Herc Holdings reports record First Quarter 2023 results and affirms 2023 Full Year guidance

Posted on Apr 20, 2023 in Nuts & Bolts

• Record equipment rental revenue of $654 million, an increase of 24%
• Record total revenues of $740 million, an increase of 30%
• Net income increased 16% to $67 million, or $2.28 per diluted share
• Adjusted EBITDA of $308 million increased by 30%; adjusted EBITDA margin at 41.6%
• Rental pricing increased 7.0% year-over-year
• Common stock repurchases of approximately 460,000 shares

Herc Holdings Inc. has reported financial results for the quarter that ended March 31, 2023. Equipment rental revenue was $654 million and total revenues were $740 million in the first quarter of 2023, compared to $527 million and $568 million, respectively, for the same period last year. In the first quarter of 2023, the Company reported a net income of $67 million, or $2.28 per diluted share, an increase of 19% compared to $58 million, or $1.92 per diluted share, in the same 2022 period.

Larry Silber, president and chief executive officer

“We continue to build on our momentum coming out of 2022 with record first-quarter revenue that significantly outpaced industry growth,” said Larry Silber, president and chief executive officer. “Higher rental rates are more than offsetting inflation, while demand across regions and in our end markets is seasonally strong, benefiting from the multi-year fiscal stimulus, re-shoring and mega projects, as well as long-term industrial maintenance contracts for on-site fleet management.”

Silber continued, “While macro concerns are focused on residential and commercial construction, we have very diversified end markets, with a growing share in manufacturing and reshoring projects, the private and government spend in infrastructure, as well as industrial MRO, which is required in all economic environments. Investments to capitalize on these opportunities are strategic and disciplined, whether it be in fleet, people, or acquisitions. As a tenured market leader with a strong reputation, a comprehensive product and service offering, broad capabilities, and one of the leading teams in the industry, we will continue to execute our strategies to win new business and deliver profitable growth.”

2023 First Quarter Financial Results

• Total revenues increased 30% to $740 million compared to $568 million in the prior-year period. The year-over-year increase of $172 million was primarily related to an increase in equipment rental revenue of $127 million, reflecting positive pricing of 7.0% and an increased volume of 23.2%. Sales of rental equipment increased by $43 million during the period.
• Dollar utilization was 39.7% compared to 41.4% in the prior-year period. The change is primarily due to a slowdown in the studio entertainment business as a result of a potential writers’ strike, as well as the Company’s decision to continue to accept equipment deliveries in the seasonally slow fourth quarter of 2022 and the first quarter of 2023, in order to ensure it has the fleet needed for the more robust construction season. Continued supply chain challenges have disrupted the optimal cadence of deliveries.
• Direct operating expenses of $281 million increased by 24% compared to the prior-year period. The increase was primarily related to strong rental activity and associated additional headcount, in addition to higher maintenance, fuel prices, and facilities expenses.
• Depreciation of rental equipment increased 28% to $152 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased by 24% to $26 million primarily due to the amortization of acquisition intangible assets.
• Selling, general and administrative expenses were 19% higher primarily due to increases in selling expenses, including commissions and other variable compensation increases, and general payroll and benefits.
• Interest expense increased to $48 million compared with $23 million in the prior-year period due to increased borrowings on the ABL Credit Facility primarily to fund acquisition growth and higher interest rates on floating rate debt.
• Net income was $67 million compared to $58 million in the prior-year period. Adjusted net income increased 17% to $69 million, or $2.35 per diluted share, compared to $59 million, or $1.95 per diluted share, in the prior-year period. The effective tax rate was 11% compared to 13% in the prior-year period.
• Adjusted EBITDA increased 30% to $308 million compared to $237 million in the prior-year period, while the adjusted EBITDA margin was 41.6% compared to 41.7% in the prior-year period. Sales of used equipment, which more than doubled over last year’s first quarter sales, as well as a decline in the Company’s studio entertainment revenue year over year, impacted the margin performance in the latest quarter.

Rental Fleet

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

• As of March 31, 2023, the Company’s total fleet was approximately $5.9 billion at OEC.
• The average fleet at OEC in the first quarter increased year-over-year by 29% compared to the prior-year period.
• The average fleet age was 47 months as of March 31, 2023, compared to 48 months in the comparable prior-year period.

Disciplined Capital Management

• The Company completed three acquisitions with a total of six locations and opened three new greenfield locations during the quarter.
• Net debt was $3.2 billion as of March 31, 2023, with net leverage of 2.5x compared to 2.3x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to $1.5 billion of liquidity as of March 31, 2023.
• The Company announced a 10% increase in the quarterly dividend to $0.6325, payable to shareholders of record as of February 22, 2023, with a payment date of March 9, 2023.
• The Company acquired approximately 460,000 shares of its common stock for $52 million during the three months that ended March 31, 2023. As of March 31, 2023, approximately $229 million remains available under the share repurchase program.

Outlook

The Company is affirming its full-year 2023 adjusted EBITDA guidance range and net rental capital expenditures guidance presented below. The guidance range for the full year 2023 adjusted EBITDA reflects an increase of 18% to 26% compared to the full year 2022 results.

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 2023 by investing in its fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.