Herc Holdings reports strong first quarter 2022 and increases full year 2022 guidance

Posted on Apr 21, 2022 in Nuts & Bolts

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:

“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.”