Posted April 20, 2023

Herc Holdings reports record Q1 2023 results

Herc Holdings Inc. reports financial results for the quarter ended March 31, 2023.

Equipment rental revenue was $654 million and total revenues were $740 million in the Q1 2023, compared to $527 million and $568 million, respectively, for the same period last year. 

In the first quarter of 2023, the Company reported net income of $67 million, or $2.28 per diluted share, an increase of 19 percent compared to $58 million, or $1.92 per diluted share, in the same 2022 period. 

"We continue to build on our momentum coming out of 2022 with record first quarter revenue that significantly outpaced industry growth," says Larry Silber, president and chief executive officer. "Higher rental rates are more than offsetting inflation, while demand across regions and in our end markets is seasonally strong, benefiting from the multi-year fiscal stimulus, re-shoring and mega projects, as well as long-term industrial maintenance contracts for on-site fleet management.

"While macro concerns are focused on residential and commercial construction, we have very diversified end markets, with growing share in manufacturing and reshoring projects, the private and government spend in infrastructure, as well as industrial MRO, which is required in all economic environments. Investments to capitalize on these opportunities are strategic and disciplined, whether it be in fleet, people or acquisitions.  As a tenured market leader with a strong reputation, a comprehensive product and service offering, broad capabilities and one of the leading teams in the industry, we will continue to execute on our strategies to win new business and deliver profitable growth."

2023 first quarter financial results

  • Total revenues increased 30 percent to $740 million compared to $568 million in the prior-year period.  The year-over-year increase of $172 million primarily related to an increase in equipment rental revenue of $127 million, reflecting positive pricing of 7.0 percent and increased volume of 23.2 percent. Sales of rental equipment increased by $43 million during the period.
  • Dollar utilization was 39.7 percent compared to 41.4 percent in the prior-year period. The change is primarily due to a slowdown in the studio entertainment business because of a potential writers' strike as well as the company's decision to continue to accept equipment deliveries in the seasonally slow Q4 2022 and Q1 2023, to ensure it had the fleet needed for the more robust construction season. Continued supply chain challenges have disrupted the optimal cadence of deliveries.
  • Direct operating expenses of $281 million increased 24 percent compared to the prior-year period. The increase was primarily related to strong rental activity and associated additional headcount, in addition to higher maintenance, fuel prices and facilities expenses.  
  • Depreciation of rental equipment increased 28 percent to $152 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 24 percent to $26 million primarily due to amortization of acquisition intangible assets.
  • Selling, general and administrative expenses was 19 percent higher primarily due to increases in selling expenses, including commissions and other variable compensation increases and general payroll and benefits. 
  • Interest expense increased to $48 million compared with $23 million in the prior-year period due to increased borrowings on the ABL Credit Facility primarily to fund acquisition growth and higher interest rates on floating rate debt.
  • Net income was $67 million compared to $58 million in the prior-year period.  Adjusted net income increased 17 percent to $69 million, or $2.35 per diluted share, compared to $59 million, or $1.95 per diluted share, in the prior-year period. The effective tax rate was 11 percent compared to 13 percent in the prior-year period.
  • Adjusted EBITDA increased 30 percent to $308 million compared to $237 million in the prior-year period, while adjusted EBITDA margin was 41.6 percent compared to 41.7 percent in the prior-year period. Sales of used equipment, which more than doubled over last year's first quarter sales, as well as a decline in the company's studio entertainment revenue year over year impacted the margin performance in the latest quarter.

Rental fleet

  • As of March 31, 2023, the Company's total fleet was approximately $5.9 billion at OEC.
  • Average fleet at OEC in the first quarter increased year-over-year by 29 percent compared to the prior-year period.
  • Average fleet age was 47 months as of March 31, 2023, compared to 48 months in the comparable prior-year period.

Disciplined capital management

  • The Company completed three acquisitions with a total of six locations and opened three new greenfield locations during the quarter.
  • Net debt was $3.2 billion as of March 31, 2023, with net leverage of 2.5x compared to 2.3x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to $1.5 billion of liquidity as of March 31, 2023. 
  • The Company announced a 10 percent increase in the quarterly dividend to $0.6325, payable to shareholders of record as of February 22, 2023, with a payment date of March 9, 2023.
  • The Company acquired approximately 460,000 shares of its common stock for $52 million during the three months ended March 31, 2023.  As of March 31, 2023, approximately $229 million remains available under the share repurchase program.

The company is affirming its full year 2023 adjusted EBITDA guidance range and net rental capital expenditures guidance presented below. The guidance range for the full year 2023 adjusted EBITDA reflects an increase of 18 percent to 26 percent compared to full year 2022 results.    

Adjusted EBITDA:                                          $1.45 billion to $1.55 billion

Net rental equipment capital expenditures:    $1.0 billion to $1.2 billion

The company expects to continue to gain share by capturing an outsized position of the forecasted higher construction spending in 2023 by investing in its fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.