United Rentals, Inc. (NYSE: URI) today announced financial
results for the third quarter 20181. Total revenue was $2.116
billion and rental revenue was $1.861 billion for the third
quarter, compared with $1.766 billion and $1.536 billion,
respectively, for the same period last year. On a GAAP basis, the
company reported third quarter net income of $333 million, or $4.01
per diluted share, compared with $199 million, or $2.33 per diluted
share, for the same period last year. The third quarter 2018
includes a net income benefit associated with the Tax Cuts and Jobs
Act (the “Tax Act”) that was enacted in December 2017. The Tax Act
reduced the U.S. federal corporate statutory tax rate from 35% to
21%, which contributed an estimated $0.73 to earnings per diluted
share for the third quarter 20182.
Adjusted EPS3 for the quarter was $4.74 per diluted share,
compared with $3.25 per diluted share for the same period last
year. The reduction in the tax rate discussed above contributed an
estimated $0.87 to adjusted EPS for the third quarter 20182.
Adjusted EBITDA3 was $1.059 billion and adjusted EBITDA margin3 was
50.0%, reflecting increases of $180 million and 20 basis points,
respectively, from the same period last year. Excluding the impact
of the BakerCorp acquisition, adjusted EBITDA margin improved 80
basis points year-over-year to a record of 50.6%.
Third Quarter 2018 Highlights
- Rental revenue4 increased 21.2%
year-over-year. Owned equipment rental revenue increased 20.3%,
reflecting increases of 17.8% in the volume of equipment on rent
and 2.1% in rental rates.
- Pro forma1 rental revenue increased
10.9% year-over-year, reflecting growth of 7.4% in the volume of
equipment on rent and a 2.1% increase in rental rates.
- Time utilization decreased 100 basis
points year-over-year to 70.9%, primarily reflecting the impact of
the Neff and BakerCorp acquisitions. On a pro forma basis, time
utilization decreased 10 basis points year-over-year to 70.7%.
- For the company’s specialty segment,
Trench, Power and Fluid Solutions, rental revenue increased by
39.5% year-over-year, including a 12.7% increase on a same store
basis. Rental gross margin decreased by 250 basis points to 52.3%.
The decrease in rental gross margin was primarily due to the impact
of the BakerCorp acquisition and an increase in lower-margin fuel
revenues primarily within the Power and HVAC region1.
_______________ 1. The company completed the acquisitions of
NES Rentals Holdings II, Inc. (“NES”), Neff Corporation ("Neff")
and BakerCorp International Holdings, Inc. (“BakerCorp”) in April
2017, October 2017, and July 2018, respectively. The acquisitions
are included in the company's results subsequent to the acquisition
dates. Pro forma results reflect the combination of United Rentals,
NES, Neff and BakerCorp for all periods presented. The acquired
BakerCorp locations are reflected in the Trench, Power and Fluid
Solutions specialty segment. The name of the specialty segment was
changed (formerly "Trench, Power and Pump") to reflect the broader
product offering following the BakerCorp acquisition. 2. The
estimated contribution of the Tax Act was calculated by applying
the percentage point tax rate reduction to U.S. pretax income and
the pretax adjustments reflected in adjusted EPS. 3. Adjusted EPS
(earnings per share) and adjusted EBITDA (earnings before interest,
taxes, depreciation and amortization) are non-GAAP measures that
exclude the impact of the items noted in the tables below. See the
tables below for amounts and reconciliations to the most comparable
GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA
divided by total revenue. 4. Rental revenue includes owned
equipment rental revenue, re-rent revenue and ancillary revenue.
- The company generated $140 million of
proceeds from used equipment sales at a GAAP gross margin of 40.7%
and an adjusted gross margin of 50.0%, compared with $139 million
at a GAAP gross margin of 39.6% and an adjusted gross margin of
56.8% for the same period last year. The year-over-year decrease in
adjusted gross margin was primarily due to the impact of selling
more fully depreciated fleet acquired in the NES acquisition in the
third quarter 20175.
BlueLine Acquisition
On September 10, 2018, the company announced that it has entered
into a definitive agreement to acquire Vander Holding Corporation
and its subsidiaries (“BlueLine”) for approximately $2.1 billion in
cash. The company expects to fund the acquisition using a new $1
billion term loan facility and other debt issuances. BlueLine is
one of the ten largest equipment rental companies in North America,
serves over 50,000 customers in the construction and industrial
sectors, and has 114 locations and over 1,700 employees based in 25
U.S. states, Canada and Puerto Rico. BlueLine has annual revenues
of approximately $786 million. The transaction is expected to close
in the fourth quarter, subject to Hart-Scott-Rodino clearance and
other customary conditions.
CEO Comments
Michael Kneeland, chief executive officer of United Rentals,
said, "We are pleased with the strength of our third quarter
results, including the acceleration in volume growth and improved
margins. Our rates were again positive for each month in a
competitive market, while time utilization remained robust. We
continue to make good progress integrating Baker into our specialty
operations, and look forward to beginning that process with
BlueLine this quarter."
Kneeland continued, "Our updated guidance reflects the
combination of strong market demand and the contributions from our
completed acquisitions, which, together with internal and external
indicators, point to a solid fourth quarter and healthy momentum
into 2019. Our strategy remains highly focused on driving
profitable growth across our core businesses, integrating our
recent acquisitions and leveraging our cash flows to maximize
shareholder value."
Nine Months 2018 Highlights
- Rental revenue increased 21.7%
year-over-year. Owned equipment rental revenue increased 21.4%,
reflecting increases of 19.6% in the volume of equipment on rent
and 2.3% in rental rates.
- Pro forma rental revenue increased
11.0% year-over-year, reflecting growth of 7.3% in the volume of
equipment on rent and a 2.4% increase in rental rates.
- Time utilization decreased 80 basis
points year-over-year to 68.5%, primarily reflecting the impact of
the NES, Neff and BakerCorp acquisitions. On a pro forma basis,
time utilization increased 20 basis points year-over-year to
68.2%.
- For the company’s specialty segment,
Trench, Power and Fluid Solutions, rental revenue increased by
36.8% year-over-year, including a 19.1% increase on a same store
basis. Rental gross margin decreased by 90 basis points to 49.5%.
The decrease in rental gross margin was primarily due to the impact
of the BakerCorp acquisition.
- The company generated $478 million of
proceeds from used equipment sales at a GAAP gross margin of 41.0%
and an adjusted gross margin of 52.1%, compared with $378 million
at a GAAP gross margin of 40.5% and an adjusted gross margin of
53.7% for the same period last year. The year-over-year increase in
used equipment sales primarily reflects increased volume, driven by
a significantly larger fleet size, in a strong used equipment
market.5
_______________ 5. Used equipment sales adjusted gross
margin excludes the impact of the fair value mark-up of acquired
RSC, NES and Neff fleet that was sold. In 2018, we adopted
Accounting Standards Codification (“ASC”) Topic 606, “Revenue from
Contracts with Customers”. Used equipment sales in the third
quarter of 2017 would have been reduced by $14 million under Topic
606 because such sales would have been recognized prior to the
third quarter. The amount of used equipment sales recognized for
the nine months ended September 30, 2017 does not differ materially
from the amount that would have been recognized under Topic 606.
While the adoption of Topic 606 impacted the timing of revenue
recognition, it has no impact on annual revenue.
2018 Outlook
The following revised full-year guidance does not include the impact of the pending
acquisition of BlueLine. For additional detail on BlueLine, please
see the section above, as well as the investor presentations that
are currently accessible on www.unitedrentals.com.
Prior Outlook
Current Outlook Total revenue $7.64 billion to $7.84 billion
$7.77 billion to $7.87 billion
Adjusted EBITDA6
$3.715 billion to $3.815 billion $3.765 billion to $3.815 billion
Net rental capital expenditures aftergross
purchases
$1.3 billion to $1.4 billion,after gross
purchases of$1.95 billion to $2.05 billion
$1.35 billion to $1.45 billion,after gross
purchases of $2.0billion to $2.1 billion
Net cash provided by operating activities $2.725 billion to $2.875
billion $2.725 billion to $2.875 billion
Free cash flow7 (excluding the impact
ofmerger and restructuring related payments)
$1.3 billion to $1.4 billion $1.25 billion to $1.35 billion
Free Cash Flow and Fleet Size
For the first nine months of 2018, net cash provided by
operating activities was $2.123 billion, and free cash flow was
$536 million after total rental and non-rental gross capital
expenditures of $2.096 billion. For the first nine months of 2017,
net cash provided by operating activities was $1.756 billion, and
free cash flow was $582 million after total rental and non-rental
gross capital expenditures of $1.572 billion. Free cash flow for
the first nine months of 2018 and 2017 included aggregate merger
and restructuring related payments of $32 million and $52 million,
respectively.
The size of the rental fleet was $12.90 billion of OEC at
September 30, 2018, compared with $11.51 billion at December
31, 2017. The age of the rental fleet was 46.6 months on an
OEC-weighted basis at September 30, 2018, compared with 47.0
months at December 31, 2017.
Return on Invested Capital (ROIC)
ROIC was 10.7% for the 12 months ended September 30, 2018,
compared with 8.6% for the 12 months ended September 30, 2017.
The company’s ROIC metric uses after-tax operating income for the
trailing 12 months divided by average stockholders’ equity, debt
and deferred taxes, net of average cash. To mitigate the volatility
related to fluctuations in the company’s tax rate from period to
period, the U.S. federal corporate statutory tax rates of 21% and
35% for 2018 and 2017, respectively, were used to calculate
after-tax operating income.
The company expects ROIC to materially increase due to the
reduced tax rates following the enactment of the Tax Act, but,
because the trailing 12 months are used for the ROIC calculation,
the full impact will not be reflected until one year after the
lower tax rate became effective. If the 21% U.S. federal corporate
statutory tax rate following the enactment of the Tax Act was
applied to ROIC for all historic periods, the company estimates
that ROIC would have been 11.0% and 10.3% for the 12 months ended
September 30, 2018 and 2017, respectively.
_______________ 6. Information reconciling forward-looking
adjusted EBITDA to the comparable GAAP financial measures is
unavailable to the company without unreasonable effort, as
discussed below. 7. Free cash flow is a non-GAAP measure. See the
table below for amounts and a reconciliation to the most comparable
GAAP measure.
Share Repurchase Program
In July 2018, the company commenced its previously announced
$1.25 billion share repurchase program. As of September 30,
2018, the company has repurchased $210 million of common stock
under the program. The company expects to pause repurchases under
the program following the completion of the pending BlueLine
acquisition discussed above. The company intends to complete the
share repurchase program; however, it will continue to evaluate its
decision to do so as it integrates BlueLine.
Conference Call
United Rentals will hold a conference call tomorrow, Thursday,
October 18, 2018, at 11:00 a.m. Eastern Time. The conference
call number is 855-458-4217 (international: 574-990-3618). The
conference call will also be available live by audio webcast at
unitedrentals.com, where it will be archived until the next
earnings call. The replay number for the call is 404-537-3406,
passcode is 3484139.
Non-GAAP Measures
Free cash flow, earnings before interest, taxes, depreciation
and amortization (EBITDA), adjusted EBITDA, and adjusted earnings
per share (adjusted EPS) are non-GAAP financial measures as defined
under the rules of the SEC. Free cash flow represents net cash
provided by operating activities less purchases of, and plus
proceeds from, equipment. The equipment purchases and proceeds
represent cash flows from investing activities. EBITDA represents
the sum of net income, provision for income taxes, interest
expense, net, depreciation of rental equipment and non-rental
depreciation and amortization. Adjusted EBITDA represents EBITDA
plus the sum of the merger related costs, restructuring charge,
stock compensation expense, net, and the impact of the fair value
mark-up of acquired fleet. Adjusted EPS represents EPS plus the sum
of the merger related costs, restructuring charge, the impact on
depreciation related to acquired fleet and property and equipment,
the impact of the fair value mark-up of acquired fleet, the loss on
repurchase/redemption of debt securities and amendment of ABL
facility, and merger related intangible asset amortization. The
company believes that: (i) free cash flow provides useful
additional information concerning cash flow available to meet
future debt service obligations and working capital requirements;
(ii) EBITDA and adjusted EBITDA provide useful information about
operating performance and period-over-period growth, and help
investors gain an understanding of the factors and trends affecting
our ongoing cash earnings, from which capital investments are made
and debt is serviced; and (iii) adjusted EPS provides useful
information concerning future profitability. However, none of these
measures should be considered as alternatives to net income, cash
flows from operating activities or earnings per share under GAAP as
indicators of operating performance or liquidity.
Information reconciling forward-looking adjusted EBITDA to GAAP
financial measures is unavailable to the company without
unreasonable effort. The company is not able to provide
reconciliations of adjusted EBITDA to GAAP financial measures
because certain items required for such reconciliations are outside
of the company’s control and/or cannot be reasonably predicted,
such as the provision for income taxes. Preparation of such
reconciliations would require a forward-looking balance sheet,
statement of income and statement of cash flow, prepared in
accordance with GAAP, and such forward-looking financial statements
are unavailable to the company without unreasonable effort. The
company provides a range for its adjusted EBITDA forecast that it
believes will be achieved, however it cannot accurately predict all
the components of the adjusted EBITDA calculation. The company
provides an adjusted EBITDA forecast because it believes that
adjusted EBITDA, when viewed with the company’s results under GAAP,
provides useful information for the reasons noted above. However,
adjusted EBITDA is not a measure of financial performance or
liquidity under GAAP and, accordingly, should not be considered as
an alternative to net income or cash flow from operating activities
as an indicator of operating performance or liquidity.
About United Rentals
United Rentals, Inc. is the largest equipment rental company in
the world. The company has an integrated network of 1,075 rental
locations in North America and 11 in Europe. In North America, the
company operates in 49 states and every Canadian province. The
company’s approximately 16,700 employees serve construction and
industrial customers, utilities, municipalities, homeowners and
others. The company offers approximately 3,800 classes of equipment
for rent with a total original cost of $12.90 billion. United
Rentals is a member of the Standard & Poor’s 500 Index, the
Barron’s 400 Index and the Russell 3000 Index® and is headquartered
in Stamford, Conn. Additional information about United Rentals is
available at unitedrentals.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and the Private Securities Litigation Reform Act
of 1995, known as the PSLRA. These statements can generally be
identified by the use of forward-looking terminology such as
“believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,”
“plan,” “project,” “forecast,” “intend” or “anticipate,” or the
negative thereof or comparable terminology, or by discussions of
vision, strategy or outlook. These statements are based on current
plans, estimates and projections, and, therefore, you should not
place undue reliance on them. No forward-looking statement can be
guaranteed, and actual results may differ materially from those
projected. Factors that could cause actual results to differ
materially from those projected include, but are not limited to,
the following: (1) the challenges associated with past or future
acquisitions, including NES, Neff, BakerCorp and the proposed
BlueLine acquisition, such as undiscovered liabilities, costs,
integration issues and/or the inability to achieve the cost and
revenue synergies expected; (2) the risk that the proposed BlueLine
acquisition may not be completed; (3) a slowdown in North American
construction and industrial activities, which could reduce our
revenues and profitability; (4) our significant indebtedness, which
requires us to use a substantial portion of our cash flow for debt
service and can constrain our flexibility in responding to
unanticipated or adverse business conditions; (5) the inability to
refinance our indebtedness at terms that are favorable to us, or at
all; (6) the incurrence of additional debt, which could exacerbate
the risks associated with our current level of indebtedness; (7)
noncompliance with covenants in our debt agreements, which could
result in termination of our credit facilities and acceleration of
outstanding borrowings; (8) restrictive covenants and amount of
borrowings permitted under our debt agreements, which could limit
our financial and operational flexibility; (9) an overcapacity of
fleet in the equipment rental industry; (10) a decrease in levels
of infrastructure spending, including lower than expected
government funding for construction projects; (11) fluctuations in
the price of our common stock and inability to complete stock
repurchases in the time frame and/or on the terms anticipated; (12)
our rates and time utilization being less than anticipated; (13)
our inability to manage credit risk adequately or to collect on
contracts with customers; (14) our inability to access the capital
that our business or growth plans may require; (15) the incurrence
of impairment charges; (16) trends in oil and natural gas could
adversely affect demand for our services and products; (17) our
dependence on distributions from subsidiaries as a result of our
holding company structure and the fact that such distributions
could be limited by contractual or legal restrictions; (18) an
increase in our loss reserves to address business operations or
other claims and any claims that exceed our established levels of
reserves; (19) the incurrence of additional costs and expenses
(including indemnification obligations) in connection with
litigation, regulatory or investigatory matters; (20) the outcome
or other potential consequences of litigation and other claims and
regulatory matters relating to our business, including certain
claims that our insurance may not cover; (21) the effect that
certain provisions in our charter and certain debt agreements and
our significant indebtedness may have of making more difficult or
otherwise discouraging, delaying or deterring a takeover or other
change of control of us; (22) management turnover and inability to
attract and retain key personnel; (23) our costs being more than
anticipated and/or the inability to realize expected savings in the
amounts or time frames planned; (24) our dependence on key
suppliers to obtain equipment and other supplies for our business
on acceptable terms; (25) our inability to sell our new or used
fleet in the amounts, or at the prices, we expect; (26) competition
from existing and new competitors; (27) security breaches,
cybersecurity attacks and other significant disruptions in our
information technology systems; (28) the costs of complying with
environmental, safety and foreign laws and regulations, as well as
other risks associated with non-U.S. operations, including currency
exchange risk; (29) labor difficulties and labor-based legislation
affecting our labor relations and operations generally; (30)
increases in our maintenance and replacement costs and/or decreases
in the residual value of our equipment; and (31) the effect of
changes in tax law, such as the effect of the Tax Cuts and Jobs Act
that was enacted on December 22, 2017. For a more complete
description of these and other possible risks and uncertainties,
please refer to our Annual Report on Form 10-K for the year ended
December 31, 2017, as well as to our subsequent filings with the
SEC. The forward-looking statements contained herein speak only as
of the date hereof, and we make no commitment to update or publicly
release any revisions to forward-looking statements in order to
reflect new information or subsequent events, circumstances or
changes in expectations.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
(In millions, except per share
amounts)
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2017 2018 2017 Revenues:
Equipment rentals $ 1,861
$
1,536 $ 4,951 $ 4,069 Sales of rental equipment 140 139 478 378
Sales of new equipment 54 40 140 126 Contractor supplies sales 24
21 66 60 Service and other revenues 37 30 106
86
Total revenues 2,116 1,766
5,741 4,719 Cost of revenues:
Cost of equipment rentals, excluding depreciation 671 557 1,883
1,556 Depreciation of rental equipment 343 290 988 804 Cost of
rental equipment sales 83 84 282 225 Cost of new equipment sales 46
34 121 108 Cost of contractor supplies sales 15 14 43 42 Cost of
service and other revenues 20 14 58 42
Total cost of revenues 1,178 993
3,375 2,777 Gross profit
938 773 2,366 1,942 Selling, general
and administrative expenses 265 237 736 648 Merger related costs 11
16 14 32 Restructuring charge 9 9 15 28 Non-rental depreciation and
amortization 75 63 213 189 Operating
income 578 448 1,388 1,045 Interest expense, net 118 131 339 338
Other income, net — (5 ) (2 ) (5 ) Income before provision
for income taxes 460 322 1,051 712 Provision for income taxes (1)
127 123 265 263
Net income (1)
$ 333 $ 199 $
786 $ 449 Diluted earnings
per share (1) $ 4.01 $ 2.33
$ 9.34 $ 5.26
(1) The three and nine months ended September 30,
2018 reflect a reduction in the U.S. federal corporate statutory
tax rate from 35% to 21% following the enactment of the Tax Cuts
and Jobs Act in December 2017, which contributed an estimated $0.73
and $1.68 to diluted earnings per share for the three and nine
months ended September 30, 2018, respectively.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions)
September 30, 2018 December 31, 2017
ASSETS Cash and cash equivalents $ 65 $ 352 Accounts
receivable, net 1,438 1,233 Inventory 104 75 Prepaid expenses and
other assets 85 112 Total current assets 1,692 1,772
Rental equipment, net 8,910 7,824 Property and equipment, net 529
467 Goodwill 4,313 4,082 Other intangible assets, net 895 875 Other
long-term assets 15 10
Total assets $
16,354 $ 15,030 LIABILITIES
AND STOCKHOLDERS’ EQUITY Short-term debt and current maturities
of long-term debt $ 896 $ 723 Accounts payable 688 409 Accrued
expenses and other liabilities 503 536 Total current
liabilities 2,087 1,668 Long-term debt 9,182 8,717 Deferred taxes
1,628 1,419 Other long-term liabilities 123 120
Total liabilities 13,020 11,924
Common stock 1 1 Additional paid-in capital 2,380 2,356 Retained
earnings 3,791 3,005 Treasury stock (2,660 ) (2,105 ) Accumulated
other comprehensive loss (178 ) (151 )
Total stockholders’
equity 3,334 3,106 Total
liabilities and stockholders’ equity $ 16,354
$ 15,030
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(In millions)
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2017 2018 2017 Cash Flows
From Operating Activities: Net income $ 333 $ 199 $ 786 $ 449
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 418 353 1,201
993 Amortization of deferred financing costs and original issue
discounts 3 2 9 6 Gain on sales of rental equipment (57 ) (55 )
(196 ) (153 ) Gain on sales of non-rental equipment (1 ) (1 ) (4 )
(4 ) Gain on insurance proceeds from damaged equipment (4 ) (2 )
(18 ) (10 ) Stock compensation expense, net 30 24 73 64 Merger
related costs 11 16 14 32 Restructuring charge 9 9 15 28 Loss on
repurchase/redemption of debt securities and amendment of ABL
facility — 31 — 43 Increase in deferred taxes 97 57 190 97 Changes
in operating assets and liabilities: Increase in accounts
receivable (160 ) (156 ) (131 ) (172 ) Increase in inventory (4 )
(4 ) (23 ) (9 ) Decrease (increase) in prepaid expenses and other
assets 6 6 31 (1 ) (Decrease) increase in accounts payable (213 )
(79 ) 238 350 Increase (decrease) in accrued expenses and other
liabilities 6 27 (62 ) 43
Net cash provided
by operating activities 474 427 2,123
1,756 Cash Flows From Investing Activities: Purchases
of rental equipment (736 ) (572 ) (1,962 ) (1,485 ) Purchases of
non-rental equipment (54 ) (32 ) (134 ) (87 ) Proceeds from sales
of rental equipment 140 139 478 378 Proceeds from sales of
non-rental equipment 5 4 13 10 Insurance proceeds from damaged
equipment 4 2 18 10 Purchases of other companies, net of cash
acquired (747 ) (98 ) (805 ) (1,063 ) Purchases of investments —
(1 ) (1 ) (5 )
Net cash used in investing activities
(1,388 ) (558 ) (2,393 )
(2,242 ) Cash Flows From Financing Activities:
Proceeds from debt 2,732 4,759 7,062 8,702 Payments of debt (1,658
) (4,613 ) (6,464 ) (8,156 ) Payments of financing costs — (37 ) (1
) (44 ) Proceeds from the exercise of common stock options — — 2 1
Common stock repurchased (1) (211 ) (2 ) (606 ) (26 )
Net cash
provided by (used in) financing activities 863
107 (7 ) 477 Effect of foreign exchange
rates (1 ) 10 (10 ) 21
Net (decrease) increase in
cash and cash equivalents (52 ) (14
) (287 ) 12 Cash and cash equivalents
at beginning of period 117 338 352 312
Cash and cash equivalents at end of period $
65 $ 324 $ 65
$ 324 Supplemental disclosure of
cash flow information: Cash paid for income taxes, net $ 11 $
55 $ 50 $ 114 Cash paid for interest 166 128 379 305
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED) (continued)
(1) We have an open $1.25 billion share repurchase program
that commenced in July 2018. We expect to pause repurchases under
the program following the completion of the pending BlueLine
acquisition discussed above. We intend to complete the share
repurchase program; however, we will continue to evaluate the
decision to do so as we integrate BlueLine. The common stock
repurchases include i) shares repurchased pursuant to our share
repurchase programs and ii) shares withheld to satisfy tax
withholding obligations upon the vesting of restricted stock unit
awards.
UNITED RENTALS, INC.
SEGMENT PERFORMANCE
($ in millions)
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2017 Change 2018
2017 Change General Rentals
Reportable segment equipment rentals revenue $1,444 $1,237 16.7%
$3,977 $3,357 18.5% Reportable segment equipment rentals gross
profit 629 525 19.8% 1,598 1,350 18.4% Reportable segment equipment
rentals gross margin 43.6% 42.4% 120 bps 40.2% 40.2% — bps
Trench, Power and Fluid Solutions Reportable segment
equipment rentals revenue $417 $299 39.5% $974 $712 36.8%
Reportable segment equipment rentals gross profit 218 164 32.9% 482
359 34.3% Reportable segment equipment rentals gross margin 52.3%
54.8% (250) bps 49.5% 50.4% (90) bps
Total United Rentals
Total equipment rentals revenue $1,861 $1,536 21.2% $4,951 $4,069
21.7% Total equipment rentals gross profit 847 689 22.9% 2,080
1,709 21.7% Total equipment rentals gross margin 45.5% 44.9% 60 bps
42.0% 42.0% — bps
UNITED RENTALS, INC.
DILUTED EARNINGS PER SHARE
CALCULATION
(In millions, except per share
data)
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2017 2018 2017 Numerator: Net
income available to common stockholders (1) $ 333 $ 199 $ 786 $ 449
Denominator: Denominator for basic earnings per
share—weighted-average common shares 82.3 84.7 83.3 84.6 Effect of
dilutive securities: Employee stock options 0.4 0.4 0.4 0.4
Restricted stock units 0.5 0.5 0.5 0.5
Denominator for diluted earnings per
share—adjusted weighted-averagecommon shares
83.2 85.6 84.2 85.5 Diluted earnings
per share (1) $ 4.01 $ 2.33
$ 9.34 $ 5.26 (1) The
three and nine months ended September 30, 2018 reflect a reduction
in the U.S. federal corporate statutory tax rate from 35% to 21%
following the enactment of the Tax Cuts and Jobs Act in December
2017, which contributed an estimated $0.73 and $1.68 to diluted
earnings per share for the three and nine months ended September
30, 2018, respectively.
UNITED RENTALS, INC.ADJUSTED EARNINGS
PER SHARE GAAP RECONCILIATION
We define “earnings per share – adjusted” as the sum of earnings
per share – GAAP, as reported plus the impact of the following
special items: merger related costs, merger related intangible
asset amortization, impact on depreciation related to acquired
fleet and property and equipment, impact of the fair value mark-up
of acquired fleet, restructuring charge and loss on
repurchase/redemption of debt securities and amendment of ABL
facility. Management believes that earnings per share - adjusted
provides useful information concerning future profitability.
However, earnings per share - adjusted is not a measure of
financial performance under GAAP. Accordingly, earnings per share -
adjusted should not be considered an alternative to GAAP earnings
per share. The table below provides a reconciliation between
earnings per share – GAAP, as reported, and earnings per share –
adjusted.
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018
2017 Earnings per share - GAAP, as reported (1)
$ 4.01 $ 2.33 $ 9.34
$ 5.26 After-tax impact of: Merger related costs (2)
0.09 0.12 0.12 0.23 Merger related intangible asset amortization
(3) 0.42 0.27 1.18 0.83 Impact on depreciation related to acquired
fleet and property and equipment (4) 0.02 0.07 0.19 0.05 Impact of
the fair value mark-up of acquired fleet (5) 0.11 0.17 0.47 0.36
Restructuring charge (6) 0.09 0.07 0.13 0.21 Loss on
repurchase/redemption of debt securities and amendment of ABL
facility — 0.22 — 0.31
Earnings per
share - adjusted (1) $ 4.74 $
3.25 $ 11.43 $
7.25 Tax rate applied to above adjustments (1) 25.4 %
38.5 % 25.3 % 38.5 % (1) The three and nine months
ended September 30, 2018 reflect a reduction in the U.S. federal
corporate statutory tax rate from 35% to 21% following the
enactment of the Tax Cuts and Jobs Act in December 2017, which
contributed an estimated $0.73 and $1.68, respectively, to earnings
per share-GAAP, and $0.87 and $2.07, respectively, to earnings per
share-adjusted, for the three and nine months ended September 30,
2018. The tax rates applied to the adjustments reflect the
statutory rates in the applicable entities. (2) Reflects
transaction costs associated with the NES, Neff, BakerCorp and
BlueLine acquisitions discussed above. As discussed above, the
BlueLine acquisition is expected to close in the fourth quarter of
2018, subject to Hart-Scott-Rodino clearance and customary
conditions. We have made a number of acquisitions in the past and
may continue to make acquisitions in the future. Merger related
costs only include costs associated with major acquisitions that
significantly impact our operations. The historic acquisitions that
have included merger related costs are RSC, which had annual
revenues of approximately $1.5 billion prior to the acquisition,
and National Pump, which had annual revenues of over $200 million
prior to the acquisition. NES had annual revenues of approximately
$369 million, Neff had annual revenues of approximately $413
million, BakerCorp had annual revenues of approximately $295
million and BlueLine has annual revenues of approximately $786
million. (3) Reflects the amortization of the intangible assets
acquired in the RSC, National Pump, NES, Neff and BakerCorp
acquisitions. (4) Reflects the impact of extending the useful lives
of equipment acquired in the RSC, NES, Neff and BakerCorp
acquisitions, net of the impact of additional depreciation
associated with the fair value mark-up of such equipment. (5)
Reflects additional costs recorded in cost of rental equipment
sales associated with the fair value mark-up of rental equipment
acquired in the RSC, NES and Neff acquisitions and subsequently
sold. (6) Primarily reflects severance and branch closure charges
associated with our closed restructuring programs and our current
restructuring programs. We only include such costs that are part of
a restructuring program as restructuring charges. Since the first
such restructuring program was initiated in 2008, we have completed
three restructuring programs. We have cumulatively incurred total
restructuring charges of $299 million under our restructuring
programs.
UNITED RENTALS, INC.EBITDA AND
ADJUSTED EBITDA GAAP RECONCILIATIONS(In millions)
EBITDA represents the sum of net income, provision for income
taxes, interest expense, net, depreciation of rental equipment, and
non-rental depreciation and amortization. Adjusted EBITDA
represents EBITDA plus the sum of the merger related costs,
restructuring charge, stock compensation expense, net, and the
impact of the fair value mark-up of acquired fleet. These items are
excluded from adjusted EBITDA internally when evaluating our
operating performance and for strategic planning and forecasting
purposes, and allow investors to make a more meaningful comparison
between our core business operating results over different periods
of time, as well as with those of other similar companies. The
EBITDA and adjusted EBITDA margins represent EBITDA or adjusted
EBITDA divided by total revenue. Management believes that EBITDA
and adjusted EBITDA, when viewed with the Company’s results under
GAAP and the accompanying reconciliation, provide useful
information about operating performance and period-over-period
growth, and provide additional information that is useful for
evaluating the operating performance of our core business without
regard to potential distortions. Additionally, management believes
that EBITDA and adjusted EBITDA help investors gain an
understanding of the factors and trends affecting our ongoing cash
earnings, from which capital investments are made and debt is
serviced.
The table below provides a reconciliation between net income and
EBITDA and adjusted EBITDA.
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018
2017 Net income $ 333 $
199 $ 786 $ 449 Provision for
income taxes 127 123 265 263 Interest expense, net 118 131 339 338
Depreciation of rental equipment 343 290 988 804 Non-rental
depreciation and amortization 75 63 213 189
EBITDA (A) $ 996 $ 806 $
2,591 $ 2,043 Merger related costs (1) 11 16
14 32 Restructuring charge (2) 9 9 15 28 Stock compensation
expense, net (3) 30 24 73 64 Impact of the fair value mark-up of
acquired fleet (4) 13 24 53 50
Adjusted
EBITDA (B) $ 1,059 $ 879
$ 2,746 $ 2,217 A)
Our EBITDA margin was 47.1% and 45.6% for the three months
ended September 30, 2018 and 2017, respectively, and 45.1% and
43.3% for the nine months ended September 30, 2018 and 2017,
respectively. B) Our adjusted EBITDA margin was 50.0% and 49.8% for
the three months ended September 30, 2018 and 2017, respectively,
and 47.8% and 47.0% for the nine months ended September 30, 2018
and 2017, respectively. (1) Reflects transaction
costs associated with the NES, Neff, BakerCorp and BlueLine
acquisitions discussed above. As discussed above, the BlueLine
acquisition is expected to close in the fourth quarter of 2018,
subject to Hart-Scott-Rodino clearance and customary conditions. We
have made a number of acquisitions in the past and may continue to
make acquisitions in the future. Merger related costs only include
costs associated with major acquisitions that significantly impact
our operations. The historic acquisitions that have included merger
related costs are RSC, which had annual revenues of approximately
$1.5 billion prior to the acquisition, and National Pump, which had
annual revenues of over $200 million prior to the acquisition. NES
had annual revenues of approximately $369 million, Neff had annual
revenues of approximately $413 million, BakerCorp had annual
revenues of approximately $295 million and BlueLine has annual
revenues of approximately $786 million. (2) Primarily reflects
severance and branch closure charges associated with our closed
restructuring programs and our current restructuring program. We
only include such costs that are part of a restructuring program as
restructuring charges. Since the first such restructuring program
was initiated in 2008, we have completed three restructuring
programs. We have cumulatively incurred total restructuring charges
of $299 million under our restructuring programs. (3) Represents
non-cash, share-based payments associated with the granting of
equity instruments. (4) Reflects additional costs recorded in cost
of rental equipment sales associated with the fair value mark-up of
rental equipment acquired in the RSC, NES and Neff acquisitions and
subsequently sold.
UNITED RENTALS, INC.EBITDA AND
ADJUSTED EBITDA GAAP RECONCILIATIONS (continued)(In
millions)
The table below provides a reconciliation between net cash
provided by operating activities and EBITDA and adjusted
EBITDA.
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018
2017 Net cash provided by operating activities
$ 474 $ 427 $ 2,123
$ 1,756
Adjustments for items included in net cash
provided by operating activities butexcluded from the calculation
of EBITDA:
Amortization of deferred financing costs and original issue
discounts (3 ) (2 ) (9 ) (6 ) Gain on sales of rental equipment 57
55 196 153 Gain on sales of non-rental equipment 1 1 4 4 Gain on
insurance proceeds from damaged equipment 4 2 18 10 Merger related
costs (1) (11 ) (16 ) (14 ) (32 ) Restructuring charge (2) (9 ) (9
) (15 ) (28 ) Stock compensation expense, net (3) (30 ) (24 ) (73 )
(64 ) Loss on repurchase/redemption of debt securities and
amendment of ABL facility — (31 ) — (43 ) Changes in assets and
liabilities 336 220 (68 ) (126 ) Cash paid for interest 166 128 379
305 Cash paid for income taxes, net 11 55 50
114
EBITDA $ 996 $ 806
$ 2,591 $ 2,043 Add back: Merger
related costs (1) 11 16 14 32 Restructuring charge (2) 9 9 15 28
Stock compensation expense, net (3) 30 24 73 64 Impact of the fair
value mark-up of acquired fleet (4) 13 24 53
50
Adjusted EBITDA $ 1,059
$ 879 $ 2,746 $
2,217 (1) Reflects transaction costs
associated with the NES, Neff, BakerCorp and BlueLine acquisitions
discussed above. As discussed above, the BlueLine acquisition is
expected to close in the fourth quarter of 2018, subject to
Hart-Scott-Rodino clearance and customary conditions. We have made
a number of acquisitions in the past and may continue to make
acquisitions in the future. Merger related costs only include costs
associated with major acquisitions that significantly impact our
operations. The historic acquisitions that have included merger
related costs are RSC, which had annual revenues of approximately
$1.5 billion prior to the acquisition, and National Pump, which had
annual revenues of over $200 million prior to the acquisition. NES
had annual revenues of approximately $369 million, Neff had annual
revenues of approximately $413 million, BakerCorp had annual
revenues of approximately $295 million and BlueLine has annual
revenues of approximately $786 million. (2) Primarily reflects
severance and branch closure charges associated with our closed
restructuring programs and our current restructuring program. We
only include such costs that are part of a restructuring program as
restructuring charges. Since the first such restructuring program
was initiated in 2008, we have completed three restructuring
programs. We have cumulatively incurred total restructuring charges
of $299 million under our restructuring programs. (3) Represents
non-cash, share-based payments associated with the granting of
equity instruments. (4) Reflects additional costs recorded in cost
of rental equipment sales associated with the fair value mark-up of
rental equipment acquired in the RSC, NES and Neff acquisitions and
subsequently sold.
UNITED RENTALS, INC.FREE CASH FLOW
GAAP RECONCILIATION(In millions)
We define “free cash flow” as net cash provided by operating
activities less purchases of, and plus proceeds from, equipment.
The equipment purchases and proceeds are included in cash flows
from investing activities. Management believes that free cash flow
provides useful additional information concerning cash flow
available to meet future debt service obligations and working
capital requirements. However, free cash flow is not a measure of
financial performance or liquidity under GAAP. Accordingly, free
cash flow should not be considered an alternative to net income or
cash flow from operating activities as an indicator of operating
performance or liquidity. The table below provides a reconciliation
between net cash provided by operating activities and free cash
flow.
Three Months Ended
Nine Months Ended September 30, September 30,
2018 2017 2018
2017 Net cash provided by operating activities
$ 474 $ 427 $ 2,123
$ 1,756 Purchases of rental equipment (736 ) (572 )
(1,962 ) (1,485 ) Purchases of non-rental equipment (54 ) (32 )
(134 ) (87 ) Proceeds from sales of rental equipment 140 139 478
378 Proceeds from sales of non-rental equipment 5 4 13 10 Insurance
proceeds from damaged equipment 4 2 18 10
Free cash flow (1) $ (167 )
$ (32 ) $ 536 $
582 (1) Free cash flow included
aggregate merger and restructuring related payments of $16 million
and $21 million for the three months ended September 30, 2018 and
2017, respectively, and $32 million and $52 million for the nine
months ended September 30, 2018 and 2017, respectively.
The table below provides a reconciliation between 2018
forecasted net cash provided by operating activities and free cash
flow.
Net cash provided by operating
activities $2,725- $2,875 Purchases of rental equipment
$(2,000)-$(2,100) Proceeds from sales of rental equipment $600-$700
Purchases of non-rental equipment, net of proceeds from sales and
insurance proceeds from damaged equipment $(75)-$(125)
Free cash
flow (excluding the impact of merger and restructuring related
payments) $1,250- $1,350
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181017005856/en/
Ted Grace(203) 618-7122Cell: (203) 399-8951tgrace@ur.com
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