United Rentals Inc. announced financial results for the third quarter 2017, reporting a rental revenue increase of 16.2% year-over-year. Within rental revenue, owned equipment rental revenue increased 15.8%, reflecting increases of 18.2% in the volume of equipment on rent and 0.1% in rental rates.
Michael Kneeland, chief executive officer of United Rentals, said, "We’re very pleased with the gains we reported for the third quarter. These include significantly higher volume and time utilization, margin growth, and strong cash flow. Importantly, we delivered positive rental rates both sequentially and year-over-year for every month in the quarter. Our U.S. end markets are driving robust demand for our fleet, and Canada is continuing to rebound. Given these many positive dynamics, and the extended hurricane recoveries, we’ve raised our 2017 gross capex plan by up to $200 million to best serve the current and anticipated needs of our customers."
Kneeland continued, "Looking at the balance of 2017, our updated guidance reflects the combination of a fundamentally strong market and the contributions from our acquisitions this year. The integration of Neff is well underway, with all locations on our operating system. We expect fourth quarter market activity to exceed normal seasonality, and based on everything we see, we have confidence in the operating environment for 2018."
Total revenue is at $1.766 billion and rental revenue is $1.536 billion for the third quarter, compared with $1.508 billion and $1.322 billion, respectively, for the same period last year. On a GAAP basis, the company reported third quarter net income of $199 million, or $2.33 per diluted share, compared with $187 million, or $2.16 per diluted share, for the same period last year.
Adjusted EPS1 for the quarter was $3.25 per diluted share, compared with $2.58 per diluted share for the same period last year. Adjusted EBITDA1 was $879 million and adjusted EBITDA margin1 was 49.8%, reflecting increases of $132 million and 30 basis points, respectively, from the same period last year.
Third Quarter 2017 Highlights
- Rental revenue2 increased 16.2% year-over-year. Within rental revenue, owned equipment rental revenue increased 15.8%, reflecting increases of 18.2% in the volume of equipment on rent and 0.1% in rental rates.
- Pro forma3 rental revenue increased 8.9% year-over-year, reflecting growth of 7.6% in the volume of equipment on rent and a 0.9% increase in rental rates.
- Time utilization increased 160 basis points year-over-year to 71.9%, a third quarter record, with each month in the quarter also establishing a new monthly record. On a pro forma basis, time utilization increased 180 basis points year-over-year.
- The company’s Trench, Power and Pump specialty segment's rental revenue increased by 32.9% year-over-year, primarily on a same store basis, while the segment’s rental gross margin improved by 280 basis points to 54.8%.
- The company generated $139 million of proceeds from used equipment sales at a GAAP gross margin of 39.6% and an adjusted gross margin of 56.8%, compared with $112 million at a GAAP gross margin of 39.3% and an adjusted gross margin of 46.4% for the same period last year. The year-over-year increase in adjusted gross margin primarily reflected the impact of sales of NES equipment.4
_______________1. Adjusted EPS (earnings per share) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP measures that exclude the impact of the items noted 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.2.Rental revenue includes owned equipment rental revenue, re-rent revenue and ancillary revenue.3.Pro forma results reflect the combination of United Rentals and NES Rentals ("NES") for all periods presented. The NES acquisition closed on April 3, 2017.4.Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC and NES fleet that was sold.
Acquisition of Neff Corporation
Subsequent to the third quarter, on October 2, the company completed its previously announced acquisition of Neff Corporation (“Neff”) for approximately $1.3 billion. The acquisition will augment the company’s earthmoving capabilities and efficiencies of scale in key market areas, particularly fast-growing southern geographies. The assets acquired included approximately $860 million of fleet based on original equipment cost ("OEC"), and 69 branch facilities serving end markets across the infrastructure, non-residential, energy, municipal and residential construction sectors.
Nine Months 2017 Highlights
- Rental revenue increased 11.7% year-over-year. Within rental revenue, owned equipment rental revenue increased 11.3%, reflecting an increase of 14.5% in the volume of equipment on rent, partially offset by a 0.7% decrease in rental rates.
- Pro forma rental revenue increased 6.5% year-over-year, reflecting growth of 6.9% in the volume of equipment on rent, partially offset by a 0.2% decline in rental rates.
- Time utilization increased 190 basis points year-over-year on both an actual and a pro forma basis to 69.3% and 69.0%, respectively.
- The company’s Trench, Power and Pump specialty segment's rental revenue increased by 23.6% year-over-year, priarily on a same store basis, while the segment’s rental gross margin improved by 280 basis points to 50.4%.
- The company generated $378 million of proceeds from used equipment sales at a GAAP gross margin of 40.5% and an adjusted gross margin of 53.7%, compared with $361 million at a GAAP gross margin of 40.4% and an adjusted gross margin of 47.6% for the same period last year. The year-over-year increase in adjusted gross margin primarily reflected the impact of sales of NES equipment.
- The company generated $1.766 billion of net cash provided by operating activities and $582 million of free cash flow5, compared with $1.630 billion and $846 million, respectively, for the same period last year. Net rental capital expenditures were $1.107 billion, compared with $784 million for the same period last year.
- The company issued $2.925 billion of debt due from 2025 through 2028. The proceeds from the debt issuances were primarily used to fund the NES and Neff acquisitions, and to redeem $1.175 billion of debt that would have been due in 2022 and 2023. The company additionally increased the sizes of its ABL and AR securitization facilities by $500 million and $50 million, respectively. The company expects to redeem the remaining $225 million principal amount of its 7 5/8 percent Senior Notes due 2022 in the fourth quarter of 2017.
