Creating Value for Customers and Investors
2018 Annual Report Highlights
Letter to Stockholders
From CEO and Chairman
Our record performance in 2018 underscored our ability to capitalize on demand through a combination of scale, technology and other sustainable competitive advantages. This is how we best serve our customers and create value for our investors.
We entered 2018 from a position of strength, with a large and diversified presence in North America. During the year, we acquired BakerCorp, a fluid solutions specialist business, and BlueLine, a national construction equipment rental company, as well as several smaller operations. These transactions helped us reach a new milestone of over $8 billion in annual revenue.
For the full year 2018, United Rentals delivered GAAP earnings per diluted share of $13.12, compared with $15.73 for the full year 2017. On an adjusted basis(1), EPS was $16.26, compared with $18.64 the prior year. GAAP EPS and adjusted EPS for 2017 include a net income benefit estimated at $689 million, or $8.05 per diluted share, from the enactment of U.S. tax reform.
The company generated $1.1 billion of net income in 2018. Adjusted EBITDA(1) was $3.9 billion, free cash flow(1) was $1.3 billion after capex, and return on invested capital was 11% — all three were company records... [continue reading below]
Note: (1) Adjusted EPS, adjusted EBITDA and free cash flow are non-GAAP measures. Please see the reconciliation of these measures to the comparable GAAP measures contained in the “Management Discussion and Analysis of Financial Condition and Results of Operations” section in the accompanying Annual Report on Form 10-K for the year ended December 31, 2018, and in our fiscal 2018 earnings press release furnished on Form 8-K with the Securities and Exchange Commission on January 23, 2019.
Letter to Stockholders Continued
[continued from above]
Although we had the tailwind of a favorable macro, our results also reflect our proficiency in capitalizing on demand. The timing of our M&A activity gave us widespread capabilities to serve customers in a growth environment. We increased rental revenue across all our regions and verticals, and we continued to foster organic growth through cross-selling. This was aided by the expansion of our specialty segment to 323 locations.
Furthermore, while the U.S. equipment rental industry grew by a solid 8% in 2018, we grew faster. Our rental revenue, pro-forma for 2017 acquisitions, increased 10.5% year-over-year. Growth is synergistic for us: it creates the potential for greater efficiency and generates cash that we use to advance our strategy.
In 2018, in addition to allocating capital for M&A, rental fleet, technology and productivity initiatives, we embarked on a $1.25 billion share repurchase program to provide further value for our stockholders. We intend to complete the program in 2019.
Value through Productivity
Our entire organization remains focused on balancing growth, margins, returns and free cash flow to maximize value for our shareholders. The three keynotes of our strategy are:
Capacity for growth. Our base is well-diversified by customers, geographies, end markets and solutions. We’ll continue to evolve our business model to withstand cyclicality by deepening our penetration in traditional markets, assessing new verticals and exploring new product applications.
Optimization. Operational excellence helps us transform our volume into profits and returns. The team we’ve built, and the platform we’ve created, unlock value from our investments in company initiatives and operations.
Disciplined fleet management. Our $14 billion rental fleet represents a key opportunity to generate returns. This includes our strategically important Trench, Power and Fluid Solutions specialty business, which grew by over 40% year-over-year in 2018. Our efforts in all three areas are underpinned by strong business logistics that are essential to our success, second only to our people.
2019 and Beyond
Today, United Rentals is a very different company than it was a decade ago, with a more resilient business model, stronger differentiation and more ways to create value for our customers and shareholders. We’re also defined by the caliber of our people, our strong safety record and our reputation as an innovator. In 2019, our employees will leverage their collective strength and continue to drive measurable improvements in customer service through 1UR collaboration.
We expect to see favorable macro conditions continue in 2019, giving us significant headroom for profitable growth. External indicators for construction and industrial activity are positive — and importantly, our customers remain confident about their business prospects. This is borne out by healthy construction backlogs and new project startups across the geographies we serve.
Our guidance for full year 2019 is for total revenue in a range of $9.15 billion to $9.55 billion, and adjusted EBITDA of $4.35 billion to $4.55 billion. We expect net rental capex to be between $1.4 billion and $1.55 billion for the year, after gross purchases of $2.15 billion to $2.3 billion. We’re guiding to net cash provided by operating activities in a range of $2.85 billion to $3.2 billion. Free cash flow, excluding merger and restructuring- related payments, is expected to be between $1.3 billion and $1.5 billion.
On May 8, 2019, Dr. Jenne Britell will step down as Chairman of the Board, and CEO Michael Kneeland will become Non-Executive Chairman. Director Bobby Griffin will become Lead Independent Director. Matthew Flannery, currently President and Chief Operating Officer, will become President and Chief Executive Officer.
The upcoming leadership transition will be the culmination of a comprehensive planning process undertaken by our Board of Directors over several years. Matt is the ideal choice to lead our more than 18,000 employees to new accomplishments. He believes, as we do, that there is enormous shareholder value to be derived from continually setting the bar higher.
Looking forward, United Rentals is poised to do more for customers and investors than at any time in its history. This is how the best companies endure — by continually positioning for profitable growth well into the future. We’re very proud to have led this remarkable business through a decade of transformation. It’s been a great journey, and the journey continues.
March 26, 2019
Michael J. Kneeland Chief Executive Officer
Jenne K. Britell Chairman of the Board
Responsibility, Service and Engagement
Our mission is to deploy the best people, equipment and solutions to enable our customers to safely build a better and stronger future. In furthering this mission, we are committed to the highest standards of ethics, business integrity, governance, innovation and good corporate citizenship. Our longstanding legacy as a purpose-driven company continues to shape how we think and operate today.
- As of March 2019, the company’s 12-member Board of Directors includes 11 independent directors, including the Chairman, with four female directors and three ethnically diverse male directors
- In 2018, three new directors were appointed to the Board and one retired as part of an ongoing refreshment initiative
- In 2018, the company conducted a proactive outreach to 13 of its largest stockholders, representing 34% of total shares outstanding; this followed a comprehensive stockholder outreach in 2017
Other governance practices in place include:
- Separation of Chairman and CEO roles
- Voluntary Board adoption of a proxy access bylaw provision
- Voluntary Board adoption of a formal retirement age policy for directors • Stockholders’ right to call special meetings
Technology and Customer Service
- In 2018, the company realized more than 50% year-over-year growth in self-service e-commerce revenue from UR One®, its digital platform launched in 2017 to provide always-on, one-stop access to the industry’s largest range of rental equipment and tools, and related information and services
- The company continues to be the only equipment rental provider in the industry to offer a fully-confirmed equipment rental order capability online, with no human interaction
- In 2018, the company’s digital commerce across all channels attracted over 30,000 net new customers, resulting in a 45% increase in digitally generated revenue year-over-year
- The company’s proprietary Total Control® and UR Control® technologies are widely recognized as industry-leading innovations that support equipment renters in reducing overall costs by optimizing how, and how often, equipment is utilized
- The company’s ongoing investment in telematics is a widespread efficiency initiative with substantial benefits, including visibility into equipment runtime and utilization, geo-location, proactive fuel alerts and business intelligence for customers
Safety, Community and Engagement
- 92% of the company’s branches were injury-free in 2018, reflecting the importance of safety as a core value
- The company was ranked in the top quartile for safety across all industry sectors in 2018, and continues to lead the industry in safety performance
- The company was ranked #7 across all U.S. industries as a Top Military-Friendly Employer by GI Jobs magazine for 2018
- $993,400 in employee donations were made to the United Compassion Fund in 2018, and 129 colleagues were assisted through the employee-funded and administered 501(c)(3) organization
- 97% of employee respondents in the latest Engagement Survey said they work beyond what is required to help the company
- The company uses safety performance as a qualitative goal in assessing bonuses for the CEO and other senior executives
- The company uses recruitment of diverse employees as a qualitative goal in assessing bonuses for the CEO and other senior executives
- The Board of Directors has instituted a formal schedule for consideration of safety and diversity matters
- Employee resource groups (Together United, Women United, Veterans United) and many other initiatives fuel diversity and inclusion
- Over $570,000 has been donated to date to SoldierStrong through the company’s Turns for Troops sponsorship of Rahal Letterman Lanigan Racing
- The company has over 125,000 followers on major social media channels, and lively internal engagement on Workplace®
- In 2018, the Board’s Nominating and Corporate Governance Committee amended its charter to take formal responsibility for oversight of the company’s environmental, social and governance policies and practices
- All company branches use a scorecard to track energy use and identify potential areas of improvement
- The FAST (field automation systems technology) initiative helps to optimize delivery and pickup routes and loads, reducing fuel consumption
- An ongoing lighting retrofit program aims at reducing energy use at branches while improving working conditions for employees
- Each company driver’s idling time is measured and documented as a component of the performance evaluation process tied to compensation
- The company’s primary business of equipment rental is environmentally friendly by nature, reducing ownership of equipment assets and optimizing the utilization of assets that have been manufactured and brought into the economy
United Rentals, Inc.
100 First Stamford Place, Suite 700 Stamford, CT 06902
Phone: (203) 622-3131
Fax: (203) 622-6080 unitedrentals.com
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Note about picture: United Rentals was the primary rental equipment provider as the New York State Thruway Authority replaced the Tappan Zee Bridge with a new 3.1-mile state-of-the-art, twin-span bridge across the Hudson River 20 miles north of New York City. The $3.98 billion Governor Mario M. Cuomo Bridge is one of the largest single design-build contracts for a transportation project in the United States.
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