United Rentals Announces Record Second Quarter Results and Raises 2022 Guidance for Revenue, Adjusted EBITDA1 and Cash Flows2

United Rentals, Inc. (NYSE: URI) today announced financial results for the second quarter of 2022 and raised its full-year guidance for total revenue, adjusted EBITDA, net cash provided by operating activities and free cash flow.²

Second Quarter 2022 Highlights

• Total revenue of $2.771 billion, including rental revenue³ of $2.462 billion.
• Fleet productivity⁴ increased 11.3% year-over-year.
• Net income of $493 million, at a margin⁵ of 17.8%. GAAP diluted earnings per share of $6.90, and adjusted EPS¹ of $7.86. GAAP and adjusted EPS both include $0.55 of one-time tax benefits.
• Adjusted EBITDA of $1.311 billion, at a margin⁵ of 47.3%.
• Year-to-date net cash provided by operating activities of $2.040 billion; free cash flow of $964 million, including gross rental capital spending of $1.354 billion.
• Net leverage ratio⁶ of 2.0x, with total liquidity⁶ of $2.830 billion, at June 30, 2022.

CEO Comment

Matthew Flannery, chief executive officer of United Rentals, said, “Our record second quarter results reflect our strong execution in a robust demand environment. We've entered our busiest season with excellent momentum and the benefit of an effective capital allocation strategy, including seven bolt-on acquisitions and 24 Specialty cold-starts through June. We’re also on track to invest $3 billion in fleet this year and complete our share repurchase program this quarter, all supported by our cash generation and balance sheet.”

Flannery continued, “Our higher 2022 outlook for total revenue, adjusted EBITDA and free cash flow reflects broad-based end-market activity, contractor backlogs, customer sentiment and our visibility through the balance of the year. The flexibility of our operating model puts us in a strong position to leverage any market environment.”

Updated 2022 Outlook

The company has updated its 2022 outlook as shown below.

Summary of Second Quarter 2022 Financial Results

• Rental revenue for the quarter was $2.462 billion, reflecting an increase of 26.2% year-over-year, and establishing a second quarter record. The increase reflects the broad-based strength of demand across the end-markets served by the company. Year-over-year, fleet productivity increased 11.3% while average original equipment at cost (“OEC”) increased 13.6%.
• Used equipment sales in the quarter decreased 15.5% year-over-year. These sales generated $164 million of proceeds at a GAAP gross margin of 59.1% and an adjusted gross margin⁸ of 62.2%; this compares with $194 million at a GAAP gross margin of 43.3% and an adjusted gross margin of 47.9% for the same period last year. The gross margin increases were primarily due to higher pricing on used equipment sales, which rose sequentially for the seventh consecutive quarter.
• Net income for the quarter increased 68.3% year-over-year to a second quarter record of $493 million, while net income margin increased 500 basis points to 17.8%, which was also a second quarter record. The improvements primarily reflected higher gross margins from rental revenue and used equipment sales, reductions in selling, general and administrative ("SG&A") expense and non-rental depreciation and amortization as a percentage of revenue and lower net interest expense, excluding debt redemption losses. These items were partially offset by higher income tax expense as a percentage of revenue and $17 million of debt redemption losses recognized in the quarter. While income tax expense increased $31 million, or 37%, year-over-year, the effective income tax rate decreased by 340 basis points to 18.9% primarily due to a realignment of the company's operations in Australia and New Zealand, which resulted in a one-time tax benefit of approximately $39 million.
• Adjusted EBITDA for the quarter increased 31.2% year-over-year to a second quarter record of $1.311 billion, while adjusted EBITDA margin increased 360 basis points to 47.3%. The increase in adjusted EBITDA margin primarily reflected a 110 basis point increase in rental margin (excluding depreciation), a 14.3 percentage point increase in adjusted gross margin from used equipment sales, reduced SG&A expense as a percentage of revenue and revenue mix benefits.
• General rentals segment had a 21.9% year-over-year increase in rental revenue to a second quarter record of $1.787 billion. Rental gross margin increased by 280 basis points to 38.7%, primarily due to better fixed cost absorption on higher revenue.
• Specialty rentals segment rental revenue increased 39.2% year-over-year, including the impact of the May 2021 acquisition of General Finance Corporation (“General Finance”), to a second quarter record of $675 million. On a pro forma basis, including the standalone, pre-acquisition revenues of General Finance, Specialty rental revenue increased 29% year-over-year. Rental gross margin decreased by 20 basis points to 46.2%, primarily due to a depreciation adjustment associated with the finalization of purchase accounting for the General Finance acquisition, which included a one-time impact of approximately $10 million, and a higher proportion of revenue from certain lower margin ancillary fees in 2022, partially offset by better fixed cost absorption on higher revenue.
• Cash flow from operating activities increased 5.5% year-over-year to $2.040 billion for the first six months of 2022, and free cash flow, including aggregated merger and restructuring payments, decreased 17.0% to $964 million. The decrease in free cash flow was mainly due to higher net rental capital expenditures (purchases of rental equipment less proceeds from sales of rental equipment), which increased $232 million, and increased purchases of non-rental equipment, partially offset by higher net cash from operating activities.
• Capital management. The company's net leverage ratio was 2.0x at June 30, 2022, as compared to 2.2x at December 31, 2021. As of June 30, 2022, the company had repurchased $762 million of common stock under its current $1 billion repurchase program, which it expects to complete in the third quarter of 2022. In the second quarter of 2022, the company executed the following transactions intended to augment its liquidity and financial flexibility: 1) redeemed $500 million principal amount of its 5 ½ percent Senior Notes due 2027, 2) amended and extended its accounts receivable securitization facility, increasing its size by $200 million to $1.1 billion and extending its expiration to June 2024, 3) amended and extended its ABL facility, increasing its size by $500 million to $4.25 billion and extending its expiration to June 2027 and 4) entered into an uncommitted short-term financing facility⁹ pursuant to which it may borrow up to $100 million.
• Total liquidity was $2.830 billion as of June 30, 2022, including $68 million of cash and cash equivalents.
• Return on invested capital (ROIC)¹⁰ increased 230 basis points year-over-year, and 60 basis points sequentially, to a record 11.5% for the 12 months ended June 30, 2022. The year-over-year and sequential increases in ROIC were primarily due to increased after-tax operating income. ROIC exceeded the company’s current weighted average cost of capital of approximately 9%.

Conference Call

United Rentals will hold a conference call tomorrow, Thursday, July 28, 2022, at 11:00 a.m. Eastern Time. The conference call number is 800-459-5343 (international: 203-518-9553). The replay number for the call is 402-220-2556. The passcode for both the conference call and replay is 19728. The conference call will also be available live by audio webcast at unitedrentals.com, where it will be archived until the next earnings call.

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 merger related costs, 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 merger related costs, 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.

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. 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.

About United Rentals

United Rentals, Inc. is the largest equipment rental company in the world. The company has an integrated network of 1,331 rental locations in North America, 13 in Europe, 28 in Australia and 18 in New Zealand. In North America, the company operates in 49 states and every Canadian province. The company’s approximately 21,600 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers approximately 4,400 classes of equipment for rent with a total original cost of $16.57 billion. United Rentals is a member of the Standard & Poor’s 500 Index, the Barron’s 400 Index and the Russell 3000 Index® and is headquartered in Stamford, 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 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) the cyclical nature of our business, which is highly sensitive to North American construction and industrial activities; if construction or industrial activity decline, our revenues and, because many of our costs are fixed, our profitability may be adversely affected; (2) uncertainty regarding the ongoing impact of existing and emerging variant strains of the coronavirus (COVID-19) on global economic conditions, and regarding the length of time it will take for the COVID-19 pandemic to ultimately subside or become viewed as endemic. Uncertainty remains regarding the effectiveness of vaccines against COVID-19 (including against emerging variant strains), and the time it will take for the pandemic to subside will also be impacted by measures that may in the future be implemented to protect public health; (3) the impact of global economic conditions (including supply chain constraints, potential trade wars and sanctions and other measures imposed in response to the ongoing conflict in Ukraine) and public health crises and epidemics, such as COVID-19, on us, our customers and our suppliers, in the United States and the rest of the world; (4) rates we charge and time utilization we achieve being less than anticipated; (5) excess fleet in the equipment rental industry; (6) inability to benefit from government spending, including spending associated with infrastructure projects; (7) trends in oil and natural gas, including significant increases in the prices of oil or natural gas, could adversely affect the demand for our services and products; (8) competition from existing and new competitors; (9) our significant indebtedness, 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; (10) the inability to refinance our indebtedness on terms that are favorable to us, including as a result of volatility and uncertainty in capital markets or increases in interest rates, or at all; (11) the incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness; (12) noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings; (13) restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility; (14) inability to access the capital that our businesses or growth plans may require, including as a result of uncertainty in capital or other financial markets; (15) the possibility that companies that we have acquired or may acquire could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate; (16) the incurrence of impairment charges; (17) fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated; (18) our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us; (19) inability to manage credit risk adequately or to collect on contracts with a large number of customers; (20) turnover in our management team and inability to attract and retain key personnel, as well as loss, absenteeism or the inability of employees to work or perform key functions in light of public health crises or epidemics (including COVID-19); (21) costs we incur being more than anticipated, including as a result of inflation, and the inability to realize expected savings in the amounts or time frames planned; (22) inability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms or at all, as a result of supply chain disruptions, insolvency, financial difficulties or other factors; (23) increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment; (24) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (25) risks related to security breaches, cybersecurity attacks, failure to protect personal information, compliance with data protection laws and other significant disruptions in our information technology systems; (26) risks related to climate change and climate change regulation; (27) risks related to our ability to meet our environmental and social goals, including our greenhouse gas intensity reduction goal; (28) the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions; (29) shortfalls in our insurance coverage; (30) increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (31) incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters; (32) the costs of complying with environmental, safety and foreign laws and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk, and tariffs; (33) the outcome or other potential consequences of regulatory matters and commercial litigation; (34) labor shortages and/or disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally; and (35) the effect of changes in tax law.

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, 2021, 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.

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1. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EPS (earnings per share) are non-GAAP measures as defined in the tables below. See the tables below for reconciliations to the most comparable GAAP measures. Information reconciling forward-looking adjusted EBITDA to the comparable GAAP financial measures is unavailable to the company without unreasonable effort, as discussed below.
2. Net cash provided by operating activities and free cash flow as reflected in the company's outlook are collectively referred to as "Cash Flows" above. Free cash flow is a non-GAAP measure as defined in the table below. See the table below for a reconciliation to the most comparable GAAP measure.
3. Rental revenue includes owned equipment rental revenue, re-rent revenue and ancillary revenue.
4. Fleet productivity reflects the combined impact of changes in rental rates, time utilization and mix on owned equipment rental revenue. See the table below for more information.
5. Net income margin and adjusted EBITDA margin represent net income or adjusted EBITDA divided by total revenue.
6. The net leverage ratio reflects net debt (total debt less cash and cash equivalents) divided by adjusted EBITDA for the trailing 12 months. Total liquidity reflects cash and cash equivalents plus availability under the asset-based revolving credit facility (“ABL facility”) and the accounts receivable securitization facility.
7. Information reconciling forward-looking adjusted EBITDA to the comparable GAAP financial measures is unavailable to the company without unreasonable effort, as discussed below.
8. Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of fleet acquired in certain major acquisitions that was subsequently sold, as explained further in the tables below.
9. The company’s Form 10-Q for the quarter ended June 30, 2022 filed with the SEC includes a discussion of this facility, which is referred to therein as the "Repurchase Facility."
10. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by average stockholders’ equity, 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 U.S. federal corporate statutory tax rate of 21% was used to calculate after-tax operating income.

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In millions, except per share amounts)

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions)

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

UNITED RENTALS, INC.

RENTAL REVENUE

Fleet productivity is a comprehensive metric that provides greater insight into the decisions made by our managers in support of growth and returns. Specifically, we seek to optimize the interplay of rental rates, time utilization and mix in driving rental revenue. Fleet productivity aggregates, in one metric, the impact of changes in rates, utilization and mix on owned equipment rental revenue.

We believe that this metric is useful in assessing the effectiveness of our decisions on rates, time utilization and mix, particularly as they support the creation of shareholder value. The table below shows the components of the year-over-year change in rental revenue using the fleet productivity methodology:

Please refer to our Second Quarter 2022 Investor Presentation for additional detail on fleet productivity.

UNITED RENTALS, INC.

SEGMENT PERFORMANCE

($ in millions)

UNITED RENTALS, INC.

DILUTED EARNINGS PER SHARE CALCULATION

(In millions, except per share data)

UNITED RENTALS, INC.

ADJUSTED EARNINGS PER SHARE GAAP RECONCILIATION

We define “earnings per share – adjusted” as the sum of earnings per share – GAAP, as-reported plus the impact of the following special items: merger related costs, merger related intangible asset amortization, impact on depreciation related to acquired fleet and property and equipment, impact of the fair value mark-up of acquired fleet, restructuring charge, asset impairment charge and loss on repurchase/redemption of debt securities. Management believes that earnings per share - adjusted provides useful information concerning future profitability. However, earnings per share - adjusted is not a measure of financial performance under GAAP. Accordingly, earnings per share - adjusted should not be considered an alternative to GAAP earnings per share. The table below provides a reconciliation between earnings per share – GAAP, as-reported, and earnings per share – adjusted.

UNITED RENTALS, INC.

EBITDA AND ADJUSTED EBITDA GAAP RECONCILIATIONS

(In millions)

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 charges, stock compensation expense, net, and the impact of the fair value mark-up of acquired fleet. These items are excluded from adjusted EBITDA internally when evaluating our operating performance and for strategic planning and forecasting purposes, 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. The net income and adjusted EBITDA margins represent net income or adjusted EBITDA divided by total revenue. 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 EBITDA 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.

The table below provides a reconciliation between net income and EBITDA and adjusted EBITDA.

UNITED RENTALS, INC.

EBITDA AND ADJUSTED EBITDA GAAP RECONCILIATIONS (continued)

(In millions)

The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA.

UNITED RENTALS, INC.

FREE CASH FLOW GAAP RECONCILIATION

(In millions)

We define “free cash flow” as 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 are included in cash flows from investing activities. 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 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.

The table below provides a reconciliation between 2022 forecasted net cash provided by operating activities and free cash flow.

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