Market Overview

United Rentals Announces Third Quarter 2020 Results and Raises Full-Year Guidance

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United Rentals, Inc. (NYSE:URI) today announced financial results for the third quarter of 2020 and raised its full-year 2020 guidance.

Third Quarter 2020 Highlights

  • Total revenue of $2.187 billion, including rental revenue1 of $1.861 billion.
  • Fleet productivity2 decreased 8.0% year-over-year, reflecting the impact of COVID-19 on volumes; fleet productivity improved sequentially by 560 basis points, primarily due to better fleet absorption.
  • Net income3 of $208 million, implying a net income margin3 of 9.5%. GAAP diluted earnings per share3 of $2.87, and adjusted EPS3 of $5.40.
  • Adjusted EBITDA3 of $1.081 billion, implying an adjusted EBITDA margin3 of 49.4%.
  • $827 million of net cash from operating activities; free cash flow4 of $583 million, including gross rental capital spending of $432 million.
  • Total liquidity5 at September 30, 2020 of $3.430 billion.

CEO Comment

Matthew Flannery, chief executive officer of United Rentals, said, "We're pleased with our third quarter results, particularly our cost performance and the quarter-over-quarter improvement in fleet absorption. I am incredibly proud of our team as they continue to provide outstanding support to our customers, while maintaining a strong focus on safety and disciplined execution."

Flannery continued, "The recovery that we've seen since the spring has been evident in most of our markets with demand tracking to normal seasonal patterns. We expect current trends to continue and have raised our full-year 2020 outlook for revenue, profitability and free cash flow. While the pace of the recovery remains uncertain, we are encouraged by the steady improvements we are seeing. Most importantly, we remain confident in our ability to execute well under any market conditions."

_______________

1.

Rental revenue includes owned equipment rental revenue, re-rent revenue and ancillary revenue.

2.

Fleet productivity reflects the combined impact of changes in rental rates, time utilization and mix on owned equipment rental revenue. See the table below for more information

3.

GAAP net income, net income margin and diluted earnings per share for the third quarter of 2020 include the impact of an after-tax debt extinguishment loss of $119 million, or $1.64 per diluted share. Adjusted EPS (earnings per share) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP measures as defined in the tables below. See the tables below for reconciliations to the most comparable GAAP measures. Net income margin and adjusted EBITDA margin represent net income or adjusted EBITDA divided by total revenue.

4.

Free cash flow is a non-GAAP measure. See the table below for a reconciliation to the most comparable GAAP measure.

5.

Reflects cash and cash equivalents plus availability under the asset-based revolving credit facility ("ABL facility") and the accounts receivable securitization facility.

2020 Outlook

The company has issued the following new full-year guidance:

 

Prior Outlook

 

Current Outlook

Total revenue

$8.05 billion to $8.45 billion

 

$8.35 billion to $8.45 billion

Adjusted EBITDA6

$3.6 billion to $3.8 billion

 

$3.825 billion to $3.875 billion

Net rental capital expenditures after gross purchases

$50 million to $150 million, after gross purchases of $800 million to $900 million

 

$100 million to $150 million, after gross purchases of $900 million to $950 million

Net cash provided by operating activities

$2.25 billion to $2.55 billion

 

$2.45 billion to $2.55 billion

Free cash flow (excluding the impact of merger and restructuring related payments)

$2.0 billion to $2.2 billion

 

$2.2 billion to $2.3 billion

Summary of Third Quarter 2020 Financial Results

  • Rental revenue for the quarter was $1.861 billion, reflecting a decrease of 13.3% year-over-year. Rental volumes improved sequentially in each month in the quarter, consistent with normal seasonality.
  • Fleet productivity for the quarter decreased 8.0% year-over-year, mainly due to lower rental volumes. Fleet productivity improved by 560 basis points sequentially, primarily reflecting better fleet absorption.
  • Used equipment sales in the quarter generated $199 million of proceeds at a GAAP gross margin of 38.2% and an adjusted gross margin7 of 44.2%; this compares with $198 million at a GAAP gross margin of 38.4% and an adjusted gross margin of 46.0% for the same period last year. Used equipment proceeds in the quarter were approximately 51.4% of original equipment cost ("OEC"), compared to 53.2% in the year-ago period.
  • Net income for the quarter decreased 46.8% year-over-year to $208 million, while net income margin decreased 620 basis points to 9.5%. Net interest expense increased $131 million year-over-year primarily due to a loss of $159 million associated with the note redemptions made by the company during the quarter, partially offset by decreases in average debt and the average cost of debt. Gross margin from equipment rentals decreased 90 basis points year-over-year, with 180 basis points of the margin decline due to depreciation expense, which increased as a percentage of revenue. The 90 basis point increase in rental gross margin excluding the depreciation impact was primarily due to actions the company took to manage operating costs and a majority of approximately $20 million of non-recurring benefits in the third quarter of 2020, notably benefits from certain insurance recoveries. The impact of interest and depreciation expense on net income margin was partially offset by lower income tax expense. Year-over-year, the effective income tax rate was largely flat, but income tax expense decreased as a percentage of revenue.

_______________

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.

Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC, NES, Neff and BlueLine fleet that was sold.

  • Adjusted EBITDA for the quarter decreased 10.4% year-over-year to $1.081 billion, while adjusted EBITDA margin increased 90 basis points to 49.4%. The increase in adjusted EBITDA margin included a 90 basis point increase in rental margin (excluding depreciation), which reflects the combined impact of actions the company has taken to manage costs and the majority of the non-recurring benefits discussed above. Adjusted EBITDA margin also benefited from a decrease in selling, general and administrative ("SG&A") expense as a percentage of revenue. Excluding the non-recurring benefits, adjusted EBITDA margin for the third quarter was flat year-over-year.
  • General rentals segment had a 15.3% year-over-year decrease in rental revenue to $1.391 billion for the quarter. Rental gross margin decreased by 190 basis points to 39.0%, with 220 basis points of the margin decline due to depreciation expense, which increased as a percentage of revenue. The 30 basis point increase in rental gross margin excluding the depreciation impact was primarily due to the combined impact of actions the company has taken to manage operating costs, and the one-time benefits discussed above.
  • Specialty rentals segment, or Trench, Power and Fluid Solutions, rental revenue decreased 6.9% year-over-year to $470 million for the quarter. Rental gross margin increased by 110 basis points to 49.8%, mainly due to decreases in certain operating costs, including repairs and overtime labor, partially offset by increases in depreciation expense and certain fixed expenses, such as facility costs, as a percentage of revenue.
  • Cash flow from operating activities decreased 11.4% to $2.288 billion for the first nine months of 2020, and free cash flow, including aggregated merger and restructuring payments, increased 85.4% to $2.006 billion. The increase in free cash flow was predominantly due to decreased net rental capital expenditures (purchases of rental equipment less proceeds from sales of rental equipment), partially offset by lower net cash from operating activities. Net rental capital expenditures decreased $1.185 billion year-over-year, primarily reflecting reduced purchases of rental equipment.
  • Capital management includes the company's targeted net leverage ratio range of 2.0x-3.0x. The net leverage ratio was 2.4x at September 30, 2020, as compared to 2.6x at December 31, 2019. Year-to-date, the company has reduced its total net debt by $1.499 billion. On January 28, 2020, the company's Board of Directors authorized a new $500 million share repurchase program. Through March 18, 2020, when the program was paused due to the pandemic, the company repurchased $257 million of common stock, reducing the diluted share count by 2.6%.
  • Total liquidity was $3.430 billion as of September 30, 2020, including $174 million of cash and cash equivalents, an increase of $1.287 billion from December 31, 2019. In October 2020, the company redeemed all $750 million principal amount of its 4 5/8 percent Senior Notes due 2025. Notably, following the redemption of the 4 5/8 percent Senior Notes, the company has no note maturities until 2026.
  • Return on invested capital (ROIC)8 was 9.2% for the 12 months ended September 30, 2020, compared with 10.7% for the 12 months ended September 30, 2019. ROIC exceeded the company's current weighted average cost of capital of approximately 7.0%.

_______________

8.

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 rate of 21% was used to calculate after-tax operating income.

Conference Call

United Rentals will hold a conference call tomorrow, Thursday, October 29, 2020, 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 7638219.

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, merger related intangible asset amortization, asset impairment charge and loss on repurchase/redemption of debt securities and amendment of ABL facility. 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 1,170 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 18,400 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers approximately 4,000 classes of equipment for rent with a total original cost of $14.16 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) uncertainty regarding the length of time it will take for the United States and the rest of the world to slow the spread of the novel strain of coronavirus (COVID-19) to the point where applicable governmental authorities are comfortable easing current "social distancing" policies, which have required closing many businesses deemed "non-essential"; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for equipment rentals; (2) the extent to which businesses in and associated with the construction industry, including equipment rental service providers such as us, continue to be deemed "essential" for the purposes of "social distancing" policies in the regions in which we operate; (3) the impact of global economic conditions (including potential trade wars) and public health crises and epidemics, such as COVID-19, on us, our customers and our suppliers, in the United States and the rest of the world; (4) the possibility that companies that we have acquired or may acquire, including BakerCorp and BlueLine, could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate; (5) the cyclical nature of our business, which is highly sensitive to North American construction and industrial activities; if construction or industrial activity decline, our revenues and, because many of our costs are fixed, our profitability may be adversely affected; (6) 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; (7) the inability to refinance our indebtedness on terms that are favorable to us (including as a result of current volatility and uncertainty in capital markets due to COVID-19), or at all; (8) the incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness; (9) noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings; (10) restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility; (11) overcapacity of fleet in the equipment rental industry, including as a result of reduced demand for fleet due to the impacts of COVID-19 on our customers; (12) inability to benefit from government spending, including spending associated with infrastructure projects; (13) fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated (for example, due to COVID-19); (14) rates we charge and time utilization we achieve being less than anticipated (including as a result of COVID-19); (15) inability to manage credit risk adequately or to collect on contracts with a large number of customers; (16) inability to access the capital that our businesses or growth plans may require (including as a result of uncertainty in capital or other financial markets due to COVID-19); (17) the incurrence of impairment charges; (18) trends in oil and natural gas could adversely affect the demand for our services and products; (19) the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions; (20) increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (21) incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters; (22) the outcome or other potential consequences of regulatory matters and commercial litigation; (23) shortfalls in our insurance coverage; (24) our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us; (25) turnover in our management team and inability to attract and retain key personnel, as well as loss, absenteeism or the inability of employees to work or perform key functions in light of public health crises or epidemics (including COVID-19); (26) costs we incur being more than anticipated and the inability to realize expected savings in the amounts or time frames planned; (27) our dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms; (28) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (29) competition from existing and new competitors; (30) risks related to security breaches, cybersecurity attacks, failure to protect personal information, compliance with data protection laws and other significant disruptions in our information technology systems; (31) 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 (including as a result of Brexit), and tariffs; (32) 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 and operations generally; (33) increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment; and (34) the effect of changes in tax law. 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, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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,

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

Equipment rentals

$

1,861

 

 

$

2,147

 

 

$

5,286

 

 

$

5,902

 

Sales of rental equipment

199

 

 

198

 

 

583

 

 

587

 

Sales of new equipment

54

 

 

67

 

 

169

 

 

189

 

Contractor supplies sales

25

 

 

27

 

 

73

 

 

78

 

Service and other revenues

48

 

 

49

 

 

140

 

 

139

 

Total revenues

2,187

 

 

2,488

 

 

6,251

 

 

6,895

 

Cost of revenues:

 

 

 

 

 

 

 

Cost of equipment rentals, excluding depreciation

689

 

 

813

 

 

2,083

 

 

2,324

 

Depreciation of rental equipment

395

 

 

417

 

 

1,216

 

 

1,211

 

Cost of rental equipment sales

123

 

 

122

 

 

353

 

 

363

 

Cost of new equipment sales

47

 

 

58

 

 

147

 

 

163

 

Cost of contractor supplies sales

18

 

 

18

 

 

52

 

 

54

 

Cost of service and other revenues

29

 

 

27

 

 

86

 

 

75

 

Total cost of revenues

1,301

 

 

1,455

 

 

3,937

 

 

4,190

 

Gross profit

886

 

 

1,033

 

 

2,314

 

 

2,705

 

Selling, general and administrative expenses

232

 

 

273

 

 

721

 

 

824

 

Merger related costs

 

 

 

 

 

 

1

 

Restructuring charge

6

 

 

2

 

 

11

 

 

16

 

Non-rental depreciation and amortization

97

 

 

102

 

 

292

 

 

311

 

Operating income

551

 

 

656

 

 

1,290

 

 

1,553

 

Interest expense, net

278

 

 

147

 

 

544

 

 

478

 

Other income, net

(2)

 

 

(1)

 

 

(6)

 

 

(6)

 

Income before provision for income taxes

275

 

 

510

 

 

752

 

 

1,081

 

Provision for income taxes

67

 

 

119

 

 

159

 

 

245

 

Net income

$

208

 

 

$

391

 

 

$

593

 

 

$

836

 

Diluted earnings per share

$

2.87

 

 

$

5.08

 

 

$

8.12

 

 

$

10.66

 

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions)

 

September 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Cash and cash equivalents

$

174

 

 

$

52

 

Accounts receivable, net

1,324

 

 

1,530

 

Inventory

108

 

 

120

 

Prepaid expenses and other assets

122

 

 

140

 

Total current assets

1,728

 

 

1,842

 

Rental equipment, net

9,041

 

 

9,787

 

Property and equipment, net

598

 

 

604

 

Goodwill

5,147

 

 

5,154

 

Other intangible assets, net

701

 

 

895

 

Operating lease right-of-use assets

663

 

 

669

 

Other long-term assets

30

 

 

19

 

Total assets

$

17,908

 

 

$

18,970

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

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

$

700

 

 

$

997

 

Accounts payable

541

 

 

454

 

Accrued expenses and other liabilities

675

 

 

747

 

Total current liabilities

1,916

 

 

2,198

 

Long-term debt

9,351

 

 

10,431

 

Deferred taxes

1,818

 

 

1,887

 

Operating lease liabilities

524

 

 

533

 

Other long-term liabilities

138

 

 

91

 

Total liabilities

13,747

 

 

15,140

 

Common stock

1

 

 

1

 

Additional paid-in capital

2,463

 

 

2,440

 

Retained earnings

5,868

 

 

5,275

 

Treasury stock

(3,957)

 

 

(3,700)

 

Accumulated other comprehensive loss

(214)

 

 

(186)

 

Total stockholders' equity

4,161

 

 

3,830

 

Total liabilities and stockholders' equity

$

17,908

 

 

$

18,970

 

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2020

 

2019

 

2020

 

2019

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net income

$

208

 

 

$

391

 

 

$

593

 

 

$

836

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

492

 

 

519

 

 

1,508

 

 

1,522

 

Amortization of deferred financing costs and original issue discounts

4

 

 

3

 

 

11

 

 

11

 

Gain on sales of rental equipment

(76)

 

 

(76)

 

 

(230)

 

 

(224)

 

Gain on sales of non-rental equipment

(2)

 

 

 

 

(5)

 

 

(3)

 

Insurance proceeds from damaged equipment

(21)

 

 

(6)

 

 

(34)

 

 

(18)

 

Stock compensation expense, net

18

 

 

14

 

 

46

 

 

45

 

Merger related costs

 

 

 

 

 

 

1

 

Restructuring charge

6

 

 

2

 

 

11

 

 

16

 

Loss on repurchase/redemption of debt securities and amendment of ABL facility

159

 

 

 

 

159

 

 

32

 

(Decrease) increase in deferred taxes

(4)

 

 

68

 

 

(66)

 

 

117

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

(95)

 

 

(69)

 

 

202

 

 

(30)

 

Decrease (increase) in inventory

 

 

8

 

 

12

 

 

(17)

 

Decrease (increase) in prepaid expenses and other assets

32

 

 

2

 

 

30

 

 

(21)

 

Increase in accounts payable

223

 

 

90

 

 

88

 

 

301

 

(Decrease) increase in accrued expenses and other liabilities

(117)

 

 

46

 

 

(37)

 

 

14

 

Net cash provided by operating activities

827

 

 

992

 

 

2,288

 

 

2,582

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of rental equipment

(432)

 

 

(845)

 

 

(785)

 

 

(1,974)

 

Purchases of non-rental equipment

(43)

 

 

(60)

 

 

(145)

 

 

(157)

 

Proceeds from sales of rental equipment

199

 

 

198

 

 

583

 

 

587

 

Proceeds from sales of non-rental equipment

11

 

 

11

 

 

31

 

 

26

 

Insurance proceeds from damaged equipment

21

 

 

6

 

 

34

 

 

18

 

Purchases of other companies, net of cash acquired

 

 

(52)

 

 

(2)

 

 

(247)

 

Purchases of investments

(1)

 

 

(1)

 

 

(2)

 

 

(2)

 

Net cash used in investing activities

(245)

 

 

(743)

 

 

(286)

 

 

(1,749)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Proceeds from debt

3,631

 

 

1,535

 

 

7,251

 

 

6,125

 

Payments of debt

(4,149)

 

 

(1,590)

 

 

(8,829)

 

 

(6,269)

 

Payments of financing costs

(13)

 

 

1

 

 

(23)

 

 

(18)

 

Proceeds from the exercise of common stock options

 

 

 

 

1

 

 

10

 

Common stock repurchased (1)

(5)

 

 

(210)

 

 

(281)

 

 

(664)

 

Net cash used in financing activities

(536)

 

 

(264)

 

 

(1,881)

 

 

(816)

 

Effect of foreign exchange rates

1

 

 

 

 

1

 

 

 

Net increase (decrease) in cash and cash equivalents

47

 

 

(15)

 

 

122

 

 

17

 

Cash and cash equivalents at beginning of period

127

 

 

75

 

 

52

 

 

43

 

Cash and cash equivalents at end of period

$

174

 

 

$

60

 

 

$

174

 

 

$

60

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for income taxes, net

$

218

 

 

$

23

 

 

$

239

 

 

$

96

 

Cash paid for interest

179

 

 

179

 

 

438

 

 

480

 

(1)

 

We have an open $500 million share repurchase program that commenced in 2020. As discussed above, we have decided to pause repurchases under the program, due to the COVID-19 pandemic, while we assess our available sources and anticipated uses of cash. At this time, we are unable to estimate when, or if, the program will be restarted, and expect to provide an update at a future date. 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.

RENTAL REVENUE

Fleet productivity is a comprehensive metric that provides greater insight into the decisions made by our managers in support of growth and returns. Specifically, we seek to optimize the interplay of rental rates, time utilization and mix in driving rental revenue. Fleet productivity aggregates, in one metric, the impact of changes in rates, utilization and mix on owned equipment rental revenue.

We believe that this metric is useful in assessing the effectiveness of our decisions on rates, time utilization and mix, particularly as they support the creation of shareholder value. The table below shows the components of the year-over-year change in rental revenue using the fleet productivity methodology:

 

Year-over-year change in average OEC

 

Assumed year-over-year inflation impact (1)

 

Fleet productivity (2)

 

Contribution from ancillary and re-rent revenue (3)

 

Total change in rental revenue

Three Months Ended September 30, 2020

(4.6)%

 

(1.5)%

 

(8.0)%

 

0.8%

 

(13.3)%

Nine Months Ended September 30, 2020

(1.1)%

 

(1.5)%

 

(8.0)%

 

0.2%

 

(10.4)%

Please refer to our Third Quarter 2020 Investor Presentation for additional detail on fleet productivity.

(1)

 

Reflects the estimated impact of inflation on the revenue productivity of fleet based on OEC, which is recorded at cost.

(2)

 

Reflects the combined impact of changes in rental rates, time utilization and mix on owned equipment rental revenue. Changes in customers, fleet, geographies and segments all contribute to changes in mix. The negative fleet productivity above includes the impact of COVID-19, which resulted in rental volume declines in response to shelter-in-place orders and other market restrictions.

(3)

 

Reflects the combined impact of changes in other types of equipment rental revenue: ancillary and re-rent (excludes owned equipment rental revenue).

UNITED RENTALS, INC.

SEGMENT PERFORMANCE

($ in millions)

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

General Rentals

 

 

 

 

 

 

 

 

 

 

 

Reportable segment equipment rentals revenue

$1,391

 

$1,642

 

(15.3)%

 

$4,040

 

$4,592

 

(12.0)%

Reportable segment equipment rentals gross profit

543

 

671

 

(19.1)%

 

1,410

 

1,765

 

(20.1)%

Reportable segment equipment rentals gross margin

39.0%

 

40.9%

 

(190) bps

 

34.9%

 

38.4%

 

(350) bps

Trench, Power and Fluid Solutions

 

 

 

 

 

 

 

 

 

 

 

Reportable segment equipment rentals revenue

$470

 

$505

 

(6.9)%

 

$1,246

 

$1,310

 

(4.9)%

Reportable segment equipment rentals gross profit

234

 

246

 

(4.9)%

 

577

 

602

 

(4.2)%

Reportable segment equipment rentals gross margin

49.8%

 

48.7%

 

110 bps

 

46.3%

 

46.0%

 

30 bps

Total United Rentals

 

 

 

 

 

 

 

 

 

 

 

Total equipment rentals revenue

$1,861

 

$2,147

 

(13.3)%

 

$5,286

 

$5,902

 

(10.4)%

Total equipment rentals gross profit

777

 

917

 

(15.3)%

 

1,987

 

2,367

 

(16.1)%

Total equipment rentals gross margin

41.8%

 

42.7%

 

(90) bps

 

37.6%

 

40.1%

 

(250) 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,

 

2020

 

2019

 

2020

 

2019

Numerator:

 

 

 

 

 

 

 

Net income available to common stockholders

$

208

 

 

$

391

 

 

$

593

 

 

$

836

 

Denominator:

 

 

 

 

 

 

 

Denominator for basic earnings per share—weighted-average common shares

72.2

 

 

76.7

 

 

72.8

 

 

78.1

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Employee stock options

 

 

 

 

 

 

0.1

 

Restricted stock units

0.2

 

 

0.2

 

 

0.2

 

 

0.2

 

Denominator for diluted earnings per share—adjusted weighted-average common shares

72.4

 

 

76.9

 

 

73.0

 

 

78.4

 

Diluted earnings per share

$

2.87

 

 

$

5.08

 

 

$

8.12

 

 

$

10.66

 

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, asset impairment 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,

 

2020

 

2019

 

2020

 

2019

Earnings per share - GAAP, as-reported

$

2.87

 

 

$

5.08

 

 

$

8.12

 

 

$

10.66

 

After-tax impact of:

 

 

 

 

 

 

 

Merger related costs (2)

 

 

 

 

 

 

0.01

 

Merger related intangible asset amortization (3)

0.55

 

 

0.63

 

 

1.71

 

 

1.90

 

Impact on depreciation related to acquired fleet and property and equipment (4)

0.06

 

 

0.07

 

 

0.12

 

 

0.33

 

Impact of the fair value mark-up of acquired fleet (5)

0.12

 

 

0.14

 

 

0.35

 

 

0.55

 

Restructuring charge (6)

0.06

 

 

0.02

 

 

0.11

 

 

0.15

 

Asset impairment charge (7)

0.10

 

 

0.02

 

 

0.37

 

 

0.06

 

Loss on repurchase/redemption of debt securities and amendment of ABL facility (8)

1.64

 

 

 

 

1.63

 

 

0.30

 

Earnings per share - adjusted

$

5.40

 

 

$

5.96

 

 

$

12.41

 

 

$

13.96

 

Tax rate applied to above adjustments (1)

25.2

%

 

25.1

%

 

25.2

%

 

25.3

%

(1)

 

The tax rates applied to the adjustments reflect the statutory rates in the applicable entities.

(2)

 

Reflects transaction costs associated with the BakerCorp International Holdings, Inc. ("BakerCorp") and BlueLine acquisitions that were completed in 2018. 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 acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, National Pump, which had annual revenues of over $200 million prior to the acquisition, NES, which had annual revenues of approximately $369 million prior to the acquisition, Neff, which had annual revenues of approximately $413 million prior to the acquisition, BakerCorp, which had annual revenues of approximately $295 million prior to the acquisition and BlueLine, which had annual revenues of approximately $786 million prior to the acquisition.

(3)

 

Reflects the amortization of the intangible assets acquired in the RSC, National Pump, NES, Neff, BakerCorp and BlueLine acquisitions.

(4)

 

Reflects the impact of extending the useful lives of equipment acquired in the RSC, NES, Neff, BakerCorp and BlueLine 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, Neff and BlueLine acquisitions and subsequently sold.

(6)

 

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 five restructuring programs. We have cumulatively incurred total restructuring charges of $344 million under our restructuring programs.

(7)

 

Reflects write-offs of leasehold improvements and other fixed assets. The three and nine months ended September 30, 2020 include asset impairment charges of $10 million and $36 million, respectively, which were not related to COVID-19, primarily associated with the discontinuation of certain equipment programs.

(8)

 

Primarily reflects the difference between the net carrying amount and the total purchase price of the redeemed notes.

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 net income and adjusted EBITDA margins represent net income 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,

 

2020

 

2019

 

2020

 

2019

Net income

$

208

 

 

$

391

 

 

$

593

 

 

$

836

 

Provision for income taxes

67

 

 

119

 

 

159

 

 

245

 

Interest expense, net

278

 

 

147

 

 

544

 

 

478

 

Depreciation of rental equipment

395

 

 

417

 

 

1,216

 

 

1,211

 

Non-rental depreciation and amortization

97

 

 

102

 

 

292

 

 

311

 

EBITDA

$

1,045

 

 

$

1,176

 

 

$

2,804

 

 

$

3,081

 

Merger related costs (1)

 

 

 

 

 

 

1

 

Restructuring charge (2)

6

 

 

2

 

 

11

 

 

16

 

Stock compensation expense, net (3)

18

 

 

14

 

 

46

 

 

45

 

Impact of the fair value mark-up of acquired fleet (4)

12

 

 

15

 

 

34

 

 

58

 

Adjusted EBITDA

$

1,081

 

 

$

1,207

 

 

$

2,895

 

 

$

3,201

 

Net income margin

9.5

%

 

15.7

%

 

9.5

%

 

12.1

%

Adjusted EBITDA margin

49.4

%

 

48.5

%

 

46.3

%

 

46.4

%

(1)

 

Reflects transaction costs associated with the BakerCorp and BlueLine acquisitions that were completed in 2018. 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 acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, National Pump, which had annual revenues of over $200 million prior to the acquisition, NES, which had annual revenues of approximately $369 million prior to the acquisition, Neff, which had annual revenues of approximately $413 million prior to the acquisition, BakerCorp, which had annual revenues of approximately $295 million prior to the acquisition and BlueLine, which had annual revenues of approximately $786 million prior to the acquisition.

(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 five restructuring programs. We have cumulatively incurred total restructuring charges of $344 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, Neff and BlueLine 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,

 

2020

 

2019

 

2020

 

2019

Net cash provided by operating activities

$

827

 

 

$

992

 

 

$

2,288

 

 

$

2,582

 

Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA:

 

 

 

 

 

 

 

Amortization of deferred financing costs and original issue discounts

(4)

 

 

(3)

 

 

(11)

 

 

(11)

 

Gain on sales of rental equipment

76

 

 

76

 

 

230

 

 

224

 

Gain on sales of non-rental equipment

2

 

 

 

 

5

 

 

3

 

Insurance proceeds from damaged equipment

21

 

 

6

 

 

34

 

 

18

 

Merger related costs (1)

 

 

 

 

 

 

(1)

 

Restructuring charge (2)

(6)

 

 

(2)

 

 

(11)

 

 

(16)

 

Stock compensation expense, net (3)

(18)

 

 

(14)

 

 

(46)

 

 

(45)

 

Loss on repurchase/redemption of debt securities and amendment of ABL facility (5)

(159)

 

 

 

 

(159)

 

 

(32)

 

Changes in assets and liabilities

(91)

 

 

(81)

 

 

(203)

 

 

(217)

 

Cash paid for interest

179

 

 

179

 

 

438

 

 

480

 

Cash paid for income taxes, net

218

 

 

23

 

 

239

 

 

96

 

EBITDA

$

1,045

 

 

$

1,176

 

 

$

2,804

 

 

$

3,081

 

Add back:

 

 

 

 

 

 

 

Merger related costs (1)

 

 

 

 

 

 

1

 

Restructuring charge (2)

6

 

 

2

 

 

11

 

 

16

 

Stock compensation expense, net (3)

18

 

 

14

 

 

46

 

 

45

 

Impact of the fair value mark-up of acquired fleet (4)

12

 

 

15

 

 

34

 

 

58

 

Adjusted EBITDA

$

1,081

 

 

$

1,207

 

 

$

2,895

 

 

$

3,201

 

(1)

 

Reflects transaction costs associated with the BakerCorp and BlueLine acquisitions that were completed in 2018. 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 acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, National Pump, which had annual revenues of over $200 million prior to the acquisition, NES, which had annual revenues of approximately $369 million prior to the acquisition, Neff, which had annual revenues of approximately $413 million prior to the acquisition, BakerCorp, which had annual revenues of approximately $295 million prior to the acquisition and BlueLine, which had annual revenues of approximately $786 million prior to the acquisition.

(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 five restructuring programs. We have cumulatively incurred total restructuring charges of $344 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, Neff and BlueLine acquisitions and subsequently sold.

(5)

 

Primarily reflects the difference between the net carrying amount and the total purchase price of the redeemed notes.

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,

 

2020

 

2019

 

2020

 

2019

Net cash provided by operating activities

$

827

 

 

$

992

 

 

$

2,288

 

 

$

2,582

 

Purchases of rental equipment

(432)

 

 

(845)

 

 

(785)

 

 

(1,974)

 

Purchases of non-rental equipment

(43)

 

 

(60)

 

 

(145)

 

 

(157)

 

Proceeds from sales of rental equipment

199

 

 

198

 

 

583

 

 

587

 

Proceeds from sales of non-rental equipment

11

 

 

11

 

 

31

 

 

26

 

Insurance proceeds from damaged equipment

21

 

 

6

 

 

34

 

 

18

 

Free cash flow (1)

$

583

 

 

$

302

 

 

$

2,006

 

 

$

1,082

 

(1)

 

Free cash flow included aggregate merger and restructuring related payments of $4 million and $6 million for the three months ended September 30, 2020 and 2019, respectively, and $9 million and $22 million for the nine months ended September 30, 2020 and 2019, respectively.

The table below provides a reconciliation between 2020 forecasted net cash provided by operating activities and free cash flow.

 

 

Net cash provided by operating activities

$2,450- $2,550

 

Purchases of rental equipment

$(900)-$(950)

 

Proceeds from sales of rental equipment

$750-$850

 

Purchases of non-rental equipment, net of proceeds from sales and insurance proceeds from damaged equipment

$(100)-$(150)

 

Free cash flow (excluding the impact of merger and restructuring related payments)

$2,200- $2,300

 

 

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