8-K
HERC HOLDINGS INC (HRI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 18, 2021
HERC HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-33139 | 20-3530539 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S Employer Identification No.) |
27500 Riverview Center Blvd.
Bonita Springs, Florida 34134
(239) 301-1000
(Registrant's telephone number,
including area code)
N/A
(Former name or former address, if
changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | HRI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 18, 2021, Herc Holdings Inc. (the “Company”) issued a press release regarding its financial results for its fourth quarter and full year ended December 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On February 18, 2021, the Company will conduct an earnings webcast relating to the Company’s financial results for the fourth quarter and full year of 2020. The earnings webcast will be made available to the public via a link on the Investor Relations section of the Company's website, IR.HercRentals.com, as well as via telephone dial-in, and the slides that will accompany the presentation will be available to the public at the time of the earnings webcast through the Company’s website. Certain financial information relating to completed fiscal periods that will be part of the earnings webcast is included in the set of slides that will accompany the earnings webcast, a copy of which is furnished as Exhibit 99.2 to this Form 8-K.
The information in this Form 8-K and the exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
| Exhibit<br>Number | Description |
|---|---|
| 99.1 | Press Release of Herc Holdings Inc. dated February 18, 2021 describing its results for its fourth quarterand full yearended December 31, 2020. |
| 99.2 | Set of slides that will accompany the February 18, 2021 earnings webcast. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HERC HOLDINGS INC. | |
|---|---|
| (Registrant) | |
| By: | /s/ MARK IRION |
| Name: | Mark Irion |
| Title: | Senior Vice President and Chief Financial Officer |
Date: February 18, 2021
3
Document
Herc Holdings Reports 2020 Fourth Quarter and Full Year 2020 Results and Announces Full Year Guidance for 2021
–Equipment rental revenue was $427.3 million in the fourth quarter and $1,543.7 million for the full year
–Total revenues were $520.4 million in the fourth quarter and $1,781.3 million for the full year
–Net income was $35.5 million, or $1.19 per diluted share in the fourth quarter, and $73.7 million, or $2.51 for the full year
–Adjusted EBITDA was $195.6 million in the fourth quarter and $689.4 million for the full year
–Free cash flow increased to $424.5 million for the full year
–The Company announced full year 2021 guidance ranges of $730 million to $760 million for adjusted EBITDA and $400 million to $450 million for net rental equipment capital expenditures
Bonita Springs, Fla., February 18, 2021 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended December 31, 2020. Equipment rental revenue was $427.3 million and total revenues were $520.4 million in the fourth quarter of 2020, compared to $457.0 million and $540.1 million, respectively, for the same period last year. The Company reported net income of $35.5 million, or $1.19 per diluted share, in the fourth quarter of 2020, compared to $35.1 million, or $1.20 per diluted share, in the same 2019 period. Fourth quarter 2020 adjusted net income was $40.2 million, or $1.35 per diluted share, compared to $38.9 million, or $1.33 per diluted share, in 2019. See page A-5 for the adjusted net income and adjusted earnings per share calculations.
"We exceeded our expectations for the fourth quarter and have good momentum going into 2021," said Larry Silber, president and CEO. "During the year, we adjusted fleet to respond to the declines in volume related to the impact of COVID-19 on our customers and focused on controlling costs. The quick implementation of those initiatives led to our improved adjusted EBITDA margin and excellent free cash flow for the full year. Our commitment to customer service and consistent implementation of a strategy to diversify our customer and industry base continues to demonstrate the strength of our business model."
2020 Fourth Quarter Highlights
•Equipment rental revenue was $427.3 million compared to $457.0 million in the prior-year period. The COVID-19 business slowdown continued to impact volume and pricing.
•Total revenues were $520.4 million compared to $540.1 million in the prior-year period. The year-over-year decline of $19.7 million was related primarily to lower equipment rental revenue of $29.7 million, offset by an increase in sales of rental equipment of $10.8 million.
•Pricing declined 0.8% compared to the same period in 2019.
•Dollar utilization increased to 40.6% compared to 40.5% in the prior-year period and increased 300 basis points sequentially from the third quarter of 2020.
•Direct operating expenses (DOE) of $185.9 million decreased 5.1% compared to the prior-year period. The $9.9 million decline was primarily related to lower re-rent expense and personnel-related costs.
•Selling, general and administrative expenses (SG&A) declined 5.2% to $69.8 million compared to $73.6 million in the prior-year period. The $3.8 million decline was primarily attributed to reductions in selling and travel expenses.
•Impairment expense was $5.9 million and consisted of the impairment of certain rental equipment and capitalized software related to financial systems that was replaced during the fourth quarter of 2020.
•Interest expense decreased to $22.5 million compared to $27.1 million in the prior-year period. The decrease was primarily related to both lower interest rates and balances of the Company's ABL Credit Facility in 2020.
•The income tax provision was $9.5 million compared with $18.1 million for the prior-year period.
•The Company reported net income of $35.5 million compared to $35.1 million in the prior-year period. Adjusted net income was $40.2 million compared to $38.9 million in the prior-year period.
•Adjusted EBITDA declined 8.8% to $195.6 million compared to $214.4 million in the prior-year period. The decrease was primarily due to lower volume and pricing.
•Adjusted EBITDA margin declined 210 basis points to 37.6% compared with 39.7% in the prior-year period, primarily due to higher costs related to sales of rental equipment in the quarter.
Full Year 2020 Highlights
•Equipment rental revenue was $1,543.7 million compared to $1,701.8 million in the comparable prior-year period. The 9.3%, or $158.1 million decline, was primarily due to lower volume related to the impact of COVID-19.
•Total revenues were $1,781.3 million compared to $1,999.0 million in the prior-year period. The economic slowdown related to the COVID-19 pandemic impacted all of the Company's revenue streams in 2020. Lower equipment rental revenue and sales of rental equipment were the primary factors contributing to the 10.9%, or $217.7 million, decline compared to the prior-year period.
•Pricing increased 0.1% compared to the same period in 2019.
•Dollar utilization was 36.1% compared with 38.7% in the prior year, primarily a result of lower volume and mix.
•DOE fell 10.6%, or $81.9 million, to $689.2 million compared to the prior-year period. The decline was primarily related to lower transportation, re-rent, and maintenance expense, as well as lower personnel-related expense as a result of furloughs and lower overtime expense.
•SG&A decreased 12.7% to $257.4 million compared to $294.8 million in the prior-year period. The $37.4 million decline was primarily attributed to reductions in selling and travel expenses, as well as lower bad debt expense due to continued improvement in collections.
•The Company recorded restructuring expense of $0.7 million primarily related to personnel
reductions compared with $7.7 million in the prior-year period associated with closures of underperforming branches.
•Impairment expense was $15.4 million and consisted of partial impairment of a long-term receivable related to the sale of a former joint venture, the impairment of certain rental equipment and capitalized software related to financial systems, assets related to the closure of two branch locations in 2019, and the sale of two locations in 2020. Impairment expense of $5.1 million in 2019 was primarily related to certain international assets that were deemed held for sale as of December 31, 2019.
•Interest expense decreased to $92.6 million compared to $173.5 million in the prior-year period. The decrease was primarily related to the $53.6 million debt extinguishment expense in 2019, lower average outstanding balances on the Company's ABL Credit Facility, and lower interest rates on the Company's ABL Credit Facility and 2027 Notes in 2020.
•Income tax provision was $20.4 million compared with $16.1 million in the prior-year period.
•The Company reported net income of $73.7 million, or $2.51 per diluted share, compared to $47.5 million, or $1.63 per diluted share, in the prior-year period. Adjusted net income was $88.5 million, or $3.01 per diluted share, compared to $91.6 million, or $3.15 per diluted share, in the prior-year period.
•Adjusted EBITDA declined 7.0% to $689.4 million compared to $741.0 million in the prior-year period. The decline was primarily due to lower volume.
•Adjusted EBITDA margin increased 160 basis points to 38.7% compared to 37.1% in the prior-year period.
Capital Expenditures - Fleet
•The Company reported net rental equipment capital expenditures of $151.6 million for 2020. Gross rental equipment capital expenditures were $344.1 million compared with $638.4 million in the comparable prior-year period. Proceeds from disposals were $192.5 million compared to $224.2 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.
•As of December 31, 2020, the Company's total fleet was approximately $3.59 billion at OEC.
•Average fleet at OEC decreased year-over-year by 6.0% in the fourth quarter and by 2.4% for the full year compared to the prior-year periods.
•Average fleet age was 46 months as of December 31, 2020 compared to 45 months in the comparable prior-year period.
Disciplined Capital Management
•The Company generated $424.5 million in free cash flow in 2020, compared with $176.2 million in the same period in 2019.
•Cash and cash equivalents were $33.0 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.4 billion of liquidity as of December 31, 2020.
Net debt was $1.7 billion as of December 31, 2020, with net leverage of 2.4x compared to 2.8x in the same prior-year period in 2019.
•The Company also updated its targeted net leverage range to 2.0x to 3.0x from the previous range of 2.5x to 3.5x.
Outlook for 2021
The Company reported 2021 guidance ranges of:
| Adjusted EBITDA: | $730 million to $760 million |
|---|---|
| Net rental equipment capital expenditures: | $400 million to $450 million |
"Our goal for 2021 adjusted EBITDA is to exceed 2019 profitability levels," said Silber. "As we announced in January, we completed our first multi-location acquisition since going public. We intend to carefully invest in fleet and add locations in high growth urban markets to accelerate our top-line growth while continuing to control expenses," he added.
Earnings Call and Webcast Information
Herc Holdings' fourth quarter 2020 earnings webcast will be held today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may call +1-877-883-0383 and international participants should call 1-412-902-6506, using the access code: 8030644. Please dial in at least 10 minutes before the call start time to ensure that you are connected to the call and to register your name and company.
Those who wish to listen to the live conference call and view the accompanying presentation slides should visit the Events and Presentations tab of the Investor Relations section of the Company's website at IR.HercRentals.com. The press release and presentation slides for the call will be posted to this section of the website prior to the call.
A replay of the conference call will be available via webcast on the company website at IR.HercRentals.com, where it will be archived for 90 days after the call. A telephonic replay will be available for one week. To listen to the archived call by telephone, U.S. participants should dial +1-877-344-7529 and international participants 1-412-317-0088 and enter the conference ID number: 10149774.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with 277 locations in North America. With over 55 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. Our classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. Our equipment rental business is supported by ProSolutionsR, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, and studio and production equipment, and our ProContractor professional grade tools. Our product offerings and services are aimed at helping customers work more efficiently, effectively and safely. The Company has approximately 4,800 employees who equip our customers and communities to build a brighter future. Herc Holdings’ 2020 total revenues were approximately $1.8 billion. All references to “Herc Holdings” or the “Company” in this press release refer to Herc Holdings Inc. and its subsidiaries, unless otherwise indicated. For more information on Herc Holdings and its products and services, visit: www.HercRentals.com.
Certain Additional Information
In this release we refer to the following operating measures:
•Dollar utilization: calculated by dividing rental revenue by the average OEC of the equipment fleet for the relevant time period, based on the guidelines of the American Rental Association (ARA).
•OEC: original equipment cost based on the guidelines of the ARA, which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date).
Forward-Looking Statements
This press release includes forward-looking statements as that term is defined by the federal securities laws, including statements concerning our business plans and strategy, projected profitability, performance or cash flows, future capital expenditures, our growth strategy, anticipated financing needs, business trends, the impact of and our response to COVID-19, liquidity and capital management and other information that is not historical information. Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions. All forward-looking statements are based upon our current expectations and various assumptions and, there can be no assurance that our current expectations will be achieved. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Further information on the risks that may affect our business is included in filings we make with the Securities and Exchange Commission from time to time, including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and in our other SEC filings. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.
Information Regarding Non-GAAP Financial Measures
In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this release that is not calculated according to GAAP (“non-GAAP”), such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per diluted common share and free cash flow. Management uses these non-GAAP measures to evaluate operating performance and period-over-period performance of our core business without regard to potential distortions, and believes that investors will likewise find these non-GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For the definitions of these terms, further information about management’s use of these measures as well as a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the supplemental schedules that accompany this release.
(See Accompanying Tables)
HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Three Months Ended December 31, | Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Revenues: | ||||||||
| Equipment rental | $ | 427.3 | $ | 457.0 | $ | 1,543.7 | $ | 1,701.8 |
| Sales of rental equipment | 81.8 | 71.0 | 198.5 | 242.8 | ||||
| Sales of new equipment, parts and supplies | 8.0 | 9.9 | 28.2 | 44.0 | ||||
| Service and other revenue | 3.3 | 2.2 | 10.9 | 10.4 | ||||
| Total revenues | 520.4 | 540.1 | 1,781.3 | 1,999.0 | ||||
| Expenses: | ||||||||
| Direct operating | 185.9 | 195.8 | 689.2 | 771.1 | ||||
| Depreciation of rental equipment | 100.2 | 105.5 | 403.9 | 409.1 | ||||
| Cost of sales of rental equipment | 85.3 | 73.0 | 203.6 | 243.2 | ||||
| Cost of sales of new equipment, parts and supplies | 5.9 | 7.5 | 20.5 | 33.3 | ||||
| Selling, general and administrative | 69.8 | 73.6 | 257.4 | 294.8 | ||||
| Restructuring | — | (0.1) | 0.7 | 7.7 | ||||
| Impairment | 5.9 | 4.4 | 15.4 | 5.1 | ||||
| Interest expense, net | 22.5 | 27.1 | 92.6 | 173.5 | ||||
| Other expense (income), net | (0.1) | 0.1 | 3.9 | (2.4) | ||||
| Total expenses | 475.4 | 486.9 | 1,687.2 | 1,935.4 | ||||
| Income before income taxes | 45.0 | 53.2 | 94.1 | 63.6 | ||||
| Income tax provision | (9.5) | (18.1) | (20.4) | (16.1) | ||||
| Net income | $ | 35.5 | $ | 35.1 | $ | 73.7 | $ | 47.5 |
| Weighted average shares outstanding: | ||||||||
| Basic | 29.2 | 28.8 | 29.1 | 28.7 | ||||
| Diluted | 29.8 | 29.3 | 29.4 | 29.1 | ||||
| Earnings per share: | ||||||||
| Basic | $ | 1.22 | $ | 1.22 | $ | 2.53 | $ | 1.66 |
| Diluted | $ | 1.19 | $ | 1.20 | $ | 2.51 | $ | 1.63 |
A - 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
| December 31,<br>2020 | December 31, 2019 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Cash and cash equivalents | $ | 33.0 | $ | 33.0 |
| Receivables, net of allowance | 301.2 | 306.7 | ||
| Other current assets | 32.9 | 60.0 | ||
| Total current assets | 367.1 | 399.7 | ||
| Rental equipment, net | 2,260.4 | 2,490.0 | ||
| Property and equipment, net | 290.4 | 311.8 | ||
| Right-of-use lease assets | 255.9 | 207.3 | ||
| Goodwill and intangible assets, net | 396.4 | 385.1 | ||
| Other long-term assets | 18.2 | 23.1 | ||
| Total assets | $ | 3,588.4 | $ | 3,817.0 |
| LIABILITIES AND EQUITY | ||||
| Current maturities of long-term debt and financing obligations | $ | 15.8 | $ | 30.4 |
| Current maturities of operating lease liabilities | 32.1 | 30.5 | ||
| Accounts payable | 125.8 | 126.5 | ||
| Accrued liabilities | 154.3 | 135.7 | ||
| Total current liabilities | 328.0 | 323.1 | ||
| Long-term debt, net | 1,651.5 | 2,051.5 | ||
| Financing obligations, net | 114.5 | 117.6 | ||
| Operating lease liabilities | 234.1 | 182.2 | ||
| Deferred tax liabilities | 474.0 | 459.3 | ||
| Other long-term liabilities | 44.3 | 39.0 | ||
| Total liabilities | 2,846.4 | 3,172.7 | ||
| Total equity | 742.0 | 644.3 | ||
| Total liabilities and equity | $ | 3,588.4 | $ | 3,817.0 |
A - 2
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Years Ended December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 73.7 | $ | 47.5 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation of rental equipment | 403.9 | 409.1 | ||
| Depreciation of property and equipment | 54.5 | 54.0 | ||
| Amortization of intangible assets | 8.0 | 7.0 | ||
| Amortization of deferred debt and financing obligations costs | 3.4 | 5.2 | ||
| Loss on extinguishment of debt | — | 53.6 | ||
| Stock-based compensation charges | 16.4 | 19.5 | ||
| Restructuring | — | 5.5 | ||
| Impairment | 15.4 | 5.1 | ||
| Provision for receivables allowance | 31.4 | 48.2 | ||
| Deferred taxes | 11.9 | 10.7 | ||
| Loss on sale of rental equipment | 5.1 | 0.4 | ||
| Other | 4.7 | (1.8) | ||
| Changes in assets and liabilities: | ||||
| Receivables | (24.6) | (38.3) | ||
| Other assets | (7.9) | 4.1 | ||
| Accounts payable | (6.4) | (12.9) | ||
| Accrued liabilities and other long-term liabilities | 21.4 | 18.7 | ||
| Net cash provided by operating activities | 610.9 | 635.6 | ||
| Cash flows from investing activities: | ||||
| Rental equipment expenditures | (344.1) | (638.4) | ||
| Proceeds from disposal of rental equipment | 192.5 | 224.2 | ||
| Non-rental capital expenditures | (41.4) | (56.9) | ||
| Proceeds from disposal of property and equipment | 6.6 | 7.7 | ||
| Acquisitions | (45.6) | (4.2) | ||
| Proceeds from disposal of business | 24.5 | — | ||
| Other investing activities, net | — | 4.0 | ||
| Net cash used in investing activities | (207.5) | (463.6) | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of long-term debt | — | 1,200.0 | ||
| Repayments of long-term debt | — | (864.5) | ||
| Proceeds from revolving lines of credit and securitization | 528.0 | 1,230.0 | ||
| Repayments on revolving lines of credit and securitization | (924.7) | (1,664.8) | ||
| Proceeds from financing obligations | — | 4.7 | ||
| Principal payments under capital lease and financing obligations | (13.9) | (17.2) | ||
| Debt redemption premium payment | — | (41.5) | ||
| Other financing activities, net | 4.6 | (13.8) | ||
| Net cash used in financing activities | (406.0) | (167.1) | ||
| Effect of foreign exchange rate changes on cash and cash equivalents | 2.6 | 0.3 | ||
| Net increase (decrease) in cash and cash equivalents during the period | — | 5.2 | ||
| Cash and cash equivalents cash at beginning of period | 33.0 | 27.8 | ||
| Cash and cash equivalents at end of period | $ | 33.0 | $ | 33.0 |
A - 3
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
EBITDA AND ADJUSTED EBITDA RECONCILIATIONS
Unaudited
(In millions)
EBITDA and adjusted EBITDA - EBITDA represents the sum of net income (loss), provision (benefit) for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of merger and acquisition related costs, restructuring and restructuring related charges, spin-off costs, non-cash stock-based compensation charges, loss on extinguishment of debt (which is included in interest expense, net), impairment charges, gain (loss) on the disposal of a business and certain other items. EBITDA and adjusted EBITDA do not purport to be alternatives to net income as an indicator of operating performance. Additionally, neither measure purports to be an alternative to cash flows from operating activities as a measure of liquidity, as they do not consider certain cash requirements such as interest payments and tax payments.
Adjusted EBITDA Margin - Adjusted EBITDA Margin, calculated by dividing Adjusted EBITDA by Total Revenues, is a commonly used profitability ratio.
| Three Months Ended December 31, | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Net income | $ | 35.5 | $ | 35.1 | $ | 73.7 | $ | 47.5 | ||||
| Income tax provision | 9.5 | 18.1 | 20.4 | 16.1 | ||||||||
| Interest expense, net | 22.5 | 27.1 | 92.6 | 173.5 | ||||||||
| Depreciation of rental equipment | 100.2 | 105.5 | 403.9 | 409.1 | ||||||||
| Non-rental depreciation and amortization | 15.5 | 16.5 | 62.5 | 61.0 | ||||||||
| EBITDA | 183.2 | 202.3 | 653.1 | 707.2 | ||||||||
| Restructuring | — | (0.1) | 0.7 | 7.7 | ||||||||
| Spin-Off costs | 0.2 | (0.2) | 0.6 | 0.5 | ||||||||
| Non-cash stock-based compensation charges | 6.1 | 7.0 | 16.4 | 19.5 | ||||||||
| Loss on disposal of business | — | — | 2.8 | — | ||||||||
| Impairment | 5.9 | 4.4 | 15.4 | 5.1 | ||||||||
| Other(1) | 0.2 | 1.0 | 0.4 | 1.0 | ||||||||
| Adjusted EBITDA | $ | 195.6 | $ | 214.4 | $ | 689.4 | $ | 741.0 | ||||
| Total revenues | $ | 520.4 | $ | 540.1 | $ | 1,781.3 | $ | 1,999.0 | ||||
| Adjusted EBITDA | $ | 195.6 | $ | 214.4 | $ | 689.4 | $ | 741.0 | ||||
| Adjusted EBITDA margin | 37.6 | % | 39.7 | % | 38.7 | % | 37.1 | % |
(1) Comprised primarily of a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for the year ended December 31, 2019.
A - 4
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER DILUTED SHARE
Unaudited
(In millions)
Adjusted Net Income and Adjusted Earnings Per Diluted Share - Adjusted Net Income represents the sum of net income (loss), restructuring and restructuring related charges, spin-off costs, loss on extinguishment of debt, impairment charges, gain (loss) on the disposal of a business and certain other items. Adjusted Earnings per Diluted Share represents Adjusted Net Income divided by diluted shares outstanding. Adjusted Net Income and Adjusted Earnings Per Diluted Share are important measures to evaluate our results of operations between periods on a more comparable basis and to help investors analyze underlying trends in our business, evaluate the performance of our business both on an absolute basis and relative to our peers and the broader market, provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and operational strength of our business.
| Three Months Ended December 31, | Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Net income | $ | 35.5 | $ | 35.1 | $ | 73.7 | $ | 47.5 |
| Loss on extinguishment of debt | — | — | — | 53.6 | ||||
| Restructuring | — | (0.1) | 0.7 | 7.7 | ||||
| Impairment | 5.9 | 4.4 | 15.4 | 5.1 | ||||
| Loss on disposal of business | — | — | 2.8 | — | ||||
| Spin-off costs | 0.2 | (0.2) | 0.6 | 0.5 | ||||
| Other(1) | 0.2 | 1.0 | 0.4 | 1.0 | ||||
| Tax impact of adjustments(2) | (1.6) | (1.3) | (5.1) | (23.8) | ||||
| Adjusted net income | $ | 40.2 | $ | 38.9 | $ | 88.5 | $ | 91.6 |
| Diluted shares outstanding | 29.8 | 29.3 | 29.4 | 29.1 | ||||
| Adjusted earnings per diluted share | $ | 1.35 | $ | 1.33 | $ | 3.01 | $ | 3.15 |
(1) Comprised primarily of a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for three months and the year ended December 31, 2019.
(2) The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities. Additionally, the tax benefit of $6.3 million recognized during the year ended December 31, 2019 related to the debt transactions.
NET RENTAL EQUIPMENT CAPITAL EXPENDITURES
(In millions)
| Years Ended December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Rental equipment expenditures | $ | 344.1 | $ | 638.4 |
| Proceeds from disposal of rental equipment | (192.5) | (224.2) | ||
| Net rental equipment capital expenditures | $ | 151.6 | $ | 414.2 |
A - 5
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
FREE CASH FLOW
Unaudited
(In millions)
Free cash flow represents net cash provided by (used in) operating activities less rental equipment expenditures and non-rental capital expenditures, plus proceeds from disposal of rental equipment, proceeds from disposal of property and equipment, and other investing activities. Free cash flow is used by management in analyzing the Company’s ability to service and repay its debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures.
| Years Ended December 31, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Net cash provided by operating activities | $ | 610.9 | $ | 635.6 |
| Rental equipment expenditures | (344.1) | (638.4) | ||
| Proceeds from disposal of rental equipment | 192.5 | 224.2 | ||
| Net rental equipment expenditures | (151.6) | (414.2) | ||
| Non-rental capital expenditures | (41.4) | (56.9) | ||
| Proceeds from disposal of property and equipment | 6.6 | 7.7 | ||
| Other | — | 4.0 | ||
| Free cash flow | $ | 424.5 | $ | 176.2 |
A - 6
a2020q4earningscallprese
HERC HOLDINGS INC. February 18, 2021 ©2021 Herc Rentals Inc. All Rights Reserved. Q4 & FULL YEAR 2020 EARNINGS CONFERENCE CALL Larry Silber President & Chief Executive Officer Aaron Birnbaum Senior Vice President & Chief Operating Officer Mark Irion Senior Vice President & Chief Financial Officer Elizabeth Higashi, CFA Vice President, Investor Relations & Sustainability
2NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Herc Rentals Team Aaron Birnbaum Senior Vice President & Chief Operating Officer Larry Silber President & Chief Executive Officer Elizabeth Higashi Vice President, Investor Relations & Sustainability Mark Irion Senior Vice President & Chief Financial Officer
3NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Safe Harbor Statements and Non-GAAP Financial Measures Information Regarding Non-GAAP Financial Measures In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this presentation that is not calculated according to GAAP (“non-GAAP”), such as adjusted net income, adjusted earnings per diluted share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, REBITDA, REBITDA margin, REBITDA flow- through and free cash flow. Management uses these non-GAAP measures to evaluate operating performance and period-over-period performance of our core business without regard to potential distortions, and believes that investors will likewise find these non- GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For the definitions of these terms, further information about management’s use of these measures as well as a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the appendix that accompanies this presentation. Forward-Looking Statements This presentation includes forward-looking statements as that term is defined by the federal securities laws, including statements concerning our business plans and strategy; projected profitability, performance or cash flows, future capital expenditures; anticipated financing needs, business trends, the impact and our response to COVID-19, liquidity and capital management, and other information that is not historical information. Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions. All forward-looking statements are based upon our current expectations and various assumptions and, there can be no assurance that our current expectations will be achieved. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Further information on the risks that may affect our business is included in filings we make with the Securities and Exchange Commission from time to time, including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and in our other SEC filings. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.
4NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. A Leader in the Equipment Rental Industry 56 Years in the equipment rental industry HRI Listed on the New York Stock Exchange on July 1, 2016 Locations in 39 states and five Canadian provinces Employees serving North America 277 4,800
5NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Maintained positive pricing in 2020 Strong cost management contributed to YoY improvement in adjusted EBITDA margin Disciplined capital spending contributed to substantial improvement in free cash flow Positioned to accelerate top-line growth 2020 Takeaways - Overcoming the Challenges
6NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Full Year 2020 Financial Highlights 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 Equipment Rental Revenue $1,543.7M Full Year (9.3)% YoY Total Revenues $1,781.3M Full Year (10.9)% YoY Adjusted EBITDA1 $689.4M Full Year (7.0)% YoY Net Income $73.7M Earnings Per Diluted Share $2.51 Adjusted EBITDA Margin1 38.7% Full Year +160 bps YoY Full Year 55.2% YoY Full Year 54.0% YoY
7NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Q4 2020 OPERATIONS REVIEW
8NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Delivering in a Challenging Environment Year-over-year trends in Q4 rental revenue improved compared with double-digit % declines in Q2 and Q3, but was still lower than the prior year Diverse customers and industries helped mitigate the impact of COVID-19 Results in the quarter were also aided by weather- related and emergency response activity Our ProSolutions® team continued to deliver strong results with rental revenue up 22% in the fourth quarter compared with the prior year
9NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Focusing on Safety Delivers Results TRIR improved to 0.86 in 2020 Continued focus on safety by following CDC guidelines All of our branches reported at least 98% Perfect Days in 2020 Conducted 58,395 safety training hours Total Recordable Incident Rate ("TRIR") 1.05 0.99 0.86 2018 2019 2020
10NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Investing in High Growth Urban Markets 277 Locations as of December 31, 2020 Strong geographic footprint in high growth urban markets New greenfield locations opened in Ft. Lauderdale, Toronto, Denver, and two in Dallas Four locations acquired in Houston Targeting 10 to 20 new locations in urban markets annually 39 states 5 provinces
11NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Managing Fleet to Enhance Utilization Fleet Composition at OEC1 $3.59B at OEC 1. Original equipment cost based on ARA guidelines. As of December 31, 2020 Fleet Expenditures at OEC1 Fleet Disposals at OEC1 Fleet disposals at OEC in Q4 2020 were $234 million, generating ~36% proceeds as a percent of OEC Average age of disposals was 85 months in Q4 2020 Average fleet age of 46 months in Q4 2020 $ in millions $ in millions Specialty 23.2% Aerial 23.6% Earthmoving 13.5% Material Handling 17.3% Trucks & Trailers 14.6% Other 7.8% $103 $289 $172 $63 $109 $88 $90 $62 2019 2020 Q1 Q2 Q3 Q4 $193 $123 $89 $188 $110 $83 $124 $234 2019 2020 Q1 Q2 Q3 Q4
12NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Contractors 33% Industrial 29% Infrastructure and Government 17% Other 21% Resilient Business Model Delivers 1. Refer to our 10-K for description of industries related to each customer classification. Other includes commercial and retail service, hospitality, healthcare, recreation, and entertainment and special events Q4 Revenue by Customer1 Q4 Local vs National Mix National: 44% Local: 56% Our diverse customer mix, base of national customers and expanded specialty business continues to provide growth opportunities Industrial manufacturing activity began to close the gap with pre-COVID-19 levels Focusing on high growth industry verticals Customer revenues from the oil & gas sector were less than 8% of rental revenues in Q4 The return to normalcy in our end markets provides additional growth opportunities
13NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Continuing Our Journey Our team is focused on: • Enhancing the well-being of our team by investing in training • Operating a safe environment for our employees, customers and communities • Expanding in fast-growing urban markets to drive top-line growth • Improving utilization by driving more fleet through the network • Continued investment in ProSolutions business • Delivering a lean cost structure and improved margins • Providing excellent customer service and premium equipment to our customers
14NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Q4 FINANCIAL REVIEW
15NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Q4 and Full Year Financial Summary Three Months Ended December 31, Years Ended December 31, $ in millions, except per share data 2020 2019 % Chg. 2020 2019 % Chg. Equipment Rental Revenue $427.3 $457.0 (6.5)% $1,543.7 $1,701.8 (9.3)% Total Revenues $520.4 $540.1 (3.6)% $1,781.3 $1,999.0 (10.9)% Net Income $35.5 $35.1 1.1% $73.7 $47.5 55.2% Earnings Per Diluted Share $1.19 $1.20 (0.8)% $2.51 $1.63 54.0% Adjusted Net Income1 $40.2 $38.9 3.3% $88.5 $91.6 (3.4)% Adjusted Earnings Per Diluted Share1 $1.35 $1.33 1.5% $3.01 $3.15 (4.4)% Adjusted EBITDA1 $195.6 $214.4 (8.8)% $689.4 $741.0 (7.0)% Adjusted EBITDA Margin1 37.6 % 39.7 % (210) bps 38.7 % 37.1 % +160 bps REBITDA Margin1,2 45.8 % 46.6 % (80) bps 44.2 % 42.7 % +150 bps REBITDA YoY Flow-Through1,2 59.4% 27.9% Average Fleet3 (6.0)% YoY (2.4)% YoY Pricing3 (0.8)% YoY +0.1% YoY 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 2. REBITDA measures contribution from our core rental business without impact of sales of equipment, parts and supplies 3. Based on ARA guidelines
16NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. (0.3)% (1.6)% (1.3)%(2.0)% (16.1)% (8.8)% (6.0)% 2019 2020 Q1 Q2 Q3 Q4 2.0% (1.3)% 0.4% 0.7% 1.7% (0.5)% (4.5)% (6.0)% 2019 2020 Q1 Q2 Q3 Q4 Pricing1 35.6% 38.0% 40.8% 40.5% 35.7% 30.8% 37.6% 40.6% 2019 2020 Q1 Q2 Q3 Q4 Pricing and Utilization Performance 1. YoY Change. Based on ARA guidelines. 2. Based on ARA guidelines 3.8% 4.6% 4.5% 3.3% 2.4% (0.3)% (0.8)% (0.8)% 2019 2020 Q1 Q2 Q3 Q4 0.0% Average Fleet at OEC1 Average Fleet on Rent at OEC1 $ Utilization2
17NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. $214.4 $(0.1) $(29.3) $8.6 $3.1 $0.7 $(1.8) $195.6 2019 Currency impact Equipment rental revenue Direct operating expenses SG&A Other Gain/loss² 2020 Adjusted EBITDA declined 8.8% or $18.8 million in Q4 2020 primarily due to lower volume and rental revenue DOE was reduced by $8.6 million primarily due to lower re-rent and personnel-related expenses in Q4 2020 SG&A declined $3.1 million in Q4 2020 primarily due to reductions in selling and travel expense REBITDA margin1,3 in Q4 2020 declined 80 bps YoY to 45.8% REBITDA margin flow-through was 59.4% in Q4 2020 Q4 and Full Year Adjusted EBITDA1 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 2. Gain / loss on sales of rental equipment, new equipment, parts and supplies. 3. REBITDA measures contribution from our core rental business without impact of sales of equipment, parts and supplies 2 Q4 Adjusted EBITDA Bridge $741.0 $0.2 $(159.2) $83.9 $35.7 $(4.4) $(7.8) 2019 Currency impact Equipment rental revenue Direct operating expenses SG&A Other Gain/loss² 2020 Full Year Adjusted EBITDA Bridge $ in millions $ in millions $689.4
18NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 2.4x $425M Free cash flow3 of approximately $425 million for YTD 2020 Net leverage3 of 2.4x compared with 2.8x in December 2019 New net leverage target of 2.0x to 3.0x Credit Rating: Moody’s (B1/Stable) / S&P (B+/Stable) $1,200.0 $255.0175.0 2020 2021 2022 2023 2024 2025 2026 2027 Disciplined Capital Management 1. The AR Facility is excluded from current maturities of long-term debt as the Company has the intent and ability to consummate refinancing and extend the term of the agreement 2. Total liquidity includes cash and cash equivalents and the unused commitments under the ABL Credit Facility and AR Facility. 3. For a definition and reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 $ in millions, as of December 31, 2020 ABL Credit Facility Senior Unsecured Notes Total debt of $1.7 billion as of December 31, 2020, down by approximately $415 million from December 31, 2019 No near-term maturities and ample liquidity of $1.4 billion provides financial flexibility2 AR Facility1 Maturities $40.8 Finance Leases 2021-2027 ABL Credit Facility
19NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Ja n- 05 Ja n- 06 Ja n- 07 Ja n- 08 Ja n- 09 Ja n- 10 Ja n- 11 Ja n- 12 Ja n- 13 Ja n- 14 Ja n- 15 Ja n- 16 Ja n- 17 Ja n- 18 Ja n- 19 Ja n- 20 A Resilient Industry as of January 2021 50 1. Source: ARA / IHS Global Insights as of November 2020 3. Source: The American Institute of Architects (AIA) 2. Source: Dodge Analytics U.S. as of December 2020 Architecture Billings Index3 Equipment rental market forecast to grow from about $51 billion in 2020 to $62 billion in 2024 Secular trends favor rental versus ownership Healthcare, warehouse and infrastructure sectors reflect strong growth over the next few years Select Market Forecasts2 U.S. Nonresidental Building Starts History Forecast 2017 2018 2019 2020 2021 2022 2023 YOY Growth +12% +4% +5% (23)% +3% +9% +7% Sectors with Tailwinds History Forecast 2017 2018 2019 2020 2021 2022 2023 Healthcare +7% (3)% +3% (9)% +8% +9% +8% Warehouse +18% +2% +25% +2% +8% +11% +1% Infrastructure +5% (2)% +11% (18)% +7% +6% +3% December 42.6 $38 $31 $32 $35 $38 $41 $44 $47 $49 $51 $55 $58 $51 $51 $55 $59 $62 08 09 10 11 12 13 14 15 16 17 18 19 20E 21E 22E 23E 24E N.A. Equipment Rental Market1 ’20-'2 4E CA GR: ~ 4%
20NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Adjusted EBITDA $730 to $760 million increase of 6% to 10% over 2020 Net Rental Equipment Capital Expenditures $400 to $450 million 2021 Full Year Guidance
21NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Improving Metrics Position Future Growth 4.1x 3.6x 3.1x 2.8x 2.4x 2016 2017 2018 2019 2020 34.5% 33.4% 34.6% 37.1% 38.7% 2016 2017 2018 2019 2020 Net Leverage2 Adjusted EBITDA Margin1 1. For a definition and reconciliation to the most comparable GAAP financial measure, see slides 29 and 30 and previously filed presentations 2. For a definition and calculation, see slide 32 Focus on top line growth and controlling costs to continue to improve margins over time Strong free cash flow provides flexibility for new growth initiatives Will continue opening new greenfield locations Seeking accretive M&A in select geographies, industry verticals and products
22NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. APPENDIX
23NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Develop Our People and Culture Attract and retain diverse talent Align performance to shared purpose Support a safe and healthy work place culture Expand continuous learning to all employees Our Strategic Initiatives are Delivering Results Improve Operating Effectiveness Improve sales force effectiveness Improve safety and labor productivity Increase density in large urban markets Improve vendor management and fleet availability Enhance Customer Experience Provide premium products and solutions-based services Introduce innovative technology solutions Maintain COVID-19 protocols to protect customers and employees Disciplined Capital Management Drive EBITDA margin growth Maximize fleet management and utilization Operate within new net leverage target range of 2.0x to 3.0x Expand and Diversify Revenues Broaden customer base Expand products and services Grow pricing and ancillary revenues Seek accretive M&A in selective geographies, verticals and selected products
24NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. $536.2 $585.4 $684.8 $741.0 $689.4 2016 2017 2018 2019 2020 Margin and Net Leverage Improved Since Spin-off Equipment Rental Revenue 4.1x 3.6x 3.1x 2.8x 2.4x 2016 2017 2018 2019 2020 34.5% 33.4% 34.6% 37.1% 38.7% 2016 2017 2018 2019 2020 Net Leverage2Adjusted EBITDA Margin1 Adjusted EBITDA1 1. For a definition and reconciliation to the most comparable GAAP financial measure, see slides 29 and 30 and previously filed presentations 2. For a definition and calculation, see slide 32 $ in millions $ in millions $1,352.7 $1,499.0 $1,658.3 $1,701.8 $1,543.7 2016 2017 2018 2019 2020 ’16-‘20 CAGR: 3.4% ’16-‘2 0 CA GR: 6 .5%
25NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). Fleet Age: The OEC weighted age of the entire fleet, based on ARA guidelines. Glossary of Terms Commonly Used in the Industry Net Fleet Capital Expenditures: Capital expenditures of rental equipment minus the proceeds from disposal of rental equipment. Dollar Utilization ($ UT): Dollar utilization is an operating measure calculated by dividing rental revenue by the average OEC of the equipment fleet for the relevant time period, based on ARA guidelines. Pricing: Change in pure pricing achieved in one period versus another period. This is applied both to year-over-year and sequential comparisons. Rental rates are based on ARA guidelines and are calculated based on the category class rate variance achieved either year-over-year or sequentially for any fleet that qualifies for the fleet base and weighted by the prior year revenue mix.
26NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. $540.1 $(0.6) $(29.3) $11.0 $(0.8) 2019 Currency translation Equipment rental revenue Sales of rental equipment Sales of new equipment and other 2020 Q4 Revenue Bridge Equipment rental revenue decreased 6.5% in Q4 2020 with lower volume as a result of the impact of the COVID-19 pandemic Sales of rental equipment increased 15.2%, or $10.8 million, in Q4 2020 Total revenues decreased 3.6%, or $19.7 million, in Q4 2020 primarily due to the decline in equipment rental revenue offset by an increase in sales of rental equipment Q4 and Full Year Total Revenues $1,999.0 $(1.1) $(157.0) $(44.3) $(15.3) 2019 Currency translation Equipment rental revenue Sales of rental equipment Sales of new equipment and other 2020 Full Year Revenue Bridge$ in millions $1,781.3 $ in millions $520.4
27NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Q4 Net Results Bridge $35.1 $0.1 $8.6 $4.6 ($12.9) 2019 Currency impact Income tax Interest expense All other 2020 Net income was $35.5 million in Q4 2019 compared to $35.1 million in the prior year Interest expense in Q4 2020 declined $4.6 million primarily due to lower average outstanding balances and interest rates on our ABL Credit Facility in 2020 Income tax provision in Q4 2020 was $9.5 million compared with $18.1 million in the same period last year All other includes the impact of our operating results Q4 and Full Year Net Results $ in millions Full Year Net Results Bridge $47.5 $0.4 $(4.3) $80.9 $(10.5) ($40.3) 2019 Currency impact Income tax Interest expense impairment All other 2020 $ in millions $73.7 $35.5
28NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Three Months Ended December 31, Years Ended December 31, 2020 2019 2020 2019 Net income $35.5 $35.1 $73.7 $47.5 Loss on extinguishment — — — 53.6 Restructuring — (0.1) 0.7 7.7 Impairment 5.9 4.4 15.4 5.1 Loss on disposal of business — — 2.8 — Spin-off costs 0.2 (0.2) 0.6 0.5 Other(1) 0.2 1.0 0.4 1.0 Tax impact of adjustments(2) (1.6) (1.3) (5.1) (23.8) Adjusted net income $40.2 $38.9 $88.5 $91.6 Diluted common shares 29.8 29.3 29.4 29.1 Adjusted earnings per diluted share $1.35 $1.33 $3.01 $3.15 Reconciliation of Adjusted Net Income and Adjusted Earnings Per Diluted Share Adjusted Net Income and Adjusted Earnings Per Diluted Share - Adjusted Net Income represents the sum of net income (loss), restructuring and restructuring related charges, spin-off costs, loss on extinguishment of debt, impairment charges, gain (loss) on the disposal of a business and certain other items. Adjusted Earnings per Diluted Share represents Adjusted Net Income divided by diluted shares outstanding. Adjusted Net Income and Adjusted Earnings Per Diluted Share are important measures to evaluate our results of operations between periods on a more comparable basis and to help investors analyze underlying trends in our business, evaluate the performance of our business both on an absolute basis and relative to our peers and the broader market, provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and operational strength of our business. (1) Comprised primarily of a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for three months and the year ended December 31, 2019. (2) The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities. Additionally, the tax benefit of $6.3 million recognized during the year ended December 31, 2019 related to the debt transactions.
29NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Reconciliation of Net Income to Adj. EBITDA, Adj. EBITDA Margin, Rental Adj. EBITDA (REBITDA), REBITDA Margin and Flow-Through EBITDA, Adjusted EBITDA, and REBITDA - EBITDA represents the sum of net income (loss), provision (benefit) for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of merger and acquisition related costs, restructuring and restructuring related charges, spin-off costs, non-cash stock based compensation charges, loss on extinguishment of debt (which is included in interest expense, net), impairment charges, gain (loss) on disposal of a business and certain other items. REBITDA represents Adjusted EBITDA excluding the gain (loss) on sales of rental equipment and new equipment, parts and supplies. EBITDA, Adjusted EBITDA and REBITDA do not purport to be alternatives to net income as an indicator of operating performance. Additionally, none of these measures purports to be an alternative to cash flows from operating activities as a measure of liquidity, as they do not consider certain cash requirements such as interest payments and tax payments. Adjusted EBITDA Margin, REBITDA Margin and REBITDA Flow-Through - Adjusted EBITDA Margin (Adjusted EBITDA / Total Revenues) is a commonly used profitability ratio. REBITDA Margin (REBITDA / Equipment rental, service and other revenues) and REBITDA Flow-Through (the year-over-year change in REBITDA/the year-over-year change in Equipment rental, service, and other revenues) are useful operating profitability ratios to management and investors.
30NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. $ in millions Three Months Ended December 31, Years Ended December 31, 2020 2019 2020 2019 Net income $35.5 $35.1 $73.7 $47.5 Income tax provision 9.5 18.1 20.4 16.1 Interest expense, net 22.5 27.1 92.6 173.5 Depreciation of rental equipment 100.2 105.5 403.9 409.1 Non-rental depreciation and amortization 15.5 16.5 62.5 61.0 EBITDA 183.2 202.3 653.1 707.2 Restructuring — (0.1) 0.7 7.7 Spin-off costs 0.2 (0.2) 0.6 0.5 Non-cash stock-based compensation charges 6.1 7.0 16.4 19.5 Loss on disposal of business — — 2.8 — Impairment 5.9 4.4 15.4 5.1 Other 0.2 1.0 0.4 1.0 Adjusted EBITDA 195.6 214.4 689.4 741.0 Less: Gain (loss) on sales of rental equipment (3.5) (2.0) (5.1) (0.4) Less: Gain (loss) on sales of new equipment, parts and supplies 2.1 2.4 7.7 10.7 Rental Adjusted EBITDA (REBITDA) $197.0 $214.0 $686.8 $730.7 Total Revenues $520.4 $540.1 $1,781.3 $1,999.0 Less: Sales of rental equipment 81.8 71.0 198.5 242.8 Less: Sales of new equipment, parts and supplies 8.0 9.9 28.2 44.0 Equipment rental, service and other revenues $430.6 $459.2 $1,554.6 $1,712.2 Total Revenues $520.4 $540.1 $1,781.3 $1,999.0 Adjusted EBITDA $195.6 $214.4 $689.4 $741.0 Adjusted EBITDA Margin 37.6 % 39.7 % 38.7 % 37.1 % Equipment rental, service and other revenues $430.6 $459.2 $1,554.6 $1,712.2 REBITDA $197.0 $214.0 $686.8 $730.7 REBITDA Margin 45.8 % 46.6 % 44.2 % 42.7 % YOY Change in REBITDA ($17.0) ($43.9) YOY Change in Equipment rental, service and other revenues ($28.6) ($157.6) YOY REBITDA Flow-Through 59.4 % 27.9 % Reconciliation of Net Income to Adj. EBITDA, Adj. EBITDA Margin, Rental Adj. EBITDA (REBITDA), REBITDA Margin and Flow-Through
31NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. $ in millions Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Total Revenues $475.7 $475.1 $508.1 $540.1 $1,999.0 $436.2 $368.0 $456.7 $520.4 $1,781.3 Less: Sales of rental equipment 85.1 51.3 35.4 71.0 242.8 40.0 31.4 45.3 81.8 198.5 Less: Sales of new equipment, parts and supplies 10.9 13.2 10.0 9.9 44.0 7.0 7.0 6.2 8.0 28.2 Equipment rental, service and other revenues $379.7 $410.6 $462.7 $459.2 $1,712.2 $389.2 $329.6 $405.2 $430.6 $1,554.6 Net income (loss) ($6.7) $9.7 $9.4 $35.1 $47.5 ($3.7) $2.0 $39.9 $35.5 $73.7 Income tax provision (benefit) (3.1) 5.3 (4.2) 18.1 16.1 1.1 (1.9) 11.7 9.5 20.4 Interest expense, net 32.9 31.6 81.9 27.1 173.5 24.4 23.3 22.4 22.5 92.6 Depreciation of rental equipment 100.0 100.9 102.7 105.5 409.1 100.4 101.4 101.9 100.2 403.9 Non-rental depreciation and amortization 15.0 14.6 14.9 16.5 61.0 15.8 15.7 15.5 15.5 62.5 EBITDA $138.1 $162.1 $204.7 $202.3 $707.2 $138.0 $140.5 $191.4 $183.2 $653.1 Restructuring — 7.8 — (0.1) 7.7 — 0.7 — — 0.7 Spin-off costs — 0.3 0.4 (0.2) 0.5 0.1 0.4 (0.1) 0.2 0.6 Non-cash stock-based compensation charges 3.9 4.3 4.3 7.0 19.5 3.2 1.7 5.4 6.1 16.4 Loss on disposal of business — — — — — — 2.8 — — 2.8 Impairment 0.3 0.4 — 4.4 5.1 6.3 3.2 — 5.9 15.4 Other — — — 1.0 1.0 0.1 0.1 — 0.2 0.4 Adjusted EBITDA $142.3 $174.9 $209.4 $214.4 $741.0 $147.7 $149.4 $196.7 $195.6 $689.4 Less: Gain (loss) on sales of rental equipment 1.6 1.3 (1.3) (2.0) (0.4) (2.4) 1.8 (1.0) (3.5) (5.1) Less: Gain on sales of new equipment, parts and supplies 2.7 2.8 2.8 2.4 10.7 1.9 1.9 1.8 2.1 7.7 Rental Adjusted EBITDA (REBITDA) $138.0 $170.8 $207.9 $214.0 $730.7 $148.2 $145.7 $195.9 $197.0 $686.8 REBITDA Margin 36.3 % 41.6 % 44.9 % 46.6 % 42.7 % 38.1 % 44.2 % 48.3 % 45.8 % 44.2 % YOY REBITDA Flow-Through 183.1 % 168.1 % 83.3 % 263.3 % 169.3 % 107.4 % 31.0 % 20.9 % 59.4 % 27.9 % REBITDA Margin Trend
32NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Calculation of Net Leverage Ratio $ in millions Q4 2020 Q4 2019 Long-Term Debt, Net $1,651.5 $2,051.5 (Plus) Current maturities of long-term debt 12.2 27.0 (Plus) Unamortized debt issuance costs 7.1 7.9 (Less) Cash and Cash Equivalents (33.0) (33.0) Net Debt $1,637.8 $2,053.4 Trailing Twelve-Month Adjusted EBITDA $689.4 $741.0 Net Leverage 2.4 x 2.8 x Net Leverage Ratio –The Company has defined its net leverage ratio as net debt, as calculated below, divided by adjusted EBITDA for the trailing twelve- month period. This measure should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The Company’s definition of this measure may differ from similarly titled measures used by other companies.
33NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Reconciliation of Free Cash Flow Free cash flow is not a recognized term under GAAP and should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP. Further, since all companies do not use identical calculations, our definition and presentation of this measure may not be comparable to similarly titled measures reported by other companies. Free cash flow represents net cash provided by (used in) operating activities less rental equipment expenditures and non-rental capital expenditures, plus proceeds from disposal of rental equipment, proceeds from disposal of property and equipment, and other investing activities. Free cash flow is used by management in analyzing the Company’s ability to service and repay its debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures. $ in millions Years Ended December 31, 2020 2019 2018 2017 2016 Net cash provided by operating activities $610.9 $635.6 $559.1 $349.1 $433.4 Rental equipment expenditures (344.1) (638.4) (771.4) (501.4) (468.3) Proceeds from disposal of rental equipment 192.5 224.2 272.3 160.1 115.4 Net Fleet Capital Expenditures (151.6) (414.2) (499.1) (341.3) (352.9) Non-rental capital expenditures (41.4) (56.9) (77.6) (74.6) (47.8) Proceeds from disposal of property and equipment 6.6 7.7 9.7 5.9 5.7 Other — 4.0 — — — Free Cash Flow $424.5 $176.2 ($7.9) ($60.9) $38.4
34NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Historical Fleet at OEC1 $ in millions FY 2016 FY 2017 FY 2018 FY 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Beginning Balance $3,384 $3,556 $3,651 $3,777 $3,822 $3,800 $3,752 $3,726 $3,822 Expenditures $495 $524 $774 $627 $109 $88 $90 $62 $349 Disposals ($328) ($442) ($607) ($593) ($110) ($83) ($124) ($234) ($551) Foreign Currency / Other $5 $13 ($41) $11 ($21) ($53) $8 $35 ($31) Ending Balance $3,556 $3,651 $3,777 $3,822 $3,800 $3,752 $3,726 $3,589 $3,589 Proceeds as a percent of OEC 41.7 % 39.8 % 37.8 % 40.9 % 37.1 % 40.7 % 37.4 % 35.7 % 37.0 % 1. Original equipment cost based on ARA guidelines
35NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Fleet Mix 1. Original equipment cost based on ARA guidelines December 31, 2020 December 31, 2019 Aerial - Booms 16.4 % 17.1 % Aerial - Scissors & Other 7.2 % 7.3 % Earthmoving - Compact 8.0 % 8.3 % Earthmoving - Heavy 5.5 % 5.6 % Material Handling - Telehandlers 13.3 % 13.6 % Material Handling - Industrial 4.0 % 4.1 % Trucks and Trailers 14.6 % 14.0 % ProSolutions® 17.4 % 15.9 % ProContractor 5.8 % 6.0 % Air Compressors 2.3 % 2.4 % Other 2.3 % 2.5 % Lighting 1.9 % 1.8 % Compaction 1.3 % 1.4 % Total 100.0 % 100.0 % OEC1 $3.59B $3.82B
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. Investor Contact: Elizabeth M. Higashi, CFA Vice President, Investor Relations & Sustainability elizabeth.higashi@hercrentals.com