Herc Holdings reports strong first quarter 2022 and increases full year 2022 guidance
First Quarter Highlights Equipment rental revenue increased 31.6% to a record $526.8 million Total revenues increased 25.0% to $567.3 million Dollar utilization increased 280 basis points to a record 41.4% Net income increased 77.8% to $58.5 million or $1.92 per diluted share Adjusted EBITDA grew 28.3% to a record $236.8 million and the adjusted EBITDA margin expanded 100 basis points to 41.7% Herc Holdings Inc. (“Herc Holdings” or the “Company”) today reported financial results for the quarter ended March 31, 2022. Equipment rental revenue was $526.8 million and total revenues were $567.3 million in the first quarter of 2022, compared to $400.4 million and $453.8 million, respectively, for the same period last year. The Company reported a net income of $58.5 million, or $1.92 per diluted share, in the first quarter of 2022, compared to $32.9 million, or $1.09 per diluted share, in the same 2021 period. First-quarter 2022 adjusted net income was $59.2 million, or $1.95 per diluted share, compared to $33.3 million, or $1.10 per diluted share, in 2021. See pages A-5 for the adjusted net income and adjusted earnings per share calculations. “We continued our ‘shift into high gear’ with an excellent first quarter,” said Larry Silber, president and chief executive officer. “Our average fleet increased 23.4% to $4.5 billion, dollar utilization increased to 41.4%, and rental revenue increased 31.6% over the prior year. Outstanding execution by our operations and field support team was enhanced by strong demand in our markets and a positive operating environment. The record first-quarter results have accelerated our growth expectations for the full year and we now expect 2022 adjusted EBITDA to increase between approximately 31% to 39% over 2021.” 2022 First Quarter Financial Results Equipment rental revenue increased 31.6% to $526.8 million compared to $400.4 million in the prior-year period. Total revenues increased 25.0% to $567.3 million compared to $453.8 million in the prior-year period. The year-over-year increase of $113.5 million was related to an increase in equipment rental revenue of $126.4 million, offset primarily by lower sales of rental equipment of $16.5 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 increased4.3% compared to the same period in 2021. Dollar utilization increased to 41.4% compared to 38.6% in the prior-year period primarily due to increased volume and rate. Direct operating expenses (DOE) of $246.2 million increased 34.5% compared to the prior-year period. The $63.2 million increase was primarily due to increases in payroll and related expenses associated with additional headcount, increased maintenance expenses as a result of strong rental activity, and higher fuel prices. Selling, general and administrative expenses (SG&A) increased 36.5% to $89.4 million compared to $65.5 million in the prior-year period. The $23.9 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation, general payroll, and benefits. Interest expense increased to $22.5 million compared with $21.4 million in the prior-year period. The income tax provision was $8.6 million compared to $8.2 million for the prior-year period. The provision in each period was driven by the level of pre-tax income, offset primarily by a benefit related to stock-based compensation and nondeductible expenses. The Company reported a net income of $58.5 million compared to $32.9 million in the prior-year period. Adjusted net income was $59.2 million compared to $33.3 million in the prior-year period. Adjusted EBITDA increased 28.3% to $236.8 million compared to $184.6 million in the prior-year period. Adjusted EBITDA margin increased 100 basis points to 41.7% compared to 40.7% in the prior-year period. Capital Expenditures The Company reported net rental equipment capital expenditures of $258.0 million for the first three months of 2022. Gross rental equipment capital expenditures were $286.8 million compared to $90.9 million in the comparable prior-year period. Proceeds from disposals were $28.8 million compared to $40.3 million last year. See page A-5 for the calculation of net rental equipment capital expenditures. As of March 31, 2022, the Company’s total fleet was approximately $4.6 billion at OEC. The average fleet at OEC in the first quarter increased year-over-year by 23.4% compared to the prior-year period. The average fleet age was 48 months as of March 31, 2022, and 2021. Disciplined Capital Management The Company acquired three companies with a total of three locations and opened five new greenfield locations during the quarter. First-quarter 2022 net fleet capital expenditures exceeded cash flow from operations, resulting in a negative free cash flow of $130.7 million compared to a positive free cash flow of $72.5 million in the same period in 2021. Net debt was $2.2 billion as of March 31, 2022, with net leverage of 2.3x compared to 2.2x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.1 billion of liquidity as of March 31, 2022. The Company announced a 15% increase in the quarterly dividend to $0.575, payable to record holders as of February 23, 2022, with a payment date of March 10, 2022. Outlook The Company increased its full-year 2022 adjusted EBITDA guidance range and maintained net rental capital expenditures guidance: Previous Current Adjusted EBITDA: $1,075 million to $1,175 million $1,175 million to $1,245 million Net rental equipment capital expenditures: $820 million to $1,120 million $900 million to $1,120 million “We closed on the previously announced acquisition of Cloverdale Equipment Company earlier this week and are confident we can continue to execute our organic growth strategy that is supplemented with strategic M&A,” said Silber. “We raised our guidance for the full year 2022 based on our outlook for continued strong momentum in operating performance.”
Inflation Strategy—Part Two
As we traverse the road forward in 2022, the business climate is becoming clear. High demand, dwindling supply, rising prices, and an uninspired workforce. What a combination! In my March 2020 column (Inflation OMG!), I laid out a series of strategies that could be employed in order to reshape and align the sales department in this new and different distribution landscape. At the end of the March article, I promised some ideas on similar strategies for the rental, parts, and service departments. This month I am going to make good on that promise. My first intention was to provide these strategies in my April column. I rethought that course of action. Because the disruption to our businesses is so acute, I thought it better to do “first things first”. The first step in the creation of an effective plan is to take stock of your resources and use your collected data as a basis for a SWOT analysis (Strengths – Weaknesses – Opportunities – Threats). In times where resources are running low but customer expectations are high, we tend to panic and naturally react by “shooting” before we “aim”. This consumes resources even more quickly. Although you can re-read the April issue, in short, a properly executed SWOT analysis does the following five things: SWOT Slows everyone down. As customer urgency rises, our response is to “speed up” and answer quickly. SWOT counteracts this by preplanning responses and understanding the ramifications of a kneejerk reaction. SWOT tells the TRUTH about existing and future resources. It is, what it is. We are not magicians. We can’t simply wish more resources into existence. SWOT defines how resources will be distributed. No shortcuts, no workarounds, no rogue ideas SWOT defines what we are best at doing. When supplies are short…. they MUST be pointed at the CENTER of your target. SWOT warns us about what we struggle with. Don’t throw shrinking resources at a black hole. With a well-defined SWOT analysis behind us, we can now talk about rental, parts, and service strategy. The reason I wanted to talk about a SWOT analysis BEFORE I present strategies is because not every idea presented here will square with your SWOT findings. So, use what fits. Discard what doesn’t. Rental Department Strategies Make no mistake. Rising prices and the absolute lack of new inventory in 2022 will mean that the OTHER departments in the dealership have to produce more profitability for the dealership to meet its obligations. The rental department is critical to producing these profits. Rental asset decisions One of the natural tendencies that dealer principals have, when inventory is in short supply, is to reallocate new equipment (ordered for the rental fleet) to the sales department to fill waiting customer orders. I understand the temptation to do this, and on its surface, it might seem like the right decision to make. The downside to doing so however must be recognized. The benefit to the dealership as a whole is served by rental assets adhering to a cycle of replacement that is proven in our industry. Extending the rental life of units in rental service increases maintenance costs affects depreciation allowances, and most importantly, precludes the rental department from raising their rates in an inflationary environment (see next section). As attractive as these rental assets may be to the sales department, the fact remains that the sales department’s long-term appetite for inventory will likely not be satiated. The needs of the DEALERSHIP will be better served by putting that new unit in service at an existing rental customer. This will allow the unit currently in service, to be retired, refurbished, and made available to sales. It also may allow the rental department to RAISE THE RATE on the new replacement. Additionally, it provides a depreciation benefit to the dealership and reduces service expense and exposure. Surrendering rental assets to the sales department may placate a nervous customer, but it gives the dealership no hard financial benefit. In fact, the sales department will still get a unit to sell in the end, it’s just used, instead of new. Price increases – Base Rates As the acquisition price of rental assets rises, the rates must follow suit. For the last 20 years or so, short-term rental rates have been stuck in neutral for a myriad of reasons. Low inflation, low-interest rates, and better technology leading to decreased maintenance costs are all factors that held retail rental rates in check. The newest inflation spike however will serve to force all of us out of that rut. As supply dwindles, so will the available units for rent on your lot. There is no reason not to raise basic published rates now. Do some math here. Historically, best practice suggests that monthly rental rates should represent 4% to 5% of the net acquisition cost of the equipment. In most dealerships, we have not kept that ratio. Even “preferred customers” are going to have to stomach an increase, and quite frankly, I don’t think they will be surprised. After all, every other cost is increasing at the same time. Hourly Usage Charges Another unexploited area is the over-use of short-term rental assets by customers. Your rental document probably specifies that the rental rates quoted, allow for eight hours of equipment usage per day, 40 hours per week, and 160 hours per month. It should also specify the “per hour” penalty for exceeding these thresholds. My observations are that these charges are seldom levied on customers and the entire issue of short-term overtime billing is routinely ignored. For long-term rentals (mostly full maintenance units), we don’t hesitate to explain these penalties, because we are constrained by the finance company to do so. Not collecting for over-use of equipment is especially damaging in seasonal and agricultural applications where units are literally run around the clock. My advice is to use the shortage of available rental inventory at this juncture, to shift your policy towards enforcing the hourly stipulations. If you EXPLAIN
Sunstate Equipment ups Krause to COO
Sunstate Equipment has announced the appointment of Bob Krause as their new Chief Operating Officer. A long-time industry veteran, Krause will now lead General Rental and Trench Division Operations, Sales and Marketing, and Business Excellence. Headquartered in Phoenix, Ariz., Sunstate currently has 93 locations throughout fifteen states, with accelerated growth on the horizon. “As Sunstate continues our ongoing evolution from a small mom-and-pop rental company in the desert, opened back in 1977, to a leading national equipment rental supplier, internationally recognized for our world-class customer service,” said Chris Watts, Sunstate Equipment President and CEO, “we are pleased to have Bob step into this role. In the two years, he’s been with us, his depth and breadth of rental experience have been a tremendous asset and will greatly complement the next phase of our growth.” Krause joined Sunstate Equipment in 2020 as Vice President of Business Excellence, where he invested his time learning as much as he could about Sunstate’s rich history, core values, and culture, all of which were fundamental in Krause’s decision to accept the position. “It was immediately clear to me that Sunstate was a company where our shared values aligned,” Krause recalled of his first meeting with Watts. “I already knew about the strong reputation that Sunstate had in the marketplace, but I was not aware of how strong and good the culture was until I met Chris.” Sunstate’s position in the industry has been long-established as one that puts people first, nurturing a culture that empowers employees to provide best-in-class rental solutions to their business partners. Upholding their unique total team approach is paramount to Sunstate’s long-term growth plans as they continue expanding into new markets and specialized industry sectors. “Bob’s personal and professional values align perfectly with our people-first culture,” said Watts. “This ensures that as we continue to grow and evolve, we will always remain true to the most basic of principles that have brought us the success we have enjoyed for the past 45 years.” Krause brings thirty-seven years of rental experience to the role, including top positions with Blueline Equipment Rental (Corporate Vice President of Business Excellence), United Rentals (Regional Vice President – western United States, Alaska, western Canada), and HERC, where he first cut his teeth in the industry as an Inside Sales Rep to learn the business from the ground up after earning a degree in Construction Management from North Dakota State University. “I am extremely honored and humbled at the opportunity to become the Chief Operating Officer of Sunstate Equipment,” Krause said. “I look forward to working with the entire Sunstate team as we continue to grow our business, maintain our extraordinary culture, and promote our brand by providing exceptional customer service across the markets that we serve.”
Equipment Finance Industry confidence eases again in March
The Equipment Leasing & Finance Foundation (the Foundation) has released the March 2022 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector. Overall, confidence in the equipment finance market is 58.2, easing from the February index of 61.8. When asked about the outlook for the future, MCI-EFI survey respondent Michael Romanowski, President, Farm Credit Leasing, said, “Supply chain issues continue to hamper equipment availability. The Ukraine conflict has enhanced volatility and is contributing to an already unsettled environment. We continue to work closely with our partners and customers to ensure we are advancing our mission in these uncertain times.” March 2022 Survey Results: The overall MCI-EFI is 58.2, easing from the February index of 61.8. • When asked to assess their business conditions over the next four months, 21.4% of executives responding said they believe business conditions will improve over the next four months, a decrease from 24.1% in February. 50% believe business conditions will remain the same over the next four months, down from 69% the previous month. 28.6% believe business conditions will worsen, an increase from 6.9% in February. • 25% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, up from 24.1% in February. 75% believe demand will “remain the same” during the same four-month time period, an increase from 72.4% the previous month. None believe demand will decline, down from 3.5% in February. • 21.4% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 17.2% in February. 78.6% of executives indicate they expect the “same” access to capital to fund business, a decrease from 82.8% last month. None expect “less” access to capital, unchanged from the previous month. • When asked, 46.4% of the executives report they expect to hire more employees over the next four months, up from 44.8% in February. 50% expect no change in headcount over the next four months, a decrease from 55.2% last month. 3.6% expect to hire fewer employees, up from none in February. • 3.6% of the leadership evaluate the current U.S. economy as “excellent,” a decrease from 10.3% the previous month. 85.7% of the leadership evaluate the current U.S. economy as “fair,” down from 86.2% in February. 10.7% evaluate it as “poor,” an increase from 3.5% last month. • 7.1% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, a decrease from 24.1% in February. 57.1% indicate they believe the U.S. economy will “stay the same” over the next six months, a decrease from 58.6% last month. 35.7% believe economic conditions in the U.S. will worsen over the next six months, an increase from 17.2% the previous month. • In March 42.9% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 44.8% the previous month. 57.1% believe there will be “no change” in business development spending, up from 51.7% in February. None believe there will be a decrease in spending, down from 3.5% last month. March 2021 MCI-EFI Survey Comments from Industry Executive Leadership: Bank, Middle Ticket “While equity markets, crude, supply chain and global industry trade have all been greatly impacted by the Russian invasion of Ukraine, it is the suffering and loss of life that is most disturbing. I am proud of Key’s immediate humanitarian efforts on behalf of the Ukrainian people.” Adam Warner, President, Key Equipment Finance Independent, Small Ticket “Through 2021, often businesses used their federal government stimulus money to purchase capital equipment and services. The deeper we get into 2022, increasingly, these businesses will return to financing their capital equipment purchases.” James D. Jenks, CEO, Global Finance and Leasing Services, LLC
ARA Certified programs for the equipment rental segment available now
The American Rental Association (ARA) has launched its first ARA Certified programs: ARA Certified – Sales, ARA Certified – Service, and the ARA Certified Mobile Elevating Work Platform (MEWP) program. ARA Certified – Sales and ARA Certified – Service are online professional development programs designed to teach your employees fundamental knowledge about the equipment rental industry they will need on the job. The ARA Certified MEWP training program satisfies the new ANSI A92 standards approved in June 2020. “The ARA Certified programs we launched in March are a direct reflection of our association’s strategic initiatives that are focused on safety and preparing the industry for the future,” says Tony Conant, ARA CEO. “These programs establish rental industry standards, professional development, and training that you can’t find anywhere else.” The ARA Certified MEWP Train the Trainer program is a hybrid program. The classroom portion of the training is all online in RentalU (ARA’s learning management system) and then a 4-5 hour live, hands-on training session is conducted by a certified master trainer. Graduates are qualified to train others using the ARA Certified MEWP program. The hands-on training portion is presented by ARA state associations or other local settings for members without an active ARA state chapter. The initial member reaction to the ARA Certified programs is excitement for the long-awaited arrival of professional certifications for equipment rental staff. “For the past three years, I have been pushing for a certification for equipment like the event segment has with ARA’s CERP [Certified Event Rental Professional] program, and it thrills me to know that it is finally happening,” says Beth Hoff Blackmer, president, Aspen Rent-All, Basalt, Colo. “We, as individuals and businesses, are always seeking ways to grow personally and professionally. The ARA Certified programs will be a fantastic offering for owners to offer to their staff. It also promotes rental as a safe industry, which is critical in the construction field. I look forward to becoming certified and urge all in the industry to join me.” Work on ARA Certified programs for forklift operations and MEWP operator certifications for rental customers is underway and is expected to be released in 2023. You can get started with ARA Certified MEWP Train the Trainer at ARArental.org/MEWP, and with ARA Certified Sales and ARA Certified Service programs at ARArental.org/Certified.
Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index
February new business volume down 4 Percent year-over-year, 14 percent month-to-month, nearly 1 percent year-to-date The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $900 billion equipment finance sector, showed their overall new business volume for February was $7.1 billion, down 4 percent year-over-year from new business volume in February 2021. Volume was down 14 percent month-to-month from $8.3 billion in January. Year-to-date, cumulative new business volume was down nearly 1 percent compared to 2021. Receivables over 30 days were 1.7 percent, down from 1.8 percent the previous month and down from 2.1 percent in the same period in 2021. Charge-offs were 0.09 percent, down from 0.17 percent the previous month and down from 0.55 percent in the year-earlier period. Credit approvals totaled 78.2 percent, down from 78.4 percent in January. Total headcount for equipment finance companies was down 12.2 percent year-over-year, a decrease due to significant downsizing at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in March is 58.2, a decrease from 61.8 in February. ELFA President and CEO Ralph Petta said, “New business volume at MLFI 25 companies has grown modestly in 2022, as it typically does in the early months. What is eye-catching, however, is the extremely high credit quality reported by respondents. Geopolitical unrest, increasing interest rates, inflation, and continuing supply disruptions all pose headwinds that bear monitoring. But, equipment finance companies always find ways to stay relevant, resilient, and reliable in helping American businesses acquire the assets they need to thrive.” Kris Foster, President of Equipment Finance, Pinnacle Financial Partners, Inc., said, “With a quarter of the year nearly complete, we remain cautiously optimistic with steady deal flow and a strong pipeline. Supply chain constraints continue to be a major issue as we see equipment delivery delays for the foreseeable future. Positively, we see these delivery delays coupled with strong demand across most asset classes being a tailwind for future financing opportunities. Competition continues to be very strong with continued pressure on loan yield spreads. Credit quality and credit metrics are at historically strong levels; however, we are closely monitoring current geopolitical events, future Fed rate hikes, growing inflationary pressures on the broader economy, yield curve inversion, and record-high costs for many asset classes.”
Sunbelt Rentals acquires Illinois Truck & Equipment and Southern California’s Toolshed Rentals
Sunbelt Rentals recently acquired Illinois Truck & Equipment, Morris, Ill., and Toolshed Rentals, Escondido, Calif. Illinois Truck & Equipment rents a broad range of equipment ranging from skid-steer loaders and reach forklifts up to larger excavators, wheel loaders, on- and off-road trucks, and larger earthmoving equipment. Main ITE product lines include Kobelco excavators, Hitachi wheel loaders, Bell articulated off-road dump trucks, JLG man lifts, Skytrak telehandlers, New Holland Construction, Morooka track carriers, Broce brooms, Allied Construction Products, and others. The acquisition of Toolshed Rentals enhances Sunbelt’s strength in the heavy earthmoving market in San Diego County. Toolshed is a general rental business that also had a division that rents larger dirt-moving equipment such as excavators and dozers. Toolshed was owned by members of the Hawthorne family, relatives of the founding family of Hawthorne Cat.
Fenton retires on June 30th at United Rentals
United Rentals announced that Jeff Fenton, Senior Vice President, business development, will retire on June 30. He will be succeeded by Alfredo Barquin, who will lead the company’s M&A growth strategy as vice president, business development. Fenton will continue working with the company as a senior advisor through December 31, 2022. Fenton joined United Rentals in his current position in 2012. Over the past decade, he has been instrumental in the successful completion of dozens of acquisitions and other transactions to expand the scale and depth of the company’s service offering and built a high-performing business development team to support strategic growth. “I want to personally thank Jeff for his many contributions to a landmark decade of growth for our company, and wish him the very best in his retirement,” said Matthew Flannery, United Rentals CEO. “Jeff’s done an outstanding job of furthering our vision in line with our values. As Alfredo takes the reins in June, his strong track record with strategic expansions and our world-class team will ensure a smooth transition.” Barquin joined United Rentals in January from SWM International, a global manufacturer of engineered industrial performance materials. He most recently served as chief growth officer of SWM, following roles as general manager and CEO of company subsidiaries and vice president, corporate development. Previously, during an 11-year tenure with GE Energy (now GE Power), he led M&A initiatives as managing director, global business development, and earlier managed development activities for Eaton Corp. Barquin holds a bachelor’s degree in finance from the University of South Florida and a master’s degree in international business from Thunderbird School of Global Management.
ELFA reports January new business volume up 2 percent year-over-year
The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $900 billion equipment finance sector, showed their overall new business volume for January was $8.3 billion, up 2 percent year-over-year from new business volume in January 2021. Volume was down 30 percent month-to-month from $11.8 billion in December following the typical end-of-quarter, end-of-year spike in new business activity. Receivables over 30 days were 1.8 percent, down from 2.0 percent the previous month and down from 2.2 percent in the same period in 2021. Charge-offs were 0.17 percent, down from 0.25 percent the previous month and down from 0.47 percent in the year-earlier period. Credit approvals totaled 78.4 percent, down from 78.6 percent in December. Total headcount for equipment finance companies was down 11 percent year-over-year, a decrease due to significant downsizing at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in February is 61.8, a decrease from 63.9 in January. ELFA President and CEO Ralph Petta said, “Despite persistent supply chain disruptions in several collateral categories and nagging inflation, the equipment finance industry picks up in January where it left off last year: new business volume is robust and portfolios continue to perform. The impact of impending higher interest rates on industry performance in the coming weeks and months bears watching, however.” Eric Gross, Chief Operating Officer, Dext Capital, said, “As we end February and look forward, we have conflicting pressures on the market. The pandemic subsiding and the prospect of a return to some sense of normalcy, as well as a robust backlog, raises optimism. These positives are countered with the ongoing supply chain disruptions, inflation, a rising interest rate environment, and international tensions. With that said, overall, we think the headwinds are manageable and are bullish on market growth through 2022.”
ARA forecast for equipment rental revenue growth continues to rise
The latest updated quarterly American Rental Association (ARA) forecast for equipment rental revenue now calls for a 10.2 percent increase in 2022 to reach $52.7 billion in the United States, a slight increase from the previous forecast in October 2021, reflecting the positive influence of expected increases in infrastructure spending. The revenue forecast also calls for equipment rental, which includes construction, industrial and general tool revenue, to increase by 6 percent in 2023, 2.9 percent in 2024, and 3.4 percent in 2025 to reach $59.5 billion. Scott Hazelton, director, economics and country risk, IHS Markit, Andover, Mass., the company that provides data and analysis for the ARA Rentalytics forecasting service, says the continued strong forecast for growth corresponds with the optimism within the industry. “This is a market that will surpass the peak revenue levels of 2019. That means the impact of the coronavirus (COVID-19) on equipment rental revenue will be unwound by the end of the year,” Hazelton says. Construction and industrial equipment rental revenue is expected to lead the way with a 12 percent increase in 2022 to $38.9 billion while general tool is expected to grow by 5 percent to reach $13.9 billion this year. The largest uncertainty facing the industry that could impact the U.S. forecast is the current rate of inflation, which was recently reported to be 7.5 percent, year over year. “It is clear that supply chains have a lot to do with the current inflation rate and unwinding the current backlogs will increase the supply of goods and bring prices back down,” says John McClelland, Ph.D., ARA vice president for government affairs and chief economist. “However, if it takes too long to unwind the supply chain bottlenecks, inflation can get backed into things like wages and cause the Federal Reserve to act more aggressively, slowing economic growth, which could have negative effects on the equipment and event rental industry,” McClelland says. Although supply chain issues have caused delays in delivery of fleet to equipment rental companies, the ARA forecast projects a 36.7 percent increase in investment in inventory to reach $14.4 billion in 2022, exceeding the previous annual high of nearly $13.8 billion spent in 2019. The forecast calls for another investment increase of 10.1 percent in 2023 to reach nearly $15.9 billion. The ARA forecast for equipment rental revenue in Canada mirrors the positive expectations of the United States, calling for 5.5 percent growth in 2022 to reach nearly $4.4 billion followed by growth of 5.7 percent in 2023, 3.5 percent in 2024, and 1.8 percent in 2025 to reach nearly $4.9 billion
S&R Forklift Rentals
United Rentals announces record Fourth Quarter results and gives 2022 Outlook
United Rentals posted $2.312 billion in equipment rental revenue in the fourth quarter of 2021, compared to $1.854 billion in the fourth quarter of 2020, a 24.7-percent jump. Total revenue climbed 21.8 percent year over year, from $2.279 billion in the fourth quarter of 2020 to $2.776 billion in the same period of 2021. The increase reflects the continuing recovery of activity broadly across the end markets served by the company relative to the impact of COVID-19 in the fourth quarter of 2020. Fleet productivity increased 10.3 percent year over year, in large part because of better fleet absorption. Used equipment sales in the quarter increased 17.8 percent year over year. These sales generated $324 million of proceeds at a GAAP gross margin of 49.4 percent and an adjusted gross margin of 52.2 percent; this compares with $275 million at a GAAP gross margin of 37.1 percent and an adjusted gross margin of 42.5 percent for the same period last year. The gross margin increases were primarily the result of stronger pricing, which rose sequentially for the fifth consecutive quarter. Used equipment proceeds in the quarter were 60.4 percent of original equipment. “Our strong fourth quarter, which included record revenue, adjusted EBITDA, and operating earnings, completes a year of significant achievements and provides solid momentum as we enter the new year,” said Matthew Flannery, CEO of United Rentals. “Our team provided exceptional customer service, which supported better than expected organic growth in 2021, and successfully integrated over $1.4 billion of acquisitions while maintaining their focus on operating safely and managing costs. “Our 2022 guidance reflects the optimism of our customers, as well as our confidence in leveraging our competitive advantages over the longer term. Our larger, more diverse value proposition should both benefit the top line and strengthen our levers for delivering strong margins, cash generation and returns in this new upcycle.” Net income jumps 62 percent in Q4 Net income for the quarter increased 62 percent year over year to $481 million, while net income margin increased 430 basis points to 17.3 percent, primarily reflecting improved gross margins from rental revenue and used equipment sales. The increase also included the impact of lower non-rental depreciation and amortization as a percentage of revenue, and lower net interest expense, which reflected a reduction in the average cost of debt and the impact of a debt redemption loss recorded in the fourth quarter of 2020. The effect of these items was partially offset by higher income tax expenses. Income tax expense increased $73 million, or 81 percent, and the effective income tax rate of 25.3 percent reflects a year-over-year increase of 200 basis points. Adjusted EBITDA for the quarter increased 26.2 percent year-over-year to $1.309 billion, while adjusted EBITDA margin increased 170 basis points to 47.2 percent. The increase in adjusted EBITDA margin primarily reflected improved gross margins from rental revenue and used equipment sales, and a larger proportion of revenue from higher-margin (excluding depreciation) rental revenue, partially offset by higher bonus and travel and entertainment expenses within selling, general and administrative expense. For the full year, equipment rental totaled $8.207 billion compared to $7.140 billion in 2020, a 14.9-percent increase. Total revenue for the full year was $9.716 billion compared to $8.530- billion in 2020, a 13.9-percent hike. United’s general rentals segment had an increase of 18.6 percent year over year in rental revenue to $1.699 billion for the quarter. Rental gross margin increased by 220 basis points to 40.2 percent, primarily because of reductions in depreciation, labor, and repair expenses as a percentage of revenue. Specialty rentals segment rental revenue increased 45.3 percent year-over-year, including the impact of the recent acquisition of General Finance Corp. to $613 million for the quarter. On a pro forma basis, including the standalone, pre-acquisition revenues of General Finance, specialty rental revenue increased 28 percent. Rental gross margin increased by 70 basis points to 45.2 percent, due primarily to reductions in depreciation and labor expenses as a percentage of revenue, partially offset by a higher proportion of revenue from certain lower margin ancillary fees in 2021.
Prioritize safety with ARA’s new video series
The American Rental Association (ARA) just announced the launch of the Prioritize Safety monthly video series focused on essential safety tips for the equipment and event rental industry. The goal of the program is to make learning rental-specific topics quick, easy, and fun! Each video is no longer than two minutes in length and has a unique animation style that spans a variety of safety topics from personal protective equipment (PPE) and chemical safety to defensive driving. After an employee views the video, they will be presented with two questions to test their knowledge on what they just learned. The entire Prioritize Safety series is available in both English and Spanish and can be assigned to employees via RentalU, ARA’s online learning platform. Each month, a link to the new video will be sent out in an email. Email education@ararental.org to be added to the mailing list. The first video covers basic PPE, the importance of wearing it, and the consequences of not wearing it. Visit https://www.ararental.org/rentalu to sign into RentalU and learn more. “We are very excited to launch the Prioritize Safety monthly video series. These videos offer training that is easy for employees to access, takes only minutes to complete, and offers an entertaining spin to make the content more engaging. We hope our members have as much fun taking the training as we did creating it.” – ARA director of education, Lauren Watts.
ARA cancels Rental Innovation Conference & Exhibits
A variety of factors contribute to ARA’s decision not to hold Rental Innovation Conference & Exhibits The American Rental Association (ARA) has decided to cancel its Rental Innovation Conference & Exhibits event scheduled for March 9 and 10, 2022 in Grapevine, Texas. The decision was made due to a variety of factors. These include the continued spread of the omicron variant of the coronavirus (COVID-19) and both transmission and positivity rates in Dallas Country currently being categorized as “High.” Other factors in the decision were the return of essential travel only restrictions for many large organizations, equipment availability issues, as well as parts and staff shortages. The ARA is evaluating options to deliver the education program portion of the conference at a future event. Those who had already registered for the Rental Innovation Conference & Exhibits will receive a full refund.
The ARA Foundation to award $128,500 in scholarships
Each year, the American Rental Association (ARA) Foundation awards numerous scholarships in an effort to attract talent to the equipment and event rental industry. For the 2022-2023 academic year, $128,500 will be available to students seeking higher education through trade schools, universities, and community colleges. In total, 66 individual scholarships are available with amounts ranging from $750 to $5,000. Students may apply for multiple awards if eligibility requirements are met. Applicants must be associated with the equipment and event rental industry either as a student member of ARA or with an equipment and event rental operation or a manufacturer/supplier of the rental equipment and be pursuing a career that supports the industry. The equipment and event rental industry operation does not need to be an ARA member but must qualify for membership with the association. New for this program year, five $2,000 scholarships are available to ARA student members. This new membership category is open to individuals enrolled in high school or a post-secondary institution. Student membership, which is free of charge to those who qualify, opens a variety of opportunities to learn about the industry and network with other members. “Scholarships are a powerful tool for recruiting and retaining top talent to ensure continued success and future growth of the equipment and event rental industry. The ARA Foundation is proud to offer scholarships for continuing education with a record $128,5000 available this year,” says Marcy Wright, ARA Foundation executive director. Since the ARA Foundation began the scholarship program, more than $1 million has been granted to students across North America. Applications are now being accepted. Simply visit ARArental.org/ARA-Foundation/scholarships to learn more and to apply before the March 7, 2022, deadline.
ELFA releases Top 10 Equipment Acquisition trends for 2022
The Equipment Leasing and Finance Association (ELFA) which represents the nearly $1 trillion equipment finance sector, has released its Top 10 Equipment Acquisition Trends for 2022. Real private investment by U.S. businesses in equipment and software is forecast to be almost $2 trillion in 2022, with a substantial amount of that investment activity financed, so these trends impact a significant portion of the U.S. economy. ELFA President and CEO Ralph Petta said, “The pandemic is the underlying theme throughout the trends this year as equipment acquisition continues to drive supply chains across all U.S. manufacturing and service sectors. Nearly eight in 10 U.S. businesses use equipment leasing and financing to acquire the productive assets they need to operate and grow. We are pleased to provide the Top 10 Equipment Acquisition Trends to help businesses make their strategic equipment acquisition plans, especially since there are significant opportunities for businesses to benefit from expected economic growth this year.” ELFA distilled recent research and data, including the Equipment Leasing & Finance Foundation’s 2022 Equipment Leasing & Finance U.S. Economic Outlook, industry participants’ expertise, and member input from ELFA meetings in compiling the trends. ELFA forecasts the following Top 10 Equipment Acquisition Trends for 2022: 1. The U.S. economy will have solid growth in 2022. After a highly volatile 2021, the economy is on a more even footing this year, with the widespread availability and effectiveness of vaccines reducing the risks from the pandemic. The potential for economic growth later in the year is substantial with a 3.5% GDP growth forecast for 2022. 2. Equipment shortages will continue due to supply chain disruptions. Delivery bottlenecks will likely persist, especially if U.S. trading partners shut their borders in response to new virus strains. Businesses will be likely to invest more capital in maintaining inventories of crucial components and develop relationships with new suppliers to reduce the impact of future disruptions. 3. High inflation will be a major headwind for Main Street and the overall economy. In fall 2021, supply chain snags added to inflationary pressures, which will be prolonged this year. The Federal Reserve has announced several planned interest rate hikes in 2022. It remains to be seen what impact, if any, interest rate increases will have on supply or demand. 4. Positive growth in capital spending will continue. Equipment and software investment expanded by more than 15% annualized from January to June 2021, which was comparable to the rapid growth of the post-2008-09 recession. With continued, though not as strong demand, equipment and software investment growth of 4.6% is expected. 5. Equipment finance will play a significant role in economic growth. Based on historical precedent, more than half of equipment and software investment this year will be financed. In addition, inflationary pressures that drive equipment prices higher will make financing more desirable with payments spread out over time. 6. Government fiscal and regulatory policies will pose opportunities and challenges to capital spending. Businesses will need to stay informed on a range of federal and state policy changes that will impact their operations. They include the long-awaited infrastructure spending law enacted by Congress that will have businesses investing in related equipment verticals, and federal and state initiatives that will create more red tape for lenders along with associated costs to borrowers. 7. Pandemic-driven changes in the workplace will continue to impact equipment demand. Ongoing remote/hybrid work arrangements will drive demand for new types of equipment and software as businesses continue to adapt to the “new normal.” Automation and AI technologies such as robotics, machine learning, and natural language processing will boost the productivity of employees working remotely and fill the void of unavailable labor. 8. Many key equipment types will show growth. While equipment and software investment should expand at a healthy rate, growth is likely to be uneven across equipment verticals. Trucks, oil & gas equipment, and materials handling equipment should benefit from sustained demand. Verticals such as automobiles, construction machinery, and agricultural equipment may continue to face pandemic-related headwinds such as input shortages, high energy prices, and volatile demand conditions. 9. Businesses will increase their focus on digitization and data. As investment in digitization accelerates across most industries, businesses will need to leverage both customer and external data for competitive advantages in areas such as customer behavior and market dynamics. Cybersecurity risks will require increasingly robust cyber- and data-security protocols to be implemented. 10. “Wild cards” will play a role in business investment decisions. There are other areas in addition to the trends above that businesses will keep an eye on that could impact their equipment acquisition strategies. Continued fallout from the pandemic and future variants, ongoing labor shortages, passage of the “Build Back Better” spending package in Washington, and mid-term elections could all have potential business impacts. Related Video: Related Infographic:
ARA prepares for first rental innovation conference in Dallas
The American Rental Association (ARA) is preparing for its first-ever Rental Innovation Conference & Exhibits, scheduled for March 9 & 10, 2022. This high-impact, in-person event features two full days of education sessions, networking and exhibits focused on the latest technology and innovations to advance the equipment rental industry. This is the first event of its kind — and the only in-person, ARA-hosted opportunity in 2022. ARA’s Rental Innovation Conference & Exhibits are designed to connect rental businesses with solutions to stay competitive and relevant in a rapidly changing world. There will be something for everyone looking to capitalize on the best technologies and tools to move their business forward. The rental innovation conference will include a multitude of hands-on product and technology exhibits and live demonstrations on the exhibit floor stage by equipment manufacturers and technology companies. Attendees can explore new equipment, software, and services — and experience them in person. This is also a buying conference, so attendees can place orders for purchase. Education sessions, included with registration, will give attendees essential tools to move their business forward and offer strategic approaches to implementing technology. From customer retention and fleet management to managing change and the digital environment, speakers will cover what’s trending today and what it means for the rental business of tomorrow. “We are so excited for ARA’s only live conference in 2022, and we hope attendees enjoy this incredible opportunity to network and share best practices with their rental peers and industry leaders,” said Tom Doyle, ARA Vice President, Association Program Development. “Our hope is that people gain a better understanding of the latest and greatest rental technologies and how they can improve efficiency, elevate their customer experience and create untapped revenue opportunities.” Education sessions, exhibits, and networking events are all conveniently located onsite at the Gaylord Texan Resort & Conference Center in Grapevine, Texas. Attendee registration for the Rental Innovation Conference & Exhibits opens online on January 10. Special pricing is offered for those who register before January 31. Visit ARA’s conference website at www.ararental.org/Rental-Innovation-Conference-Exhibits to learn more.
Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index
November New Business Volume Up 8 Percent Year-over-year, Down 26 Percent Month-to-month, and up 10 Percent Year-to-date The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $900 billion equipment finance sector, showed their overall new business volume for November was $7.9 billion, up 8 percent year-over-year from new business volume in November 2020. Volume was down 26 percent month-to-month from $10.7 billion in October. Year-to-date, cumulative new business volume was up 10 percent compared to 2020. Receivables over 30 days were 2.2 percent, up from 1.7 percent the previous month and down from 2.3 percent in the same period in 2020. Charge-offs were 0.20 percent, up from 0.16 percent the previous month and down from 0.61 percent in the year-earlier period. Credit approvals totaled 77.2 percent, down from 78 percent in October. Total headcount for equipment finance companies was down 9.9 percent year-over-year, a decrease due to significant downsizing at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in December is 63.9, a decrease from the November index of 64.6. ELFA President and CEO Ralph Petta said, “As we get ready to close out 2021, industry volume is still holding up, with portfolio quality improved relative to the same period last year. Supply chain disruptions continue to plague an otherwise strong economy, creating inflationary pressures that are a concern for many Americans. With the Federal Reserve recently announcing an accelerated tapering of asset purchases as well as several planned interest rate hikes in 2022, the hope is that the Fed does not choke off the recovery in its efforts to control further inflation.” Kirk Phillips, President and CEO, Wintrust Commercial Finance, said, “The November MLFI-25 reflects both a monthly and cumulative year-over-year increase in business equipment investment as our economy recovers from the impact of the COVID pandemic. While there are headwinds—supply chain disruptions, increasing labor and material costs, and now the potential for rising borrowing costs to offset inflationary pressures—businesses in many capital-intensive industries remain poised to capitalize on pent-up demand as soon as the equipment is available.”
Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index
October new business volume up 16 percent Year-over-year, 16 percent month-to-month, and 10 percent Year-to-date The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $900 billion equipment finance sector, showed their overall new business volume for October was $10.7 billion, up 16 percent year-over-year from new business volume in October 2020. Volume was up 16 percent month-to-month from $9.2 billion in September. Year-to-date, cumulative new business volume was up 10 percent compared to 2020. Receivables over 30 days were 1.7 percent, up from 1.6 percent the previous month and down from 2.2 percent in the same period in 2020. Charge-offs were 0.16 percent, down from 0.35 percent the previous month and down from 0.60 percent in the year-earlier period. Credit approvals totaled 78.0 percent, up from 76.3 percent in September. Total headcount for equipment finance companies was down 11.0 percent year-over-year, a decrease due to significant downsizing at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in November is 64.6, an increase from the October index of 61.1. ELFA President and CEO Ralph Petta said, “The equipment finance industry heads into the final quarter of the year in fine shape, judging from October MLFI data. The new business volume shows double-digit growth, a somewhat surprising development given anecdotal evidence by some ELFA members of supply chain disruptions negatively impacting the availability and cost of capital goods in certain market sectors. Fourth-quarter economic growth is projected to be buoyant despite higher prices and labor imbalances in the economy. And, with the recent signing of major infrastructure legislation coming out of Washington, the future for capital investment looks bright, indeed.” William C. Perry III, President, Regions Equipment Finance Corporation, said, “Given the unprecedented times of supply chain disruption, excess liquidity, and rising inflation, there is still much to be hopeful about within the equipment finance sector. ‘The Great Transition’ will allow us all as providers of capital to further educate and provide value to our clients as they look to surmount challenges never before faced. In doing such, this should challenge the equipment finance sector to rethink our approach and how we serve our mission critical $1 trillion sectors. Trends reported in the October MLFI are largely encouraging and those that are not provide ‘opportunity’ to serve. Looking into 2022, we see significant potential for growth as pent-up demand begins to wane and our clients further assimilate to the current environment.”
Equipment Finance Industry confidence higher in November
The Equipment Leasing & Finance Foundation (the Foundation) releases the November 2021 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector. Overall, confidence in the equipment finance market is 64.6, an increase from the October index of 61.1. When asked about the outlook for the future, MCI-EFI survey respondent Dave Fate, Chief Executive Officer, Stonebriar Commercial Finance, said, “While I believe the equipment leasing and finance Industry will always perform well through various cycles, the last few months have shown a number of interesting data points. Strong corporate earnings continue to drive the equity markets. The current rise in Inflation rates is alarming and seems like it will be with us for a while. Continued issues with the lack of skilled and non-skilled labor are the number one concern of most of our customers. Supply chain issues are causing real disruption and seem to have no viable plan to alleviate them. The rest of Q4 and into Q1 will be very interesting as we navigate through year-end closing in our industry and the Christmas holiday season.” November 2021 Survey Results: The overall MCI-EFI is 64.6, an increase from the October index of 61.1. • When asked to assess their business conditions over the next four months, 34.6% of executives responding said they believe business conditions will improve over the next four months, up from 25.9% in October. 46.2% believe business conditions will remain the same over the next four months, down from 70.4% the previous month. 19.2% believe business conditions will worsen, up from 3.7% in October. • 42.3% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, up from 22.2% in October. 50% believe demand will “remain the same” during the same four-month time period, a decrease from 74.1% the previous month. 7.7% believe demand will decline, up from 3.7 in October. • 26.9% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 14.8% in October. 73.1% of executives indicate they expect the “same” access to capital to fund business, a decrease from 85.2% last month. None expect “less” access to capital, unchanged from the previous month. • When asked, 53.9% of the executives report they expect to hire more employees over the next four months, up from 40.7% in October. 46.2% expect no change in headcount over the next four months, a decrease from 59.3% last month. None expect to hire fewer employees, unchanged from October. • 15.4% of the leadership evaluate the current U.S. economy as “excellent,” an increase from 7.4% the previous month. 80.8% of the leadership evaluate the current U.S. economy as “fair,” down from 81.5% in October. 3.9% evaluate it as “poor,” down from 11.1% last month. • 23.1% of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 22.2% in October. 57.7% indicate they believe the U.S. economy will “stay the same” over the next six months, a decrease from 63% from last month. 19.2% believe economic conditions in the U.S. will worsen over the next six months, up from 14.8% the previous month. • In November 42.3% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down slightly from 42.9% the previous month. 57.7% believe there will be “no change” in business development spending, up slightly from 57.1% in October. None believe there will be a decrease in spending, unchanged from last month. November 2021 MCI-EFI Survey Comments from Industry Executive Leadership: Bank, Middle Ticket “We continue to see interest in capital expansion for the sectors we serve, especially with middle-market customers. Supply chain issues continue to be a headwind to the implementation of capital investment.” Michael Romanowski, President, Farm Credit Leasing Independent, Middle Ticket “Business owners are feeling much more confident and are moving forward with capital acquisitions, some that had been delayed because of the pandemic. Pending no flare-up of COVID-19 infections in the coming months, we expect smooth sailing for the next several quarters.” Bruce J. Winter, President, FSG Capital, Inc.