United Rentals announces record second quarter results

United Rentals, Inc. has announced financial results for the second quarter of 2023 and raised its full-year 2023 guidance.

Second Quarter 2023 Highlights

• Total revenue of $3.554 billion, including rental revenue¹ of $2.981 billion.
• Net income of $591 million, at a margin² of 16.6%. GAAP diluted earnings per share of $8.58, and adjusted EPS³ of $9.88.
• Adjusted EBITDA³ of $1.695 billion, at a margin² of 47.7%.
• Year-over-year, fleet productivity⁴ decreased 2.0% as reported and increased 2.1% on a pro forma⁴ basis.
• Year-to-date net cash provided by operating activities of $2.228 billion; free cash flow³ of $818 million, including gross rental capital spending of $2.048 billion.
• Returned $705 million to shareholders year-to-date, comprised of $500 million via share repurchases and $205 million via dividends paid.
• Net leverage ratio⁵ of 1.8x, with total liquidity⁵ of $2.706 billion, at June 30, 2023.

CEO Comment

Matthew Flannery, chief executive officer of United Rentals, said, “I’m pleased to share that our record second quarter results were supported by strong customer activity across our business. The integration of Ahern is on track, while our team’s outstanding execution drove solid margin expansion both sequentially and year-over-year. Looking at the balance of 2023, we remain encouraged by the momentum we are carrying into the busiest part of our season as well as our customers’ continued optimism.”

Flannery continued, “The increases to our full-year guidance speak to the strength of the current environment. As we look ahead, we continue to focus on ensuring that we are best positioned to serve our customers as they capitalize on the multi-year tailwinds we see across infrastructure, manufacturing, and energy and power. We remain confident in our ability to leverage these opportunities to deliver profitable growth, strong cash flow, and attractive returns for our shareholders.”

2023 Outlook

The company has raised its 2023 outlook, as shown below.

Summary of Second Quarter 2023 Financial Results

• Rental revenue increased 21.1% year-over-year to a second quarter record of $2.981 billion, reflecting broad-based strength of demand across the company’s end-markets and the impact of the Ahern Rentals acquisition. Year-over-year, fleet productivity declined 2.0% while average original equipment at cost (“OEC”) increased 25.5%. On a pro forma basis, including the pre-acquisition results of Ahern Rentals, rental revenue increased 12.4% year-over-year, supported by a 12.5% increase in average OEC and a 2.1% increase in fleet productivity.

• Used equipment sales in the quarter increased 132.9% year-over-year, primarily reflecting the normalization of volumes and the impact of the Ahern Rentals acquisition. The used equipment sales generated $382 million of proceeds at a GAAP gross margin of 51.3% and an adjusted gross margin⁷ of 57.3% compared to $164 million at a GAAP gross margin of 59.1% and an adjusted gross margin of 62.2% for the same period last year. The year-over-year declines in the GAAP and adjusted gross margins primarily reflect the expected normalization of channel mix, including the expanded use of wholesale channels, and the impact of sales of equipment acquired in the Ahern Rentals acquisition.

• Net income for the quarter increased 19.9% year-over-year to a second quarter record of $591 million, while net income margin decreased 120 basis points to 16.6%. On a pro forma basis, including the pre-acquisition results of Ahern Rentals, second quarter net income margin was flat year-over-year. The decrease in the company’s reported net income margin was primarily driven by the impact of the Ahern Rentals acquisition on rental and used equipment gross margins, increased restructuring charges related to the Ahern Rentals acquisition, and higher interest and income tax expenses, partially offset by a reduction in selling, general and administrative (“SG&A”) expense as a percentage of revenue. Interest expense increased $48 million, or 42.5%, primarily due to increased average debt related to the funding of the Ahern Rentals acquisition, and higher variable debt interest rates. The effective income tax rate increased by 450 basis points to 23.4%, primarily due to one-time discrete benefits in the year-ago period.

• Adjusted EBITDA for the quarter increased 29.3% year-over-year to a second quarter record of $1.695 billion, while adjusted EBITDA margin increased 40 basis points to 47.7%. On a pro forma basis, including the pre-acquisition results of Ahern Rentals in the year-ago period, second quarter adjusted EBITDA margin increased 130 basis points year-over-year. The increase in the company’s reported adjusted EBITDA margin primarily reflected reduced SG&A expense as a percentage of revenue, partially offset by the impact of lower gross margins from used equipment sales, as discussed above.

• General rentals segment rental revenue increased 22.5% year-over-year, including the impact of the Ahern Rentals acquisition, to a second quarter record of $2.189 billion. On a pro forma basis, including the pre-acquisition results of Ahern Rentals, second quarter rental revenue for general rentals increased 10.7% year-over-year. Rental gross margin decreased by 270 basis points year-over-year to 36.0%, primarily due to the impact of the Ahern Rentals acquisition, representing an improvement from the 320 basis point decline to a 32.9% margin in the first quarter of 2023. On a pro forma basis, second quarter rental gross margin declined 70 basis points year-over-year due primarily to the impact of higher depreciation expense related to the Ahern Rentals acquisition.

• Specialty rentals segment rental revenue increased 17.3% year-over-year to a second quarter record of $792 million. Rental gross margin increased by 240 basis points to 48.6%, primarily due to better cost performance and fixed cost absorption on higher revenue.

• Cash flow from operating activities increased 9.2% year-over-year to $2.228 billion for the first six months of 2023, and free cash flow, including merger and restructuring related payments, decreased 15.1%, from $964 million to $818 million. The decrease in free cash flow was mainly due to a $299 million increase in net rental capital expenditures, partially offset by higher net cash from operating activities.

• Capital management. The company’s net leverage ratio was 1.8x at June 30, 2023, as compared to 2.0x at December 31, 2022. Year-to-date through June 30, 2023, the company repurchased $500 million⁸ of common stock under its $1.25 billion⁸ share repurchase program and paid dividends totaling $205 million. It remains the company’s intention to repurchase $1.0 billion⁸ of common stock during 2023. Additionally, the company’s Board of Directors has declared a quarterly dividend of $1.48 per share, payable on August 23, 2023 to stockholders of record on August 9, 2023. During the second quarter, the company also amended its accounts receivable securitization facility, increasing its size by $200 million to $1.3 billion, and amended and extended its uncommitted short-term repurchase facility, pursuant to which it may borrow up to $100 million.

• Total liquidity was $2.706 billion as of June 30, 2023, including $227 million of cash and cash equivalents.

• Return on invested capital (ROIC)⁹ increased 190 basis points year-over-year, and 30 basis points sequentially, to a record 13.4% for the 12 months ended June 30, 2023. The year-over-year and sequential improvements primarily reflect increased after-tax operating income.

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, and plus proceeds from, equipment and intangible assets. The equipment and intangible asset purchases and proceeds represent cash flows from investing activities. 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 restructuring charges, stock compensation expense, net, and the impact of the fair value mark-up of acquired fleet. Adjusted EPS represents EPS plus the sum of the restructuring charges, the impact on depreciation related to acquired fleet and property and equipment, the impact of the fair value mark-up of acquired fleet, merger related intangible asset amortization, asset impairment charge and loss on repurchase/redemption of debt securities. 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 help investors gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced; 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. See the tables below for further discussion of these non-GAAP measures.

Information reconciling forward-looking adjusted EBITDA to GAAP financial measures is unavailable to the company without unreasonable effort. The company is not able to provide reconciliations of adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of the company’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Preparation of such reconciliations would require a forward-looking balance sheet, statement of income and statement of cash flow, prepared in accordance with GAAP, and such forward-looking financial statements are unavailable to the company without unreasonable effort (as specified in the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K). The company provides a range for its adjusted EBITDA forecast that it believes will be achieved, however it cannot accurately predict all the components of the adjusted EBITDA calculation. The company provides an adjusted EBITDA forecast because it believes that adjusted EBITDA, when viewed with the company’s results under GAAP, provides useful information for the reasons noted above. However, adjusted EBITDA is not a measure of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity.