United Rentals, Inc. · NYSE:URI
United Rentals — Q2 2015 Earnings Presentation
59 slides from United Rentals's earnings presentation, July 2015
Slide 1: Executing for Growth and Returns
Executing for Growth and Returns Company and Industry Background Second Quarter 2015
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 July 23, 2015. We make no commitment to update any such information contained in this presentation. C
Slide 3: Table of Contents
Table of Contents Introduction 4 Market Overview 10 Margin Enhancement 17 Growth Through Customer Solutions 35 Fleet 41 Capital Structure 47 Appendix 53 3
Slide 4: Industry Leader Driving Growth and Returns Through the Cycle
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 896 locations across North America United Diversified mix Rentals 12% Other – Industrial/Non Construction – 51% 77% HERC – Non-Residential Construction – 45% 5% Sunbelt – Residential – 4% 6% Team of approximately 12,600 employees Scale Creates Dis
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 Invest in related Strategy Service model and customer adjacencies, relevancy such as tanks or Total Control
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 United Became the scale excellence across a industry leader; more diversified achieve benefits customer base to Business through ―
Slide 9: Safety as a Core Value
Safety as a Core Value Achieved a 0.75 Total Recordable Incident Rate (TRIR) YTD and a 0.85 Building a TRIR for Q2 of 2015, which places us as a leader in our industry and is in World-Class the top quartile of world-class companies for all industry sectors Safety Culture Implemented a new Injury
Slide 10: Market Overview
7 Market Overview — e. «tae © United Rentals:
Slide 11: North American Rental Industry Expected to Grow
North American Rental Industry Expected to Grow $Bn +6% +8% +8% 50 +7% +7% +7% 40 +7% -1% +6% +12% +9% +11% +7% 30 +9% -23% -3% +6% +5% +0% +6% +19% 20 +11% 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Broad-based Construction Act
Slide 12: Customer Confidence Index
Customer Confidence Index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Down Same Up Only 4% See Slower Growth over the Next 12 Months Note: Survey of Key accounts only conducted by 3rd party. Approximately 170 surveys conducted each month Results through 6/30/2015 12
Slide 13: Current Pipeline of Over $360B in Construction and Industrial Projects
Current Pipeline of Over $360B in Construction and Industrial Projects Dodge Projects* - $52B IIR – Industrial Projects** - $309B $0.4 (total) $0.3 (total) *Source: Dodge/McGraw Hill **Source: IIR-Industrial Information Resources Note: Projects with bid date in last 6 months or start date in next 12
Slide 14: Construction Growth Expected Across U.S. in 2015
Construction Growth Expected Across U.S. in 2015 U.S. 2015 Forecasted Construction Growth Rate 5.4% CA, FL, OR, WA, NV, AZ expected to see double digit growth Strong Growth Expected in: • Commercial (Office, Lodging) • Private Health Care • Multi-family Residential • Single-family Residential Sour
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 55.0% 25% 47.8% 47.7% 105 46.3% 45.0% 42.6% 100 20% 35.5% 35.0% 31.5% 32.8% 30.9% 95 15% 26.7% 25.0% 90 10% 15.0% 85 5% 5.0% 80 0% -5.0% 2007 2008 2009 2010 2011 2012 2013 2014 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’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 21: Lean Rollout Continues
Lean Rollout Continues LEAN Activities Results 2015 Plans 532 Kaizen events at Continue Kaizen Measurable non-specialty locations events improvements in 2926 Employee Dispatches per Drive depth and participants Driver per Day sustainability Continue to expand the 389 Branch Manager Meani
Slide 22: Telematics
Telematics Commitment to Customer Benefits Internal Benefits Telematics Targeting 87% OEC Visibility into run- Performance time & equipment monitoring & service Telematics Standard utilization alerts on 2015 deliveries Locating of off-rent Ability to locate equipment for pick-up Initia
Slide 23: GPS Technology – Monitoring Equipment
GPS Technology – Monitoring Equipment Action options when viewing in map Customers Can Quickly Find Rental Assets 23
Slide 24: 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% 51% Industrial/ 64% Key Accounts Non-Construction Increasing Specialty Exposure Diversified Ac
Slide 25: 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 Excavation support Complete solutions for Full range of pumps, Tool trailers stocked with solutions, confined space mobile power
Slide 26: 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 Industrial and
Slide 27: Share of Business by Customer
Share of Business by Customer Specialty’s Diversified Customer Base Trench Safety Power & HVAC 2% 2% 3% 5% 2% 4% 10% 10% 5% 14% 45% 48% 20% 33% 24% 8% Pump Solutions Tool Solutions 10% 20% 15% 5% 10% 34% 5% 6% 40% 30% 60% 30% 60% 14% 35% 26% 27
Slide 28: 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 29: 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 29
Slide 30: Trench Safety Continues Strong Growth
Trench Safety Continues Strong Growth Largest trench safety rental company in North America Record numbers of customers participating in our training courses in each quarter Trench Safety Rental Revenue Growth 21% 20% 18% 15% FY 2013 FY 2014 Q1 2015 Q2 2015 Extend Market Leadership Through Exper
Slide 31: Power & HVAC Offers Attractive Growth Opportunity
Power & HVAC Offers Attractive Growth Opportunity High returns & longer asset life 5 additional cold starts planned for 2015/2016 Leveraging our existing customer relationships to cross sell Power & HVAC Power & HVAC Rental Revenue Growth 62% 48% 39% 26% FY 2013 FY 2014 Q1 2015 Q2 2015 Strong
Slide 32: 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 Diversifying revenue base with our URI cross-sell network for Pumps with our strong National Account network 12 new Pump branches planned in 2015;
Slide 33: 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 on assets Drive customer entanglement with industrial and commercial accounts National Accounts represe
Slide 34: Growth Through Customer Solutions
Growth Through Customer Solutions Achieve Superior Performance by Leveraging Unique Advantages
Slide 35: 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 36: Customer Engagement Strategy
Customer Engagement Strategy “Company-wide “Ease of Doing Solutions” “Reliable Partner” Business” Large Industrial Large Commercial Enterprise Locals Job Site Management Agreements Consumption ―Wrench Time‖ Availability Management 24/7 After Hours Reliability ―Wrench Time‖ Breadth & De
Slide 37: 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 – Increase equipment 20.5% utilization – Less duplication – Conserve capital 6.0% through rental – Eliminate equipment Self Owned S
Slide 38: Attractive Added Value for Customers
Attractive Added Value for Customers A Meaningful Competitive Edge 669 $208.9 $150.3 409 302 194 Q2 2014 Q2 2015 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Installs began late Q2 2014 with Revenue Grew 39% YOY Roll-Out of Total Control® Customers Value Total Control $ Millions 38
Slide 39: “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 40: Fleet
Fleet ) United Rentals:
Slide 41: Fleet Mix
Fleet Mix Customers Know We Have the Fleet They Need Trucks Welders 1% Trench 1% Power 5% 4% Other 10% $8.9 Billion of Fleet Light 2% 39% Aerial Comprised of Forks – Rough <1% Approximately 17% 440,000 Units Forks – Reach 2% 3% Forks – Industrial 3% 13% Compaction Earth Moving Compressors Serves Div
Slide 42: 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 43: 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 44: 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 45: Rental Useful Life Evaluation
Rental Useful Life Evaluation Rental Revenue % of Average R&M Cost % of Replacement Cost (est) 120% 2.5% 100% 2.0% 80% 1.5% 60% 1.0% 40% 20% 0.5% 0% 0.0% 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% optimal a
Slide 46: Maintenance and Growth CapEx
Maintenance and Growth CapEx 2011 2012 2015 Combined Combined 2013 2014 Forecast Pro-forma Pro-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 $42
Slide 47: Capital Structure
= Capital Structure — e. «tae © United Rentals:
Slide 48: 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 49: Ample Liquidity and No Significant Near-Term Maturities
Ample Liquidity and No Significant Near-Term Maturities $ Millions $3,250 $680 ABL Unused $1,925 $1,820* $1,000 ABL Used 4.625% $1,325 Senior Secured Notes $850 $800 $558 $925 $1 A/R Unused $750 $549 A/R 7.375% 7.625% 6.125% 5.75% 5.5% Securitization Senior $300 Senior Senior Senior Senior Used Unse
Slide 50: Capital Allocation Strategy
Capital Allocation Strategy Invest in Growth Return Cash Managing to Leverage Organic M&A Stockholders Target leverage Continued organic Balanced strategy $750M share range over the cycle investments to creates flexibility to repurchase program of 2.5x–3.5x support growth and pursue strategi
Slide 51: Consistent Free Cash Flow Generation Over Cycle
Consistent Free Cash Flow Generation Over Cycle Cash Flow 2008–2015 ($M)* 2015 2008 2009 2010** 2011 2012*** 2013 2014 YTD EBITDA ($117) $589 $649 $879 $1,772 $2,181 $2,599 $1,295 Cash Interest (218) (234) (229) (203) (371) (461) (457) (253) Cash Taxes (46) (3) 49 (24) (40) (48) (100) (30) Gain on S
Slide 52: Historical Capital Allocation 2010–Q2 2015
Historical Capital Allocation 2010–Q2 2015 Priorities Share Organic Investment Repurchases 15% Debt Issuance 26% Cash Acquisitions Manage Leverage 27% Targets (2.5x–3.5x) Cash from Operations 74% CapEx 58% Strategic M&A Return to Net Sources Net Uses Stockholders of Capital of Capital 100% Equals $8
Slide 53: Appendix
Appendix O United 7
Slide 54: 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 55: 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: 2015 Performance Revenue Growth EBITDA Dollar Growth Measures Focus on Economic Profit Profitable Growth Economic Profit Improvement Improvemen
Slide 56: 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 57: 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 10 of 11 directors are independent Board and each committee have express authority to retain outside advisors
Slide 58: 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 59: Glossary of Terms
Glossary of Terms 5. Fleet Age: The OEC weighted age of the entire fleet, excluding the benefit of refurbishments. (ARA methodology) 6. OEC: Original Equipment Cost; the cost of an asset at the time it was originally purchased. (ARA methodology) 7. Rental Rate: The percentage change in the rate/pric