Herc Holdings reports record Full Year 2022 results and announces 2023 Full Year guidance

Posted on Feb 14, 2023 in Nuts & Bolts

Fourth Quarter Highlights
– Equipment rental revenue increased 31.5% to a record $713.1 million
– Total revenues increased 36.0% to a record $786.0 million
– Net income increased 36.2% to $97.8 million, or $3.27 per diluted share
– Adjusted EBITDA grew 40.8% to a record $361.2 million and adjusted EBITDA margin expanded 160 basis points to 46.0%
– Repurchased approximately 510,000 shares of common stock

Full Year Highlights
– Equipment rental revenue increased 33.6% to a record $2,551.5 million
– Total revenues increased 32.1% to a record $2,738.8 million
– Net income increased 47.2% to $329.9 million, or $10.92 per diluted share
– Adjusted EBITDA increased 37.2% to a record $1,227.2 million and adjusted EBITDA margin expanded 160 basis points to 44.8%
– Repurchased approximately 1,050,000 shares of common stock
– Full-year 2023 guidance announced at $1.45 billion to $1.55 billion for adjusted EBITDA and $1.0 billion to $1.2 billion for net rental equipment capital expenditures

Herc Holdings Inc.  (“Herc Holdings” or the “Company”) has reported financial results for the quarter and full year that ended December 31, 2022. Equipment rental revenue was $713.1 million and total revenues were $786.0 million in the fourth quarter of 2022, compared to $542.4 million and $578.0 million, respectively, for the same period last year. In the fourth quarter of 2022, the Company reported a net income of $97.8 million, or $3.27 per diluted share, an increase of 38.6% compared to $71.8 million, or $2.36 per diluted share, in the same 2021 period.

“From beginning to end, 2022 was an exceptionally strong year for us, with record performance across key financial metrics,” said Larry Silber, president and chief executive officer. “Operating momentum and market share growth continued in every region driven by robust demand, improved pricing, strategic fleet investments, end market diversity, and greater branch-network efficiencies.

“Through the hard work of the last several years, we are better positioned than ever to capitalize on a variety of growth avenues, including local market penetration, increased rentals of higher-margin specialty equipment, and trends relating to the multi-year fiscal stimulus and re-shoring mega projects. As a market leader with a strong reputation, broad-based capabilities, and service solutions, in 2023 we expect to continue to outpace industry expansion and capitalize on operating leverage while laying a foundation for long-term, profitable growth.” Silber continued, “The impressive progress we’re making is a direct result of the dedication and relentless execution of the entire Herc team. I want to thank them for their outstanding work and continuing commitment to our growth initiatives.”

2022 Fourth Quarter Financial Results

• Total revenues increased 36.0% to $786.0 million compared to $578.0 million in the prior-year period. The year-over-year increase of $208.0 million was primarily related to an increase in equipment rental revenue of $170.7 million, reflecting positive pricing of 6.6% and an increased volume of 28.6%. Sales of rental equipment also increased by $35.2 million during the period.
• Dollar utilization decreased to 43.5% compared to 44.6% in the prior-year period primarily due to a mix of equipment on rent.
• Direct operating expenses of $276.7 million increased 26.2% compared to the prior-year period. The $57.5 million increase was primarily related to strong rental activity and increases in payroll and related expenses associated with additional headcount, in addition to higher maintenance, fuel prices, and facilities expenses.
• Depreciation of rental equipment increased 29.0%, or $33.0 million, to $146.8 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 35.4%, or $6.8 million, to $26.0 million primarily due to the amortization of acquisition intangible assets.
• Selling, general and administrative expenses increased 24.9% to $112.2 million compared to $89.8 million in the prior-year period. The $22.4 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation increases, general payroll and benefits, and travel expenses.
• Interest expense increased to $41.3 million compared with $22.5 million in the prior-year period due to increased balances and interest rates on the ABL Credit Facility and AR Facility.
• Net income was $97.8 million compared to $71.8 million in the prior-year period. Adjusted net income increased 37.2% to $102.8 million, or $3.44 per diluted share, compared to $74.9 million, or $2.46 per diluted share, in the prior-year period. The effective tax rate was 26.6% compared to 21.4% in the prior-year period.
• Adjusted EBITDA increased 40.8% to $361.2 million compared to $256.5 million in the prior-year period, while adjusted EBITDA margin increased 160 basis points to 46.0% compared to 44.4% in the prior-year period.

2022 Full-Year Financial Results

• Total revenues increased 32.1% to $2,738.8 million compared to $2,073.1 million in the prior-year period. The year-over-year increase of $665.7 million was related to an increase in equipment rental revenue of $641.1 million, reflecting positive pricing of 5.8% and an increased volume of 31.8%. Sales of rental equipment also increased by $12.6 million during the period.
• Dollar utilization increased to a record 43.3% compared to 43.0% in the prior-year period primarily due to increased volume and rate.
• Direct operating expenses of $1,027.7 million increased 31.4% compared to the prior-year period. The $245.4 million increase was primarily due to strong rental activity and increases in payroll and related expenses associated with additional headcount, in addition to increases in maintenance, fuel prices, facilities, delivery and freight, and re-rent expenses related to the corresponding increase in re-rent revenue.
• Depreciation of rental equipment increased 27.4%, or $115.2 million, to $535.9 million during 2022 due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 39.6%, or $26.9 million, to $94.9 million primarily due to the amortization of acquisition intangible assets.
• Selling, general and administrative expenses increased 31.9% to $410.1 million compared to $310.8 million in the prior-year period. The $99.3 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation, general payroll and benefits, and travel expense.
• Interest expense increased to $122.0 million compared with $86.3 million in the prior-year period due to increased balances and interest rates on the ABL Credit Facility and AR Facility.
• Net income was $329.9 million compared to $224.1 million in the prior-year period. Adjusted net income increased 48.8% to $340.2 million, or $11.26 per diluted share, compared to $228.6 million, or $7.52 per diluted share, in the prior-year period. The effective tax rate was 23.9% compared to 22.8% in the prior-year period.
• Adjusted EBITDA increased 37.2% to $1,227.2 million compared to $894.7 million in the prior-year period, while adjusted EBITDA margin increased 160 basis points to 44.8% compared to 43.2% in the prior-year period.

Rental Fleet

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

• As of December 31, 2022, the Company’s total fleet was approximately $5.6 billion at OEC.
• The average fleet at OEC in the fourth quarter increased year-over-year by 31.1% compared to the prior-year period and increased by 30.5% for the full year.
• The average fleet age was 48 months as of December 31, 2022, compared to 49 months in the comparable prior-year period.

Disciplined Capital Management

• The Company acquired 18 companies with a total of 29 locations and opened 21 new greenfield locations in 2022.
• Net debt was $2.9 billion as of December 31, 2022, with net leverage of 2.4x compared to 2.1x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to $1.6 billion of liquidity as of December 31, 2022.
• The Company declared its quarterly dividend of $0.6325 payable to shareholders of record as of February 22, 2023, with a payment date of March 9, 2023.
• The Company acquired approximately 1,050,000 shares of its common stock for $115.2 million in 2022. As of December 31, 2022, the approximate dollar value that remains available under the share repurchase program is $280.6 million.

Outlook for 2023

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

Mr. Silber added, “As a leader in an industry where scale matters, we expect to continue to gain share by capturing an outsized position of the forecasted higher construction spending in 2023 by investing in our fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling our diversified product portfolio.”