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United Rentals Announces Third Quarter 2015 Results

STAMFORD, Conn.--(BUSINESS WIRE)--United Rentals, Inc. (NYSE: URI) today announced financial results for the third quarter 2015. Total revenue was $1.550 billion and rental revenue was $1.326 billion, compared with $1.544 billion and $1.315 billion, respectively, for the same period last year. On a GAAP basis, the company reported third quarter net income of $215 million, or $2.25 per diluted share, compared with $192 million, or $1.84 per diluted share, for the same period last year.

Adjusted EPS1 for the quarter was $2.57 per diluted share, compared with $2.20 per diluted share for the same period last year. Adjusted EBITDA2 was $780 million and adjusted EBITDA margin was a quarterly company record at 50.3%, an increase of $19 million and 100 basis points, respectively, from the same period last year.

Third Quarter 2015 Highlights

  • Rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 0.8% year-over-year.3 Within rental revenue, owned equipment rental revenue increased 1.0%, reflecting a year-over-year increase of 2.4% in the volume of equipment on rent, partially offset by a 0.1% decrease in rental rates.
  • The company’s Trench Safety and Power & HVAC businesses' rental revenue increased by a combined 17.9% year-over-year, primarily on a same store basis.
  • Return on invested capital was 8.9% for the 12 months ended September 30, 2015, an increase of 0.5 percentage points from the 12 months ended September 30, 2014.
  • Time utilization decreased 150 basis points year-over-year to 70.0%. Excluding the branches with the most exposure to upstream oil and gas, time utilization decreased 60 basis points year-over-year.
  • The company generated $141 million of proceeds from used equipment sales at an adjusted gross margin of 44.0%, compared with $140 million and 47.9% for the same period last year.4

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1. Adjusted EPS is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) impact on interest expense related to fair value adjustment of acquired RSC indebtedness; (iv) impact on depreciation related to acquired RSC fleet and property and equipment; (v) impact of the fair value mark-up of acquired RSC fleet; (vi) merger related intangible asset amortization and (vii) loss on repurchase/redemption of debt securities and amendment of ABL facility. See table below for amounts.
2. Adjusted EBITDA is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) impact of the fair-value mark up of acquired RSC fleet and (iv) stock compensation expense, net. See table below for amounts.
3. The 0.8% rental revenue increase includes an adverse impact from currency. Excluding this impact, rental revenue would have increased 2.7% year-over-year.
4. Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC fleet that was sold.

CEO Comments

Michael Kneeland, chief executive officer of United Rentals, said, "The third quarter unfolded much as we had anticipated. We delivered a robust performance in our Trench Safety and Power & HVAC businesses, aided by cross-selling. As expected, we saw rate and time pressure on our general rental business from the continued impact of upstream oil and gas activity and a weak Canadian dollar. We ran our operations with great cost discipline in this environment, generating solid financial results and strong free cash flow. Our EBITDA margin, at over 50%, was the highest of any quarter in our company’s history."

Kneeland continued, "Based on our year-to-date performance, and our visibility into fourth quarter, we’ve reaffirmed our full year outlook for 2015. We’re now in the midst of planning for 2016, which we believe will be another solid year of industry growth. This is supported by customer optimism and industry forecasts for 2016 and several years beyond. All of these factors, as well as the timing of current headwinds, will shape how we manage capex, rates and utilization in the coming year."

Nine Months 2015 Highlights

  • Total revenue was $4.294 billion and rental revenue was $3.671 billion, compared with $4.121 billion and $3.499 billion, respectively, for the same period last year.
  • Rental revenue increased 4.9% year-over-year.5 Within rental revenue, owned equipment rental revenue increased 5.1%, reflecting year-over-year increases of 4.2% in the volume of equipment on rent and 1.3% in rental rates.6
  • The company’s Trench Safety and Power & HVAC businesses' rental revenue increased by a combined 23.7% year-over-year, primarily on a same store basis.
  • Adjusted EBITDA was $2.088 billion and adjusted EBITDA margin was 48.6%, an increase of $145 million and 150 basis points, respectively, from the same period last year.
  • Time utilization decreased 120 basis points year-over-year to 67.0%. Excluding the branches with the most exposure to upstream oil and gas, time utilization decreased 30 basis points year-over-year.
  • The company generated $381 million of proceeds from used equipment sales at an adjusted gross margin of 48.0%, compared with $388 million and 48.5% for the same period last year.
  • Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 83.8%.

2015 Outlook

The Company has reaffirmed the following full year outlook:

Total revenue $5.8 billion to $5.9 billion
Adjusted EBITDA $2.80 billion to $2.85 billion
Increase in rental rates (year-over-year) Approximately 0.5%
Time utilization Approximately 67.5%
Net rental capital expenditures after gross purchases Approximately $1.1 billion, after gross purchases of approximately $1.6 billion
Free cash flow (excluding the impact of merger and restructuring related costs) $725 million to $775 million

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5. The 4.9% rental revenue increase includes an adverse impact from currency. Excluding this impact, rental revenue would have increased 6.5% year-over-year.
6. On April 1, 2014, the company acquired certain assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). National Pump is included in the company's results subsequent to the acquisition date. Excluding the impact of the National Pump acquisition, rental revenue for the first nine months of 2015 increased 4.0% year-over-year.

Free Cash Flow and Fleet Size

For the first nine months of 2015, free cash flow was $508 million, after total rental and non-rental gross capital expenditures of $1.501 billion. By comparison, free cash flow for the first nine months of 2014 was $312 million after total rental and non-rental gross capital expenditures of $1.568 billion.7

The size of the rental fleet was $8.95 billion of original equipment cost at September 30, 2015, compared with $8.44 billion at December 31, 2014. The age of the rental fleet was 41.9 months on an OEC-weighted basis at September 30, 2015, compared with 43.0 months at December 31, 2014.

Share Repurchase Programs

As of September 30, 2015, the company has repurchased $740 million of common stock as part of the $750 million share repurchase program that was announced in December 2014. The company expects to complete the program in 2015. Upon its completion, the company expects to begin the new $1 billion share repurchase program that was announced in July 2015. The company intends to complete the new $1 billion share repurchase program within 18 months of its initiation.

Return on Invested Capital (ROIC)

Return on invested capital was 8.9% for the 12 months ended September 30, 2015, an increase of 0.5 percentage points from the 12 months ended September 30, 2014. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by average stockholders’ equity (deficit), debt and deferred taxes, net of average cash. 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.8

Conference Call

United Rentals will hold a conference call tomorrow, Thursday, October 22, 2015, at 11:00 a.m. Eastern Time. The conference call number is 866-227-1582. The conference call will also be available live by audio webcast at unitedrentals.com, where it will be archived until the next earnings call. The replay number for the call is 703-925-2533, passcode is 1664054.

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7. Free cash flow for the first nine months of 2015 and 2014 includes aggregate merger and restructuring related payments of $3 million and $16 million, respectively.
8. When adjusting the denominator of the ROIC calculation to also exclude average goodwill, ROIC was 12.0% for the 12 months ended September 30, 2015, an increase of 0.6 percentage points from the 12 months ended September 30, 2014.

Non-GAAP Measures

Free cash 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 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. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of the merger related costs, restructuring charge, stock compensation expense, net, and the impact of the fair value mark-up of acquired RSC fleet. Adjusted EPS represents EPS plus the sum of the merger related costs, restructuring charge, 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, merger related intangible asset amortization and the loss on repurchase/redemption of debt securities and amendment of ABL facility. The company believes that: (i) free cash 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...


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