Herc Holdings reports Third Quarter and Nine Months 2021 results

• Equipment rental revenue increased 29.2% to $519.6 million
• Total revenues increased 20.5% to $550.4 million
• Net income increased to $72.3 million or $2.37 per diluted share
• Adjusted EBITDA expanded 25.0% to $245.9 million
• Adjusted EBITDA margin rose 160 basis points to 44.7%
• Pricing improved 2.8%
• Year-to-date free cash flow was $114.6 million
• The Company affirmed its full-year 2021 guidance range for adjusted EBITDA of $870 million to $890 million and net capital fleet expenditures of $500 million to $550 million
• The Company declared its first quarterly dividend of $0.50 per share, to holders of record as of October 20, 2021, and payable on November 4, 2021

Herc Holdings Inc. has reported financial results for the quarter ended September 30, 2021. Equipment rental revenue was $519.6 million and total revenues were $550.4 million in the third quarter of 2021, compared to $402.3 million and $456.7 million, respectively, for the same period last year. The Company reported a net income of $72.3 million, or $2.37 per diluted share, in the third quarter of 2021, compared to $39.9 million, or $1.35 per diluted share, in the same 2020 period. Third-quarter 2021 adjusted net income was $72.7 million, or $2.38 per diluted share, compared to $39.8 million, or $1.35 per diluted share, in 2020. See page A-5 for the adjusted net income and adjusted earnings per share calculations.

“Our third-quarter performance illustrates how Herc Rentals is shifting into high gear to capitalize on the benefits of operating leverage and scale that we discussed at our Investor Day,” said Larry Silber, president and chief executive officer. “We achieved another record for total revenues and adjusted EBITDA in the third quarter of 2021. Total revenues increased 21% and adjusted EBITDA grew 25% compared to the same period last year. Dollar utilization was also a record 46.0%, enhanced by steady demand in our markets and a positive operating environment. Our long-term strategy is driving results and we are positioned for a record year in 2021.”

2021 Third Quarter Financial Results

• Equipment rental revenue increased 29.2% to $519.6 million compared to $402.3 million in the prior-year period.
• Total revenues increased 20.5% to $550.4 million compared to $456.7 million in the prior-year period. The year-over-year increase of $93.7 million was related primarily to an increase in equipment rental revenue of $117.3 million, partially offset by a decrease of $28.7 million in sales of rental equipment.
• Pricing increased2.8% compared to the same period in 2020.
• Dollar utilization increased to 46.0% compared to 37.6% in the prior year period.
• Direct operating expenses (DOE) of $225.9 million increased 33.4% compared to the prior-year period. The $56.5 million increase was primarily due to higher personnel-related costs, and increases related to higher year-over-year volume such as delivery and freight, maintenance, and re-rent expense.
• Selling, general and administrative expenses (SG&A) increased 33.6% to $81.5 million compared to $61.0 million in the prior-year period. The $20.5 million increase was primarily attributed to increases in selling expenses, including commissions and bonus incentives, and travel expenses as business travel returned to pre-pandemic levels.
• Interest expense decreased to $21.4 million compared to $22.4 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 2021.
• The income tax provision was $23.8 million compared to $11.7 million for the prior-year period. The increase was driven primarily by the level of pre-tax income.
• The Company reported a net income of $72.3 million compared to $39.9 million in the prior-year period. Adjusted net income was $72.7 million compared to $39.8 million in the prior-year period.
• Adjusted EBITDA increased 25.0% to $245.9 million compared to $196.7 million in the prior-year period.
• Adjusted EBITDA margin increased 160 basis points to 44.7% compared to 43.1% in the prior-year period.

2021 Nine Months Financial Results

• Equipment rental revenue increased 22.5% to $1,368.0 million compared to $1,116.4 million in the prior-year period.
• Total revenues increased 18.6% to $1,495.1 million compared to $1,260.9 million in the prior-year period. The year-over-year increase of $234.2 million was related primarily to an increase in equipment rental revenue of $251.6 million, partially offset by a decline in sales of rental equipment of $25.6 million.
• Pricing increased1.6% compared to the same period in 2020.
• Dollar utilization increased to 42.4% compared to 34.7% in the prior year period.
• Direct operating expenses (DOE) of $611.9 million increased 21.6% compared to the prior-year period. The $108.6 million increase was primarily due to higher personnel-related costs and increases related to higher volume such as delivery and freight expenses, maintenance, and re-rent expense.
• Selling, general and administrative expenses (SG&A) increased 17.8% to $221.0 million compared to $187.6 million in the prior-year period. The $33.4 million increase was primarily attributed to selling expenses, including commissions and bonus incentives, general payroll, and benefit increases including higher stock compensation expense, offset by a reduction in bad debt expense due to continued improvement in collections.
• Interest expense decreased to $63.8 million compared to $70.1 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 2021.
• The income tax provision was $46.7 million compared to $10.9 million for the prior-year period. The provision in the nine months ended September 30, 2021, was primarily driven by the level of pre-tax income.
• The Company reported a net income of $152.3 million compared to $38.2 million in the prior-year period. Adjusted net income was $153.6 million compared to $48.2 million in the prior year period.
• Adjusted EBITDA increased 29.3% to $638.2 million compared to $493.7 million in the prior-year period.
• Adjusted EBITDA margin increased 350 basis points to 42.7% compared to 39.2% in the prior-year period.

Capital Expenditures

• The Company reported net rental equipment capital expenditures of $360.9 million for the nine months of 2021. Gross rental equipment capital expenditures were $447.0 million compared to $273.2 million in the comparable prior-year period. Proceeds from disposals were $86.1 million compared to $114.1 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.
• As of September 30, 2021, the Company’s total fleet was approximately $4.1 billion at OEC.
• The average fleet at OEC in the third quarter increased year-over-year by 4.3% compared to the prior-year period.
• The average fleet age was 48 months as of September 30, 2021, compared to 47 months in the comparable prior-year period.

Disciplined Capital Management

• The Company generated $114.6 million in free cash flow in the nine months of 2021, compared to $237.1 million in the same period in 2020.
• Cash and cash equivalents were $35.2 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.4 billion of liquidity as of September 30, 2021. Net debt was $1.8 billion as of September 30, 2021, with net leverage of 2.1x compared to 2.5x in the same prior-year period.
• The Company’s net leverage of 2.1x is at the low end of the targeted net leverage range of 2.0x to 3.0x.
• The Company also recently declared the payment of its first quarterly dividend of $0.50, payable to record holders as of October 20, 2021, with a payment date of November 4, 2021.

Outlook

The Company affirmed its full-year 2021 and 2022 guidance ranges of:

“We shared our 2021 to 2024 annual goals for organic CAGR growth of 12% to 15% in rental revenue and 17% to 20% in adjusted EBITDA at our recent Investor Day,” said Silber. “We have strong momentum and intend to invest in new locations, fleet, and acquisitions to enhance our urban density and improve our operating leverage and scale. We are committed to a capital allocation plan that balances our investment growth options between organic and acquisition growth.

In addition, we are pleased to establish the payment of a quarterly dividend of $0.50, with the first payment scheduled for November 4. We believe that our commitment to a dividend will help to broaden our shareholder base and that we are well-positioned to execute our strategy and deliver value to all of our stakeholders.”