8-K
HERC HOLDINGS INC (HRI)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K
CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 27, 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. ☐
1
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 27, 2020, Herc Holdings Inc. (the “Company”) issued a press release regarding its financial results for its fourth quarter ended December 31, 2019. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On February 27, 2020, the Company will conduct an earnings webcast relating to the Company’s financial results for the fourth quarter of 2019. The earnings webcast will be made available to the public via a link on the Investor Relations section of the Herc Holdings 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><br>Number | Description |
|---|---|
| 99.1 | Press Release of Herc Holdings Inc. dated February 27, 2020 describing its results for its fourth quarter ended December 31, 2019. |
| 99.2 | Set of slides that will accompany the February 27, 2020 earnings webcast. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HERC HOLDINGS INC. | |
|---|---|
| (Registrant) | |
| By: | /s/ MARK IRION |
| Name: | Mark Irion |
| Title: | Senior Vice President and Chief Financial Officer |
Date: February 27, 2020
3
Exhibit
Herc Holdings Reports 2019 Fourth Quarter and Full Year 2019 Results
and Announces Full Year Guidance for 2020
| – | Equipment rental revenue increased 2.1% to $457.0 million in the fourth quarter, and rose 2.6% to $1,701.8 million for the full year |
|---|---|
| – | Total revenues were $540.1 million in the fourth quarter, and $1,999.0 million for the full year |
| --- | --- |
| – | Pricing improved by 3.3% in the fourth quarter and 4.0% for the full year |
| --- | --- |
| – | Net income increased to $35.1 million, or $1.20 per diluted share, in the fourth quarter and $47.5 million, or $1.63 per diluted share, for the full year |
| --- | --- |
| – | Adjusted EBITDA increased 8.1% to $214.4 million in the fourth quarter, and 8.2% to $741.0 million for the full year |
| --- | --- |
| – | Net cash provided by operating activities increased 13.7% to $635.6 million in 2019 |
| --- | --- |
| – | Free cash flow improved nearly $180 million to $172.0 million in 2019 |
| --- | --- |
| – | Initiated 2020 adjusted EBITDA guidance range of $760 million to $790 million |
| --- | --- |
Bonita Springs, Fla., February 27, 2020 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended December 31, 2019. Equipment rental revenue was $457.0 million and total revenues were $540.1 million in the fourth quarter of 2019, compared to $447.7 million and $543.7 million, respectively, for the same period last year. The Company reported net income of $35.1 million, or $1.20 per diluted share, in the fourth quarter of 2019, compared to $33.3 million, or $1.16 per diluted share, in the same 2018 period. Fourth quarter 2019 adjusted net income was $38.9 million, or $1.33 per diluted share, compared to $33.4 million, or $1.16 per diluted share, in 2018. See page A-5 for a description of the items excluded in calculating adjusted net income and adjusted earnings per share.
"We generated $172.0 million in free cash flow in 2019, a positive swing of nearly $180 million from last year," said Larry Silber, president and chief executive officer. "Our strategic initiatives continue to deliver strong year-over-year pricing and we achieved major improvements in operating efficiency and dollar utilization in the fourth quarter and full year. We focused on quality of earnings throughout the year, and fourth quarter adjusted EBITDA margin rose 320 basis points to 39.7%, the highest fourth quarter margin we have achieved since the spin-off in 2016. "
"Our disciplined capital management initiatives reduced our net leverage ratio significantly in three-and-half years, to just 2.8x as of December 31, 2019. Targeted branch openings, controlled fleet additions, and self-help initiatives are expected to drive future profitability. Leading economic indicators continue to suggest positive momentum in our end markets and support our favorable outlook."
Equipment rental revenue increased 2.1%, average fleet at original equipment cost (OEC) was up 0.7% and overall pricing improved 3.3% in the fourth quarter of 2019, over the prior-year period. Adjusted EBITDA increased 8.1% to $214.4 million in the fourth quarter compared to $198.4 million in the comparable 2018 period. See page A-4 for a description of the items excluded in calculating adjusted EBITDA.
Net cash provided by operating activities increased 13.7% to $635.6 million in 2019 compared to $559.1 million in the prior year. Free cash flow rose to $172 million in 2019 compared to negative cash flow of $7.9 million in 2018. See page A-6 for a reconciliation from net cash provided by operating activities and free cash flow.
1
Fourth Quarter Highlights
| • | Equipment rental revenue in the fourth quarter of 2019 increased 2.1% to $457.0 million compared to $447.7 million in the prior-year quarter. Strong year-over-year improvements in pricing was partially offset by lower volume. |
|---|---|
| • | Total revenues decreased 0.7% to $540.1 million in the fourth quarter compared to $543.7 million in 2018. The $3.6 million decline was related to a planned reduction of $9.6 million in sales of rental equipment, and $3.0 million reduction in sales of new equipment, parts and supplies compared to the prior year. Those reductions were partially offset by an increase in equipment rental revenue of $9.3 million. |
| --- | --- |
| • | Pricing increased 3.3% in the fourth quarter of 2019 compared to the same period in 2018, the 15th consecutive quarter of year-over-year improvement. |
| --- | --- |
| • | Dollar utilization increased 80 basis points to 40.5% in the fourth quarter of 2019 compared to the prior-year period, reflecting improved pricing and customer and fleet mix diversification. |
| --- | --- |
| • | Direct operating expenses (DOE) decreased 2.2% to $195.8 million in the fourth quarter of 2019 compared to $200.3 million in the prior-year period. The $4.5 million decrease was primarily related to lower transportation, insurance and personnel-related expenses, offset by an increase in facilities and maintenance costs. |
| --- | --- |
| • | Selling, general and administrative expenses (SG&A) decreased 10.1% to $73.6 million in the fourth quarter of 2019 compared to $81.9 million in the prior-year period. The $8.3 million decline was primarily attributed to the reduction in spin-off costs, bad debt, and professional fees, partially offsetting an increase in personnel and personnel-related expenses. |
| --- | --- |
| • | Interest expense in the fourth quarter of 2019 decreased to $27.1 million compared to $34.0 million in the prior-year period. The decrease was primarily related to lower interest expense related to the refinancing of the Company's Notes and ABL Credit Facility during the third quarter of 2019. |
| --- | --- |
| • | The provision for income taxes in the fourth quarter was $18.1 million compared to $5.0 million in the previous year, which included a $6.0 million tax benefit related to the enactment of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"). |
| --- | --- |
| • | Net income increased 5.4% to $35.1 million in the fourth quarter of 2019 compared to $33.3 million in the prior-year period. Adjusted net income was $38.9 million compared to $33.4 million in the prior-year quarter. |
| --- | --- |
| • | Adjusted EBITDA in the fourth quarter of 2019 increased 8.1% to $214.4 million compared to $198.4 million in the prior-year period. The increase was primarily due to strong equipment rental revenue pricing and lower DOE and SG&A, partially offset by losses on the sale of rental equipment. Adjusted EBITDA margin increased to 39.7% in the fourth quarter of 2019, compared with 36.5% in the prior-year quarter. |
| --- | --- |
Full Year 2019 Highlights
| • | Equipment rental revenue in the year increased 2.6% to $1,701.8 million compared to $1,658.3 million in 2018. The $43.5 million increase was primarily related to improvement in pricing and increases in transportation revenue, partially offset by strategic reductions in re-rent revenue and lower volume. |
|---|
2
| • | Total revenues increased 1.1% to $1,999.0 million in 2019 compared to $1,976.7 million in 2018. The $22.3 million year-over-year increase was related to the increase in equipment rental revenue, partially offset by lower planned sales of rental equipment of $13.4 million, and lower sales of new equipment, parts and supplies, and service and other revenue. |
|---|---|
| • | Pricing increased 4.0% in the year compared to the same period last year. |
| --- | --- |
| • | Direct operating expenses decreased $14.1 million to $771.1 million compared to $785.2 million in the prior-year period. The 1.8% decline was primarily due to initiatives to reduce expenses, particularly in re-rent, maintenance, and transportation. The savings were partially offset by increases in new facilities costs, personnel and personnel-related expenses. |
| --- | --- |
| • | SG&A decreased $16.5 million to $294.8 million in the year compared to $311.3 million in the prior-year period. The 5.3% year-over-year decline resulted primarily from the reduction in spin-off related expenses and lower professional fees, partially offset by higher personnel-related expenses. |
| --- | --- |
| • | 2019 results included restructuring expense of $7.7 million associated with the closures of underperforming branches. |
| --- | --- |
| • | Interest expense increased to $173.5 million in the year compared to the prior year's $137.0 million, primarily due to $53.6 million of debt extinguishment costs related to the refinancing of the Notes and ABL Credit Facility in 2019. Last year's results also included a $5.4 million expense related to the partial redemption of the Company's Notes. The increase was partially offset by a decrease in interest expense due to lower interest rates related to the Notes and ABL Credit Facility. |
| --- | --- |
| • | The provision for income taxes increased to $16.1 million for the year, compared with the previous year's $0.3 million tax benefit, which included a $20.8 million tax benefit related to the 2017 Tax Act. |
| --- | --- |
| • | Net income was $47.5 million in the year ended December 31, 2019, compared to $69.1 million in the comparable prior-year period. Adjusted net income for the year was $91.6 million in 2019, compared to $67.8 million in 2018. |
| --- | --- |
| • | Adjusted EBITDA in the year increased 8.2% to $741.0 million compared to $684.8 million in the prior year. The increase was primarily due to strong equipment rental revenue pricing and lower SG&A and DOE. Adjusted EBITDA margin increased to 37.1% compared with 34.6% in 2018. |
| --- | --- |
Capital Expenditures - Fleet
| • | The Company reported net fleet capital expenditures of $414.2 million in the year of 2019. Gross fleet capital expenditures were $638.4 million, and proceeds from disposals were $224.2 million. See page A-5 for the calculation of net fleet capital expenditures. |
|---|---|
| • | As of December 31, 2019, the Company's total fleet was approximately $3.82 billion at OEC. |
| --- | --- |
| • | Average fleet at OEC increased 0.7% in the fourth quarter of 2019 and 0.4% in the year compared to the prior-year periods. |
| --- | --- |
| • | Average fleet age improved to approximately 45 months as of December 31, 2019, compared to approximately 46 months as of December 31, 2018. |
| --- | --- |
3
Improved Free Cash Flow and Net Leverage
| • | The Company generated $172.0 million in free cash flow for the full year 2019, compared with negative free cash flow of $7.9 million in 2018. |
|---|---|
| • | Net leverage was reduced to 2.8x in 2019 - a decline from the 3.1x at the end of 2018. |
| --- | --- |
2020 Guidance
"We expect adjusted EBITDA in 2020 to grow between approximately 3% to 7% over 2019, " said Mr. Silber. "We plan a moderate increase in net fleet capital expenditures in 2020 over last year to improve our mix with modest fleet growth. We also expect to continue to generate substantial positive free cash flow this year, which will be primarily used to reduce net leverage," he added.
2020 Adjusted EBITDA $760 million to $790 million
2020 Net fleet capital expenditures $410 million to $450 million
The Company does not provide forward-looking guidance for certain financial measures on a GAAP basis because certain items contained in the GAAP measures, which may be significant, cannot be reasonably estimated, such as restructuring and restructuring related charges, and gains and losses from asset sales.
Earnings Call and Webcast Information
Herc Holdings' fourth quarter 2019 earnings webcast will be held today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may call +1-800-309-1256 and international participants should call 1-786-789-4796, using the access code: 606318. 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 +1-888-203-1112 and international participants 1-719-457-0820 and enter the conference ID number: 3326878.
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 275 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 5,100 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.
4
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 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 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)
5
A-4
HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Revenues: | ||||||||||||
| Equipment rental | $ | 457.0 | $ | 447.7 | $ | 1,701.8 | $ | 1,658.3 | ||||
| Sales of rental equipment | 71.0 | 80.6 | 242.8 | 256.2 | ||||||||
| Sales of new equipment, parts and supplies | 9.9 | 12.9 | 44.0 | 49.3 | ||||||||
| Service and other revenue | 2.2 | 2.5 | 10.4 | 12.9 | ||||||||
| Total revenues | 540.1 | 543.7 | 1,999.0 | 1,976.7 | ||||||||
| Expenses: | ||||||||||||
| Direct operating | 195.8 | 200.3 | 771.1 | 785.2 | ||||||||
| Depreciation of rental equipment | 105.5 | 98.9 | 409.1 | 387.5 | ||||||||
| Cost of sales of rental equipment | 73.0 | 75.4 | 243.2 | 244.3 | ||||||||
| Cost of sales of new equipment, parts and supplies | 7.5 | 10.0 | 33.3 | 37.7 | ||||||||
| Selling, general and administrative | 73.6 | 81.9 | 294.8 | 311.3 | ||||||||
| Restructuring | (0.1 | ) | 4.2 | 7.7 | 5.0 | |||||||
| Impairment | 4.4 | — | 5.1 | 0.1 | ||||||||
| Interest expense, net | 27.1 | 34.0 | 173.5 | 137.0 | ||||||||
| Other income, net | 0.1 | 0.7 | (2.4 | ) | (0.2 | ) | ||||||
| Total expenses | 486.9 | 505.4 | 1,935.4 | 1,907.9 | ||||||||
| Income before income taxes | 53.2 | 38.3 | 63.6 | 68.8 | ||||||||
| Income tax (provision) benefit | (18.1 | ) | (5.0 | ) | (16.1 | ) | 0.3 | |||||
| Net income | $ | 35.1 | $ | 33.3 | $ | 47.5 | $ | 69.1 | ||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 28.8 | 28.5 | 28.7 | 28.4 | ||||||||
| Diluted | 29.3 | 28.8 | 29.1 | 28.9 | ||||||||
| Earnings per share: | ||||||||||||
| Basic | $ | 1.22 | $ | 1.17 | $ | 1.66 | $ | 2.43 | ||||
| Diluted | $ | 1.20 | $ | 1.16 | $ | 1.63 | $ | 2.39 |
A - 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (In millions) | December 31, <br>2019 | December 31, 2018 | |||
|---|---|---|---|---|---|
| ASSETS | |||||
| Cash and cash equivalents | $ | 33.0 | $ | 27.8 | |
| Receivables, net of allowance | 306.7 | 332.4 | |||
| Other current assets | 60.0 | 40.2 | |||
| Total current assets | 399.7 | 400.4 | |||
| Rental equipment, net | 2,490.0 | 2,504.7 | |||
| Property and equipment, net | 311.8 | 282.5 | |||
| Right-of-use lease assets | 207.3 | — | |||
| Goodwill and intangible assets, net | 385.1 | 384.5 | |||
| Other long-term assets | 23.1 | 38.1 | |||
| Total assets | $ | 3,817.0 | $ | 3,610.2 | |
| LIABILITIES AND EQUITY | |||||
| Current maturities of long-term debt and financing obligations | $ | 30.4 | $ | 29.9 | |
| Current maturities of operating lease liabilities | 30.5 | — | |||
| Accounts payable | 126.5 | 147.0 | |||
| Accrued liabilities | 135.7 | 122.3 | |||
| Total current liabilities | 323.1 | 299.2 | |||
| Long-term debt, net | 2,051.5 | 2,129.9 | |||
| Financing obligations, net | 117.6 | 116.3 | |||
| Operating lease liabilities | 182.2 | — | |||
| Deferred tax liabilities | 459.3 | 448.3 | |||
| Other long-term liabilities | 39.0 | 43.8 | |||
| Total liabilities | 3,172.7 | 3,037.5 | |||
| Total equity | 644.3 | 572.7 | |||
| Total liabilities and equity | $ | 3,817.0 | $ | 3,610.2 |
A - 2
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (In millions) | Twelve Months Ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| 2019 | 2018 | ||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 47.5 | $ | 69.1 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation of rental equipment | 409.1 | 387.5 | |||||
| Depreciation of property and equipment | 54.0 | 51.9 | |||||
| Amortization of intangible assets | 7.0 | 5.4 | |||||
| Amortization of deferred debt and financing obligations costs | 5.2 | 6.3 | |||||
| Loss on extinguishment of debt | 53.6 | 5.4 | |||||
| Stock-based compensation charges | 19.5 | 13.4 | |||||
| Restructuring | 5.5 | — | |||||
| Impairment | 5.1 | 0.1 | |||||
| Provision for receivables allowance | 48.2 | 57.8 | |||||
| Deferred taxes | 10.7 | (10.5 | ) | ||||
| Loss (gain) on sale of rental equipment | 0.4 | (11.9 | ) | ||||
| Income from joint ventures | (0.3 | ) | (1.6 | ) | |||
| Other | (1.5 | ) | 2.1 | ||||
| Changes in assets and liabilities: | |||||||
| Receivables | (38.3 | ) | (29.9 | ) | |||
| Other assets | 4.1 | 1.8 | |||||
| Accounts payable | (12.9 | ) | (1.7 | ) | |||
| Accrued liabilities and other long-term liabilities | 18.7 | 13.9 | |||||
| Net cash provided by operating activities | 635.6 | 559.1 | |||||
| Cash flows from investing activities: | |||||||
| Rental equipment expenditures | (638.4 | ) | (771.4 | ) | |||
| Proceeds from disposal of rental equipment | 224.2 | 272.3 | |||||
| Non-rental capital expenditures | (56.9 | ) | (77.6 | ) | |||
| Proceeds from disposal of property and equipment | 7.7 | 9.7 | |||||
| Other | (0.2 | ) | — | ||||
| Net cash used in investing activities | (463.6 | ) | (567.0 | ) | |||
| Cash flows from financing activities: | |||||||
| Proceeds from issuance of long-term debt | 1,200.0 | — | |||||
| Repayments of long-term debt | (864.5 | ) | (123.5 | ) | |||
| Proceeds from revolving lines of credit and securitization | 1,230.0 | 737.5 | |||||
| Repayments on revolving lines of credit and securitization | (1,664.8 | ) | (604.0 | ) | |||
| Proceeds from financing obligations | 4.7 | 6.4 | |||||
| Principal payments under capital lease and financing obligations | (17.2 | ) | (17.0 | ) | |||
| Debt redemption premium payment | (41.5 | ) | (3.7 | ) | |||
| Other financing activities, net | (13.8 | ) | 0.1 | ||||
| Net cash used in financing activities | (167.1 | ) | (4.2 | ) | |||
| Effect of foreign exchange rate changes on cash and cash equivalents | 0.3 | (1.6 | ) | ||||
| Net increase (decrease) in cash and cash equivalents during the period | 5.2 | (13.7 | ) | ||||
| Cash and cash equivalents cash at beginning of period | 27.8 | 41.5 | |||||
| Cash and cash equivalents at end of period | $ | 33.0 | $ | 27.8 |
A - 3
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
EBITDA AND ADJUSTED EBITDA RECONCILIATIONS
Unaudited
(In millions)
EBITDA and adjusted EBITDA - EBITDA represents the sum of net income (loss), provision (benefit) for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of merger and acquisition related costs, restructuring and restructuring related charges, spin-off costs, non-cash stock-based compensation charges, loss on extinguishment of debt (which is included in interest expense, net), impairment charges, gain (loss) on the disposal of a business and certain other items. EBITDA and adjusted EBITDA do not purport to be alternatives to net income as an indicator of operating performance. Additionally, neither measure purports to be an alternative to cash flows from operating activities as a measure of liquidity, as they do not consider certain cash requirements such as interest payments and tax payments.
Adjusted EBITDA Margin - Adjusted EBITDA Margin, calculated by dividing Adjusted EBITDA by Total Revenues, is a commonly used profitability ratio.
| Three Months Ended December 31, | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net income | $ | 35.1 | $ | 33.3 | $ | 47.5 | $ | 69.1 | ||||
| Income tax provision (benefit) | 18.1 | 5.0 | 16.1 | (0.3 | ) | |||||||
| Interest expense, net | 27.1 | 34.0 | 173.5 | 137.0 | ||||||||
| Depreciation of rental equipment | 105.5 | 98.9 | 409.1 | 387.5 | ||||||||
| Non-rental depreciation and amortization | 16.5 | 15.5 | 61.0 | 57.3 | ||||||||
| EBITDA | 202.3 | 186.7 | 707.2 | 650.6 | ||||||||
| Restructuring | (0.1 | ) | 4.3 | 7.7 | 5.0 | |||||||
| Restructuring related charges | — | — | — | 0.3 | ||||||||
| Spin-Off costs | (0.2 | ) | 3.9 | 0.5 | 14.4 | |||||||
| Non-cash stock-based compensation charges | 7.0 | 3.5 | 19.5 | 13.4 | ||||||||
| Impairment | 4.4 | — | 5.1 | — | ||||||||
| Other^(1)^ | 1.0 | — | 1.0 | 1.1 | ||||||||
| Adjusted EBITDA | $ | 214.4 | $ | 198.4 | $ | 741.0 | $ | 684.8 | ||||
| Total revenues | $ | 540.1 | $ | 543.7 | $ | 1,999.0 | $ | 1,976.7 | ||||
| Adjusted EBITDA | 214.4 | 198.4 | 741.0 | 684.8 | ||||||||
| Adjusted EBITDA margin | 39.7 | % | 36.5 | % | 37.1 | % | 34.6 | % |
(1) Comprised primarily of a cash separation benefit paid to our former Chief Financial Officer as part of a retirement and separation agreement for the year ended December 31, 2018 and a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for the year ended December 31, 2019.
A - 4
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER DILUTED SHARE
Unaudited
(In millions)
Adjusted Net Income and Adjusted Earnings Per Diluted Share - Adjusted Net Income represents the sum of net income (loss), restructuring and restructuring related charges, spin-off costs, loss on extinguishment of debt, impairment charges, gain (loss) on the disposal of a business and certain other items. Adjusted Earnings per Diluted Share represents Adjusted Net Income divided by diluted shares outstanding. Adjusted Net Income and Adjusted Earnings Per Diluted Share are important measures to evaluate our results of operations between periods on a more comparable basis and to help investors analyze underlying trends in our business, evaluate the performance of our business both on an absolute basis and relative to our peers and the broader market, provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and operational strength of our business.
| Three Months Ended December 31, | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net income | $ | 35.1 | $ | 33.3 | $ | 47.5 | $ | 69.1 | ||||
| Loss on extinguishment of debt | — | — | 53.6 | 5.4 | ||||||||
| Restructuring | (0.1 | ) | 4.3 | 7.7 | 5.0 | |||||||
| Restructuring related charges | — | — | — | 0.3 | ||||||||
| Spin-Off costs | (0.2 | ) | 3.9 | 0.5 | 14.4 | |||||||
| Impairment | 4.4 | — | 5.1 | — | ||||||||
| Other^(1)^ | 1.0 | — | 1.0 | 1.1 | ||||||||
| Tax impact of adjustments^(2)^ | (1.3 | ) | (8.1 | ) | (23.8 | ) | (27.5 | ) | ||||
| Adjusted net income | $ | 38.9 | $ | 33.4 | $ | 91.6 | $ | 67.8 | ||||
| Diluted shares outstanding | 29.2 | 28.8 | 29.1 | 28.9 | ||||||||
| Adjusted earnings per diluted share | $ | 1.33 | $ | 1.16 | $ | 3.15 | $ | 2.35 |
(1) Comprised primarily of a cash separation benefit paid to our former Chief Financial Officer as part of a retirement and separation agreement for the year ended December 31, 2018 and a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for the three months and year ended December 31, 2019.
(2)The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities. Additionally, the tax benefit of $6.3 million recognized during the year ended December 31, 2019 related to the debt transactions and the tax benefit of $6.0 million and $20.8 million recognized in the three months and year ended December 31, 2018, respectively, related to the Tax Cuts and Jobs Act of 2017, were also adjusted.
NET RENTAL EQUIPMENT EXPENDITURES
(In millions)
| Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||
| Rental equipment expenditures | $ | 638.4 | $ | 771.4 | ||
| Proceeds from disposal of rental equipment | (224.2 | ) | (272.3 | ) | ||
| Net rental equipment expenditures | $ | 414.2 | $ | 499.1 |
A - 5
HERC HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES
FREE CASH FLOW
Unaudited
(In millions)
Free cash flow represents net cash provided by (used in) operating activities less rental equipment expenditures and non-rental capital expenditures, plus proceeds from disposal of rental equipment, proceeds from disposal of property and equipment, and other investing activities. Free cash flow is used by management in analyzing the Company’s ability to service and repay its debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures.
| Years Ended December 31, | ||||
|---|---|---|---|---|
| 2019 | 2018 | |||
| Net cash provided by operating activities | 635.6 | 559.1 | ||
| Rental equipment expenditures | (638.4 | ) | (771.4 | ) |
| Proceeds from disposal of rental equipment | 224.2 | 272.3 | ||
| Net rental equipment expenditures | (414.2 | ) | (499.1 | ) |
| Non-rental capital expenditures | (56.9 | ) | (77.6 | ) |
| Proceeds from disposal of property and equipment | 7.7 | 9.7 | ||
| Other investing activities | (0.2 | ) | — | |
| Free cash flow | ) |
All values are in US Dollars.
A - 6
a2019q4earningscallprese
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. Q4 AND FY 2019 EARNINGS CONFERENCE CALL February 27, 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 release that is not calculated cash flows, future capital expenditures; anticipated financing needs, according to GAAP (“non-GAAP”), such as adjusted net income, business trends and other information that is not historical information. adjusted earnings per diluted share, EBITDA, adjusted EBITDA, Forward looking statements are generally identified by the words adjusted EBITDA margin, REBITDA, REBITDA margin, REBITDA "estimates," "expects," "anticipates," "projects," "plans," "intends," flow-through and free cash flow. Management uses these non-GAAP "believes," "forecasts," and future or conditional verbs, such as "will," measures to evaluate operating performance and period-over-period "should," "could" or "may," as well as variations of such words or similar performance of our core business without regard to potential expressions. All forward-looking statements are based upon our current distortions, and believes that investors will likewise find these non- expectations and various assumptions and, there can be no assurance GAAP measures useful in evaluating the Company’s performance. that our current expectations will be achieved. They are subject to future These measures are frequently used by security analysts, institutional events, risks and uncertainties - many of which are beyond our control - investors and other interested parties in the evaluation of companies as well as potentially inaccurate assumptions, that could cause actual in our industry. results to differ materially from those in the forward-looking statements. Further information on the risks that may affect our business is included Non-GAAP measures should not be considered in isolation or as a in filings we make with the Securities and Exchange Commission from substitute for our reported results prepared in accordance with GAAP time to time, including our most recent annual report Form 10-K, and, as calculated, may not be comparable to similarly titled subsequent quarterly reports on Form 10-Q, and in our other SEC filings. measures of other companies. For the definitions of these terms, We undertake no obligation to update or revise forward-looking further information about management’s use of these measures as statements that have been made to reflect events or circumstances that well as a reconciliation of these non-GAAP measures to the most arise after the date made or to reflect the occurrence of unanticipated comparable GAAP financial measures, please see the supplemental events. schedules that accompany this presentation. NYSE: HRI 2 ©2020 Herc Rentals Inc. All Rights Reserved.
Focus on Quality of Earnings Delivered Strong Results Our strategic initiatives are driving improved pricing, dollar utilization, margins and strong free cash flow We are achieving excellent flow-through with better operating efficiencies We are managing fleet capital expenditures and disposals to improve utilization Our revenue growth initiatives will fuel future opportunities and profitability NYSE: HRI 3 ©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 4 ©2020 Herc Rentals Inc. All Rights Reserved.
Full Year 2019 Highlights Equipment Rental Revenue FY Net Income2 $1,701.8M 2.6% YoY $47.5M 2. Net income includes $53.6 million of debt extinguishment costs related to the refinancing of Total Revenues the Company's Notes and ABL Credit Facility FY $1,999.0M 1.1% YoY Earnings Per Diluted Share Adjusted $1.63 EBITDA1 FY $741.0M 8.2% YoY 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 NYSE: HRI 5 ©2020 Herc Rentals Inc. All Rights Reserved.
Consistent Organic Growth Since Spin-off Equipment Rental Revenue Adjusted EBITDA1 $ in millions $ in millions $741.0 ’16-‘19 CAGR: 8.0% $1,701.8 ’16-‘19 CAGR: 11.4% $1,658.3 $684.8 $1,499.0 $585.4 $536.2 $1,352.7 2016 2017 2018 2019 2016 2017 2018 2019 Adjusted EBITDA Margin1 Net Leverage1 37.1% 4.1x 3.6x 34.5% 34.6% 3.1x 2.8x 33.4% 2016 2017 2018 2019 2016 2017 2018 2019 NYSE: HRI 6 1. For a definition and reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 AND FY 2019 OPERATIONS REVIEW NYSE: HRI 7 ©2020 Herc Rentals Inc. All Rights Reserved.
Safety is at the Cornerstone of Everything We Do ≥85% All branches achieved ≥ 85% Perfect Days through the fourth quarter of 2019 The Perfect Day 0.84 No OSHA recordable incidents No "at fault" motor vehicle accidents Reduced Total Recordable Incident Rate (TRIR) to .84 in the United No DOT violations States in FY 2019 Ultimate goal is zero incidents and a safe environment for our team and customers NYSE: HRI 8 ©2020 Herc Rentals Inc. All Rights Reserved.
Continuing Rate Performance and Improving Utilization Pricing1 Average Fleet at OEC1 2018 2019 2018 2019 4.6% 4.5% 3.8% 5.7% 5.5% 3.3% 4.4% 2.9% 3.2% 2.9% 3.3% 2.8% 2.0% 0.4% 0.7% (1.3)% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $ Utilization2 Average Fleet on Rent at OEC1 2018 2019 2018 2019 40.8% 40.5% 39.7% 39.2% 7.1% 38.0% 4.8% 3.9% 35.3% 35.5% 35.4% 2.3% 0.0% (0.3)% Q1 Q2 Q3 Q4 (1.6)% (1.3)% Q1 Q2 Q3 Q4 1. YoY Change. Based on ARA guidelines. NYSE: HRI 9 2. Based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved. • YoY pricing improved 3.3% in Q4 2019, the 14th consecutive quarter of year-over-year improvement • Total OEC at quarter end was $3.82 billion, with an • $ utilization in Q4 2019 increased 80 bps YoY to increase of average fleet at OEC of 0.7% for Q4 40.5% • Average fleet age improved to 45 months in Q4 • Average fleet on rent in Q4 2019 declined 1.3% 2019 from 46 months in Q4 2018 compared to the prior year
Improving Fleet Mix to Drive Growth Fleet Composition at OEC1,2 Trucks & Trailers 13.8% Other Material $3.82B 7.9% Handling Fleet at OEC1 17.4% Specialty 21.9% ® Specialty ProSolutions 15.6% 21.9% ProContractor 6.3% Earthmoving 13.8% Average fleet age of 45 months in Q4 2019 Aerial 25.2% 1. Based on ARA guidelines NYSE: HRI 10 2. As of December 31, 2019 ©2020 Herc Rentals Inc. All Rights Reserved.
Improving Customer Mix and Diversification FY Revenue by Customer1,2 FY Local vs National Mix1 Other: 20% Contractors: 33% National: 42% Infrastructure and Local: 58% Government: 18% Industrial: 29% 1. North America rental revenues 2. Refer to 10-K for description of industries related to each customer classification. Other includes commercial NYSE: HRI 11 and retail service, hospitality, healthcare, recreation, and entertainment and special events ©2020 Herc Rentals Inc. All Rights Reserved. FY LOCAL VS NATIONAL % MIX1 • Local rental revenue grew 4.9% YoY in Q4 2019 and now accounts for 58% of total rental revenue • Local branch sales initiatives are driving strong 2018 2019 growth in new customer accounts National: 42% 17.0% Local: 58% 4.9% 1.7% (2.6)% Local National
Focusing on High Growth Urban Markets 39 states 275 6 provinces Approximately 275 locations, principally in North America1 Strong geographic footprint in high growth markets ARA Growth 5 Year CAGR by State or Province Targeting six to ten greenfield locations in 2020 Source: ARA IHS Global Insights February 2020 NYSE: HRI 12 1. Locations as of December 31, 2019 ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 AND FY 2019 FINANCIAL REVIEW NYSE: HRI 13 ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 and Full Year Financial Summary Three Months Ended December 31, Full Year Ended December 31, $ in millions, except per share data 2019 2018 % Chg. 2019 2018 % Chg. Equipment Rental Revenue $457.0 $447.7 2.1% $1,701.8 $1,658.3 2.6% Total Revenues $540.1 $543.7 (0.7)% $1,999.0 $1,976.7 1.1% Net Income $35.1 $33.3 5.4% $47.5 $69.1 (31.3)% Earnings Per Diluted Share $1.20 $1.16 3.4% $1.63 $2.39 (31.8)% Adjusted Net Income1 $38.9 $33.4 16.5% $91.6 $67.8 35.1% Adjusted Earnings Per Diluted Share1 $1.33 $1.16 14.7% $3.15 $2.35 34.0% Adjusted EBITDA1 $214.4 $198.4 8.1% $741.0 $684.8 8.2% Adjusted EBITDA Margin1 39.7% 36.5% +320 bps 37.1% 34.6% +250 bps REBITDA Margin1,2 46.6% 42.3% +430 bps 42.7% 39.6% +310 bps REBITDA YoY Flow-Through1,2 263.3% 169.3% Average Fleet3 +0.7% YoY +0.4% YoY Pricing3 +3.3% YoY +4.0% 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 14 3. Based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 and Full Year Total Revenues Q4 Bridge $ in millions $9.4 $543.7 $0.1 $540.1 $(9.7) $(3.4) +2.1% Equipment rental revenue increased 2.1% in Q4 2019 with improvements in pricing and mix, partially 2018 Currency Equipment Sales of Sales of new 2019 offset by lower volume translation rental rental equipment revenue equipment and other Sales of rental equipment decreased 11.9% in Q4 2019 Full Year Bridge $ in millions $47.5 Total revenues decreased 0.7%, or $3.6 million, in $1,999.0 $(12.3) Q4 2019 $1,976.7 $(7.6) $(5.3) 2018 Currency Equipment Sales of Sales of new 2019 translation rental rental equipment revenue equipment and other NYSE: HRI 15 ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 and Full Year Adjusted EBITDA1 Q4 Bridge $8.2 $1.3 $ in millions $5.5 $214.4 $9.4 $198.4 $(7.7) +8.1% $(0.7) Adjusted EBITDA increased $16.0 million YoY or 8.1% in Q4 2019 primarily due to higher equipment rental revenue of $9.4 million 2 2018 Currency Equipment Direct SG&A Other Gain/loss 2019 impact rental operating revenue expenses DOE decreased $5.5 million in Q4 2019 primarily due to strategic reductions in delivery and freight costs Full Year Bridge $7.2 $15.6 $741.0 $47.5 SG&A was impacted in Q4 2019 primarily by $(0.2) $(13.1) reductions in bad debt and professional fees $684.8 $(0.8) REBITDA margin1,3 in Q4 2019 increased 430 bps YoY to 46.6% with a strong flow-through of 263.3% 2018 Currency Equipment Direct SG&A Other Gain/loss 2 2019 impact rental operating revenue expenses 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 2. Gain / loss on sales of new and rental equipment, parts, and supplies. NYSE: HRI 16 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.
Managing a Fleet of $3.82 billion at OEC1 to Improve Utilization Fleet Expenditures at OEC 2018 2019 $ in millions $321 $289 $414.2M $198 $171 $172 Net fleet capex, on a cash basis was $414.2 $103 million for FY 2019 compared with $499.1 $84 $63 million in the prior year Q1 Q2 Q3 Q4 Fleet expenditures at OEC in Q4 2019 were Fleet Disposals at OEC $63 million with disposals of $188 million, generating ~ 38% proceeds as a % of OEC1 2018 2019 $ in millions Average age of disposals was 82 months in Q4 2019 $193 $179 $193 $188 $126 $109 $123 $89 Average fleet age improved to 45 months in Q4 2019 Q1 Q2 Q3 Q4 NYSE: HRI 17 1. Original equipment cost based on ARA guidelines. ©2020 Herc Rentals Inc. All Rights Reserved.
Disciplined Capital Management Maturities $172M $ in millions, as of 12/31/2019 Free cash flow1 of $172.0 million YTD 2019 compared with negative free cash flow of $7.9 million in 2018 $1,200.0 Senior Unsecured Note $650.0 $61.4 ABL Credit $175.0 AR Finance Leases and Other Borrowings Facility Facility2 2020-2024+ 2.8x 2020 2021 2022 2023 2024 2025 2026 2027 Net leverage1 of 2.8x with compared Total debt of $2.1 billion as of December 31, 2019 with 3.1x at the end of 2018 No near-term maturities and ample liquidity of $1.1 billion provides financial flexibility 1. For a definition and reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 22 2. The AR Facility is excluded from current maturities of long-term debt as the Company has the intent and ability to consummate refinancing and extend the NYSE: HRI 18 term of the agreement ©2020 Herc Rentals Inc. All Rights Reserved.
Industry Outlook Architecture Billings Index1 N.A. Equipment Rental Market2 3.6% ($ in billions) as of February 2020 as of February 2020 ’19-‘23E CAGR: $67 January $62 $64 $58 $60 52.2 $55 $51 $47 $49 $44 $41 $38 $38 50 $35 $31 $32 1 5 6 7 8 9 0 2 3 4 5 6 7 8 9 0 1 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 - - - - - - - - - - - - - - - - n n n n n n n n n n n n n n n n a a a a a a a a a a a a a a a a J J J J J J J J J J J J J J J J 08 09 10 11 12 13 14 15 16 17 18 19 20E 21E 22E 23E 3 Non-Residential Starts Industrial Spending4 ($ in billions) $339 as of February 2020 ($ in billions) $329 $335 $330 $299 $317 $323 $298 $289 $297 as of February 2020 $310 $288 $279 $282 $303 $299 $285 $258 $243 $260 $261 $229 $248 $244 $225 $231 $218 $179 $169 $164 $166 $160 1 8 9 0 2 3 4 5 6 7 8 9 E E E E 1 0 0 1 1 1 1 1 1 1 1 1 1 8 9 0 2 3 4 5 6 7 8 9 0 1 2 3 E E E E 0 0 0 0 0 0 0 0 0 0 0 0 1 2 2 2 2 0 0 1 1 1 1 1 1 1 1 1 0 1 2 3 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 0 0 0 2 2 2 2 1. Source: The American Institute of Architects (AIA) 2. Source: ARA / IHS Global Insight as of February 2020, excludes Party & Event data NYSE: HRI 19 3. Source: Dodge Analytics U.S. 4. Source: Industrial information resources U.S. ©2020 Herc Rentals Inc. All Rights Reserved.
2020 Full Year Guidance Adjusted EBITDA $760M to $790M 3% to 7% YoY Growth Net Fleet Capital Expenditures $410M to $450M Strong Free Cash Flow NYSE: HRI 20 ©2020 Herc Rentals Inc. All Rights Reserved.
Our Strategic Initiatives are Delivering Results Our strategic initiatives continued to drive growth in rental revenues and $ utilization in our latest quarter We improved Q4 2019 adjusted EBITDA margin 320 basis points YoY to 39.7% We increased Q4 2019 $ utilization 80 basis points YoY to 40.5% We improved YTD free cash flow from negative $7.9 million in 2018 to positive $172.0 million in 2019 NYSE: HRI 21 ©2020 Herc Rentals Inc. All Rights Reserved.
APPENDIX NYSE: HRI 22 ©2020 Herc Rentals Inc. All Rights Reserved.
Glossary of Terms Commonly Used in the Industry OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). Fleet Age: The OEC weighted age of the entire fleet, based on ARA guidelines. Net Fleet Capital Expenditures: Capital expenditures of rental equipment minus the proceeds from disposal of rental equipment. Dollar Utilization ($ 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 23 ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 and Full Year Net Results Q4 Bridge $ in millions Net income was $35.1 million in Q4 2019 compared $33.3 $11.2 $35.1 to $33.3 million in the prior year $4.1 ($0.7) $6.9 ($6.6) Interest expense decreased in Q4 2019 primarily due ($13.1) to the refinancing of the Company's Notes and ABL Credit Facility during the third quarter of 2019 2018 Currency Income tax Interest Spin-off Depreciation All other 2019 impact expense costs of rental equip. Spin-off related costs declined $4.1 million YoY in Q4 2019 Full Year Bridge $ in millions Depreciation of rental equipment increased $6.6 million YoY in Q4 2019 due to a reduction in fleet age $69.1 $0.9 $39.6 $47.5 All other includes the positive impact of our improved ($16.5) $13.9 operating results (See Slide 32 for additional details) $11.5 ($48.2) ($22.8) 2018 Currency Income tax Loss on Interest Spin-off Depreciation All other 2019 impact Debt Ext. expense costs of rental equip. NYSE: HRI 24 ©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 December 31, Full Year Ended December 31, 2019 2018 2019 2018 Net income $35.1 $33.3 $47.5 $69.1 Loss on extinguishment of debt — — 53.6 5.4 Restructuring (0.1) 4.3 7.7 5.0 Restructuring related charges — — — 0.3 Spin-Off costs (0.2) 3.9 0.5 14.4 Impairment 4.4 — 5.1 — Other(1) 1.0 — 1.0 1.1 Tax impact of adjustments(2) (1.3) (8.1) (23.8) (27.5) Adjusted net income $38.9 $33.4 $91.6 $67.8 Diluted common shares 29.3 28.8 29.1 28.9 Adjusted earnings per diluted common share $1.33 $1.16 $3.15 $2.35 (1) Comprised primarily of a one-time cash separation benefit paid to our former Chief Financial Officer as part of a retirement and separation agreement for the year ended December 31, 2018 and a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for the three months and year ended December 31, 2019. (2)The tax rate applied for adjustments is 25.7% and reflects the statutory rates in the applicable entities. Additionally, the tax benefit of $6.3 million recognized in the full year of 2019 related to the debt transactions and the tax benefit of $6.0 million and $20.8 million recognized in the three month and full year periods of 2018, respectively, related to NYSE: HRI 25 the Tax Cuts and Jobs Act of 2017, were also adjusted. ©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 26 ©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 $ in millions Three Months Ended December 31, Full Year Ended December 31, 2019 2018 2019 2018 Net income $35.1 $33.3 $47.5 $69.1 Income tax provision (benefit) 18.1 5.0 16.1 (0.3) Interest expense, net 27.1 34.0 173.5 137.0 Depreciation of rental equipment 105.5 98.9 409.1 387.5 Non-rental depreciation and amortization 16.5 15.5 61.0 57.3 EBITDA 202.3 186.7 707.2 650.6 Restructuring (0.1) 4.3 7.7 5.0 Restructuring related charges — — — 0.3 Spin-off costs (0.2) 3.9 0.5 14.4 Impairment 4.4 — 5.1 — Non-cash stock-based compensation charges 7.0 3.5 19.5 13.4 Other 1.0 — 1.0 1.1 Adjusted EBITDA $214.4 $198.4 $741.0 $684.8 Less: Gain (loss) on sales of rental equipment (2.0) 5.2 (0.4) 11.9 Less: Gain (loss) on sales of new equipment, parts and supplies 2.4 2.9 10.7 11.6 Rental Adjusted EBITDA (REBITDA) $214.0 $190.3 $730.7 $661.3 Total Revenues $540.1 $543.7 $1,999.0 $1,976.7 Less: Sales of rental equipment 71.0 80.6 242.8 256.2 Less: Sales of new equipment, parts and supplies 9.9 12.9 44.0 49.3 Equipment rental, service and other revenues $459.2 $450.2 $1,712.2 $1,671.2 Total Revenues $540.1 $543.7 $1,999.0 $1,976.7 Adjusted EBITDA $214.4 $198.4 $741.0 $684.8 Adjusted EBITDA Margin 39.7% 36.5% 37.1% 34.6% Equipment rental, service and other revenues $459.2 $450.2 $1,712.2 $1,671.2 REBITDA $214.0 $190.3 $730.7 $661.3 REBITDA Margin 46.6% 42.3% 42.7% 39.6% YOY Change in REBITDA $23.7 $69.4 YOY Change in Equipment Rental, service and other revenues $9.0 $41.0 YOY REBITDA Flow-Through 263.3% 169.3% NYSE: HRI 27 ©2020 Herc Rentals Inc. All Rights Reserved.
REBITDA Margin Trend $ in millions Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Total Revenues $431.3 $485.5 $516.2 $543.7 $1,976.7 $475.7 $475.1 $508.1 $540.1 $1,999 Less: Sales of rental equipment 47.3 78.2 50.1 80.6 256.2 85.1 51.3 35.4 71.0 242.8 Less: Sales of new equipment, parts and supplies 11.4 10.8 14.2 12.9 49.3 10.9 13.2 10.0 9.9 44.0 Equipment rental, service and other revenues $372.6 $396.5 $451.9 $450.2 $1,671.2 $379.7 $410.6 $462.7 $459.2 $1,712.2 Net income (loss) ($10.1) ($0.3) $46.2 $33.3 $69.1 ($6.7) $9.7 $9.4 $35.1 $47.5 Income tax provision (benefit) (5.1) 0.8 (1.0) 5.0 (0.3) (3.1) 5.3 (4.2) 18.1 16.1 Interest expense, net 32.0 32.4 38.6 34.0 137.0 32.9 31.6 81.9 27.1 173.5 Depreciation of rental equipment 93.3 97.0 98.3 98.9 387.5 100.0 100.9 102.7 105.5 409.1 Non-rental depreciation and amortization 13.8 13.7 14.3 15.5 57.3 15.0 14.6 14.9 16.5 61.0 EBITDA $123.9 $143.6 $196.4 $186.7 $650.6 $138.1 $162.1 $204.7 $202.3 $707.2 Restructuring 1.0 — — 4.0 5.0 — 7.8 — (0.1) 7.7 Restructuring related charges — — — 0.3 0.3 — — — — — Spin-off costs 4.9 3.9 1.7 3.9 14.4 — 0.3 0.4 (0.2) 0.5 Non-cash stock-based compensation charges 2.8 3.8 3.3 3.5 13.4 3.9 4.3 4.3 7.0 19.5 Impairment — 0.1 — — 0.1 — — — 4.4 5.1 Other1 0.1 0.8 0.1 — 1.0 0.3 0.4 — 1.0 1.0 Adjusted EBITDA $132.7 $152.2 $201.5 $198.4 $684.8 $142.3 $174.9 $209.4 $214.4 $741.0 Less: Gain (loss) on sales of rental equipment 5.3 2.4 (1.0) 5.2 11.9 1.6 1.3 (1.3) (2.0) (0.4) Less: Gain on sales of new equipment, parts and supplies 2.4 2.7 3.6 2.9 11.6 2.7 2.8 2.8 2.4 10.7 Rental Adjusted EBITDA (REBITDA) $125.0 $147.1 $198.9 $190.3 $661.3 $138.0 $170.8 $207.9 $214.0 $730.7 REBITDA Margin 33.5% 37.1% 44.0% 42.3% 39.6% 36.3% 41.6% 44.9% 46.6% 42.7% YOY REBITDA Flow-Through 60.7% 30.5% 68% 62.5% 54.8% 183.1% 168.1% 83.3% 263.3% 169.3% 1. Comprised primarily of a one-time cash separation benefit paid to our former Chief Financial Officer as part of a retirement and separation agreement for the year ended NYSE: HRI 28 December 31, 2018 and a cash separation benefit paid to our former Chief Operating Officer as part of a separation agreement for the three months and year ended ©2020 Herc Rentals Inc. All Rights Reserved. December 31, 2019.
Reconciliation 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 Q4 2019 Q4 2018 Long-Term Debt, Net $2,051.5 $2,129.9 (Plus) Current maturities of long-term debt 27.0 26.9 (Plus) Unamortized debt issuance costs 7.9 10.6 (Less) Cash and Cash Equivalents (33.0) (27.8) Net Debt $2,053.4 $2,139.6 Trailing Twelve-Month Adjusted EBITDA $741.0 $684.8 Net Leverage 2.8x 3.1x NYSE: HRI 29 ©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 Full Year Ended December 31, 2019 2018 Net cash provided by operating activities $635.6 $559.1 Rental equipment expenditures (638.4) (771.4) Proceeds from disposal of rental equipment 224.2 272.3 Net Fleet Capital Expenditures (414.2) (499.1) Non-rental capital expenditures (56.9) (77.6) Proceeds from disposal of property and equipment 7.7 9.7 Other investing activities (0.2) — Free Cash Flow $172.0 $(7.9) NYSE: HRI 30 ©2020 Herc Rentals Inc. All Rights Reserved.
Historical Fleet at OEC1 $ in millions Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY 2018 FY 2019 2018 2018 2018 2018 2019 2019 2019 2019 Beginning Balance $3,651 $3,732 $3,873 $3,922 $3,651 $3,777 $3,694 $3,859 $3,943 $3,777 Expenditures $198 $321 $171 $84 $774 $103 $289 $172 $63 $627 Disposals ($109) ($179) ($126) ($193) ($607) ($193) ($123) ($89) ($188) ($593) Foreign Currency / Other ($8) ($1) $4 ($36) ($41) $7 ($1) $1 $4 $11 Ending Balance $3,732 $3,873 $3,922 $3,777 $3,777 $3,694 $3,859 $3,943 $3,822 $3,822 NYSE: HRI 31 1. Original equipment cost based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
Q4 and Full Year Net Results Bridge Three Months Ended December 31, Elements of Net Income (Loss) Bridge Currency1 Spin-off Depreciation of Loss on Interest $ in millions 2019 2018 $ Change impact Income tax Extinguishment All other costs rental equip. of Debt expense Total revenues $540.1 $543.7 ($3.6) $0.1 $— $— $— $— $— ($3.7) Direct operating 195.8 200.3 (4.5) — — — — — — (4.5) Depreciation of rental equipment 105.5 98.9 6.6 — — — 6.6 — — — Cost of sales of rental equipment 73.0 75.4 (2.4) 0.1 — — — — (2.5) Cost of sales of new equipment, parts and supplies 7.5 10.0 (2.5) — — — — — — (2.5) Selling, general and administrative 73.6 81.9 (8.3) 0.6 — (4.1) — — — (4.8) Restructuring (0.1) 4.2 (4.3) — — — — — — (4.3) Impairment 4.4 — 4.4 — — — — — — 4.4 Interest expense, net 27.1 34.0 (6.9) — — — — — (6.9) — Other expense (income), net 0.1 0.7 (0.6) 0.1 — — — — — (0.7) Income (loss) before income taxes 53.2 38.3 14.9 (0.7) — 4.1 (6.6) — 6.9 11.2 Income tax benefit (provision) (18.1) (5.0) (13.1) — (13.1) — — — — — Net income (loss) $35.1 $33.3 $1.8 ($0.7) ($13.1) $4.1 ($6.6) $— $6.9 $11.2 Full Year Ended December 31, Elements of Net Income (Loss) Bridge Currency1 Spin-off Depreciation of Loss on Interest $ in millions 2019 2018 $ Change impact Income tax Extinguishment All other costs rental equip. of Debt expense Total revenues $1,999.0 $1,976.7 $22.3 ($5.3) $— $— $— $— $— $27.6 Direct operating 771.1 785.2 (14.1) (2.3) — — — — — (11.8) Depreciation of rental equipment 409.1 387.5 21.6 (1.2) — — 22.8 — — — Cost of sales of rental equipment 243.2 244.3 (1.1) (1.0) — — — — (0.1) Cost of sales of new equipment, parts and supplies 33.3 37.7 (4.4) (0.1) — — — — — (4.3) Selling, general and administrative 294.8 311.3 (16.5) (1.3) — (13.9) — — — (1.3) Restructuring 7.7 5.0 2.7 — — — — — — 2.7 Impairment 5.1 0.1 5.0 — — — — — — 5.0 Interest expense, net 173.5 137.0 36.5 (0.2) — — — 48.2 (11.5) — Other expense (income), net (2.4) (0.2) (2.2) — — — — — — (2.2) Income (loss) before income taxes 63.6 68.8 (5.2) 0.8 — 13.9 (22.8) (48.2) 11.5 39.6 Income tax benefit (provision) (16.1) 0.3 (16.4) 0.1 (16.5) — — — — — Net income (loss) $47.5 $69.1 ($21.6) $0.9 ($16.5) $13.9 ($22.8) ($48.2) $11.5 $39.6 NYSE: HRI 32 1. Currency impact includes the translational and transactional SG&A impact of foreign currency exchange ©2020 Herc Rentals Inc. All Rights Reserved.
SG&A Excluding Spin-off Costs Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY $ in millions 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 SG&A $74.5 $77.3 $78.4 $82.4 $312.6 $71.5 $73.5 $76.2 $73.6 $294.8 Spin-off costs ($4.9) ($3.9) ($1.7) ($3.9) ($14.4) $— ($0.3) ($0.4) $0.2 ($0.5) SG&A excluding Spin-off costs $69.6 $73.4 $76.7 $78.5 $298.2 $71.5 $73.2 $75.8 $73.8 $294.3 % of Total Revenue 16.1% 15.1% 14.9% 14.4% 15.1% 15.0% 15.4% 14.9% 13.7% 14.7% NYSE: HRI 33 ©2020 Herc Rentals Inc. All Rights Reserved.
Fleet Mix: Driving $ Utilization December 31, December 31, 2018 2019 Aerial - Booms 18.3% 17.7% Aerial - Scissors & Other 7.6% 7.5% Earthmoving - Compact 8.5% 8.2% Earthmoving - Heavy 5.7% 5.6% Material Handling - Telehandlers 13.5% 13.4% Material Handling - Industrial 4.2% 4.0% Trucks and Trailers 13.0% 13.8% ProSolutions® 14.5% 15.6% ProContractor 6.3% 6.3% Air Compressors 2.6% 2.4% Other 2.6% 2.4% Lighting 1.7% 1.7% Compaction 1.5% 1.4% Total 100.0% 100.0% OEC1 $3.78B $3.82B NYSE: HRI 34 1. Original equipment cost based on ARA guidelines ©2020 Herc Rentals Inc. All Rights Reserved.
NYSE: HRI ©2020 Herc Rentals Inc. All Rights Reserved.