Herc Holdings reports Nine Months 2024 results and updates 2024 Full Year Guidance

Posted on Oct 22, 2024 in Nuts & Bolts

• Record equipment rental revenue of $866 million, an increase of 13%
• Record total revenues of $965 million, an increase of 6%
• Rental pricing increased 2.3% year-over-year
• M&A and greenfield openings offset the impact of decelerating local-market revenue growth
• Net income increased 8% to $122 million, or $4.28 per diluted share
• Adjusted EBITDA of $446 million increased 9%; adjusted EBITDA margin of 46.2%
• Free cash flow of $218 million for the nine months ended September 30, 2024

Herc Holdings Inc. has reported financial results for the September 30, 2024 quarter.

Larry Silber, president and chief executive officer

“In the third quarter, we significantly outpaced overall industry growth on both a total rental revenue basis and from an organic revenue perspective,” said Larry Silber, president and chief executive officer. “By capitalizing on our broad end-market coverage, diversified product and services offering, and expanding share in resilient urban markets, we continue to deliver strong volume and a solid price/mix performance.

“We increased third quarter rental revenue by 13% to a new quarterly record, primarily reflecting the continued robust growth from mega projects and contributions from our increased branch network and recent acquisitions. This growth was achieved despite a tough year-over-year comparison and a challenging interest rate environment for local project starts,” said Silber.

“As we manage the complexities of disparate levels of demand across geographies, end markets, and project types, our team is agile and remains focused on aligning costs and balancing fleet while continuing to support the growth of our business and deliver outstanding customer service.”

2024 Third Quarter Financial Results

• Total revenues increased 6% to $965 million compared to $908 million in the prior-year period. The year-over-year increase of $57 million was primarily related to an increase in equipment rental revenue of $101 million, reflecting positive pricing of 2.3% and increased volume of 10.7%. Sales of rental equipment decreased by $43 million during the period. Fleet rotation in the prior-year period was accelerated due to the easing of supply chain disruptions in certain categories of equipment.

• Dollar utilization increased to 42.2% in the third quarter compared to 42.1% in the prior-year period.

• Direct operating expenses were $334 million, or 38.6% of equipment rental revenue, compared to $288 million, or 37.6% in the prior-year period. The increase related primarily to the business’s growth, with personnel and facilities costs associated with greenfields and acquisitions.

• Rental equipment depreciation increased by 4% to $174 million due to a higher year-over-year average fleet size. Non-rental depreciation and amortization increased 14% to $33 million, primarily due to the amortization of acquisition intangible assets.

• Selling, general, and administrative expenses were $123 million, or 14.2% of equipment rental revenue, compared to $115 million, or 15.0%, in the prior-year period due to the continued focus on improving operating leverage while expanding revenues.

• Interest expense increased to $69 million compared with $60 million in the prior-year period due to increased borrowings primarily to fund acquisition growth and investment in rental equipment.

• Net income was $122 million compared to $113 million in the prior-year period. Adjusted net income increased 9% to $124 million, or $4.35 per diluted share, compared to $114 million, or $4.00 per diluted share, in the prior-year period. The effective tax rate was 24% compared to 23% in the prior-year period.

• Adjusted EBITDA increased 9% to $446 million compared to $410 million in the prior-year period, and adjusted EBITDA margin was 46.2% compared to 45.2% in the prior-year period.

2024 Nine Months Financial Results

• Total revenues increased 7% to $2,617 million compared to $2,450 million in the prior-year period. The year-over-year increase of $167 million was primarily related to an increase in equipment rental revenue of $229 million, reflecting positive pricing of 3.5% and increased volume of 8.4%, partially offset by an unfavorable mix driven primarily by inflation. Sales of rental equipment decreased by $63 million during the period. Fleet rotation in the prior year period was accelerated due to the easing of supply chain disruptions in certain categories of equipment.

• Dollar utilization increased to 41.0% compared to 40.8% in the prior-year period.

• Direct operating expenses were $967 million, or 41.1% of equipment rental revenue, compared to $851 million, or 40.1% in the prior-year period. The increase is primarily related to the business’s growth and personnel and facilities costs associated with greenfields and acquisitions. Additionally, delivery expenses were higher due to internal equipment transfers to branches in higher-growth regions to drive fleet efficiency. Finally, insurance expenses increased, primarily related to increased self-insurance reserves due to claims development attributable to unsettled cases.

• Rental equipment depreciation increased by 4% to $499 million due to a higher year-over-year average fleet size. Non-rental depreciation and amortization increased by 11% to $92 million, primarily due to the amortization of acquisition intangible assets.

• Selling, general, and administrative expenses were $358 million, or 15.2% of equipment rental revenue, compared to $332 million, or 15.7%, in the prior year due to the continued focus on improving operating leverage while expanding revenues.

• Interest expense increased to $193 million compared with $162 million in the prior-year period due to increased borrowings primarily to fund acquisition growth and investment in rental equipment.

• Net income was $257 million compared to $256 million in the prior-year period. Adjusted net income increased 2% to $265 million, or $9.30 per diluted share, compared to $260 million, or $9.03 per diluted share, in the prior-year period. The effective tax rate was 23% compared to 21% in the prior-year period.

• Adjusted EBITDA increased 7% to $1,145 million compared to $1,070 million in the prior-year period, and adjusted EBITDA margin was 43.8% compared to 43.7% in the prior-year period.

Rental Fleet

• Net rental equipment capital expenditures were as follows (in millions):

• As of September 30, 2024, the Company’s total fleet was approximately $7.1 billion at OEC.

• The average fleet at OEC in the third quarter increased by 12% compared to the prior-year period.

• The average fleet age was 46 months as of September 30, 2024, compared to 45 months in the comparable prior-year period.

Disciplined Capital Management

• During the nine months ended September 30, 2024, the company completed 8 acquisitions, totaling 26 locations, and opened 16 new greenfield locations.

• Net debt was $4.0 billion as of September 30, 2024, with net leverage of 2.7x compared to 2.5x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to approximately $1.9 billion of liquidity as of September 30, 2024.

• The Company declared its quarterly dividend of $0.665 paid to shareholders of record as of August 23, 2024, on September 6, 2024.

Outlook

The Company is updating its full-year 2024 equipment rental revenue growth and gross and net rental capital expenditures guidance ranges while reaffirming its adjusted EBITDA guidance range, presented below, which excludes the Cinelease studio entertainment and lighting and grip equipment rental business. The guidance range for the full year 2024 adjusted EBITDA reflects an increase of 6% to 9% compared to the full year 2023 results, excluding Cinelease. The sale process for the Cinelease studio entertainment business is ongoing.

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 2024 by investing in its fleet, optimizing its existing fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.