Herc Holdings Reports 2020 Fourth Quarter and Full Year 2020 results and announces Full Year Guidance for 2021
- Equipment rental revenue was $427.3 million in the fourth quarter and $1,543.7 million for the full year
- Total revenues were $520.4 million in the fourth quarter and $1,781.3 million for the full year
- Net income was $35.5 million, or $1.19 per diluted share in the fourth quarter, and $73.7 million, or $2.51 for the full year
- Adjusted EBITDA was $195.6 million in the fourth quarter and $689.4 million for the full year
- Free cash flow increased to $424.5 million for the full year
- The Company announced full-year 2021 guidance ranges of $730 million to $760 million for adjusted EBITDA and $400 million to $450 million for net rental equipment capital expenditures
Herc Holdings Inc. today reported financial results for the quarter ended December 31, 2020. Equipment rental revenue was $427.3 million and total revenues were $520.4 million in the fourth quarter of 2020, compared to $457.0 million and $540.1 million, respectively, for the same period last year.
Herc reported net income of $35.5 million, or $1.19 per diluted share, in the fourth quarter of 2020, compared to $35.1 million, or $1.20 per diluted share, in the same 2019 period. Fourth-quarter 2020 adjusted net income was $40.2 million, or $1.35 per diluted share, compared to $38.9 million, or $1.33 per diluted share, in 2019. See page A-5 for the adjusted net income and adjusted earnings per share calculations.
Larry Silber, president and Chief Executive Officer
“We exceeded our expectations for the fourth quarter and have good momentum going into 2021,” said Larry Silber, president and CEO. “During the year, we adjusted fleet to respond to the declines in volume related to the impact of COVID-19 on our customers and focused on controlling costs. The quick implementation of those initiatives led to our improved adjusted EBITDA margin and excellent free cash flow for the full year. Our commitment to customer service and consistent implementation of a strategy to diversify our customer and industry base continues to demonstrate the strength of our business model.”
2020 Fourth Quarter Highlights
- Equipment rental revenue was $427.3 million compared to $457.0 million in the prior-year period. The COVID-19 business slowdown continued to impact volume and pricing.
- Total revenues were $520.4 million compared to $540.1 million in the prior-year period. The year-over-year decline of $19.7 million was related primarily to lower equipment rental
revenue of $29.7 million, offset by an increase in sales of rental equipment of $10.8 million. - Pricing declined 0.8% compared to the same period in 2019. Dollar utilization increased to 40.6% compared to 40.5% in the prior-year period and increased 300 basis points sequentially from the third quarter of 2020.
- Direct operating expenses (DOE) of $185.9 million decreased 5.1% compared to the prior-year period. The $9.9 million decline was primarily related to lower re-rent expense and
personnel-related costs. - Selling, general and administrative expenses (SG&A) declined 5.2% to $69.8 million compared to $73.6 million in the prior-year period. The $3.8 million decline was primarily attributed to reductions in selling and travel expenses.
- Impairment expense was $5.9 million and consisted of the impairment of certain rental equipment and capitalized software related to financial systems that were replaced during the fourth quarter of 2020.
- Interest expense decreased to $22.5 million compared to $27.1 million in the prior-year period. The decrease was primarily related to both lower interest rates and balances of the Company’s ABL Credit Facility in 2020.
- The income tax provision was $9.5 million compared with $18.1 million for the prior-year period.
- The Company reported a net income of $35.5 million compared to $35.1 million in the prior-year period. Adjusted net income was $40.2 million compared to $38.9 million in the prior-year period.
- Adjusted EBITDA declined 8.8% to $195.6 million compared to $214.4 million in the prior-year period. The decrease was primarily due to lower volume and pricing.
- Adjusted EBITDA margin declined 210 basis points to 37.6% compared with 39.7% in the prior-year period, primarily due to higher costs related to sales of rental equipment in the quarter.
Full Year 2020 Highlights
• Equipment rental revenue was $1,543.7 million compared to $1,701.8 million in the comparable prior-year period. The 9.3%, or $158.1 million decline, was primarily due to lower volume related to the impact of COVID-19.
• Total revenues were $1,781.3 million compared to $1,999.0 million in the prior-year period. The economic slowdown related to the COVID-19 pandemic impacted all of the Company’s
revenue streams in 2020. Lower equipment rental revenue and sales of rental equipment were the primary factors contributing to the 10.9%, or $217.7 million, decline compared to the
prior-year period.
• Pricing increased 0.1% compared to the same period in 2019.
• Dollar utilization was 36.1% compared with 38.7% in the prior year, primarily a result of lower volume and mix.
• DOE fell 10.6%, or $81.9 million, to $689.2 million compared to the prior-year period. The decline was primarily related to lower transportation, re-rent, and maintenance expense, as well as a lower personnel-related expense as a result of furloughs and lower overtime expense.
• SG&A decreased 12.7% to $257.4 million compared to $294.8 million in the prior-year period. The $37.4 million decline was primarily attributed to reductions in selling and travel expenses,
as well as lower bad debt expense due to continued improvement in collections.
• The Company recorded restructuring expense of $0.7 million primarily related to personnel reductions compared with $7.7 million in the prior-year period associated with closures of underperforming branches.
• Impairment expense was $15.4 million and consisted of partial impairment of a long-term receivable related to the sale of a former joint venture, the impairment of certain rental equipment and capitalized software related to financial systems, assets related to the closure of two branch locations in 2019, and the sale of two locations in 2020. Impairment expense of $5.1 million in 2019 was primarily related to certain international assets that were deemed held for sale as of December 31, 2019.
• Interest expense decreased to $92.6 million compared to $173.5 million in the prior-year period. The decrease was primarily related to the $53.6 million debt extinguishment expense in 2019, lower average outstanding balances on the Company’s ABL Credit Facility, and lower interest rates on the Company’s ABL Credit Facility and 2027 Notes in 2020.
• Income tax provision was $20.4 million compared with $16.1 million in the prior-year period.
• The Company reported net income of $73.7 million, or $2.51 per diluted share, compared to $47.5 million, or $1.63 per diluted share, in the prior-year period. Adjusted net income was
$88.5 million, or $3.01 per diluted share, compared to $91.6 million, or $3.15 per diluted share, in the prior-year period.
• Adjusted EBITDA declined 7.0% to $689.4 million compared to $741.0 million in the prior-year period. The decline was primarily due to lower volume.
• Adjusted EBITDA margin increased 160 basis points to 38.7% compared to 37.1% in the prior-year period.
Capital Expenditures – Fleet
The Company reported net rental equipment capital expenditures of $151.6 million for 2020. Gross rental equipment capital expenditures were $344.1 million compared with $638.4 million in the comparable prior-year period. Proceeds from disposals were $192.5 million compared to $224.2 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.
• As of December 31, 2020, the Company’s total fleet was approximately $3.59 billion at OEC.
• Average fleet at OEC decreased year-over-year by 6.0% in the fourth quarter and by 2.4% for the full year compared to the prior-year periods.
• Average fleet age was 46 months as of December 31, 2020, compared to 45 months in the comparable prior-year period.
Disciplined Capital Management
- The Company generated $424.5 million in free cash flow in 2020, compared with $176.2 million in the same period in 2019.
- Cash and cash equivalents were $33.0 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.4 billion of liquidity as of December 31, 2020.
- Net debt was $1.7 billion as of December 31, 2020, with net leverage of 2.4x compared to 2.8x in the same prior-year period in 2019.
- The Company also updated its targeted net leverage range to 2.0x to 3.0x from the previous range of 2.5x to 3.5x.
Outlook for 2021
The Company reported 2021 guidance ranges of:
Adjusted EBITDA: $730 million to $760 million
Net rental equipment capital expenditures: $400 million to $450 million
“Our goal for 2021 adjusted EBITDA is to exceed 2019 profitability levels,” said Silber. “As we announced in January, we completed our first multi-location acquisition since going public. We intend to carefully invest in the fleet and add locations in high-growth urban markets to accelerate our top-line growth while continuing to control expenses,” he added.
