Herc (HRI) Q3 2018 earnings summary

Executive summary

• Strong Q3 results reflected growth in rental volume, pricing and mix, alongside cost control and improved flow-through. Adjusted EBITDA margin and dollar utilization reached standalone-public-company highs.

• 2018 adjusted EBITDA guidance increased to $675M–$685M, representing 15%–17% growth over 2017.

Financial highlights

• Equipment rental revenue rose 8.7% YoY to $449M; total revenue increased 12.8% to $516.2M.

• Net income was $46.2M, or $1.60 per diluted share, versus $12.8M, or $0.45, in Q3 2017; results included a $15M tax benefit.

• Adjusted EBITDA rose 14% YoY to $201.5M from $176.7M; nine-month adjusted EBITDA increased 19.3%.

• Rental equipment sales increased 81%, or $22.8M; auction channels accounted for 45% of sales volume versus 22% a year earlier.

Outlook and guidance

• 2018 adjusted EBITDA guidance raised from $630M–$660M to $675M–$685M; net fleet CapEx guidance narrowed to $525M–$540M.

• Free cash flow expected to turn positive in 2019, with lower net fleet CapEx than in 2018; net leverage expected to decline by year-end 2018.

• Internal goals include 60%–70% EBITDA flow-through and up to 200 bps of YoY improvement if market conditions and execution remain supportive; not formal guidance.

• 2019 fleet growth expected below the Q3 pace of 5%+, alongside lower net CapEx; supplier negotiations point to fleet cost inflation of 2% or less.