United Rentals Announces Third Quarter 2013 Results
United Rentals Announces Third Quarter 2013 Results
Board Authorizes $500 Million Share Repurchase
STAMFORD, Conn.--(BUSINESS WIRE)-- United Rentals, Inc. (NYS: URI) today announced financial results for the third quarter 2013. Total revenue was $1.311 billion and rental revenue was $1.138 billion, compared with $1.219 billion and $1.051 billion, respectively, for the same period last year. On a GAAP basis, the company reported third quarter net income of $143 million, or $1.35 per diluted share, compared with $73 million, or $0.70 per diluted share, for the same period last year.
Adjusted EPS1 for the quarter was $1.63 per diluted share, compared with $1.35 per diluted share for the same period last year. Adjusted EBITDA2 was $642 million and adjusted EBITDA margin was a company record 49.0% for the quarter.
Share Repurchase Authorization
The company's board of directors has approved a share repurchase program authorizing up to $500 million in share repurchases. The company's current intention is to complete the repurchases within 18 months.
Third Quarter 2013 Highlights 3
- Rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 8.3% year-over-year. Within rental revenue, owned equipment rental revenue increased 8.0%, reflecting year-over-year increases of 8.2% in the volume of equipment on rent and 3.2% in rental rates. The company has reaffirmed its outlook for a full-year increase in rental rates of at least 4%.
- Adjusted EBITDA was $642 million and adjusted EBITDA margin was a company record 49.0%, an increase of $72 million and 220 basis points, respectively, from the same period last year. The company has reaffirmed its outlook for full year adjusted EBITDA in a range of $2.25 billion to $2.35 billion.
- Time utilization increased 100 basis points year-over-year to 70.8%. The company has reaffirmed its outlook for full year time utilization of approximately 68.0%.
- The company generated $102 million of proceeds from used equipment sales at an adjusted gross margin of 48.0%, compared with $101 million of proceeds at an adjusted gross margin of 40.3% for the same period last year. 4
- The company realized cost synergies of $64 million in the quarter from the integration of RSC, and reaffirmed its goal of $230 million to $250 million of annual cost synergies in 2014.
- Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 78.3%.
Michael Kneeland, chief executive officer of United Rentals, said, "This was a strong quarter for us, capped by a record 49% adjusted EBITDA margin. We leveraged increasing demand for our services to put more equipment on rent at higher utilization, and with sequential monthly rate improvements throughout the quarter. This is the environment we anticipated when we set our full year financial targets, and we expect that nonresidential construction will continue to trend upward in 2014. As we plan for the coming year, our operations are in a strong position to drive margin expansion through further rate improvement and business process efficiencies."
Kneeland continued, "The $500 million share repurchase program we announced today reflects our confidence in achieving our multi-year free cash flow generation goals, while pursuing a balanced and disciplined capital allocation strategy that includes organic growth and acquisitions."
Nine Months 2013 Results
On a pro-forma basis (that is, assuming the combination of United Rentals results and RSC results for the entire nine months ended September 30, 2012), the company reported the following:
- Total revenue was $3.617 billion and rental revenue was $3.063 billion, compared with $3.415 billion and $2.884 billion, respectively, for the same period last year.
- Rental revenue increased 6.2%. Within rental revenue, owned equipment rental revenue increased 7.2%, reflecting year-over-year increases of 6.4% in the volume of equipment on rent and 4.2% in rental rates.
- Adjusted EBITDA was $1.642 billion and adjusted EBITDA margin was 45.4%, an increase of $207 million and 340 basis points, respectively, from the same period last year.
- Time utilization increased 60 basis points year-over-year to 67.7%.
- The company generated $356 million of proceeds from used equipment sales at an adjusted gross margin of 44.4%, compared with $322 million of proceeds at an adjusted gross margin of 39.9% for the same period last year.
- Flow-through was 102.5%.
Free Cash Flow and Fleet Size
For the first nine months of 2013, free cash usage (negative flow) was $84 million, after total rental and non-rental capital expenditures of $1.570 billion. By comparison, free cash usage for the first nine months of 2012 was $410 million after total rental and non-rental capital expenditures of $1.185 billion. Free cash usage for the nine months ended September 30, 2013 and 2012 includes aggregate merger and restructuring related payments of $33 million and $119 million, respectively.
The company has reaffirmed its outlook for full year 2013 free cash flow in the range of $400 million to $500 million, after net rental capital expenditures of approximately $1.1 billion and gross purchases of approximately $1.6 billion.
The size of the rental fleet was $7.96 billion of original equipment cost at September 30, 2013, compared with $7.23 billion at December 31, 2012. The age of the rental fleet was 44.0 months on an OEC-weighted basis at September 30, 2013, compared with 47.2 months at December 31, 2012.
Return on Invested Capital (ROIC)
Return on invested capital on an as-reported basis was 7.1% for the 12 months ended September 30, 2013, a decrease of 0.3 percentage points from the same period last year. The company's ROIC metric uses after-tax operating income for the trailing 12 months divided by the averages of stockholders' equity (deficit), 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 federal statutory tax rate of 35% is used to calculate after-tax operating income.5
United Rentals will hold a conference call tomorrow, Thursday, October 17, 2013, at 11:00 a.m. Eastern Time. The conference call number is 866-238-1422. The conference call will also be available live by audio webcast at ur.com, where it will be archived until the next earnings call. The replay number for the call is 703-925-2533, passcode is 1624325.
Free cash (usage) 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 (usage) represents net cash provided by operating activities, less purchases of rental and non-rental equipment plus proceeds from sales of rental and non-rental equipment and excess tax benefits from share-based payment arrangements, net. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of RSC merger related costs, restructuring charge, stock compensation expense, net, the impact of the fair value mark-up of acquired RSC fleet and inventory, and the gain on sale of software subsidiary. Adjusted EPS represents EPS plus the sum of the RSC merger related costs, restructuring charge, asset impairment charge, pre-close RSC merger related interest expense, the impact on interest expense related to the fair value adjustment of acquired RSC indebtedness, the impact on depreciation related to acquired RSC fleet and property and equipment, the impact of the fair value mark-up of acquired RSC fleet and inventory, RSC merger related intangible asset amortization, the loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures and the gain on sale of software subsidiary. The company believes that: (i) free cash (usage) 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 (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 free cash flow and Adjusted EBITDA to GAAP financial measures is unavailable to the company without unreasonable effort.
About United Rentals
United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of 822 rental locations that operate in 49 U.S. states and every Canadian province. The company's approximately 11,700 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers for rent approximately 3,200 classes of equipment for rent with a total original cost of $7.96 billion. United Rentals is a member of the Standard & Poor's MidCap 400 Index, the Barron's 400 Index and the Russell 2000 Index® and is headquartered in Stamford, Conn. Additional information about United Rentals is available at ur.com.
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 possibility that RSC or other companies that we have acquired or may acquire could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate; (2) our highly leveraged capital structure 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; (3) a change in the pace of the recovery in our end markets. Our business is cyclical and highly sensitive to North American construction and industrial activities. Although we have recently experienced an upturn in rental activity, there is no certainty this trend will continue. If the pace of the recovery slows or construction activity declines, our revenues and, because many of our costs are fixed, our profitability, may be adversely affected; (4) inability to benefit from government spending, including spending associated with infrastructure projects; (5) restrictive covenants in our debt instruments, which can limit our financial and operational flexibility; (6) noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating our credit facilities and requiring us to repay outstanding borrowings; (7) inability to access the capital that our businesses or growth plans may require; (8) inability to manage credit risk adequately or to collect on contracts with a large number of customers; (9) incurrence of impairment charges; (10) the outcome or other potential consequences of regulatory matters and commercial litigation; (11) increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (12) incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters; (13) increases in our maintenance and replacement costs and decreases in the residual value of our equipment; (14) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (15) turnover in our management team and inability to attract and retain key personnel; (16) rates we charge and time utilization we achieve being less than anticipated; (17) costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or timeframe planned; (18) dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms; (19) competition from existing and new competitors; (20) disruptions in our information technology systems; (21) the costs of complying with environmental and safety regulations; (22) labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally; (23) shortfalls in our insurance coverage; and (24) inability to complete stock repurchases in the timeframe and/or on the terms anticipated. 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, 2012, 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,|
|Sales of rental equipment||102||101||356||258|
|Sales of new equipment||29||24||74||64|
|Contractor supplies sales||23||23||66||64|
|Service and other revenues||19||20||58||63|
|Cost of revenues:|
|Cost of equipment rentals, excluding depreciation||422||395||1,214||991|
|Depreciation of rental equipment||219||204||629||491|
|Cost of rental equipment sales||62||72||232||175|
|Cost of new equipment sales||23||19||59||51|
|Cost of contractor supplies sales||15||17||44||45|
|Cost of service and other revenues||6||7||19||23|
|Total cost of revenues||747||714||2,197||1,776|
|Selling, general and administrative expenses||167||164||479||412|
|RSC merger related costs||—||8||8||98|
|Non-rental depreciation and amortization||59||71||185||134|
|Interest expense, net||121||127||357||316|
|Interest expense—subordinated convertible debentures||—||1||3||3|
|Other income, net||(2||)||—||(3||)||(13||)|
|Income before provision for income taxes||218||94||379||49|
|Provision for income taxes||75||21||132||15|
|Diluted earnings per share||$||1.35||$||0.70||$||2.33||$||0.37|
|UNITED RENTALS, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|September 30, 2013|
|(unaudited)||December 31, 2012|
|Cash and cash equivalents||$||125||$||106|
|Accounts receivable, net||807||793|
|Prepaid expenses and other assets||129||111|
|Total current assets||1,414||1,343|
|Rental equipment, net||5,599||4,966|
|Property and equipment, net||420||428|
|Other intangible assets, net||1,064||1,200|
|Other long-term assets||105||119|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Short-term debt and current maturities of long-term debt||$||630||$||630|
|Accrued expenses and other liabilities||422||435|
|Total current liabilities||1,418||1,351|
|Subordinated convertible debentures||—||55|
|Other long-term liabilities||69||65|
|Additional paid-in capital||2,030||1,997|
|Accumulated other comprehensive income||53||84|
|Total stockholders' equity||1,707||1,543|
|Total liabilities and stockholders' equity||$||11,563||$||11,026|
|UNITED RENTALS, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Cash Flows From Operating Activities:|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation and amortization||278||275||814||625|
|Amortization of deferred financing costs and original issue discounts||5||5||16||17|
|Gain on sales of rental equipment||(40||)||(29||)||(124||)||(83||)|
|Gain on sales of non-rental equipment||(1||)||—||(3||)||(2||)|
|Gain on sale of software subsidiary||—||
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