United Rentals Inc. announced for the fourth quarter of 2014, total revenue was $1.564 billion and rental revenue was $1.320 billion, compared with $1.338 billion and $1.133 billion, respectively, for the same period the prior year. On a GAAP basis, the company reported fourth quarter net income of $194 million, or $1.88 per diluted share, compared with $140 million, or $1.31 per diluted share, for the same period the prior year.
Adjusted EPS2 for the quarter was $2.19 per diluted share, compared with $1.59 per diluted share for the same period the prior year. Adjusted EBITDA3 was $775 million and adjusted EBITDA margin was 49.6% for the quarter.
For the full year 2014, total revenue was $5.685 billion and rental revenue was $4.819 billion. On a GAAP basis, full year net income was $540 million, or $5.15 per diluted share.
Adjusted EPS for the full year was $6.91 per diluted share, compared with $4.91 per diluted share for 2013. Adjusted EBITDA was $2.718 billion and adjusted EBITDA margin was 47.8% for the full year.
Michael Kneeland, chief executive officer of United Rentals, said, "We met or exceeded every target in our outlook for 2014, ending the year with a better-than-expected quarter and our highest return yet on invested capital. Our full-year increases in rates and utilization helped drive up rental revenue at almost twice the pace of industry expansion, and we're in a strong position to grow the most profitable areas of our business, including our high-margin specialty rental lines."
Kneeland continued, "For 2015, we are guiding to record highs of over $6 billion in revenue and approximately $3 billion in adjusted EBITDA. Our industry is forecast to have multiple years of growth ahead, and our customers are upbeat. While we expect to see a drag in some trade areas from the slowdown in upstream oil, our exposure is greatly limited by our size, agility and diversification. Furthermore, we believe that low oil prices will be a boon to many sectors we serve, spurring demand in manufacturing and other markets hungry for our fleet."
- In April 2014, the company acquired certain assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). National Pump is included in the company's results subsequent to the acquisition date.
- Adjusted EPS (earnings per share) is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) asset impairment charge; (iv) impact on interest expense related to fair value adjustment of acquired RSC indebtedness; (v) impact on depreciation related to acquired RSC fleet and property and equipment; (vi) impact of the fair value mark-up of acquired RSC fleet; (vii) merger related intangible asset amortization and (viii) loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures. See table below for amounts.
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) impact of the fair-value mark up of acquired RSC fleet; (iv) gain/loss on sale of software subsidiary and (v) stock compensation expense, net. See table below for amounts.
- For the full year 2014, total revenue increased 14.7% year-over-year, and rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 14.8%. Within rental revenue, owned equipment rental revenue increased 14.4%, reflecting increases of 9.6% in the volume of equipment on rent and 4.5% in rental rates. Excluding the impact of National Pump, rental revenue for the full year 2014 increased 10.8% year-over-year.
- For the fourth quarter of 2014, rental revenue increased 16.5% year-over-year. Within rental revenue, owned equipment rental revenue increased 16.3%, reflecting increases of 10.7% in the volume of equipment on rent and 4.1% in rental rates. Excluding the impact of National Pump, rental revenue for the fourth quarter of 2014 increased 11.1% year-over-year.
- Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 54.9% for the fourth quarter of 2014 and 58.2% for the full year.
- Time utilization increased 130 basis points year-over-year to 70.6% for the fourth quarter of 2014. Full year time utilization increased 60 basis points to a record 68.8%.
- For the fourth quarter of 2014, the company generated $156 million of proceeds from used equipment sales at a gross margin of 48.7%, compared with $134 million of proceeds at a gross margin of 46.3% the prior year. For the full year 2014, the company generated $544 million of proceeds from used equipment sales at a gross margin of 48.5%, compared with $490 million of proceeds at a gross margin of 44.9% for the prior year.4
The company provided the following outlook for the full year 2015:
- Total revenue in a range of $6.0 billion to $6.2 billion;
- Adjusted EBITDA in a range of $2.95 billion to $3.05 billion;
- An increase in rental rates of approximately 3.5% year-over-year;
- Time utilization of approximately 69%;
- Net rental capital expenditures of approximately $1.2 billion, after gross purchases of approximately $1.7 billion; and
- Free cash flow in a range of $725 million to $775 million.5
- Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC fleet that was sold.
- Forecasted free cash flow reflects lower than expected cash taxes of approximately $100 million in 2015 related to the bonus tax depreciation bill passed in December 2014.
Free Cash Flow and Fleet Size
For the full year 2014, free cash flow was $557 million after: (i) total rental and non-rental capital expenditures of $1.821 billion; and (ii) aggregate cash payments of $17 million related to merger and restructuring activities.
The size of the rental fleet was $8.44 billion of original equipment cost at December 31, 2014, compared with $7.73 billion at December 31, 2013. The age of the rental fleet was 43.0 months on an OEC-weighted basis at December 31, 2014, compared with 45.2 months at December 31, 2013.
Share Repurchase Programs
In 2014, the company repurchased $491 million of common stock to complete the $500 million share repurchase program that was announced in October 2013.
In December 2014, the company's board of directors authorized a new $750 million share repurchase program, which the company intends to complete within 18 months of authorization. In 2014, the company repurchased $102 million of common stock under this share repurchase program.
Return on Invested Capital (ROIC)
Return on invested capital was 8.8% for the year ended December 31, 2014, an increase of 130 basis points from the year ended December 31, 2013. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by average stockholders’ equity (deficit), 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 federal statutory tax rate of 35% is used to calculate after-tax operating income.6
- When adjusting the denominator of the ROIC calculation to also exclude average goodwill, ROIC was 11.9% for the year ended December 31, 2014, an increase of 160 basis points from the year ended December 31, 2013.