Q3 2016 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 2016 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 2016 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, 2015 filed with the Securities and Exchange Commission ("SEC") on March 8, 2016 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 Focus area +15,300 (1) Customers served Differentiated Emphasis on Earthmoving Equipment ~$830 million (2) Original Equipment Cost ( OEC ) ~54% (2) Of OEC focused on earthmoving category Well Positioned in Key End-Markets Key End-Markets Infrastructure, Non-Residential Construction, Oil & Gas, Municipal, and Residential Construction ~5% (3) Expected weighted average CAGR of key end-markets through 2020 Compelling Financial Performance ~18% (4) Adjusted EBITDA CAGR from 2011 to September 30, 2016 ~49% (4) Adjusted EBITDA margin Proven Management Team with Deep Roots in Rental ~1,160 full-time employees (2) Located in 68 branches and the Company headquarters ~19 years Average tenure Regional VP s have with Neff Rental Notes: (1) Company data for the last twelve months ended September 30, 2016 (2) As of September 30, 2016 (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 17 4
Business Strategy Focus on Premium Customer Service 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 Emphasis on Active Asset Management 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 investment and divestiture strategy drivenby by ROIC benchmarks and real time market dynamics demand dynamics Focus on Growing Markets Remain committed to our focused position in the Sunbelt region of the United States Continue to exploit and develop opportunitiesin in the infrastructure, non-residential construction, oil and residential gas, municipal construction, and residential and oil construction and gas end end-markets Capitalize on Operating Leverage 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 Ability to Generate Free Cash Flow 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 Why Our Customers Choose to Rent vs. Own ABI in Perspective (1) Control expenses and conserve capital Access to the right equipment for the job Expansion Expansion 24/7 Customer care Eliminate the need for long-term maintenance Minimize need for storage and transportation Pent-up Demand Technical expertise and advice is available U.S. Construction Spending vs. U.S. Rental Industry Revenues Total U.S. Construction Spending $Bn U.S. Rental Industry Revenues $Bn Notes: (1) Architectural Billings Index ( ABI ) data as of September 2016 (2) 1998 2020 FMI Construction Outlook as of Q3 2016 (3) 1998 2020 Total U.S. Rental Market Revenue data from IHS Global Insights report as of July 2016 (2) (3) 6
Diversified Footprint and End-Markets Neff Regions and Forecast Rental Industry Growth Rates (1) Rental Revenues by End-Market (2) 9% 6% 8% 4% 5% 11% 3% 8% 5% 5% 4% 3% 7% 9% Sunbelt Region Overview Key attributes of the Sunbelt region include: Favorable climate conditions limit seasonality and facilitate year-round construction activity Historically, higher than average equipment rental revenue growth rates when compared to other states outside of the Sunbelt region (3) Forecast US rental industry revenue growth rate for 2016 is 4.9%. Rental industry revenue growth for states with Neff branch locations is estimated at 5.9% in 2016, which exceeds the 3.9% estimated growth in rental industry revenues in states where Neff does not operate (1) Branch proximity within the region allows Neff to deploy equipment seamlessly across different areas to drive rate and ROI Notes: (1) Forecast 2016 Total U.S. Rental Industry Revenue growth rate data from IHS Global Insights report as of July 2016 (2) Company data for YTD September 30, 2016 (3) 1998 2015 Total U.S. Rental Industry Revenue data from IHS Global Insights report as of July 2016 7
The Impact of Oil and Gas Rental Revenue - Q315 to Q316 Time Utilization - Q315 to Q316 ($MM) +5.8% +8.2% ($MM) -20 bps -50 bps +140 bps -17.6% (1) (1) Q3 2015 Q3 2016 Oil & Gas Highlights Rental revenues in non-oil & Gas branches were up by 8.2% in Q3 2016. Rental revenues in Oil and Gas branches were down by 17.6%. Rental rates in non-oil and Gas branches were up by 0.5% in Q3 2016. Rental rates in Oil and Gas branches were down by 6.3%. Adjusted EBITDA in non-oil & Gas branches was up 4.8% to $48.7M in Q3 2016. Adjusted EBITDA in Oil & Gas branches was down 26.5% to $3.3M. Notes: (1) Total rental revenues from Oil and Gas branch locations, including non-oil and Gas end-market revenues 8
Fleet Overview Neff s Fleet in Focus as of September 30, 2016 Fleet Breakdown (% of OEC) as of September 30, 2016 OEC of ~$830 million Neff has invested ~$816 million in its fleet since 2011 (1) Average age of Neff s fleet has been reduced from ~55 months in 2011 to ~47 months as of September 30, 2016 Average age of Earthmoving fleet: ~40 months Fleet includes ~15,100 units of equipment, of which ~5,900 are earthmoving related Why Earthmoving? Utilized at the initial stages of the construction process, and throughout the duration of most construction projects Large and active end-markets (e.g., infrastructure, non-residential construction, residential construction, and oil & gas) and these customer segments require significant earthmoving assets Customers value and want specialized earthmoving expertise every project is different and requires the right combination of equipment, implements, and advice Earthmoving penetration is relatively low at ~51%. With aerial and material handling at ~96% and ~84% rental penetration, respectively, we believe the future growth in industry penetration will likely come from the earthmoving category (2) Earthmoving equipment retains a strong resale value and has a highly liquid secondary market Note: (1) Defined as rental fleet purchases from January 2011 to September 2016 (2) Yengst Associates Market Machinery Research Report, dated June 2016 9
Mark Irion Chief Financial Officer
Q3 2016 Results 3-Months Ended September 30, 2016 Year-over-Year Analysis Key Financial Metrics ($ in millions) 3-Months Ended September 30, 2015 3-Months Ended September 30, 2016 % Total Revenues $99.4 $105.5 +6.1% Rental Revenues $90.5 $95.8 +5.8% Adjusted EBITDA (1) $50.8 $51.9 +2.1% Adjusted EBITDA Margin (1) 51.1% 49.2% (190) bps Net Capital Expenditures $24.0 $26.2 9.1% Select Operating Metrics ($ in millions) 3-Months Ended September 30, 2015 3-Months Ended September 30, 2016 % Average OEC $780.2 $829.2 +6.3% Time Utilization 69.2% 69.0% (20) bps Weighted Average Rental Rate Growth (0.1%) (0.2%) Fleet Age (in months) 45 47 2 months older Note: (1) For a reconciliation of net income to Adjusted EBITDA, see page 17 11
YTD September 2016 Results 9-Months Ended September 30, 2016 Year-over-Year Analysis Key Financial Metrics ($ in millions) 9-Months Ended September 30, 2015 9-Months Ended September 30, 2016 % Total Revenues $277.7 $294.7 +6.1% Rental Revenues $249.5 $268.4 +7.6% Adjusted EBITDA (1) $136.8 $143.9 +5.2% Adjusted EBITDA Margin (1) 49.3% 48.8% (50) bps Net Capital Expenditures $132.2 $101.3 (23.4%) Select Operating Metrics ($ in millions) 9-Months Ended September 30, 2015 9-Months Ended September 30, 2016 % Average OEC $755.0 $808.0 +7.0% Time Utilization 66.7% 67.4% +70 bps Weighted Average Rental Rate Growth 1.8% (0.8%) Fleet Age (in months) 45 47 2 months older Note: (1) For a reconciliation of net income to Adjusted EBITDA, see page 17 12
Debt and Liquidity Considerations Summary Overview Debt Profile as of September 30, 2016 Total debt of $735.7MM as of September 30, 2016 Total debt net of $1.8MM original issue discount ( OID ) is $733.8MM Second Lien Term Loan @ L + 625 bps (1% LIBOR Floor) Total leverage of 3.8x based on trailing twelve months ( TTM ) Q3 2016 Adjusted EBITDA of $193.3MM Asset based loan ( ABL ) leverage: 1.3x ABL @ L + 175 bps Second lien leverage: 2.5x Availability of $210.7MM on the ABL at September 30, 2016 Debt Maturity Profile No debt maturities prior to 2021 Unused ABL 2nd Lien Term Loan (1) Used Feb 2021 Jun 2021 Note: (1) Assumes $4.1 million in letters of credit obligation 13
Key Financial Metrics Revenues ($MM) Adj. EBITDA (1) ($MM) 400.8 291.0 Adj. EBITDA Margin (1) Net Capital Expenditures ($MM) Note: (1) For reconciliation of net income to Adjusted EBITDA, see page 17 14
2016 Full Year Guidance Current Guidance Previous Guidance Total revenue range: $390MM to $400MM Adjusted EBITDA: $190MM to $195MM Y-o-Y Rental rate increase: -1% to 0% Time utilization: ~68% Net capital expenditures: $100MM to $105MM Target leverage by end of 2016: 3.5x to 3.75x Total revenue range: $390MM to $410MM Adjusted EBITDA: $190MM to $200MM Y-o-Y Rental rate increase: -1% to +1% Time utilization: ~68% Net capital expenditures: $100MM to $110MM Target leverage by end of 2016: 3.0x to 3.5x 15
Appendix
Reconciliation of Net Income to Adjusted EBITDA EBITDA" is defined as net income plus interest expense, provision for (benefit from) income taxes, depreciation of rental equipment, other depreciation and amortization and amortization of debt issue costs. "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 loss (gain) 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 Year Ended December 31, Nine Months Ended September 30, Three Months Ended September 30, $ 000's 2012 2013 2014 2015 2015 2016 2015 2016 Net income $ 17,508 $ 40,493 $ 15,808 $ 40,185 $ 27,466 $ 22,940 $ 9,444 $ 13,422 Interest expense 23,221 24,598 40,481 43,025 32,174 31,745 10,907 10,620 Provision for (benefit from) income taxes 159 471 (5,359) 3,625 1,692 3,556 347 2,334 Depreciation of rental equipment 66,017 70,768 73,274 83,943 62,280 66,838 21,553 21,912 Other depreciation and amortization 9,041 8,968 9,591 10,498 7,796 7,493 2,678 2,158 Amortization of debt issue costs 1,461 1,929 3,061 1,547 1,144 1,145 392 380 EBITDA $ 117,407 $ 147,227 $ 136,856 $ 182,823 $ 132,552 $ 133,717 $ 45,321 $ 50,826 Loss on extinguishment of debt (1) $ $ $ 20,241 $ $ $ $ $ Transaction bonus (2) 24,506 Rental split expense (3) 932 2,343 3,658 2,300 1,765 1,342 662 496 Equity-based compensation (4) 1,478 1,224 883 1,249 901 1,509 227 411 Adjustment to tax receivable agreement (5) (2,424) (2,476) 1,899 411 1,223 Other (6) 102 2,265 4,097 5,433 4,216 (1,049) Adjusted EBITDA $ 119,919 $ 150,794 $ 186,144 $ 186,213 $ 136,839 $ 143,900 $ 50,837 $ 51,907 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) For 2012, represents (i) the adjustment of certain interest rate swaps to fair value and (ii) loss on interest rate swaps. For 2015 & 2016, represents loss (gain) on interest rate swap. 17
Other Financial Data and Operating Data Other Financial Data and Operating Data Year Ended December 31, Nine Months Ended September 30, Three Months Ended September 30, $ in 000's 2012 2013 2014 2015 2015 2016 2015 2016 Capital Expenditures Purchases of rental equipment $ 159,192 $ 144,483 $ 149,174 $ 147,483 $ 138,959 $ 107,506 $ 27,864 $ 30,949 Purchases of non-rental equipment 11,556 11,852 13,018 13,134 11,742 10,133 1,674 1,485 Proceeds from sales of rental equipment (41,731) (30,976) (31,620) (32,143) (16,673) (14,395) (4,908) (5,530) Proceeds from sales of non-rental equipment (3,097) (2,511) (2,859) (2,629) (1,847) (1,912) (651) (734) Net Capital Expenditures $ 125,920 $ 122,848 $ 127,713 $ 125,845 $ 132,181 $ 101,332 $ 23,979 $ 26,170 OEC of rental equipment sales 95,888 69,834 69,605 69,324 36,365 28,018 10,330 11,159 Growth rental equipment capex 63,304 74,649 79,569 78,159 102,594 79,488 17,534 19,790 Gross Rental Equipment Capex $ 159,192 $ 144,483 $ 149,174 $ 147,483 $ 138,959 $ 107,506 $ 27,864 $ 30,949 Other Operating Data Average OEC $ 527,266 $ 606,624 $ 688,733 $ 761,855 $ 754,955 $ 808,012 $ 780,226 $ 829,176 Fleet age in months (as of period end) 48 46 45 45 45 47 45 47 Weighted average rental rate growth 6.5% 6.4% 6.6% 1.0% 1.8% (0.8%) (0.1%) (0.2%) Time utilization 68.7% 70.9% 69.7% 66.8% 66.7% 67.4% 69.2% 69.0% 18
Glossary of Terms Net Capital Expenditures: Purchases of rental and non-rental equipment less proceeds from the sale of rental and non-rental equipment. 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. EBITDA and Adjusted EBITDA: EBITDA is defined as net income plus interest expense, provision for (benefit from) income taxes, depreciation of rental equipment, other depreciation and amortization and amortization of debt issue costs. 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 loss (gain) on interest rate swap. Fleet Age: The OEC weighted age of the entire fleet, excluding the benefit of refurbishments. 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. 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. 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. 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. Return on Investment (ROI): A performance measure used to evaluate the efficiency and profitability of an investment. 19