Herc Holdings Inc. announced financial results for the third quarter ending September 30, 2016, reporting a 3.5% year over year decline in equipment rental revenues, which were $360.3 million in 2016, compared to $373.2 million at the same time last year.
Total revenues were $403.6 million in the third quarter of 2016 compared with $431.8 million for the same period last year. The Company reported third quarter net income of $3.0 million, or $0.11 per diluted share, compared to $20.8 million, or $0.69 per diluted share, for the same period last year.
Year-over-year comparisons were primarily affected by the absence of operations in France and Spain which were divested in October 2015, continuing headwinds in upstream oil and gas markets and spin-off costs.
"We continued to make good progress on our strategic initiatives in our first quarter as a stand-alone public company and remain confident that we are on track to achieve our long term operational and financial performance targets," said Larry Silber, president and chief executive officer. "Of note, for the third quarter, in our key markets we achieved rental revenue growth of 7.2% and realized improved pricing of 1.8%.
"The ongoing rollout of our ProContractor Tools and ProSolutions equipment and services continues to expand and diversify our fleet and revenue mix and contributed to improved pricing during the quarter. Our focus on operating efficiency produced another solid quarter in fleet available for rent, which enables us to meet more of our customers' equipment needs. Overall, our third quarter performance reinforced our confidence in our business strategy, our people and the growth opportunities ahead,” said Silber.
Third Quarter Highlights
- Equipment rental revenue in the third quarter of 2016 was $360.3 million compared to $373.2 million in the prior year quarter, a decline of 3.5%, which was attributable to divested foreign operations and the impact of foreign currency. Revenue growth in key markets offset the impact of lower revenues in upstream oil and gas markets.
- Excluding divested foreign operations and currency, equipment rental revenue in key markets increased 7.2% and accounted for 84% of the total. Key markets are defined as markets we currently serve outside of upstream oil and gas markets.
- Pricing in key markets increased 1.8% and overall pricing increased 0.5% in the third quarter compared to the same period in 2015.
- Adjusted EBITDA in the third quarter was $152.1 million, a decline of $8.0 million or 5.0%, versus the prior year period due primarily to divested foreign operations and currency. Growth in key markets more than offset the impact of lower results in upstream oil and gas markets. See page A-4 for a description of the items excluded in calculating adjusted EBITDA.
- Continued improvement in branch operating efficiencies reduced average fleet unavailable for rent (“FUR”) to 13.0% in the month of September 2016 compared with 13.8% in September 2015.
- Dollar utilization increased to 35.4% in the third quarter of 2016, an improvement of 190 basis points from the second quarter. Compared with the third quarter of 2015, dollar utilization declined 60 basis points, impacted by lower results in upstream oil and gas markets.
- Interest expense in the third quarter was $32.3 million, an increase of $23.0 million compared with the prior year period, reflecting the first full quarter of interest expense related to the Company's debt on a stand-alone basis.
- Spin-off costs totaled $10.8 million for the third quarter of 2016 compared with $4.0 million in the comparable period in 2015. The increase was related primarily to higher IT and professional expenses incurred in connection with the June 30, 2016 separation from the Hertz car rental business.
Nine Months Highlights
- Equipment rental revenue in the nine months of 2016 was $996.0 million compared with $1.05 billion in the comparable period in 2015, a decline of 5.4%, which was attributable to divested foreign operations and currency. Revenue growth in key markets offset lower revenues in upstream oil and gas markets.
- Excluding divested foreign operations and currency, equipment rental revenue in key markets increased 8.9% and accounted for 83.0% of the total.
- Pricing in key markets improved 1.7% and overall pricing was flat in the 2016 nine-month period compared to the same period in 2015.
- Net loss in the nine months of 2016 was $6.5 million compared to net income of $33.1 million for the same period last year.
- Adjusted EBITDA for the nine-month period was $390.5 million, a decline of $46.3 million or 10.6% versus the prior year period, which was attributable to divested foreign operations and currency, losses related to the sale of revenue earning equipment, most of which occurred in the first half of 2016, and lower results from upstream oil and gas markets. Results in key markets offset most of the decline in upstream oil and gas markets. See page A-4 for a description of the items excluded in calculating adjusted EBITDA.
- Interest expense in the nine-month period was $52.1 million, an increase of $24.3 million compared with the prior year, reflecting the increase in the Company's debt on a stand-alone basis.
- Spin-off costs totaled $37.7 million for the nine months of 2016 compared with $19.7 million in the comparable period in 2015. The increase was related primarily to higher IT and professional expenses incurred in connection with the June 30, 2016 separation from the Hertz car rental business.
Capital Expenditures -- Fleet
- The Company reported net fleet capital expenditures of $360 million for the nine-month period, on track with its full year guidance. See page A-5 for the calculation of net fleet capital expenditures.
- At September 30, 2016, the Company had rental equipment of approximately $3.62 billion, at original equipment cost (OEC). The average OEC for the third quarter increased 4.4% compared to the prior year period.
