United Rentals, Inc. · NYSE:URI
United Rentals — FY2013 Earnings Presentation
66 slides from United Rentals's earnings presentation, January 2014
Slide 1: Executing for Growth and Returns
Executing for Growth and Returns 2014 Outlook Investor Presentation Fourth Quarter – Full Year 2013
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 23, 2014. 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 11 Margin Enhancement 17 Growth Through Customer Solutions 30 Fleet 37 Financial Overview 43 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: Scale Rental Leader
Scale Rental Leader #1 U.S. Market Share 832 locations across North America United Rentals Diversified mix 12% Other – Industrial/Non Construction – 50% 78% HERC 5% – Non-Residential Construction – 46% Sunbelt 5% – Residential – 4% Team of 11,850 employees Scale Creates Distinctive Competiti
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 Will Result In safely build a better and stronger future Superior returns to our stockholders Driven By These Values by achieving strong and Safety First consistent financial
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, such relevancy 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 United Became the scale excellence across a industry leader; more diversified achieve benefits customer base to Business through “
Slide 9: 2014 Priorities
2014 Priorities Objectives and Goals Apply powerful tools and Margin tangible initiatives to deliver Enhancement further margin expansion Driving Growth and Improving Achieve superior performance Returns on Growth Through by leveraging unique advantages Invested Customer Solutions to deliver our
Slide 10: Safety as a Core Value
Safety as a Core Value Comprehensive employee and customer safety training, with World-Class emphasis on engagement and personal responsibility Education and Elevating safety from a priority to a core value Personal Leadership and observation training for all field management Engagement Emph
Slide 11: Market Overview
Market Overview Executing for Growth and Returns | 11
Slide 12: North American Rental Industry Expected to Grow
North American Rental Industry Expected to Grow $Bn 50 +7% +7% +11% 40 +7% -1% +8% +12% +7% $49 +9% $45 +11% +8% $42 +9% -23% 30 -3% $38 +6% +5% +0% $35 +6% +19% $33 $38 $38 $30 +11% $36 $29 $28 20 $32 $29 $25 $26 $25 $24 $22 10 $19 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Slide 13: Continued Industry Growth Evolution
Continued Industry Growth Evolution U.S. Rental Industry Revenue and Penetration(1) $Bn 8.0% CAGR 40 100% (1997 – 2012) U.S. Penetration 80% 30 Today is ~50% 60% 20 40% 10 20% 0 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 '14E '15E Rental Industry Revenue
Slide 14: Key Customers' Optimism for 2014 Grows
Key Customers’ Optimism for 2014 Grows 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Up Same Down 98% of Customers Expect Activity to Be Same or Better in 2014 Survey of key accounts conducted by third party Approximately 220 surveys conducted each month
Slide 15: Why Rent – Total Cost of Ownership
Why Rent – Total Cost of Ownership Reasons to Rent Control expenses and inventory Save disposable costs The right equipment for the job Cost control 24/7 customer care Equipment tracking Save on storage/warehousing No licenses Reduce downtime Conserve capital No need for mainte
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 Op
Slide 17: Margin Enhancement
Margin Enhancement Applying Powerful Tools to Deliver Further Margin Expansion 17
Slide 18: Strong Track Record of Margin Improvement
Strong Track Record of Margin Improvement URI EBITDA Margins and Rental Rate Index +13.5pp 46.3% 100 +19.6pp 42.6% 95 35.5% 32.8% 31.5% 30.9% 26.7% 90 85 80 75 2007 2008 2009 2010 2011 PF 2012 2013 More Than 1300 Basis Point Improvement, While Rates Still at 2007 Levels Rental Rate Index 18
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 Branch Network Rollout in 2014 Will Deliver Efficiencies Pilot Activity Productivity Gains Potential Value Levers Yard Turnaround Time Decreased Outside Redesigned Branch Hauling Costs Cost per Delivery Operation Logistics-Created Relevant SOPs Increased Dispatc
Slide 21: Example: Process Observation
Example: Process Observation Do It Right the First Time Used Basic Lean Tools in Pilot Branches Identified Value Stream Implemented Established Baseline for Waste Mapping Improvements Branch Network Rollout Created fast turn lanes to Spaghetti Diagrams increase capacity Created for Yard & Shop Pro
Slide 22: Metro Model: Improving Efficiency and Service Response Time
Metro Model: Improving Efficiency and Service Response Time Current Model Metro Model Each branch dispatches Logistics and field service their own trucks and is managed centrally to field service techs improve efficiency and response time Individual branches Dedicated repair hubs conduct hea
Slide 23: Stronger Business and Fleet Mix
Stronger Business and Fleet Mix Three Levers to Help Achieve Less Cyclical Mix Residential 4% Non- More Diversified End Residential 46% Market Exposure 50% Industrial/ Non-Construction Unassigned Accounts Larger, More Stable 38% Key Accounts Customers 62% 16% More Specialty Specialty Rental Fleet 84
Slide 24: Attractive North American Specialty Rental Market
Attractive North American Specialty Rental Market Large, Growing Market with EBITDA LT Market High Return Potential Margin Growth Tools Pumps 40–50% ~11% Storage 9% 16% Tanks 40–50% ~10% Power / 20% HVAC Scaffolding Storage 40% 8–10% 18% 6% Power/ Trench ~40% 4–8% HVAC 7% 24% Tanks Tools ~60% 3–5% P
Slide 25: United Rentals Specialty Business Today
United Rentals Specialty Business Today Total URI 2013 Revenue Key Segments EBITDA LT Market Margin Growth Specialty 16% Tools ~60% 3–5% Power / HVAC ~40% 4–8% 84% General Trench ~45% 1–5% Rental Specialty Offers Cross Selling Opportunities Internal Estimates 25
Slide 26: Cross Sell Delivers Customer Value
Cross Sell Delivers Customer Value Key Benefit of Enhanced Specialty Rental Penetration TS / PH & Tools Revenue* Total National Account 10.4% growth for the 9.4% Company of 7.5% 8.2% TSPH National Account growth of 25% Cross sell contributed to ~40% of incremental company National Account grow
Slide 27: Trench Safety Provides Revenue Synergy Opportunity
Trench Safety Provides Revenue Synergy Opportunity Largest trench safety rental company in North America Trench is first on the job and supports cross-selling opportunities 5 Trench Safety branches opened in 2013 Trench Safety Annual Rental Revenue Growth 36% 31% 21% FY 2011 FY 2012 FY 2013 3
Slide 28: Power & HVAC Offers Attractive Growth Opportunity
Power & HVAC Offers Attractive Growth Opportunity Combination with RSC provides revenue synergy opportunity Historically high margin business Business specializes in turn-key services and solutions 13 Power HVAC branches opened in 2013 Power & HVAC Annual Rental Revenue Growth 63% 34% 26% FY
Slide 29: Tools & Industrial Solutions
Tools & Industrial Solutions Provides Custom Tool Solutions in Hoisting, Welding, and Tools to Industrial Customers High margins and attractive return assets Large growth potential: $700M rental market – current share 10% National Account revenue 72% of total revenue to drive customer entangle
Slide 30: Growth Through Customer Solutions
Growth Through Customer Solutions Achieve Superior Performance by Leveraging Unique Advantages 30
Slide 31: 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 32: 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 33: Changing the Customer Conversation
Changing the Customer Conversation Laborer Time Study (5-Yr Construction Institute Study) Time is the Biggest Customer Challenge! Wrench Time Other 52% 29% Direct Wrench Time = 29% Travel Personal of a craft laborer’s day! Material Handling Waiting Prep Work 19% 19% of time spent obtaining
Slide 34: 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 35: Attractive Added Value for Customers
Attractive Added Value for Customers A Meaningful Competitive Edge 123 $146 112 106 $116 82 Q4 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Revenue Grew 25.8% YOY Installations Growing 123 New Total Control® Installations in Q4 $ Millions 35
Slide 36: "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, Lowe
Slide 37: Fleet
Executing for Growth and Returns | 37
Slide 38: Fleet Mix
Fleet Mix Customers Know We Have the Fleet They Need Trucks Welders 1% Trench 1% Power 4% Other 5% 5% Light 2% $7.73 Billion of Fleet Forks – Rough Aerial <1% 43% Comprised of 17% Approximately Forks – Reach 410,000 Units 3% 2% Forks – Industrial 14% 3% Compaction Earth Moving Compressors Serves Div
Slide 39: 3,200 Equipment Classes with Original Cost of $7.73B
3,200 Equipment Classes with Original Cost of $7.73B Booms and Earth Moving Forklifts Trench and Lifts Other Total (Average) % of Q4 2013 38.7% 12.7% 18.0% 30.6% Rental Revenue Time Utilization 73.8% 63.3% 80.0% 54.7% 69.3% Dollar 42.5% 44.1% 41.8% 62.1% 47.1% Utilization** Average Fleet Age*** 54.5
Slide 40: Managing Fleet with a Life Cycle Approach
Managing Fleet with a Life Cycle Approach Selling Oldest Fleet Rental Capex and Used Sales ($MM)* Age of Used Sales in Months 88 1,580 83 83 85 85 1,390 1,321 72 673 306 ($387) ($269) ($363) ($463) ($490) 2010 2011 2012 2013 Q4 2012 Q4 2013 2009 2010 2011 2012 2013 Age Composition Time Utilization (
Slide 41: 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 42: Maintenance and Growth CapEx
Maintenance and Growth CapEx 2011 2012 2014 Combined Combined 2013 Forecast Pro-forma Pro-forma OEC Sold*** 752 933 941 1,000 Inflation Factor** 13.8% 13.8% 14.2% 14% Inflation Uplift 104 129 133 140 Total Maintenance 856 1,062 1,074 1,140 CapEx Growth CapEx 534 432 506 510 Total Rental CapEx 1,390
Slide 43: Financial Overview
Financial Overview Delivering Strong Sustainable Results 43
Slide 44: Q4'13 Results
Q4’13 Results Q4 Rates +4.0% 69.3% Time Utilization +60bps $651M or 48.7% Adjusted EBITDA +$98M or 440 bps Adjusted EBITDA 110.1% Flow-Through Adjusted EBITDA of 48.6%, a Fourth Quarter Record 44
Slide 45: 2013 Full Year Results
2013 Full Year Results* Pro Forma Comparisons $4.196B Rental Revenue +7.0% $4.955B Total Revenue +6.2% $2.293B or 46.3% Adjusted EBITDA +305M or 370bps $7.618B Average OEC +5.8% $5.192B Average OEC-on-Rent +6.9% Driving Profitable Growth *2013 results are based on a comparison to
Slide 46: 2014 Outlook
2014 Outlook Outlook Total Revenue $5.25 to $5.45B Adjusted EBITDA $2.45B to $2.55B An increase of approximately 4.0% Rental Rates over 2013 Time Utilization Approximately 68.5% Net rental capex of about $1.15B and gross Capex rental capex of about $1.65B Free cash flow in the range of F
Slide 47: Consistent Free Cash Flow Generation Over Cycle
Consistent Free Cash Flow Generation Over Cycle Cash Flow 2007–2013 ($M) 20071 2008 2009 20102 2011 20123 20134 EBITDA $1,265 ($117) $589 $649 $879 $1,772 $2,181 Cash Interest -203 -218 -234 -229 -203 -371 -461 Cash Taxes -84 -46 -3 49 -24 -40 -48 Gain on Sale of Equipment -89 -69 -6 -41 -68 -127 -1
Slide 48: Flexible Capital Allocation Strategy
Flexible Capital Allocation Strategy Invest in Growth Managing Return Cash Leverage to Organic M&A Stockholders Target leverage Continued organic Balanced strategy Executing on $500M range over the cycle investments to creates flexibility to share repurchase of 2.5x–3.5x support growth and p
Slide 49: Historical Capital Allocation 2010–2013
Historical Capital Allocation-- 2010–2013 Priorities Share 4% Organic Investment Repurchases Debt 27% Cash Issuance 32% Acquisitions Manage Leverage Targets (2.5x–3.5x) Cash from 73% Operations CapEx 64% Strategic M&A Return to Net Sources Net Uses Stockholders of Capital of Capital 100% Equals $4.6
Slide 50: Debt Maturity Profile
Debt Maturity Profile(1) $ Millions $2,300 $1,500 $1,325 $1,142 ABL Unused $750 7.375% Senior $750 $700 Unsecured Notes $650 $550 $200 10.25% Sr. Unsecured $120A/R Unused Notes(3) $400 $500 $156 5.75% 9.25% $750 8.25% 7.625% 6.125% Senior Senior 8.375% Senior Senior Senior $430 A/R 4.00% Convert. $1
Slide 51: Leverage Ratio Declined Rapidly
Leverage Ratio Declined Rapidly(1) (2) 4.6 (3) 3.6 3.3 3.0 2011 2012 2013 URI Standalone Combined Companies 2.5x – 3.5x Target Leverage Range (1) Leverage Ratio calculated as total debt and QUIPs , net of cash, excluding original issuance discounts and premiums divided by adjusted EBITDA. (2) Pro Fo
Slide 52: Building a Bridge to Higher Returns
Building a Bridge to Higher Returns* 14% 0.4% (3.1%) 2.3% 12% 10% Internal 0.8% 10.8% Hurdle 2.9% Rate 10% WACC Range 8% 7.5% 6% 4% 2% 0% 2013 Rate 1 Fleet Lean 4 Fleet5 and Cost 6 Business 2016–2018 Growth2 and Inflation Mix/Other Utilization 3 *Illustrative – After tax and including goodwill (1) A
Slide 53: Appendix
Appendix Executing for Growth and Returns | 53
Slide 54: Timeline
Timeline Forbes Names New Strategy Expands One of “400 Refocuses Industrial Best Big Company on Core Power & HVAC Companies” Equipment Rental Footprint with Acquisition and Business Cold-starts Branch Network Grows to 500 Locations in North America National Company’s First Earns National Accounts Ce
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 Short Term Incentive Plan 2014 Plan Measures: Measures: Performance Revenue Growth EBITDA Dollar Growth Measures Focus Economic Profit on Profitable Economic Profit Improvement Improvement Growt
Slide 56: 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: RSC merger related costs. RSC merger related intangible asset amortization, impact on rental depreciation rel
Slide 57: EBITDA and Adjusted EBITDA GAAP Reconciliation
EBITDA and Adjusted EBITDA GAAP Reconciliation EBITDA represents the sum of net income, provision (benefit) for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation of rental equipment, and non-rental depreciation and amortization. Adjusted EBITDA r
Slide 58: 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, 2013 2012 2013 2012 Net cash provided by operating activities $ 436 $ 226 $ 1,551 $ 721 Adjustments for items included in net cash provided by operating a
Slide 59: Free Cash Flow GAAP Reconciliation
Free Cash Flow GAAP Reconciliation We define free cash flow (usage) 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 and excess tax benefits from share-based payment arrangements,
Slide 60: 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 61: ARA Metrics Comparison
ARA Metrics Comparison Year Year Year Ended Ended Ended 12/31/ 12/31/ 12/31/ 2009 2010 2011 OEC New basis 3,528 3,575 4,046 Old basis 3,763 3,791 4,290 Fleet Age New basis 45.5 51.6 50.3 Old basis 42.4 47.7 46.4 Qtr. Qtr. Qtr. Qtr. Year Qtr. Qtr. Qtr. Qtr. Year Qtr. Qtr. Qtr. Qtr. Ended Ended Ended
Slide 62: 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 63: 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 64: 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 $50 Counterparties 8K Shares Net 62K 70K Shares Investors New Shares Issued United Rentals Hedge $10
Slide 65: 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 66: 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