Download HERC HOLDINGS INC (Form: 8-K, Received: 03/01/2017

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 1, 2017 (March 1, 2017)
HERC HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation)
001-33139
(Commission File Number)
20-3530539
(I.R.S Employer Identification No.)
27500 Riverview Center Blvd.
Bonita Springs, Florida 34134
(Address of principal executive offices,
including zip code)
(239) 301-1000
(Registrant’s telephone number, including
area code)
N/A
(Former name or former address, if
changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions ( see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On March 1, 2017 , Herc Holdings Inc. (the “Company”) issued a press release regarding its preliminary financial results for its fourth quarter
and full year ended December 31, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On March 1, 2017, the Company will conduct an earnings webcast relating to the Company’s preliminary financial results for the fourth quarter
and full year of 2016. The earnings webcast will be made available to the public via a link on the Investor Relations section of the Herc
Holdings website, IR.HercRentals.com, as well as via telephone dial-in, and the slides that will accompany the presentation will be available to
the public at the time of the earnings webcast through the Company’s website. Certain preliminary financial information relating to completed
fiscal periods that will be part of the earnings webcast is included in the set of slides that will accompany the earnings webcast, a copy of which
is attached hereto as Exhibit 99.2.
The information in this Form 8-K and the exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such
a filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
The attached list of exhibits in the “Exhibit Index” immediately following the signature page to this Report is filed as part of this Current
Report on Form 8-K and is incorporated herein by reference in response to this item.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HERC HOLDINGS INC.
(Registrant)
By:
Name:
Title:
Date: March 1, 2017
/s/ BARBARA L. BRASIER
Barbara L. Brasier
Senior Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number
99.1
99.2
Description
Press Release of Herc Holdings Inc. dated March 1, 2017 describing its preliminary results for its fourth
quarter and full year ended December 31, 2016.
Set of slides that will accompany the March 1, 2017 earnings webcast.
Herc Holdings Reports Preliminary Fourth Quarter and Full Year 2016 Results
and Announces Full Year Guidance for 2017
- Achieves 6.2% equipment rental revenue growth in key markets in fourth quarter
- Reports year-over-year pricing improvement of 1.5% in key markets and 0.5% overall in fourth quarter
- Reports full year net loss of $20.5 million and adjusted EBITDA of $536.2 million
Bonita Springs, Fla., March 1, 2017 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today
reported preliminary financial results for the fourth quarter and full year ended December 31, 2016 . Equipment rental
revenues were $356.7 million and total revenues were $405.2 million in the fourth quarter of 2016, compared with
$359.2 million and $422.4 million , respectively, for the same period last year. The Company reported a net loss of
$14.0 million , or $0.49 per diluted share, for the fourth quarter, compared to net income of $78.2 million , or $2.68 per
diluted share, for the same period last year.
The fourth quarter net loss was primarily attributed to increased costs resulting from the spin-off and stand-alone
costs, including an increase in interest expense and depreciation. Although upstream oil and gas markets continued to
be a challenge, the year-over-year decline in these markets in the fourth quarter was less than in the third quarter. In
addition, in 2015, we recognized a gain of $50.9 million on the sale of operations in France and Spain, which were
divested in October 2015.
"This year was a critical milestone in our ongoing business transformation process," said Larry Silber, president and
chief executive officer. "Our strategy, which includes a number of initiatives, programs and actions, is beginning to
show results on behalf of our customers, employees and shareholders. In the fourth quarter, we achieved growth in
equipment rental revenues in our key markets of 6.2% and improved pricing in those markets by 1.5% compared with
the prior year.
"The ongoing shift in our fleet mix is positioning our business for long-term success. The rollout of our ProContractor
Tools TM and ProSolutions TM equipment and services expands and diversifies our fleet and enhances our ability to
provide a wide array of equipment to meet our customers' equipment needs. In addition, new and upgraded
technologies, including our ProControl TM telematics system that rolled out in the fourth quarter, further enhances the
value we offer customers. We remain confident in our business strategy, our people and the growth opportunities
ahead,” said Silber.
Fourth Quarter Highlights
•
Equipment rental revenues in the fourth quarter of 2016 were $356.7 million , compared to $359.2 million in the
prior year quarter, a decline of 0.7% , which was attributable to lower revenues in upstream oil and gas
markets, divested foreign operations and negative currency impacts. Revenue growth in key markets more
than offset the impact of lower revenues in upstream oil and gas markets.
◦
Excluding divested foreign operations and currency, equipment rental revenues in key markets
increased 6.2% and accounted for 84% of total revenues. Key markets are defined as markets we
currently serve outside of upstream oil and gas markets.
•
Pricing in key markets increased 1.5% and overall pricing increased 0.5% in
the fourth quarter, compared to the same period in 2015.
•
Adjusted EBITDA in the fourth quarter was $145.7 million , a decline of $18.1 million or 11.1% versus the prior
year period, primarily due to the impact of upstream oil and gas markets, stand1
alone costs and additional headcount, primarily in operations and sales. See page A-4 for a description of the
items excluded in calculating adjusted EBITDA.
•
Continued improvement in branch operating efficiencies reduced average fleet unavailable for rent (FUR) to
15.3% in the month of December 2016, compared with 15.9% in December 2015. December FUR reflects
normal seasonality driven by lower rental activity in the period.
•
Dollar utilization of 34.1% in the fourth quarter was impacted by lower activity in upstream oil and gas markets,
the ramp up of new locations and the addition of new fleet categories across our locations.
•
Interest expense in the fourth quarter was $32.1 million , an increase of $27.0 million compared with the prior
year period, reflecting the increase in the Company's debt on a stand-alone basis.
•
Spin-off costs totaled $11.5 million in the fourth quarter of 2016, compared with $6.1 million in the comparable
period in 2015. The increase was related primarily to higher IT and professional expenses incurred in
connection with the June 30, 2016 separation from the Hertz car rental business.
Full Year 2016 Highlights
•
Equipment rental revenues for the year ended 2016 were $1,352.7 million , a decline of 4.2% compared with
$1,411.7 million in 2015, which was attributable to lower revenues in upstream oil and gas markets,
divested foreign operations and negative currency impacts. Revenue growth in key markets more than
offset lower revenues in upstream oil and gas markets.
◦
Excluding divested foreign operations and currency, equipment rental revenues in key markets
increased 8.1% and accounted for 83% of total revenues.
•
Pricing in key markets improved 1.6% and
overall pricing was up 0.3% for 2016, compared
to full year 2015.
•
Net loss for the year ended 2016 was $20.5 million , or $0.72 per diluted share, compared to net income of
$111.3 million , or $3.69 per diluted share, in 2015. Net loss was significantly impacted by the increase in
interest expense related to debt as a stand-alone company, the loss on the sale of revenue earning equipment
and spin-off costs. In addition, in 2015, we recognized a gain of $50.9 million on the sale of operations in
France and Spain.
•
Adjusted EBITDA for the year ended 2016 was $536.2 million , a decline of $64.4 million versus the prior year.
The decline was primarily due to lower results in upstream oil and gas markets and losses related to the sale
of revenue earning equipment, most of which occurred in the first half of 2016. Results in key markets offset
most of the decline in upstream oil and gas markets. In addition, 2015 included ten months of results from
divested foreign operations. See page A-4 for a description of the items excluded in calculating adjusted
EBITDA.
•
Interest expense for the year ended 2016 was $84.2 million , an increase of $51.3 million compared with the
prior year, reflecting the increase in the Company's debt on a stand-alone basis.
•
Spin-off costs totaled $49.2 million for the year ended 2016, compared with $25.8 million in 2015. The increase
was related primarily to higher IT and professional expenses incurred in connection with the June 30, 2016
separation from the Hertz car rental business.
2
Year-End Assessment and Reporting
The Company has filed a Form 12b-25 with the Securities and Exchange Commission ("SEC”) today providing for a
15-day extension for filing its Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”).
On June 30, 2016, the Company separated from Hertz Rental Car Holding Company, Inc. (the “Spin-Off”). Typically, a
new public company is not required to report on the effectiveness of its internal control over financial reporting
("ICFR") in its first year-end report. However, due to the structure of the Spin-Off, even though the Company is
considered the spinnee or divested entity for accounting purposes, management nevertheless is required to assess
and report for the first time on the Company's ICFR as of December 31, 2016 based on management's risk
assessment and lower materiality levels as a stand-alone company. Because a significant number of business
process controls had to be established, documented and tested for the first time, management was not able to
complete this assessment by March 1, 2017, the deadline for filing the Form 10-K.
Although management has not finalized its assessment of the effectiveness of the Company’s ICFR, the Company
believes management's assessment will conclude that the Company did not maintain effective ICFR as of December
31, 2016, because material weaknesses that existed at the time of the Spin-Off were not fully remediated and
because management identified new material weaknesses relating to ineffective controls over revenue recognition
and the ineffective design of controls over certain IT systems that are relevant to the preparation of the Company's
financial statements. Management may identify other material weaknesses in the Company’s ICFR as management
completes its assessment of ICFR.
While material weaknesses create a reasonable possibility that a misstatement in financial reporting may go
undetected, after review and analysis, no restatement of or other material adjustments, or revisions to previously
issued financial statements, or to the results reported in this press release, currently are expected to be required.
The Company expects to finalize its financial results and assessment of ICFR and file its Form 10-K within the
prescribed time allowed pursuant to Rule 12b-25. Please refer to the Form 12b-25 filed with the SEC today for
additional information.
Capital Expenditures -- Fleet
•
The Company reported net fleet capital expenditures of $352.9 million for the year ended 2016. See page A-5
for the calculation of net fleet capital expenditures.
•
At December 31, 2016 , the Company had rental equipment of approximately $3.56 billion at
original equipment cost (OEC). Average OEC for the full year increased 3.4% compared to the
prior year. Average fleet age was approximately 48 months as of December 31, 2016.
Bond Redemption
Under the terms of the indenture for its senior notes, the Company gave notice of the redemption of $61.0 million in
aggregate principal amount of the 2022 senior notes and $62.5 million in aggregate principal amount of the 2024
senior notes at a redemption price of 103% of the aggregate principal amount plus accrued and unpaid interest. The
Company intends to draw down on its asset-backed loan facility to fund the redemption price. The redemption date will
be March 10, 2017.
3
2017 Guidance
"Our 2017 guidance is based on a 3.5% growth rate in the North American equipment market and the anticipated
positive impact of our strategic initiatives. We plan to continue to adjust our fleet mix as we grow the fleet during the
year and drive improvement in our utilization rates. We are confident that we have the right strategy and the right fleet
plan to take advantage of market growth while improving our profitability and achieving adjusted EBITDA growth,"
added Silber.
Based on the Company's planning assumptions, full year 2017 guidance is as follows:
•
Adjusted EBITDA is expected to be in the range of $550 to $590 million.
•
Net fleet capital expenditures are expected to be in the range of $275 million to $325
million .
The Company does not provide forward-looking guidance for certain financial measures on a GAAP basis or a
reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP reported
financial measures on a forward-looking basis because it is unable to predict certain items contained in the GAAP
measures without unreasonable efforts. Certain items that impact net income (loss) cannot be predicted with
reasonable certainty, such as restructuring and restructuring related charges, special tax items, borrowing levels
(which affect interest expense), gains and losses from asset sales, the ultimate outcome of pending litigation and
spin-related costs.
Earnings Call and Webcast Information
Herc Holdings' fourth quarter 2016 earnings webcast will be held on March 1, 2017, at 8:30 a.m. U.S. Eastern Time.
Interested U.S. parties may call +1-877-883-0383 and international participants should call +1-412-902-6506, using
the access code: 0404317. P l ease dial in at least 10 to 15 minutes before the call start time to ensure that you are
connected to the call and to register your name and company.
Those who wish to listen to the live conference call and view the accompanying presentation slides should visit the
Events and Presentations tab of the Investor Relations section of the Company's website at IR.HercRentals.com. The
press release and presentation slides for the call will be posted to this section of the website prior to the call.
A replay of the conference call will be available via webcast on the company website at IR.HercRentals.com, where it
will be archived for two weeks after the call. A telephonic replay will be available for one week. To listen to the
archived call by telephone, U.S. participants should dial + 1-877-344-7529 and international participants +
1-412-317-0088 and enter conference ID number
10099578.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental
suppliers with approximately 270 company-operated locations, principally in North America. With more than 50 years
of experience, Herc Holdings is a full-line equipment-rental supplier in key markets, including commercial and
residential construction, industrial and manufacturing, civil infrastructure, automotive, government and municipalities,
energy, remediation, emergency response, facilities, entertainment and agriculture, as well as refineries and
petrochemicals. The equipment rental business is supported by ProSolutions TM (our industry-specific solutions-based
services), and our professional grade tools, commercial vehicles, and pump, power and climate control product
offerings, all of which are aimed at helping customers work more efficiently, effectively and safely. The Company has
approximately 4,800 employees. Herc Holdings’ 2016 total revenues were approximately $1.6 billion . All references to
“Herc Holdings” or the “Company” in this press release refer to Herc Holdings Inc. and its
4
subsidiaries, unless otherwise indicated. For more information on Herc Holdings and its products and services, visit:
www.HercRentals.com .
Certain Additional Information
In this release we refer to the following operating measures:
•
Dollar utilization: calculated by dividing rental revenue by the average OEC of the equipment fleet for the
relevant time period.
•
OEC: original equipment cost based on the guidelines of the American Rental Association, which is calculated
as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with
the basis of refurbished assets reset at the refurbishment date).
Basis of Presentation
The financial results discussed in this press release are preliminary and unaudited and subject to change as the
Company's financial results are finalized.
The financial information included in this press release is based upon the condensed, consolidated and combined
financial statements of the Company which are presented on a basis of accounting that reflects a change in reporting
entity and have been adjusted for the effects of the spin-off, which effected our separation from Hertz Rental Car
Holding Company, Inc. ("New Hertz"). These financial statements represent only those operations, assets, liabilities
and equity that form Herc Holdings on a stand-alone basis. Since the spin-off occurred on June 30, 2016, the financial
statements represent the carve-out financial results for the Company for the first six months of 2016, including spin-off
impacts through June 30, 2016, and actual results for the second half of 2016, including the three months ended
December 31, 2016 . All prior period amounts represent carve-out financial results.
Forward-Looking Statements
This release contains statements, including those under "2017 Guidance" and "Bond Redemption" that are not
statements of historical fact, but instead are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. We caution readers not to place undue reliance on these statements, which speak only
as of the date hereof. There are a number of risks, uncertainties and other important factors that could cause our
actual results to differ materially from those suggested by our forward-looking statements, including:
•
Risks related to material weaknesses in our internal control over financial reporting and the restatement of
financial statements previously issued by Hertz Global Holdings, Inc. (in its form prior to the spin-off, “Hertz
Holdings”), including that: we have identified material weaknesses in our internal control over financial
reporting that may adversely affect our ability to report our financial condition and results of operations in a
timely and accurate manner, which may adversely affect investor and lender confidence in us and, as a
result, the value of our common stock and our ability to obtain future financing on acceptable terms, and we
may identify additional material weaknesses as we continue to assess our processes and controls as a
stand-alone company with lower levels of materiality; such material weaknesses could result in a material
misstatement of our consolidated and combined financial statements that would not be prevented or
detected; we continue to expend significant costs and devote management time and attention and other
resources to matters related to our internal control over financial reporting and Hertz Holdings' restatement,
which could adversely affect our ability to execute our strategic plan; our efforts to design and implement an
effective control environment may not be sufficient to remediate the material weaknesses or prevent future
material weaknesses; our material weaknesses and Hertz Holdings' restatement could expose us to
additional risks
5
that could materially adversely affect our financial position, results of operations and cash flows, including as
a result of events of default under the agreements governing our indebtedness and/or government
investigations, regulatory inquiries and private actions; we may experience difficulties implementing new
information technology systems to maintain our books and records and provide operational information to our
management team; if we decide to not implement the new operational system for our back office processes,
we could need to expense items that were previously capitalized, which could result in a substantial charge in
our results of operations; we could experience disruptions to our control environment in connection with the
relocation of our Shared Services Center, including as a result of the failure to retain key employees who
possess specific knowledge or expertise necessary for the timely preparation of our financial statements; and
Hertz Holdings' restatement has resulted in government investigations, books and records demands, and
private litigation and could result in government enforcement actions and private litigation that could have a
material adverse impact on our results of operations, financial condition, liquidity and cash flows;
•
•
Risks related to the spin-off, which effected our separation from New Hertz, such as: we receive certain
transition services from New Hertz pursuant to the transition services agreement covering IT services and
other areas, which impact our control environment and, therefore, our internal control over financial reporting;
we have limited operating history as a stand-alone public company, and our historical financial information for
periods prior to July 1, 2016, is not necessarily representative of the results that we would have achieved as a
separate, publicly traded company, and may not be a reliable indicator of our future results; the liabilities we
have assumed and will share with New Hertz in connection with the spin-off could have a material adverse
effect on our business, financial condition and results of operations; if there is a determination that any portion
of the spin-off transaction is taxable for U.S. federal income tax purposes, including for reasons outside of our
control, then we and our stockholders could incur significant tax liabilities, and we could also incur
indemnification liability if we are determined to have caused the spin-off to become taxable; if New Hertz fails
to pay its tax liabilities under the tax matters agreement or to perform its obligations under the separation and
distribution agreement, we could incur significant tax and other liability; our ability to engage in financings,
acquisitions and other strategic transactions using equity securities is limited due to the tax treatment of the
spin-off; the loss of the Hertz brand and reputation could materially adversely affect our ability to attract and
retain customers; the spin-off may be challenged by creditors as a fraudulent transfer or conveyance; and if
the spin-off is not a legal dividend, it could be held invalid by a court and have a material adverse effect on
our business, financial condition and results of operations;
Business risks could have a material adverse effect on our business, results of operations, financial condition
and/or liquidity, including:
•
the cyclicality of our business, a slowdown in economic conditions or adverse changes in the economic
factors specific to the industries in which we operate, in particular industrial and construction;
•
the dependence of our business on the levels of capital investment and maintenance expenditures by
our customers, which in turn are affected by numerous factors, including the level of economic activity
in their industries, the state of domestic and global economies, global energy demand, the cyclical
nature of their markets, expectations regarding government spending on infrastructure improvements
or expansions, their liquidity and the condition of global credit and capital markets;
•
we may have difficulty obtaining the resources that we need to operate, or our costs to do so could
increase significantly;
6
•
•
intense competition in the industry, including from our own suppliers, that may lead to downward
pricing or an inability to increase prices;
•
any occurrence that disrupts rental activity during our peak periods given the seasonality of the
business, especially in the construction industry;
•
doing business in foreign countries exposes us to additional risks, including under laws and regulations
that may conflict with U.S. laws and those under anticorruption, competition, economic sanctions and
anti-boycott regulations;
•
our success as an independent company will depend on our new senior management team, the ability
of other new employees to learn their new roles, and our ability to attract and retain key management
and other key personnel;
•
some or all of our deferred tax assets could expire if we experience an “ownership change” as defined
in the Internal Revenue Code;
•
changes in the legal and regulatory environment that affect our operations, including with respect to
taxes, consumer rights, privacy, data security and employment matters, could disrupt our business and
increase our expenses;
•
an impairment of our goodwill or our indefinite lived intangible assets could have a material non-cash
adverse impact;
•
other operational risks such as: any decline in our relations with our key national account customers or
the amount of equipment they rent from us; our equipment rental fleet is subject to residual value risk
upon disposition, and may not sell at the prices we expect; we may be unable to protect our trade
secrets and other intellectual property rights; we may fail to respond adequately to changes in
technology and customer demands; our business is heavily reliant upon communications networks and
centralized information technology systems and the concentration of our systems creates or increases
risks for us, including the risk of the misuse or theft of information we possess, including as a result of
cyber security breaches or otherwise, which could harm our brand, reputation or competitive position
and give rise to material liabilities; failure to maintain, upgrade and consolidate our information
technology networks could materially adversely affect us; we may face issues with our union
employees; we are exposed to a variety of claims and losses arising from our operations, and our
insurance may not cover all or any portion of such claims; environmental, health and safety laws and
regulations and the costs of complying with them, or any change to them impacting our customers’
markets could materially adversely affect us; decreases in government spending could materially
adversely affect us; maintenance and repair costs associated with our equipment rental fleet could
materially adversely affect us; and strategic acquisitions could be difficult to identify and implement and
could disrupt our business or change our business profile significantly;
Risks related to our substantial indebtedness, such as: our substantial level of indebtedness exposes us or
makes us more vulnerable to a number of risks that could materially adversely affect our financial condition,
results of operations, cash flows, liquidity and ability to compete; the secured nature of our indebtedness,
which is secured by substantially all of our consolidated assets, could materially adversely affect our business
and holders of our debt and equity; an increase in interest rates or in our borrowing margin would increase the
cost of servicing our debt and could reduce our profitability; and any additional debt we incur could further
exacerbate these risks;
7
•
Risks related to the securities market and ownership of our stock, including that: the market price of our
common stock may fluctuate significantly; the market price of our common stock could decline as a result of
the sale or distribution of a large number of our shares or the perception that a sale or distribution could occur
and these factors could make it more difficult for us to raise funds through future stock offerings; and
provisions of our governing documents could discourage potential acquisition proposals and could deter or
prevent a change in control; and
•
Other risks and uncertainties set forth in the Form 12b-25 filed with the SEC on March 1, 2017, the Company's
Quarterly Form 10-Q for the quarter ended June 30, 2016 in Part II under Item 1A "Risk Factors" and in our
other filings with the SEC.
All forward-looking statements are expressly qualified in their entirety by such cautionary statements. We do not
undertake any obligation to release publicly any update or revision to any of the forward-looking statements.
Information Regarding Non-GAAP Financial Measures
In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”),
the Company has provided certain information in this release which is not calculated according to GAAP
(“non-GAAP”), such as adjusted EBITDA. Management uses these non-GAAP measures to evaluate operating
performance and period-over-period performance of our core business without regard to potential distortions, and
believes that investors will likewise find these non-GAAP measures useful in evaluating the Company’s performance.
These measures are frequently used by security analysts, institutional investors and other interested parties in the
evaluation of companies in our industry.
Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in
accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies.
For the definitions of these terms, further information about management’s use of these measures as well as a
reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the
supplemental schedules that accompany this release.
(See Accompanying Tables)
8
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three Months Ended December 31,
2016
Revenues:
Years Ended December 31,
2015
2016
Equipment rentals
$
356.7
$
2015
(Unaudited)
(Unaudited)
359.2
$
1,352.7
$
1,411.7
Sales of revenue earning equipment
28.5
36.7
122.5
161.2
Sales of new equipment, parts and supplies
17.3
23.9
68.2
92.1
Service and other revenues
2.7
2.6
11.4
13.2
Total revenues
Expenses:
405.2
422.4
1,554.8
1,678.2
Direct operating
167.1
173.0
651.4
711.2
Depreciation of revenue earning equipment
95.4
86.1
350.5
343.7
Cost of sales of revenue earning equipment
32.4
36.4
144.0
146.8
Cost of sales of new equipment, parts and supplies
13.8
18.7
53.0
73.0
Selling, general and administrative
71.5
59.5
275.0
265.5
0.5
0.8
4.0
4.3
32.1
(0.2)
5.1
(52.3)
84.2
(2.4 )
32.9
(56.1 )
Restructuring
Interest expense, net
Other income, net
Total expenses
412.6
Income before income taxes
Income tax expense
327.3
(7.4)
(6.6)
Net income (loss)
$
(14.0 )
1,559.7
95.1
(16.9)
$
78.2
1,521.3
(4.9 )
(15.6 )
$
(20.5 )
156.9
(45.6 )
$
111.3
Weighted average shares outstanding:
Basic
Diluted
Earnings (loss) per share:
28.3
29.2
28.3
30.2
28.3
29.2
28.3
30.2
Basic
$
(0.49 )
$
2.68
$
(0.72 )
$
3.69
Diluted
$
(0.49 )
$
2.68
$
(0.72 )
$
3.69
A- 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(In millions)
December 31,
2016
December 31,
2015
(Unaudited)
ASSETS
Cash and cash equivalents
$
Restricted cash and cash equivalents
11.6
$
15.7
19.4
16.0
293.3
287.8
Inventory
24.1
22.3
Prepaid expenses and other current assets
23.3
19.7
371.7
361.5
Receivables, net of allowance
Total current assets
Revenue earning equipment, net
2,390.0
2,382.5
Property and equipment, net
272.0
246.6
Goodwill and intangible assets, net
394.9
391.5
34.7
14.9
Other long-term assets
Total assets
$
3,463.3
$
3,397.0
$
15.7
$
10.2
LIABILITIES AND EQUITY
Current maturities of long-term debt
—
73.2
Accounts payable
139.0
109.5
Accrued liabilities
78.6
47.8
Taxes payable
10.0
41.6
Loans payable to affiliates
243.3
282.3
Long-term debt
Total current liabilities
2,178.6
53.3
Deferred taxes
687.4
727.3
31.6
32.1
3,140.9
1,095.0
Other long-term liabilities
Total liabilities
Total equity
322.4
Total liabilities and equity
$
A-2
3,463.3
2,302.0
$
3,397.0
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOW
(In millions)
Years Ended December 31,
2016
2015
(Unaudited)
Net cash provided by operating activities
Cash flows from investing activities:
Revenue earning equipment expenditures
Proceeds from disposal of revenue earning equipment
Non-rental capital expenditures
Proceeds from disposal of property and equipment
Proceeds from disposal of business
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt and revolving line of credit
Repayments on revolving line of credit
Net financing activities with THC and affiliates
Payment of debt issuance costs
Purchase of treasury stock
Other financing activities, net
Net cash used in financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents during the period
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
A-3
449.7
496.3
(468.3)
(600.0)
115.4
(47.8)
151.9
(76.9)
5.7
6.0
—
126.4
(3.4)
(398.4)
2.8
(389.8)
3,026.0
(881.0)
1,865.0
(2,208.6)
(2,155.6)
852.6
(41.5)
—
—
(2.9)
(55.0)
(0.4)
(4.1)
(604.5)
(9.9)
(105.4)
(4.3)
(3.2)
15.7
18.9
11.6
$
15.7
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
EBITDA AND ADJUSTED EBITDA RECONCILIATIONS
Unaudited
EBITDA and adjusted EBITDA are not recognized terms under GAAP and should not be considered in isolation or as a substitute
for our reported results prepared in accordance with GAAP. Further, since all companies do not use identical calculations, our
definition and presentation of these measures may not be comparable to similarly titled measures reported by other companies.
EBITDA and Adjusted EBITDA - EBITDA represents the sum of net income (loss), provision for income taxes, interest expense,
net, depreciation of revenue earning equipment and non-rental depreciation and amortization. Adjusted EBITDA represents
EBITDA plus the sum of merger and acquisition related costs, restructuring and restructuring related charges, spin-off costs,
non-cash stock based compensation charges, loss on extinguishment of debt, impairment charges, gain on the disposal of a
business and certain other items. Management uses EBITDA and adjusted EBITDA to evaluate operating performance and
period-over-period performance of our core business without regard to potential distortions, and believes that investors will
likewise find these non-GAAP measures useful in evaluating the Company's performance. These measures are frequently used
by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. However,
EBITDA and adjusted EBITDA do not purport to be alternatives to net earnings as an indicator of operating performance.
Additionally, neither measure purports to be an alternative to cash flows from operating activities as a measure of liquidity, as they
do not consider certain cash requirements such as interest payments and tax payments. The reconciliation of EBITDA and
adjusted EBITDA to net income (loss) is presented below (in millions):
Three Months Ended December
31,
2016
Net income (loss)
$
Provision for income taxes
Years Ended
December 31,
2015
(14.0 )
$
6.6
2016
78.2
$
16.9
2015
(20.5 )
$
15.6
111.3
45.6
Interest expense, net
32.1
5.1
84.2
32.9
Depreciation of revenue earning equipment
95.4
86.1
350.5
343.7
Non-rental depreciation and amortization
EBITDA
Restructuring charges
Restructuring related charges (1)
Spin-Off costs
Non-cash stock-based compensation charges
Gain on disposal of business
11.9
19.1
44.8
77.2
132.0
205.4
474.6
610.7
0.5
0.8
4.0
4.3
—
1.4
2.9
8.0
11.5
6.1
49.2
25.8
1.7
0.4
5.5
2.7
—
(50.9)
—
(50.9 )
—
Other
Adjusted EBITDA
$
(1) Represents incremental costs incurred directly supporting restructuring initiatives.
A-4
145.7
—
0.6
$
163.8
$
536.2
—
$
600.6
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
NET REVENUE EARNING EQUIPMENT EXPENDITURES
Years Ended December 31,
(in millions)
2016
2015
(Unaudited)
Revenue earning equipment expenditures
Disposals of revenue earning equipment
Net revenue earning equipment expenditures
A-5
$
468.3
(115.4 )
$
600.0
(151.9)
$
352.9
$
448.1
Click to edit Master title style Click to edit Master subtitle style Herc Holdings Inc. Q4 and Full Year ending December 31, 2016 Preliminary Results March 1, 2017
Agenda 2 Welcome and Introductions Elizabeth Higashi Vice President, Investor Relations Strategic Update and Industry Outlook Larry Silber President and Chief Executive Officer Q4 and Full Year Preliminary Financial Review Barbara Brasier Senior Vice President and Chief
Financial Officer Q&A Larry Silber Barbara Brasier Bruce Dressel Senior Vice President and Chief Operating Officer NYSE: HRI
Safe Harbor Statements Basis of Presentation The financial results discussed in this presentation are preliminary and unaudited and subject to change as the Company’s financial results are finalized. The financial information included in this presentation is based upon the condensed
consolidated and combined financial statements of the Company which are presented on a basis of accounting that reflects a change in reporting entity and have been adjusted for the effects of the spin-off, which effected our separation from Hertz Rental Car Holding Company, Inc.
(“New Hertz”). These financial statements and financial information represent only those operations, assets, liabilities and equity that form Herc Holdings on a stand-alone basis. Since the spin-off occurred on June 30, 2016, the financial statements represent the carve-out financial
results for the Company for the first six months of 2016, including spin-off impacts through June 30, 2016, and actual results for the second half of 2016, including the three months ended December 31, 2016. All prior period amounts represent carve-out financial results.
Forward-Looking Statements This presentation contains statements that are not statements of historical fact, but instead are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on
these statements, which speak only as of the date hereof. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements, including: Risks related to material
weaknesses in our internal control over financial reporting and the restatement of financial statements previously issued by Hertz Global Holdings, Inc. (in its form prior to the spin-off, “Hertz Holdings”), including that: we have identified material weaknesses in our internal control
over financial reporting that may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which may adversely affect investor and lender confidence in us and, as a result, the value of our common stock and our ability to
obtain future financing on acceptable terms, and we may identify additional material weaknesses as we continue to assess our processes and controls as a stand-alone company with lower levels of materiality; such material weaknesses could result in a material misstatement of our
consolidated and combined financial statements that would not be prevented or detected; we continue to expend significant costs and devote management time and attention and other resources to matters related to our internal control over financial reporting and Hertz Holdings'
restatement, which could adversely affect our ability to execute our strategic plan; our efforts to design and implement an effective control environment may not be sufficient to remediate the material weaknesses or prevent future material weaknesses; our material weaknesses and
Hertz Holdings' restatement could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows, including as a result of events of default under the agreements governing our indebtedness and/or government
investigations, regulatory inquiries and private actions; we may experience difficulties implementing new information technology systems to maintain our books and records and provide operational information to our management team; if we decide to not implement the new
operational system for our back office processes, we could need to expense items that were previously capitalized, which could result in a substantial charge in our results of operations; we could experience disruptions to our control environment in connection with the relocation of
our Shared Services Center, including as a result of the failure to retain key employees who possess specific knowledge or expertise necessary for the timely preparation of our financial statements; and Hertz Holdings' restatement has resulted in government investigations, books and
records demands, and private litigation and could result in government enforcement actions and private litigation that could have a material adverse impact on our results of operations, financial condition, liquidity and cash flows; 3NYSE: HRI
Safe Harbor Statements - Continued 4NYSE: HRI Risks related to the spin-off, which effected our separation from New Hertz, such as: we receive certain transition services from New Hertz pursuant to the transition services agreement covering IT services and other areas, which
impact our control environment and, therefore, our internal control over financial reporting; we have limited operating history as a stand-alone public company, and our historical financial information for periods prior to July 1, 2016, is not necessarily representative of the results
that we would have achieved as a separate, publicly traded company, and may not be a reliable indicator of our future results; the liabilities we have assumed and will share with New Hertz in connection with the spin-off could have a material adverse effect on our business, financial
condition and results of operations; if there is a determination that any portion of the spin-off transaction is taxable for U.S. federal income tax purposes, including for reasons outside of our control, then we and our stockholders could incur significant tax liabilities, and we could
also incur indemnification liability if we are determined to have caused the spin-off to become taxable; if New Hertz fails to pay its tax liabilities under the tax matters agreement or to perform its obligations under the separation and distribution agreement, we could incur significant
tax and other liability; our ability to engage in financings, acquisitions and other strategic transactions using equity securities is limited due to the tax treatment of the spin-off; the loss of the Hertz brand and reputation could materially adversely affect our ability to attract and retain
customers; the spin-off may be challenged by creditors as a fraudulent transfer or conveyance; and if the spin-off is not a legal dividend, it could be held invalid by a court and have a material adverse effect on our business, financial condition and results of operations; Business
risks could have a material adverse effect on our business, results of operations, financial condition and/or liquidity, including: o the cyclicality of our business, a slowdown in economic conditions or adverse changes in the economic factors specific to the industries in which we
operate, in particular industrial and construction; o the dependence of our business on the levels of capital investment and maintenance expenditures by our customers, which in turn are affected by numerous factors, including the level of economic activity in their industries, the state
of domestic and global economies, global energy demand, the cyclical nature of their markets, expectations regarding government spending on infrastructure improvements or expansions, their liquidity and the condition of global credit and capital markets; o we may have difficulty
obtaining the resources that we need to operate, or our costs to do so could increase significantly; o intense competition in the industry, including from our own suppliers, that may lead to downward pricing or an inability to increase prices; o any occurrence that disrupts rental
activity during our peak periods given the seasonality of the business, especially in the construction industry; o doing business in foreign countries exposes us to additional risks, including under laws and regulations that may conflict with U.S. laws and those under anticorruption,
competition, economic sanctions and anti-boycott regulations; o our success as an independent company will depend on our new senior management team, the ability of other new employees to learn their new roles, and our ability to attract and retain key management and other key
personnel; o some or all of our deferred tax assets could expire if we experience an “ownership change” as defined in the Internal Revenue Code; o changes in the legal and regulatory environment that affect our operations, including with respect to taxes, consumer rights, privacy,
data security and employment matters, could disrupt our business and increase our expenses; o an impairment of our goodwill or our indefinite lived intangible assets could have a material non-cash adverse impact;
Safe Harbor Statements - Continued o other operational risks such as: any decline in our relations with our key national account customers or the amount of equipment they rent from us; our equipment rental fleet is subject to residual value risk upon disposition, and may not sell at
the prices we expect; we may be unable to protect our trade secrets and other intellectual property rights; we may fail to respond adequately to changes in technology and customer demands; our business is heavily reliant upon communications networks and centralized information
technology systems and the concentration of our systems creates or increases risks for us, including the risk of the misuse or theft of information we possess, including as a result of cyber security breaches or otherwise, which could harm our brand, reputation or competitive position
and give rise to material liabilities; failure to maintain, upgrade and consolidate our information technology networks could materially adversely affect us; we may face issues with our union employees; we are exposed to a variety of claims and losses arising from our operations, and
our insurance may not cover all or any portion of such claims; environmental, health and safety laws and regulations and the costs of complying with them, or any change to them impacting our customers’ markets could materially adversely affect us; decreases in government
spending could materially adversely affect us; maintenance and repair costs associated with our equipment rental fleet could materially adversely affect us; and strategic acquisitions could be difficult to identify and implement and could disrupt our business or change our business
profile significantly; Risks related to our substantial indebtedness, such as: our substantial level of indebtedness exposes us or makes us more vulnerable to a number of risks that could materially adversely affect our financial condition, results of operations, cash flows, liquidity
and ability to compete; the secured nature of our indebtedness, which is secured by substantially all of our consolidated assets, could materially adversely affect our business and holders of our debt and equity; an increase in interest rates or in our borrowing margin would increase
the cost of servicing our debt and could reduce our profitability; and any additional debt we incur could further exacerbate these risks; Risks related to the securities market and ownership of our stock, including that: the market price of our common stock may fluctuate
significantly; the market price of our common stock could decline as a result of the sale or distribution of a large number of our shares or the perception that a sale or distribution could occur and these factors could make it more difficult for us to raise funds through future stock
offerings; and provisions of our governing documents could discourage potential acquisition proposals and could deter or prevent a change in control; and Other risks and uncertainties set forth in the Form 12b-25 filed with the Securities and Exchange Commission (“SEC”) on
March 1, 2017, in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 in Part II under Item 1A “Risk Factors” and in our other filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such cautionary
statements. We do not undertake any obligation to release publicly any update or revision to any of the forward-looking statements. 5NYSE: HRI
Information Regarding Non-GAAP Financial Measures In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this presentation which is not calculated according to
GAAP (“non-GAAP”), such as adjusted EBITDA and free cash flow. Management uses these non-GAAP measures to evaluate operating performance and period-over-period performance of our core business without regard to potential distortions, and believes that investors will
likewise find these non-GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. Non-GAAP measures should not be
considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For the definitions of these terms, further information about management’s use of these
measures as well as a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the Appendix to this presentation. Herc Holdings does not provide forward-looking guidance for certain financial measures on a GAAP basis or a
reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP reported financial measures on a forward-looking basis because it is unable to predict certain items contained in the GAAP measures without unreasonable efforts. Certain items
that impact net income (loss) cannot be predicted with reasonable certainty, such as restructuring and restructuring related charges, special tax items, borrowing levels (which affect interest expense), gains and losses from asset sales, the ultimate outcome of pending litigation and
spin-related costs. 6NYSE: HRI
Transformation in Process Executing our strategy and driving improvements in operating performance Successfully diversifying fleet mix to higher dollar utilization equipment categories Achieving above market growth in major urban locations Growing local rental
revenues faster than growth in national accounts Improving fleet availability Reducing equipment, parts and service costs through better vendor management Enhancing customer service through key initiatives such as premium brands and new technologies 7NYSE: HRI
Preliminary Financial Highlights 8 Q4 2016 FY 2016 Equipment Rental Revenues $356.7 million $1,352.7 million Equipment Rental Revenue Growth1 + 6.2% in Key Markets2; 84% of total + 1.3% YoY Overall2 + 8.1% in Key Markets2; 83% of total + 0.5% YoY
Overall2 Pricing + 1.5% YoY in Key Markets + 0.5% YoY Overall + 1.6% YoY in Key Markets + 0.3% YoY Overall Net Income (Loss) ($14.0) million ($20.5) million Adjusted EBITDA3 $145.7 million 36.0% margin $536.2 million 34.5% margin 1 Excluding
operations in France & Spain and impact of foreign currency translation. 2 Key markets are defined as markets we currently serve outside of upstream oil and gas markets, overall refers to all markets. 3 For a reconciliation to the most comparable GAAP financial measure, see the
Appendix beginning on slide 26. NYSE: HRI
On the Path Forward 9NYSE: HRI • Herc Holdings began trading on the NYSE on July 1, 2016 Herc Holdings Spin Expand and Diversify Revenues Improve Operating Efficiencies Enhance Customer Experience On the Path Forward • Broaden customer base • Expand products
and services • Increase density • Grow ancillary revenues • Improve vendor management and fleet availability • Drive operating performance through mix and volume • Focus on safety and labor productivity • Provide premium products and services • Introduce innovative
technology solutions
Expand and Diversify Revenues Increased sales force as part of territory optimization to drive revenue growth Continued to successfully diversify fleet to attract “square-footage-under-roof” customers Shifted to higher $ Utilization equipment showing results in major urban
locations Increased Local as a % of total rental to 53% in the fourth quarter Increased ancillary revenue 15% in the quarter and 17% for the year compared with 2015 10NYSE: HRI • Broaden customer base • Expand products and services • Increase density • Grow ancillary
revenues Key Accomplishments
Diversifying the Fleet to Maximize Dollar Utilization 11NYSE: HRI Aerial - Booms 19.3% Aerial - Scissors & Other 6.4% Earthmoving - Heavy 10.7% Earthmoving - Compact, 7.5% Material Handling - Telehandlers 13.5% Material Handling - Industrial 3.2% Trucks and Trailers
12.9% ProSolutions 13.4% ProContractor 4.7% Air Compressors 3.0% Other 2.0% Lighting 1.7% Compaction 1.7% Aerial - Booms 20.3% Aerial - Scissors & Other 5.7% Earthmoving - Heavy 12.4% Earthmoving - Compact 6.5% Material Handling - Telehandlers 13.9% Material
Handling - Industrial 3.1% Trucks and Trailers 13.8% ProSolutions 12.4% ProContractor 3.4% Air Compressors 3.1% Other 2.1% Lighting 1.7% Compaction 1.6% OEC as of 12/31/2015 OEC as of 12/31/2016 Increased • Aerial - Scissor Lifts • Earthmoving - Compact •
ProContractorTM and ProSolutionsTM Reduced • Aerial - Booms • Earthmoving - Heavy • Material Handling - Telehandlers
Improve Operating Efficiencies Reduced FUR to 15.3% in December 2016 compared to 15.9% in the prior year Improved fleet, parts and service costs through vendor management Focused on enhancing salesforce effectiveness through by driving the right behaviors
Continued to improve safety performance and enhance safety culture – 45,000 hours of safety training in FY 2016 12NYSE: HRI • Improve vendor management and fleet availability • Drive operating performance through mix and volume • Focus on safety and labor productivity
Key Accomplishments
Enhance Customer Experience Expanded ProSolutions Centers of Excellence to approximately 30 locations Continued to upgrade branches to showcase ProContractor equipment Focused on maintenance and service initiatives to better serve customers Shifted core OEC
categories to premium equipment that has broader customer appeal Rolled out ProControl™ telematics to strategic customers 13NYSE: HRI • Provide premium products and services • Introduce innovative technology solutions Key Accomplishments
Industry Outlook Highlights Positive market growth and further penetration of rental solutions expected to continue 1 The American Institute of Architects (AIA). 2 ARA / IHS Global Insight as of February 2017, excludes Party & Event data. 3 Dodge Analytics. 4 Industrial
information resources. $38 $31 $32 $35 $38 $41 $44 $47 $49 $51 $53 $56 $58 08 09 10 11 12 13 14 15 16 17E 18E 19E 20E ($ in billions) N.A. Equipment Rental Market 2 14NYSE: HRI as of February 2017 Non-Residential Starts 3 Architecture Billings Index 1 Industrial
Spending 4 $297.9 $310.4 2016 2017E J a n -9 6 J a n -0 0 J a n -0 4 J a n -0 8 J a n -1 2 J a n- 1 6 50 $235 $249 $272 $281 $100 $150 $200 $250 $300 $350 2016 2017E 2018E 2019E ($ in millions) Jan 49.5 as of Q1 2017 as of January 2017 as of Q1 2017 ($ in millions) • Key
industry metrics remain positive – non- res construction growth of 4.6% projected through 2019 • American Rental Association (ARA) forecasts North American equipment rental growth of 4.4% through 2020 • Industrial spending is expected to grow 4.2% in 2017 • Continuing
shift from ownership to rental will fuel growth
On the Path Forward 15NYSE: HRI Disciplined Capital Management Expand and Diversify Revenues Improve Operating Efficiencies Enhance Customer Experience On the Path Forward • Broaden customer base • Expand products and services • Increase density • Grow ancillary
revenues • Improve vendor management and fleet availability • Drive operating performance through mix and volume • Focus on safety and labor productivity • Provide premium products and services • Introduce innovative technology solutions • Drive EBITDA margin growth •
Improve key financial metrics
Preliminary Financial Overview 16
Q4 and Full Year Preliminary Financial Summary 17NYSE: HRI $ in millions, except EPS Three Months Ended December 31, Year Ended December 31, 2016 2015 2016 2015 Equipment Rental Revenues $ 356.7 $ 359.2 $ 1,352.7 $ 1,411.7 Total Revenues 405.2 422.4 1,554.8
1,678.2 Net Income (Loss) (14.0) 78.2 (20.5) 111.3 Diluted Earnings (Loss) Per Share (0.49) 2.68 (0.72) 3.69 Adjusted EBITDA1 $ 145.7 $ 163.8 $ 536.2 $ 600.6 1 For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on slide 26.
Q4 and Full Year Preliminary Equipment Rental Revenues 18 $ in millions Equipment rental revenue increased +6.2% in key markets, excluding divestitures and currency Key markets represented 84% of rental revenue • Key markets increase attributable to: - Traction of
urban market strategy - ProSolutions growth year-over-year - Core business improvement Pricing increased 1.5% YoY in key markets and 0.5% overall Equipment rental revenue increased +8.1% in key markets, excluding divestitures and currency Key markets represented
83% of rental revenue Rate of oil and gas decline continues to diminish as comparable periods are lapped Q4 Equipment Rental Revenue Bridge Full Year Equipment Rental Revenue Bridge NYSE: HRI Q4 Summary Full Year Summary $ 356.7 $7.0 $13.0 $17.5$359.2 0 50 100
150 200 250 300 350 400 2015 France & Spain and currency translation Key markets Oil and gas 2016 $1,352.7 $66.2 $77.9 $85.1 $1,411.7 800 900 1,000 1,100 1,200 1,300 1,400 1,500 2015 France & Spain and currency translation Key markets Oil and gas 2016
19NYSE: HRI 2015 included revenue from divested foreign operations Sales of revenue earning equipment declined YoY due to high volume of disposals from oil & gas regions in 2015 New equipment sales were also lower due to focus on higher-margin rental activities
Q4 Total Revenue Bridge Full Year Total Revenue Bridge $ in millions Q4 and Full Year Summary Q4 and Full Year Preliminary Total Revenues $405.2 $10.4 $5.1 $6.2 $4.5$422.4 200 250 300 350 400 450 2015 France & Spain and currency translation Equipment rental revenue
Sales of revenue earning equipment Sales of new equipment and other 2016 $1,554.8 $77.9 $31.2 $21.5 $7.2 $1,678.2 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 2015 France & Spain and currency translation Equipment rental revenue Sales of revenue earning equipment
Sales of new equipment and other 2016
20NYSE: HRI $ in millions 2015 included Q4 gain on divestiture Interest expense for second half 2016 reflects debt on a stand-alone basis Fleet depreciation increased due to fleet growth and normal course rate review Losses on sales of revenue earning equipment
diminished in second half Increase in spin-off costs: IT and professional expenses related to the spin transaction Q4 and Full Year Summary Q4 and Full Year Preliminary Net Income 1 Interest expense, depreciation of REE and losses on sales of REE attributable to France &
Spain are included in the category labeled “France & Spain and currency translation.” $(20.5) $43.8 $24.1 $31.1 $23.5 $56.2 $30.0 $16.9 $111.3 (35) (15) 5 25 45 65 85 105 125 2015 France & Spain and currency translation Tax expense Depr. of REE All Other Loss on sales of
REE Spin-off costs Interest expense 2016 $(14.0) $50.0 $11.0 $5.0 $3.7 $5.4 $27.4 $10.3 $78.2 (20) 0 20 40 60 80 100 2015 France & Spain and currency translation Tax expense Depr. of REE All Other Loss on sales of REE Spin-off costs Interest expense 2016 Q4 Net Income
Bridge Full Year Net Income Bridge 111 1 1 1
21NYSE: HRI $ in millions Q4 Adjusted EBITDA Bridge 2 Full Year Adjusted EBITDA Bridge 2 Q4 Summary Q4 and Full Year Preliminary Adjusted EBITDA1 Key markets mostly offset oil and gas decline Full Year Summary $536.2$18.4 $31.1 $9.7 $50.7 $45.5 $600.6 200
250 300 350 400 450 500 550 600 650 2015 France & Spain and currency translation Loss on sales of revenue earning equipment Stand-alone costs Key markets Oil and gas 2016 $145.7$2.3 $3.7 $6.1 $7.4 $1.4 $163.8 0 20 40 60 80 100 120 140 160 180 2015 France & Spain and
currency translation Loss on sales of revenue earning equipment Stand-alone costs Key markets Oil and gas 2016 Oil and gas impacted by YoY revenue headwinds which continue to diminish as comparable periods are lapped 1 For a reconciliation to the most comparable GAAP
financial measure, see the Appendix beginning on slide 26. 2 Corporate G&A costs allocated pro rata between “Key markets” and “Oil and gas”
Preliminary Fleet Capital Expenditures 22 Average fleet original equipment cost (OEC). NYSE: HRI Net Fleet Capex for the full year 2016 was $352.9 million as we successfully disposed of low performing fleet sooner than anticipated while achieving fleet diversification targets
In 2016, received $115.4 million in proceeds from disposal of equipment with an approximate OEC of $313 million Rental equipment at OEC 2 was $3.56 billion as of December 31, 2016 Average rental equipment at OEC2 for the full year ended December 31, 2016, grew
3.4% versus the prior year, excluding divestitures Dollar utilization was 35.1% for the fourth quarter 2016 $ in millions Year Ended December 31, 2016 2015 $ Variance Total Revenue Earning Equipment Expenditures $ 468.3 $ 600.0 $ (131.7) Revenue Earning Equipment
Disposals $ (115.4) $ (151.9) $ 36.5 Net Fleet Capital Expenditures 1 $ 352.9 $ 448.1 $ (95.2) 1 Cash flow basis. 2 Based on ARA guidelines.
Preliminary Debt and Liquidity 23 Debt Ample Liquidity $ in millions, as of 12/31/16 $910.0 $610.0 $625.0 '17 '18 '19 '20 '21 '22 '23 '24 Total Liquidity $ 828.7 Cash and Cash Equivalents 11.6 ABL Availability 817.1 Facility 1,750.0 Outstanding (910.0) Letters of Credit (22.9)
ABL Credit Facility Senior Secured Second Priority Notes Capital Leases $70.3 Stable debt with long dated maturities provide financial flexibility Total debt of $2.2 billion as of December 31, 2016 Maintained ample liquidity during the quarter - $828.7 million as of
December 31, 2016 Net cash provided by operating activities was $449.7 million - strong free cash flow1 for FY 2016 of $51.3 million Gave notice of redemption of 10% of the outstanding senior notes at 103% of aggregate principal amount plus interest under the terms of the
indenture NYSE: HRI 1 For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on slide 26.
Full Year 2017 Guidance1 24NYSE: HRI Adjusted EBITDA $550 million to $590 million Net Fleet Capital Expenditures2 $275 million to $325 million 1 Herc Holdings does not provide forward-looking guidance for certain financial measures on a GAAP basis or a reconciliation
of forward-looking non-GAAP financial measures to the most directly comparable GAAP reported financial measures on a forward-looking basis because it is unable to predict certain items contained in the GAAP measures without unreasonable efforts. Certain items that impact net
income (loss) cannot be predicted with reasonable certainty, such as restructuring and restructuring related charges, special tax items, borrowing levels (which affect interest expense), gains and losses from asset sales, the ultimate outcome of pending litigation and spin-related costs.
2 Cash flow basis.
In Summary • Gained traction in introducing new products across branch network • Accelerated branch performance in urban markets • Improved operating efficiencies • Improved sales force effectiveness through training and productivity tools • Achieved growth in ancillary
revenues • Continued to drive safety as our #1 priority throughout the organization 25NYSE: HRI
Appendix 26
Glossary of Terms Commonly Used in the Industry 27NYSE: HRI OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association, which is calculated as the cost of the asset at the time it was first purchased plus additional
capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). 1 Fleet Age: The OEC weighted age of the entire fleet. 2 Net Fleet Capital Expenditures: Capital expenditures of revenue earning equipment minus the proceeds from disposal of
revenue earning equipment. 3 Dollar Utilization ($ Ute): Dollar utilization is an operating measure calculated by dividing rental revenue by the average OEC of the equipment fleet for the relevant time period. 4 Pricing: Change in pure pricing achieved in one period versus another
period. This is applied both to year-over-year and sequential comparisons. Rental rates are calculated based on the category class rate variance achieved either year-over-year or sequentially for any fleet that qualifies for the fleet base and weighted by the prior year revenue mix. 5
FUR: Fleet unavailable for rent. 6
Reconciliation of Net Income to EBITDA and Adjusted EBITDA 28NYSE: HRI EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP. Further,
since all companies do not use identical calculations, our definition and presentation of these measures may not be comparable to similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA - EBITDA represents the sum of net income (loss), provision for
income taxes, interest expense, net, depreciation of revenue earning equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of merger and acquisition related costs, restructuring and restructuring related charges, spin-off costs,
non-cash stock based compensation charges, loss on extinguishment of debt, impairment charges, gain on disposal of a business and certain other items. Management uses EBITDA and Adjusted EBITDA to evaluate operating performance and period-over-period performance of our
core business without regard to potential distortions, and believes that investors will likewise find these non- GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested
parties in the evaluation of companies in our industry. However, EBITDA and Adjusted EBITDA do not purport to be alternatives to net earnings as an indicator of operating performance. Additionally, neither measure purports to be an alternative to cash flows from operating
activities as a measure of liquidity, as they do not consider certain cash requirements such as interest payments and tax payments.
Preliminary Reconciliation of Net Income to EBITDA and Adjusted EBITDA 29 $ in millions Three months ended December 31, Year Ended December 31, 2016 2015 2016 2015 Net income (loss) $ (14.0) $ 78.2 $ (20.5) $ 111.3 Provision for income taxes 6.6 16.9 15.6 45.6
Interest expense, net 32.1 5.1 84.2 32.9 Depreciation of revenue earning equipment 95.4 86.1 350.5 343.7 Non-rental depreciation and amortization 11.9 19.1 44.8 77.2 EBITDA 132.0 205.4 474.6 610.7 Restructuring charges 0.5 0.8 4.0 4.3 Restructuring related charges 1 - 1.4 2.9
8.0 Spin-off costs 11.5 6.1 49.2 25.8 Non-cash stock-based compensation charges 1.7 0.4 5.5 2.7 Gain on disposal of business - (50.9) - (50.9) Other - 0.6 - - Adjusted EBITDA $ 145.7 $ 163.8 $ 536.2 $ 600.6 Total Revenues $ 405.2 $422.4 $ 1,554.8 $ 1,678.2 Adjusted EBITDA $
145.7 $ 163.8 $ 536.2 $ 600.6 Adjusted EBITDA Margin 36.0% 38.8% 34.5% 35.8% NYSE: HRI 1 Represents incremental costs incurred directly supporting restructuring initiatives.
30 Year Ended December 31, 2016 Actual Sale of France and Spain Foreign Currency Translation Year Ended December 31, 2016 Adjusted Total revenues $ 1,554.8 $ 0 $ 8.1 $1,562.9 Equipment rental revenue 1,352.7 0 6.6 1,359.3 Year Ended December 31, 2015 Actual Sale of
France and Spain Foreign Currency Translation Year Ended December 31, 2015 Adjusted Total revenues $ 1,678.2 $ (69.8) $ 0 $1,608.4 Equipment rental revenue 1,411.7 (59.6) 0 1,352.1 $ in millions Three months ended December 31, 2016 Actual Sale of France and Spain
Foreign Currency Translation Three months ended December 31, 2016 Adjusted Total revenues $ 405.2 $ 0 $ 0.5 $ 405.7 Equipment rental revenue 356.7 0 0.5 357.2 Three months ended December 31, 2015 Actual Sale of France and Spain Foreign Currency Translation Three
months ended December 31, 2015 Adjusted Total revenues $ 422.4 $ (9.9) $ 0 $412.5 Equipment rental revenue 359.2 (6.5) 0 352.7 $ in millions $ in millions $ in millions $ in millions Preliminary Reconciliation to Adjust for Divestitures and Foreign Currency Translation NYSE:
HRI
Reconciliation of Free Cash Flow 31NYSE: HRI Free cash flow is not a recognized term under GAAP and should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP. Further, since all companies do not use identical
calculations, our definition and presentation of this measure may not be comparable to similarly titled measures reported by other companies. Free cash flow represents net cash provided by (used in) operating activities less revenue earning equipment expenditures, proceeds from
disposal of revenue earning equipment, property and equipment expenditures, proceeds from disposal of property and equipment and other investing activities. Free cash flow is used by management in analyzing the Company’s ability to service and repay its debt and to forecast
future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures.
Preliminary Reconciliation of Free Cash Flow 32 $ in millions Year Ended December 31, 2016 Net cash provided by operating activities $ 449.7 Revenue earning equipment expenditures ( (468.3) Proceeds from disposal of revenue earning equipment 115.4 Non-rental capital
expenditures (47.8) Proceeds from disposal of property and equipment 5.7 Other investing activities (3.4) Free Cash Flow $ 51.3 NYSE: HRI
33NYSE: HRI