United Rentals Announces Fourth Quarter and Full Year 2012 Results and Provides 2013 Outlook
Greenwich, CT - Jan 22, 2013
United Rentals, Inc. (NYSE: URI) today announced financial results for the fourth quarter and full year 20121.
For the fourth quarter of 2012, total revenue was $1.249 billion and rental revenue was $1.036 billion. On a GAAP basis, the company reported fourth quarter net income of $41 million, or earnings of $0.40 per diluted share. Adjusted EPS2 for the quarter was $1.27 per diluted share.
For the full year 2012, total revenue was $4.117 billion and rental revenue was $3.455 billion. On a GAAP basis, full year net income was $75 million, or earnings of $0.79 per diluted share. Adjusted EPS for the full year was $3.76 per diluted share.
For the fourth quarter of 2012, adjusted EBITDA3 was $553 million and adjusted EBITDA margin was 44.3%. For the full year 2012, adjusted EBITDA was $1.772 billion, and adjusted EBITDA margin was 43.0%.
On a pro-forma basis (that is, assuming the combination of United Rentals results and RSC results for all periods in 2011 and 2012):
- Full year total revenue was $4.664 billion compared with $4.133 billion for 2011.
- Fourth quarter 2012 rental revenue increased 8.7% year-over-year, reflecting an increase of 7.2% in the volume of equipment on rent and an increase of 6.0% in rental rates year-over-year5. Full year rental revenue increased 13.2% year-over-year, reflecting an increase of 11.4% in the volume of equipment on rent and an increase of 6.9% in rental rates.
- Fourth quarter adjusted EBITDA was $553 million and adjusted EBITDA margin was 44.3%, an increase of $104 million and 580 basis points, respectively, from the same period last year. Full year adjusted EBITDA was $1.988 billion and adjusted EBITDA margin was 42.6%, an increase of $494 million and 650 basis points, respectively, from 2011.
- Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 125.3% for the fourth quarter and 93.0% for the full year.
- For the fourth quarter, time utilization decreased 90 basis points year-over-year to 68.7% and full year time utilization decreased 30 basis points to 67.5%.
- For the fourth quarter, the company generated $141 million of proceeds from used equipment sales at a gross margin of 39.7%, compared with $134 million of proceeds at a gross margin of 31.3% the prior year. For the full year, the company generated $463 million of proceeds from used equipment sales at a gross margin of 39.7%, compared with $363 million of proceeds at a gross margin of 33.3% for 2011.6
- The company realized cost synergies of $42 million in the fourth quarter and $104 million for the full year, and reaffirmed its fully developed goal of $230 million to $250 million on a run-rate basis.
1On April 30, 2012, the company completed the acquisition of RSC Holdings, Inc. (“RSC”). The results of RSC’s operations have been combined with the Company’s results since that date.
2Adjusted EPS is a non-GAAP measure that excludes the impact of the following special items: (i) RSC merger related costs; (ii) restructuring charge; (iii) asset impairment charge; (iv) pre-close RSC merger related interest expense; (v) impact on interest expense related to fair value adjustment of acquired RSC indebtedness; (vi) impact on depreciation related to acquired RSC fleet and property and equipment; (vii) impact of the fair value mark-up of acquired RSC fleet and inventory; (viii) RSC merger related intangible asset amortization; (ix) the gain on sale of our software subsidiary; and (x) the loss on extinguishment of debt securities, including subordinated convertible debentures, and ABL amendment. See table below for amounts.
3Adjusted EBITDA is a non-GAAP measure that excludes the impact of the following special items: (i) RSC merger related costs; (ii) restructuring charge; (iii) stock compensation expense, net; (iv) the impact of the fair value mark-up of acquired RSC fleet and inventory; and (v) the gain on sale of our software subsidiary. See tables below for amounts.
4Rental rate, time utilization and OEC calculations are based on the American Rental Association metrics criteria; comparisons to 2011 are based on a recast of these metrics on the same basis.
5The favorable impact of volume increases and rental rate increases were partially offset by the impact of rental mix in both the fourth quarter and the full year. Consistent with the company’s strategic focus on larger accounts, there has been a mix shift towards monthly rentals in 2012.
The company provided the following outlook for full year 2013:
- Total revenue in a range of $4.9 billion to $5.1 billion;
- Adjusted EBITDA in a range of $2.25 billion to $2.35 billion;
- An increase in rental rates of approximately 4.5% year-over-year;
- Time utilization of approximately 68.0%;
- Net rental capital expenditures of approximately $1.05 billion, after gross purchases of approximately $1.5 billion; and
- Full year free cash flow in the range of $400 million to $500 million.
Michael Kneeland, chief executive officer of United Rentals, said, "Our strong performance in 2012 continued in the fourth quarter as we delivered solid growth, robust margins and exceptional flow-through from our revenue streams. The integration with RSC has been very successful, and while it's not complete, we can now shift our focus to driving improvements across the entire business. Despite the intensity of integration, we’ve paid consistent attention to the fundamentals of our business and made good on our promise to drive significant returns."
Kneeland continued, "There's a lot to be excited about from the standpoint of value creation as we look at 2013. Industrial and other non-construction sectors have balanced our mix and now account for about 50% of our business. We also expect to benefit further from the secular shift to rental. And non-residential construction is predicted to show reasonable improvement, with larger upswings in 2014 and 2015. We see opportunities to continue to grow our key accounts, reap the synergies of the merger and expand our fleet, while further lowering our debt leverage."
Free Cash Flow and Fleet Size
For the full year 2012, on an as-reported basis7, free cash usage was $223 million after (i) total rental and non-rental capital expenditures of $1.369 billion and (ii) aggregate cash payments of $150 million related to merger and restructuring activities.
The size of the rental fleet on an as reported basis was $7.23 billion of original equipment cost at December 31, 2012, compared with $4.05 billion at December 31, 2011. The age of the rental fleet was 47.2 months on an OEC-weighted basis at December 31, 2012, compared with 50.3 months at December 31, 2011.
6 Used equipment margins for the 2012 fourth quarter and full year exclude the impact of the fair value mark-up of acquired RSC fleet that was sold.
7 As-reported basis includes the results of RSC’s operations only from April 30, 2012 forward.
Return on Invested Capital (ROIC)
Return on invested capital, on an as-reported basis, was 7.4% for the 12 months ended December 31, 2012, an increase of 50 basis points from the same period last year. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by the averages of stockholders’ equity, debt and deferred taxes, net of average cash and excludes the impact of merger and restructuring related costs. To mitigate the volatility related to fluctuations in the company’s tax rate from period to period, the federal statutory tax rate of 35% is used to calculate after-tax operating income.
United Rentals will hold a conference call tomorrow, Thursday, January 24, 2013, at 11 a.m. Eastern Time. The conference call will be available live by audio webcast at unitedrentals.com, where it will be archived until the next earnings call, and by calling 703-639-1123.
Free cash (usage) flow, earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA, and adjusted earnings per share (adjusted EPS) are non-GAAP financial measures as defined under the rules of the SEC. Free cash (usage) flow represents net cash provided by operating activities, less purchases of rental and non-rental equipment plus proceeds from sales of rental and non-rental equipment and excess tax benefits from share-based payment arrangements, net. EBITDA represents the sum of net income, income from discontinued operations, net of taxes, (benefit) provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of RSC merger related costs, restructuring charge, stock compensation expense, net, the impact of the fair value mark-up of acquired RSC fleet and inventory and the gain on sale of our software subsidiary. Adjusted EPS represents EPS plus the sum of the RSC merger related costs, restructuring charge, asset impairment charge, pre-close RSC merger related interest expense, the impact on interest expense related to the fair value adjustment of acquired RSC indebtedness, the impact on depreciation related to acquired RSC fleet and property and equipment, the impact of the fair value mark-up of acquired RSC fleet and inventory, RSC merger related intangible asset amortization, the gain on sale of our software subsidiary and the loss on extinguishment of debt securities, including subordinated convertible debentures, and ABL amendment. The company believes that: (i) free cash (usage) flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements; (ii) EBITDA and adjusted EBITDA provide useful information about operating performance and period-over-period growth; and (iii) adjusted EPS provides useful information concerning future profitability. However, none of these measures should be considered as alternatives to net income, cash flows from operating activities or earnings per share under GAAP as indicators of operating performance or liquidity. Information reconciling forward-looking free cash flow and Adjusted EBITDA to GAAP financial measures is unavailable to the company without unreasonable effort.
About United Rentals
United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of 836 rental locations in 49 states and 10 Canadian provinces. The company’s approximately 11,300 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers for rent approximately 3,300 classes of equipment with a total original cost of $7.23 billion. United Rentals is a member of the Standard & Poor’s MidCap 400 Index and the Russell 2000 Index® and is headquartered in Greenwich, Conn. Additional information about United Rentals is available at unitedrentals.com.
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. These statements can generally be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of vision, strategy or outlook. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following: (1) a slowdown in the recovery of North American construction and industrial activities, which decreased during the economic downturn and significantly affected our revenues and profitability, may reduce demand for equipment and prices that we can charge; (2) a decrease in levels of infrastructure spending, including lower than expected government funding for such projects; (3) our highly leveraged capital structure, which requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions; (4) restrictive covenants in our debt agreements, which could limit our financial and operational flexibility; (5) noncompliance with covenants in our debt agreements, which could result in termination of our credit facilities and acceleration of outstanding borrowings; (6) inability to access the capital that our business may require; (7) inability to manage credit risk adequately or to collect on contracts with customers; (8) incurrence of impairment charges; (9) the outcome or other potential consequences of litigation and other claims and regulatory matters relating to our business, including certain claims that our insurance may not cover; (10) an increase in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (11) incurrence of additional costs and expenses (including indemnification obligations) in connection with litigation, regulatory or investigatory matters; (12) increases in our maintenance and replacement costs as we age our fleet, and decreases in the residual value of our equipment; (13) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (14) challenges associated with past or future acquisitions, such as undiscovered liabilities, costs, integration issues and/or the inability to achieve the cost and revenue synergies expected; (15) management turnover and inability to attract and retain key personnel; (16) our rates and time utilization being less than anticipated; (17) our costs being more than anticipated, the inability to realize expected savings in the amounts or time frames planned and the inability to obtain key equipment and supplies; (18) disruptions in our information technology systems; (19) competition from existing and new competitors; (20) labor difficulties and labor-based legislation affecting labor relations and operations generally; and (21) the costs of complying with environmental and safety regulations. For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2012, as well as to our subsequent filings with the SEC. The forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.