Herc (HRI) Morgan Stanley's 7th Annual Laguna Conference summary

Business profile and performance

• North America's third-largest equipment rental provider, with ~3% market share, 265 locations across 39 U.S. states and 7 Canadian provinces, and ~50 years of experience.

• 2018 revenue nearly $2B and EBITDA $685M; fleet totaled $3.86B at Q2 end, with average age of ~44 months.

• H1 2019 adjusted EBITDA increased ~15% YoY; adjusted EBITDA margin improved 550 bps YoY.

Market and pricing

• Management described end markets as strong, with confidence in 2019 and growing confidence in 2020; West Coast remained strong and earlier weather delays had cleared.

• Q2 rental rate increase was 4.6%; favorable markets and the in-house Optimus pricing tool support further rate gains at a similar pace near to medium term.

• National accounts represented 40% of business, with contract rates renegotiated periodically; Optimus informed ~80% of local-account pricing.

• Upstream oil and gas declined from a peak of ~35% to 11%-12% of revenue; Permian activity was strong, while oil sands and oil shale markets were solid.

Fleet and operating execution

• Major fleet changes and cleanup were complete; the fleet had been shifted to premium brands and specialty equipment was 21%, with a 25%-30% target and additions planned over the next couple of years.

• Margin initiatives include logistics savings, better fleet utilization and branch efficiency; incremental revenue on the existing network is expected to deliver 60%-70% EBITDA flow-through over the short to medium term.

• Net CapEx of $400M was expected to remain fairly consistent over the next couple of years, supporting 1%-3% fleet growth, with spending adjusted to market demand.

• Target fleet age range is 40-50 months; the current 44-month age may move a few months either way with CapEx.