives to Drive Margin Growth
Initiatives to Drive Margin Growth Revenue Growth Initiatives Operating Initiatives ✓ Diversify fleet through ProSolutionsTM and ✓ Focus on safety and training initiatives to ProContractor continue to improve safety metrics ✓ Focus on premium brands ✓ Continue to implement the Herc Way operating mod
Slide 28: Appendix
Q4 and FY 2017 AppendixFinancials NYSE: HRI ©2018 Herc Rentals Inc. All Rights Reserved. 28
Slide 29: Glossary of Terms Commonly Used in the Industry
Glossary of Terms Commonly Used in the Industry 1 OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association, which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (wi
Slide 30: Reconciliation of Net Income to EBITDA & Adj. EBITDA
Reconciliation of Net Income to EBITDA & Adj. EBITDA EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP. Further, since all companies do not use identical calculations,
Slide 31: Reconciliation of Net Income to EBITDA, Adj. EBITDA, Margin and Flow-Through
Reconciliation of Net Income to EBITDA, Adj. EBITDA , Adj. EBITDA Margin and Flow-Through $ in millions Three Months Ended March 31, 2018 2017 Net income (loss) $ (10.1) $ (39.2) Income tax benefit (5.1) (15.1) Interest expense, net 32.0 37.8 Depreciation of revenue earning equipment 93.3 92.9 Non-r
Slide 32: Reconciliation of Net Leverage Ratio
Reconciliation of Net Leverage Ratio Net Leverage Ratio –The Company has defined its net leverage ratio as net debt, as calculated below, divided by adjusted EBITDA for the trailing twelve-month period. This measure should be considered supplemental to and not a substitute for financial information
Slide 33: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Free cash flow is not a recognized term under GAAP and should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP. Further, since all companies do not use identical calculations, our definition and presentation
Slide 34: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Three Months Ended March 31, $ in millions 2018 2017 Net cash provided by operating activities $ 129.2 $ 89.9 Revenue earning equipment expenditures (82.5) (56.2) Proceeds from disposal of revenue earning equipment 52.9 44.7 Net Fleet Capital Expenditures (29.6) (11.
Slide 35: Historic Fleet at OEC
Historic Fleet at OEC1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY 2016 FY 2017 $ in millions 2016 2016 2016 2016 2017 2017 2017 2017 2018 Beginning Balance – Fleet at OEC $3,384 $3,391 $3,537 $3,616 $3,384 $3,556 $3,556 $3,653 $3,752 $3,556 $3,651 Expenditures – Fleet at OEC $90 $220 $142 $43 $495 $119 $217 $126
Slide 36: Net Results Bridge
Net Results Bridge Three Months Ended March 31, Elements of Net Income (Loss) Bridge Spin- Currency Income Interest $ in millions 2018 2017 $ Change off All Other translation tax Expense costs Total revenues $ 431.3 $ 389.4 $ 41.9 $ 2.5 $ - $ - $ - $ 39.4 Direct operating 196.0 168.9 27.1 1.4 - - -
Slide 37: SG&A Excluding Spin-off Costs
SG&A Excluding Spin-off Costs Q1 Q2 Q3 Q4 FY Q1 $ in millions 2017 2017 2017 2017 2017 2018 SG&A $81.2 $78.8 $84.6 $76.0 $320.6 $74.5 Spin-off costs ($7.6) ($9.1) ($10.3) ($8.2) ($35.2) ($4.9) SG&A excluding Spin-off $73.6 $69.7 $74.3 $67.8 $285.4 $69.6 costs % of Total Revenue 18.9% 16.8% 16.2% 13.
Slide 38: Expand and Diversify Revenues: Driving $ Utilization
Expand and Diversify Revenues: Driving $ Utilization OEC as of 3/31/2017 1 OEC as of 3/31/2018 1 $3.56 billion $3.73 billion Lighting Lighting Compaction Other Compaction Other 1.8% 1.7% 2.6% 1.6% 2.6% 1.6% Air Compressors Aerial - Booms Air Compressors Aerial - Booms 3.0% 19.2% 2.6% 18.6% ProContra
Slide 39: Market Leader with Significant Scale and Broad Footprint
Market Leader with Significant Scale and Broad Footprint Approximately 275 locations, principally in North America1 Source: ARA HIS Global Insights February 2018 1. Locations as of March 31, 2018 NYSE: HRI 39
Slide 40: Herc Rentals
HercRentals NYSE: HRI