Reports Record Financial Results
United Rentals, Inc. (NYSE: URI) today announced financial
results for the fourth quarter and full year 20181.
For the fourth quarter of 2018, total revenue increased
20.0% to $2.306 billion and rental revenue increased 20.8%
to $1.989 billion. On a GAAP basis, the company reported fourth
quarter net income of $310 million, or $3.80 per diluted
share ("EPS"), compared with $897 million, or $10.45 per
diluted share, for the same period in 2017. Adjusted EPS2
for the quarter was $4.85 per diluted share, compared with $11.37
for the same period in 2017. The fourth quarter of 2017 included a
net income benefit estimated at $689 million, or $8.03 per diluted
share, associated with the enacted tax reform discussed below.
Excluding this benefit, EPS and adjusted EPS for the fourth quarter
of 2017 would have been $2.42 and $3.34, respectively. The
reduction in the tax rate discussed below contributed an estimated
$0.68 and $0.86 to EPS and adjusted EPS, respectively, for the
fourth quarter of 20183.
For the quarter, year-over-year, adjusted EBITDA2
increased 18.0% to a company record $1.117 billion and adjusted
EBITDA margin decreased 90 basis point to 48.4%. The decline in
adjusted EBITDA margin primarily reflected the impact of the
acquisitions completed in 2018.
For the year, Return on Invested Capital (ROIC) increased
to a company record of 11.0%, while net cash provided by
operating activities was $2.853 billion and free cash
flow, excluding merger and restructuring related payments, set
a company record at $1.334 billion.
Fourth Quarter Highlights
- Rental revenue4 increased 20.8%
year-over-year. Owned equipment rental revenue increased 18.8%,
reflecting increases of 16.8% in the volume of equipment on rent
and 2.2% in rental rates.
- Pro forma1 rental revenue increased
8.5% year-over-year, reflecting growth of 4.3% in the volume of
equipment on rent and a 2.4% increase in rental rates.
- Time utilization decreased 120 basis
points year-over-year to 68.8%, primarily reflecting the impact of
the BakerCorp and BlueLine acquisitions. On a pro forma basis, time
utilization decreased 60 basis points year-over-year to 69.0%.
____________
1. The company completed the acquisitions of NES Rentals
Holdings II, Inc. (“NES ”), Neff Corporation ("Neff"), BakerCorp
International Holdings, Inc. (“BakerCorp”) and Vander Holding
Corporation and its subsidiaries (“BlueLine”) in April 2017,
October 2017, July 2018 and October 2018, respectively. NES, Neff,
BakerCorp and BlueLine are included in the company's results
subsequent to the acquisition dates. Pro forma results reflect the
combination of United Rentals, NES, Neff, BakerCorp and BlueLine
for all periods presented. The acquired BakerCorp locations are
reflected in the Trench, Power and Fluid Solutions specialty
segment. 2. Adjusted EPS (earnings per share), adjusted EBITDA
(earnings before interest, taxes, depreciation and amortization)
and free cash flow are non-GAAP measures as defined 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. 3. The estimated
contribution of the enacted tax reform was calculated by applying
the percentage point tax rate reduction to U.S. pretax income and
the pretax adjustments reflected in adjusted EPS. 4. Rental revenue
includes owned equipment rental revenue, re-rent revenue and
ancillary revenue.
- Total gross margin of 43.3% increased
30 basis points year-over-year, while SG&A expense as a
percentage of revenue declined 20 basis points to 13.1%. The
company’s pre-tax margin increased 90 basis points to 18.4%.
- For the company’s specialty segment,
Trench, Power and Fluid Solutions, rental revenue increased by
50.7% year-over-year, including an 18.8% increase on a same store
basis. Rental gross margin decreased by 230 basis points to 45.2%.
The decrease in rental gross margin was primarily due to the impact
of the BakerCorp acquisition and an increase in lower-margin fuel
and re-rent revenues primarily within the Power and HVAC
region.
- The company generated $186 million of
proceeds from used equipment sales at a GAAP gross margin of 44.1%
and an adjusted gross margin of 51.1%, compared with $172 million
of proceeds at a GAAP gross margin of 39.0% and an adjusted gross
margin of 57.6% for the prior 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
fourth quarter 20175.
Full Year 2018
For the full year 2018, total revenue increased 21.2% to
$8.047 billion and rental revenue increased 21.4% to $6.940
billion, both of which were company records. On a GAAP basis, the
company reported full year net income of $1.096 billion, or
$13.12 per diluted share, compared with $1.346 billion, or
$15.73 per diluted share, in 2017. Adjusted EPS for the full
year was $16.26 per diluted share, compared with $18.64 in 2017.
2017 included a net income benefit estimated at $689 million, or
$8.05 per diluted share, associated with the enacted tax reform
discussed below. Excluding this benefit, EPS and adjusted EPS for
2017 would have been $7.68 and $10.59, respectively. The reduction
in the tax rate discussed below contributed an estimated $2.36 and
$2.92 to EPS and adjusted EPS, respectively, in 2018.
Year-over-year, adjusted EBITDA increased 22.1% to $3.863
billion and adjusted EBITDA margin increased 40 basis point to
48.0%.
Full Year Highlights
- Rental revenue increased 21.4%
year-over-year. Owned equipment rental revenue increased 20.7%,
reflecting increases of 18.8% in the volume of equipment on rent
and 2.2% in rental rates.
- Pro forma rental revenue increased
10.5% year-over-year, reflecting growth of 6.9% in the volume of
equipment on rent and a 2.6% increase in rental rates.
- Time utilization decreased 90 basis
points year-over-year to 68.6%, primarily reflecting the impact of
the NES, Neff, BakerCorp and BlueLine acquisitions. On a pro forma
basis, time utilization increased 20 basis points year-over-year to
68.4%.
- Total gross margin of 41.8% increased
10 basis points year-over-year, while SG&A expense as a
percentage of revenue declined 70 basis points to 12.9%. The
company’s pre-tax margin increased 250 basis points to 18.3%.
- For the company’s specialty segment,
Trench, Power and Fluid Solutions, rental revenue increased by
40.7% year-over-year, including a 19.0% increase on a same store
basis. Rental gross margin decreased by 140 basis points to 48.2%.
The decrease in rental gross margin was primarily due to the impact
of the BakerCorp acquisition.
- The company generated $664 million of
proceeds from used equipment sales at a GAAP gross margin of 41.9%
and an adjusted gross margin of 51.8%, compared with $550 million
of proceeds at a GAAP gross margin of 40.0% and an adjusted gross
margin of 54.9% for the prior 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. 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 2017.
____________
5. 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.
- The company generated $2.853 billion of
net cash provided by operating activities and $1.271 billion of
free cash flow6, compared with $2.209 billion and $907 million,
respectively, for the prior year. Net rental capital expenditures
were $1.442 billion, compared with $1.219 billion for the prior
year.
CEO Comments
Michael Kneeland, chief executive officer of United Rentals,
said, "We delivered strong fourth quarter results, including broad
volume growth and rental rate improvement, in a year that leveraged
our numerous competitive advantages. Our integration of major
acquisitions expanded our service offering, and we gained traction
from investments in fleet and technology. For the full year, we
grew pro forma rental revenue by 10.5%, improved our adjusted
EBITDA margin, and increased ROIC to a record 11%."
Kneeland continued, "Our momentum in the quarter gave us a
strong start to 2019, when we expect to once again outpace the
industry. By reaffirming our guidance, we’re underscoring our
confidence in the cycle and our differentiation in the marketplace.
Customer feedback, as well as key internal and external
indicators, continue to point to healthy end-market activity. We
remain focused on balancing growth, margins, returns and free cash
flow to maximize shareholder value."
2019 Outlook
The company reaffirmed the following outlook for the full year
2019.
2019 Outlook 2018 Actual Total revenue
$9.15 billion to $9.55 billion $8.047 billion Adjusted EBITDA7
$4.35 billion to $4.55 billion $3.863 billion Net rental capital
expenditures after gross purchases $1.4 billion to $1.55 billion,
after gross purchases of $2.15 billion to $2.3 billion $1.442
billion net, $2.106 billion gross Net cash provided by operating
activities $2.85 billion to $3.2 billion $2.853 billion Free cash
flow (excluding merger and restructuring related payments, such
payments were $63 million in 2018) $1.3 billion to $1.5 billion
$1.334 billion
Impact of U.S. Tax Reform
In 2018, we completed the accounting for the enactment of the
Tax Cuts and Jobs Act of 2017 (the "Tax Act"). We expect that we
will continue to meaningfully benefit from the legislation. In
particular, the combination of the lowering of the U.S. federal tax
rate from 35% to 21% and the full expensing of capital spending
will materially exceed the impact of the repeal of Like-Kind
Exchange provisions, which had allowed for the deferral of taxable
gains on the sale of used equipment.
Earnings per diluted share for 2018 was $13.12. The reduction in
the tax rate discussed above contributed an estimated $2.36 to
diluted earnings per share for 2018. The Tax Act impacted our 2017
results primarily due to (i) a one-time non-cash tax benefit
estimated at $746 million, reflecting the revaluation of our net
deferred tax liability using a U.S. federal tax rate of 21% and
(ii) a one-time transition tax estimated at $57 million on our
unremitted foreign earnings and profits. Earnings per diluted share
for 2017 was $15.73, and the estimated per share benefit of the
above items was $8.05.
____________
6. Free cash flow is a non-GAAP measure. See the table below
for amounts and a reconciliation to the most comparable GAAP
measure. Free cash flow included aggregate merger and restructuring
related payments of $63 million and $76 million for the full years
2018 and 2017, respectively. 7. Information reconciling
forward-looking adjusted EBITDA to the comparable GAAP financial
measures is unavailable to the company without unreasonable effort,
as discussed below
Free Cash Flow and Fleet Size
For the full year 2018, net cash provided by operating
activities was $2.853 billion, and free cash flow was $1.271
billion after total rental and non-rental gross capital
expenditures of $2.291 billion. For the full year 2017, net cash
provided by operating activities was $2.209 billion, and free cash
flow was $907 million after total rental and non-rental gross
capital expenditures of $1.889 billion. Free cash flow for the full
years 2018 and 2017 included aggregate merger and restructuring
related payments of $63 million and $76 million, respectively.
The size of the rental fleet was $14.18 billion of original
equipment cost at December 31, 2018, compared with $11.51 billion
at December 31, 2017. The age of the rental fleet was 47.9 months
on an OEC-weighted basis at December 31, 2018, compared with 47.0
months at December 31, 2017.
Return on Invested Capital (ROIC)
ROIC was 11.0% for the year ended December 31, 2018, compared
with 8.8% for the year ended December 31, 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.
ROIC materially increased due to the reduced tax rates following
the enactment of the Tax Act. 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 10.8% and 10.6% for the years ended
December 31, 2018 and 2017, respectively.
Share Repurchase Program
In July 2018, the company commenced its previously announced
$1.25 billion share repurchase program. As of December 31, 2018,
the company has repurchased $420 million of common stock under the
program, which it intends to complete in 2019.
Introduction of Fleet Productivity as a Key Operating
Metric
The company is introducing Fleet Productivity as a comprehensive
metric to provide greater insight into the decisions made by its
managers to optimize the interplay of rental rates, time
utilization and mix in rental revenue, in support of its growth and
return objectives. Fleet Productivity can be thought of as the
combined impact of the previously reported year-over-year changes
in rental rates, time utilization and mix on rental revenue, in one
statistic.
As the company’s business and strategy have evolved, management
believes that certain legacy metrics have become less insightful
into the company’s performance and less comparable to historical
results. While no single metric can fully capture the myriad of
factors underpinning the company’s returns-based strategy,
management believes that Fleet Productivity will be useful in
assessing how the combination of discrete decisions made across
rental rates, time utilization, and mix in rental revenue come
together to support shareholder value.
As illustrated on pages 35 and 36 of the Fourth Quarter 2018
Investor Presentation, the company is providing twelve quarters of
historical perspective on Fleet Productivity to help investors
understand the relationship between the metric and its previously
shared individual components. The company plans to continue sharing
this same quarterly information for the next two quarters and
provide investors with related context on earnings conference
calls. After the company’s second quarter 2019, it plans to phase
out the quarterly disclosure of rental rates and time utilization
as discrete stand-alone metrics. Additionally, after the fourth
quarter of 2018, the company will no longer provide monthly
perspective on rental rates and time utilization.
Conference Call
United Rentals will hold a conference call tomorrow, Thursday,
January 24, 2019, at 12:00 p.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 9595889.
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 (benefit) for income taxes,
interest expense, net, depreciation of rental equipment and
non-rental depreciation and amortization. Adjusted EBITDA
represents EBITDA plus the sum of 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 the 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 1,186 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 18,500 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 $14.18 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 BlueLine, such as
undiscovered liabilities, costs, integration issues and/or the
inability to achieve the cost and revenue synergies expected; (2) a
slowdown in North American construction and industrial activities,
which could reduce our revenues and profitability; (3) 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; (4) the inability to refinance our indebtedness at
terms that are favorable to us, or at all; (5) the incurrence of
additional debt, which could exacerbate the risks associated with
our current level of indebtedness; (6) noncompliance with covenants
in our debt agreements, which could result in termination of our
credit facilities and acceleration of outstanding borrowings; (7)
restrictive covenants and amount of borrowings permitted under our
debt agreements, which could limit our financial and operational
flexibility; (8) an overcapacity of fleet in the equipment rental
industry; (9) a decrease in levels of infrastructure spending,
including lower than expected government funding for construction
projects; (10) fluctuations in the price of our common stock and
inability to complete stock repurchases in the time frame and/or on
the terms anticipated; (11) our rates and time utilization being
less than anticipated; (12) our inability to manage credit risk
adequately or to collect on contracts with customers; (13) our
inability to access the capital that our business or growth plans
may require; (14) the incurrence of impairment charges; (15) trends
in oil and natural gas could adversely affect demand for our
services and products; (16) 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; (17) an increase in our loss reserves to
address business operations or other claims and any claims that
exceed our established levels of reserves; (18) the incurrence of
additional costs and expenses (including indemnification
obligations) in connection with litigation, regulatory or
investigatory matters; (19) 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; (20) 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; (21) management turnover and inability to attract
and retain key personnel; (22) our costs being more than
anticipated and/or the inability to realize expected savings in the
amounts or time frames planned; (23) our dependence on key
suppliers to obtain equipment and other supplies for our business
on acceptable terms; (24) our inability to sell our new or used
fleet in the amounts, or at the prices, we expect; (25) competition
from existing and new competitors; (26) security breaches,
cybersecurity attacks, failure to protect personal information,
compliance with data protection laws and other significant
disruptions in our information technology systems; (27) 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; (28) labor difficulties and labor-based
legislation affecting our labor relations and operations generally;
(29) increases in our maintenance and replacement costs and/or
decreases in the residual value of our equipment; and (30) 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,
2018, 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 Year Ended
December 31, December 31, 2018
2017 2018 2017 Revenues: Equipment
rentals $ 1,989 $ 1,646 $ 6,940 $ 5,715 Sales of rental equipment
186 172 664 550 Sales of new equipment 68 52 208 178 Contractor
supplies sales 25 20 91 80 Service and other revenues 38 32
144 118
Total revenues 2,306
1,922 8,047 6,641
Cost of revenues: Cost of equipment rentals, excluding depreciation
731 595 2,614 2,151 Depreciation of rental equipment 375 320 1,363
1,124 Cost of rental equipment sales 104 105 386 330 Cost of new
equipment sales 58 44 179 152 Cost of contractor supplies sales 17
14 60 56 Cost of service and other revenues 23 17 81
59
Total cost of revenues 1,308
1,095 4,683 3,872
Gross profit 998 827 3,364 2,769
Selling, general and administrative expenses 302 255 1,038 903
Merger related costs 22 18 36 50 Restructuring charge 16 22 31 50
Non-rental depreciation and amortization 95 70 308
259 Operating income 563 462 1,951 1,507 Interest
expense, net 142 126 481 464 Other income, net (4 ) — (6 )
(5 ) Income before (benefit) provision for income taxes 425 336
1,476 1,048 (Benefit) provision for income taxes (1) 115
(561 ) 380 (298 )
Net income (1) $ 310
$ 897 $ 1,096
$ 1,346 Diluted earnings per share (1)
$ 3.80 $ 10.45 $
13.12 $ 15.73 (1) The
three months and year ended December 31, 2018 reflect a reduction
in the U.S. federal corporate statutory tax rate from 35% to 21%
following the enactment of the Tax Act discussed above, which
contributed an estimated $0.68 and $2.36 to diluted earnings per
share for the three months and year ended December 31, 2018,
respectively. The three months and year ended December 31, 2017
include a substantial benefit associated with the enactment of the
Tax Act, which contributed an estimated $8.03 and $8.05 to diluted
earnings per share for the three months and year ended December 31,
2017, respectively.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions)
December 31, 2018 December 31, 2017
ASSETS Cash and cash equivalents $ 43 $ 352 Accounts
receivable, net 1,545 1,233 Inventory 109 75 Prepaid expenses and
other assets 64 112 Total current assets 1,761 1,772
Rental equipment, net 9,600 7,824 Property and equipment, net 614
467 Goodwill 5,058 4,082 Other intangible assets, net 1,084 875
Other long-term assets 16 10
Total assets
$ 18,133 $ 15,030
LIABILITIES AND STOCKHOLDERS’ EQUITY Short-term debt and
current maturities of long-term debt $ 903 $ 723 Accounts payable
536 409 Accrued expenses and other liabilities 677 536
Total current liabilities 2,116 1,668 Long-term debt 10,844
8,717 Deferred taxes 1,687 1,419 Other long-term liabilities 83
120
Total liabilities 14,730
11,924 Common stock 1 1 Additional paid-in capital
2,408 2,356 Retained earnings 4,101 3,005 Treasury stock (2,870 )
(2,105 ) Accumulated other comprehensive loss (237 ) (151 )
Total stockholders’ equity 3,403 3,106
Total liabilities and stockholders’ equity $
18,133 $ 15,030
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(In millions)
Three Months Ended Year Ended
December 31, December 31, 2018
2017 2018 2017 Cash Flows From
Operating Activities: Net income $ 310 $ 897 $ 1,096 $ 1,346
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 470 390 1,671
1,383 Amortization of deferred financing costs and original issue
discounts 3 3 12 9 Gain on sales of rental equipment (82 ) (67 )
(278 ) (220 ) Gain on sales of non-rental equipment (2 ) — (6 ) (4
) Gain on insurance proceeds from damaged equipment (4 ) (11 ) (22
) (21 ) Stock compensation expense, net 29 23 102 87 Merger related
costs 22 18 36 50 Restructuring charge 16 22 31 50 Loss on
repurchase/redemption of debt securities and amendment of ABL
facility — 11 — 54 Increase (decrease) in deferred taxes (1) 67
(630 ) 257 (533 ) Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 16 (12 ) (115 ) (184 )
Decrease (increase) in inventory 3 10 (20 ) 1 Decrease (increase)
in prepaid expenses and other assets 44 (19 ) 75 (20 ) (Decrease)
increase in accounts payable (189 ) (209 ) 49 141 Increase
(decrease) in accrued expenses and other liabilities 27 27
(35 ) 70
Net cash provided by operating
activities 730 453 2,853 2,209
Cash Flows From Investing Activities: Purchases of rental
equipment (144 ) (284 ) (2,106 ) (1,769 ) Purchases of non-rental
equipment (51 ) (33 ) (185 ) (120 ) Proceeds from sales of rental
equipment 186 172 664 550 Proceeds from sales of non-rental
equipment 10 6 23 16 Insurance proceeds from damaged equipment 4 11
22 21 Purchases of other companies, net of cash acquired (2,161 )
(1,314 ) (2,966 ) (2,377 ) Purchases of investments (2 ) —
(3 ) (5 )
Net cash used in investing activities
(2,158 ) (1,442 ) (4,551
) (3,684 ) Cash Flows From Financing
Activities: Proceeds from debt 5,116 3,099 12,178 11,801
Payments of debt (3,478 ) (2,051 ) (9,942 ) (10,207 ) Payments of
financing costs (23 ) — (24 ) (44 ) Proceeds from the exercise of
common stock options — 2 2 3 Common stock repurchased (2) (211 )
(30 ) (817 ) (56 )
Net cash provided by financing activities
1,404 1,020 1,397 1,497 Effect of
foreign exchange rates 2 (3 ) (8 ) 18
Net
(decrease) increase in cash and cash equivalents (22
) 28 (309 ) 40 Cash and cash
equivalents at beginning of period 65 324 352
312
Cash and cash equivalents at end of period
$ 43 $ 352 $
43 $ 352 Supplemental
disclosure of cash flow information: Cash paid for income
taxes, net $ 21 $ 91 $ 71 $ 205 Cash paid for interest 76 52 455
357 (1) The decreases in deferred taxes for the three months
and year ended December 31, 2017 include the impact of the
enactment of the Tax Act discussed above.
(2)
In 2018, we completed our $1 billion share
repurchase program. We have an open $1.25 billion share repurchase
program, under which we have purchased $420 million as of December
31, 2018. We intend to complete the program in 2019. The common
stock repurchases include i) shares repurchased pursuant to our
share repurchase programs and ii) shares withheld to satisfy tax
withholding obligations upon the vesting of restricted stock unit
awards.
UNITED RENTALS, INC.
SEGMENT PERFORMANCE
($ in millions)
Three Months Ended Year Ended
December 31, December 31, 2018
2017 Change 2018 2017
Change General Rentals Reportable segment
equipment rentals revenue $ 1,573 $ 1,370 14.8% $ 5,550 $ 4,727
17.4% Reportable segment equipment rentals gross profit 695 600
15.8% 2,293 1,950 17.6% Reportable segment equipment rentals gross
margin 44.2 % 43.8 % 40 bps 41.3 % 41.3 % — bps
Trench, Power
and Fluid Solutions Reportable segment equipment rentals
revenue $ 416 $ 276 50.7% $ 1,390 $ 988 40.7% Reportable segment
equipment rentals gross profit 188 131 43.5% 670 490 36.7%
Reportable segment equipment rentals gross margin 45.2 % 47.5 %
(230) bps 48.2 % 49.6 % (140) bps
Total United Rentals Total
equipment rentals revenue $ 1,989 $ 1,646 20.8% $ 6,940 $ 5,715
21.4% Total equipment rentals gross profit 883 731 20.8% 2,963
2,440 21.4% Total equipment rentals gross margin 44.4 % 44.4 % —
bps 42.7 % 42.7 % — bps
UNITED RENTALS, INC.
DILUTED EARNINGS PER SHARE
CALCULATION
(In millions, except per share
data)
Three Months Ended Year Ended
December 31, December 31, 2018
2017 2018 2017 Numerator:
Net income
available to common stockholders (1) $ 310
$ 897 $ 1,096 $ 1,346
Denominator: Denominator for basic earnings per
share—weighted-average common shares 80.6 84.6 82.7 84.6 Effect of
dilutive securities: Employee stock options 0.4 0.4 0.4 0.4
Restricted stock units 0.5 0.8 0.4 0.6
Denominator for diluted earnings per share—adjusted
weighted-average common shares 81.5 85.8
83.5 85.6 Diluted earnings per share (1)
$ 3.80 $ 10.45 $ 13.12
$ 15.73 (1) The three months and year ended
December 31, 2018 reflect a reduction in the U.S. federal corporate
statutory tax rate from 35% to 21% following the enactment of the
Tax Act discussed above, which contributed an estimated $0.68 and
$2.36 to diluted earnings per share for the three months and year
ended December 31, 2018, respectively. The three months and year
ended December 31, 2017 include a substantial benefit associated
with the enactment of the Tax Act, which contributed an estimated
$8.03 and $8.05 to diluted earnings per share for the three months
and year ended December 31, 2017, 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 rental 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 Year Ended
December 31, December 31, 2018
2017 2018 2017 Earnings per share -
GAAP, as reported (1) $ 3.80 $
10.45 $ 13.12 $ 15.73 After-tax
impact of: Merger related costs (2) 0.21 0.13 0.32 0.36 Merger
related intangible asset amortization (3) 0.58 0.32 1.76 1.15
Impact on depreciation related to acquired fleet and property and
equipment (4) — 0.01 0.19 0.05 Impact of the fair value mark-up of
acquired fleet (5) 0.11 0.23 0.59 0.59 Restructuring charge (6)
0.15 0.15 0.28 0.36 Asset impairment charge (7) — — — 0.01 Loss on
repurchase/redemption of debt securities and amendment of ABL
facility — 0.08 — 0.39
Earnings per
share - adjusted (1) $ 4.85 $
11.37 $ 16.26 $
18.64 Tax rate applied to above adjustments (1) 25.7
% 38.6 % 25.5 % 38.5 % (1) The three months and year ended
December 31, 2018 reflect a reduction in the U.S. federal corporate
statutory tax rate from 35% to 21% following the enactment of the
Tax Act discussed above, which contributed an estimated $0.68 and
$2.36, respectively, to earnings per share-GAAP, and $0.86 and
$2.92, respectively, to earnings per share-adjusted, for the three
months and year ended December 31, 2018. Earnings per share – GAAP,
as reported and earnings per share – adjusted include estimated
benefits of $8.03 and $8.05 for the three months and year ended
December 31, 2017, respectively, associated with the enactment of
the Tax Act. 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. 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 had annual revenues of
approximately $786 million. (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 three restructuring
programs. We have cumulatively incurred total restructuring charges
of $315 million under our restructuring programs. (7) Reflects
write-offs of leasehold improvements and other fixed assets in
connection with our restructuring programs.
UNITED RENTALS, INC.EBITDA AND
ADJUSTED EBITDA GAAP RECONCILIATION(In millions)
EBITDA represents the sum of net income, provision (benefit) for
income taxes, interest expense, net, depreciation of rental
equipment, and non-rental depreciation and amortization. Adjusted
EBITDA represents EBITDA plus the sum of 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. However, EBITDA and adjusted EBITDA are not measures of
financial performance or liquidity under GAAP and, accordingly,
should not be considered as alternatives to net income or cash flow
from operating activities as indicators of operating performance or
liquidity. The table below provides a reconciliation between net
income and EBITDA and adjusted EBITDA.
Three Months Ended Year Ended
December 31, December 31, 2018
2017 2018 2017 Net income
$ 310 $ 897 $ 1,096
$ 1,346 Provision (benefit) for income taxes 115 (561
) 380 (298 ) Interest expense, net 142 126 481 464 Depreciation of
rental equipment 375 320 1,363 1,124 Non-rental depreciation and
amortization 95 70 308 259
EBITDA
(A) $ 1,037 $ 852 $
3,628 $ 2,895 Merger related costs (1) 22 18
36 50 Restructuring charge (2) 16 22 31 50 Stock compensation
expense, net (3) 29 23 102 87 Impact of the fair value mark-up of
acquired fleet (4) 13 32 66 82
Adjusted EBITDA (B) $ 1,117 $
947 $ 3,863 $
3,164 (A) Our EBITDA margin was 45.0% and
44.3% for the three months ended December 31, 2018 and 2017,
respectively, and 45.1% and 43.6% for the years ended December 31,
2018 and 2017, respectively. (B) Our adjusted EBITDA margin was
48.4% and 49.3% for the three months ended December 31, 2018 and
2017, respectively, and 48.0% and 47.6% for the years ended
December 31, 2018 and 2017, respectively. (1)
Reflects transaction costs associated with the NES, Neff, BakerCorp
and BlueLine acquisitions discussed above. 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 had 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 $315 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.
RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES
TO EBITDA AND ADJUSTED EBITDA
(In millions)
Three Months Ended Year Ended
December 31, December 31, 2018
2017 2018 2017 Net cash provided by
operating activities $ 730 $ 453
$ 2,853 $ 2,209 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 (3 ) (3 ) (12 ) (9 ) Gain on
sales of rental equipment 82 67 278 220 Gain on sales of non-rental
equipment 2 — 6 4 Gain on insurance proceeds from damaged equipment
4 11 22 21 Merger related costs (1) (22 ) (18 ) (36 ) (50 )
Restructuring charge (2) (16 ) (22 ) (31 ) (50 ) Stock compensation
expense, net (3) (29 ) (23 ) (102 ) (87 ) Loss on
repurchase/redemption of debt securities and amendment of ABL
facility — (11 ) — (54 ) Changes in assets and liabilities 192 255
124 129 Cash paid for interest 76 52 455 357 Cash paid for income
taxes, net 21 91 71 205
EBITDA
$ 1,037 $ 852 $ 3,628
$ 2,895 Add back: Merger related costs (1) 22 18 36
50 Restructuring charge (2) 16 22 31 50 Stock compensation expense,
net (3) 29 23 102 87 Impact of the fair value mark-up of acquired
fleet (4) 13 32 66 82
Adjusted
EBITDA $ 1,117 $ 947
$ 3,863 $ 3,164 (1)
Reflects transaction costs associated with the NES, Neff,
BakerCorp and BlueLine acquisitions discussed above. 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 had 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 $315 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.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 Year Ended
December 31, December 31, 2018
2017 2018 2017 Net cash provided by
operating activities $ 730 $ 453 $ 2,853 $ 2,209 Purchases of
rental equipment (144 ) (284 ) (2,106 ) (1,769 ) Purchases of
non-rental equipment (51 ) (33 ) (185 ) (120 ) Proceeds from sales
of rental equipment 186 172 664 550 Proceeds from sales of
non-rental equipment 10 6 23 16 Insurance proceeds from damaged
equipment 4 11 22 21
Free cash flow
(1) $ 735 $ 325
$ 1,271 $ 907 (1)
Free cash flow included aggregate merger and restructuring related
payments of $31 million and $24 million for the three months ended
December 31, 2018 and 2017, respectively, and $63 million and $76
million for the years ended December 31, 2018 and 2017,
respectively.
The table below provides a reconciliation between 2019
forecasted net cash provided by operating activities and free cash
flow.
Net cash provided by operating activities $2,850-
$3,200 Purchases of rental equipment $(2,150)-$(2,350) Proceeds
from sales of rental equipment $700-$800 Purchases of non-rental
equipment, net of proceeds from sales $(100)-$(200)
Free cash
flow (excluding the impact of merger and restructuring related
payments) $1,300- $1,500
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190123005775/en/
Ted Grace(203) 618-7122Cell: (203) 399-8951tgrace@ur.com
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