Herc (HRI) Goldman Sachs Industrials and Materials Conference summary

Business transformation and growth

• Since 2015, priorities included fleet, systems and technology modernization; sales-force investment; facility pruning and rebuilding in stronger markets; and margin improvement.

• Operations shifted from China, the Middle East, Europe and Latin America to North America, with a footprint in 39 U.S. states and five Canadian provinces.

• Fleet purchasing was consolidated to a few manufacturers per category to improve purchasing leverage; specialty offerings added more solution-based customer value and margin opportunity.

• Over the last two years, roughly 30 acquisitions added nearly 70 locations, focused on large urban markets and growth areas; the business also introduced a dividend and made opportunistic buybacks.

• Since 2020, the branch count increased by about 100; management cited pricing, fleet efficiency, scale and specialty mix as drivers of dollar utilization.

Margin and utilization priorities

• Management expects to be within striking distance of matching larger public peers’ margin and dollar-utilization levels over the next one to two years.

• Priorities include disciplined pricing, adding higher-margin specialty fleet, maintaining a balanced national-account and local/spot mix, and increasing fleet density over the existing fixed-cost base.

• Core business fleet can grow substantially without significant added headcount; sales-force capacity is expected to scale with fleet.

• Spot pricing saw low-double-digit increases; national contract increases implemented over the prior 18 months were accepted with little significant pushback.

• Local/spot business can deliver mid- to high-single-digit higher margins on a core basket than national accounts, while specialty products can also strengthen national-account margins.

Downturn readiness and industry discipline

• Management expects to maintain its margin profile through a downturn, subject to its breadth and depth; levers include reducing fleet orders, disposing of equipment, cutting third-party freight and overtime, and slowing hiring.

• During COVID, incoming fleet was reduced by $400 million within one week; OEM commitments generally extend 30 days for equipment scheduled for delivery.

• People and salary costs represent about 30% of annualized P&L; management characterized the business as recession-resistant and said downturns generate cash for debt reduction.

• Management sees greater rental-industry discipline, citing professional management, pricing tools and Rouse data reported by 50%-60% of North American rental companies.