Herc (HRI) Deutsche Bank 8th Annual Global Industrials and Materials Summit summary

Transformation and growth plan

• Five-year transformation is in year one; broaden customer base and product mix across an existing footprint to lift revenue and returns.

• Fleet at $3.5B-$3.6B original equipment cost; ProContractor and ProSolutions targeted to reach 25%-30% of fleet over the plan.

• Reduce heavy earth-moving equipment while refreshing other categories; prioritize higher-yield products such as HVAC, pumping and power generation.

• More revenue through 270+ existing locations, with fleet growth below revenue growth; target EBITDA margin improvement from mid-30s to mid-40s over five years.

• Sales force expanded from 450 to 625, including 75 additions in the prior 12 months; next one to two years focus on training and full efficiency, not adding another 100 salespeople.

Market conditions and pricing

• Construction indicators described as robust for the foreseeable future; U.S. oil and gas activity appeared to have bottomed, while Canadian activity remained choppy with some stabilization and pricing pressure.

• Key-market rental pricing rose 1.7% for the quarter and 1.1% excluding upstream oil and gas; used-equipment pricing was described as stabilized.

• Pricing gains attributed to revised compensation plans introduced Jan. 2016, Optimus pricing software and improved sales-force confidence; further execution opportunities remain.

• Record new-account signings were reported; salesperson efficiency typically takes 18-24 months, and new-account funnel growth is intended to replace lost business and support growth.

• North American rental market described as $50B+ and growing 2%-5% annually; ARA outlook cited 3%-5% annual growth over the next four to five years.

Fleet mix, technology and rental penetration

• ProContractor tools were said to achieve 50%-70% dollar utilization versus 33%-34% overall; ProSolutions could deliver 40%-50%, supporting higher aggregate utilization as share grows.

• ProControl telematics supports equipment monitoring and automated operation; a large light-tower deal used scheduled start/stop to save customer labor and fuel.

• Telematics expected to become a general customer expectation within 24-36 months; technology investment seen as a differentiator from smaller rental operators.

• New OSHA silica requirements taking effect in September were expected to encourage rental adoption; broader rental penetration was viewed as an ongoing trend.

• Average fleet age was 48-49 months; management wants it slightly lower over the next two to three years, while extending useful asset life by 12-18 months when maintenance and customer satisfaction permit.