United Rentals Investor Presentation Q2 2014
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United Rentals Investor Presentation Q2 2014

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United Rentals posts very impressive financial results for Q2 2014.

United Rentals posts very impressive financial results for Q2 2014.

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  • 1. Executing for Growth and Returns 2014 Outlook Investor Presentation Second Quarter 2014
  • 2. 2 Unless otherwise specified, the information in this presentation, including forward looking statements related to our outlook, is as of our most recent earnings call held on July 17, 2014. We make no commitment to update any such information contained in this presentation. Note: This presentation provides information about free cash (usage) flow, EBITDA, adjusted EBITDA and adjusted EPS, which are non-GAAP financial measures. This presentation includes a reconciliation between free cash (usage) flow and GAAP cash flow from operations, a reconciliation between both adjusted EBITDA and EBITDA, on the one hand, and GAAP net income, on the other hand, a reconciliation between both adjusted EBITDA and EBITDA, on the one hand, and GAAP cash flow from operations, on the other hand, and a reconciliation between adjusted EPS and GAAP EPS. (Information reconciling such forward-looking non-GAAP financial measures is unavailable to the Company without unreasonable effort.) Introductory Information Certain statements in this presentation are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. These statements can generally be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will,“ "should," "seek," "on-track," "plan," "project," "forecast," "intend" or "anticipate," or the negative thereof or comparable terminology, or by discussions of vision, strategy or outlook. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following: (1) the challenges associated with past or future acquisitions, such as undiscovered liabilities, costs, integration issues and/or the inability to achieve the cost and revenue synergies expected; (2) a slowdown in the recovery of North American construction and industrial activities, which decreased during the economic downturn and significantly affected our revenues and profitability, may further reduce demand for equipment and prices that we can charge; (3) our significant indebtedness, which requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions; (4) the inability to refinance our indebtedness at terms that are favorable to us, or at all; (5) the incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness; (6) noncompliance with covenants in our debt agreements, which could result in termination of our credit facilities and acceleration of outstanding borrowings; (7) restrictive covenants and amount of borrowings permitted under our debt agreements, which could limit our financial and operational flexibility; (8) a decrease in levels of infrastructure spending, including lower than expected government funding for stimulus-related construction projects; (9) fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated; (10) our rates and time utilization being less than anticipated; (11) our inability to manage credit risk adequately or to collect on contracts with customers; (12) our inability to access the capital that our business or growth plans may require; (13) the incurrence of impairment charges; (14) our dependence on distributions from subsidiaries as a result of our holding company structure and the fact that such distributions could be limited by contractual or legal restrictions; (15) an increase in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (16) the incurrence of additional costs and expenses (including indemnification obligations) in connection with litigation, regulatory or investigatory matters; (17) the outcome or other potential consequences of litigation and other claims and regulatory matters relating to our business, including certain claims that our insurance may not cover; (18) the effect that certain provisions in our charter and certain debt agreements and our significant indebtedness may have of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us; (19) management turnover and inability to attract and retain key personnel; (20) our costs being more than anticipated, and the inability to realize expected savings in the amounts or timeframes planned; (21) our dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms; (22) our inability to sell our new or used fleet in the amounts, or at the prices, we expect; (23) competition from existing and new competitors; (24) disruptions in our information technology systems; (25) the costs of complying with environmental, safety and foreign laws and regulations; (26) labor difficulties and labor- based legislation affecting labor relations and operations generally; and (27) increases in our maintenance and replacement costs as we age our fleet, and decreases in the residual value of our equipment. For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, as well as to our subsequent filings with the SEC. The forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
  • 3. 3 Table of Contents Introduction 4 Market Overview 11 Margin Enhancement 16 Growth Through Customer Solutions 28 Fleet 35 Financial Overview 41
  • 4. 4 is the Industry Leader, Creating a New Standard for Operational Execution to Drive Growth and Returns Through the Cycle
  • 5. 5 United Rentals 12% HERC 5% Sunbelt 5% Other 78% Equipment Rental Leader Scale Creates Distinct Competitive Advantages and Higher Quality Services for Customers  #1 U.S. Market Share  883 locations across North America  Diversified mix – Industrial/Non Construction – 55% – Non-Residential Construction – 41% – Residential – 4%  Team of 12,117 employees
  • 6. 6 Creating a New Industry Standard Deploying the best people, equipment and solutions to enable our customers to safely build a better and stronger future Our Vision Driven By These Values  Safety First  Leading By Example  Continuous Innovation  Integrity  Passion for People  Community Minded Will Result In Superior returns to our stockholders by achieving strong and consistent financial performance
  • 7. 7 Our Four Pillar Strategy for Success Driving Growth and Returns Through the Cycle  National Account Strategy  Total Control  Market Leadership  Penetrating high return markets  Growing industrial customers  Invest in related adjacencies, such as tanks or pumps – High customer overlap – Shared capability – Attractive returns  Evaluate international opportunities  Customer Service model  Most advantaged cost position  Best execution at the branch  Significant improvements in productivity  Grow cross-sell and customer relevancy  Expand key categories – Trench – Tools – Power & HVAC  Invest in high- return M&A Grow the Core New Standard for Operational Execution Expand Specialty Businesses Fill Growth Pipeline
  • 8. 8 Entering Next Phase of Strategic and Financial Evolution 2012–2013 2009–2012 2013  Operation United  Business transformation through operational improvement and customer focus RSC Transformation  Became the scale industry leader; achieve benefits through “Best of Both” philosophy and successful realization of synergies Operation United 2 and Business Mix  Delivering on new standard of operational excellence across a more diversified customer base to drive higher, more consistent through- cycle returns
  • 9. 9 Objectives and Goals 2014 Priorities Driving Growth and Improving Returns on Invested Capital  Balance organic growth, M&A, reducing leverage, returning cash to shareholders  Achieve superior performance by leveraging unique advantages to deliver our customers unsurpassed quality and service  Apply powerful tools and tangible initiatives to deliver further margin expansion Margin Enhancement Growth Through Customer Solutions Capital Allocation
  • 10. 10 Safety as a Core Value Branch Focused Initiatives  Company-wide implementation and measurement of comprehensive training and communications tools  Emphasis on targeted communication and training for high-risk jobs and potential hazards Robust Support for Industry Initiatives  Launched United Academy™, a comprehensive training solution using cutting edge technology unique to our industry  Campbell Institute charter membership attained through URI’s safety-focused reputation and performance  Region-wide Safety Summits emphasizing Safety as a driving force in achieving Operational Excellence  Driving a proactive culture based on the analysis and use of leading and predictive indicators  Communicating Personal Safety Responsibility expectations Building a World-Class Safety Culture 96% of Branches at Zero Recordable Incidents for Q2
  • 11. 11 Market Overview
  • 12. 12 0 10 20 30 40 50 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $22 $24 $25$19 +11% +19% +6% +5% $25 +0% $26 Non-Residential Recovery to Fuel Rental Expansion +6% $29 +9% $32 +11% $36 +12% +7% $38 $38 -1% Source: IHS Global Insight Forecast $29 -23% $28 -3% $30 +8% $33 +9% $35 +6% $38 +8% $42 +11% $46 +10% $50 +8% $54 +8% North American Rental Industry Expected to Grow $Bn
  • 13. 13 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Down Same Up (1) Survey of Key accounts only conducted by 3rd party. Approximately 220 surveys conducted each month Key Customers’ Optimism Returns Record Level of Customer Optimism Reported in June
  • 14. 14 Reasons to Rent  Control expenses and inventory  The right equipment for the job  24/7 customer care  Save on storage/warehousing  Reduce downtime  No need for maintenance Why Rent – Total Cost of Ownership Compelling Economic Benefit to Rent  Save disposable costs  Cost control  Equipment tracking  No licenses  Conserve capital
  • 15. 15 Why Rent – Total Cost of Ownership  Needs Assessment  Fleet Availability  Equipment Sourcing  Fleet Deployment  ROI/Performance Analysis  Wrench Time Enablement  Consumption Management  Eq. Logistics  Operator training  PM & Repair  Regulatory Compliance  Demobilization  Decommission/Replace  Liquidation Planning/ Procurement Operating/ Maintenance Reporting/ Optimization Disposal/ Liquidation Renting Addresses Ownership Pain Points
  • 16. 16 Margin Enhancement Applying Powerful Tools to Deliver Further Margin Expansion
  • 17. 17 URI EBITDA Margins and Rental Rate Index Strong Track Record of Margin Improvement 31.5% 32.8% 26.7% 30.9% 35.5% 42.6% 46.3% 75 80 85 90 95 100 2007 2008 2009 2010 2011 PF 2012 2013 +13.5pp +19.6pp More Than 1300 Basis Point Improvement, While Rates Still at 2007 Levels Rental Rate Index
  • 18. 18 Unique Operating Advantages Support Further Margin Enhancement Lean Initiatives/ Operational Excellence Metro Model Scale Advantage Business Mix Continuous Improvement Best Cost Structure Higher Utilization Potential Emphasizing Contribution Margin
  • 19. 19 Branch Network Rollout in 2014 Will Deliver Efficiencies Lean Processes Drive Real Value  Decreased Outside Hauling Costs  Increased Dispatches per Driver  Improved Branch Cycle Time  Reduced Branch Overtime Costs  Shortened Dispute Resolution Time  Eliminated Empty Trucks Shop Productivity Cost per Delivery Days Sales Outstanding Time Utilization Pilot Activity  Yard Turnaround Time Redesigned Branch Operation Logistics-Created Relevant SOPs  Order Accuracy Detailed review of the Order Entry process-implemented simplified SOPs  Dispatch & Sourcing Revised Standard Operating Practices – increased central dispatch  Shop Floor Redesign Redesigned Flow & Created Standardized Triage Process Productivity Gains Potential Value Levers Targeted Run Rate of $100M of Efficiencies Within 3 Years
  • 20. 20 Do It Right the First Time Example: Process Observation Used Basic Lean Tools in Pilot Branches Established Baseline for Branch Network Rollout  Created fast turn lanes to increase capacity  Clarified Roles & Responsibilities  Reorganized Shop & Yard Flow  Increased operational quality at customer touch points Implemented Improvements Value Stream Mapping Identified Waste Spaghetti Diagrams Created for Yard & Shop Processes  Observation & Documentation Exposes Waste  Clear Best Practices emerge Create a Culture of Continuous Improvement  Don’t pass a defect down the line – if it’s not right, fix it  Customer communication drives customer service  Make performance visible – allow teams to win daily  Balance tasks – ensure appropriate roles & responsibilities Pilots Provided Visibility to Value Levers
  • 21. 21 Lean Rollout Underway Phase 1 Complete Phase 1 Results Q3 Planned Activities  141 Wave 1 branches, 307 kaizen events at non- specialty locations  1644 Employee participants  260 Branch Manager Participants  Shop and Yard flow focused  Order Accuracy Best Practice Roll- Out (OA B-Pro) close to completion by participating locations  Measurable improvements in Dispatches per Driver per Day  Meaningful reduction in the Cost per Delivery  Notable improvement in Driver Turn Time  Continuous Improvements in Productivity and Customer Experience  Continue events in Kaizen branches Focused on Improving Time Utilization  Process Improvement Team Targeted solutions focused on reducing outside hauling and improving customer service A Lean Journey Producing Results
  • 22. 22 More Diversified End Market Exposure 61% 39% Three Levers to Help Achieve Less Cyclical Mix Stronger Business and Fleet Mix Larger, More Stable Customers More Specialty Rental Fleet 19%* 81% Specialty General Rental Key Accounts Unassigned Accounts 45% 51% Industrial/ Non-Construction Non- Residential Residential 4% *includes Specialty available at General Rentals
  • 23. 23 Key Segments United Rentals Specialty Business Today 81% 19% General Rental Specialty* EBITDA Margin LT Market Growth Tools ~60% 3–5% Power / HVAC ~40% 4–8% Trench ~45% 1–5% Specialty Offers Cross Selling Opportunities Total URI TTM Rental Revenue Internal Estimates Pumps 40–50% 9% *Includes specialty assets at General Rentals
  • 24. 24 TSPH & Tools Revenue* *TSPH and Tools penetration of NAM revenue; based on select cat classes regardless of location servicing; Cross Sell Delivers Customer Value  National Account growth of 10%  TSPH/Tools National Account growth of 14%  Cross sell contributed to ~14% of incremental company National Account growthQ2 '11 Q2 '12 Q2 '13 Q2 '14 TSPH/Tools TSPH/Tools 8.1% 9.2% 10.2% 10.6%
  • 25. 25 Trench Safety Provides Revenue Synergy Opportunity Trench Safety Annual Rental Revenue Growth 31% 36% 21% 15% 21% FY 2011 FY 2012 FY 2013 Q1 2014 Q2 2014  Largest trench safety rental company in North America  Trench is first on the job and supports cross-selling opportunities  5 Trench Safety branches opened in 2013 3 Trench Safety Branches to Open in 2014
  • 26. 26 Power & HVAC Offers Attractive Growth Opportunity 8 Power & HVAC Branches to Open in 2014  Combination with RSC provides revenue synergy opportunity  Historically high margin business  Business specializes in turn-key services and solutions  13 Power HVAC branches opened in 2013 Power & HVAC Annual Rental Revenue Growth 63% 34% 26% 57% 54% FY 2011 FY 2012 FY 2013 Q1 2014 Q2 2014
  • 27. 27 Provides Custom Tool Solutions in Hoisting, Welding, and Tools to Industrial Customers  High margins and attractive return assets  National Account revenue 70% of total revenue to drive customer entanglement with largest customers  Offers total managed project solutions & software to improve productivity and wrench time Tools & Industrial Solutions Increase Customer Entanglement and Share of Wallet
  • 28. 28 Growth Through Customer Solutions Achieve Superior Performance by Leveraging Unique Advantages
  • 29. 29 Customer Solutions Drive Revenue Growth and Capital Efficiency Engagement Strategy Total Control On-Sites Deliver Technology-Enabled, Innovative Solutions to Improve Customer Productivity  Tailored engagement strategies to meet the specific needs of different customers – from large enterprises to small, local businesses  Focus dialogue on solutions to increase productive “wrench time” for customers’ business  Software solution developed to help customers more effectively manage rental equipment  Total Control users gain business advantages – focuses relationship on utilization, not rate  Right tools at the right time guaranteed with onsite personnel to reduce downtime and ensure high-quality, tailored service
  • 30. 30 Customer Engagement Strategy Large Industrial Enterprise Agreements “Company-wide Solutions”  Consumption Management  “Wrench Time”  “Wrench Time”  24/7 After Hours  Breadth & Depth Large Commercial Job Site Management “Reliable Partner”  Availability  Reliability  Accessibility Locals “Ease of Doing Business” Value Proposition Tailored to Meet Specific Customer Needs
  • 31. 31 29% 19% 52% Source: Construction Industry Institute Research Team 252 Changing the Customer Conversation Laborer Time Study (5-Yr Construction Institute Study) Wrench Time Tools & Equip Other  Travel  Personal  Material Handling  Waiting  Prep Work Time is the Biggest Customer Challenge! 19% of time spent obtaining, transporting & adjusting tools Direct Wrench Time = 29% of a craft laborer’s day! Focus on Wrench Time vs. Rental Rate
  • 32. 32 Embeds United as Rental Company of Choice  Software eliminates waste with enhanced visibility/accountability – Increase equipment utilization – Less duplication – Conserve capital through rental – Eliminate equipment maintenance cost Equipment Utilization 6.0% 20.5% 43.0% Self Owned Fleet Self Managed Rental Total Control® Helping Customers Manage Fleet Total Control® Provides Competitive Edge
  • 33. 33 A Meaningful Competitive Edge $129 $150 Q2 2013 Q2 2014 $ Millions Attractive Added Value for Customers Installs began late Q2 with Roll-Out of Total Control®Revenue Grew 16.6% YOY 106 123 60 84 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Updated Total Control® began Rollout late Q2
  • 34. 34 “On Sites” = Up Time “Inside the Fence” Sites  Increased Utilization – Leniency for Shared Equipment – Lower Equipment Cost  On-Time Delivery “Guaranteed”  On Site Mechanic = No Downtime  Reduction of Traffic = Safety Better meeting customer’s equipment needs High Volume, High Utilization, Lower Cost to Serve
  • 35. 35 Fleet
  • 36. 36 40% 2% 3%13% 3% 16% 9% 4% 5% Note: Percentages based on ending balance as of 06/30/2014 Fleet Mix $8.42 Billion of Fleet Comprised of Approximately 410,000 Units Aerial Compaction Earth Moving Forks – Reach Forks – Rough <1% Other Compressors Forks – Industrial Light 2% Power Trench 1% Trucks Welders 1% Serves Diverse Customer Base Customers Know We Have the Fleet They Need
  • 37. 37 * All serialized assets regardless of equipment value (non bulk) included in time utilization ** Calculated using ARA metrics *** Fleet age is calculated on an OEC-weighted basis. Total fleet age is 42.9 months at 06/30/2014 3,100 Equipment Classes with Original Cost of $8.42B Booms and Lifts Earth Moving Forklifts Trench and Other Total (Average) % of Q2 2014 Rental Revenue 35.9% 12.5% 17.6% 33.9% Time Utilization* 71.9% 64.6% 79.6% 55.4% 68.1% Dollar Utilization** 41.6% 45.2% 41.8% 60.4% 47.1% Average Fleet Age*** (in months) 53.3 31.4 38.8 35.8 42.9 Q2 Dollar Utilization 47.1%
  • 38. 38 Managing Fleet with a Life Cycle Approach Selling Oldest Fleet Rental Capex and Used Sales ($MM)* 2010 2011 2012 2013 Q2 2013 Q2 2014 72 83 83 85 84 88 AgeofUsedSalesinMonths 2010 2011 2012 2013 2014 YTD 673 1,390 1,321 1,580 1,028 ($269) ($363) ($463) ($490) ($248) Time Utilization 2010 2011 2012 2013 Q2 2013 Q2 2014 63.7% 67.8% 67.5% 68.2% 67.9% 68.1% $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 ≤ 1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 >9 Total Years Age Composition ($MM) *On a pro-forma basis
  • 39. 39 Attractive Asset Economics (15,000) 0 15,000 Y0 Y1 Y2 Y3 Y4 Y5 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Purchase Price (6,500) Rental Revenue 5,187 5,503 5,668 5,838 6,013 Ancillary Revenue 447 474 488 503 518 Operational Costs (2,061) (2,130) (2,184) (2,240) (2,298) Selling Price $3,233 Total Cash Flow (6,500) 2,709 3,176 2,937 2,827 6,142 Cumulative Cash Flow (6,500) (3,791) (615) 2,322 5,179 11,291 Incremental Asset Generates 40% Return, Helping Drive ROIC Higher Sample Asset Cumulative Cash Flow
  • 40. 40 $ Millions *Reflects estimated 2% annual inflation factor compounded over average life of OEC sold **Excludes bulk equipment Maintenance and Growth CapEx 2011 Combined Pro-forma 2012 Combined Pro-forma 2013 2014 Forecast OEC Sold** $752 $933 $941 $1,000 Inflation Factor* 13.8% 13.8% 14.2% 14% Inflation Uplift 104 129 133 140 Total Maintenance CapEx $856 $1,062 $1,074 $1,140 Growth CapEx $534 $432 $506 $560 Total Rental CapEx $1,390 $1,485 $1,580 $1,700 A Balanced and Disciplined Approach to Fleet Growth
  • 41. 41 Financial Overview Delivering Strong Sustainable Results
  • 42. 42 Adjusted EBITDA of 47.4%, a Second Quarter Record Q2 2014 Results Q2 2014 Rates  +4.9% Time Utilization  68.1%  +20bps Adjusted EBITDA  $663M or 47.4%  +$114M or 190 bps Adjusted EBITDA Flow-Through  59.1%
  • 43. 43 2014 Outlook Prior Outlook Current Outlook Total Revenue  $5.45B to $5.65B  $5.55B to $5.65B Adjusted EBITDA  $2.55B to $2.65B1  $2.65B to $2.70B Increase in Rental Rates (year-over-year)  Approximately 4.0%  Approximately 4.5% Time Utilization  Approximately 68.5%  Unchanged Net Rental Capital Expenditures after Gross Purchases  Approximately $1.2B, after gross purchases of approximately $1.7B  Unchanged Full Year Free Cash Flow (excluding the merger and restructuring related costs)  $425M to $475M  $450M to $500M 1The Company’s prior outlook indicated it expected to be near the top of this range
  • 44. 44 2008 2009 20101 2011 20122 20133 Q1 2014 Q2 20144 EBITDA ($117) $589 $649 $879 $1,772 $2,181 $496 $1,124 Cash Interest -218 -234 -229 -203 -371 -461 -84 -224 Cash Taxes -46 -3 49 -24 -40 -48 -9 -36 Gain on Sale of Equipment -69 -6 -41 -68 -127 -182 -46 -107 Goodwill Impairment Charge 1,147 — — — — — — — Working Capital/Other 67 92 24 24 -513 61 151 297 Cash from Operations 764 438 452 608 721 1,551 508 1,054 Rental Capex -624 -260 -346 -774 -1,272 -1,580 -333 -1,028 Non-Rental Capex -80 -51 -28 -36 -97 -104 -18 -52 Proceeds on Sale of Rental 264 229 144 208 399 490 110 248 Proceeds from Sale of Non-Rental Equipment 11 13 7 17 31 26 11 18 Cash Invested -429 -69 -223 -585 -939 -1,168 -230 -814 Excess Tax Benefits from Share Based Payment Arrangements, Net — -2 -2 — -5 — — — Free Cash Flow (Usage) $335 $367 $227 $23 ($223) $383 $278 $240 Cash Flow 2008–2014 ($M) 12010 includes a $55M federal tax refund 22012 EBITDA is presented on an adjusted basis. 2012 includes $150M of aggregate cash payments related to merger and restructuring activities 32012 and 2013 include aggregate cash payments of $150M and $38M, respectively, related to merger and restructuring activities. 4Includes aggregate cash payments of $14M related to merger and restructuring activities. Consistent Free Cash Flow Generation Over Cycle
  • 45. 45 Flexible Capital Allocation Strategy Managing Leverage Return Cash to Stockholders Invest in Growth M&A  Target leverage range over the cycle of 2.5x–3.5x  Net leverage1 of 3.1x at June 30, 2014  Credit ratings of BB- by S&P and B1 by Moody’s  Executing on $500M share repurchase announced in October 2013  Balanced strategy creates flexibility to pursue strategic assets as opportunities arise  Expanded role in specialty with completion of National Pump acquisition in April 2014 Organic  Continued organic investments to support growth and boost productivity  Opened 18 specialty branches in 2013 with plans of approximately 13 additional openings in 2014 Investing in Growth While Managing Leverage and Returning Cash to Stockholders 1 Leverage ratio calculated as total debt, net of cash, excluding original issuance discounts and premiums divided by adjusted EBITDA.
  • 46. 46 Net Uses of Capital 58% 35% Net Sources of Capital 69% 31% Note: Net Debt Issuance includes cash from balance sheet and other items. Historical Capital Allocation 2010–Q2 2014 Organic Investment Strategic M&A Return to Stockholders Manage Leverage Targets (2.5x–3.5x) Priorities Cash from Operations Debt Issuance CapEx Cash Acquisitions 7% Share Repurchases 100% Equals $6.4bn
  • 47. 47 (1) As of June 30, 2014. Principal amounts only, no OID or premium included (2) Includes $52M in Letters of Credit. Debt Maturity Profile(1) No Significant Near-Term Maturities $550 $97 $2,300 $750 $1,500 $650 $1,325 $925 $850 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 $54 A/R Unused $496 A/R Used 4.00% Convert. Notes $1,001 ABL Unused $1,299(2) ABL Used $500(3) 9.25% Senior Unsecured Notes $750 7.375% Senior Unsecured Notes $750 8.375% Senior Sub Notes 8.25% Senior Unsecured Notes 7.625% Senior Unsecured Notes 6.125% Senior Unsecured Notes 5.75% Senior Unsecured Notes 5.75% Senior Secured Notes $ Millions
  • 48. 48 (1) Leverage Ratio calculated as total debt and QUIPs, net of cash, excluding original issuance discounts and premiums divided by adjusted EBITDA (2) Pro Forma assumes transaction occurred on January 1, 2011 and excludes cost synergies (3) Pro Forma 2012 leverage assumes transaction occurred on January 1, 2012 (4) Based on Company’s projections Leverage Ratio Declined Rapidly(1) 2.5x – 3.5x Target Leverage Range 3.3 4.6 3.6 3.0 2.9 URI Standalone Combined Companies 2012 2013 2014 (2) (3) (4) 2011
  • 49. 49 WACC Range 7.5% 10.8% (3.1%) 2.9% 2.3% 0.4% 0.8% 0% 2% 4% 6% 8% 10% 12% 14% 2013 Rate Fleet Growth and Utilization Lean Fleet and Cost Inflation Business Mix/Other 2016–2018 Building a Bridge to Higher Returns* 10% Internal Hurdle Rate (1) Assumes at least 3.5% per year rental rate increase (4) Assumes $100M runrate EBITDA impact from Ops United 2 (2) Assumes 6% annual growth in average fleet size (5) Assumes 2% annual inflation in average fleet purchase prices (3) Assumes 20 basis points improvement per year (6) Assumes 3% annual inflation in all operating costs 1 2 3 4 5 6 *Illustrative – After tax and including goodwill
  • 50. 50 Appendix
  • 51. 51 Timeline 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Founded Achieves Industry Leadership in First Year Launch of E-Rental Store Establishes E-Commerce Platform Expansion of Trench Safety Business Captures Niche Leadership $3 Billion in Revenues Marks a Company and Industry Milestone Customer Training Expands with Launch of National Program Enters Its Second Decade as Industry Leader Launch of Sustainability Program Advances Environmental Stewardship Combines with RSC Branch Network Grows to 500 Locations in North America National Accounts Program Grows by 50% as Footprint Expands Forbes Names One of “400 Best Big Companies” Company’s First Centralized Customer Care Center Opens New Strategy Refocuses Company on Core Equipment Rental Business Earns National Recognitions for Support of Veterans Expands Industrial Power & HVAC Footprint with Acquisition and Cold-starts “What a Strange Trip it has Been” 2014 Acquires National Pump
  • 52. 52 Performance Goals for Senior Executives Align with Creating Stockholder Value Short Term Incentive Plan Measures:  EBITDA Dollar Growth  Economic Profit Improvement 2014 Performance Measures Focus on Profitable Growth Over 60% of senior executives compensation is at risk and subject to these profitable growth measures Long Term Incentive Plan Measures:  Revenue Growth  Economic Profit Improvement  ROIC Multiplier Field Bonus Performance Measures Align with Senior Management Goals
  • 53. 53 Adjusted Earnings Per Share GAAP Reconciliation (1) Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. (2) Reflects the amortization of the intangible assets acquired in the RSC and National Pump acquisitions. (3) Reflects the impact of extending the useful lives of equipment acquired in the RSC acquisition, net of the impact of additional depreciation associated with the fair value mark-up of such equipment. (4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold. (5) Reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition. (6) Primarily reflects severance costs and branch closure charges associated with the RSC acquisition. (7) Primarily reflects write-offs of leasehold improvements and other fixed assets in connection with the RSC acquisition. We define “earnings per share – adjusted” as the sum of earnings per share – GAAP, as reported plus the impact of the following special items: merger related costs, merger related intangible asset amortization, impact on rental depreciation related to acquired RSC fleet and property and equipment, impact of the fair value mark-up of acquired RSC fleet, impact on interest expense related to fair value adjustment of acquired RSC indebtedness, restructuring charge, asset impairment charge and loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures. Management believes that earnings per share - adjusted provides useful information concerning future profitability. However, earnings per share - adjusted is not a measure of financial performance under GAAP. Accordingly, earnings per share - adjusted should not be considered an alternative to GAAP earnings per share. The table below provides a reconciliation between earnings per share – GAAP, as reported, and earnings per share – adjusted. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Earnings per share - GAAP, as reported $ 0.90 $ 0.78 $ 1.46 $ 0.98 After-tax impact of: Merger related costs (1) 0.05 0.01 0.05 0.05 Merger related intangible asset amortization (2) 0.29 0.24 0.52 0.49 Impact on depreciation related to acquired RSC fleet and property and equipment (3) (0.01) (0.01) (0.01) (0.03) Impact of the fair value mark-up of acquired RSC fleet (4) 0.06 0.07 0.11 0.15 Impact on interest expense related to fair value adjustment of acquired RSC indebtedness (5) (0.01) (0.01) (0.01) (0.02) Restructuring charge (6) (0.01) 0.03 — 0.06 Asset impairment charge (7) — 0.01 — 0.02 Loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures 0.38 — 0.43 0.01 Earnings per share - adjusted $ 1.65 $ 1.12 $ 2.55 $ 1.71
  • 54. 54 EBITDA and Adjusted EBITDA GAAP Reconciliation (1) Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. (2) Primarily reflects severance costs and branch closure charges associated with the RSC acquisition. (3) Represents non-cash, share-based payments associated with the granting of equity instruments. (4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold. (5) Reflects a gain/loss recognized upon the sale of a former subsidiary that developed and marketed software. A) Our EBITDA margin was 44.9% and 43.1% for the three months ended June 30, 2014 and 2013, respectively, and 43.6% and 40.6% for the six months ended June 30, 2014 and 2013, respectively. B) Our adjusted EBITDA margin was 47.4% and 45.5% for the three months ended June 30, 2014 and 2013, respectively, and 45.9% and 43.4% for the six months ended June 30, 2014 and 2013, respectively. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation of rental equipment, and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of the merger related costs, restructuring charge, stock compensation expense, net, the impact of the fair value mark-up of acquired RSC fleet and the gain/loss on sale of the software subsidiary. These items are excluded from adjusted EBITDA internally when evaluating our operating performance and allow investors to make a more meaningful comparison between our core business operating results over different periods of time, as well as with those of other similar companies. Management believes that EBITDA and adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliation, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of our core business without regard to potential distortions. Additionally, management believes that EBITDA and adjusted EBITDA permit investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. However, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. The table below provides a reconciliation between net income and EBITDA and adjusted EBITDA. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net income $ 94 $ 83 $ 154 $ 104 Provision for income taxes 48 48 82 57 Interest expense, net 187 118 312 236 Interest expense – subordinated convertible debentures — 1 — 3 Depreciation of rental equipment 229 208 446 410 Non-rental depreciation and amortization 70 62 130 126 EBITDA (A) $ 628 $ 520 $ 1,124 $ 936 Merger related costs (1) 8 2 9 8 Restructuring charge (2) (1) 5 — 11 Stock compensation expense, net (3) 19 10 31 19 Impact of the fair value mark-up of acquired RSC fleet (4) 9 11 18 25 (Gain) loss on sale of software subsidiary (5) — 1 — 1 Adjusted EBITDA (B) $ 663 $ 549 $ 1,182 $ 1,000
  • 55. 55 Reconciliation of Net Cash Provided by Operating Activities to EBITDA and Adjusted EBITDA (1) Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. (2) Primarily reflects severance costs and branch closure charges associated with the RSC acquisition. (3) Represents non-cash, share-based payments associated with the granting of equity instruments. (4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold. (5) Reflects a gain/loss recognized upon the sale of a former subsidiary that developed and marketed software. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net cash provided by operating activities $ 546 $ 469 $ 1,054 $ 878 Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA: Amortization of deferred financing costs and original issue discounts (5) (5) (10) (11) Gain on sales of rental equipment 58 44 103 84 Gain on sales of non-rental equipment 3 1 4 2 Gain (loss) on sale of software subsidiary (5) — (1) — (1) Merger related costs (1) (8) (2) (9) (8) Restructuring charge (2) 1 (5) — (11) Stock compensation expense, net (3) (19) (10) (31) (19) Loss on extinguishment of debt securities (64) — (75) — Loss on retirement of subordinated convertible debentures — (1) — (2) Changes in assets and liabilities (51) (125) (172) (236) Cash paid for interest, including subordinated convertible debentures 140 139 224 229 Cash paid for income taxes, net 27 16 36 31 EBITDA $ 628 $ 520 $ 1,124 $ 936 Add back: Merger related costs (1) 8 2 9 8 Restructuring charge (2) (1) 5 — 11 Stock compensation expense, net (3) 19 10 31 19 Impact of the fair value mark-up of acquired RSC fleet (4) 9 11 18 25 (Gain) loss on sale of software subsidiary (5) — 1 — 1 Adjusted EBITDA $ 663 $ 549 $ 1,182 $ 1,000
  • 56. 56 Free Cash Flow GAAP Reconciliation We define free cash usage flow as (i) net cash provided by operating activities less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment. Management believes that free cash usage flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash usage flow is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash usage flow should not be considered an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. The table below provides a reconciliation between net cash provided by operating activities and free cash usage flow. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Net cash provided by operating activities $ 546 $ 469 $ 1,054 $ 878 Purchases of rental equipment (695) (736) (1,028) (1,025) Purchases of non-rental equipment (34) (27) (52) (41) Proceeds from sales of rental equipment 138 131 248 254 Proceeds from sales of non-rental equipment 7 6 18 11 Free cash usage flow $ (38) $ (157) $ 240 $ 77
  • 57. 57  In September 2011, the American Rental Association (ARA) released Rental Market Metrics whitepaper – Standardization of metrics provides consistent way for calculating and reporting critical performance metrics – Publication provides definitions and calculations for original equipment cost (OEC), time (physical) utilization, financial (dollar) utilization, fleet age and period-over-period rental rate changes – URI adopted new ARA standards beginning with the release of our first quarter 2012 results  Standard set of metrics is a sign of growth and maturity of industry  Key differences between old URI (“old basis”) methodology and ARA (“new basis”) methodology are as follows: – OEC – New basis calculation is based on GAAP gross book value. In old basis calculation, OEC is not reduced by volume rebates. In new basis calculation (consistent with GAAP), OEC is reduced by value of volume rebates. For acquisitions, OEC is not reset; OEC values are carried-over from acquired company – Time utilization – In old basis calculation, OEC excluded serialized assets less than $SK. In new basis calculation, these assets are included. Calculation also changes for new definition of OEC – Fleet Age – Moving from unit-weighted measure of fleet age (old basis) to DEC-weighted measure (new basis) – Rental Rate – In new basis calculation, period-over-period rental rate changes are weighted by prior period revenue mix, as opposed to current period revenue mix (old basis). In new basis calculation, impact of currency is excluded from rental rate change calculation ARA Metrics
  • 58. 58 Corporate Governance  Amended Company charter to eliminate Board classes  Roles of Chairman and CEO are separated and the Chairman is an independent director  12 of 13 directors are independent  Board and each committee have express authority to retain outside advisors  Board and each committee perform an annual self-assessment  All directors attended at least 75% of the meetings of the Board and committees of which they were a member during the past year  Board has adopted stock ownership guidelines for officers and directors  Each of the Compensation, Audit and Nominating & Corporate Governance Committees is comprised solely of independent directors  Board elected not to renew or extend the stockholder rights plan  Three members of the Audit Committee are financial experts Focus on Best Practices
  • 59. 59 Convertible Senior Notes  In Q2 2014, 7.8M shares were included in the diluted share count Assumed Stock Price Net Shares Issued Upon Conversion Potential Accounting EPS Dilution $11.11 or below None None $15.56 None 26K shares $50.00 62K shares 70K shares $100.00 76K shares 80K shares $150.00 81K shares 83K shares How the Convertible Works  In November 2009, URI issued $172.5M of convertible senior notes due 2015. Notes carry a 4.0% coupon and are convertible at an initial conversion price of $11.11 per share – Net share settlement election means par amount paid in cash, in-the-money portion settled in stock or cash – The outstanding balance of the 4.00% notes at March 31, 2014 was $97M  The company separately entered into hedge transactions which significantly reduce potential dilution associated with the convertible senior notes – Hedge transactions effectively increase conversion price to $15.56 per share, subject to change in certain circumstances  Hypothetical conversion of $1M:
  • 60. 60 Mechanics of Convert and Hedge Assumed Stock Price Hedge Counterparties United Rentals Net 0 New Shares Issued Investors Hedge Counterparties United Rentals Net 71K New Shares Issued Investors Hedge Counterparties United Rentals Net 81K New Shares Issued Investors $10 $75 $150 0 Shares 5K Shares 3K Shares 0 Shares 77K Shares 83K Shares Share Delivery at Conversion of $1M
  • 61. 61 1. Capex: Capital expenditures represent the amount reported in our statements of cash flows for the purchase of rental and non-rental equipment. 2. Dollar Utilization: Annualized rental revenue, excluding re-rent and ancillary revenue, divided by the average original equipment cost. (ARA methodology) 3. EBITDA: Is a measure of operating performance and is calculated as the sum of net income (loss), income (loss) from discontinued operation, net of taxes, provision (benefit) for income taxes, interest expense, net, interest expense-subordinated convertible debentures, net, depreciation of rental equipment and non-rental depreciation and amortization. 4. Free Cash (Usage) Flow: Free cash (usage) flow is a measure of cash flow available to satisfy debt obligations and working capital requirements, and is calculated as net cash provided by operating activities, less purchases of rental and non-rental equipment plus proceeds from sales of rental and nonrental equipment and excess tax benefits from share-based payment arrangements, net. Glossary of Terms
  • 62. 62 5. Fleet Age: The OEC weighted age of the entire fleet, excluding the benefit of refurbishments. 6. OEC: Original Equipment Cost; the cost of an asset at the time it was originally purchased. 7. Rental Rate: The percentage change in the rate/price that is charged for equipment on rent. Overall company rental rates change based on a combination of pricing, fleet composition and term of rental. This metric is used to evaluate rate changes both year-over-year and sequentially (typically quarter-over-quarter). Rental rate changes are calculated based on the year-over-year or sequential variance in average contract rates, weighted by the prior period revenue mix. 8. Time Utilization: Amount of time an asset is on rent divided by the amount of time the asset has been owned. Also known as physical utilization. Glossary of Terms