Herc (HRI) Q2 2018 earnings summary

Executive summary

• Q2 showed strong growth: rental revenue rose 11.9%, adjusted EBITDA increased 14.4%, pricing improved for a ninth consecutive quarter, and dollar utilization rose for a fifth straight quarter.

• Strategy emphasized diversified fleet and customer mix, higher local-account growth, urban market density, operating efficiency, and disciplined capital management.

• Completed the final IT separation from Hertz in late July, establishing independent financial systems and greater control over technology priorities.

Financial highlights

• Q2 total revenue increased 16.8% YoY to $485.5M; equipment rental revenue rose 11.9% to $392.5M from $350.8M.

• Net loss was $0.3M, or $0.01 per diluted share, versus a $27.6M loss, or $0.98 per share, in Q2 2017; prior-year results included a $29.3M impairment charge.

• Adjusted EBITDA rose 14.4% to $152.2M in Q2 and 23.4% to $284.9M YTD; Q2 2017 comparator was $133.1M.

• Q2 equipment rental revenue growth reflected 4.8% higher volume, 2.9% pricing improvement, and the remainder from improved mix and other factors.

• Revenue-earning equipment sales increased $31.5M; proceeds were 44% of disposed OEC versus 41% YoY, supported by a strong used-equipment market.

Outlook and guidance

• Reaffirmed FY2018 adjusted EBITDA guidance of $630M–$660M, representing 8%–13% growth versus 2017 adjusted EBITDA of $585M.

• Reaffirmed FY2018 net fleet CapEx guidance of $525M–$575M; net leverage expected within the 2.5x–3.5x target range.

• Pricing improvement expected to continue through 2018; management identified rental rates as a key growth lever during peak summer demand.

• Management targeted flow-through above 60% over time; Q2 was described as anomalously soft, with improvement expected as costs are controlled and revenue growth flows through.

• ARA forecast equipment-rental industry CAGR of 5.3% through 2022; 2018 industrial spending growth forecast at 8.2%.