Third Quarter Highlights
– Record total revenues of $908 million, an increase of 22% –
Net income increased to $113 million, or $3.96 per diluted share,
an increase of 18% – Adjusted EBITDA of $410 million increased 19%;
adjusted EBITDA margin at 45.2% – Rental pricing increased 6.9%
year-over-year – Exploring strategic alternatives for Cinelease
studio entertainment business
Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the
"Company") today reported financial results for the quarter ended
September 30, 2023. Equipment rental revenue was $765 million and
total revenues were $908 million in the third quarter of 2023,
compared to $706 million and $745 million, respectively, for the
same period last year. In the third quarter of 2023, the Company
reported net income of $113 million, or $3.96 per diluted share, an
increase of 18% compared to $101 million, or $3.36 per diluted
share, in the same 2022 period.
“We continued to leverage our core strengths in market coverage,
fleet management, pricing discipline and a best-in-class team to
deliver double-digit revenue and Adjusted EBITDA growth in the
third quarter,” said Larry Silber, president and chief executive
officer. “Over the course of the quarter, we also successfully
rebalanced our fleet after a wave of back-ordered supply was
delivered in the first half of the year. And, with the health of
the supply chain improving, we were able to accelerate used-fleet
sales after two years to refresh our offering and make way for the
new equipment.”
“Continued investments in our premium fleet offering, strategic
acquisitions and advanced technologies, along with robust demand
across key end markets and a focus on cost discipline are driving
the momentum in our business and will support sustainable,
profitable growth over the long term," said Silber.
"Today, we also are announcing that we will begin exploring
strategic alternatives for Cinelease, our studio management and
lighting and grip equipment rental business. This decision was made
due to the changing dynamics for lighting and grip rental providers
in the film and studio entertainment industry, which has shifted to
requiring significant capital investment in studios. For Herc to
allocate capital for growth in this new real-estate-focused
business model would be a divergence from our stated strategy,"
said Silber.
2023 Third Quarter Financial Results
- Total revenues increased 22% to $908 million compared to
$745 million in the prior-year period. The year-over-year increase
of $163 million primarily related to an increase in equipment
rental revenue of $59 million, reflecting positive pricing of 6.9%
and increased volume of 11.5%, partially offset by unfavorable mix
driven by the studio entertainment business and inflation. Sales of
rental equipment increased by $103 million during the period
resulting from the return to more normal fleet rotation as
deliveries become more predictable in certain categories of
equipment.
- Dollar utilization was 42.1% compared to 45.3% in the
prior-year period. A slowdown in the studio entertainment business
as a result of labor disruptions in the film and television
industry contributed 200 basis points of the change, as well as the
continued supply chain challenges in certain categories of
equipment that have disrupted the normal cadence of
deliveries.
- Direct operating expenses were $288 million, or 37.6% of
equipment rental revenue, compared to $278 million, or 39.4% in the
prior-year period, reflecting better cost performance and fixed
cost absorption on higher revenue despite increases related to
additional headcount, facilities expenses and maintenance costs
associated with strong rental activity and an expanding branch
network.
- Depreciation of rental equipment increased 19% to $167
million due to higher year-over-year average fleet size. Non-rental
depreciation and amortization increased 16% to $29 million
primarily due to amortization of acquisition intangible
assets.
- Selling, general and administrative expenses was $115
million, or 15.0% of equipment rental revenue, compared to $112
million, or 15.9% in the prior-year period due to continued focus
on improving operating leverage while expanding revenues.
- Interest expense increased to $60 million compared with
$33 million in the prior-year period due to higher interest rates
on floating rate debt and increased borrowings on the ABL Credit
Facility primarily to fund acquisition growth.
- Net income was $113 million compared to $101 million in
the prior-year period. Adjusted net income increased 11% to $114
million, or $4.00 per diluted share, compared to $103 million, or
$3.42 per diluted share, in the prior-year period. The effective
tax rate was 23% compared to 25% in the prior-year period.
- Adjusted EBITDA increased 19% to $410 million compared
to $345 million in the prior-year period and adjusted EBITDA margin
was 45.2% compared to 46.3% in the prior-year period. Margin
performance was impacted by a decline in the Company's studio
entertainment revenue year over year, as well as a significant
increase in sales of used equipment in the latest quarter.
2023 Nine Months Financial Results
- Total revenues increased 25% to $2,450 million compared
to $1,953 million in the prior-year period. The year-over-year
increase of $497 million was related to an increase in equipment
rental revenue of $283 million, reflecting positive pricing of 7.2%
and increased volume of 16.8%, partially offset by unfavorable mix
driven by the studio entertainment business and inflation. Sales of
rental equipment increased $210 million compared to the prior-year
period.
- Dollar utilization decreased to 40.8% compared to 43.2%
in the prior-year period. The change is primarily due to a slowdown
in the studio entertainment business as a result of labor
disruptions in the film and television industry, as well as the
continued supply chain challenges in certain categories of
equipment that have disrupted the normal cadence of
deliveries.
- Direct operating expenses were $851 million, or 40.1% of
equipment rental revenue compared to $752 million, or 40.9% the
prior-year period, reflecting better cost performance and fixed
cost absorption on higher revenue despite increases related to
additional headcount, facilities expenses and maintenance costs
associated with strong rental activity and an expanding branch
network.
- Depreciation of rental equipment increased 23% to $480
million, due to higher year-over-year average fleet size.
Non-rental depreciation and amortization increased 20% to $83
million primarily due to amortization of acquisition intangible
assets.
- Selling, general and administrative expenses was $332
million, or 15.7% of equipment rental revenue, compared to $298
million, or 16.2% in the prior-year period due to continued focus
on improving operating leverage while expanding revenues.
- Interest expense increased to $162 million compared with
$81 million in the prior-year period due to higher interest rates
on floating rate debt and increased borrowings on the ABL Credit
Facility primarily to fund acquisition growth.
- Net income was $256 million compared to $232 million in
the prior-year period. Adjusted net income increased 10% to $260
million, or $9.03 per diluted share, compared to $237 million, or
7.83 per diluted share, in the prior-year period. The effective tax
rate was 21% in 2023 compared to 23% in the prior-year period.
- Adjusted EBITDA increased 24% to $1,070 million compared
to $866 million in the prior-year period and adjusted EBITDA margin
was 43.7% compared to 44.3% in the prior-year period. Margin
performance was impacted by a decline in the Company's studio
entertainment revenue year over year, as well as a significant
increase in sales of used equipment during 2023.
Rental Fleet
Net rental equipment capital expenditures were as follows (in
millions):
Nine Months Ended September
30,
2023
2022
Rental equipment expenditures
$
1,100
$
841
Proceeds from disposal of rental
equipment
(231
)
(67
)
Net rental equipment capital
expenditures
$
869
$
774
- As of September 30, 2023, the Company's total fleet was
approximately $6.2 billion at OEC.
- Average fleet at OEC in the third quarter increased 19%
compared to the prior-year period and increased 24%
year-to-date.
- Average fleet age was 45 months as of September 30, 2023,
compared to 49 months in the comparable prior-year period.
Disciplined Capital Management
- The Company completed eight acquisitions with a total of 14
locations and opened 13 new greenfield locations through the end of
the third quarter of 2023.
- Net debt was $3.6 billion as of September 30, 2023, with net
leverage of 2.5x compared to 2.4x in the same prior-year period.
Cash and cash equivalents and unused commitments under the ABL
Credit Facility contributed to $1.5 billion of liquidity as of
September 30, 2023.
- The Company declared its quarterly dividend of $0.6325 payable
to shareholders of record as of August 18, 2023, with a payment
date of September 1, 2023.
- The Company acquired approximately 990,000 shares of its common
stock for $107 million year-to-date in 2023. As of September 30,
2023, approximately $174 million remains available under the share
repurchase program.
Outlook
The Company is narrowing its full year 2023 adjusted EBITDA
guidance range and net rental capital expenditures guidance
presented below. The guidance range for the full year 2023 adjusted
EBITDA reflects an increase of 18% to 22% compared to full year
2022 results.
Previous Guidance
New Guidance
Adjusted EBITDA:
$1.45 billion to $1.55
billion
$1.45 billion to $1.50
billion
Net rental equipment capital
expenditures:
$1.0 billion to $1.2 billion
$1.0 billion to $1.1 billion
As a leader in an industry where scale matters, the Company
expects to continue to gain share by capturing an outsized position
of the forecasted higher construction spending in 2023 by investing
in its fleet, capitalizing on strategic acquisitions and greenfield
opportunities, and cross-selling a diversified product
portfolio.
Cinelease Studio Entertainment Business
The Company announced it is exploring strategic alternatives for
its Cinelease studio entertainment and lighting and grip equipment
rental business. The film and studio entertainment industry has
shifted to a studio centric model where owning or managing a large
footprint of studios is becoming more important to be a competitive
equipment rental provider, requiring significant investment in
fully managed studios. This business model is a departure from the
Company's stated growth strategy. The Company will continue to
provide equipment rentals, other than lighting and grip equipment,
to the film and entertainment industry through Herc Entertainment
Services, which includes aerial equipment, forklifts, carts,
generators and climate solutions.
There can be no assurance that the process will result in any
specific outcome and the Company has not set a timetable for the
conclusion of the process, however, it expects a transaction, if
any, to be complete within one year. The Company does not intend to
comment further until it determines that further disclosure is
required by law or otherwise deems it appropriate. Herc has
retained Goldman Sachs & Co. LLC as its financial advisor to
assist the company with the process.
Earnings Call and Webcast Information
Herc Holdings' third quarter 2023 earnings webcast will be held
today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may
call +1-888-660-6011 and international participants should call the
country specific dial in numbers listed at
https://events.q4irportal.com/custom/access/2324/, using the access
code: 7812157. Please dial in at least 10 minutes before the call
start time to ensure that you are connected to the call and to
register your name and company.
Those who wish to listen to the live conference call and view
the accompanying presentation slides should visit the Events and
Presentations tab of the Investor Relations section of the
Company's website at IR.HercRentals.com. The press release and
presentation slides for the call will be posted to this section of
the website prior to the call.
A replay of the conference call will be available via webcast on
the Company website at IR.HercRentals.com, where it will be
archived for 12 months after the call.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc.
subsidiary, is one of the leading equipment rental suppliers with
379 locations in North America. With over 58 years of experience,
we are a full-line equipment rental supplier offering a broad
portfolio of equipment for rent. Our fleet includes aerial,
earthmoving, material handling, trucks and trailers, air
compressors, compaction, lighting, trench shoring, and studio and
production equipment. Our equipment rental business is supported by
ProSolutions®, our industry-specific solutions-based services,
which includes power generation, climate control, remediation and
restoration and pumps, and our ProContractor professional grade
tools. Our product offerings and services are aimed at helping
customers work more efficiently, effectively and safely. The
Company has approximately 7,000 employees who equip our customers
and communities to build a brighter future. Herc Holdings’ 2022
total revenues were approximately $2.7 billion. All references to
“Herc Holdings” or the “Company” in this press release refer to
Herc Holdings Inc. and its subsidiaries, unless otherwise
indicated. For more information on Herc Holdings and its products
and services, visit: www.HercRentals.com.
Certain Additional Information
In this release we refer to the following operating
measures:
- Dollar utilization: calculated by dividing rental revenue
(excluding re-rent, delivery, pick-up and other ancillary revenue)
by the average OEC of the equipment fleet for the relevant time
period, based on the guidelines of the American Rental Association
(ARA).
- OEC: original equipment cost based on the guidelines of the
ARA, which is calculated as the cost of the asset at the time it
was first purchased plus additional capitalized refurbishment costs
(with the basis of refurbished assets reset at the refurbishment
date).
Forward-Looking Statements
This press release includes forward-looking statements as that
term is defined by the federal securities laws, including
statements concerning our business plans and strategy, projected
profitability, performance or cash flows, future capital
expenditures, our growth strategy, including our ability to grow
organically and through M&A, anticipated financing needs,
business trends, our capital allocation strategy, liquidity and
capital management, exploring strategic alternatives for Cinelease,
including the timing of the review process, the outcome of the
process and the costs and benefits of the process, and other
information that is not historical information. Forward looking
statements are generally identified by the words "estimates,"
"expects," "anticipates," "projects," "plans," "intends,"
"believes," "forecasts," "looks," and future or conditional verbs,
such as "will," "should," "could" or "may," as well as variations
of such words or similar expressions. All forward-looking
statements are based upon our current expectations and various
assumptions and there can be no assurance that our current
expectations will be achieved. They are subject to future events,
risks and uncertainties - many of which are beyond our control - as
well as potentially inaccurate assumptions, that could cause actual
results to differ materially from those in the forward-looking
statements. Further information on the risks that may affect our
business is included in filings we make with the Securities and
Exchange Commission from time to time, including our most recent
annual report on Form 10-K, subsequent quarterly reports on Form
10-Q, and in our other SEC filings. We undertake no obligation to
update or revise forward-looking statements that have been made to
reflect events or circumstances that arise after the date made or
to reflect the occurrence of unanticipated events.
Information Regarding Non-GAAP Financial Measures
In addition to results calculated according to accounting
principles generally accepted in the United States (“GAAP”), the
Company has provided certain information in this release that is
not calculated according to GAAP (“non-GAAP”), such as EBITDA,
adjusted EBITDA, adjusted EBITDA margin, adjusted net income,
adjusted earnings per diluted common share and free cash flow.
Management uses these non-GAAP measures to evaluate operating
performance and period-over-period performance of our core business
without regard to potential distortions, and believes that
investors will likewise find these non-GAAP measures useful in
evaluating the Company’s performance. These measures are frequently
used by security analysts, institutional investors and other
interested parties in the evaluation of companies in our industry.
Non-GAAP measures should not be considered in isolation or as a
substitute for our reported results prepared in accordance with
GAAP and, as calculated, may not be comparable to similarly titled
measures of other companies. For the definitions of these terms,
further information about management’s use of these measures as
well as a reconciliation of these non-GAAP measures to the most
comparable GAAP financial measures, please see the supplemental
schedules that accompany this release.
(See Accompanying Tables)
HERC HOLDINGS INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Unaudited
(In millions, except per share
data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Revenues:
Equipment rental
$
765
$
706
$
2,121
$
1,838
Sales of rental equipment
124
21
278
68
Sales of new equipment, parts and
supplies
11
10
29
27
Service and other revenue
8
8
22
20
Total revenues
908
745
2,450
1,953
Expenses:
Direct operating
288
278
851
752
Depreciation of rental equipment
167
140
480
389
Cost of sales of rental equipment
99
16
201
49
Cost of sales of new equipment, parts and
supplies
7
6
19
16
Selling, general and administrative
115
112
332
298
Non-rental depreciation and
amortization
29
25
83
69
Interest expense, net
60
33
162
81
Other expense (income), net
(3
)
—
(2
)
(1
)
Total expenses
762
610
2,126
1,653
Income before income taxes
146
135
324
300
Income tax provision
(33
)
(34
)
(68
)
(68
)
Net income
$
113
$
101
$
256
$
232
Weighted average shares outstanding:
Basic
28.3
29.7
28.5
29.8
Diluted
28.5
30.2
28.8
30.3
Earnings per share:
Basic
$
3.99
$
3.41
$
8.98
$
7.79
Diluted
$
3.96
$
3.36
$
8.89
$
7.66
A-1
HERC HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
Unaudited
(In millions)
September 30,
2023
December 31,
2022
ASSETS
Cash and cash equivalents
$
71
$
54
Receivables, net of allowances
595
523
Other current assets
63
67
Total current assets
729
644
Rental equipment, net
3,990
3,485
Property and equipment, net
473
392
Right-of-use lease assets
670
552
Goodwill and intangible assets, net
976
850
Other long-term assets
55
34
Total assets
$
6,893
$
5,957
LIABILITIES AND EQUITY
Current maturities of long-term debt and
financing obligations
$
18
$
16
Current maturities of operating lease
liabilities
43
42
Accounts payable
247
318
Accrued liabilities
230
228
Total current liabilities
538
604
Long-term debt, net
3,665
2,922
Financing obligations, net
105
108
Operating lease liabilities
648
528
Deferred tax liabilities
693
647
Other long term liabilities
45
40
Total liabilities
5,694
4,849
Total equity
1,199
1,108
Total liabilities and equity
$
6,893
$
5,957
A-2
HERC HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
Nine Months Ended September
30,
2023
2022
Cash flows from operating activities:
Net income
$
256
$
232
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of rental equipment
480
389
Depreciation of property and equipment
53
47
Amortization of intangible assets
30
22
Amortization of deferred debt and
financing obligations costs
3
3
Stock-based compensation charges
15
20
Provision for receivables allowances
49
34
Deferred taxes
41
78
Gain on sale of rental equipment
(77
)
(19
)
Other
1
2
Changes in assets and liabilities:
Receivables
(79
)
(156
)
Other assets
(3
)
(10
)
Accounts payable
10
(2
)
Accrued liabilities and other long-term
liabilities
17
(17
)
Net cash provided by operating
activities
796
623
Cash flows from investing activities:
Rental equipment expenditures
(1,100
)
(841
)
Proceeds from disposal of rental
equipment
231
67
Non-rental capital expenditures
(119
)
(82
)
Proceeds from disposal of property and
equipment
11
4
Acquisitions, net of cash acquired
(332
)
(441
)
Other investing activities
(15
)
(23
)
Net cash used in investing activities
(1,324
)
(1,316
)
Cash flows from financing activities:
Proceeds from revolving lines of credit
and securitization
1,755
2,080
Repayments on revolving lines of credit
and securitization
(1,016
)
(1,228
)
Principal payments under finance lease and
financing obligations
(12
)
(12
)
Dividends paid
(56
)
(51
)
Repurchase of common stock
(107
)
(53
)
Other financing activities, net
(19
)
(20
)
Net cash provided by financing
activities
545
716
Effect of foreign exchange rate changes on
cash and cash equivalents
—
(1
)
Net change in cash and cash equivalents
during the period
17
22
Cash and cash equivalents at beginning of
period
54
35
Cash and cash equivalents at end of
period
$
71
$
57
A-3
HERC HOLDINGS INC. AND
SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
EBITDA AND ADJUSTED EBITDA
RECONCILIATIONS
Unaudited
(In millions)
EBITDA and adjusted EBITDA - EBITDA
represents the sum of net income (loss), provision (benefit) for
income taxes, interest expense, net, depreciation of rental
equipment and non-rental depreciation and amortization. Adjusted
EBITDA represents EBITDA plus the sum of merger and acquisition
related costs, restructuring and restructuring related charges,
spin-off costs, non-cash stock-based compensation charges, loss on
extinguishment of debt (which is included in interest expense,
net), impairment charges, gain (loss) on the disposal of a business
and certain other items. EBITDA and adjusted EBITDA do not purport
to be alternatives to net income as an indicator of operating
performance. Additionally, neither measure purports to be an
alternative to cash flows from operating activities as a measure of
liquidity, as they do not consider certain cash requirements such
as interest payments and tax payments.
Adjusted EBITDA Margin - Adjusted
EBITDA Margin, calculated by dividing Adjusted EBITDA by Total
Revenues, is a commonly used profitability ratio.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net income
$
113
$
101
$
256
$
232
Income tax provision
33
34
68
68
Interest expense, net
60
33
162
81
Depreciation of rental equipment
167
140
480
389
Non-rental depreciation and
amortization
29
25
83
69
EBITDA
402
333
1,049
839
Non-cash stock-based compensation
charges
6
9
15
20
Merger and acquisition related costs
2
3
5
6
Other
—
—
1
1
Adjusted EBITDA
$
410
$
345
$
1,070
$
866
Total revenues
$
908
$
745
$
2,450
$
1,953
Adjusted EBITDA
$
410
$
345
$
1,070
$
866
Adjusted EBITDA margin
45.2
%
46.3
%
43.7
%
44.3
%
A-4
HERC HOLDINGS INC. AND
SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
ADJUSTED NET INCOME AND
ADJUSTED EARNINGS PER DILUTED SHARE
Unaudited
(In millions)
Adjusted Net Income and Adjusted
Earnings Per Diluted Share - Adjusted Net Income represents the
sum of net income (loss), restructuring and restructuring related
charges, spin-off costs, loss on extinguishment of debt, impairment
charges, merger and acquisition-related costs, gain (loss) on the
disposal of a business and certain other items. Adjusted Earnings
per Diluted Share represents Adjusted Net Income divided by diluted
shares outstanding. Adjusted Net Income and Adjusted Earnings Per
Diluted Share are important measures to evaluate our results of
operations between periods on a more comparable basis and to help
investors analyze underlying trends in our business, evaluate the
performance of our business both on an absolute basis and relative
to our peers and the broader market, provide useful information to
both management and investors by excluding certain items that may
not be indicative of our core operating results and operational
strength of our business.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net income
$
113
$
101
$
256
$
232
Merger and acquisition related costs
2
3
5
6
Other
—
—
1
1
Tax impact of adjustments(1)
(1
)
(1
)
(2
)
(2
)
Adjusted net income
$
114
$
103
$
260
$
237
Diluted shares outstanding
28.5
30.2
28.8
30.3
Adjusted earnings per diluted
share
$
4.00
$
3.42
$
9.03
$
7.83
(1) The tax rate applied for adjustments
is 25.7% and reflects the statutory rates in the applicable
entities.
A-5
HERC HOLDINGS INC. AND
SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
FREE CASH FLOW
Unaudited
(In millions)
Free cash flow represents net cash
provided by (used in) operating activities less rental equipment
expenditures and non-rental capital expenditures, plus proceeds
from disposal of rental equipment, proceeds from disposal of
property and equipment, and other investing activities. Free cash
flow is used by management in analyzing the Company’s ability to
service and repay its debt, fund potential acquisitions and to
forecast future periods. However, this measure does not represent
funds available for investment or other discretionary uses since it
does not deduct cash used to service debt or for other
non-discretionary expenditures.
Nine Months Ended
September 30,
2023
2022
Net cash provided by operating
activities
$
796
$
623
Rental equipment expenditures
(1,100
)
(841
)
Proceeds from disposal of rental
equipment
231
67
Net rental equipment
expenditures
(869
)
(774
)
Non-rental capital expenditures
(119
)
(82
)
Proceeds from disposal of property and
equipment
11
4
Other
(15
)
(23
)
Free cash flow
$
(196
)
$
(252
)
Acquisitions, net of cash acquired
(332
)
(441
)
Increase in net debt, excluding
financing activities
$
(528
)
$
(693
)
A-6
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231024732516/en/
Leslie Hunziker Senior VP Investor Relations &
Communications Leslie.Hunziker@hercrentals.com 239-301-1675
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