Herc (HRI) Q4 2018 earnings summary

Executive summary

• 2018 strategic initiatives drove rental growth, improved pricing and mix, higher utilization, and continued fleet diversification; annual top-line growth was nearly 2x the industry rate.

• Adjusted EBITDA rose 17% to $684.8 million for 2018, while 2019 guidance calls for $730 million-$760 million, up 7%-11%.

Financial highlights

• 2018 equipment rental revenue grew 10.6% to $1.658 billion; total revenue increased 12.7%.

• Q4 equipment rental revenue increased 8% to $447.7 million; total revenue grew 10.6% to $543.7 million.

• 2018 net income was $69.1 million vs. $160.3 million in 2017; Q4 net income was $33.3 million vs. $214.3 million, reflecting much smaller Tax Act benefits in 2018.

• Adjusted EBITDA was $198.4 million in Q4, up 11.6% YoY; 2018 adjusted EBITDA margin was 34.6%, up 120 bps.

Outlook and guidance

• 2019 adjusted EBITDA guidance is $730 million-$760 million, up 7%-11% from 2018; REBITDA and REBITDA margin are expected to increase.

• 2019 net fleet CapEx is expected at $370 million-$410 million; lower spending and higher EBITDA are expected to support strong free cash flow and lower net leverage.

• Expected 2019 REBITDA flow-through is 60%-70%; pricing growth direction is expected to remain consistent, with no specific pricing guidance given.

• Plans call for four to six new greenfield locations in 2019, focused on urban markets; dollar utilization and EBITDA margins are expected to steadily increase.