Herc Holdings reports strong Second Quarter 2022

Second Quarter Highlights
  • Equipment rental revenue increased 35.1% to a record $605.4 million
  • Total revenues increased 30.5% to $640.4 million
  • Dollar utilization increased 40 basis points to 42.5%
  • Net income increased 53.3% to $72.2 million, or $2.38 per diluted share
  • Adjusted EBITDA grew 36.8% to a record $284.2 million and the adjusted EBITDA margin expanded 210 basis points to 44.4%
  • Company amends and extends its senior secured asset-based revolving credit facility from $1.75 billion to $3.5 billion, maturing July 5, 2027
  • Announces plan to repurchase shares under the 2014 Share Repurchase Program
  • Narrows FY 2022 adjusted EBITDA guidance by raising lower end of guidance range

 

Herc Holdings Inc. has reported financial results for the quarter ended June 30, 2022. Equipment rental revenue was $605.4 million and total revenues were $640.4 million in the second quarter of 2022, compared to $448.0 million and $490.9 million, respectively, for the same period last year. Herc reported a net income of $72.2 million, or $2.38 per diluted share, in the second quarter of 2022, compared to $47.1 million, or $1.55 per diluted share, in the same 2021 period. Second quarter 2022 adjusted net income was $74.8 million, or $2.47 per diluted share, compared to $47.6 million, or $1.57 per diluted share, in 2021.

“We continued to see strong demand for our equipment rental services across all of our geographic regions,” said Larry Silber, president and chief executive officer. “Our rental revenue increased 35.1% over the prior year, while the average fleet increased 32.1% to $4.9 billion. Dollar utilization increased to 42.5% in the second quarter as market demand supported strong sequential and year-over-year rate growth. Adjusted EBITDA increased 36.8% to $284.2 million and adjusted EBITDA margin expanded 210 basis points to 44.4% in the quarter.”

2022 Second Quarter Financial Results

  • Equipment rental revenue increased 35.1% to $605.4 million compared to $448.0 million in
    the prior-year period.
  • Total revenues increased 30.5% to $640.4 million compared to $490.9 million in the prior-year period. The year-over-year increase of $149.5 million was related to an increase in equipment rental revenue of $157.4 million, offset primarily by lower sales of rental equipment of $11.0 million. The reduction in sales of rental equipment resulted from the strategic management of our fleet to maximize fleet size and minimize the sales of rental equipment as a result of strong rental demand.
  • Pricing increased 5.5% compared to the same period in 2021.
  • Dollar utilization increased to 42.5% compared to 42.1% in the prior-year period, primarily due to increased volume and rate.
  • Direct operating expenses (DOE) of $270.7 million increased 33.3% compared to the prior year period. The $67.7 million increase was primarily related to strong rental activity and increases in payroll and related expenses associated with additional headcount, higher fuel prices, maintenance, delivery and freight, and facilities expenses.
  • Selling, general and administrative expenses (SG&A) increased 31.1% to $97.0 million compared to $74.0 million in the prior-year period. The $23.0 million increase was primarily
    due to increases in selling expenses, including commissions and other variable compensation increases, and travel expenses.
  • Depreciation expense increased 28.8%, or $29.1 million, to $130.2 million due to a higher year-over-year average fleet size.
  • Interest expense increased to $25.2 million compared with $21.0 million in the prior-year period due to increased balances and floating rates on the ABL Credit Facility.
  • The income tax provision was $25.3 million compared to $14.7 million for the prior-year period.
  • The provision was driven by the level of pre-tax income, offset partially by certain nondeductible expenses.
  • The Company reported a net income of $72.2 million compared to $47.1 million in the prior year period. Adjusted net income was $74.8 million compared to $47.6 million in the prior year period.
  • Adjusted EBITDA increased 36.8% to $284.2 million compared to $207.7 million in the prior year period.
  • Adjusted EBITDA margin increased 210 basis points to 44.4% compared to 42.3% in the prior-year period.

2022 First Half Financial Results

  • Equipment rental revenue increased 33.5% to $1,132.2 million compared to $848.4 million in the prior-year period.
  • Total revenues increased 27.8% to $1,207.7 million compared to $944.7 million in the prior year period. The year-over-year increase of $263.0 million was related to an increase in equipment rental revenue of $283.8 million, offset primarily by lower sales of rental equipment of $27.5 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 increased 4.9% compared to the same period in 2021.
  • Dollar utilization increased to 42.0% compared to 40.4% in the prior-year period primarily due to increased volume and rate.
  • Direct operating expenses (DOE) of $516.9 million increased 33.9% compared to the prior year period. The $130.9 million increase was primarily due to strong rental activity and increases in payroll and related expenses associated with additional headcount, increases in fuel prices, maintenance, delivery and freight, facilities, and re-rent expenses related to the corresponding increase in re-rent revenue.
  • Depreciation increased 23.8%, or $48 million, to $249.5 million for the first half due to a higher year-over-year average fleet size.
  • Selling, general and administrative expenses (SG&A) increased 33.6% to $186.4 million compared to $139.5 million in the prior-year period. The $46.9 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation, general payroll and benefits, and professional fees.
  • Interest expense increased to $47.7 million compared with $42.4 million in the prior-year period due to increased balances and floating rates on the ABL Credit Facility.
  • The income tax provision was $33.9 million compared to $22.9 million for the prior-year period.
  • The provision in each period was driven by the level of pre-tax income, offset partially by a benefit related to stock-based compensation and non-deductible expenses.
  • The Company reported a net income of $130.7 million compared to $80.0 million in the prior year period. Adjusted net income was $134.0 million compared to $81.0 million in the prior year period.
  • Adjusted EBITDA increased 32.8% to $521.0 million compared to $392.3 million in the prior year period.
  • Adjusted EBITDA margin increased 160 basis points to 43.1% compared to 41.5% in the prior-year period.

Capital Expenditures

  • The Company reported net rental equipment capital expenditures of $508.5 million for the first half of 2022 compared with $168.3 million in the prior-year period. Gross rental equipment capital expenditures were $555.3 million compared to $239.3 million in the comparable prior-year period. Proceeds from disposals were $46.8 million compared to $71.0 million last year.
  • As of June 30, 2022, the Company’s total fleet was approximately $5.1 billion at OEC.
  • The average fleet at OEC in the first half increased year-over-year by 32.1% compared to the prior-year period.
  • The average fleet age was 49 months as of June 30, 2022, compared to 48 months in the comparable prior-year period.

Disciplined Capital Management

  • The Company acquired nine companies with a total of 12 locations and opened 10 new greenfield locations during the first half of 2022.
  • Net debt was $2.5 billion as of June 30, 2022, with net leverage of 2.4x compared to 1.9x in the same prior-year period. Cash and cash equivalents and unused commitments under the
  • ABL Credit Facility contributed to $0.7 billion of liquidity as of June 30, 2022.
  • The Company declared its quarterly dividend of $0.575 payable to shareholders of record as of May 27, 2022, with a payment date of June 10, 2022.
  • On July 5, 2022, the Company amended its senior secured asset-based revolving credit facility to, among other things, increase the aggregate amount of the revolving credit commitments to $3.5 billion and extend the maturity date to July 5, 2027.
  • The Company also announced a plan to repurchase shares under the 2014 Share Repurchase Program (“Share Repurchase Program”), subject to certain predetermined price/volume guidelines set, from time to time, by the board of directors. The Share Repurchase Program, approved in March 2014, permits the Company to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including strategic priorities, market conditions, regulatory requirements, and other corporate considerations. As of June 30, 2022, the approximate dollar value that remains available under the Share Repurchase Program is $395.9 million.

“Given the recent downturn in the stock price and our conviction that the Company’s valuation is discounted compared to our long-term growth expectations, the Company will begin utilizing the remaining authorization under the Share Repurchase Program,” Mr. Silber said. “Consistent with our capital allocation goals, we expect to remain within our targeted net leverage range of 2x to 3x while executing on our long-term strategy of organic and M&A growth, and allocating capital to our shareholders.”

Outlook
The Company updated its full-year 2022 adjusted EBITDA guidance range and maintained net rental capital expenditures guidance. The updated guidance range for the full year 2022 adjusted EBITDA reflects an increase of 34% to 39% compared to the full year 2021 results.

Prior Current
Adjusted EBITDA:  Prior:$1.175 billion to $1.245 billion, Current: $1.195 billion to $1.245 billion

Net rental equipment capital expenditures: Prior:  $900 million to $1.12 billion, Current: $900 million to $1.12 billion

Mr. Silber added, “Demand for our equipment rental services continues to be strong as we enter our seasonally strongest quarters. We continue to benefit from tight equipment inventory and believe we are seeing a secular shift from ownership to rental by our customers. With the initiation of new infrastructure projects being announced daily, we believe we are well positioned to generate continued growth in 2023.”

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