United Rentals, Inc. · NYSE:URI
United Rentals — FY2014 Earnings Presentation
75 slides from United Rentals's earnings presentation, January 2015
Slide 1: Executing for Growth and Returns
Executing for Growth and Returns Investor Presentation Fourth Quarter and Full Year 2014
Slide 2: Introductory Information
Introductory Information Unless otherwise specified, the information in this presentation, including forward looking statements related to our outlook, is as of our most recent earnings call held on January 22, 2015. We make no commitment to update any such information contained in this presentation
Slide 3: Table of Contents
Table of Contents Introduction 4 Market Overview 10 Margin Enhancement 17 Growth Through Customer Solutions 36 Fleet 42 Financial Overview 51 3
Slide 4: Industry Leader, Creating a New Standard for Operational Execution
is the Industry Leader, Creating a New Standard for Operational Execution to Drive Growth and Returns Through the Cycle 4
Slide 5: Equipment Rental Leader
Equipment Rental Leader #1 U.S. Market Share 881 locations across North America United Rentals Diversified mix 12% Other – Industrial/Non Construction – 51% 77% HERC 5% – Non-Residential Construction – 45% Sunbelt 6% – Residential – 4% Team of 12,500 employees Scale Creates Distinct Competit
Slide 6: Creating a New Industry Standard
Creating a New Industry Standard Our Vision Deploying the best people, equipment and solutions to enable our customers to safely build a better and Superior stronger future returns to our stockholders by achieving Driven By These Values strong and consistent Safety First financial Leading By Exa
Slide 7: Our Four Pillar Strategy for Success
Our Four Pillar Strategy for Success New Standard Expand Specialty Fill Growth Grow the Core for Operational Businesses Pipeline Execution National Account Customer Grow cross-sell and Invest in related Strategy Service model customer relevancy adjacencies, such as tanks or pumps Total Con
Slide 8: Entering Next Phase of Strategic and Financial Evolution
Entering Next Phase of Strategic and Financial Evolution Operation United 2 and Business Mix RSC Transformation Delivering on new standard of Operation operational excellence United Became the scale across a more industry leader; diversified customer achieve benefits base to drive higher, Busi
Slide 9: Safety as a Core Value
Safety as a Core Value Achieved a 0.95 Total Recordable Incident Rate (TRIR) for Building a 2014, which leads our industry and is in the top quartile of World-Class world-class companies for all industry sectors Safety Culture Recognized with “Lift and Access” 2014 Employer of the Year Award, po
Slide 10: Market Overview
Market Overview | o- ieo = : bee : a a b
Slide 11: North American Rental Industry Expected to Grow
North American Rental Industry Expected to Grow $Bn +9% 50 +9% +8% +8% +7% 40 -1% +7% +12% +9% +6% +7% +11% +9% 30 -23% -3% +6% +5% +0% +6% +19% +11% 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Broad-based Construction Activity Pic
Slide 12: Customer Confidence Index
Customer Confidence Index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Down Same Up Only 1% See Slower Growth in 2015 (1) Survey of Key accounts only conducted by 3rd party. Approximately 170 surveys conducted each month Survey results as of 12/31/14 12
Slide 13: Current Pipeline of Over $370B in Construction and Industrial Projects
Current Pipeline of Over $370B in Construction and Industrial Projects Engineering and Construction Dodge Projects* - $55B Projects** - $323B *Source: Dodge/McGraw Hill **Source: IIR-Industrial Information Resources 1) Projects with bid date in last 6 months or start date in 2015 (Bidding phase or l
Slide 14: Construction Growth Expected Across US in 2015
Construction Growth Expected Across US in 2015 CA, FL, OR, NV, AZ expected to see double digit growth Source: IHS 14
Slide 15: Why Rent – Total Cost of Ownership
Why Rent – Total Cost of Ownership Reasons to Rent Manage risk Save disposable costs Control expenses and inventory Cost control The right equipment for the job Equipment tracking 24/7 customer care No licenses Save on storage/warehousing Conserve capital Reduce downtime No n
Slide 16: Why Rent – Total Cost of Ownership
Why Rent – Total Cost of Ownership Needs Assessment Planning/ Fleet Availability Procurement Equipment Sourcing Fleet Deployment Eq. Logistics Operating/ Operator training Maintenance PM & Repair Regulatory Compliance ROI/Performance Analysis Reporting/ Wrench Time Enablement Opt
Slide 17: Margin Enhancement
Margin Enhancement Applying Powerful Tools to Deliver Further Margin Expansion
Slide 18: Positive Pricing Outlook
Positive Pricing Outlook Cumulative Purchase Price Inflation Relative to 2007* URI EBITDA Margins and Rental Rate Index 25% 50.0% 47.8% 105 46.3% 45.0% 42.6% 20% 100 40.0% 35.5% 35.0% 32.8% 31.5% 30.9% 95 15% 30.0% 26.7% 25.0% 90 10% 20.0% 85 15.0% 5% 10.0% 80 5.0% 0% 0.0% 75 2007 2008 2009 2010 201
Slide 19: Unique Operating Advantages Support Further Margin Enhancement
Unique Operating Advantages Support Further Margin Enhancement Best Cost Continuous Structure Improvement Lean Scale Initiatives/ Advantage Operational Excellence Business Metro Mix Model Emphasizing Higher Utilization Contribution Margin Potential 19
Slide 20: Lean Processes Drive Real Value
Lean Processes Drive Real Value Run Rate of $30 Million Towards $100 Million Goal LEAN Activity Productivity Gains Value Levers Kaizen Decreased Outside Improved processes in Hauling Costs Cost per Delivery yards, shops, dispatch Increased Dispatches and sourcing per Driver Credit Memos & Im
Slide 21: Lean’s Goal
Lean’s Goal To build a sustainable, scalable platform for profitable growth… Sustainable Scalable Profitable Growth Engage our people Our entire Build a foundation in systematically and organization is for long-term continuously focused on delivering success eliminating waste unmatched customer ever
Slide 22: Do It Right the First Time
Do It Right the First Time Kaizen PIT B-PRO Process Improvement Team Best Practice Roll-Out A cross-functional Field and Ops Field Ownership team (Field & Ops Excellence Leaders Excellence Leaders) 1 Day, 1 Process 2-week 1-week discovery implementation Implementation of pre-selected s
Slide 23: Telematics
Telematics Commitment to Customer Benefits Internal Benefits Telematics Targeting 87% Visibility into run- Performance OEC time & equipment monitoring & service utilization alerts Telematics Locating of off-rent Standard on 2015 Ability to locate equipment for pick- deliveries equipment
Slide 24: GPS Technology – Monitoring Equipment
GPS Technology – Monitoring Equipment Action options when viewing in map Customers Can Quickly Find Rental Assets 24
Slide 25: Stronger Market, Customer & Fleet Mix
Stronger Market, Customer & Fleet Mix Four Levers to Help Achieve Less Cyclical Mix Diversified End Market Exposure Larger, More Stable Customers Residential 4% Non- Unassigned Residential 45% Accounts 36% Industrial/ 64% 51% Key Accounts Non-Construction Increasing Specialty Exposure Diversified Ac
Slide 26: What is Specialty Rental?
What is Specialty Rental? Fleet and Customers That Require a Different Business Model to Serve Effectively Trench Safety Power & HVAC Pump Solutions Tool Solutions ROCA*=43% ROCA=30% ROCA=44% ROCA=35% Excavation support Complete solutions for Full range of pumps, Tool trailers stocked with s
Slide 27: Strategy by Business
Strategy by Business Trench Safety Power & HVAC Pump Solutions Tool Solutions Strategy Lead in product Expand footprint and Expand footprint. Utilize Gen Rent sales innovation. drive local market force to gain share in penetration. Diversify end markets Increase compliance and Industrial
Slide 28: Share of Business by Customer
Share of Business by Customer Specialty Has a Diversified Customer Base Trench Safety Power & HVAC 2% 2% 3% 4% 2% 4% 10% 10% 5% 14% 45% 48% 20% 33% 24% 8% Pump Solutions Tool Solutions 10% 15% 13% 5% 10% 4% 20% 5% 40% 30% 8% 60% 30% 60% 35% 55% 28
Slide 29: Why is Specialty Rental an Attractive Business?
Why is Specialty Rental an Attractive Business? High ROCA and longer asset lives on Specialty High Returns equipment Customer Specialty improves relationships with high-value Loyalty industrial and key accounts Competitive Offer customized solutions to customer verticals Advantage requiring de
Slide 30: Economics of Specialty: High Returns on Initial OEC Investment
Economics of Specialty: High Returns on Initial OEC Investment Multiple of Cash Flows Earned Over Asset Life / OEC 8.8x 4.6x 4.5x 3.9x Trench Tools Pumps Power & HVAC Asset Life: 10-15 yrs ~7 yrs 7-10 yrs ~10 yrs EBITDA/OEC: 62% 56% 48% 35% Specialty is Accretive to Overall ROIC 30
Slide 31: Cross Sell Delivers Customer Value
Cross Sell Delivers Customer Value Significant runway ahead to grow cross sell in our Specialty segments Cross Selling Specialty with our National Accounts 31
Slide 32: Trench Safety Continues Strong Growth
Trench Safety Continues Strong Growth Largest trench safety rental company in North America Trench is first on the job and supports cross-selling opportunities for all other URI categories 2 Trench branches opened in 2014 Trench Safety Annual Rental Revenue Growth 36% 31% 21% 18% FY 2011 FY 20
Slide 33: Power & HVAC Offers Attractive Growth Opportunity
Power & HVAC Offers Attractive Growth Opportunity High returns & longer asset life Blue Stream acquisition closed in May 2014 Business specializes in turn-key services and solutions 8 branches opened in 2014 Power & HVAC Annual Rental Revenue Growth 63% 62% 34% 26% FY 2011 FY 2012 FY 2013 FY
Slide 34: Pump Solutions Yields Strong Cross Sell Opportunities
Pump Solutions Yields Strong Cross Sell Opportunities Pump Solutions provides customers a full range of pumps, hose, and fittings for fluid transfer National Pump acquired in Q2 2014; integration complete Quickly capturing cross-sell opportunities for Pumps with our strong National Account netwo
Slide 35: Tool Solutions Improves Productivity
Tool Solutions Improves Productivity Provide Tool Management Solutions to Industrial Customers in Hoisting, Welding, Torqueing, Pipe Fitting, & Other Tools High margins and attractive return assets Drive customer entanglement with industrial and commercial accounts National Account represents
Slide 36: Growth Through Customer Solutions
Growth Through Customer Solutions Achieve Superior Performance by Leveraging Unique Advantages
Slide 37: Customer Solutions Drive Revenue Growth and Capital Efficiency
Customer Solutions Drive Revenue Growth and Capital Efficiency Tailored engagement strategies to meet the specific needs of different customers – from large enterprises Engagement to small, local businesses Strategy Focus dialogue on solutions to increase productive “wrench time” for customers’
Slide 38: Customer Engagement Strategy
Customer Engagement Strategy “Company-wide “Ease of Doing Solutions” “Reliable Partner” Business” Large Industrial Large Commercial Locals Enterprise Agreements Job Site Management Consumption “Wrench Time” Availability Management 24/7 After Hours Reliability “Wrench Time” Breadth & De
Slide 39: Helping Customers Manage Fleet
Helping Customers Manage Fleet Embeds United as Rental Company of Choice Equipment Utilization 43.0% Software eliminates waste with enhanced visibility/accountability 20.5% – Increase equipment utilization – Less duplication – Conserve capital through rental 6.0% – Eliminate equipment maintenance
Slide 40: Attractive Added Value for Customers
Attractive Added Value for Customers A Meaningful Competitive Edge $206.9 409 $146.1 194 84 60 Q4 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Installs began late Q2 with Roll-Out of Revenue Grew 41.6% YOY Total Control® Customers Embrace Total Control® $ Millions 40
Slide 41: “On Sites” = Up Time
“On Sites” = Up Time “Inside the Fence” Sites Increased Utilization – Leniency for Shared Equipment – Lower Equipment Cost On-Time Delivery “Guaranteed” On Site Mechanic = No Downtime Reduction of Traffic = Safety Better meeting customer’s equipment needs High Volume, High Utilization, Lower
Slide 42: Fleet
Fleet ) United Rentals:
Slide 43: Fleet Mix
Fleet Mix Customers Know We Have the Fleet They Need Trucks Welders 1% Trench 1% Power 5% 4% Other 10% $8.4 Billion of Fleet Light 2% Aerial 39% Comprised of Forks – Rough <1% Approximately 16% 430,000 Units Forks – Reach 2% 3% Forks – Industrial 13% 3% Compaction Earth Moving Compressors Serves Div
Slide 44: 3,300 Equipment Classes with Original Cost of $8.4B
3,300 Equipment Classes with Original Cost of $8.4B Booms and Earth Moving Forklifts Trench and Lifts Other Total (Average) % of Q4 2014 35.4% 12.3% 17.1% 35.1% Rental Revenue Time 76.0% 64.2% 81.1% 58.4% 70.6% Utilization* Dollar 44.7% 46.3% 42.8% 63.8% 49.8% Utilization** Average Fleet Age*** 54.2
Slide 45: Managing Fleet with a Life Cycle Approach
Managing Fleet with a Life Cycle Approach Selling Oldest Fleet Rental Capex and Used Sales ($MM)* Age of Used Sales in Months 1,580 1,701 85 88 89 1,390 1,321 83 83 72 673 ($269) ($363) ($463) ($490) ($544) 2010 2011 2012 2013 Q4 2013 Q4 2014 2010 2011 2012 2013 2014 YTD Age Composition Time Utiliza
Slide 46: Rent vs. Buy Impact Of Tier IV
Rent vs. Buy Impact Of Tier IV 30000 +14.8% 25000 +25.2% 20000 +9.7% 48 months term 10% finance charge 15000 50% time utilization 3% rate increase yearly 10000 for 6 years for future calculation 5000 2% inflation on new equipment price 0 Today Tier IV Future (6 years) Rent Buy Compelling E
Slide 47: Attractive Asset Economics
Attractive Asset Economics Sample Asset Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Purchase Price (6,500) Rental Revenue 5,187 5,503 5,668 5,838 6,013 Ancillary Revenue 447 474 488 503 518 Operational Costs (2,061) (2,130) (2,184) (2,240) (2,298) Selling Price $3,233 Total Cash Flow (6,500) 2,709 3,1
Slide 48: Total Cost of Ownership
Total Cost of Ownership $ Thousands Brand A Brand B Brand C Acquisition cost 93 95 89 Maintenance cost over life (parts) 7.5 9 8 Maintenance cost 9 9 10 over life (labor) Resale value (50) (53) (52) after 7 years (retail) Total Cost of 59.5 60 55 Ownership Gap vs. Best of Best +8% +9% Brand C Has a
Slide 49: Rental Useful Life Evaluation
Rental Useful Life Evaluation Rental Revenue % of Average R&M Cost % of Replacement Cost (est) 120% 2.50% 100% 2.00% 80% 1.50% 60% 1.00% 40% 20% 0.50% 0% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Resale Value % of Replacement Cost 140% Rental useful life evaluated to set 120% opt
Slide 50: Maintenance and Growth CapEx
Maintenance and Growth CapEx 2011 2012 Combined 2015 Combined 2013 2014 Pro- Forecast Pro-forma forma OEC Sold** $752 $933 $941 $1,016 $1,000 Inflation Factor* 13.8% 13.8% 14.2% 14% 14% Inflation Uplift 104 129 133 142 140 Total Maintenance $856 $1,062 $1,074 $1,158 $1,140 CapEx Growth CapEx $534 $4
Slide 51: Financial Overview
Financial Overview Delivering Strong Sustainable Results
Slide 52: Q4 2014 Results
Q4 2014 Results Rates +4.1% 70.6% Time Utilization +130bps $775M or 49.6% Adjusted EBITDA +$124M or 90 bps Adjusted EBITDA 54.9% Flow-Through LTM ROIC 8.8%, increase of 1.3 pp Adjusted EBITDA of 49.6%, a Quarterly Record 52
Slide 53: 2015 Outlook
2015 Outlook Total Revenue $6.0B to $6.2B Adjusted EBITDA $2.95B to $3.05B Increase in Rental Rates (year- Approximately 3.5% over-year) Time Utilization Approximately 69% Net Rental Capital Expenditures Approximately $1.2B, after gross after Gross Purchases purchases of approximately $1.7
Slide 54: Our Principles: Maximizing Financial Flexibility
Our Principles: Maximizing Financial Flexibility Valuable asset base supports reasonable amount of debt – High operating margins generate significant cash flow/dollar of revenue – Asset base can be monetized to support cash flow requirements Debt maturities timed to avoid excessive refinancing n
Slide 55: Ample Liquidity and No Significant Near-Term Maturities
Ample Liquidity and No Significant Near-Term Maturities $ Millions Senior Note callable $750 $2,300 7.375%in February 2016 Senior Approximately $1B in Unsecured ABL capacity and Notes cash creating ample liquidity to grow the $946 Senior Subordinated business ABL Unused Note callable in September 20
Slide 56: Expect to Generate about $2.5B in Free Cash Flow
Expect to Generate about $2.5B in Free Cash Flow* $ Millions $1,000+ $800+ ̴ $725 - $775 $574 $421 2013 2014 2015 2016 2017 Actual Forecast End Market Strength and Fleet Discipline Contributing to Powerful FCF *Excludes merger and restructuring expenses. Merger and restructuring expenses were $38M i
Slide 57: Assumptions Driving FCF Outlook
Assumptions Driving FCF Outlook Gross rental CapEx spend of about $1.7B; net rental CapEx spend of $1.2B for the next 3 years About 3.5% rental rate growth in 2015 and 3% thereafter Cash Taxes – Remaining Federal NOLs utilized in 2015 – About $125M cash taxes in 2015 – About $475M cash taxes i
Slide 58: Capital Allocation Strategy New $750M Share Repurchase Program
Capital Allocation Strategy New $750M Share Repurchase Program Invest in Growth Return Cash Managing to Leverage Organic M&A Stockholders Target leverage Continued organic Balanced strategy Completed $500M range over the cycle investments to creates flexibility to share repurchase of 2.5x–3.
Slide 59: Leverage Ratio Continues Decline
Leverage Ratio Continues Decline1 2 4.6 3 3.6 “Dry Powder” 3.0 2.9 2.6 2011 2012 2013 2014 2015 2016 2017 Actual Forecast 2.5x – 3.5x Target Leverage Range of the Cycle Lower End of Target Range in 2015 (1) Leverage Ratio calculated as total debt and QUIPs, net of cash, excluding original issuance d
Slide 60: Building a Bridge to Higher Returns
Building a Bridge to Higher Returns* 14% (2.4%) 0.3% 2.1% 10% 12% 0.3% Internal 2.3% 11.0% Hurdle Rate 10% December 2014 8.4% WACC Range 8.8% 8% 6% 4% 2% 0% 5 Sep-14 Rate 1 Fleet Lean 4 Fleet and Cost Business Approx 2017 2 Growth and Inflation 6 Mix/Other Utilization 3 *Illustrative – After tax and
Slide 61: Consistent Free Cash Flow Generation Over Cycle
Consistent Free Cash Flow Generation Over Cycle Cash Flow 2008–2014 ($M) 2008 2009 20101 2011 20122 20133 20144 EBITDA ($117) $589 $649 $879 $1,772 $2,181 $2,599 Cash Interest (218) (34) (229) (203) (371) (461) (457) Cash Taxes (46) (3) 49 (24) (40) (48) (100) Gain on Sale of Equipment (69) (6) (41)
Slide 62: Historical Capital Allocation
Historical Capital Allocation 2010–2014 Priorities Share Organic Investment Repurchases 11% Debt Issuance 28% Cash Acquisitions 31% Manage Leverage Targets (2.5x–3.5x) Cash from 72% CapEx 58% Operations Strategic M&A Return to Net Sources Net Uses Stockholders of Capital of Capital 100% Equals $7.2b
Slide 63: Appendix
Appendix 63
Slide 64: Timeline
Timeline Forbes Names One Expands New Strategy Industrial Power of “400 Best Big Refocuses Company Companies” & HVAC on Core Equipment Footprint with Rental Business Acquisition and Cold-starts Branch Network Company’s First Earns National Grows to 500 Centralized Customer Recognitions Acquires Loca
Slide 65: Performance Goals for Senior Executives Align with Creating Stockholder Value
Performance Goals for Senior Executives Align with Creating Stockholder Value Long Term Incentive Plan Measures: Short Term Incentive Plan Measures: 2014 Performance Revenue Growth EBITDA Dollar Growth Measures Focus on Economic Profit Profitable Growth Economic Profit Improvement Improvemen
Slide 66: Adjusted Earnings Per Share GAAP Reconciliation
Adjusted Earnings Per Share GAAP Reconciliation We define “earnings per share – adjusted” as the sum of earnings per share – GAAP, as reported plus the impact of the following special items: merger related costs, merger related intangible asset amortization, impact on rental depreciation related to
Slide 67: EBITDA and Adjusted EBITDA GAAP Reconciliation
EBITDA and Adjusted EBITDA GAAP Reconciliation EBITDA represents the sum of net income, provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation of rental equipment, and non-rental depreciation and amortization. Adjusted EBITDA represents
Slide 68: Reconciliation of Net Cash Provided by Operating Activities to EBITDA
Reconciliation of Net Cash Provided by Operating Activities to EBITDA and Adjusted EBITDA Three Months Ended Year Ended December 31, December 31, 2014 2013 2014 2013 Net cash provided by operating activities $ 335 $ 436 $ 1,801 $ 1,551 Adjustments for items included in net cash provided by operating
Slide 69: Free Cash Flow GAAP Reconciliation
Free Cash Flow GAAP Reconciliation We define free cash flow as (i) net cash provided by operating activities less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment. Management believes that free cash flow provides useful additional in
Slide 70: ARA Metrics
ARA Metrics In September 2011, the American Rental Association (ARA) released Rental Market Metrics whitepaper – Standardization of metrics provides consistent way for calculating and reporting critical performance metrics – Publication provides definitions and calculations for original equipment
Slide 71: Corporate Governance
Corporate Governance Focus on Best Practices Amended Company charter to eliminate Board classes Roles of Chairman and CEO are separated and the Chairman is an independent director 12 of 13 directors are independent Board and each committee have express authority to retain outside advisors
Slide 72: Convertible Senior Notes
Convertible Senior Notes How the Convertible Works In November 2009, URI issued $172.5M of convertible senior notes due 2015. Notes carry a 4.0% coupon and are convertible at an initial conversion price of $11.11 per share – Net share settlement election means par amount paid in cash, in-the-money
Slide 73: Mechanics of Convert and Hedge
Mechanics of Convert and Hedge Share Delivery at Conversion of $1M Assumed Stock Price United Rentals Hedge $10 Counterparties 0 Shares Net 0 0 Shares Investors New Shares Issued United Rentals Hedge $75 Counterparties 5K Shares Net 71K 77K Shares Investors New Shares Issued United Rentals Hedge $15
Slide 74: Glossary of Terms
Glossary of Terms 1. Capex: Capital expenditures represent the amount reported in our statements of cash flows for the purchase of rental and non-rental equipment. 2. Dollar Utilization: Annualized rental revenue, excluding re-rent and ancillary revenue, divided by the average original equipment cos
Slide 75: Glossary of Terms
Glossary of Terms 5. Fleet Age: The OEC weighted age of the entire fleet, excluding the benefit of refurbishments. 6. OEC: Original Equipment Cost; the cost of an asset at the time it was originally purchased. 7. Rental Rate: The percentage change in the rate/price that is charged for equipment on r