Hertz Global Holdings, Inc · NASDAQ:HTZ
Hertz Global — FY2013 Earnings Presentation
37 slides from Hertz Global's earnings presentation, Mar 20, 2014
Slide 1: Q4 & FY 2013 Earnings Call
March 18, 2014 10:00 am ET Dial in: (800) 230-1074 U.S. (612) 332-0342 International Passcode: 321999 Replay available until April 1st, 2014: (800) 475-6701 U.S. (320) 365-3844 International passcode: 321999 Q4 & FY 2013 EARNINGS CALL
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain statements made within this presentation contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent uncertaintie
Slide 3: Non-GAAP Measures
Non-GAAP Measures The following non-GAAP measures will be used in the presentation: Definitions and reconciliations of these non-GAAP measures are provided at the end of the presentation. 3 EBITDA Corporate EBITDA Adjusted Pre-tax Income Adjusted Net Income Adjusted Diluted Earnings Per Share (Adjus
Slide 4: Today's Agenda
2013 Overview Mark Frissora, Chairman and CEO Q4:13 Financial Performance Tom Kennedy, CFO 2014 Outlook Mark Frissora, Chairman and CEO HERC Separation Question & Answer Session Today’s Agenda 4
Slide 5: 2013 Highlights: Record $10.8B Consolidated Revenue Drives Margin Expansion
U.S. RAC total revenue +29.2% YoY; adj pre-tax income +25.0% YoY — Continued double-digit off-airport revenue growth International RAC total revenue +5.0% YoY; adj pre-tax income +52.0% YoY New RAC brand launches US Corporate EU Leisure EU & US Leisure Year-one DTG synergies ahead of schedule Revenu
Slide 6: Record Consolidated Revenue & Adj. Pre-Tax Income Performance
RECORD CONSOLIDATED REVENUE & ADJ. PRE-TAX INCOME 6 PERFORMANCE 2013 Revenue Adj Pre-tax Corp EBITDA EPS 2013 $10,772 $1,153 $2,044 $1.63 margin 10.7% 19.0% 2012* $9,025 $892 $1,626 $1.31 margin 9.9% 18.0% CHANGE 19% 29% 26% 24% * 2012 numbers revised per 2013 10-K
Slide 7: Earnings Variance 2013: Excess US RAC Fleet
7 FY:13 worldwide RAC total RPD up 0.6% vs forecast of up 1% 1% change in worldwide RPD = $67M impact to 2013 adj. pre-tax income forecast Q4:13 U.S. RAC total RPD down 1.4% vs. Q4:12 Supply / demand imbalance Shifted fleet toward higher-demand, lower-priced segments Hertz Classic brand airport tota
Slide 8: Free Cash Flow 2013
8 FREE CASH FLOW 2013 Strong cash generation: higher earnings and better working capital offset higher investment spend Cash outflow primarily for: 20% stake in China Auto Rental, domestic market share leader Initiated share buyback program; Q4:13 repurchased $87.5 million Repurchase of $390.1 milli
Slide 9: Q4:13 Financial Results and Balance Sheet Review
Tom Kennedy Chief Financial Officer Q4:13 FINANCIAL RESULTS BALANCE SHEET REVIEW 9
Slide 10: US RAC Revenue Q4:13 Key Drivers
RPD** -1.4% -2.8% Trans Days +17.8% +12.6% Volume Incremental acquisition volume Opened 75 net new off-airport locations Insurance replacement +8% YoY Government shutdown and continued sequester Price Hertz Classic airport brand +0.6% YoY Accelerated growth in lower priced segments Supply/demand imb
Slide 11: US RAC Adj. Pre-Tax Margin Q4:13
Higher Revenue Offset by Surplus Fleet Costs Lower utilization Increased labor and logistics costs from moving fleet to higher demand regions Higher maintenance costs from extended holding periods Larger number of damage claims associated with accelerated growth in leisure segment US RAC ADJ. PRE-TA
Slide 12: International RAC Q4:13
INTERNATIONAL1 EUROPE REVENUE Hertz Classic airport RPD +1.6% YoY Ancillary revenue higher YoY Volume +8.4% YoY Brand expansion: Thrifty, Firefly, CCL, ACE Opened 17 DTG licensee locations in Switzerland and France EUROPE PROFIT Adjusted pre-tax margin +570 bps Revenue per employee +7% YoY Fleet eff
Slide 13: Worldwide Equipment Rental Q4:13 Revenue
* Excludes FX impact ** Pricing and volume data exclude Cinelease due to the nature of that business 13 Fourth Quarter Revenue WW EQUIPMENT RENTAL Q4:13 North America 93% of Worldwide Revenue Tough YoY comp due to 2012 Hurricanes Sandy and Isaac Impacted volume and mix of equipment on rent YoY 24% g
Slide 14: Equipment Rental Q4:13
14 EQUIPMENT RENTAL Q4:13 Carrying 9% more fleet due to Tier-4 emission standards pre-buy * Includes non-cash purchases and sales
Slide 15: Worldwide Equipment Rental FY:13 Revenue
15 2013 Revenue WW EQUIPMENT RENTAL FY:13 * Excludes FX impact ** Pricing and volume data exclude Cinelease due to the nature of that business Worldwide HERC Revenue driven by N.A. expansion in industrial, oil & gas, specialty markets and recovering construction activity Corporate EBITDA +16%; Margi
Slide 16: Net Debt & Liquidity Q4:13
Corporate Liquidity as of 12/31/13 (Millions) ABL Availability: $1,157 Unrestricted Cash: 423 Corporate Liquidity: $1,580 Total net corporate debt $6.0 billion Total net fleet debt $9.0 billion Net corporate debt / corporate EBITDA ratio 2.9x Financing Activity Liquidity (Millions) Amount Purpose US
Slide 17: Outlook
OUTLOOK 17
Slide 18: Financial Guidance 2014
Guidance % mid-range Δ YoY Revenue $11.40 to $11.70B +7.2% Corporate EBITDA $2.06 to $2.42B +9.6% Adj. Pre-Tax Income $1.21 to $1.43B +14.5% Adj. Net Income $785 to $925M +14.1% Adjusted Diluted EPS Share count FY:13 = 465 mil $1.70 to $2.00 +13.5% Free Cash Flow $550 to $650M +33.7% Guidance based
Slide 19: Financial Sensitivity 2014
FINANCIAL SENSITIVITY 2014 U.S. RAC INT’L RAC HERC + 1% Transaction Days / Volume $20 $8 $4 + 1% Total RPD / Pricing $51 $19 $13 + 1% Direct OpEx / SG&A $37 $17 $9 + 1 PP Fleet utilization $27 $8 $7 + 1% Net Depreciation Expense $13 $5 $3 + 1% Residual Values1 $83 ($ in millions) Note: The sensitivi
Slide 20: Guidance & Assumptions 2014
Total Revenue: $11.40 - $11.70B U.S. RAC revenue growth 6 - 8% Total Hertz Classic airport RPD +1% YoY 200 net, new OAP locations Expanded into primary position at a large national insurance agency Int’l RAC revenue growth 5 - 7% Donlen revenue growth 8 – 9% WW HERC rental revenue growth 7 – 8% Incr
Slide 21: Fleet Assumptions 2014
Lower Higher Shorter Longer More program More risk Auction Wholesale More premium More economy 21 FLEET ASSUMPTIONS 2014 KEY DRIVERS OF U.S. RAC DEPRECIATION 1% change to residuals = $83M adjusted pre-tax income Q1:14E monthly depreciation ~$275-$280 per unit Fleet efficiency estimated at ~80%, impr
Slide 22: Trends Q1:14
22 TRENDS Q1:14 Consolidated Q1:14E earnings $0.07-$0.09 p/s 2014 ~2.5% 2013 +30% Impact of US RAC Excess Fleet expected to be ~$0.07-$0.08 p/s 2014 ~8% 2013 +5%
Slide 23: Priorities 2014
Continued double-digit revenue growth Drive RAC fleet efficiency Ongoing cost productivity programs Separation of HERC business Balanced, disciplined capital allocation 23 PRIORITIES 2014
Slide 24: Consolidated Hertz Strategic Transformation
Consolidated Hertz Strategic Transformation 24 Revenue Adjusted Pre-Tax Margin Corp. EBITDA Margin 2006 2013 $8,058M $10,772M 6.0% 10.7% 17.1% 18.9% +34% +470 bps +180bps 2006 2013 Financial Maintenance Convenants Leverage and Interest Coverage None Permanent Financing for Europe No Monoline “Wrappe
Slide 25: Equipment Rental Strategic Transformation
EQUIPMENT RENTAL Strategic Transformation 25 Brand Expansion Market Penetration Technology Leader More diversified product offering Asset-light geographic growth An asset-light growth opportunity N.A. Rev. Mix FY:13 FY:06 Construction 38% 52% Industrial 26% 18% Fragmented 36% 30% Franchise & JV expa
Slide 26: Equipment Rental Financial Transformation
26 2006 2010 2013 ‘13 vs ‘10 Revenue $1,672M $1,070M $1,538M +44% Corp. EBITDA $759M $401M $667M +66% Margin 45.4% 37.5% 43.3% +580bps EQUIPMENT RENTAL Financial Transformation
Slide 27: Rental Car Strategic Transformation
Brand Expansion Market Penetration Technology Leader More diversified product offering Adjacent markets & geographies An asset-light growth opportunity 27 China: 300 locations co-branded with share leader U.S.RAC Off Airport 10 patents registered & 16 pending RENTAL CAR Strategic Transformation
Slide 28: Rental Car Financial Transformation
28 2006 2013 Revenue $6,274M $8,707M +39% Adj. pre-tax margin 7.5% 14.1% +660 bps RENTAL CAR Financial Transformation
Slide 29: Summary: Transformation
SUMMARY Transformation Repositioned Rental Car business Expanded into 4 brands from 1 brand, capturing synergies & new users Added Donlen leasing products and services for stability Penetrated insurance replacement market for long-term, steady growth Took leadership position in technology for greate
Slide 30: Unlocking Shareholder Value by Creating Two Strong Standalone Companies
Tax-efficient separation of “New” Equipment Rental Business (HERC) “New” HERC becomes a publicly traded company Target net leverage ratio of 3.5x-4.0x at separation ~$2.5B one-time net cash distribution to Hertz RAC post spin Standalone business allows for re-evaluation of capital allocation strateg
Slide 31: Hertz Rental Car Post Separation: Financial Overview and Benefits
Financial Overview (2013) Key Segments / End Markets RAC Segment financials plus all corporate overhead and other reconciling items. Adjusted pre-tax income based on existing HTZ capital structure and does not adjust for any debt paydown post separation. $9.24B $1.38B 15% $861M 9% Hertz Rental Car “
Slide 32: Hertz Rental Car Post-Separation Financial Summary
32 Margin Pro Forma Adj. Pre-Tax Income (1) Revenue Note: Hertz Rental Car Post-Separation financials represent RAC Segment financials plus all HGH reconciling items and unallocated corporate allocations. Pro forma Adj. Pre-Tax income based on existing HTZ capital structure and does not adjust for a
Slide 33: Combined Company Stock Trading Below Historic P/E Multiple
Price/NTM EPS Source: Company filings and FactSet as of March 7, 2014 1 Represents period from June 30, 2003-June 30, 2008 STATE Pre-Crisis Avg.1 Current Current as % Pre-Crisis Avg. Online Travel Agents 19.1x 28.8x 151% Equipment Rental 11.9x 17.9x 150% Leisure 15.4x 16.4x 106% Hotels 23.5x 28.1x 1
Slide 34: Potential for Increased Valuation: Multiple Expansion Drivers
DRIVERS Potential for Increased Valuation even if both businesses only trade in line with peers 34 Value MULTIPLE EXPANSION DRIVERS Consolidated Hertz NEW Standalone RENTAL CAR Pure play ü+ Focused investor base ü+ Cash flow ü ü+ Profit Stability ü+ ROIC ü ü+ Shareholder returns ü ü+
Slide 35: New HERC Financial Overview and Separation Benefits
$1.54B $667M 43% $292M 19% Construction Revenue $0.6B Fragmented Revenue $0.5B Industrial Revenue $0.4B 2013 Revenue Corporate EBITDA (% Margin) Adj. Pre-Tax Income (% Margin) HERC Segment financials as reported. Not pro forma for incremental allocations or incremental standalone costs. (1) BENEFITS
Slide 36: Capital Allocation
Target Net Debt / EBITDA ratio of 3.5x – 4.0x at separation Will make one-time cash distribution of ~$2.5B to Hertz (RAC) at spin Earnings and FCF generation should allow for ongoing deleveraging Balanced Capital Focus: debt reduction; fleet investment Prudent capital investments to promote steady b
Slide 37: Summary: Transaction Unlocks Significant Value for Shareholders
Tax-free separation RAC Focus – Primarily cash generation and growth HERC Focus – Growth and cost reduction through cycle Distinct strategies and investment profiles Tailored capital structures Board replaces prior buyback authorization with new $1B plan (RAC) May increase by up to 20% of outstandin