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Herc Holdings reports 12.5% 2020 third quarter revenue decrease and nine months results

2020 Third Quarter Highlights and Updated Guidance

– Equipment rental revenue was $402.3 million and total revenues were $456.7 million

– Net income was $39.9 million, or $1.35 per diluted share

– Adjusted EBITDA was $196.7 million; adjusted EBITDA margin improved 190 bps to 43.1%

– Full-year 2020 adjusted EBITDA guidance was raised to a range of $655 million to $675 million from a range of $625 million to $650 million

Herc Holdings Inc. has reported financial results for the quarter ended September 30, 2020. Equipment rental revenue was $402.3 million and total revenues were $456.7 million in the third quarter of 2020, compared to $459.6 million and $508.1 million, respectively, for the same period last year. The Company reported a net income of $39.9 million, or $1.35 per diluted share, in the third quarter of 2020, compared to $9.4 million, or $0.32 per diluted share, in the same 2019 period. Third-quarter 2020 adjusted net income was $39.8 million, or $1.35 per diluted share, compared to $43.2 million, or $1.48 per diluted share, in 2019. See page A-5 for the adjusted net income and adjusted earnings per share calculations.

“Volume improved sequentially throughout the third quarter as many of our markets steadily recovered from the impact of COVID-19 and normal seasonality returned to the business,” said Larry Silber, president and chief executive officer. “We continued to improve adjusted EBITDA margin as our operating efficiency and cost control initiatives reduced third-quarter costs compared to the prior year. Despite the challenging business environment, our customer and industry diversification strategy continued to demonstrate the resilience of our business model.

“We continue to adhere to the Centers for Disease Control and Prevention’s guidelines in our operations and interactions with customers and adapt to more stringent municipal and state mandates. Our highest priority is to ensure the health and safety of our team members and customers,” Silber added.

2020 Third Quarter Highlights

  • Equipment rental revenue was $402.3 million compared to $459.6 million in the prior-year period. While the COVID-19 business slowdown impacted volume and pricing, monthly results continued to improve sequentially throughout the third quarter.
  • Total revenues were $456.7 million compared to $508.1 million in the prior-year period. The year-over-year decline of $51.4 million was related primarily to lower equipment rental revenue, offset by an increase in the sales of rental equipment of $9.9 million.
  • Pricing declined by 0.8% compared to the same period in 2019.
  • Dollar utilization was 37.6% compared with 40.8% in the prior-year period, reflecting lower volume, fleet mix, and pricing.
  • Direct operating expenses (DOE) of $169.4 million decreased by 14.3% compared to the prior-year period. The $28.3 million decline reflected savings in nearly every category of expense and was primarily related to lower re-rent expense, personnel-related costs, and transportation and maintenance expenses.
  • Selling, general and administrative expenses (SG&A) declined 19.9% to $61.0 million in 2020 compared to $76.2 million in the prior-year period. The $15.2 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.
  • Interest expense decreased to $22.4 million compared to $81.9 million in the prior-year period. The decrease was primarily related to the $53.6 million debt extinguishment expense related to the refinancing of the Company’s Notes and ABL Credit Facility in 2019, and lower interest expense related to lower balances of the Company’s ABL Credit Facility in 2020.
  • The income tax provision was $11.7 million compared with a tax benefit of $4.2 million for the same period last year.
  • The Company reported a net income of $39.9 million compared to $9.4 million in the prior-year period. Adjusted net income was $39.8 million compared to $43.2 million in the prior-year period.
  • Adjusted EBITDA declined 6.1% to $196.7 million compared to $209.4 million in the prior-year period. The decrease was primarily due to lower volume and pricing.
  • Adjusted EBITDA margin increased 190 basis points to 43.1% compared with 41.2% in the prior-year period.

2020 Nine Months Highlights

  • Equipment rental revenue was $1,116.4 million compared to $1,244.8 million in the comparable prior-year period. The 10.3% or $128.4 million decline was primarily due to lower volume related to the impact of COVID-19.
  • Total revenues were $1,260.9 million compared to $1,458.9 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 13.6%, or $198.0 million, decline compared to the prior-year period.
  • Pricing increased by 0.4% compared to the same period in 2019.
  • Dollar utilization was 34.7% compared with 38.1% in the prior year, primarily a result of lower volume, mix, and flat pricing.
  • DOE fell 12.5%, or $72.0 million, to $503.3 million, compared to the prior-year period. The decline was primarily related to lower personnel-related expenses as a result of furloughs, lower overtime expenses, and lower transportation and maintenance costs.
  • SG&A decreased 15.2% to $187.6 million compared to $221.2 million in the prior-year period. The $33.6 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 $7.8 million in the prior-year period associated with closures of underperforming branches.
  • Impairment expense was $9.5 million and consisted of the partial impairment of a long-term receivable related to the sale of a former joint venture, the closure of two branch locations last year, and the sale of two locations in the third quarter of 2020. There was no impairment expense in the 2019 comparable period.
  • Interest expense decreased to $70.1 million compared to $146.4 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 rates on the Company’s 2027 Notes in 2020.
  • The income tax provision was $10.9 million compared with a benefit of $2.0 million for the same period last year.
  • The Company reported a net income of $38.2 million compared to $12.4 million in the prior-year period. The adjusted net income was $48.2 million compared to $52.8 million in the prior-year period.
  • Adjusted EBITDA declined 6.2% to $493.7 million compared to $526.6 million in the prior-year period. The decline was primarily due to lower volume.
  • Adjusted EBITDA margin increased 310 basis points to 39.2% compared with 36.1% in the prior-year period.

Capital Expenditures – Fleet

  • The Company reported net fleet capital expenditures of $159.1 million for the nine months of 2020. Gross fleet capital expenditures were $273.2 million compared with $506.7 million in the comparable prior-year period. Proceeds from disposals were $114.1 million compared with $156.9 million last year. See page A-5 for the calculation of net fleet capital expenditures.
  • As of September 30, 2020, the Company’s total fleet was approximately $3.73 billion at OEC.
  • The average fleet at OEC decreased year-over-year by 4.5% in the third quarter and by 1.1% for the nine months compared to the prior-year periods.
  • The average fleet age was 47 months as of September 30, 2020, compared with 44 months in the comparable prior-year period.

Disciplined Capital Management

  • The Company generated $252.4 million in free cash flow in the nine months of 2020, compared with $65.5 million in the same period in 2019.
  • Cash and cash equivalents were $53.8 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.3 billion of liquidity, as of September 30, 2020. Net debt was $1.8 billion as of September 30, 2020, with net leverage of 2.5x compared to 3.0x in the same prior-year period.

Outlook for the Year

The Company raised adjusted EBITDA guidance for the full year.

Old

New

Adjusted EBITDA:

$625 million to $650 million

$655 million to $675 million

Net fleet capital expenditures:

$190 million to $210 million

$190 million to $210 million

“Our improving efficiency in the third quarter reflects our ability to manage through challenging times,” said Silber. “We currently estimate fourth-quarter fleet on rent is likely to decline approximately 4% to 6% and rental revenue to decline approximately 6% to 8% year-over-year. Adjusted EBITDA margin for the fourth quarter and full-year should improve versus the comparable prior-year periods. Our strong free cash flow position for the nine-month period ending September 30, 2020, is already substantially higher than the amount we generated for the full year 2019 and should continue to improve during the remainder of the year. With reduced leverage and ample liquidity, we are well-positioned for 2021.

“I’m proud of what our Herc team members have accomplished year to date. We know we have to prove ourselves every day and we are committed to helping our customers operate efficiently, effectively, and safely,” he added.