Q1 2017
Investor Presentation
Legal Disclaimer
This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements contained in this presentation that do not relate to matters of historical facts should be considered forward-looking statements,
including statements regarding our expectations regarding growth of our end-markets; projected U.S. construction growth rate and
spending and projected U.S. rental industry revenue growth rate; estimated exposure to the oil and gas industry; our business strategy,
including our plan to identify new customers, equipment demand opportunities, greenfield opportunities, and investment and divestiture
opportunities; our 2017 outlook, including without limitation, statements regarding our forecasted revenue, Adjusted EBITDA, our
expected rental rates, time utilization and net capital expenditures; and guidance regarding our 2017 target leverage ratio. We use
words such as "will," "expect," "believe," "continue," "estimate," "intend," "target" and other similar expressions to identify some but not
all forward-looking statements. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements.
The forward-looking statements contained in this presentation are based on assumptions that we have made in light of our industry
experience and our perceptions of historical trends, current conditions, current plans, expected future developments and other important
factors we believe are appropriate under the circumstances. As you read and consider this presentation, you should understand that
these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control)
and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be
aware that many important factors could affect our actual operating and financial performance and cause our performance to differ
materially from the performance anticipated in the forward-looking statements. We believe these important factors include, but are not
limited to, the important factors described under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2016 filed
with the Securities and Exchange Commission ("SEC") on March 6, 2017 and similar disclosures in subsequent reports filed with the
SEC, which could cause actual results to differ materially from those indicated by the forward-looking statements made in this presentation.
Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating
and financial performance may vary in material respects from the performance projected in these forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no
obligation to update any forward-looking statement contained in this presentation to reflect events or circumstances after the date on
which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could
cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them.
In addition to the financial measures prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”), this
presentation contains the non-US GAAP financial measures EBITDA and Adjusted EBITDA. The reasons for the use of these measures,
a reconciliation of these measures to the most directly comparable US GAAP measures and other information relating to these measures
are included in the appendix to this presentation.
2
Graham Hood
Chief Executive Officer
Company At a Glance
Leading Regional Rental
Equipment Provider
Sunbelt Region
+15,400(1)
Focus area
Customers served
Differentiated Emphasis on
Earthmoving Equipment
~$842 million (2)
~54% (2)
Original Equipment Cost (“OEC”)
Of OEC focused on earthmoving category
Well Positioned in
Key End-Markets
Compelling
Financial Performance
Proven Management Team with
Deep Roots in Rental
Key End-Markets
Infrastructure, Non-Residential
Construction, Oil & Gas, Municipal, and
Residential Construction
~17% (4)
~6% (3)
Expected weighted average CAGR of key
end-markets through 2020
~46% (4)
Adjusted EBITDA CAGR from 2011
to March 31, 2017
Adjusted EBITDA margin
~1,160 full-time employees (2)
~20 years
Located in 69 branches and the Company
headquarters
Average tenure Regional VP’s have with
Neff Rental
Notes:
(1) Company data for the last twelve months ended March 31, 2017
(2) As of March 31, 2017
(3) Includes infrastructure, non-residential construction, oil and gas, municipal and residential construction end-markets
(4) For a reconciliation of net income to Adjusted EBITDA, see page 15
4
Business Strategy
Continue to deliver best-in-class service and support to our long-standing customer base
• Remain focused on our technical edge with respect to earthmoving equipment
• Rigorous use of CRM and national account program to further penetrate our current customer base and
identify new customer opportunities
•
Focus on Premium
Customer Service
Utilize real time data to improve rental rates and identify equipment demand opportunities
• Maintain rigorous repair and maintenance program to increase time utilization and equipment longevity
• Disciplined fleet
fleet investment
investment and
anddivestiture
divestiturestrategy
strategydriven
drivenbybyROIC
ROI benchmarks
benchmarks and
andreal
realtime
timemarket
market
dynamicsdynamics
demand
•
Emphasis on Active
Asset Management
Focus on
Growing Markets
Capitalize on
Operating Leverage
Ability to Generate
Free Cash Flow
Remain committed to our focused position in the Sunbelt region of the United States
• Continue to exploit and
and develop
develop opportunities
opportunities in
inthe
theinfrastructure,
infrastructure,non-residential
non-residentialconstruction,
construction, oil and
residential
gas,
municipal
construction,
and residential
and oilconstruction
and gas endend-markets
markets
•
Take advantage of our current branch network and clustering strategy to add incremental fleet to our
current footprint
• Identify and evaluate one to three greenfield opportunities that meet our stringent return criteria and fit
well within our current branch network
•
Maintain operational flexibility to generate significant cash flow through various business cycles
• Rely on our disciplined growth strategy and fleet investment criteria to make capital investment decisions
• Divest fleet when deemed appropriate and when secondary equipment market demand is robust
•
5
U.S. Equipment Rental Market Overview
ABI in Perspective (1)
Why Our Customers Choose to Rent vs. Own
Control expenses and conserve capital
•
Access to the right equipment for the job
•
24/7 Customer care
•
Eliminate the need for long-term maintenance
•
Minimize need for storage and transportation
•
Contraction
Expansion
•
70
Expansion
Expansion
60
50
40
Pent-up Demand
30
Technical expertise and advice is available
Apr 1999
Apr 2002
Apr 2005
Apr 2008
Apr 2011
Apr 2014
Mar 2017
U.S. Construction Spending vs. U.S. Rental Industry Revenues
Total U.S. Construction Spending
$Bn
U.S. Rental Industry Revenues
$Bn
$1,500
$1,250
1,104
1,167 1,152
991
$1,000
$750
$500
689
18
1998A
745
22
1,068
25
25
26
28
31
35
37
37
1,169
1,235
1,378 $120
$90
996
903
891
803 840 848
24
1,109
1,286 1,328
30
806 788 850
33
31
36
906
39
$60
45
42
47
49
51
54
56
$30
$0
2000A
2002A
2004A
2006A
2008A
2010A
2012A
2014A
(2)
Total U.S. Construction Spending
U.S. Rental Industry Revenues
Notes:
(1)
Architectural Billings Index (“ABI”) data as of March 2017
(2)
1998–2020 FMI Construction Outlook as of Q4 2016
(3)
1998–2020 Total U.S. Rental Market Revenue data from IHS Global Insights report as of January 2017
6
(3)
2016E
2018E
2020E
Diversified Footprint and End-Markets
Neff Regions and Forecast Rental Industry Growth Rates (1)
Rental Revenues by End-Market (2)
Other:
13%
Municipal:
10%
7%
Infrastructure:
30%
2%
6%
5%
7%
4%
1%
8%
2%
3%
3%
2%
Residential
Construction:
15%
3%
5%
Oil & Gas:
7%
Non-Residential
Construction:
25%
Sunbelt Region Overview
•
Key attributes of the Sunbelt region include:
• Favorable climate conditions limit seasonality and facilitate year-round construction activity
• Historically, higher than average equipment rental revenue growth rates when compared to other states outside of the Sunbelt
region (3)
• Forecast US rental industry revenue growth rate for 2017 is 3.5%. Rental industry revenue growth for states with Neff branch
locations is estimated at 4.4% in 2017, which exceeds the 2.5% estimated growth in rental industry revenues in states where Neff
does not operate (1)
• Branch proximity within the region allows Neff to deploy equipment seamlessly across different areas to drive rate and ROI
Notes:
(1)
Forecast 2017 Total U.S. Rental Industry Revenue growth rate data from IHS Global Insights report as of January 2017
(2)
Company data for YTD March 31, 2017
(3)
1998–2015 Total U.S. Rental Industry Revenue data from IHS Global Insights report as of January 2017
7
Fleet Overview
Neff’s Fleet in Focus as of March 31, 2017
▪
OEC of ~$842 million
▪
Neff has invested ~$843 million in its fleet since 2011 (1)
▪
Average age of Neff’s fleet has been reduced from ~55
Fleet Breakdown (% of OEC) as of March 31, 2017
Concrete /
Compaction,
6.4%
Trucks, 6.2%
Other,
5.2%
months in 2011 to ~49 months as of March 31, 2017
▪
Average age of Earthmoving fleet: ~43 months
▪
Fleet includes ~14,950 units of equipment, of which ~5,650
Aerial,
11.3%
Earthmoving,
53.7%
are earthmoving related
Material
Handling,
17.2%
Why Earthmoving?
▪
Utilized at the initial stages of the construction process, and throughout the duration of most construction projects
▪
Large and active end-markets (e.g., infrastructure, non-residential construction, residential construction, and oil & gas) and these
customer segments require significant earthmoving assets
▪
Customers value and want specialized earthmoving expertise – every project is different and requires the right combination of
equipment, implements, and advice
▪
Earthmoving penetration is relatively low at ~51%. With aerial and material handling at ~92% and ~84% rental penetration,
respectively, we believe the future growth in industry penetration will likely come from the earthmoving category (2)
▪
Earthmoving equipment retains a strong resale value and has a highly liquid secondary market
Note:
(1) Defined as rental fleet purchases from January 2011 to March 2017
(2) Yengst Associates Market Machinery Research Report, dated June 2016
8
Mark Irion
Chief Financial Officer
Q1 2017 Results
3-Months Ended March 31, 2017 – Year-over-Year Analysis
3-Months Ended March
31, 2016
3-Months Ended March
31, 2017
%∆
$89.6
$95.9
+7.0%
Rental Revenues
$81.2
$85.5
+5.3%
Adjusted EBITDA (1)
$41.4
$43.6
+5.3%
46.2%
45.5%
(70) bps
$36.0
$15.0
(58.2%)
3-Months Ended March
31, 2016
3-Months Ended March
31, 2017
%∆
Average OEC
$778.2
$832.5
+7.0%
Time Utilization
65.1%
62.9%
(220) bps
Weighted Average Rental Rate Growth
(1.3%)
1.0%
45
49
Key Financial Metrics
($ in millions)
Total Revenues
Adjusted EBITDA Margin (1)
Net Capital Expenditures
Select Operating Metrics
($ in millions)
Fleet Age (in months)
Note:
(1) For a reconciliation of net income to Adjusted EBITDA, see page 15
10
4 months older
Debt and Liquidity Considerations
Debt Profile as of March 31, 2017
Summary Overview
▪
Total gross debt of $687.8MM as of March 31, 2017
Ø Total gross debt does not include $1.6MM original issue
discount (“OID”) and $8.4MM debt issue costs
▪
$687.8
Total leverage of 3.5x based on trailing twelve months
(“TTM”) Q1 2017 Adjusted EBITDA of $196.0MM
$463.8
Second Lien Term Loan @
L + 625 bps (1% LIBOR Floor)
$224.0
ABL @ L + 150 bps
Ø Asset based loan (“ABL”) leverage: 1.1x
Ø Second lien leverage: 2.4x
▪
Availability of $223.8MM on the ABL at March 31, 2017
▪
No debt maturities prior to 2021
Debt Maturity Profile
$475.0
$23.1
$463.8
Blocked
Availability
$223.8
Available
$228.1
Used
(1)
Feb 2021
Note:
(1) Assumes $4.1 million in letters of credit obligation
11
2nd Lien
Term Loan
ABL
Jun 2021
Key Financial Metrics
Adj. EBITDA (1)
Revenues
GR
enue CA
ntal Rev e CAGR
e
R
%
.4
12
enu
otal Rev
10.0% T
($MM)
$400.0
$300.0
$200.0
$100.0
244.8
10.5
36.9
197.4
291.0
11.5
44.8
234.6
327.2
12.7
33.5
281.0
372.0
13.4
34.5
($MM)
383.9
13.1
34.8
397.0
13.6
23.3
$225.0
403.2
13.4
25.4
336.0
196.0
186.1
186.2
193.8
2014
2015
2016 TTM Q1 2017
127.7
125.8
$180.0
150.8
$135.0
324.1
GR
DA CA
BIT
Adj. E
%
8
.
6
1
360.1
364.4
$90.0
119.9
86.7
$45.0
$0.0
$0.0
2011
2012
2013
Rental Revenues
2014
2015
Equipment Sales
2016 TTM Q1 2017
2011
2012
2013
Parts & Service
Adj. EBITDA Margin (1)
Net Capital Expenditures
($MM)
60.0%
$150.0
50.0
50.0%
48.5
48.8
48.6
125.9
$125.0
46.1
122.8
41.2
40.0%
101.2
$100.0
35.4
81.3
30.0%
80.2
$75.0
20.0%
$50.0
2011
2012
2013
2014
2015
2016 TTM Q1 2017
Note:
(1) For reconciliation of net income to Adjusted EBITDA, see page 15
2011
12
2012
2013
2014
2015
2016 TTM Q1 2017
2017 Full Year Guidance
Reaffirmed Guidance
▪ Total revenue range: $400MM to $420MM
▪ Adjusted EBITDA: $195MM to $205MM
▪ Y-o-Y Rental rate increase: 0% to 1%
▪
Time utilization: 67.0%
▪ Net capital expenditures: $85MM to $90MM
▪ Target leverage by end of 2017: 3.0x to 3.25x
13
Appendix
Reconciliation of Net Income to Adjusted EBITDA
“EBITDA" is defined as net income (loss) plus interest expense, provision for (benefit from) income taxes, depreciation of rental equipment and other depreciation and amortization.
"Adjusted EBITDA" is defined as EBITDA further adjusted to give effect to other items that we do not consider to be indicative of our ongoing operations, including for the periods presented
loss on extinguishment of debt, transaction bonus, rental split expense, equity-based compensation, adjustment to tax receivable agreement and (gain) loss on interest rate swap. EBITDA
and Adjusted EBITDA are not measures of performance in accordance with US GAAP and should not be considered as an alternative to net income or operating cash flows determined
in accordance with US GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of cash flow for management's discretionary use, as they exclude certain cash
requirements such as interest payments, tax payments and debt service requirements. We believe that the inclusion of EBITDA and Adjusted EBITDA in this investor presentation is
appropriate because securities analysts, investors and other interested parties use these non-US GAAP financial measures as important measures of assessing our operating performance
across periods on a consistent basis. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our
results as reported under US GAAP.
Reconciliation of Net income
to Adjusted EBITDA
$ 000's
2013
$
Net income (loss)
Interest expense
40,493
2014
$
26,527
Provision for (benefit from) income taxes
Other depreciation and amortization
EBITDA
Loss on extinguishment of debt (1)
15,808
2015
$
40,185
2016
$
39,242
$
2016
2017
(420) $
6,237
43,542
44,572
43,844
(5,359)
3,625
6,829
70,768
73,274
83,943
88,720
22,165
22,150
8,968
9,591
10,498
9,672
2,741
2,171
471
Depreciation of rental equipment
Transaction bonus
Three Months Ended
March 31,
Year Ended December 31,
11,044
11,173
(385)
911
$
147,227
$
136,856
$
182,823
$
188,307
$
35,145
$
42,642
$
—
$
20,241
$
—
$
—
$
—
$
—
(2)
—
24,506
—
—
—
—
Rental split expense (3)
2,343
3,658
2,300
1,852
447
558
Equity-based compensation (4)
1,224
883
1,249
2,000
768
752
—
—
372
414
55
Adjustment to tax receivable agreement (5)
Loss (gain) on interest rate swap
Adjusted EBITDA
(6)
—
$
150,794
(2,424)
—
$
186,144
2,265
$
186,213
1,287
$
193,818
4,654
$
41,428
(375)
$
43,632
Notes:
(1) Represents expenses and realized losses that were incurred in connection with the extinguishment of debt.
(2) Represents the payment of incentive bonuses earned in connection with consummation of a refinancing to management and certain members of Neff Holdings' board of managers.
(3) Represents cash payments made to suppliers of equipment in connection with rental splits, which payments are credited against the purchase price of the applicable equipment if the
Company elects to purchase that equipment.
(4) Represents non-cash equity-based compensation expense recorded in the periods presented in accordance with US GAAP.
(5) Represents adjustment to tax receivable agreement related to changes in estimates used in the calculation of the tax receivable agreement.
(6) Represents loss (gain) on interest rate swap related to adjustments to fair value.
15
Other Financial Data and Operating Data
Other Financial Data and Operating Data
Three Months Ended
March 31,
Year Ended December 31,
$ in 000's
2013
2014
2015
2016
2016
2017
Capital Expenditures
Purchases of rental equipment
$
Purchases of non-rental equipment
Proceeds from sales of rental equipment
Proceeds from sales of non-rental equipment
Net Capital Expenditures
$
OEC of rental equipment sales
$
149,174
$
147,483
$
112,925
$
36,065
$
21,141
11,852
13,018
13,134
11,545
5,018
1,103
(30,976)
(31,620)
(32,143)
(20,774)
(4,577)
(6,592)
(2,511)
(2,859)
(2,629)
(2,529)
(525)
(603)
122,848
$
69,834
Growth rental equipment capex
Gross Rental Equipment Capex
144,483
127,713
$
69,605
74,649
125,845
$
69,324
79,569
101,167
$
42,838
78,159
35,981
$
9,524
70,087
15,049
13,996
26,541
7,145
$
144,483
$
149,174
$
147,483
$
112,925
$
36,065
$
21,141
$
606,624
$
688,733
$
761,855
$
813,630
$ 778,195
$
832,488
Other Operating Data
Average OEC
Fleet age in months (as of period end)
Weighted average rental rate growth
Time utilization
46
45
45
48
45
49
6.4%
6.6%
1.0%
(0.5%)
(1.3%)
1.0%
70.9%
69.7%
66.8%
67.1 %
65.1 %
62.9%
16
Glossary of Terms
▪ Customer relationship management (CRM): A term that refers to practices, strategies and technologies that companies use to manage
and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving business relationships with
customers, assisting in customer retention and driving sales growth.
▪ EBITDA and Adjusted EBITDA: EBITDA is defined as net income (loss) plus interest expense, provision for (benefit from) income
taxes, depreciation of rental equipment, and other depreciation and amortization. Adjusted EBITDA is defined as EBITDA further
adjusted to give effect to other items that Neff does not consider to be indicative of our ongoing operations, including for the periods
presented loss on extinguishment of debt, transaction bonus, rental split expense, equity-based compensation, adjustment to tax
receivable agreement and (gain) loss on interest rate swap.
▪ Fleet Age: The OEC weighted age of the entire fleet, excluding the benefit of refurbishments.
▪ Net Capital Expenditures: Purchases of rental and non-rental equipment less proceeds from the sale of rental and non-rental
equipment.
▪
OEC: The first cost of acquiring the equipment, or in the case of used equipment purchases and rental splits, an estimate of the first
cost that would have been paid to acquire the equipment if it had been purchased new in its year of manufacture, as the daily average
OEC of equipment on rent, divided by the OEC of all equipment in the rental fleet during the relevant period.
▪
Return on invested capital (ROIC): The ROIC metric uses after-tax operating income for the trailing 12 months divided by average
stockholders’ equity (deficit) and debt and deferred taxes, net of average cash and debt issue costs. To mitigate the volatility related
to fluctuations in the Company’s tax rate from period to period, a federal statutory tax rate of 35% is used to calculate after-tax operating
income.
▪ Return on Investment (ROI): A performance measure used to evaluate the efficiency and profitability of an investment.
▪ Time Utilization: The daily average OEC of equipment on rent, divided by the OEC of all equipment in the rental fleet during the
relevant period.
▪ Weighted Average Rental Rate Growth: 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.
17