Herc Holdings Inc. · NYSE:HRI
Herc — Longbow Research 9th Annual Industrial Manufacturing & Technology Conference (August 2016)
45 slides from Herc's conference presentation, Aug 30, 2016
Slide 1: Longbow Research 9th Annual Industrial Manufacturing & Technology Conference
Longbow Research 9th Annual Industrial Manufacturing & Technology Conference New York City – August 30, 2016
Slide 2: Safe Harbor Statements
Safe Harbor Statements Basis of Presentation The financial information included in this presentation is based upon the condensed consolidated and combined financial statements of the Company which are presented on a basis of accounting that reflects a change in reporting entity and have been adjuste
Slide 3: Safe Harbor Statements - Continued
Safe Harbor Statements - Continued • Risks related to the securities market and ownership of our stock, including that an active trading market for our common stock may not be sustained and the market price of our common stock may fluctuate significantly; our accounting and other management systems
Slide 4: Reconciliation to GAAP
Reconciliation to GAAP In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this release which is not calculated according to GAAP (“non-GAAP”), such as Adjusted EBITDA and certain reven
Slide 5: We aspire to be the supplier, employer and investment of choice in our industry
We aspire to be the supplier, employer and investment of choice in our industry. Spin Accomplished • Herc Rentals separated from Hertz’s rental car business on June 30, 2016 in a tax-free transaction and began trading on the NYSE on July 1, 2016 • As part of the transaction, Herc Rentals issued $1.2
Slide 6: Unique Opportunity to Build Value
Unique Opportunity to Build Value Attractive long term industry fundamentals Significant opportunity for operational and financial improvement Commitment to disciplined capital management Strong asset base including $3.5 billion of OEC Strategically positioned to generate above market growth Strong
Slide 7: Reinvigorated Organization With a Customer-Centric Culture
Reinvigorated Organization With a Customer-Centric Culture and Increased Focus on Operating Efficiency and Safety Our Vision To ensure that end users of our equipment and services achieve optimal performance safely, efficiently and effectively. Our Mission Our Values We do what’s right. We’re in thi
Slide 8: Highly Experienced Leadership Team
Carlo Cavecchi Paul Dickard Elizabeth Higashi Charles Miller Nancy Merola Jason Oosterbeek VP, ProSolutions VP, Communications VP, Investor Relations VP, Operations VP, Chief Accounting Officer VP, Pricing & Sales Strategy 30+ years 25 years 30+ years 30+ years 30+ years 15+ years Highly Experienced
Slide 9: Company Overview and Snapshot
One of the leading North American equipment rental companies Approximately 280 locations globally 4% market share in a highly fragmented market $1.6 billion in total revenue 1 (2015) $3.5 billion in fleet (OEC) ~ 4,600+ employees Local Customer 52% National Account 48% Company Overview C
Slide 10: Market Leader with Significant Scale and Broad Footprint in North America
Market Leader with Significant Scale and Broad Footprint in North America Strong presence in growing regions 1 IHS Global Insight (July 2016) Locations are as of June 30, 2016. International operations are located in the United Kingdom, China, Saudi Arabia and Qatar. >6% 4-6% 2-4% 0-2% <0% Industry
Slide 11: Large, Diversified Rental Fleet
Large, Diversified Rental Fleet $3.5 billion total fleet efficiently deployed with focus on utilization, margins and returns Note: Dollars in millions. 1 Average fleet original equipment cost (OEC) as of December 31, 2015. 2 45% of equipment over seven years old has been refurbished or re-manufactur
Slide 12: Quick Actions Result in Accelerating Profitability
Quick Actions Result in Accelerating Profitability Rapid action to strengthen organization, fleet, and sales effectiveness accelerated quarterly growth Focused on premium brands Reduced supplier count by 40% Created ProContractor Tools program Expanded ProSolutions business Fleet Optimizatio
Slide 13: Addressing Weakness in Oil & Gas Markets
(20%) (10%) 0% 10% 20% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Upstream Oil & Gas Locations Key Markets (Non-Upstream Oil & Gas Locations) Upstream Oil & Gas Branch Markets 16% Key Markets 84% Addressing Weakness in Oil & Gas Markets Quick actions taken to reduce fleet
Slide 14: Equipment Rental Industry
Equipment Rental Industry CONFIDENTIAL 14
Slide 15: Strong Secular Equipment Rental Industry Growth
Strong Secular Equipment Rental Industry Growth Provides Unique Opportunity Strong market growth and further penetration of rental solutions expected to continue 1 IHS Global Insight, excludes Party & Event data. 2 Source: As reported by RER 100: Top Rental Equipment Companies of 2015 ranked by reve
Slide 16: Construction and Industrial Outlook
Construction and Industrial Outlook Construction and industrial markets expected to grow Non-Residential Starts 1 Construction Put in Place 2 Architecture Billings Index 3 Construction Employment 4 Industrial Spending 5 $302.6 $308.0 2015 2016E J a n -9 6 J a n -0 0 J a n -0 4 J a n -0 8 J a n -1 2
Slide 17: Rental Rate Environment
Rental Rate Environment Herc Rentals outperforms peers in 2016 pricing to date Key Drivers for Herc Rentals Pricing and Yield Opportunity * Year-over-year for the comparable period, excluding operations in France and Spain. Favorable customer and fleet mix shift will drive higher returns with existi
Slide 18: Long-Tenured National Account Portfolio Provides Stable Base of Business
Long-Tenured National Account Portfolio Provides Stable Base of Business National Accounts by Tenure (Years) Over 1,800 National Accounts • Dedicated national account managers • Stable revenue base • Longer transactions 78% of National Accounts revenue are from accounts open 20+ years 3% 3% 5% 11% 7
Slide 19: The Path Forward
The Path Forward o Broaden customer base o Expand products and services o Increase density in large urban markets o Grow branch revenues through price management and ancillary services Improve Operating Efficiencies Enhance Customer Experience Expand and Diversify Revenues o Improve vendor managemen
Slide 20: Broaden North America Customer Base
Salesforce.com rollout Utilize price guidance tool Increase “Boots on the ground” Focus on ProSolutions and ProContractor Tools Align sales initiatives with fleet strategy Focus on higher return customer mix Target new account generation Further penetrate local customer base Optimize territories Ali
Slide 21: Improve North America Vendor Management and Fleet Availability
Q2 2015 Q1 2016 Improve North America Vendor Management and Fleet Availability Driving operational gains through buying efficiency and increased availability Consolidate Brands and OEMs Substantially Increased Fleet Available to Rent 40% # of Suppliers Lower vendor count = better leverage Simplifica
Slide 22: ProSolutions and ProContractor Tools
ProSolutions and ProContractor Tools ~25-30% Core ~70-75% Expand Products and Services to Drive Higher Revenue and Margin 20151 ProSolutions and ProContractor Tools 15% Core 85% Target Focused on expanding ProSolutions and ProContractor Tools in N.A. 1 N.A. OEC fleet data as of December 31, 2015. 2
Slide 23: Increase Density in Large Urban Markets
Market Size HERC Share HERC Locations Southern California $2.2 bn 3% 9 Atlanta $815 mm 4% 8 MI FL DE MD KY ME NY PA VT NH MA RI CT VA WV OH IN IL NCTN SC AL MS WI NJ GA NM TX OK KS NE SD NDMT WY CO UT ID AZ NV WA CA OR AR LA MO IA MN DE NJ MA BC AB SK MB ON QC Increase Density in Large Urban Markets
Slide 24: Drive Operating Performance through Higher Margin Mix and Volume
Drive Operating Performance through Higher Margin Mix and Volume 30% 40% 50% Small Medium Large Major Competitor Revenue / Branch <$2.5 Million $2.5 - $5.0 Million $5.0 - $10.0 Million Major Competitor’s Total Branches # of Branches3 81 109 80 897 Significant operating leverage in current N.A. branc
Slide 25: Supplier of Choice: Efficient, Effective and Safe
Supplier of Choice: Efficient, Effective and Safe Best in class brands combined with a comprehensive suite of services help customers work more efficiently, effectively and safely Consultive solutions Subject-matter experts Delivering Premium Products Delivering Solutions-Based Products and Services
Slide 26: Q2 2016 and YTD Highlights
Q2 2016 and YTD Highlights Continued to right size fleet in upstream oil and gas markets and reduced non- premium brands Made strategic changes to deemphasize low margin new equipment sales, including eliminating certain equipment distributorships Opened four North America locations to support
Slide 27: Financial Overview
Financial Overview 27
Slide 28: Q2 2016 Results
Q2 2016 Results 28 Equipment Rental Revenue • Reported $327.9 million in the quarter • Excluding operations in France & Spain and impact of foreign currency translation: o + 0.1% overall o + 8.1% in key markets1, which represented 84% of total Pricing • +0.5% YoY $ Utilization • 33.5%, a decrease of
Slide 29: Q2 and YTD 2016 GAAP Summary
Q2 and YTD 2016 GAAP Summary 29NYSE: HRI $ in millions, except EPS Three months ended June 30, Six months ended June 30, 2016 2015 2016 2015 Rental revenue $ 327.9 $ 347.7 $ 635.7 $ 679.3 Total revenue 380.4 422.7 746.0 824.0 Adjusted EBITDA1 130.6 147.3 238.4 276.7 Net income (loss) (8.0) 10.6 (9.5
Slide 30: Q2 and YTD 2016 Equipment Rental Revenues
1 For a reconciliation to the closest GAAP equivalent, see Appendix beginning on slide 38. Q2 and YTD 2016 Equipment Rental Revenues (excluding France and Spain and Foreign Currency Translation)1 30 Q2 Equipment Rental Revenue $ in millions $643.8 $641.6 0 100 200 300 400 500 600 700 800 900 2015 20
Slide 31: Q2 and YTD 2016 Total Revenues
Q2 and YTD 2016 Total Revenues (excluding France and Spain and Foreign Currency Translation)1 31NYSE: HRI YTD rental revenues were about flat Used equipment sales declined YoY because the amount of fleet ready for disposal was lower New equipment sales were also lower due to focus on higher ma
Slide 32: Q2 and YTD 2016 Adjusted EBITDA
Q2 and YTD 2016 Adjusted EBITDA (excluding France and Spain and Foreign Currency Translation) 1 32NYSE: HRI Q2 Adjusted EBITDA YTD Adjusted EBITDA $267.3 $239.7 $9.4 0 50 100 150 200 250 300 350 400 2015 2016 $147.3 Higher proportion of sales through auction channels Oversupply of certain catego
Slide 33: Revenue Earning Equipment
Revenue Earning Equipment 33 Average fleet original equipment cost (OEC). NYSE: HRI Herc Rentals acquired $305.5 million of OEC in the first half of 2016 compared to $437.3 million in 2015 Additions were managed prudently as we improved FUR and absorbed oil and gas fleet while continuing to add
Slide 34: Debt
Debt Ample liquidity and long-dated maturities provide financial flexibility 1 Total ABL facility size of $1,750 million. $ in millions As of June 30, 2016 Borrowing Against New Senior ABL 1 $ 839 7.50% Senior Secured Second Priority Notes due 2022 610 7.75% Senior Secured Priority Notes due 2024 62
Slide 35: Key Initiatives Fueling Profitability and ROIC
Key Initiatives Fueling Profitability and ROIC Long term, Adjusted EBITDA is targeted to meet or exceed peer metrics with ROIC expected to exceed cost of capital Improvement Opportunity Initiatives underway Shift Equipment Portfolio Mix Adding ProSolutions and ProContractor Tools equipment to flee
Slide 36: Transformation in Process
Transformation in Process Implementing initiatives to improve operating efficiencies and drive revenue growth Built an organization to support stand alone public company requirements Positioned organization for transformation 36NYSE: HRI
Slide 37: Our Vision
Our Vision Employer of Choice Supplier of Choice Investment of Choice 37NYSE: HRI
Slide 38: Appendix
Appendix 38NYSE: HRI
Slide 39: Glossary of Terms Commonly Used in the Industry
Glossary of Terms Commonly Used in the Industry 39NYSE: HRI OEC: Original Equipment Cost; the cost of the asset at the time it was first purchased.1 Fleet Age: The OEC weighted age of the entire fleet. 2 Net Fleet Capex: Capital expenditures of revenue earning equipment minus the proceeds from dispo
Slide 40: Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Reconciliation of Net Income to EBITDA and Adjusted EBITDA 40NYSE: HRI EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to the most comparable GAAP amounts. Further, since all companies do not use identical calculations, our definition and presenta
Slide 41: Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Reconciliation of Net Income to EBITDA and Adjusted EBITDA 41 $ in millions Three months ended June 30, Six months ended June 30, 2016 2015 2016 2015 Net income (loss) $ (8.0) $ 10.6 $ (9.5) $ 12.3 Provision for income taxes 5.3 9.0 5.3 14.0 Interest expense, net 13.3 9.0 19.8 18.5 Depreciation of r
Slide 42: Reconciliation to Adjust for Divestitures and Foreign Currency Translation
42 Six months ended June 30, 2016 Actual Sale of France and Spain Foreign Currency Translation Six months ended June 30, 2016 Adjusted Total revenues $ 746.0 $ 0 $ 7.3 $ 753.3 Equipment rental revenue 635.7 0 5.9 641.6 Adjusted EBITDA 238.4 0 1.3 239.7 Reconciliation to Adjust for Divestitures and F
Slide 43: 2015 Quarterly Reconciliation excluding France & Spain
43 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Full Year Equipment Rentals $ 331.6 $ 347.7 $ 373.1 $ 359.2 $1,411.6 France & Spain (17.2) (18.3) (17.6) (6.5) (59.6) Equipment Rentals excluding France & Spain operations $ 314.4 $ 329.4 $ 355.5 $ 352.7 $ 1,352.0 2015 Quarterly Reconciliation excluding France & Sp
Slide 44: Herc Rentals Corporate History & Key Events
Herc Rentals Corporate History & Key Events 19731968 2008 2010 20141965 2015 Introduced industry-first National Accounts program Herc Rentals Founded Rolled out new standardized locations 1979 Entered industrial equipment rental & leasing markets 1989 New HERC President named Launched Hert
Slide 45: Herc Rentals
HercRentals”