Herc Holdings reports strong Third Quarter 2022 results and raises 2022 guidance

Posted on Oct 20, 2022 in Uncategorized

Third Quarter Highlights

• Equipment rental revenue increased 35.9% to a record $706.2 million
• Total revenues increased 35.4% to $745.1 million
• Net income increased 40.2% to $101.4 million, or $3.36 per diluted share
• Adjusted EBITDA grew 40.3% to a record $345.0 million and adjusted EBITDA margin expanded 160 basis points to 46.3%
• Repurchased approximately 540,000 shares of common stock
• Raises FY 2022 adjusted EBITDA guidance to 36% to 40% growth over the prior year

Herc Holdings Inc. has reported financial results for the quarter that ended September 30, 2022. Equipment rental revenue was $706.2 million and total revenues were $745.1 million in the third quarter of 2022, compared to $519.6 million and $550.4 million, respectively, for the same period last year. In the third quarter of 2022, the Company reported a net income of $101.4 million, or $3.36 per diluted share, an increase of 41.8% compared to $72.3 million, or $2.37 per diluted share, in the same 2021 period.

“We continued to see strong demand for our equipment rental services across all of our geographic regions,” said Larry Silber, president and chief executive officer. “Our rental revenue increased 35.9% over the prior year, while the average fleet increased 35.0% to $5.3 billion. Adjusted EBITDA increased 40.3% to $345.0 million and adjusted EBITDA margin expanded 160 basis points to 46.3% in the quarter.

“Just as our third quarter was nearing its close, Hurricane Ian landed in Southwest Florida. The ferocity of its impact on our local communities has been widely reported in the news. Our outstanding and dedicated Herc team stepped up to immediately respond to the needs of fellow team members, customers, and communities. I want to thank all of our team for their support and their commitment to operate safely and effectively throughout the preparation, cleanup, and remediation that is now ongoing throughout the region.”

2022 Third Quarter Financial Results

• Equipment rental revenue increased 35.9% to $706.2 million compared to $519.6 million in the prior-year period.
• Total revenues increased 35.4% to $745.1 million compared to $550.4 million in the prior-year period. The year-over-year increase of $194.7 million was primarily related to an increase in equipment rental revenue of $186.6 million and an increase in sales of rental equipment of $4.9 million.
• Pricing increased6.2% compared to the same period in 2021.
• Dollar utilization decreased to 45.3% compared to 46.0% in the prior-year period primarily due to a mix of equipment on rent.
• Direct operating expenses (DOE) of $277.5 million increased 32.8% compared to the prior-year period. The $68.6 million increase was primarily related to strong rental activity and increases in payroll and related expenses associated with additional headcount, in addition to higher fuel prices, maintenance and facilities expenses.
• Depreciation of rental equipment increased 32.4%, or $34.2 million, to $139.6 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 50.0%, or $8.5 million, to $25.5 million primarily due to the amortization of acquisition intangible assets.
• Selling, general and administrative expenses (SG&A) increased 36.8% to $111.5 million compared to $81.5 million in the prior-year period. The $30.0 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation increases, general payroll and benefits, and travel expenses.
• Interest expense increased to $33.0 million compared with $21.4 million in the prior-year period due to increased balances and interest rates on the ABL Credit Facility.
• The income tax provision was $34.2 million compared to $23.8 million for the prior-year period. The provision was driven by the level of pre-tax income, offset partially by certain non-deductible expenses.
• The Company reported a net income of $101.4 million compared to $72.3 million in the prior-year period. Adjusted net income increased 42.2% to $103.4 million, or $3.42 per diluted share, compared to $72.7 million, or $2.38 per diluted share, in the prior-year period.
• Adjusted EBITDA increased 40.3% to $345.0 million compared to $245.9 million in the prior-year period, while adjusted EBITDA margin increased 160 basis points to 46.3% compared to 44.7% in the prior-year period.

2022 Nine Months Financial Results

• Equipment rental revenue increased 34.4% to $1,838.4 million compared to $1,368.0 million in the prior-year period.
• Total revenues increased 30.6% to $1,952.8 million compared to $1,495.1 million in the prior-year period. The year-over-year increase of $457.7 million was related to an increase in equipment rental revenue of $470.4 million, offset primarily by lower sales of rental equipment of $22.6 million. The reduction in sales of rental equipment resulted from strong rental demand and the strategic management of our fleet to maximize fleet size and minimize the sales of rental equipment.
• Pricing increased5.4% compared to the same period in 2021.
• Dollar utilization increased to 43.2% compared to 42.4% in the prior-year period primarily due to increased volume and rate.
• Direct operating expenses (DOE) of $751.0 million increased by 33.4% compared to the prior-year period. The $187.9 million increase was primarily due to strong rental activity and increases in payroll and related expenses associated with additional headcount, in addition to increases in fuel prices, maintenance, delivery and freight, facilities, and re-rent expenses related to the corresponding increase in re-rent revenue.
• Depreciation of rental equipment increased 26.8%, or $82.2 million, to $389.1 million through the third quarter of 2022 due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 41.2%, or $20.1 million, to $68.9 million primarily due to the amortization of acquisition intangible assets.
• Selling, general and administrative expenses (SG&A) increased 34.8% to $297.9 million compared to $221.0 million in the prior-year period. The $76.9 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation, general payroll and benefits, and travel expense.
• Interest expense increased to $80.7 million compared with $63.8 million in the prior-year period due to increased balances and interest rates on the ABL Credit Facility.
• The income tax provision was $68.1 million compared to $46.7 million for the prior-year period. The provision in each period was driven by the level of pre-tax income, offset partially by a benefit related to stock-based compensation and nondeductible expenses.
• The Company reported a net income of $232.1 million compared to $152.3 million in the prior-year period. Adjusted net income increased 54.6% to $237.4 million, or $7.83 per diluted share, compared to $153.6 million, or $5.05 per diluted share, in the prior-year period.
• Adjusted EBITDA increased 35.7% to $866.0 million compared to $638.2 million in the prior-year period, while adjusted EBITDA margin increased 160 basis points to 44.3% compared to 42.7% in the prior-year period.

Capital Expenditures

• The Company reported net rental equipment capital expenditures of $774.6 million through the end of the third quarter of 2022 compared with $360.9 million in the prior-year period. Gross rental equipment capital expenditures were $841.2 million compared to $447.0 million in the comparable prior-year period. Proceeds from disposals were $66.6 million compared to $86.1 million last year.
• As of September 30, 2022, the Company’s total fleet was approximately $5.4 billion at OEC.
• The average fleet at OEC in the third quarter increased year-over-year by 35.0% compared to the prior-year period.
• The average fleet age was 49 months as of September 30, 2022, compared to 48 months in the comparable prior-year period.

Disciplined Capital Management

• The Company acquired 16 companies with a total of 24 locations and opened 17 new greenfield locations through the end of the third quarter of 2022.
• Net debt was $2.8 billion as of September 30, 2022, with net leverage of 2.4x compared to 2.1x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to 1.6 billion of liquidity as of September 30, 2022.
• The Company declared its quarterly dividend of $0.575 payable to shareholders of record as of August 19, 2022, with a payment date of September 2, 2022.
• The Company acquired approximately 540,000 shares of its common stock for $59.1 million during the third quarter of 2022. As of September 30, 2022, the approximate dollar value that remains available under the share repurchase program is $336.7 million.

“Given our belief that the Company’s valuation is discounted compared to our long-term growth expectations, we acquired $59 million of common stock during the third quarter,” Mr. Silber said. “Consistent with our capital allocation goals, we expect to remain within our targeted net leverage range of 2x to 3x while executing on our long-term strategy of organic and M&A growth, and allocating capital to our shareholders.”

Outlook

The Company updated its full-year 2022 adjusted EBITDA guidance range and net rental capital expenditures guidance. The updated guidance range for the full-year 2022 adjusted EBITDA reflects an increase of 36% to 40% compared to full-year 2021 results.

Mr. Silber added, “Demand from our customers continues to be strong as we close out 2022. We continue to benefit from tight equipment inventory and believe a secular shift from ownership to rental is accelerating. With the steady announcement of new industrial, alternative energy, and infrastructure projects, we believe we are well-positioned to generate continued revenue growth in 2023 and beyond.”