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): July 23, 2020
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 (see General Instruction A.2. below):
☐ 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 July 23, 2020, Herc Holdings Inc. (the “Company”) issued a press release regarding its financial results for its second quarter ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On July 23, 2020, the Company will conduct an earnings webcast relating to the Company’s financial results for the second quarter 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 July 23, 2020 describing its results for its second quarter ended June 30, 2020. |
| 99.2 | Set of slides that will accompany the July 23, 2020 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: July 23, 2020
3
Document
Herc Holdings Reports Second Quarter and First Half 2020 Results
Second Quarter 2020 Highlights
–Equipment rental revenue of $327.6 million was comprised of sequential monthly improvement from April to June; total revenues were $368.0 million
–Pricing remained flat in the quarter compared with the same prior-year period
–Net income was $2.0 million, or $0.07 per diluted share
–Adjusted EBITDA was $149.4 million; adjusted EBITDA margin improved 380 bps to 40.6%
–Company issues 2020 adjusted EBITDA guidance of $625 million to $650 million
Bonita Springs, Fla., July 23, 2020 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended June 30, 2020. Equipment rental revenue was $327.6 million and total revenues were $368.0 million in the second quarter of 2020, compared to $407.6 million and $475.1 million, respectively, for the same period last year. The Company reported net income of $2.0 million, or $0.07 per diluted share, in the second quarter of 2020, compared to $9.7 million, or $0.33 per diluted share, in the same 2019 period. Second quarter 2020 adjusted net income was $7.3 million, or $0.25 per diluted share, compared to $16.0 million, or $0.55 per diluted share, in 2019. See page A-5 for a description of the items excluded in calculating adjusted net income and adjusted earnings per share.
"We maintained rates and did an excellent job of controlling costs in a challenging quarter," said Larry Silber, president and chief executive officer. "We took actions in 2019 to focus on disciplined capital expenditures and margin improvements, and with these programs in place, we were in a good position when the COVID-19 pandemic hit to intensify our cost control initiatives in line with business conditions. Despite the significant impact to our revenues, we were able to improve adjusted EBITDA margin by 380 basis points to 40.6% in the second quarter compared to the prior-year period.
"Our highest priority remains the safety of our employees and our customers and we have continued to maintain strict adherence to the Centers for Disease Control and Prevention's guidelines in our operations and interactions with customers. Our strategy to diversify our customers and fleet through specialty services has partially offset the overall impact of the pandemic on rental revenue. We are very pleased with the performance of our ProSolutions® team in particular, as they continued to generate strong year-over-year growth during this healthcare crisis," Silber said.
Second Quarter Highlights
•Equipment rental revenue in the second quarter of 2020 declined 19.6% to $327.6 million, a decline of $80.0 million from $407.6 million in the prior-year quarter. The Company reported lower volume as a result of the business slowdown related to the impact of COVID-19 and pricing that was about flat with the prior year.
•Total revenues were $368.0 million in the second quarter of 2020 compared to $475.1 million in the prior-year period. The decline of $107.1 million was related primarily to the $80.0 million decline in equipment rental revenue, a reduction in sales of rental equipment of $19.9 million, and $6.2 million reduction in sales of new equipment, parts and supplies, compared to the prior year.
•Pricing was about flat, declining 0.3% in the second quarter of 2020 compared to the same period in 2019.
•Dollar utilization was 30.8% in the second quarter of 2020 compared with 38.0% in the prior year, as a result of lower volume and flat pricing.
•Direct operating expenses (DOE) of $144.7 million in the second quarter of 2020 decreased 23.2% compared to the prior-year period. The $43.8 million decline reflected savings in nearly every category of expense, and was primarily related to lower transportation and maintenance costs as well as personnel-related costs due to the furloughs implemented in the quarter.
•Selling, general and administrative expenses (SG&A) declined 22.7% to $56.8 million in the second quarter of 2020 compared to $73.5 million in the prior-year period. The $16.7 million decline was primarily attributed to the year-over-year reductions in selling expenses and company-wide cost control initiatives.
•The Company recorded restructuring expense of $0.7 million primarily related to personnel reductions in the second quarter, compared with $7.8 million associated with closures of under-performing branches in last year's second quarter.
•Impairment expense of $3.2 million during the second quarter related to the closure of two branch locations last year and the anticipated sale of two additional branch locations this year.
•Interest expense in the second quarter of 2020 decreased to $23.3 million compared to $31.6 million in the prior-year period. The decrease was primarily related to lower interest expense on the Company's Senior Notes and lower average outstanding balances on the Company's ABL Credit Facility.
•The income tax benefit in the second quarter was $1.9 million compared with a tax provision of $5.3 million for the same period last year.
•The Company reported net income of $2.0 million in the second quarter of 2020 compared to $9.7 million in the prior-year period. Adjusted net income was $7.3 million compared to an adjusted net income of $16.0 million in the prior-year quarter.
•Adjusted EBITDA in the second quarter of 2020 declined 14.6% to $149.4 million compared to $174.9 million in the prior-year period. The decrease was primarily due to lower volume and flat pricing.
• Adjusted EBITDA margin increased 380 basis points to 40.6% in the second quarter of 2020, compared with 36.8% in the prior-year quarter.
First Half Highlights
•Equipment rental revenue in the first half of 2020 declined 9.1% or $71.1 million to $714.1 million compared to $785.2 million in the first half of 2019. Lower volume due to the impact of COVID-19 impacted year-over-year results.
•Total revenues were $804.2 million in the first half of 2020 compared to $950.8 million in the first half of 2019. The $146.6 million decline was related primarily to lower equipment rental revenue, a reduction in sales of rental equipment of $65.0 million, and $10.1 million reduction in sales of new equipment, parts and supplies compared to the prior year.
•Pricing was up 1.1% in the first half of 2020 compared to the same period in 2019.
•Dollar utilization was 33.2% in the first half of 2020 compared with 36.8% in the prior year, primarily a result of lower volume and flat pricing.
•Direct operating expenses of $333.9 million declined $43.7 million or 11.6% in the first half of 2020 compared to the prior-year period. The decline was primarily related to lower transportation and maintenance costs, as well as personnel costs due to furloughs implemented in the second quarter.
•SG&A decreased 12.7% to $126.6 million in the first half of 2020 compared to $145.0 million in the prior-year period. The $18.4 million decline was primarily attributed to lower selling expenses and company-wide cost control initiatives.
•The Company recorded restructuring expense of $0.7 million primarily related to personnel reductions in the first half, compared with $7.8 million associated with closures of under-performing branches in last year's comparable period.
•Impairment expense was $9.5 million during the first half and consisted of the partial impairment of a long-term receivable related to the sale of a former joint venture, the closure of two branch locations last year, and the anticipated sale of two additional locations this year.
•Interest expense in the first half of 2020 decreased to $47.7 million compared to $64.5 million in the prior-year period. The decrease was primarily related to lower interest expense on the Company's Senior Notes and lower average outstanding balances on the Company's ABL Credit Facility.
•Income tax benefit in the first half was $0.8 million compared with a provision of $2.2 million for the same period last year.
•The Company reported a net loss of $1.7 million in the first half of 2020 compared to net income of $3.0 million in the prior-year period. The adjusted net income was $8.4 million compared to adjusted net income of $9.5 million in the prior-year period.
•Adjusted EBITDA in the first half of 2020 declined 6.4% to $297.0 million compared to $317.2 million in the prior-year period. The decline was primarily due to lower volume and lower sales of rental equipment.
• Adjusted EBITDA margin increased 350 basis points to 36.9% in the first half of 2020, compared with 33.4% in the prior-year period.
Capital Expenditures - Fleet
•The Company reported net fleet capital expenditures of $93.6 million for the first half of 2020. Gross fleet capital expenditures were $161.5 million compared with $257.1 million in the comparable prior year period. Proceeds from disposals were $67.9 million compared with $123.7 million last year, See page A-5 for the calculation of net fleet capital expenditures.
•As of June 30, 2020, the Company's total fleet was approximately $3.75 billion at OEC.
•Average fleet at OEC decreased 0.5% in the second quarter of 2020 and increased 0.6% for the first half compared to the prior-year periods.
•Average fleet age was 47 months as of June 30, 2020 compared with 44 months in the comparable prior-year period.
Disciplined Capital Management
•The Company generated $178.8 million in free cash flow in the first half of 2020, compared with $124.7 million in the same period in 2019.
•Cash and cash equivalents were $83.2 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.2 billion of liquidity, as of June 30, 2020. Net debt was $2.0 billion with net leverage of 2.6x compared to 2.8x in the prior-year period.
Outlook for the Year
While fleet on rent has increased from the trough in April, future business conditions related to COVID-19 are uncertain. Nonetheless, the Company estimates the volume of fleet on rent in the second half is likely to decline approximately 8% to 13% year-over-year, as the typical seasonal ramp is starting from a lower base going into the balance of the year. As a result, the Company estimates equipment rental revenue in the second half will be down about 10% to 15% year-over-year. Assuming these levels of volume and rental revenue, fiscal year 2020 estimates are as follows:
| Adjusted EBITDA: | $625 million to $650 million |
|---|---|
| Net fleet capital expenditures: | $190 million to $210 million |
"Our leadership team's experience contributed to better than anticipated second quarter operating results and reflect our ability to manage through challenging times," said Silber. "Construction and business activity began to improve in early June and continues to trend slowly upward. We have managed our costs and taken steps to substantially reduce our capital expenditures to conserve capital. We generated free cash flow of approximately $179 million in the first half of 2020 and as of June 30, 2020, we had ample liquidity of $1.2 billion.
"Our Herc Rentals team continues to demonstrate their professionalism and resiliency as we serve our customers every day. We are ready to support our customers in whatever capacity they need, with the understanding that we must prove ourselves every day," he added.
Earnings Call and Webcast Information
Herc Holdings' second 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: 9309863. 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: 10145061.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with approximately 270 locations in North America. With over 50 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 ProSolutions^R^, 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’ 2019 total revenues were approximately $2.0 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, 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Revenues: | ||||||||
| Equipment rental | $ | 327.6 | $ | 407.6 | 714.1 | $ | 785.2 | |
| Sales of rental equipment | 31.4 | 51.3 | 71.4 | 136.4 | ||||
| Sales of new equipment, parts and supplies | 7.0 | 13.2 | 14.0 | 24.1 | ||||
| Service and other revenue | 2.0 | 3.0 | 4.7 | 5.1 | ||||
| Total revenues | 368.0 | 475.1 | 804.2 | 950.8 | ||||
| Expenses: | ||||||||
| Direct operating | 144.7 | 188.5 | 333.9 | 377.6 | ||||
| Depreciation of rental equipment | 101.4 | 100.9 | 201.8 | 200.9 | ||||
| Cost of sales of rental equipment | 29.6 | 50.0 | 72.0 | 133.5 | ||||
| Cost of sales of new equipment, parts and supplies | 5.1 | 10.4 | 10.2 | 18.6 | ||||
| Selling, general and administrative | 56.8 | 73.5 | 126.6 | 145.0 | ||||
| Restructuring | 0.7 | 7.8 | 0.7 | 7.8 | ||||
| Impairment | 3.2 | — | 9.5 | — | ||||
| Interest expense, net | 23.3 | 31.6 | 47.7 | 64.5 | ||||
| Other expense (income), net | 3.1 | (2.6) | 4.3 | (2.3) | ||||
| Total expenses | 367.9 | 460.1 | 806.7 | 945.6 | ||||
| Income (loss) before income taxes | 0.1 | 15.0 | (2.5) | 5.2 | ||||
| Income tax benefit (provision) | 1.9 | (5.3) | 0.8 | (2.2) | ||||
| Net income (loss) | $ | 2.0 | $ | 9.7 | $ | (1.7) | $ | 3.0 |
| Weighted average shares outstanding: | ||||||||
| Basic | 29.1 | 28.7 | 29.0 | 28.6 | ||||
| Diluted | 29.2 | 29.1 | 29.0 | 29.0 | ||||
| Earnings (loss) per share: | ||||||||
| Basic | $ | 0.07 | $ | 0.34 | $ | (0.06) | $ | 0.10 |
| Diluted | $ | 0.07 | $ | 0.33 | $ | (0.06) | $ | 0.10 |
A - 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions)
| June 30,<br>2020 | December 31, 2019 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Cash and cash equivalents | $ | 83.2 | $ | 33.0 |
| Receivables, net of allowance | 247.0 | 306.7 | ||
| Other current assets | 44.6 | 60.0 | ||
| Total current assets | 374.8 | 399.7 | ||
| Rental equipment, net | 2,396.7 | 2,490.0 | ||
| Property and equipment, net | 296.7 | 311.8 | ||
| Right-of-use lease assets | 241.0 | 207.3 | ||
| Goodwill and intangible assets, net | 383.5 | 385.1 | ||
| Other long-term assets | 19.0 | 23.1 | ||
| Total assets | $ | 3,711.7 | $ | 3,817.0 |
| LIABILITIES AND EQUITY | ||||
| Current maturities of long-term debt and financing obligations | $ | 18.9 | $ | 30.4 |
| Current maturities of operating lease liabilities | 31.8 | 30.5 | ||
| Accounts payable | 138.1 | 126.5 | ||
| Accrued liabilities | 121.7 | 135.7 | ||
| Total current liabilities | 310.5 | 323.1 | ||
| Long-term debt, net | 1,931.3 | 2,051.5 | ||
| Financing obligations, net | 115.8 | 117.6 | ||
| Operating lease liabilities | 218.5 | 182.2 | ||
| Deferred tax liabilities | 459.9 | 459.3 | ||
| Other long-term liabilities | 41.7 | 39.0 | ||
| Total liabilities | 3,077.7 | 3,172.7 | ||
| Total equity | 634.0 | 644.3 | ||
| Total liabilities and equity | $ | 3,711.7 | $ | 3,817.0 |
A - 2
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
| Six Months Ended June 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash flows from operating activities: | ||||
| Net income (loss) | $ | (1.7) | $ | 3.0 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Depreciation of rental equipment | 201.8 | 200.9 | ||
| Depreciation of property and equipment | 27.7 | 26.2 | ||
| Amortization of intangible assets | 3.8 | 3.4 | ||
| Amortization of deferred debt and financing obligations costs | 1.7 | 3.3 | ||
| Stock-based compensation charges | 4.9 | 8.2 | ||
| Restructuring | — | 5.5 | ||
| Impairment | 9.5 | — | ||
| Provision for receivables allowance | 23.5 | 25.2 | ||
| Deferred taxes | 1.0 | (1.3) | ||
| Loss (gain) on sale of rental equipment | 0.6 | (2.9) | ||
| Other | 5.7 | 3.4 | ||
| Changes in assets and liabilities: | ||||
| Receivables | 32.3 | (12.7) | ||
| Other assets | (2.6) | 13.1 | ||
| Accounts payable | (16.1) | 11.7 | ||
| Accrued liabilities and other long-term liabilities | (11.7) | (14.4) | ||
| Net cash provided by operating activities | 280.4 | 272.6 | ||
| Cash flows from investing activities: | ||||
| Rental equipment expenditures | (161.5) | (257.1) | ||
| Proceeds from disposal of rental equipment | 67.9 | 123.7 | ||
| Non-rental capital expenditures | (25.5) | (20.5) | ||
| Proceeds from disposal of property and equipment | 2.2 | 4.1 | ||
| Proceeds from disposal of business | 15.3 | — | ||
| Other | — | 1.9 | ||
| Net cash used in investing activities | (101.6) | (147.9) | ||
| Cash flows from financing activities: | ||||
| Proceeds from revolving lines of credit and securitization | 388.0 | 253.1 | ||
| Repayments on revolving lines of credit and securitization | (507.7) | (374.5) | ||
| Proceeds from financing obligations | — | 4.7 | ||
| Principal payments under capital lease and financing obligations | (7.4) | (8.0) | ||
| Other financing activities, net | (1.6) | (0.3) | ||
| Net cash used in financing activities | (128.7) | (125.0) | ||
| Effect of foreign exchange rate changes on cash and cash equivalents | 0.1 | 0.4 | ||
| Net increase (decrease) in cash and cash equivalents during the period | 50.2 | 0.1 | ||
| Cash and cash equivalents cash at beginning of period | 33.0 | 27.8 | ||
| Cash and cash equivalents at end of period | $ | 83.2 | $ | 27.9 |
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 June 30, | Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Net income (loss) | $ | 2.0 | $ | 9.7 | (1.7) | 3.0 | ||||||
| Income tax provision (benefit) | (1.9) | 5.3 | (0.8) | 2.2 | ||||||||
| Interest expense, net | 23.3 | 31.6 | 47.7 | 64.5 | ||||||||
| Depreciation of rental equipment | 101.4 | 100.9 | 201.8 | 200.9 | ||||||||
| Non-rental depreciation and amortization | 15.7 | 14.6 | 31.5 | 29.6 | ||||||||
| EBITDA | 140.5 | 162.1 | 278.5 | 300.2 | ||||||||
| Restructuring | 0.7 | 7.8 | 0.7 | 7.8 | ||||||||
| Spin-Off costs | 0.4 | 0.3 | 0.5 | 0.3 | ||||||||
| Non-cash stock-based compensation charges | 1.7 | 4.3 | 4.9 | 8.2 | ||||||||
| Loss on disposal of business | 2.8 | — | 2.8 | — | ||||||||
| Impairment | 3.2 | — | 9.5 | — | ||||||||
| Other | 0.1 | 0.4 | 0.1 | 0.7 | ||||||||
| Adjusted EBITDA | $ | 149.4 | $ | 174.9 | $ | 297.0 | $ | 317.2 | ||||
| Total revenues | $ | 368.0 | $ | 475.1 | $ | 804.2 | $ | 950.8 | ||||
| Adjusted EBITDA | 149.4 | 174.9 | 297.0 | 317.2 | ||||||||
| Adjusted EBITDA margin | 40.6 | % | 36.8 | % | 36.9 | % | 33.4 | % |
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 June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Net income (loss) | $ | 2.0 | $ | 9.7 | (1.7) | 3.0 | ||
| Restructuring | 0.7 | 7.8 | 0.7 | 7.8 | ||||
| Impairment | 3.2 | — | 9.5 | — | ||||
| Loss on sale of business | 2.8 | — | 2.8 | — | ||||
| Spin-off costs | 0.4 | 0.3 | 0.5 | 0.3 | ||||
| Other | 0.1 | 0.4 | 0.1 | 0.7 | ||||
| Tax impact of adjustments | (1.9) | (2.2) | (3.5) | (2.3) | ||||
| Adjusted net income | $ | 7.3 | $ | 16.0 | $ | 8.4 | $ | 9.5 |
| Diluted shares outstanding | 29.2 | 29.1 | 29.0 | 29.0 | ||||
| Adjusted earnings per diluted share | $ | 0.25 | $ | 0.55 | $ | 0.29 | $ | 0.33 |
NET RENTAL EQUIPMENT EXPENDITURES
Unaudited
(In millions)
| Six Months Ended June 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Rental equipment expenditures | $ | 161.5 | $ | 257.1 |
| Proceeds from disposal of rental equipment | (67.9) | (123.7) | ||
| Net rental equipment expenditures | $ | 93.6 | $ | 133.4 |
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.
| Six Months Ended June 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Net cash provided by operating activities | $ | 280.4 | $ | 272.6 |
| Rental equipment expenditures | (161.5) | (257.1) | ||
| Proceeds from disposal of rental equipment | 67.9 | 123.7 | ||
| Net rental equipment expenditures | (93.6) | (133.4) | ||
| Non-rental capital expenditures | (25.5) | (20.5) | ||
| Proceeds from disposal of property and equipment | 2.2 | 4.1 | ||
| Proceeds from disposal of business | 15.3 | — | ||
| Other | — | 1.9 | ||
| Free cash flow | $ | 178.8 | $ | 124.7 |
A - 6
a2020q2earningscallprese
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 HERC HOLDINGS INC. Q2 & FIRST HALF 2020 EARNINGS CONFERENCE CALL July 23, 2020 ©2020 Herc Rentals Inc. All Rights Reserved.
Safe Harbor Statements and Non-GAAP Financial Measures Forward-Looking Statements Information Regarding Non-GAAP Financial Measures This presentation includes forward-looking statements as that term is In addition to results calculated according to accounting principles defined by the federal securities laws, including statements concerning generally accepted in the United States (“GAAP”), the Company has our business plans and strategy; projected profitability, performance or provided certain information in this presentation that is not calculated cash flows, future capital expenditures; anticipated financing needs, according to GAAP (“non-GAAP”), such as adjusted net income, business trends, the impact and our response to COVID-19, liquidity and adjusted earnings per diluted share, EBITDA, adjusted EBITDA, capital management, and other information that is not historical adjusted EBITDA margin, REBITDA, REBITDA margin, REBITDA flow- information. Forward looking statements are generally identified by the through and free cash flow. Management uses these non-GAAP words "estimates," "expects," "anticipates," "projects," "plans," "intends," measures to evaluate operating performance and period-over-period "believes," "forecasts," and future or conditional verbs, such as "will," performance of our core business without regard to potential "should," "could" or "may," as well as variations of such words or similar distortions, and believes that investors will likewise find these non- expressions. All forward-looking statements are based upon our current GAAP measures useful in evaluating the Company’s performance. expectations and various assumptions and, there can be no assurance These measures are frequently used by security analysts, institutional that our current expectations will be achieved. They are subject to future investors and other interested parties in the evaluation of companies in events, risks and uncertainties - many of which are beyond our control - our industry. as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Non-GAAP measures should not be considered in isolation or as a Further information on the risks that may affect our business is included substitute for our reported results prepared in accordance with GAAP in filings we make with the Securities and Exchange Commission from and, as calculated, may not be comparable to similarly titled measures time to time, including our most recent annual report on Form 10-K, of other companies. For the definitions of these terms, further subsequent quarterly reports on Form 10-Q, and in our other SEC filings. information about management’s use of these measures as well as a We undertake no obligation to update or revise forward-looking reconciliation of these non-GAAP measures to the most comparable statements that have been made to reflect events or circumstances that GAAP financial measures, please see the appendix that accompanies arise after the date made or to reflect the occurrence of unanticipated this presentation. events. NYSE: HRI 2 ©2020 Herc Rentals Inc. All Rights Reserved.
HRI Strengths - Now More than Ever Top tier - 3rd largest equipment rental company Experienced Scale and capital resources Management Investment in specialty business paying off Diverse mix of customers and industries Disciplined Long-tenured relationships Capital Strong culture of customer service and safety Management Ample liquidity and modest leverage NYSE: HRI 3 ©2020 Herc Rentals Inc. All Rights Reserved.
Health and Safety We are committed to the safety of our team, their families, our customers and communities Monitoring and Adjusting Frequent Organizational Focus on Perfect Days to the Local Conditions Communications • Closely monitoring local • Timely COVID-19 bulletins • Maintaining focus on "The conditions and regulations regarding safety and new Perfect Day" standard operating procedures • Strictly following CDC guidelines • All regions achieved at least based on updated CDC 89% Perfect Days in first six guidance • Restricting non-essential travel months of 2020 and encouraging working • Continuing frequent remotely • Average of 94% Perfect Days communications at all levels of for first six months of 2020 • Maintaining strict policies the organization through multiple regarding sick individuals, testing channels and self-quarantining • Providing essential cleaning materials, personal protective equipment and disinfectants NYSE: HRI 4 ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 2020 Takeaways Sequential improvement in volume and rental revenue from mid-April through June Maintained rates in the quarter Strong cost controls contributed to YoY improvement in margin Disciplined capital spending and working capital contributed to improvement in free cash flow NYSE: HRI 5 ©2020 Herc Rentals Inc. All Rights Reserved.
Second Quarter 2020 Highlights Equipment Net Income Rental Revenue Q2 Q2 (19.6)% (79.4)% $327.6M YoY $2.0M YoY Earnings Per Diluted Share Total Revenues Q2 Q2 (22.5)% (78.8)% $368.0M YoY $0.07 YoY Adjusted Adjusted EBITDA EBITDA1 Margin Q2 Q2 (14.6)% +380 bps $149.4M YoY 40.6% 1. For a reconciliation to the most comparable YoY GAAP financial measure, see the Appendix beginning on Slide 22 NYSE: HRI 6 ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 2020 OPERATIONS REVIEW NYSE: HRI 7 ©2020 Herc Rentals Inc. All Rights Reserved.
Business Strategy Health & Safety Committed to keeping our team, their families, our customers and communities safe Operating in a Challenging Environment Focused on our customers' needs, efficient operations, greenfield and specialty locations, and enhancing sales initiatives to generate new business and new revenue streams Resilient Business Model Diverse customer base and growing specialty business are helping to mitigate some of the impact of the COVID-19 business slowdown Disciplined Capital Management & Liquidity Focused on disciplined capital spending and cost management to improve return on capital NYSE: HRI 8 ©2020 Herc Rentals Inc. All Rights Reserved.
Targeted Actions Curb Costs • Hours of operations reduced to balance load to demand • Managed personnel related costs ◦ Reduced overtime costs ◦ Reduced overall staffing company-wide through a hiring freeze, attrition and furloughs • Reduced outside transportation, travel and other variable costs • Continue to carefully monitor demand and volume and will take additional action as necessary to control costs while serving our customers' needs • Some markets and branches have returned to or surpassed March 2020 or 2019 rent levels • Protected margins in Q2 NYSE: HRI 9 ©2020 Herc Rentals Inc. All Rights Reserved.
Managing Fleet 1 Fleet Composition at OEC1 Fleet Expenditures at OEC $3.75B at OEC $ in millions 2019 2020 Trucks & $289 Trailers $172 $103 $109 14.3% $88 $63 Other Q1 Q2 Q3 Q4 Material 1 Handling 8.1% Fleet Disposals at OEC 17.5% $ in millions 2019 2020 $193 Specialty $188 $110 $123 22.6% $83 $89 Earthmoving 13.4% Q1 Q2 Q3 Q4 Fleet disposals at OEC in Q2 2020 were $83.0, generating ~38% proceeds as a % of OEC Aerial 24.1% Average age of disposals was 83 months in Q2 2020 Average fleet age of 47 months in Q2 2020 NYSE: HRI 10 1. Original equipment cost based on ARA guidelines. As of June 30, 2020. ©2020 Herc Rentals Inc. All Rights Reserved.
Resilient Business Model with Diverse Customer Mix Q2 Revenue by Customer1,2 Slow return to normalcy: energy, healthcare, warehousing Other 17% and distribution, utilities, government projects, Contractors 34% infrastructure, and restoration Our diverse customer mix, base of national customers, Infrastructure and Government growth initiatives and expanded specialty business, 18% mitigated some of the impact of the COVID-19 business downturn Industrial 31% Construction sites in most states have re-opened and Q2 Local vs National Mix1 the fleet that was left on site is back on rent Film and TV productions, music festivals and sports events remained closed during the second quarter National: 46% Local: 54% Beginning in July, film and TV production activity began to emerge from the nearly four-month hiatus 1. North America rental revenues NYSE: HRI 11 2. Refer to 10-K for description of industries related to each customer classification. Other includes commercial and retail service, hospitality, ©2020 Herc Rentals Inc. All Rights Reserved. healthcare, recreation, and entertainment and special events
Q2 FINANCIAL REVIEW NYSE: HRI 12 ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 and Six Months Financial Summary Three Months Ended June 30, Six Months Ended June 30, $ in millions, except per share data 2020 2019 % Chg. 2020 2019 % Chg. Equipment Rental Revenue $327.6 $407.6 (19.6)% $714.1 $785.2 (9.1)% Total Revenues $368.0 $475.1 (22.5)% $804.2 $950.8 (15.4)% Net Income (Loss) $2.0 $9.7 (79.4)% $(1.7) $3.0 (156.7)% Earnings (Loss) Per Diluted Share $0.07 $0.33 (78.8)% $(0.06) $0.10 (160.0)% Adjusted Net Income1 $7.3 $16.0 (54.4)% $8.4 $9.5 (11.6)% Adjusted Earnings Per Diluted Share1 $0.25 $0.55 (54.5)% $0.29 $0.33 (12.1)% Adjusted EBITDA1 $149.4 $174.9 (14.6)% $297.0 $317.2 (6.4)% Adjusted EBITDA Margin1 40.6 % 36.8 % +380 bps 36.9 % 33.4 % +350 bps REBITDA Margin1,2 44.2 % 41.6 % +260 bps 40.9 % 39.1 % +180 bps REBITDA YoY Flow-Through1,2 31.0% 21.0% Average Fleet3 (0.5)% YoY +0.6% YoY Pricing3 (0.3)% YoY +1.1% 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 NYSE: HRI 13 3. Based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
Pricing and Utilization Performance Pricing1 Average Fleet at OEC1 2019 2020 2019 2020 4.6% 4.5% 3.8% 2.0% 1.7% 3.3% 0.7% 2.4% 0.4% (0.5)% (1.3)% (0.3)% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $ Utilization2 Average Fleet on Rent at OEC1 2019 2020 2019 2020 40.8% 40.5% 38.0% 35.6% 35.7% (0.3)% 0.0% (2.0)% (1.6)% (1.3)% 30.8% (16.1)% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 NYSE: HRI 1. YoY Change. Based on ARA guidelines. 14 ©2020 Herc Rentals Inc. All Rights Reserved. 2. Based on ARA guidelines
Q2 and Six Months Adjusted EBITDA1 Q2 Adjusted EBITDA Bridge $ in millions $174.9 $(0.3) $14.0 $149.4 $44.4 $(4.2) $(0.3) (14.6)% $(79.1) Adjusted EBITDA decreased $25.5 million YoY or 14.6% in Q2 2020 primarily due to lower equipment rental revenue of $79.1 million 2019 Currency Equipment Direct SG&A Other Gain/loss² 2020 impact rental operating revenue expenses DOE decreased $44.4 million in Q2 2020 primarily Six Months Adjusted EBITDA Bridge due to reductions in delivery and freight, re-rent, fuel $ in millions and personnel-related costs $317.2 $14.5 2 $44.9 $297.0 $(0.6) $(4.1) $(5.0) SG&A was favorable in Q2 2020 primarily due to $(69.9) reductions in nearly every expense category REBITDA margin1,3 in Q2 2020 increased 260 bps YoY to 44.2% with good decremental flow-through of 31.0% 2019 Currency Equipment Direct SG&A Other Gain/loss² 2020 impact rental operating revenue expenses 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 NYSE: HRI 2. Gain / loss on sales of new and rental equipment, parts, and supplies. 15 3. REBITDA measures contribution from our core rental business without impact of sales of equipment, parts and supplies ©2020 Herc Rentals Inc. All Rights Reserved.
Disciplined Capital Management Maturities $179M $ in millions, as of June 30, 2020 Free cash flow1 of approximately $179 million for YTD 2020 $1,200.0 Senior Unsecured Notes $577.0 AR $47.0 ABL Credit Facility2 Finance Leases and Other Borrowings Facility 2020-2024+ 2.6x 130.0 Net leverage1 of 2.6x with compared 2020 2021 2022 2023 2024 2025 2026 2027 with 2.8x in June 2019 Credit Rating: Moody’s (B1/Stable) / Total debt of $1.9 billion as of June 30, 2020, down by S&P (B+/Stable) approximately $132 million from December 31, 2019 No near-term maturities and ample liquidity of $1.3 billion provides financial flexibility 1. For a definition and reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 NYSE: HRI 2. 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 16 term of the agreement ©2020 Herc Rentals Inc. All Rights Reserved.
A Resilient Industry Architecture Billings Index1 Select Market Forecasts2 as of July 2020 U.S. Nonresidental Building Starts History Forecast June 40.0 50 2017 2018 2019 2020 2021 2022 2023 YOY Growth +12% +3% +3% (16)% +8% +10% +7% Sectors with Tailwinds History Forecast 2017 2018 2019 2020 2021 2022 2023 Ja n-05 Ja n-13 Ja n-20 Ja n-08 Ja n-15 Ja n-10 Ja n-17 Ja n-12 Ja n-19 Ja n-07 Ja n-14 Ja n-09 Ja n-16 Ja n-11 Ja n-18 Ja n-06 N.A. Equipment Rental Market3 Healthcare +7% (3)% +1% +6% +13% +9% +9% Warehouse +18% +1% +21% +1% +9% +11% —% Infrastructure +5% (2)% +10% (16)% +13% +2% —% $62 $58 ’20-'24E CAGR:$5 ~5%9 $55 $55 $51 $50 Equipment rental market forecast to grow from $49 billion in $47 $49 $49 $41 $44 2020 to $62 billion in 2024 $38 $38 $35 $31 $32 Secular trends from ownership to rental accelerate during economic slowdowns Healthcare and warehouse sectors reflect strong growth over 08 09 10 11 12 13 14 15 16 17 18 19 20E 21E 22E 23E 24E the next few years with infrastructure spending picking up in 2021 NYSE: HRI 17 1. Source: The American Institute of Architects (AIA) 3. Source: ARA / IHS Global Insights ©2020 Herc Rentals Inc. All Rights Reserved. 2. Source: Dodge Analytics U.S.
Strategy Remains the Same in the COVID-19 Slowdown • Focus on lean cost structure, improving margins, providing excellent customer service and rental equipment to our diverse customer base • Since mid-April, weekly volume and rental revenue have been slowly improving • Expect to see continued sequential increases in volume as we move through seasonally strong summer months • Volume of fleet on rent in the second half is likely to be 8% to 13% lower than 2019, resulting in potential negative impact to rental revenue of 10% to 15% in the second half of 2020 • 2020 net fleet capital spending will remain at about half of 2019 NYSE: HRI 18 ©2020 Herc Rentals Inc. All Rights Reserved.
FY 2020 Guidance Update Adjusted EBITDA: $625 to $650 million Net Fleet Capital Expenditures: $190 to $210 million NYSE: HRI 19 ©2020 Herc Rentals Inc. All Rights Reserved.
Business Strategies Health and Safety Committed to keeping our team, their families, our customers and communities safe Operating in a "New Normal" Environment Focused on our customers' needs, efficient operations, new greenfield locations, and enhancing sales initiatives to generate new business and new revenue streams Resilient Business Model Diverse customer base and growing Specialty business are helping to mitigate some of the impact of the COVID-19 business slowdown Disciplined Capital Management & Liquidity Disciplined capital spending and cost controls contribute to solid balance sheet and ample liquidity NYSE: HRI 20 ©2020 Herc Rentals Inc. All Rights Reserved.
APPENDIX NYSE: HRI 21 ©2020 Herc Rentals Inc. All Rights Reserved.
Our Strategic Initiatives Develop Our Expand and Improve Enhance Disciplined People and Diversify Operating Customer Capital Culture Revenues Effectiveness Experience Management Attract and retain talent Broaden customer Focus on safety, labor Provide premium Drive EBITDA margin base productivity, and products and solutions- growth Align performance to warranty recovery based services shared purpose Expand products and Improve key financial services Increase density in large Introduce innovative metrics Create supportive work urban markets technology solutions place culture Grow pricing and Maximize fleet ancillary revenues Improve vendor Maintain customer management and Expand continuous management and fleet friendly showrooms and utilization learning Improve sales force availability facilities effectiveness NYSE: HRI 22 ©2020 Herc Rentals Inc. All Rights Reserved.
Consistent Organic Growth Since Spin-off Equipment Rental Revenue Adjusted EBITDA1 $ in millions $ in millions ’16-‘19 CAGR: 8.0% ’16-‘19 CAGR: 11.4% $741.0 $684.8 $720.9 $1,658.3 $1,701.8 $1,630.7 $1,499.0 $585.4 $1,352.7 $536.2 2016 2017 2018 2019 Q2 2020 2016 2017 2018 2019 Q2 2020 TTM TTM Adjusted EBITDA Margin1 Net Leverage2 38.9% 4.1x 37.1% 3.6x 3.1x 34.5% 34.6% 2.8x 33.4% 2.6x 2016 2017 2018 2019 Q2 2020 2016 2017 2018 2019 Q2 2020 TTM 1. For a definition and reconciliation to the most comparable GAAP financial measure, see slides 29 and 30 NYSE: HRI 23 2. For a definition and calculation, see slide 32 ©2020 Herc Rentals Inc. All Rights Reserved.
Focusing on High Growth Urban Markets 39 states 270 6 provinces Approximately 270 locations in North America1 Strong geographic footprint in high growth markets NYSE: HRI 24 Locations as of June 30, 2020 ©2020 Herc Rentals Inc. All Rights Reserved.
Glossary of Terms Commonly Used in the Industry OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). Fleet Age: The OEC weighted age of the entire fleet, based on ARA guidelines. Net Fleet Capital Expenditures: Capital expenditures of rental equipment minus the proceeds from disposal of rental equipment. Dollar Utilization ($ 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. NYSE: HRI 25 ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 and Six Months Total Revenues $ in millions Q2 Revenue Bridge $475.1 $(1.1) $368.0 $(79.1) $(19.7) $(7.2) (19.6)% Equipment rental revenue decreased 19.6% in Q2 2020 with lower volume as a result of the 2019 Currency Equipment Sales of Sales of new 2020 impact of the COVID-19 pandemic translation rental rental equipment revenue equipment and other Sales of rental equipment decreased 38.8% in $ in millions Six Months Revenue Bridge Q2 2020 $950.8 $(1.4) $804.2 Total revenues decreased 22.5%, or $107.1 $(69.9) $(64.8) $(10.5) million, in Q2 2020 primarily due to the decline in equipment rental revenue and in the sale of rental equipment 2019 Currency Equipment Sales of Sales of new 2020 translation rental rental equipment NYSE: HRI 26 revenue equipment and other ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 and Six Months Net Results Q2 Net Results Bridge $ in millions Net income was $2.0 million in Q2 2019 compared $8.3 $(3.2) to $9.7 million in the prior year $(0.9) $(18.1) $7.2 Interest expense in Q2 2020 declined $8.3 million $9.7 $(1.0) primarily related to lower interest expense on the Company's Notes and lower average outstanding $2.0 balances on our ABL Credit Facility 2019 Currency Income tax Interest Impairment Depreciation All other 2020 impact expense of rental equip. Impairment expense was $3.2 million during the Six Months Net Results Bridge second quarter of 2020 which included $1.5 million related to certain assets that were deemed held for $ in millions $16.8 $(9.7) sale at June 30, 2020 and $1.7 million related to an ROU asset impairment charge for two previously $(1.4) closed locations. $(12.1) $3.0 $3.0 $(1.3) $(1.7) All other includes the impact of our operating results (See Slide 35 for additional details) 2019 Currency Income tax Interest Impairment Depreciation All other 2020 impact expense of rental equip. NYSE: HRI 27 ©2020 Herc Rentals Inc. All Rights Reserved.
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. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net income (loss) $2.0 $9.7 $(1.7) $3.0 Restructuring 0.7 7.8 0.7 7.8 Impairment 3.2 — 9.5 — Loss on sale of business 2.8 — 2.8 — Spin-off costs 0.4 0.3 0.5 0.3 Other 0.1 0.4 0.1 0.7 Tax impact of adjustments (1.9) (2.2) (3.5) (2.3) Adjusted net income (loss) $7.3 $16.0 $8.4 $9.5 Diluted common shares 29.2 29.1 29.0 29.0 Adjusted earnings (loss) per diluted share $0.25 $0.55 $0.29 $0.33 NYSE: HRI 28 ©2020 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. NYSE: HRI 29 ©2020 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 Three Months Ended June 30, Six Months Ended June 30, $ in millions 2020 2019 2020 2019 Net income (loss) $2.0 $9.7 ($1.7) $3.0 Income tax provision (benefit) (1.9) 5.3 (0.8) 2.2 Interest expense, net 23.3 31.6 47.7 64.5 Depreciation of rental equipment 101.4 100.9 201.8 200.9 Non-rental depreciation and amortization 15.7 14.6 31.5 29.6 EBITDA 140.5 162.1 278.5 300.2 Restructuring 0.7 7.8 0.7 7.8 Spin-off costs 0.4 0.3 0.5 0.3 Non-cash stock-based compensation charges 1.7 4.3 4.9 8.2 Loss on sale of business 2.8 — 2.8 — Impairment 3.2 — 9.5 — Other 0.1 0.4 0.1 0.7 Adjusted EBITDA 149.4 174.9 297.0 317.2 Less: Gain (loss) on sales of rental equipment 1.8 1.3 (0.6) 2.9 Less: Gain (loss) on sales of new equipment, parts and supplies 1.9 2.8 3.8 5.5 Rental Adjusted EBITDA (REBITDA) $145.7 $170.8 $293.8 $308.8 Total Revenues $368.0 $475.1 $804.2 $950.8 Less: Sales of rental equipment 31.4 51.3 71.4 136.4 Less: Sales of new equipment, parts and supplies 7.0 13.2 14.0 24.1 Equipment rental, service and other revenues $329.6 $410.6 $718.8 $790.3 Total Revenues $368.0 $475.1 $804.2 $950.8 Adjusted EBITDA $149.4 $174.9 $297.0 $317.2 Adjusted EBITDA Margin 40.6 % 36.8 % 36.9 % 33.4 % Equipment rental, service and other revenues $329.6 $410.6 $718.8 $790.3 REBITDA $145.7 $170.8 $293.8 $308.8 REBITDA Margin 44.2 % 41.6 % 40.9 % 39.1 % YOY Change in REBITDA ($25.1) ($15.0) YOY Change in Equipment Rental, service and other revenues ($81.0) ($71.5) YOY REBITDA Flow-Through 31.0 % 21.0 % NYSE: HRI 30 ©2020 Herc Rentals Inc. All Rights Reserved.
REBITDA Margin Trend $ in millions Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Total Revenues $475.7 $475.1 $508.1 $540.1 $1,999.0 $436.2 $368.0 Less: Sales of rental equipment 85.1 51.3 35.4 71.0 242.8 40.0 31.4 Less: Sales of new equipment, parts and supplies 10.9 13.2 10.0 9.9 44.0 7.0 7.0 Equipment rental, service and other revenues $379.7 $410.6 $462.7 $459.2 $1,712.2 $389.2 $329.6 Net income (loss) ($6.7) $9.7 $9.4 $35.1 $47.5 ($3.7) $2.0 Income tax provision (benefit) (3.1) 5.3 (4.2) 18.1 16.1 1.1 (1.9) Interest expense, net 32.9 31.6 81.9 27.1 173.5 24.4 23.3 Depreciation of rental equipment 100.0 100.9 102.7 105.5 409.1 100.4 101.4 Non-rental depreciation and amortization 15.0 14.6 14.9 16.5 61.0 15.8 15.7 EBITDA $138.1 $162.1 $204.7 $202.3 $707.2 $138.0 $140.5 Restructuring — 7.8 — (0.1) 7.7 — 0.7 Spin-off costs — 0.3 0.4 (0.2) 0.5 0.1 0.4 Non-cash stock-based compensation charges 3.9 4.3 4.3 7.0 19.5 3.2 1.7 Loss on sale of business — — — — — — 2.8 Impairment 0.3 0.4 — 4.4 5.1 6.3 3.2 Other — — — 1.0 1.0 0.1 0.1 Adjusted EBITDA $142.3 $174.9 $209.4 $214.4 $741.0 $147.7 $149.4 Less: Gain (loss) on sales of rental equipment 1.6 1.3 (1.3) (2.0) (0.4) (2.4) 1.8 Less: Gain on sales of new equipment, parts and supplies 2.7 2.8 2.8 2.4 10.7 1.9 1.9 Rental Adjusted EBITDA (REBITDA) $138.0 $170.8 $207.9 $214.0 $730.7 $148.2 $145.7 REBITDA Margin 36.3 % 41.6 % 44.9 % 46.6 % 42.7 % 38.1 % 44.2 % YOY REBITDA Flow-Through 183.1 % 168.1 % 83.3 % 263.3 % 169.3 % 107.4 % 31.0 % NYSE: HRI 31 ©2020 Herc Rentals Inc. All Rights Reserved.
Calculation of Net Leverage Ratio 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. $ in millions Q2 2020 Q4 2019 Q2 2019 Long-Term Debt, Net $1,931.3 $2,051.5 $2,004.6 (Plus) Current maturities of long-term debt 15.4 27.0 25.4 (Plus) Unamortized debt issuance costs 7.5 7.9 10.1 (Less) Cash and Cash Equivalents (83.2) (33.0) (27.9) Net Debt $1,871.0 $2,053.4 $2,012.2 Trailing Twelve-Month Adjusted EBITDA $720.9 $741.0 $717.1 Net Leverage 2.6 x 2.8 x 2.8 x NYSE: HRI 32 ©2020 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 Six Months Ended June 30, 2020 2019 Net cash provided by operating activities $280.4 $272.6 Rental equipment expenditures (161.5) (257.1) Proceeds from disposal of rental equipment 67.9 123.7 Net Fleet Capital Expenditures (93.6) (133.4) Non-rental capital expenditures (25.5) (20.5) Proceeds from disposal of property and equipment 2.2 4.1 Proceeds from disposal of business 15.3 — Other — 1.9 Free Cash Flow $ 178.8 $ 124.7 NYSE: HRI 33 ©2020 Herc Rentals Inc. All Rights Reserved.
Historical Fleet at OEC1 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 $ in millions Beginning Balance $3,777 $3,694 $3,859 $3,943 $3,777 $3,822 $3,800 Expenditures $103 $289 $172 $63 $627 $109 $88 Disposals ($193) ($123) ($89) ($188) ($593) ($110) ($83) Foreign Currency / Other $7 ($1) $1 $4 $11 ($21) ($53) Ending Balance $3,694 $3,859 $3,943 $3,822 $3,822 $3,800 $3,752 NYSE: HRI 34 1. Original equipment cost based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
Q2 and Six Months Net Results Bridge Three Months Ended June 30, Elements of Net Income (Loss) Bridge 1 Depreciation of Interest $ in millions 2020 2019 $ Change Currency Income tax Impairment All other impact rental equip. expense Total revenues $368.0 $475.1 ($107.1) ($1.1) $— $— $— $— ($106.0) Direct operating 144.7 188.5 (43.8) (0.5) — — — — (43.3) Depreciation of rental equipment 101.4 100.9 0.5 (0.4) — — 0.9 — — Cost of sales of rental equipment 29.6 50.0 (20.4) (0.1) — — — (20.3) Cost of sales of new equipment, parts and supplies 5.1 10.4 (5.3) — — — — — (5.3) Selling, general and administrative 56.8 73.5 (16.7) 0.1 — — — — (16.8) Impairment 3.2 — 3.2 — — 3.2 — — — Restructuring 0.7 7.8 (7.1) — — — — — (7.1) Interest expense, net 23.3 31.6 (8.3) — — — — (8.3) — Other expense (income), net 3.1 (2.6) 5.7 0.8 — — — — 4.9 Income (loss) before income taxes 0.1 15.0 (14.9) (1.0) — (3.2) (0.9) 8.3 (18.1) Income tax benefit (provision) 1.9 (5.3) 7.2 — 7.2 — — — — Net income (loss) $2.0 $9.7 ($7.7) ($1.0) $7.2 ($3.2) ($0.9) $8.3 ($18.1) Six Months Ended June 30, Elements of Net Income (Loss) Bridge 1 Depreciation of Interest $ in millions 2020 2019 $ Change Currency Income tax Impairment All other impact rental equip. expense Total revenues $804.2 $950.8 ($146.6) ($1.4) $— $— $— $— ($145.2) Direct operating 333.9 377.6 (43.7) (0.7) — — — — (43.0) Depreciation of rental equipment 201.8 200.9 0.9 (0.5) — — 1.4 — — Cost of sales of rental equipment 72.0 133.5 (61.5) — — — — (61.5) Cost of sales of new equipment, parts and supplies 10.2 18.6 (8.4) — — — — — (8.4) Selling, general and administrative 126.6 145.0 (18.4) 0.6 — — — — (19.0) Restructuring 0.7 7.8 (7.1) — — — — — (7.1) Impairment 9.5 — 9.5 (0.2) — 9.7 — — — Interest expense, net 47.7 64.5 (16.8) — — — — (16.8) — Other expense (income), net 4.3 (2.3) 6.6 0.7 — — — — 5.9 Income (loss) before income taxes (2.5) 5.2 (7.7) (1.3) — (9.7) (1.4) 16.8 (12.1) Income tax benefit (provision) 0.8 (2.2) 3.0 — 3.0 — — — — Net income (loss) ($1.7) $3.0 ($4.7) ($1.3) $3.0 ($9.7) ($1.4) $16.8 ($12.1) 1. Currency impact includes the translational and transactional SG&A impact of foreign currency exchange NYSE: HRI 35 ©2020 Herc Rentals Inc. All Rights Reserved.
Fleet Mix June 30, 2020 June 30, 2019 Aerial - Booms 16.8 % 17.1 % Aerial - Scissors & Other 7.3 % 7.5 % Earthmoving - Compact 7.9 % 8.5 % Earthmoving - Heavy 5.5 % 6.2 % Material Handling - Telehandlers 13.5 % 13.7 % Material Handling - Industrial 4.0 % 4.2 % Trucks and Trailers 14.3 % 13.4 % ProSolutions® 16.1 % 14.9 % ProContractor 6.5 % 6.3 % Air Compressors 2.5 % 2.6 % Other 2.4 % 2.5 % Lighting 1.9 % 1.6 % Compaction 1.3 % 1.5 % Total 100.0 % 100.0 % OEC1 $3.75B $3.86B NYSE: HRI 36 1. Original equipment cost based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
NYSE: HRI ©2020 Herc Rentals Inc. All Rights Reserved.