United Rentals, Inc. (NYSE: URI) today announced financial
results for the third quarter 2010. Total revenue was $605 million,
compared with $592 million for the same period last year, and
rental revenue was $507 million, compared with $478 million for the
same period last year. Operating income was $93 million, compared
with $67 million for the same period last year.
On a GAAP EPS basis, the company reported third quarter 2010 net
income of $23 million, or $0.33 per diluted share, compared with
net income of $0 million, or $0.00 per diluted share, for the same
period in 2009. Adjusted EPS for the quarter, which excludes the
impact of special items, was $0.40 per diluted share, compared with
$0.01 per diluted share the prior year. Adjusted EBITDA margin,
which also excludes the impact of special items, was 35.7% for the
quarter, compared with 31.1% in 2009.
Third Quarter 2010 Highlights
- Time utilization was 71.3%, an increase
of 7.1 percentage points from third quarter last year, and a record
high for the company. Rental rates declined 1.4% year over year,
but improved 2.0% sequentially from the second quarter. Dollar
utilization, which reflects the impact of time utilization and
rental rates, increased 2.9 percentage points to 51.6%, compared to
the same period last year.
- Free cash flow was $37 million for the
quarter, compared with $123 million for the same period last year.
The company raised its outlook for full year net rental capital
expenditures (defined as purchases of rental equipment less the
proceeds from sales of rental equipment) to a range of $180 million
to $200 million, from its previous estimate of $160 million to $180
million, to service key accounts and meet increased demand. The
company also reaffirmed its outlook for full year free cash flow of
a range of $200 million to $225 million.
- SG&A expense decreased by $4
million, compared to the same period last year. The company has
reaffirmed its outlook for full year SG&A expense reduction
within a range of $40 million to $50 million.
- Cost of equipment rentals, excluding
depreciation, increased by $12 million compared to the same period
last year, reflecting higher transaction volume and equipment on
rent. The company has updated its outlook for full year expense
reduction to a range of $5 million to $15 million, from its
previous estimate of $30 million to $50 million.
- The company sold $74 million of used
fleet on an original equipment cost basis and generated a gross
margin of 31.3%, compared with $100 million of used fleet sold at a
gross margin of 7.3% for the same period last year.
CEO Comments
Michael Kneeland, chief executive officer of United Rentals,
said, "While the recovery is progressing slowly, business
conditions have improved in all of our operating regions. Rental is
a very attractive alternative to buying equipment right now, aided
by tight credit markets and cautious customer behavior. As a
result, we are seeing increased demand despite the weakness in
construction spending. We view record time utilization and
sequential quarterly rate improvement as two very positive
indicators of profitable growth.”
Kneeland continued, “Our results also show that we are clearly
delivering on our strategic priorities. Because of the operating
leverage we’ve built into the business, our growth in operating
income and adjusted EBITDA surpassed our rental revenue growth. We
increased our fleet investment to better meet demand and to further
strengthen relationships with our key customers. This is exactly
where we want to take the company -- toward better earnings in our
core business, with stronger margins and sustainable fixed cost
savings. Current trends suggest that our year over year rate
performance should be flat to slightly positive in the fourth
quarter, with further improvement in 2011.”
Nine Months 2010 Results
For the first nine months 2010, the company reported total
revenue of $1,640 million and rental revenue of $1,337 million,
compared with $1,801 million and $1,380 million, respectively, for
the same period last year. Operating income was $150 million for
the first nine months 2010, compared with $90 million for the same
period last year.
On a GAAP EPS basis, the company reported a net loss of $5
million, or a loss of $0.09 per diluted share, for the first nine
months 2010, compared with a net loss of $36 million, or a loss of
$0.60 per diluted share, for the same period in 2009. Adjusted EPS,
which excludes the impact of special items, was income of $0.18 per
diluted share for the first nine months 2010, compared with a loss
of $0.55 per diluted share the prior year. Adjusted EBITDA margin,
which also excludes the impact of special items, was 31.1% for the
first nine months 2010, compared with 26.6% in 2009.
Free Cash Flow and Fleet Size
For the first nine months 2010, free cash flow was $144 million,
including the receipt of a previously announced $55 million federal
tax refund, and after total rental and non-rental capital
expenditures of $307 million. By comparison, free cash flow for the
first nine months 2009 was $322 million after total rental and
non-rental capital expenditures of $232 million.
The size of the rental fleet was $3,805 million of original
equipment cost at September 30, 2010, compared with $3,803 million
at September 30, 2009, and $3,763 million at December 31, 2009. The
age of the rental fleet was 46.2 months on a unit-weighted basis at
September 30, 2010, compared with 42.4 months at December 31,
2009.
Return on Invested Capital (ROIC)
The company’s ROIC metric uses after-tax operating income for
the trailing 12 months divided by the averages of stockholders’
equity (deficit), debt and deferred taxes, net of average cash. To
mitigate the volatility related to fluctuations in our tax rate
from period to period, during the third quarter the company
adjusted its calculation of ROIC such that operating income is now
taxed at the federal statutory tax rate of 35%, rather than the
reported effective tax rate for a given period. With this new
methodology, the company’s ROIC was 3.2% for the 12 months ended
September 30, 2010, a decrease of 0.1 percentage point from the
same period last year. Had the company utilized its prior
methodology, ROIC for the 12 months ended September 30, 2010, would
have been negative 6.1%, a decrease of 9.5 percentage points from
the same period last year.
Conference Call
United Rentals will hold a conference call tomorrow, Wednesday,
October 20, 2010, at 11:00 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 866-256-3815.
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, net. EBITDA represents the sum of net income
(loss), provision (benefit) 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 the
restructuring charge and stock compensation expense, net. Adjusted
EPS represents EPS plus the sum of the restructuring charge, the
gains/losses on the repurchase/redemption of debt securities and
retirement of subordinated convertible debentures, and the asset
impairment charge. 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 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 to a GAAP financial
measure 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 549 rental locations in 48
states and 10 Canadian provinces. The company’s approximately 7,400
employees serve construction and industrial customers, utilities,
municipalities, homeowners and others. The company offers for rent
approximately 2,900 classes of equipment with a total original cost
of $3.8 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.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements can 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 strategy or outlook.
You are cautioned that our business and operations are subject to a
variety of risks and uncertainties, many of which are beyond our
control, and, consequently, our 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) on-going decreases in North
American construction and industrial activities, which have
significantly affected revenues and, because many of our costs are
fixed, our profitability, and which may further reduce demand and
prices for our products and services; (2) inability to benefit from
government spending associated with stimulus-related construction
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) noncompliance
with financial or other covenants in our debt agreements, which
could result in our lenders terminating our credit facilities and
requiring us to repay outstanding borrowings; (5) inability to
access the capital that our business may require; (6) increases in
our maintenance and replacement costs as we age our fleet, and
decreases in the residual value of our equipment; (7) inability to
sell our new or used fleet in the amounts, or at the prices, we
expect; (8) rates we can charge and time utilization we can achieve
being less than anticipated; and (9) costs we incur being more than
anticipated, and the inability to realize expected savings in the
amounts or time frames planned. For a fuller description of these
and other possible uncertainties, please refer to our Annual Report
on Form 10-K for the year ended December 31, 2009, as well as to
our subsequent filings with the SEC. Our 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.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In
millions, except per share amounts) Three
Months Ended Nine Months Ended September 30,
September 30,
2010
2009
2010
2009
Revenues: Equipment rentals $ 507 $ 478 $ 1,337 $ 1,380
Sales of rental equipment 32 41 104 192 New equipment sales 19 20
59 63 Contractor supplies sales 24 30 73 95 Service and other
revenues 23 23 67
71
Total revenues 605
592 1,640 1,801
Cost of revenues: Cost of equipment rentals,
excluding depreciation 237 225 668 # 679 Depreciation of rental
equipment 98 100 289 316 Cost of rental equipment sales 22 38 74
189 Cost of new equipment sales 15 16 49 53 Cost of contractor
supplies sales 16 22 51 70 Cost of service and other revenues
8 11 26 29
Total cost of revenues 396
412 1,157 1,336
Gross profit 209 180 483
465 Selling, general and administrative expenses 95
99 271 308 Restructuring charge 7 1 19 25 Non-rental depreciation
and amortization 14 13 43
42
Operating income 93 67
150 90 Interest expense, net 55 62 170 154
Interest expense - subordinated convertible debentures, net 2 2 6
(6 ) Other income, net (2 ) (1 ) (3 ) -
Income (loss) before provision (benefit)
for income taxes 38 4 (23 )
(58 ) Provision (benefit) for income taxes
15 4 (18 ) (22 )
Net
income (loss) $ 23 $ -
$ (5 ) $ (36 )
Diluted earnings (loss) per share $
0.33 $ - $ (0.09 )
$ (0.60 ) UNITED RENTALS,
INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In
millions) September 30, December
31, 2010 2009 ASSETS Cash and cash
equivalents $ 170 $ 169 Accounts receivable, net 399 337 Inventory
48 44 Prepaid expenses and other assets 37 89 Deferred taxes
58 66 Total current assets 712 705
Rental equipment, net 2,335 2,414 Property and equipment, net 409
434 Goodwill and other intangible assets, net 227 231 Other
long-term assets 61 75
Total
assets $ 3,744 $ 3,859
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current maturities of long-term debt $ 123 $ 125 Accounts payable
167 128 Accrued expenses and other liabilities 234
208 Total current liabilities 524 461
Long-term debt 2,692 2,826 Subordinated convertible debentures 124
124 Deferred taxes 384 424 Other long-term liabilities 35
43
Total liabilities
3,759 3,878 Common stock
1 1 Additional paid-in capital 490 487 Accumulated deficit (579 )
(574 ) Accumulated other comprehensive income 73
67
Total stockholders' deficit
(15 ) (19 ) Total
liabilities and stockholders' deficit $ 3,744
$ 3,859
UNITED RENTALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (In millions) Three Months
Ended Nine Months Ended September 30,
September 30,
2010
2009
2010
2009
Cash Flows From Operating Activities: Net income (loss) $ 23
$ - $ (5 ) $ (36 ) Adjustments to reconcile net income (loss) to
net cash provided by operating activities: Depreciation and
amortization 112 113 332 358 Amortization of deferred financing
costs and original issue discounts 6 5 17 13 Gain on sales of
rental equipment (10 ) (3 ) (30 ) (3 ) (Gain) loss on sales of
non-rental equipment - - (1 ) 1 Stock compensation expense, net 2 2
6 6 Restructuring charge 7 1 19 25 Loss (gain) on
repurchase/redemption of debt securities - 1 3 (16 ) Gain on
retirement of subordinated convertible debentures - - - (13 )
Increase (decrease) in deferred taxes 12 3 (35 ) (4 ) Changes in
operating assets and liabilities: (Increase) decrease in accounts
receivable (55 ) 11 (62 ) 94 Decrease (increase) in inventory 12 3
(4 ) 7 Decrease in prepaid expenses and other assets 7 4 62 13
(Decrease) increase in accounts payable (22 ) (3 ) 39 (17 )
Increase (decrease) in accrued expenses and other liabilities
30 11 2 (75 ) Net
cash provided by operating activities 124 148 343 353
Cash Flows From Investing Activities: Purchases of rental
equipment (113 ) (60 ) (287 ) (198 ) Purchases of non-rental
equipment (8 ) (8 ) (20 ) (34 ) Proceeds from sales of rental
equipment 32 41 104 192 Proceeds from sales of non-rental equipment
3 3 6 11 Purchases of other companies - (25 )
- (26 ) Net cash used in investing activities
(86 ) (49 ) (197 ) (55 )
Cash Flows From Financing
Activities: Proceeds from debt 391 483 1,481 2,003 Payments of
debt (293 ) (566 ) (1,625 ) (2,227 ) Payments of financing costs -
- - (14 ) Shares repurchased and retired - - (1 ) - Excess tax
benefits from share-based payment arrangements, net (1 )
(1 ) (2 ) (2 ) Net cash provided by
(used in) financing activities 97 (84 ) (147 ) (240 ) Effect
of foreign exchange rates 5 9 2
14 Net increase in cash and cash
equivalents 140 24 1 72 Cash and cash equivalents at beginning of
period 30 125 169
77 Cash and cash equivalents at end of period $ 170
$ 149 $ 170 $ 149
Supplemental disclosure of cash flow information: Cash
(paid) received for income taxes, net $ (1 ) $ (2 ) $ 49 $ 2
UNITED RENTALS, INC. SEGMENT PERFORMANCE ($ in
millions)
Three Months Ended Nine Months Ended September
30, September 30,
2010
2009
Change
2010
2009
Change
General Rentals Reportable segment revenue $ 558 $
548 1.8 % $ 1,516 $ 1,682 (9.9 %) Reportable segment operating
income 87 59 47.5 % 144 97 48.5 % Reportable segment operating
margin 15.6 % 10.8 % 4.8 pts 9.5 % 5.8 % 3.7 pts
Trench
Safety, Power & HVAC Reportable segment revenue $ 47 $ 44
6.8 % $ 124 $ 119 4.2 % Reportable segment operating income 13 9
44.4 % 25 18 38.9 % Reportable segment operating margin 27.7 % 20.5
% 7.2 pts 20.2 % 15.1 % 5.1 pts
Total United Rentals
Total revenue $ 605 $ 592 2.2 % $ 1,640 $ 1,801 (8.9 %) Total
operating income (1) 100 68 47.1 % 169 115 47.0 % Total operating
margin (1) 16.5 % 11.5 % 5.0 pts 10.3 % 6.4 % 3.9 pts (1)
Excludes unallocated restructuring charge.
DILUTED EARNINGS (LOSS) PER SHARE
CALCULATION (In millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2010
2009
2010
2009
Net income (loss) $ 23 $ - $ (5 ) $ (36 ) Convertible debt
interest-1 7/8 % - - - -
Net income (loss) available to common stockholders $ 23 $ - $ (5 )
$ (36 ) Weighted-average common shares 60.5 60.1 60.4 60.1
Employee stock options and warrants 0.4 0.2 - - Convertible
subordinated notes - 1 7/8 % 5.3 - - - Convertible subordinated
notes - 4 % 1.6 - - - Restricted stock units 0.7 0.4
- - Weighted average diluted shares
68.5 60.7 60.4 60.1 Diluted earnings (loss) per share
$ 0.33 $ - $ (0.09 ) $ (0.60 )
UNITED RENTALS, INC.
ADJUSTED EARNINGS (LOSS) PER SHARE GAAP
RECONCILIATION
We define “Earnings (loss) per share – adjusted” as the sum of
(i) earnings (loss) per share – GAAP, as reported, plus the
after-tax impacts of (ii) restructuring charge, (iii) loss (gain)
on repurchases/redemptions of debt securities and retirement of
subordinated convertible debentures and (iv) asset impairment
charge. Management believes adjusted earnings (loss) per share
provides useful information concerning future profitability.
However, adjusted earnings (loss) per share is not a measure of
financial performance under GAAP. Accordingly, adjusted earnings
(loss) per share should not be considered an alternative to GAAP
earnings (loss) per share. The table below provides a
reconciliation between earnings (loss) per share – GAAP, as
reported, and earnings (loss) per share – adjusted.
Three Months Ended Nine Months
Ended September 30, September 30,
2010
2009
2010
2009
Earnings (loss) per share - GAAP, as
reported $ 0.33 $ - $
(0.09 ) $ (0.60 )
After-tax impact of: Restructuring charge (1) 0.06 -
0.20 0.24 Loss (gain) loss on repurchases/redemptions of
debt securities and retirement of subordinated convertible
debentures - 0.01 0.03 (0.28 ) Asset impairment charge (2)
0.01 - 0.04 0.09
Earnings (loss) per share -
adjusted
$ 0.40 $ 0.01 $ 0.18
$ (0.55 ) (1) Relates to branch
closure charges and severance costs. (2) Includes the impact of
impairing certain rental equipment and leasehold improvements
UNITED RENTALS, INC.
EBITDA AND ADJUSTED EBITDA GAAP
RECONCILIATION
(In millions)
EBITDA represents the sum of net income (loss), provision
(benefit) 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 the restructuring
charge and stock compensation expense, net. These items are
excluded from adjusted EBITDA internally when evaluating our
operating performance and allow investors to make a more meaningful
comparison between our core business operating results over
different periods of time, as well as with those of other similar
companies. Management believes that EBITDA and adjusted EBITDA,
when viewed with the company’s results under GAAP and the
accompanying reconciliation, provide useful information about
operating performance and period-over-period growth, and provide
additional information that is useful for evaluating the operating
performance of our core business without regard to potential
distortions. Additionally, management believes that EBITDA and
adjusted EBITA permit investors to gain an understanding of the
factors and trends affecting our ongoing cash earnings, from which
capital investments are made and debt is serviced. However, EBITDA
and adjusted EBITDA are not measures of financial performance or
liquidity under GAAP and, accordingly, should not be considered as
alternatives to net income (loss) or cash flow from operating
activities as indicators of operating performance or liquidity. The
table below provides a reconciliation between net income (loss) and
EBITDA and adjusted EBITDA.
Three Months Ended Nine
Months Ended September 30, September 30,
2010
2009
2010
2009
Net income (loss) $ 23 $ - $ (5 ) $ (36 ) Provision
(benefit) for income taxes 15 4 (18 ) (22 ) Interest expense, net
55 62 170 154 Interest expense - subordinated convertible
debentures, net 2 2 6 (6 ) Depreciation of rental equipment 98 100
289 316 Non-rental depreciation and amortization 14
13 43 42
EBITDA (A) 207
181 485 448 Restructuring charge (1) 7 1 19 25
Stock compensation expense, net (2) 2 2 6
6
Adjusted EBITDA (B) $
216 $ 184 $ 510 $
479 (A) Our EBITDA margin was 34.2% and 30.6%
for the three months ended September 30, 2010 and 2009,
respectively, and 29.6% and 24.9% for the nine months ended
September 30, 2010 and 2009, respectively. (B) Our adjusted
EBITDA margin was 35.7% and 31.1% for the three months ended
September 30, 2010 and 2009, respectively, and 31.1% and 26.6% for
the nine months ended September 30, 2010 and 2009, respectively.
(1) Relates to branch closure charges and severance costs.
(2) Represents non-cash, share-based payments associated
with the granting of equity instruments.
UNITED RENTALS, INC.
FREE CASH FLOW GAAP
RECONCILIATION
(In millions)
We define free cash flow as (i) net cash provided by operating
activities less (ii) purchases of rental and non-rental equipment
plus (iii) proceeds from sales of rental and non-rental equipment
and excess tax benefits from share-based payment arrangements, net.
Management believes that free cash flow provides useful additional
information concerning cash flow available to meet future debt
service obligations and working capital requirements. However, free
cash flow is not a measure of financial performance or liquidity
under GAAP. Accordingly, free cash flow should not be considered an
alternative to net income (loss) or cash flow from operating
activities as an indicator of operating performance or liquidity.
The table below provides a reconciliation between net cash provided
by operating activities and free cash flow.
Three Months Ended Nine
Months Ended September 30, September 30,
2010
2009
2010
2009
Net cash provided by operating activities $ 124 $ 148 $ 343
$ 353 Purchases of rental equipment (113 ) (60 ) (287 ) (198 )
Purchases of non-rental equipment (8 ) (8 ) (20 ) (34 ) Proceeds
from sales of rental equipment 32 41 104 192 Proceeds from sales of
non-rental equipment 3 3 6 11 Excess tax benefits from share-based
payment arrangements, net (1 ) (1 ) (2 )
(2 )
Free cash flow $ 37
$ 123 $ 144 $
322
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