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): April 21, 2022
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
(Address of principal executive offices and zip code)
(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 April 21, 2022, Herc Holdings Inc. (the “Company”) issued a press release regarding its financial results for its first quarter ended March 31, 2022. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On April 21, 2022, the Company will conduct an earnings webcast relating to the Company’s financial results for the first quarter of 2022. 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. datedApril 21, 2022 describing its results for its firstquarterendedMarch31, 2022. |
| 99.2 | Set of slides that will accompany theApril 21, 2022 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: April 21, 2022
3
Document
Herc Holdings Reports Strong First Quarter 2022
and Increases Full Year 2022 Guidance
First Quarter Highlights
–Equipment rental revenue increased 31.6% to a record $526.8 million
–Total revenues increased 25.0% to $567.3 million
–Dollar utilization increased 280 basis points to a record 41.4%
–Net income increased 77.8% to $58.5 million or $1.92 per diluted share
–Adjusted EBITDA grew 28.3% to a record $236.8 million and adjusted EBITDA margin expanded 100 basis points to 41.7%
Bonita Springs, Fla., April 21, 2022 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended March 31, 2022. Equipment rental revenue was $526.8 million and total revenues were $567.3 million in the first quarter of 2022, compared to $400.4 million and $453.8 million, respectively, for the same period last year. The Company reported net income of $58.5 million, or $1.92 per diluted share, in the first quarter of 2022, compared to $32.9 million, or $1.09 per diluted share, in the same 2021 period. First quarter 2022 adjusted net income was $59.2 million, or $1.95 per diluted share, compared to $33.3 million, or $1.10 per diluted share, in 2021. See page A-5 for the adjusted net income and adjusted earnings per share calculations.
"We continued our 'shift into high gear' with an excellent first quarter," said Larry Silber, president and chief executive officer. "Our average fleet increased 23.4% to $4.5 billion, dollar utilization increased to 41.4%, and rental revenue increased 31.6% over the prior year. Outstanding execution by our operations and field support team was enhanced by strong demand in our markets and a positive operating environment. The record first quarter results have accelerated our growth expectations for the full year and we now expect 2022 adjusted EBITDA to increase between approximately 31% to 39% over 2021."
2022 First Quarter Financial Results
•Equipment rental revenue increased 31.6% to $526.8 million compared to $400.4 million in the prior-year period.
•Total revenues increased 25.0% to $567.3 million compared to $453.8 million in the prior-year period. The year-over-year increase of $113.5 million was related to an increase in equipment rental revenue of $126.4 million, offset primarily by lower sales of rental equipment of $16.5 million. The reduction in sales of rental equipment resulted from strong rental demand and the strategic management of our fleet to maximize fleet size and minimize the sales of rental equipment.
•Pricing increased 4.3% compared to the same period in 2021.
•Dollar utilization increased to 41.4% compared to 38.6% in the prior-year period primarily due to increased volume and rate.
•Direct operating expenses (DOE) of $246.2 million increased 34.5% compared to the prior-year period. The $63.2 million increase was primarily due to increases in payroll and related expenses associated with additional headcount, increased maintenance expense as a result of strong rental activity and higher fuel prices.
•Selling, general and administrative expenses (SG&A) increased 36.5% to $89.4 million compared to $65.5 million in the prior-year period. The $23.9 million increase was primarily due to increases in selling expenses, including commissions and other variable compensation, general payroll and benefits.
•Interest expense increased to $22.5 million compared with $21.4 million in the prior-year period.
•The income tax provision was $8.6 million compared to $8.2 million for the prior-year period. The provision in each period was driven by the level of pre-tax income, offset primarily by a benefit related to stock-based compensation and non-deductible expenses.
•The Company reported net income of $58.5 million compared to $32.9 million in the prior-year period. Adjusted net income was $59.2 million compared to $33.3 million in the prior-year period.
•Adjusted EBITDA increased 28.3% to $236.8 million compared to $184.6 million in the prior-year period.
•Adjusted EBITDA margin increased 100 basis points to 41.7% compared to 40.7% in the prior-year period.
Capital Expenditures
•The Company reported net rental equipment capital expenditures of $258.0 million for the first three months of 2022. Gross rental equipment capital expenditures were $286.8 million compared to $90.9 million in the comparable prior-year period. Proceeds from disposals were $28.8 million compared to $40.3 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.
•As of March 31, 2022, the Company's total fleet was approximately $4.6 billion at OEC.
•Average fleet at OEC in the first quarter increased year-over-year by 23.4% compared to the prior-year period.
•Average fleet age was 48 months as of March 31, 2022 and 2021.
Disciplined Capital Management
•The Company acquired three companies with a total of three locations and opened five new greenfield locations during the quarter.
•First quarter 2022 net fleet capital expenditures exceeded cash flow from operations, resulting in negative free cash flow of $130.7 million compared to positive free cash flow of $72.5 million in the same period in 2021.
•Net debt was $2.2 billion as of March 31, 2022, with net leverage of 2.3x compared to 2.2x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.1 billion of liquidity as of March 31, 2022.
•The Company announced a 15% increase in the quarterly dividend to $0.575, payable to record holders as of February 23, 2022, with a payment date of March 10, 2022.
Outlook
The Company increased its full year 2022 adjusted EBITDA guidance range and maintained net rental capital expenditures guidance:
| Previous | Current | |
|---|---|---|
| Adjusted EBITDA: | $1,075 million to $1,175 million | $1,175 million to $1,245 million |
| Net rental equipment capital expenditures: | $820 million to $1,120 million | $900 million to $1,120 million |
"We closed on the previously announced acquisition of Cloverdale Equipment Company earlier this week and are confident we can continue to execute our organic growth strategy that is supplemented with strategic M&A," said Silber. "We raised our guidance for the full year 2022 based on our outlook for continued strong momentum in operating performance."
Earnings Call and Webcast Information
Herc Holdings' first quarter 2022 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: 4806646. 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 9945822.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with 320 locations in North America. With over 56 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®, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, pumps, trench shoring, 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 5,700 employees who equip our customers and communities to build a brighter future. Herc Holdings’ 2021 total revenues were approximately $2.1 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 (excluding re-rent, delivery, pick-up and other ancillary 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, including our ability to grow organically and through M&A, anticipated financing needs, business trends, the impact of and our response to COVID-19, our capital strategy, 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," "looks," 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
Unaudited
(In millions, except per share data)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Revenues: | ||||
| Equipment rental | $ | 526.8 | $ | 400.4 |
| Sales of rental equipment | 27.7 | 44.2 | ||
| Sales of new equipment, parts and supplies | 7.7 | 6.1 | ||
| Service and other revenue | 5.1 | 3.1 | ||
| Total revenues | 567.3 | 453.8 | ||
| Expenses: | ||||
| Direct operating | 246.2 | 183.0 | ||
| Depreciation of rental equipment | 119.3 | 100.4 | ||
| Cost of sales of rental equipment | 18.5 | 38.4 | ||
| Cost of sales of new equipment, parts and supplies | 5.3 | 4.2 | ||
| Selling, general and administrative | 89.4 | 65.5 | ||
| Interest expense, net | 22.5 | 21.4 | ||
| Other (income) expense, net | (1.0) | (0.2) | ||
| Total expenses | 500.2 | 412.7 | ||
| Income before income taxes | 67.1 | 41.1 | ||
| Income tax provision | (8.6) | (8.2) | ||
| Net income | $ | 58.5 | $ | 32.9 |
| Weighted average shares outstanding: | ||||
| Basic | 29.8 | 29.5 | ||
| Diluted | 30.4 | 30.2 | ||
| Earnings per share: | ||||
| Basic | $ | 1.96 | $ | 1.12 |
| Diluted | $ | 1.92 | $ | 1.09 |
A - 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions)
| March 31, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Cash and cash equivalents | $ | 22.8 | $ | 35.1 |
| Receivables, net of allowances | 399.1 | 388.1 | ||
| Other current assets | 53.3 | 46.5 | ||
| Total current assets | 475.2 | 469.7 | ||
| Rental equipment, net | 2,792.2 | 2,665.3 | ||
| Property and equipment, net | 308.3 | 308.4 | ||
| Right-of-use lease assets | 443.2 | 413.7 | ||
| Goodwill and intangible assets, net | 671.1 | 620.2 | ||
| Other long-term assets | 27.6 | 13.1 | ||
| Total assets | $ | 4,717.6 | $ | 4,490.4 |
| LIABILITIES AND EQUITY | ||||
| Current maturities of long-term debt and financing obligations | $ | 14.6 | $ | 15.2 |
| Current maturities of operating lease liabilities | 40.1 | 38.7 | ||
| Accounts payable | 239.4 | 280.6 | ||
| Accrued liabilities | 169.2 | 195.4 | ||
| Total current liabilities | 463.3 | 529.9 | ||
| Long-term debt, net | 2,142.1 | 1,916.1 | ||
| Financing obligations, net | 110.2 | 111.2 | ||
| Operating lease liabilities | 415.9 | 387.4 | ||
| Deferred tax liabilities | 543.2 | 536.8 | ||
| Other long term liabilities | 31.2 | 32.1 | ||
| Total liabilities | 3,705.9 | 3,513.5 | ||
| Total equity | 1,011.7 | 976.9 | ||
| Total liabilities and equity | $ | 4,717.6 | $ | 4,490.4 |
A - 2
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 58.5 | $ | 32.9 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation of rental equipment | 119.3 | 100.4 | ||
| Depreciation of property and equipment | 14.8 | 13.4 | ||
| Amortization of intangible assets | 5.9 | 2.4 | ||
| Amortization of deferred debt and financing obligations costs | 0.8 | 0.8 | ||
| Stock-based compensation charges | 6.2 | 5.3 | ||
| Provision for receivables allowances | 9.3 | 7.9 | ||
| Deferred taxes | 5.2 | 6.2 | ||
| Gain on sale of rental equipment | (9.2) | (5.8) | ||
| Other | 1.0 | — | ||
| Changes in assets and liabilities: | ||||
| Receivables | (23.5) | (6.5) | ||
| Other assets | (8.5) | (0.6) | ||
| Accounts payable | (8.8) | 3.1 | ||
| Accrued liabilities and other long-term liabilities | (28.0) | (24.8) | ||
| Net cash provided by operating activities | 143.0 | 134.7 | ||
| Cash flows from investing activities: | ||||
| Rental equipment expenditures | (286.8) | (90.9) | ||
| Proceeds from disposal of rental equipment | 28.8 | 40.3 | ||
| Non-rental capital expenditures | (12.9) | (13.4) | ||
| Proceeds from disposal of property and equipment | 2.2 | 1.8 | ||
| Acquisitions, net of cash acquired | (73.0) | — | ||
| Other investing activities | (5.0) | — | ||
| Net cash used in investing activities | (346.7) | (62.2) | ||
| Cash flows from financing activities: | ||||
| Proceeds from revolving lines of credit and securitization | 345.0 | 70.0 | ||
| Repayments on revolving lines of credit and securitization | (118.4) | (135.0) | ||
| Principal payments under finance lease and financing obligations | (3.9) | (2.8) | ||
| Dividends paid | (17.1) | — | ||
| Other financing activities, net | (14.2) | (5.0) | ||
| Net cash provided by (used in) financing activities | 191.4 | (72.8) | ||
| Effect of foreign exchange rate changes on cash and cash equivalents | — | 0.2 | ||
| Net change in cash and cash equivalents during the period | (12.3) | (0.1) | ||
| Cash and cash equivalents at beginning of period | 35.1 | 33.0 | ||
| Cash and cash equivalents at end of period | $ | 22.8 | $ | 32.9 |
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 March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Net income | $ | 58.5 | $ | 32.9 | ||
| Income tax provision | 8.6 | 8.2 | ||||
| Interest expense, net | 22.5 | 21.4 | ||||
| Depreciation of rental equipment | 119.3 | 100.4 | ||||
| Non-rental depreciation and amortization | 20.7 | 15.8 | ||||
| EBITDA | 229.6 | 178.7 | ||||
| Non-cash stock-based compensation charges | 6.2 | 5.3 | ||||
| Other(1) | 1.0 | 0.6 | ||||
| Adjusted EBITDA | $ | 236.8 | $ | 184.6 | ||
| Total revenues | $ | 567.3 | $ | 453.8 | ||
| Adjusted EBITDA | $ | 236.8 | $ | 184.6 | ||
| Adjusted EBITDA margin | 41.7 | % | 40.7 | % |
(1) Merger and acquisition related, restructuring and spin-off costs are included in Other.
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, merger and acquisition-related costs, 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 March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Net income | $ | 58.5 | $ | 32.9 |
| Other(1) | 1.0 | 0.6 | ||
| Tax impact of adjustments(2) | (0.3) | (0.2) | ||
| Adjusted net income | $ | 59.2 | $ | 33.3 |
| Diluted shares outstanding | 30.4 | 30.2 | ||
| Adjusted earnings per diluted share | $ | 1.95 | $ | 1.10 |
(1) Merger and acquisition related and spin-off costs are included in Other.
(2) The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities.
NET RENTAL EQUIPMENT CAPITAL EXPENDITURES
Unaudited
(In millions)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Rental equipment expenditures | $ | 286.8 | $ | 90.9 |
| Proceeds from disposal of rental equipment | (28.8) | (40.3) | ||
| Net rental equipment capital expenditures | $ | 258.0 | $ | 50.6 |
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, fund potential acquisitions 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.
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Net cash provided by operating activities | $ | 143.0 | $ | 134.7 |
| Rental equipment expenditures | (286.8) | (90.9) | ||
| Proceeds from disposal of rental equipment | 28.8 | 40.3 | ||
| Net rental equipment expenditures | (258.0) | (50.6) | ||
| Non-rental capital expenditures | (12.9) | (13.4) | ||
| Proceeds from disposal of property and equipment | 2.2 | 1.8 | ||
| Other | (5.0) | — | ||
| Free cash flow | $ | (130.7) | $ | 72.5 |
| Acquisitions, net of cash acquired | (73.0) | — | ||
| (Increase) decrease in net debt | $ | (203.7) | $ | 72.5 |
A - 6
a2022q1earningscallprese
©2021 Herc Rentals Inc. All Rights Reserved. Shifting Into High Gear
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 2 Larry Silber President & Chief Executive Officer Herc Rentals Team & Agenda Elizabeth Higashi Vice President, Investor Relations & Sustainability Mark Irion Senior Vice President & Chief Financial Officer Aaron Birnbaum Senior Vice President & Chief Operating Officer Agenda • Introductions • Safe Harbor • Overview • Operations Review • Financial Review • Q&A
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 3 Safe Harbor Statements and Non-GAAP Financial Measures 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, our growth strategy, including our ability to grow organically and through M&A, anticipated financing needs, business trends, the impact of and our response to COVID-19, our capital allocation strategy, 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," "looks," 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 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.
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 4 Strong Q1 rental volume and higher YoY rates contributed to record first quarter results Increased Q1 dollar utilization YoY by 280 bps to 41.4% Outstanding performance by our sales, operations and field support teams was enhanced by steady demand and a positive operating environment Completed acquisition of three companies with a total of three locations and opened five new greenfield locations during the quarter Closed on the acquisition of Cloverdale Equipment Company on April 19 Raised FY 2022 adjusted EBITDA guidance to a range of 31% to 39% over the prior full year Key Takeaways – Shifting Into High Gear
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 5 Rental Revenues $369.1 $377.6 $386.5 $400.4 $526.8 2018 2019 2020 2021 2022 Total Revenues $431.3 $475.7 $436.2 $453.8 $567.3 2018 2019 2020 2021 2022 $(10.1) $(6.7) $(3.7) $32.9 $58.5 First Quarter Financial Highlights: Accelerating Performance Adjusted EBITDA¹ $132.7 $142.3 $147.7 $184.6 $236.8 2018 2019 2020 2021 2022 30.8% 29.9% 33.9% 40.7% 41.7% $(0.36) $(0.23) $(0.13) $1.09 $1.92 +32% +28%+25% $ in millions $ in millions $ in millions $ in millions 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 20 +78% +76% +100 bps Adjusted EBITDA Margin¹Earnings Per Diluted ShareNet Income 20182018 2019 2018202220212020 20202019 20222021 20202019 20222021
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 6 Herc Rentals Today 56 Years serving customers ~2,900 Equipment categories 320 Locations in 40 states and five Canadian provinces1 5,700 Employees serving North America $57 billion addressable market2 (1) Location count as of March 31, 2022 (2) ARA estimate of the 2022 North American addressable market as of March 2022
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 7 Integrate ESG Expand Specialty Elevate Technology Allocate Capital Grow the Core Shifting Into High Gear Increasing fleet and locations in urban markets drives revenue, scale and operating leverage Accelerating secular shift from ownership to rental and a service driven model leads to higher utilization and returns Ongoing investment in technology to improve customer experience and operational effectiveness New sustainability goals for 2030 versus 2019 baseline underpin ESG initiatives Ability to retain low leverage of 2.0x to 3.0x provides opportunities for significant investment in fleet growth, M&A, dividends and returns to shareholders
Operations Review Aaron Birnbaum Senior Vice President and Chief Operating Officer
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 9 Average fleet at OEC increased 23% in Q1 2022 Equipment rental revenue increased 32% to a record $526.8 million Business activity is strong and all of our end markets are showing positive momentum Our core business continues to benefit from solid operating performance in all of our regional operations Our ProSolutions business continues to expand and is well-positioned to grow market share We plan to add $900 million to $1.12 billion of net fleet capital this year Delivering on Growth Strategy
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 10 Diversifying Fleet to Enhance Utilization Specialty 24.0% Aerial 23.1% Earthmoving 13.7% Material Handling 17.6% Other 21.6% Q1 2022 $ Utilization increased to 41.4% 1. Original equipment cost based on ARA guidelines. As of March 31, 2022. Fleet Expenditures at OEC1 Fleet Composition $4.6 billion at OEC1 $117 $188 $210 $210$253 2021 2022 Q1 Q2 Q3 Q4 $111 $71 $44 $60$64 2021 2022 Q1 Q2 Q3 Q4 Fleet Disposals at OEC1 $ in millions $ in millions Fleet disposals at OEC in Q1 2022 were $64 million, generating ~45.0% proceeds as a percent of OEC Average age of disposals was 90 months in Q1 2022 Average fleet age of 48 months at March 31, 2022
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 11 Business Model Driving Growth Q1 Revenue by Customer1 Contractors 33% Industrial 28% Infrastructure and Government 16% Other 23% National: 43% Local: 57% Q1 Local vs National Mix Diverse customer mix and expanding base of local customers continues to contribute to growth opportunities Expanding through acquisitions and greenfields in fast- growing urban markets to drive top-line growth Investments in core and specialty fleet are driving growth New customer accounts continue to be a solid source of growth Local as a % of total revenue increased to 57% this quarter compared with 54% in Q1 2021 driven by acquisition integration 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.
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 12 Integrating ESG Safety • All of our branches reported at least 98% Perfect Days in the first quarter. Perfect Days are those with no: ◦ OSHA reportable incidents ◦ at-fault moving vehicle accidents ◦ DOT violations • Continuing to integrate acquisitions into Herc's safety program Environmental • Investing in programs and equipment to reduce Scope 1 and Scope 2 GHG emissions intensity Community Involvement • Introduced new initiatives to enhance team involvement in local communities
Financial Review Mark Irion Senior Vice President and Chief Financial Officer
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 14 Q1 2022 Results Three Months Ended March 31, $ in millions, except per share data 2022 2021 2022 vs 2021 % Change Equipment Rental Revenue $526.8 $400.4 31.6% Total Revenues $567.3 $453.8 25.0% Net Income $58.5 $32.9 77.8% Earnings Per Diluted Share $1.92 $1.09 76.1% Adjusted Net Income1 $59.2 $33.3 77.8% Adjusted Earnings Per Diluted Share1 $1.95 $1.10 77.3% Adjusted EBITDA1 $236.8 $184.6 28.3% Adjusted EBITDA Margin1 41.7% 40.7% 100 bps REBITDA Margin1,2 42.3% 43.8% (150) bps REBITDA YoY Flow-Through1,2 37.6% Average Fleet3 (YoY) 23.4% (5.1)% Pricing3 (YoY) 4.3% (0.3)% 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 20 2. REBITDA measures contribution from our core rental business without impact of sales of equipment, parts and supplies 3. Based on ARA guidelines NM - Not meaningful
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 15 Pricing and Utilization Performance Pricing1 (0.3)% 1.9% 2.8% 3.5% 4.3% 2021 2022 Q1 Q2 Q3 Q4 Average Fleet at OEC1 (5.1)% (1.9)% 4.3% 14.9% 23.4% 2021 2022 Q1 Q2 Q3 Q4 Average Fleet on Rent at OEC1 19.7% 16.0% 21.0% 29.0% 2021 2022 Q1 Q2 Q3 Q4 $ Utilization2 38.6% 42.1% 46.0% 44.6% 41.4% 2021 2022 Q1 Q2 Q3 Q4 1. YoY Change. Based on ARA guidelines. 2. Based on ARA guidelines (1.7)%
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 16 Disciplined Capital Management Maturities $ in millions $1,200.0 $658.4 $250.0 2022 2023 2024 2025 2026 2027 No near-term maturities and ample liquidity2 of $1.0 billion provide financial flexibility Net capital expenditures outpaced cash flow from operations resulting in negative free cash flow of $131 million in Q1 2022 Net debt of $2.2 billion as of March 31, 2022, was up by approximately $240 million from December 31, 2021 after funding net capital expenditures of $258.0 million and acquisition activity of $73.0 million Net leverage3 of 2.3x, compared with 2.2x in December 2021, is currently within our target range of 2.0x to 3.0x Quarterly dividend increased 15% to $0.575 to shareholders of record as of February 23, 2022, paid March 10, 2022 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 calculation, see the Appendix beginning on Slide 20 $50.4 Finance Leases 2022-2029 AR Facility1 ABL Credit Facility Senior Unsecured Notes Credit Ratings: Moody’s CFR Ba3 S&P BB-/Stable
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 17 A New Cycle in the Making N.A. Equipment Rental Market1 $38 $31 $32 $35 $38 $41 $44 $45 $47 $49 $52 $55 $50 $52 $57 $60 $62 $64 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22E 23E 24E 25E ’21-'25E CAGR: ~5% Architecture Billings Index3 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Jan- 22 Select Market Forecasts2 U.S. Nonresidental Building Starts Actual Forecast 2021 2022 2023 2024 2025 YOY Growth +14% +13% +8% +5% +3% Sectors with Tailwinds Actual Forecast 2021 2022 2023 2024 2025 Healthcare +6% +14% +17% +8% +4% Warehouse +34% +18% (14)% (13)% (5)% Infrastructure +2% +3% +12% +8% +5% Equipment rental market forecast to grow from about $57 billion in 2022 to $64 billion in 2025 Secular trends favor rental versus ownership Healthcare, warehouse and infrastructure sectors reflect strong growth 1. Source: ARA / IHS Global Insights as of March 2022 3. Source: The American Institute of Architects (AIA) as of April 2022 2. Source: Dodge Analytics U.S. as of March 2022 March 58.0 50
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 18 Raising Guidance Metric 2021 Actual Previous 2022 Guidance New 2022 Guidance % Chg. over 2021 Adjusted EBITDA $894.7 million $1,075 to $1,175 million $1,175 to $1,245 million Increase of 31% to 39% Net Fleet Capital Expenditures $486.9 million $820 to $1,120 million $900 to $1,120 million Increase of 85% to 130% • Record 2022 adjusted EBITDA of $237 million was up 28% compared with 2021 • Raising 2022 adjusted EBITDA guidance to reflect strong first quarter momentum in business • Raised and narrowed net fleet capital expenditures guidance range
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 19 Purpose, Vision, Mission and Values We equip our customers and communities to build a brighter future
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 20
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 21 Glossary of Terms Commonly Used in the Industry OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). Fleet Age: The OEC weighted age of the entire fleet, based on ARA guidelines. Net Fleet Capital Expenditures: Capital expenditures of rental equipment minus the proceeds from disposal of rental equipment. Dollar Utilization ($ UT): Dollar utilization is an operating measure calculated by dividing equipment rental revenue (excluding re-rent, delivery, pick-up and other ancillary 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. Return on Invested Capital (ROIC): is defined as adjusted earnings before interest divided by net assets. Adjusted earnings before interest is the sum of earnings before interest 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 and impairment charges. Net assets is total assets less intangible assets, current liabilities and deferred taxes.
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 22 Our Strategy is Delivering Results Equipment Rental Revenue $ Utilization1 $1,499 $1,658 $1,702 $1,544 $1,910 $2,037 2017 2018 2019 2020 2021 TTM 2022 36.0% 37.4% 38.7% 36.1% 43.0% 43.3% 2017 2018 2019 2020 2021 TTM 2022 Net Leverage2 3.6x 3.1x 2.8x 2.4x 2.1x 2.3x 2017 2018 2019 2020 2021 Q1 2022 Adjusted EBITDA Margin1 33.4% 34.6% 37.1% 38.7% 43.2% 43.3% 2017 2018 2019 2020 2021 TTM 2022 1. For a definition and reconciliation to the most comparable GAAP financial measure, see slides 21, 24 and 25 and previously filed presentations 2. For a definition and calculation, see slide 27 $ in millions
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 23 Reconciliation of 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) Merger and acquisition related and spin-off costs are included in Other (2) The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities Three Months Ended March 31, 2022 2021 Net income $58.5 $32.9 Other(1) 1.0 0.6 Tax impact of adjustments(2) (0.3) (0.2) Adjusted net income $59.2 $33.3 Diluted common shares 30.4 30.2 Adjusted earnings per diluted share $1.95 $1.10
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 24 Reconciliation of Net Income to Adj. EBITDA and 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 ©2022 Herc Rentals Inc. All Rights Reserved. 25 Reconciliation of Net Income to Adj. EBITDA and Adj. EBITDA Margin, Rental Adj. EBITDA (REBITDA), REBITDA Margin and Flow-Through $ in millions Three Months Ended March 31, 2022 2021 Net income $58.5 $32.9 Income tax provision 8.6 8.2 Interest expense, net 22.5 21.4 Depreciation of rental equipment 119.3 100.4 Non-rental depreciation and amortization 20.7 15.8 EBITDA 229.6 178.7 Non-cash stock-based compensation charges 6.2 5.3 Other(1) 1.0 0.6 Adjusted EBITDA 236.8 184.6 Less: Gain (loss) on sales of rental equipment 9.2 5.8 Less: Gain (loss) on sales of new equipment, parts and supplies 2.4 1.9 Rental Adjusted EBITDA (REBITDA) $225.2 $176.9 Total Revenues $567.3 $453.8 Less: Sales of rental equipment 27.7 44.2 Less: Sales of new equipment, parts and supplies 7.7 6.1 Equipment rental, service and other revenues $531.9 $403.5 Total Revenues $567.3 $453.8 Adjusted EBITDA $236.8 $184.6 Adjusted EBITDA Margin 41.7 % 40.7 % Equipment rental, service and other revenues $531.9 $403.5 REBITDA $225.2 $176.9 REBITDA Margin 42.3 % 43.8 % YOY Change in REBITDA $48.3 YOY Change in Equipment rental, service and other revenues $128.4 YOY REBITDA Flow-Through 37.6 % (1) Merger and acquisition related and spin-off costs are included in Other.
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 26 REBITDA Margin Trend $ in millions Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 Q1 2022 Total Revenues $453.8 $490.9 $550.4 $578.0 $2,073.1 $567.3 Less: Sales of rental equipment 44.2 30.3 16.6 22.0 113.1 27.7 Less: Sales of new equipment, parts and supplies 6.1 7.8 8.6 7.6 30.1 7.7 Equipment rental, service and other revenues $403.5 $452.8 $525.2 $548.4 $1,929.9 $531.9 Net income (loss) $32.9 $47.1 $72.3 $71.8 $224.1 $58.5 Income tax provision (benefit) 8.2 14.7 23.8 19.6 66.3 8.6 Interest expense, net 21.4 21.0 21.4 22.5 86.3 22.5 Depreciation of rental equipment 100.4 101.1 105.4 113.8 420.7 119.3 Non-rental depreciation and amortization 15.8 16.0 17.0 19.2 68.0 20.7 EBITDA $178.7 $199.9 $239.9 $246.9 $865.4 $229.6 Non-cash stock-based compensation charges 5.3 7.1 5.5 5.4 23.3 6.2 Impairment — 0.4 — 2.8 3.2 — Other(1) 0.6 0.3 0.5 1.4 2.8 1.0 Adjusted EBITDA $184.6 $207.7 $245.9 $256.5 $894.7 $236.8 Less: Gain (loss) on sales of rental equipment 5.8 5.6 2.9 5.5 19.8 9.2 Less: Gain on sales of new equipment, parts and supplies 1.9 2.9 2.1 2.9 9.8 2.4 Rental Adjusted EBITDA (REBITDA) $176.9 $199.2 $240.9 $248.1 $865.1 $225.2 REBITDA Margin 43.8 % 44.0 % 45.9 % 45.2 % 44.8 % 42.3 % YOY REBITDA Flow-Through 200.7 % 43.4 % 37.5 % 43.4 % 47.5 % 37.6 % (1) Merger and acquisition related and spin-off costs are included in Other.
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 27 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 Q1 2022 Q4 2021 Q1 2021 Long-Term Debt, Net $2,142.1 $1,916.1 $1,585.2 (Plus) Current maturities of long-term debt 10.8 11.4 11.7 (Plus) Unamortized debt issuance costs 5.9 6.1 6.8 (Less) Cash and Cash Equivalents (22.8) (35.1) (32.9) Net Debt $2,136.0 $1,898.5 $1,570.8 Trailing Twelve-Month Adjusted EBITDA $946.9 $894.7 $726.3 Net Leverage 2.3x 2.1x 2.2x
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 28 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, fund potential acquisitions 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 Three Months Ended March 31, Years Ended December 31, 2022 2021 2020 2019 2018 Net cash provided by operating activities $143.0 $744.0 $610.9 $635.6 $559.1 Rental equipment expenditures (286.8) (593.8) (344.1) (638.4) (771.4) Proceeds from disposal of rental equipment 28.8 106.9 192.5 224.2 272.3 Net Fleet Capital Expenditures (258.0) (486.9) (151.6) (414.2) (499.1) Non-rental capital expenditures (12.9) (48.0) (41.4) (56.9) (77.6) Proceeds from disposal of property and equipment 2.2 4.6 6.6 7.7 9.7 Other (5.0) — — 4.0 — Free Cash Flow (130.7) 213.7 424.5 176.2 (7.9) Acquisitions, net of cash acquired (73.0) (431.0) (45.6) (4.2) — Proceeds from disposal of business — — 24.5 — — (Increase) decrease in Net Debt ($203.7) ($217.3) $403.4 $172.0 ($7.9)
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 29 Historical Fleet at OEC1 (1) Original equipment cost based on ARA guidelines (2) Other includes acquisitions and divestitures of businesses $ in millions FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Q1 2022 Beginning Balance $3,556 $3,651 $3,777 $3,822 $3,589 $4,381 Expenditures $524 $774 $627 $349 $725 $253 Disposals ($442) ($607) ($593) ($551) ($286) ($64) Foreign Currency / Other(2) $13 ($41) $11 ($31) $353 $23 Ending Balance $3,651 $3,777 $3,822 $3,589 $4,381 $4,593 Proceeds as a percent of OEC 39.8 % 37.8 % 40.9 % 37.0 % 41.8 % 45.0 %
NYSE: HRI ©2022 Herc Rentals Inc. All Rights Reserved. 30 For additional information, please contact: Elizabeth M. Higashi, CFA Vice President, Investor Relations & Sustainability elizabeth.higashi@hercrentals.com 239 301-1024