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): October 21, 2021
HERC HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-33139 | 20-3530539 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S Employer Identification No.) |
27500 Riverview Center Blvd.
Bonita Springs, Florida 34134
(239) 301-1000
(Registrant's telephone number,
including area code)
N/A
(Former name or former address, if
changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | HRI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On October 21, 2021, Herc Holdings Inc. (the “Company”) issued a press release regarding its financial results for its third quarter ended September 30, 2021. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.
On October 21, 2021, the Company will conduct an earnings webcast relating to the Company’s financial results for the third quarter of 2021. 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. datedOctober21, 2021 describing its results for itsthirdquarter endedSeptember30, 2021. |
| 99.2 | Set of slides that will accompany the October 21, 2021 earnings webcast. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HERC HOLDINGS INC. | |
|---|---|
| (Registrant) | |
| By: | /s/ MARK IRION |
| Name: | Mark Irion |
| Title: | Senior Vice President and Chief Financial Officer |
Date: October 21, 2021
3
Document
Herc Holdings Reports Third Quarter and Nine Months 2021 Results
Third Quarter 2021 Highlights
–Equipment rental revenue increased 29.2% to $519.6 million
–Total revenues increased 20.5% to $550.4 million
–Net income increased to $72.3 million or $2.37 per diluted share
–Adjusted EBITDA expanded 25.0% to $245.9 million
–Adjusted EBITDA margin rose 160 basis points to 44.7%
–Pricing improved 2.8%
–Year-to-date free cash flow was $114.6 million
–The Company affirmed its full year 2021 guidance range for adjusted EBITDA of $870 million to $890 million and net capital fleet expenditures of $500 million to $550 million
–The Company declared its first quarterly dividend of $0.50 per share, to holders of record as of October 20, 2021 and payable on November 4, 2021
Bonita Springs, Fla., October 21, 2021 -- Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended September 30, 2021. Equipment rental revenue was $519.6 million and total revenues were $550.4 million in the third quarter of 2021, compared to $402.3 million and $456.7 million, respectively, for the same period last year. The Company reported net income of $72.3 million, or $2.37 per diluted share, in the third quarter of 2021, compared to $39.9 million, or $1.35 per diluted share, in the same 2020 period. Third quarter 2021 adjusted net income was $72.7 million, or $2.38 per diluted share, compared to $39.8 million, or $1.35 per diluted share, in 2020. See page A-5 for the adjusted net income and adjusted earnings per share calculations.
"Our third quarter performance illustrates how Herc Rentals is shifting into high gear to capitalize on the benefits of operating leverage and scale that we discussed at our Investor Day," said Larry Silber, president and chief executive officer. "We achieved another record for total revenues and adjusted EBITDA in the third quarter of 2021. Total revenues increased 21% and adjusted EBITDA grew 25% compared to the same period last year. Dollar utilization was also a record 46.0%, enhanced by steady demand in our markets and a positive operating environment. Our long term strategy is driving results and we are positioned for a record year in 2021."
2021 Third Quarter Financial Results
•Equipment rental revenue increased 29.2% to $519.6 million compared to $402.3 million in the prior-year period.
•Total revenues increased 20.5% to $550.4 million compared to $456.7 million in the prior-year period. The year-over-year increase of $93.7 million was related primarily to an increase in equipment rental revenue of $117.3 million, partially offset by a decrease of $28.7 million in sales of rental equipment.
•Pricing increased 2.8% compared to the same period in 2020.
•Dollar utilization increased to 46.0% compared to 37.6% in the prior-year period.
•Direct operating expenses (DOE) of $225.9 million increased 33.4% compared to the prior-year period. The $56.5 million increase was primarily due to higher personnel-related costs, and increases related to higher year-over-year volume such as delivery and freight, maintenance and re-rent expense.
•Selling, general and administrative expenses (SG&A) increased 33.6% to $81.5 million compared to $61.0 million in the prior-year period. The $20.5 million increase was primarily attributed to increases in selling expenses, including commissions and bonus incentives, and travel expenses as business travel returned to pre-pandemic levels.
•Interest expense decreased to $21.4 million compared to $22.4 million in the prior-year period. The decrease was primarily related to both lower interest rates and balances of the Company's ABL Credit Facility in 2021.
•The income tax provision was $23.8 million compared to $11.7 million for the prior-year period. The increase was driven primarily by the level of pre-tax income.
•The Company reported net income of $72.3 million compared to $39.9 million in the prior-year period. Adjusted net income was $72.7 million compared to $39.8 million in the prior-year period.
•Adjusted EBITDA increased 25.0% to $245.9 million compared to $196.7 million in the prior-year period.
•Adjusted EBITDA margin increased 160 basis points to 44.7% compared to 43.1% in the prior-year period.
2021 Nine Months Financial Results
•Equipment rental revenue increased 22.5% to $1,368.0 million compared to $1,116.4 million in the prior-year period.
•Total revenues increased 18.6% to $1,495.1 million compared to $1,260.9 million in the prior-year period. The year-over-year increase of $234.2 million was related primarily to an increase in equipment rental revenue of $251.6 million, partially offset by a decline in sales of rental equipment of $25.6 million.
•Pricing increased 1.6% compared to the same period in 2020.
•Dollar utilization increased to 42.4% compared to 34.7% in the prior-year period.
•Direct operating expenses (DOE) of $611.9 million increased 21.6% compared to the prior-year period. The $108.6 million increase was primarily due to higher personnel-related costs, and increases related to higher volume such as delivery and freight expenses, maintenance and re-rent expense.
•Selling, general and administrative expenses (SG&A) increased 17.8% to $221.0 million compared to $187.6 million in the prior-year period. The $33.4 million increase was primarily attributed to selling expenses, including commissions and bonus incentives, general payroll and benefit increases including higher stock compensation expense, offset by a reduction in bad debt expense due to continued improvement in collections.
•Interest expense decreased to $63.8 million compared to $70.1 million in the prior-year period. The decrease was primarily related to both lower interest rates and balances of the Company's ABL Credit Facility in 2021.
•The income tax provision was $46.7 million compared to $10.9 million for the prior-year period. The provision in the nine months ended September 30, 2021 was primarily driven by the level of pre-tax income.
•The Company reported net income of $152.3 million compared to $38.2 million in the prior-year period. Adjusted net income was $153.6 million compared to $48.2 million in the prior-year period.
•Adjusted EBITDA increased 29.3% to $638.2 million compared to $493.7 million in the prior-year period.
•Adjusted EBITDA margin increased 350 basis points to 42.7% compared to 39.2% in the prior-year period.
Capital Expenditures
•The Company reported net rental equipment capital expenditures of $360.9 million for the nine months of 2021. Gross rental equipment capital expenditures were $447.0 million compared to $273.2 million in the comparable prior-year period. Proceeds from disposals were $86.1 million compared to $114.1 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.
•As of September 30, 2021, the Company's total fleet was approximately $4.1 billion at OEC.
•Average fleet at OEC in the third quarter increased year-over-year by 4.3% compared to the prior-year period.
•Average fleet age was 48 months as of September 30, 2021 compared to 47 months in the comparable prior-year period.
Disciplined Capital Management
•The Company generated $114.6 million in free cash flow in the nine months of 2021, compared to $237.1 million in the same period in 2020.
•Cash and cash equivalents were $35.2 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.4 billion of liquidity as of September 30, 2021. Net debt was $1.8 billion as of September 30, 2021, with net leverage of 2.1x compared to 2.5x in the same prior-year period.
•The Company's net leverage of 2.1x is at the low end of the targeted net leverage range of 2.0x to 3.0x.
•The Company also recently declared the payment of its first quarterly dividend of $0.50, payable to record holders as of October 20, 2021, with payment date of November 4, 2021.
Outlook
The Company affirmed its full year 2021 and 2022 guidance ranges of:
| 2021 | 2022 | |
|---|---|---|
| Adjusted EBITDA: | $870 million to $890 million | $1,050 million to $1,150 million |
| Net rental equipment capital expenditures: | $500 million to $550 million | $820 million to $1,120 million |
"We shared our 2021 to 2024 annual goals for organic CAGR growth of 12% to 15% in rental revenue and 17% to 20% in adjusted EBITDA at our recent Investor Day," said Silber. "We have strong momentum and intend to invest in new locations, fleet and acquisitions to enhance our urban density and improve our operating leverage and scale. We are committed to a capital allocation plan that balances our investment growth options between organic and acquisition growth.
In addition, we are pleased to establish the payment of a quarterly dividend of $0.50, with the first payment scheduled for November 4. We believe that our commitment to a dividend will help to broaden our shareholder base, and that we are well positioned to execute our strategy and deliver value to all of our stakeholders."
Subsequent Event
The Company entered into a purchase agreement to acquire Toronto-based Rapid Equipment Rental Limited (Rapid Equipment) on October 7. Rapid Equipment, a full-service general equipment rental company was founded in 2013, and is comprised of 110 employees and seven locations serving construction and industrial customers throughout the Greater Toronto Area. The transaction is subject to customary closing conditions with a plan to close in the fourth quarter of 2021.
Earnings Call and Webcast Information
Herc Holdings' third quarter 2021 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: 5039902. 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 10159477.
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 295 locations in North America. With over 55 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. Our classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. Our equipment rental business is supported by ProSolutions®, 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’ 2020 total revenues were approximately $1.8 billion. All references to “Herc Holdings” or the “Company” in this press release refer to Herc Holdings Inc. and its subsidiaries, unless otherwise indicated. For more information on Herc Holdings and its products and services, visit: www.HercRentals.com.
Certain Additional Information
In this release we refer to the following operating measures:
•Dollar utilization: calculated by dividing rental revenue (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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Revenues: | ||||||||
| Equipment rental | $ | 519.6 | $ | 402.3 | $ | 1,368.0 | $ | 1,116.4 |
| Sales of rental equipment | 16.6 | 45.3 | 91.1 | 116.7 | ||||
| Sales of new equipment, parts and supplies | 8.6 | 6.2 | 22.5 | 20.2 | ||||
| Service and other revenue | 5.6 | 2.9 | 13.5 | 7.6 | ||||
| Total revenues | 550.4 | 456.7 | 1,495.1 | 1,260.9 | ||||
| Expenses: | ||||||||
| Direct operating | 225.9 | 169.4 | 611.9 | 503.3 | ||||
| Depreciation of rental equipment | 105.4 | 101.9 | 306.9 | 303.7 | ||||
| Cost of sales of rental equipment | 13.7 | 46.3 | 76.8 | 118.3 | ||||
| Cost of sales of new equipment, parts and supplies | 6.5 | 4.4 | 15.6 | 14.6 | ||||
| Selling, general and administrative | 81.5 | 61.0 | 221.0 | 187.6 | ||||
| Impairment | — | — | 0.4 | 9.5 | ||||
| Interest expense, net | 21.4 | 22.4 | 63.8 | 70.1 | ||||
| Other (income) expense, net | (0.1) | (0.3) | (0.3) | 4.7 | ||||
| Total expenses | 454.3 | 405.1 | 1,296.1 | 1,211.8 | ||||
| Income before income taxes | 96.1 | 51.6 | 199.0 | 49.1 | ||||
| Income tax provision | (23.8) | (11.7) | (46.7) | (10.9) | ||||
| Net income | $ | 72.3 | $ | 39.9 | $ | 152.3 | $ | 38.2 |
| Weighted average shares outstanding: | ||||||||
| Basic | 29.6 | 29.2 | 29.6 | 29.1 | ||||
| Diluted | 30.5 | 29.5 | 30.4 | 29.3 | ||||
| Earnings per share: | ||||||||
| Basic | $ | 2.44 | $ | 1.37 | $ | 5.15 | $ | 1.31 |
| Diluted | $ | 2.37 | $ | 1.35 | $ | 5.01 | $ | 1.30 |
A - 1
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions)
| September 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Cash and cash equivalents | $ | 35.2 | $ | 33.0 |
| Receivables, net of allowances | 373.7 | 301.2 | ||
| Other current assets | 39.5 | 32.9 | ||
| Total current assets | 448.4 | 367.1 | ||
| Rental equipment, net | 2,506.1 | 2,260.4 | ||
| Property and equipment, net | 300.4 | 290.4 | ||
| Right-of-use lease assets | 362.2 | 255.9 | ||
| Goodwill and intangible assets, net | 499.8 | 396.4 | ||
| Other long-term assets | 15.7 | 18.2 | ||
| Total assets | $ | 4,132.6 | $ | 3,588.4 |
| LIABILITIES AND EQUITY | ||||
| Current maturities of long-term debt and financing obligations | $ | 15.8 | $ | 15.8 |
| Current maturities of operating lease liabilities | 36.3 | 32.1 | ||
| Accounts payable | 201.8 | 125.8 | ||
| Accrued liabilities | 172.8 | 154.3 | ||
| Total current liabilities | 426.7 | 328.0 | ||
| Long-term debt, net | 1,792.0 | 1,651.5 | ||
| Financing obligations, net | 111.6 | 114.5 | ||
| Operating lease liabilities | 337.9 | 234.1 | ||
| Deferred tax liabilities | 511.9 | 474.0 | ||
| Other long term liabilities | 43.3 | 44.3 | ||
| Total liabilities | 3,223.4 | 2,846.4 | ||
| Total equity | 909.2 | 742.0 | ||
| Total liabilities and equity | $ | 4,132.6 | $ | 3,588.4 |
A - 2
HERC HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
| Nine Months Ended September 30, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 152.3 | $ | 38.2 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation of rental equipment | 306.9 | 303.7 | ||
| Depreciation of property and equipment | 40.9 | 41.2 | ||
| Amortization of intangible assets | 8.0 | 5.8 | ||
| Amortization of deferred debt and financing obligations costs | 2.4 | 2.6 | ||
| Stock-based compensation charges | 17.9 | 10.3 | ||
| Impairment | 0.4 | 9.5 | ||
| Provision for receivables allowances | 20.6 | 28.2 | ||
| Deferred taxes | 37.4 | 12.7 | ||
| (Gain) loss on sale of rental equipment | (14.3) | 1.6 | ||
| Other | 2.4 | 4.2 | ||
| Changes in assets and liabilities: | ||||
| Receivables | (81.2) | (14.5) | ||
| Other assets | (5.9) | (4.4) | ||
| Accounts payable | 7.7 | (1.9) | ||
| Accrued liabilities and other long-term liabilities | 7.7 | (13.2) | ||
| Net cash provided by operating activities | 503.2 | 424.0 | ||
| Cash flows from investing activities: | ||||
| Rental equipment expenditures | (447.0) | (273.2) | ||
| Proceeds from disposal of rental equipment | 86.1 | 114.1 | ||
| Non-rental capital expenditures | (31.1) | (32.0) | ||
| Proceeds from disposal of property and equipment | 3.4 | 4.2 | ||
| Acquisitions, net of cash acquired | (225.2) | — | ||
| Proceeds from disposal of business | — | 15.3 | ||
| Net cash used in investing activities | (613.8) | (171.6) | ||
| Cash flows from financing activities: | ||||
| Proceeds under revolving lines of credit and securitization | 482.9 | 473.0 | ||
| Repayments on revolving lines of credit and securitization | (355.0) | (694.7) | ||
| Principal payments under capital lease and financing obligations | (9.7) | (10.4) | ||
| Other financing activities, net | (5.3) | — | ||
| Net cash used in financing activities | 112.9 | (232.1) | ||
| Effect of foreign exchange rate changes on cash and cash equivalents | (0.1) | 0.5 | ||
| Net increase in cash and cash equivalents during the period | 2.2 | 20.8 | ||
| Cash and cash equivalents at beginning of period | 33.0 | 33.0 | ||
| Cash and cash equivalents at end of period | $ | 35.2 | $ | 53.8 |
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 September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Net income | $ | 72.3 | $ | 39.9 | $ | 152.3 | $ | 38.2 | ||||
| Income tax provision | 23.8 | 11.7 | 46.7 | 10.9 | ||||||||
| Interest expense, net | 21.4 | 22.4 | 63.8 | 70.1 | ||||||||
| Depreciation of rental equipment | 105.4 | 101.9 | 306.9 | 303.7 | ||||||||
| Non-rental depreciation and amortization | 17.0 | 15.5 | 48.8 | 47.0 | ||||||||
| EBITDA | 239.9 | 191.4 | 618.5 | 469.9 | ||||||||
| Non-cash stock-based compensation charges | 5.5 | 5.4 | 17.9 | 10.3 | ||||||||
| Loss on disposal of business | — | — | — | 2.8 | ||||||||
| Impairment | — | — | 0.4 | 9.5 | ||||||||
| Other(1) | 0.5 | (0.1) | 1.4 | 1.2 | ||||||||
| Adjusted EBITDA | $ | 245.9 | $ | 196.7 | $ | 638.2 | $ | 493.7 | ||||
| Total revenues | $ | 550.4 | $ | 456.7 | $ | 1,495.1 | $ | 1,260.9 | ||||
| Adjusted EBITDA | $ | 245.9 | $ | 196.7 | $ | 638.2 | $ | 493.7 | ||||
| Adjusted EBITDA margin | 44.7 | % | 43.1 | % | 42.7 | % | 39.2 | % |
(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 September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Net income | $ | 72.3 | $ | 39.9 | $ | 152.3 | $ | 38.2 |
| Impairment | — | — | 0.4 | 9.5 | ||||
| Loss on sale of business | — | — | — | 2.8 | ||||
| Other(1) | 0.5 | (0.1) | 1.4 | 1.2 | ||||
| Tax impact of adjustments(2) | (0.1) | — | (0.5) | (3.5) | ||||
| Adjusted net income | $ | 72.7 | $ | 39.8 | $ | 153.6 | $ | 48.2 |
| Diluted shares outstanding | 30.5 | 29.5 | 30.4 | 29.3 | ||||
| Adjusted earnings per diluted share | $ | 2.38 | $ | 1.35 | $ | 5.05 | $ | 1.65 |
(1) Merger and acquisition related, restructuring, 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)
| Nine Months Ended September 30, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Rental equipment expenditures | $ | 447.0 | $ | 273.2 |
| Proceeds from disposal of rental equipment | (86.1) | (114.1) | ||
| Net rental equipment capital expenditures | $ | 360.9 | $ | 159.1 |
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, 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.
| Nine Months Ended September 30, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Net cash provided by operating activities | $ | 503.2 | $ | 424.0 |
| Rental equipment expenditures | (447.0) | (273.2) | ||
| Proceeds from disposal of rental equipment | 86.1 | 114.1 | ||
| Net rental equipment expenditures | (360.9) | (159.1) | ||
| Non-rental capital expenditures | (31.1) | (32.0) | ||
| Proceeds from disposal of property and equipment | 3.4 | 4.2 | ||
| Free cash flow | $ | 114.6 | $ | 237.1 |
| Acquisitions, net of cash acquired | (225.2) | — | ||
| Proceeds from disposal of business | — | 15.3 | ||
| (Increase) decrease in Net Debt | $ | (110.6) | $ | 252.4 |
A - 6
a2021q3earningscallprese
©2021 Herc Rentals Inc. All Rights Reserved. Shifting Into High Gear HERC HOLDINGS INC. Q3 and Nine Months 2021 Earnings Conference Call October 21, 2021
NYSE: HRI ©2021 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 ©2021 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 ©2021 Herc Rentals Inc. All Rights Reserved. 4 Rental Revenues $459.6 $402.3 $519.6 2019 2020 2021 Total Revenues $508.1 $456.7 $550.4 2019 2020 2021 Net Income $9.4 $39.9 $72.3 2019 2020 2021 Third Quarter Financial Highlights: Record Performance Adjusted EBITDA¹ $209.4 $196.7 $245.9 2019 2020 2021 Adjusted EBITDA Margin¹ 41.2% 43.1% 44.7% 2019 2020 2021 Earnings Per Diluted Share $0.32 $1.35 $2.37 2019 2020 2021 + 29.2% +25.0%+20.5% $ 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 23 +81.2% +75.6% +160 bps
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 5 Q3 Key Takeaways – Shifting into High Gear Steady improvement in demand Increased dollar utilization YoY by 840 basis points to 46% in the quarter Top MSAs and focus on urban density drive greenfields and acquisition targets Completed five acquisitions since December 30, 2020 for a total purchase price of $280 million Declared a quarterly dividend of $0.50 to record holders of October 20, 2021, payable November 4, 2021 Strong YTD performance provides momentum into 2022
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 6 Herc Rentals Today 56 Years serving customers 2,000 Equipment categories ~295 Locations in 39 states and five Canadian provinces 5,100 Employees serving North America $52 billion addressable market (1) Location count as of October 21, 2021
NYSE: HRI ©2021 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 ©2021 Herc Rentals Inc. All Rights Reserved. 9 Q3 equipment rental revenue increased nearly 30% to $520 million over 2020 and 13% over 2019 Business activity is solid and all of our end markets are showing positive momentum Growth in core equipment rental revenue was enhanced by our specialty business Integration of acquisitions on track and focused on M&A pipeline Herc Operating Model continues to drive operational performance Driving Solid Operational Performance
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 10 Diversifying Fleet to Enhance Utilization Specialty 23.2% Aerial 23.4% Earthmoving 13.8% Material Handling 17.1% Other 22.5% Q3 2021 $ Utilization increased to 46.0% 1. Original equipment cost based on ARA guidelines. As of September 30, 2021. Fleet Expenditures at OEC1 Fleet Composition at OEC1 $4.1 billion at OEC $103 $289 $172 $63 $109 $88 $90 $62 $117 $188 $210 2019 2020 2021 Q1 Q2 Q3 Q4 $193 $123 $89 $188 $110 $83 $124 $234 $111 $71 $44 2019 2020 2021 Q1 Q2 Q3 Q4 Fleet Disposals at OEC1 $ in millions $ in millions Fleet disposals at OEC in Q3 2021 were $44 million, generating ~42% proceeds as a percent of OEC Average age of disposals was 86 months in Q3 2021 Average fleet age of 48 months in Q3 2021
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 11 Business Model Driving Growth Q3 Revenue by Customer1 Contractors 32% Industrial 27% Infrastructure and Government 16% Other 25% National: 42% Local: 58% Q3 Local vs National Mix Our diverse customer mix, our base of national customers and expanded specialty business continue to provide growth opportunities Continuing investment in specialty businesses Expanding in fast-growing urban markets to drive top-line growth Operating a lean cost structure and improving margins 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 ©2021 Herc Rentals Inc. All Rights Reserved. 12 Expanding through M&A Average fleet: $223 million # of locations 19 States & provinces: Texas, California, Tennessee, Ontario Total revenues: $117 million1 EBITDA: $53 million1 EBITDA margin: 45% Total purchase price: $280 million EV/EBITDA multiple: 5.3X2 Average $ Utilization: 39% vs HRI’s 42% YTD 2021 December 2020 April 2021April 2021 August 2021 September 2021 Herc Rentals Acquisitions Through 9/30/21 Cumulative Value • Improve $ utilization through increased density and cross selling • Acquiring talented workforce and local customer relationships – quicker than greenfields • Estimated opportunity for $500+ million of M&A per year 1. Trailing twelve months at date of closing 2. Excludes synergies • On October 7, 2021, we announced a purchase agreement to acquire the seven locations of Rapid Equipment Rental Limited of Toronto, Ontario. The acquisition is subject to the customary closing conditions and is expected to close in Q4 2021.
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 13 Integrating ESG: Focusing on Team Herc Total Recordable Incident Rate 1.35 1.11 1.05 0.99 0.86 0.8 2016 2017 2018 2019 2020 2021 Goal Competitive salaries and benefits enhance retention and attract talent Integrating new Team Herc members from recent acquisitions - focusing on Herc career development, internal job opportunities and training programs Supporting Herc families impacted by Hurricane Ida Offering career related programs, networking, and support by our Women in Action and Veterans Employee Resource Groups All of our branches had at least 98% Perfect Days in the YTD ending September, 30 2021
Financial Review Mark Irion Senior Vice President and Chief Financial Officer
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 15 Q3 & Nine Months 2021 Results Three Months Ended September 30, Nine Months Ended September 30, $ in millions, except per share data 2021 2020 2019 2021 vs 2020 % Change 2021 vs 2019 % Change 2021 2020 2019 2021 vs 2020 % Change 2021 vs 2019 % Change Equipment Rental Revenue $519.6 $402.3 $459.6 29.2% 13.1% $1,368.0 $1,116.4 $1,244.8 22.5% 9.9% Total Revenues $550.4 $456.7 $508.1 20.5% 8.3% $1,495.1 $1,260.9 $1,458.9 18.6% 2.5% Net Income (Loss) $72.3 $39.9 $9.4 81.2% NM $152.3 $38.2 $12.4 NM NM Earnings (Loss) Per Diluted Share $2.37 $1.35 $0.32 75.6% NM $5.01 $1.30 $0.43 NM NM Adjusted Net Income (Loss)1 $72.7 $39.8 $43.2 82.7% 68.3% $153.6 $48.2 $52.8 NM NM Adjusted Earnings Per Diluted Share1 $2.38 $1.35 $1.48 76.3% 60.8% $5.05 $1.65 $1.82 NM NM Adjusted EBITDA1 $245.9 $196.7 $209.4 25.0% 17.4% $638.2 $493.7 $526.6 29.3% 21.2% Adjusted EBITDA Margin1 44.7 % 43.1 % 41.2 % 160 bps 350 bps 42.7 % 39.2 % 36.1 % 350 bps 660 bps REBITDA Margin1,2 45.9 % 48.3 % 44.9 % (240) bps 100 bps 44.7 % 43.6 % 41.2 % 110 bps 350 bps REBITDA YoY Flow-Through1,2 37.5% 52.8% 49.4% 78.1% Average Fleet3 (YoY) 4.3 % (4.5) % 0.4 % (0.9) % (1.1) % 0.3 % Pricing3 (YoY) 2.8 % (0.8) % 4.5 % 1.6 % 0.4 % 4.3 % 1. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 23 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 ©2021 Herc Rentals Inc. All Rights Reserved. 16 Pricing and Utilization Performance Pricing1 3.8% 4.6% 4.5% 3.3% 2.4% (0.3)% (0.8)% (0.8)% (0.3)% 1.9% 2.8% 2019 2020 2021 Q1 Q2 Q3 Q4 Average Fleet at OEC1 2.0% (1.3)% 0.4% 0.7% 1.7% (0.5)% (4.5)% (6.0)% (5.1)% (1.9)% 4.3% 2019 2020 2021 Q1 Q2 Q3 Q4 Average Fleet on Rent at OEC1 (0.3)% (1.6)% (1.3)%(2.0)% (16.1)% (8.8)% (6.0)% (1.7)% 19.7% 16.0% 2019 2020 2021 Q1 Q2 Q3 Q4 $ Utilization2 35.6% 38.0% 40.8% 40.5% 35.7% 30.8% 37.6% 40.6% 38.6% 42.1% 46.0% 2019 2020 2021 Q1 Q2 Q3 Q4 1. YoY Change. Based on ARA guidelines. 2. Based on ARA guidelines 0.0%
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 17 Disciplined Capital Management Maturities $ in millions $1,200.0 $357.9$200.0 2021 2022 2023 2024 2025 2026 2027 No near-term maturities and ample liquidity of $1.4 billion provides financial flexibility Free cash flow3 of approximately $115 million for YTD 2021 Net debt of $1.8 billion as of September 30, 2021, was up by approximately $140 million from December 31, 2020 after funding acquisition activity of $225.2 million Net leverage3 of 2.1x, compared with 2.5x in September 2020, is currently within our target range of 2.0x to 3.0x Credit Ratings: Moody’s CFR Ba3 S&P BB-/Stable 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. Free cash flow excludes cash paid for acquisitions; for a definition and calculation, see the Appendix beginning on Slide 23 $52.6 Finance Leases 2021-2027 AR Facility1 ABL Credit Facility1 Senior Unsecured Notes
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 18 A New Cycle in the Making N.A. Equipment Rental Market1 $38 $31 $32 $35 $38 $41 $44 $47 $49 $51 $52 $55 $49 $52 $57 $59 $61 $63 08 09 10 11 12 13 14 15 16 17 18 19 20 21E 22E 23E 24E 25E ’20-'25E CAGR: ~5% Architecture Billings Index3 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Select Market Forecasts2 U.S. Nonresidental Building Starts Actual Forecast 2020 2021 2022 2023 2024 YOY Growth (20)% +3% +8% +10% +5% Sectors with Tailwinds Actual Forecast 2020 2021 2022 2023 2024 Healthcare (5)% +7% +8% +14% +7% Warehouse +8% +14% +7% +4% (1)% Infrastructure (11)% +4% +8% +12% +10% Equipment rental market forecast to grow from about $49 billion in 2020 to $63 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 August 2021 3. Source: The American Institute of Architects (AIA) as of September 2021 2. Source: Dodge Analytics U.S. as of July 2021 September 56.6 50
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 19 Shifting Into High Gear a. For a reconciliation to the most comparable GAAP financial measure, see the Appendix beginning on Slide 23 b. Adjusted EBITDA for 2021, 2022, and 2024 reflect guidance ranges $ in millions We have clear momentum in our results and have raised 2021 guidance three times this year to our current range of $870 to $890 million Our 2021-2024 CAGR growth goal is 17% - 20% Adjusted EBITDA margin improved from 38.7% in FY 2020 to 41.4% in the LTM Q3 2021 Our goal is for adjusted EBITDA margin to be in the high 40's range by 2024 $1,150 Adjusted EBITDA $689 $726 $785 $834 $870 $1,050 FY 2020 LTM Q1- 21 LTM Q2- 21 LTM Q3- 21 FY 2021E FY2022E FY 2024E $500 $750 $1,000 $1,250 $1,500 '21 - '2 4 CAGR Goal: 1 7%-20% $890
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 20 Near Term Guidance 2021 2022 Metric Current Growth from prior year1 Currrent Growth from prior year1 Adjusted EBITDA $870 to $890 million 28% $1,050 to $1,150 million 25% Net Fleet Capital Expenditures $500 to $550 million NM $820 to $1,120 million 85% 1. Growth from prior year is calculated based on the midpoints of each year NM – not meaningful • 2021 guidance on track – midpoint of adjusted EBITDA growth up 28% compared with 2020 • Issued 2022 guidance – further increase to adjusted EBITDA of 25% from midpoint of growth over 2021
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 21 Shifting Into High Gear - Growth Goals Through 2024 Metric 2016 - 2020 2021 - 20241 Rental Revenue CAGR 3.4% 12% to 15% Adjusted EBITDA CAGR 6.5% 17% to 20% Adj. EBITDA Margin Range 33% to 41% 45% to 50% Flow-Through 68% 60% to 70% Net Fleet Capital Expenditures $1.8 billion $2.5 to $3.0 billion Implied Market Share - through organic growth 3% 5% 1. Assumes midpoint of 2021 guidance
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 22 Vision, Mission and Values We are a customer-centric organization focused on safety, efficiency and profitable growth
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 23
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 24 Glossary of Terms Commonly Used in the Industry OEC: Original Equipment Cost which is an operating measure based on the guidelines of the American Rental Association (ARA), which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date). Fleet Age: The OEC weighted age of the entire fleet, based on ARA guidelines. Net Fleet Capital Expenditures: Capital expenditures of rental equipment minus the proceeds from disposal of rental equipment. Dollar Utilization ($ 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 ©2021 Herc Rentals Inc. All Rights Reserved. 25 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 September 30, Nine Months Ended September 30, 2021 2020 2019 2021 2020 2019 Net income $72.3 $39.9 $9.4 $152.3 $38.2 $12.4 Loss on extinguishment — — 53.6 — — 53.6 Restructuring — — — — 0.7 7.8 Impairment — — — 0.4 9.5 — Loss on disposal of business — — — — 2.8 — Other(1) 0.5 (0.1) 0.4 1.4 0.5 1.4 Tax impact of adjustments(2) (0.1) — (20.2) (0.5) (3.5) (22.4) Adjusted net income $72.7 $39.8 $43.2 $153.6 $48.2 $52.8 Diluted common shares 30.5 29.5 29.1 30.4 29.3 29.0 Adjusted earnings per diluted share $2.38 $1.35 $1.48 $5.05 $1.65 $1.82
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 26 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 ©2021 Herc Rentals Inc. All Rights Reserved. 27 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income $72.3 $39.9 $152.3 $38.2 Income tax provision 23.8 11.7 46.7 10.9 Interest expense, net 21.4 22.4 63.8 70.1 Depreciation of rental equipment 105.4 101.9 306.9 303.7 Non-rental depreciation and amortization 17.0 15.5 48.8 47.0 EBITDA 239.9 191.4 618.5 469.9 Non-cash stock-based compensation charges 5.5 5.4 17.9 10.3 Impairment — — 0.4 9.5 Loss on dispoal of business — — — 2.8 Other(1) 0.5 (0.1) 1.4 1.2 Adjusted EBITDA 245.9 196.7 638.2 493.7 Less: Gain (loss) on sales of rental equipment 2.9 (1.0) 14.3 (1.6) Less: Gain (loss) on sales of new equipment, parts and supplies 2.1 1.8 6.9 5.6 Rental Adjusted EBITDA (REBITDA) $240.9 $195.9 $617.0 $489.7 Total Revenues $550.4 $456.7 $1,495.1 $1,260.9 Less: Sales of rental equipment 16.6 45.3 91.1 116.7 Less: Sales of new equipment, parts and supplies 8.6 6.2 22.5 20.2 Equipment rental, service and other revenues $525.2 $405.2 $1,381.5 $1,124.0 Total Revenues $550.4 $456.7 $1,495.1 $1,260.9 Adjusted EBITDA $245.9 $196.7 $638.2 $493.7 Adjusted EBITDA Margin 44.7 % 43.1 % 42.7 % 39.2 % Equipment rental, service and other revenues $525.2 $405.2 $1,381.5 $1,124.0 REBITDA $240.9 $195.9 $617.0 $489.7 REBITDA Margin 45.9 % 48.3 % 44.7 % 43.6 % YOY Change in REBITDA $45.0 $127.3 YOY Change in Equipment rental, service and other revenues $120.0 $257.5 YOY REBITDA Flow-Through 37.5 % 49.4 % (1) Merger and acquisition related and spin-off costs are included in Other.
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 28 REBITDA Margin Trend $ in millions Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020 Q1 2021 Q2 2021 Q3 2021 Total Revenues $436.2 $368.0 $456.7 $520.4 $1,781.3 $453.8 $490.9 $550.4 Less: Sales of rental equipment 40.0 31.4 45.3 81.8 198.5 44.2 30.3 16.6 Less: Sales of new equipment, parts and supplies 7.0 7.0 6.2 8.0 28.2 6.1 7.8 8.6 Equipment rental, service and other revenues $389.2 $329.6 $405.2 $430.6 $1,554.6 $403.5 $452.8 $525.2 Net income (loss) ($3.7) $2.0 $39.9 $35.5 $73.7 $32.9 $47.1 $72.3 Income tax provision (benefit) 1.1 (1.9) 11.7 9.5 20.4 8.2 14.7 23.8 Interest expense, net 24.4 23.3 22.4 22.5 92.6 21.4 21.0 21.4 Depreciation of rental equipment 100.4 101.4 101.9 100.2 403.9 100.4 101.1 105.4 Non-rental depreciation and amortization 15.8 15.7 15.5 15.5 62.5 15.8 16.0 17.0 EBITDA $138.0 $140.5 $191.4 $183.2 $653.1 $178.7 $199.9 $239.9 Restructuring — 0.7 — — 0.7 — — — Non-cash stock-based compensation charges 3.2 1.7 5.4 6.1 16.4 5.3 7.1 5.5 Impairment 6.3 3.2 — 5.9 15.4 — 0.4 — Loss on disposal of business — 2.8 — — 2.8 — — — Other(1) 0.2 0.5 (0.1) 0.4 1.0 0.6 0.3 0.5 Adjusted EBITDA $147.7 $149.4 $196.7 $195.6 $689.4 $184.6 $207.7 $245.9 Less: Gain (loss) on sales of rental equipment (2.4) 1.8 (1.0) (3.5) (5.1) 5.8 5.6 2.9 Less: Gain on sales of new equipment, parts and supplies 1.9 1.9 1.8 2.1 7.7 1.9 2.9 2.1 Rental Adjusted EBITDA (REBITDA) $148.2 $145.7 $195.9 $197.0 $686.8 $176.9 $199.2 $240.9 REBITDA Margin 38.1 % 44.2 % 48.3 % 45.8 % 44.2 % 43.8 % 44.0 % 45.9 % YOY REBITDA Flow-Through 107.4 % 31.0 % 20.9 % 59.4 % 27.9 % 200.7 % 43.4 % 37.5 % (1) Merger and acquisition related and spin-off costs are included in Other.
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 29 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 Q3 2021 Q4 2020 Q3 2020 Long-Term Debt, Net $1,792.0 $1,651.5 $1,827.9 (Plus) Current maturities of long-term debt 12.1 12.2 14.2 (Plus) Unamortized debt issuance costs 6.4 7.1 7.2 (Less) Cash and Cash Equivalents (35.2) (33.0) (53.8) Net Debt $1,775.3 $1,637.8 $1,795.5 Trailing Twelve-Month Adjusted EBITDA $833.8 $689.4 $708.2 Net Leverage 2.1x 2.4x 2.5x
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 30 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 Nine Months Ended September 30, Years Ended December 31, 2021 2020 2020 2019 2018 Net cash provided by operating activities $503.2 $424.0 $610.9 $635.6 $559.1 Rental equipment expenditures (447.0) (273.2) (344.1) (638.4) (771.4) Proceeds from disposal of rental equipment 86.1 114.1 192.5 224.2 272.3 Net Fleet Capital Expenditures (360.9) (159.1) (151.6) (414.2) (499.1) Non-rental capital expenditures (31.1) (32.0) (41.4) (56.9) (77.6) Proceeds from disposal of property and equipment 3.4 4.2 6.6 7.7 9.7 Other — — — 4.0 — Free Cash Flow 114.6 237.1 424.5 176.2 (7.9) Acquisitions, net of cash acquired (225.2) — (45.6) (4.2) — Proceeds from disposal of business — 15.3 24.5 — — (Increase) decrease in Net Debt ($110.6) $252.4 $403.4 $172.0 ($7.9)
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 31 Historical Fleet at OEC1 (1) Original equipment cost based on ARA guidelines $ in millions FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Q1 2021 Q2 2021 Q3 2021 Beginning Balance $3,384 $3,556 $3,651 $3,777 $3,822 $3,589 $3,626 $3,763 Expenditures $495 $524 $774 $627 $349 $117 $188 $210 Disposals ($328) ($442) ($607) ($593) ($551) ($111) ($71) ($44) Foreign Currency / Other $5 $13 ($41) $11 ($31) $31 $20 $146 Ending Balance $3,556 $3,651 $3,777 $3,822 $3,589 $3,626 $3,763 $4,075 Proceeds as a percent of OEC 41.7 % 39.8 % 37.8 % 40.9 % 37.0 % 40.1 % 41.3 % 42.2 %
NYSE: HRI ©2021 Herc Rentals Inc. All Rights Reserved. 32 For additional information, please contact: Elizabeth M. Higashi, CFA Vice President, Investor Relations & Sustainability elizabeth.higashi@hercrentals.com 239 301-1024