Herc (HRI) Goldman Sachs Industrials and Materials Conference 2021 summary

Operating priorities and utilization

• After ~5.5 years focused on fleet, organization, technology and cost structure, priorities are shifting to top-line growth while pursuing further incremental operating improvements.

• Targeting $0.60-$0.70 of EBITDA flow-through per dollar of revenue growth over the next couple of years; 280 rental locations can absorb substantially more fleet without major fixed-cost changes.

• Dollar utilization reached the mid-40% range from the low 30s; a 45% target over the next couple of years, supported by pricing, specialty mix and fleet efficiency.

• Further time-utilization gains depend partly on logistics; added logistics resources during the pandemic may reduce dwell days by a day or two.

• More local-customer growth is a priority, alongside improving national-account pricing and offering broader equipment baskets, including specialty gear.

Growth, capital allocation and acquisitions

• Three acquisitions closed: Champion, a four-branch Houston operation, in December, plus two single-branch San Francisco Bay Area operations in April.

• Growth priorities are adding fleet to existing locations, opening 10-20 greenfield branches subject to real-estate availability, then pursuing opportunistic M&A and make-versus-buy decisions.

• Smaller acquisition leverage generally ranges from the mid-5x to mid-6x levels; margin synergies may come from operating acquired assets more efficiently.

• Capital deployment centers on fleet growth and strategic M&A; dividends may be considered once free cash flow is sufficient, while stock repurchases are constrained by the float.

• 2022 fleet orders need to be placed early; fleet growth is expected to accelerate into 2022, with early-cycle investment favored to maximize utilization across the assets’ eight-year lives.

Industry conditions and pricing

• Rouse data showed industry fleet reductions during 2020 and tightening capacity utilization as demand recovered; the data informs fleet and pricing decisions.

• Industry utilization was moving back toward 2019 levels; the normal Q2-to-Q3 seasonal ramp was bringing improved pricing, with a potentially busier summer than in 2018 or 2019.

• Q1 pricing strength was specialty-driven, including the return of entertainment fleet; continued contract renegotiations and spot-market pricing tools support a focus on positive pricing.

• Through the cycle, pricing is expected to outpace inflation by 1-2x; modest pricing decreases in the prior downturn may limit the recovery’s real acceleration versus the previous cycle.