United Rentals Announces Third Quarter 2012 Results

United Rentals Announces Third Quarter 2012 Results

Updates Full Year 2012 Pro-Forma Outlook


GREENWICH, Conn.--(BUSINESS WIRE)-- United Rentals, Inc. (NYS: URI) today announced financial results for the third quarter 20121. Total revenue was $1.219 billion and rental revenue was $1.051 billion.On a GAAP basis, the company reported third quarter 2012 net income of $73 million, or earnings of $0.70 per diluted share. Adjusted EPS2 for the quarter was $1.35 per diluted share. The company's effective tax rate for the third quarter 2012 was 22.3%.

Third Quarter 2012 Highlights3

The following year-over-year pro-forma comparisons assume the combination of United Rentals results and RSC results for the third quarter 2011:

  • Adjusted EBITDA4 was $570 million and adjusted EBITDA margin was 46.8% for the quarter, an increase of $124 million and 700 basis points, respectively, from the same period last year.

  • Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 126.5%.

  • Rental revenue increased 8.9% for the quarter, reflecting an increase of 7.9% in the volume of equipment on rent and an increase of 7.5% in rental rates year-over-year.5 Time utilization decreased 200 basis points to 69.8% from the same period last year.

  • Realized cost synergies were $45 million in the third quarter ($62 million year-to-date), toward a fully-developed goal of at least $230 million on a run-rate basis. The company raised its expected cost synergies to a range of $230 - $250 million, compared to a prior estimate of at least $230 million.

  • The company generated $101 million of proceeds from used equipment sales at a gross margin of 40.3%6, compared with $74 million of proceeds at a gross margin of 36.4% for the same period last year.

CEO Comments

Michael Kneeland, chief executive officer of United Rentals, said, "We delivered a strong performance in the quarter, propelled by the effective execution of our strategy and widespread demand for our rental equipment. All but one of our regions reported year-over-year rate increases, and we now expect a rate gain of approximately 7% for the full year. Third quarter time utilization, while below last year's record level, contributed to a very healthy year-to-date performance of 67%. Our exceptionally strong flow-through and adjusted EBITDA margin make it clear that we're effectively managing rates, utilization and costs."

Kneeland continued, "The RSC integration is going very well, and we're raising our total cost synergies target to a range of $230 to $250 million. We've realigned our sales territories and consolidated 187 branches to date, all while continuing to generate double-digit revenue growth from our target accounts. These larger customers are at the heart of our strategy for profitable growth. They believe, as do we, that while there is some macro uncertainty, there are also good reasons to be optimistic about the coming year."

2012 Pro-Forma Outlook

The company has updated its full year pro-forma outlook as follows:

  • Total revenue in a range of $4.6 billion to $4.7 billion, compared with 2011 total revenue of $4.13 billion;

  • Adjusted EBITDA in a range of $1.95 billion to $2.0 billion, compared with 2011 adjusted EBITDA of $1.49 billion;

  • An increase in rental rates of approximately 7.0% year-over-year, updated from the company's prior estimate of a 6.5% increase;

  • Time utilization of approximately 67.5%, updated from the company's prior estimate of 68.0%;

  • Net rental capital expenditures of between $1.075 billion and $1.125 billion, after gross purchases of between $1.5 billion and $1.6 billion; and

  • Full year free cash usage (excluding the impact of merger related costs) in the range of $25 million to $75 million, updated from the company's prior estimate of cash flow usage in the range of $90 million to $140 million.7

RSC Integration Update

Since the close of the RSC transaction on April 30, 2012, the company has:

  • Consolidated 187 branches;

  • Integrated RSC locations onto a common information technology platform;

  • Implemented price optimization software in all legacy RSC branches;

  • Harmonized the majority of National and Strategic Accounts, and realigned sales territories;

  • Increased its 2012 realized cost synergy target to $100 million; and

  • Reaffirmed its revenue synergy target of $70 million ($50 million of EBITDA) on a fully-developed basis.

Nine Months 2012 Results

For the first nine months of 2012, on an as-reported basis8, the company reported the following results:

  • Total revenue was $2.868 billion, and rental revenue was $2.419 billion;

  • GAAP net income was $34 million, or earnings of $0.37 per diluted share;

  • Adjusted EPS was $2.44 per diluted share; and

  • Adjusted EBITDA was $1.219 billion, and adjusted EBITDA margin was 42.5%;

On a pro-forma basis (that is, assuming the combination of United Rentals results and RSC results for the nine months ended September 30, 2011 and 2012), the company reported the following:

  • Total revenue was $3.415 billion and rental revenue was $2.884 billion, compared with $2.967 billion and $2.509 billion, respectively, for the same period last year.

  • Adjusted EBITDA was $1.435 billion and adjusted EBITDA margin was 42.0%, an increase of $390 million and 680 basis points, respectively, from the same period last year.

  • Flow-through was 87.1%.

  • Rental revenue increased 14.9%, reflecting an increase of 13.0% in the volume of equipment on rent and an increase of 7.3% in rental rates year-over-year.5

  • Time utilization was 67.1%, unchanged from the same period last year.

  • The company generated $322 million of proceeds from used equipment sales at a gross margin of 39.9%6, compared with $229 million of proceeds at a gross margin of 34.5% for the same period last year.

Free Cash Flow and Fleet Size

For the first nine months of 2012, on an as-reported basis, free cash usage was $410 million after (i) total rental and non-rental capital expenditures of $1.185 billion, and (ii) aggregate merger and restructuring related cash payments of $119 million.

The size of the rental fleet was $7.40 billion of original equipment cost at September 30, 2012, compared with $4.05 billion at December 31, 2011. The age of the rental fleet was 46.4 months on an OEC-weighted basis at September 30, 2012, compared with 50.3 months at December 31, 2011.

Return on Invested Capital (ROIC)

Return on invested capital, on an as-reported basis, was 7.4% for the 12 months ended September 30, 2012, an increase of 1.7 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 and excludes the impact of merger and restructuring related costs. 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.

Conference Call

United Rentals will hold a conference call tomorrow, Wednesday, October 17, 2012, at 11:00 a.m. Eastern Time. The conference call will be available live by audio webcast at unitedrentals.com, where it will be archived until the next earnings call, and by calling 866-238-1665.

Non-GAAP Measures

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 (usage) flow 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 from continuing operations, loss from discontinued operations, net of taxes, 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 our 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 gain on sale of our software subsidiary and the loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures. 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 848 rental locations in 48 states and 10 Canadian provinces. The company's approximately 11,200 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers for rent approximately 3,400 classes of equipment with a total original cost of $7.40 billion. United Rentals is a member of the Standard & Poor's MidCap 400 Index and the Russell 2000 Index® and is headquartered in Greenwich, 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) a slowdown in the recovery of North American construction and industrial activities, which decreased during the economic downturn and significantly affected our revenues and profitability, may further reduce demand for equipment and prices that we can charge; (2) a decrease in levels of infrastructure spending, including lower than expected government funding for stimulus-related construction projects; (3) our highly leveraged capital structure, 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; (4) restrictive covenants in our debt agreements, which could limit our financial and operational flexibility; (5) noncompliance with covenants in our debt agreements, which could result in termination of our credit facilities and acceleration of outstanding borrowings; (6) inability to access the capital that our business may require; (7) inability to manage credit risk adequately or to collect on contracts with customers; (8) incurrence of impairment charges; (9) 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; (10) an increase in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (11) incurrence of additional costs and expenses (including indemnification obligations) in connection with litigation, regulatory or investigatory matters; (12) increases in our maintenance and replacement costs as we age our fleet, and decreases in the residual value of our equipment; (13) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (14) challenges associated with past or future acquisitions, such as undiscovered liabilities, costs, integration issues and/or the inability to achieve the cost and revenue synergies expected; (15) management turnover and inability to attract and retain key personnel; (16) our rates and time utilization being less than anticipated; (17) our costs being more than anticipated, the inability to realize expected savings in the amounts or time frames planned and the inability to obtain key equipment and supplies; (18) disruptions in our information technology systems; (19) competition from existing and new competitors; (20) labor difficulties and labor-based legislation affecting labor relations and operations generally; and (21) the costs of complying with environmental and safety regulations. 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, 2011, 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.

1 On April 30, 2012, the company completed the acquisition of RSC Holdings, Inc. ("RSC"). The company's results for the third quarter 2012 include the results of legacy RSC operations for the full third quarter 2012.
2 Adjusted EPS is a non-GAAP measure that excludes the impact of the following special items: (i) RSC merger related costs; (ii) restructuring charge; (iii) asset impairment charge; (iv) pre-close RSC merger related interest expense; (v) impact on interest expense related to fair value adjustment of acquired RSC indebtedness; (vi) impact on depreciation related to acquired RSC fleet and property and equipment; (vii) impact of the fair value mark-up of acquired RSC fleet and inventory; (viii) RSC merger related intangible asset amortization; (ix) the gain on sale of our software subsidiary; and (x) the loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures. See table below for amounts.
3 Rental rate, time utilization and OEC calculations are based on the American Rental Association metrics criteria; comparisons to 2011 are based on a recast of these metrics on the same basis.
4 Adjusted EBITDA is a non-GAAP measure that excludes the impact of the following special items: (i) RSC merger related costs; (ii) restructuring charge; (iii) stock compensation expense, net; (iv) the impact of the fair value mark-up of acquired RSC fleet and inventory; and (v) the gain on sale of our software subsidiary. See tables below for amounts.
5 The favorable impact of the 2012 volume and rental rate increases were partially offset by the impact of rental mix. Consistent with the company's strategic focus on larger accounts, there has been a mix shift towards monthly rentals in the current period.
6 Excludes the impact of the fair value mark-up of acquired RSC fleet which was sold during the period.
7 The company's free cash usage forecast for 2012 includes the negative impact of converting RSC's accounts payable terms to the company's terms; the forecasted impact is approximately $200 million.
8 As-reported basis includes the results of legacy RSC operations only from April 30, 2012, forward.

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,

2012

2011

2012

2011

Revenues:

Equipment rentals

$

1,051

$

604

$

2,419

$

1,562

Sales of rental equipment

101

42

258

115

Sales of new equipment

24

24

64

60

Contractor supplies sales

23

23

64

66

Service and other revenues

20

20

63

62

Total revenues

1,219

713

2,868

1,865

Cost of revenues:

Cost of equipment rentals, excluding depreciation

395

261

991

740

Depreciation of rental equipment

204

110

491

312

Cost of rental equipment sales

72

27

175

73

Cost of new equipment sales

19

19

51

48

Cost of contractor supplies sales

17

15

45

45

Cost of service and other revenues

7

7

23

24

Total cost of revenues

714

439

1,776

1,242

Gross profit

505

274

1,092

623

Selling, general and administrative expenses

164

103

412

298

RSC merger related costs

8

98

Restructuring charge

40

2

93

5

Non-rental depreciation and amortization

71

13

134

39

Operating income

222

156

355

281

Interest expense, net

127

57

316

170

Interest expense—subordinated convertible debentures

1

1

3

5

Other expense (income), net

2

(13

)

(2

)

Income from continuing operations before provision for income taxes

94

96

49

108

Provision for income taxes

21

31

15

35

Income from continuing operations

$

73

$

65

$

34

$

73

Loss from discontinued operation, net of taxes

(1

)

Net income

$

73

$

65

$

34

$

72

Diluted earnings per share:

Income from continuing operations

$

0.70

$

0.91

$

0.37

$

1.00

Loss from discontinued operation

(0.01

)

Net income

$

0.70

$

0.91

$

0.37

$

0.99

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

September 30, 2012

December 31, 2011

(unaudited)

ASSETS

Cash and cash equivalents

$

68

$

36

Accounts receivable, net

804

464

Inventory

89

44

Prepaid expenses and other assets

108

75

Deferred taxes

42

104

Total current assets

1,111

723

Rental equipment, net

5,103

2,617

Property and equipment, net

426

366

Goodwill and other intangible assets, net

4,228

372

Other long-term assets

124

65

Total assets

$

10,992

$

4,143

LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term debt and current maturities of long-term debt

$

651

$

395

Accounts payable

408

206

Accrued expenses and other liabilities

455

263

Total current liabilities

1,514

864

Long-term debt

6,724

2,592

Subordinated convertible debentures

55

55

Deferred taxes

1,106

470

Other long-term liabilities

65

59

Total liabilities

9,464

4,040

Temporary equity

33

39

Common stock

1

1

Additional paid-in capital

1,977

487

Accumulated deficit

(465

)

(499

)

Treasury stock

(112

)

Accumulated other comprehensive income

94

75

Total stockholders' equity

1,495

64

Total liabilities and stockholders' equity

$

10,992

$

4,143

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2012

2011

2012