Herc Holdings Strong Fourth Quarter Contributes to Record Full Year 2021 Results

Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter and full year ended December 31, 2021. Equipment rental revenue was $542.4 million and total revenues were $578.0 million in the fourth quarter of 2021, compared to $427.3 million and $520.4 million, respectively, for the same period last year. The Company reported net income of $71.8 million, or $2.36 per diluted share, in the fourth quarter of 2021, compared to $35.5 million, or $1.19 per diluted share, in the same 2020 period. Fourth quarter 2021 adjusted net income was $74.9 million, or $2.46 per diluted share, compared to $40.2 million, or $1.35 per diluted share, in 2020. See page A-5 for the adjusted net income and adjusted earnings per share calculations.

"We continued our 'shift into high gear' with an excellent fourth quarter," said Larry Silber, president and chief executive officer. "Rental revenue increased 26.9% over the prior year and dollar utilization was a record 44.6%. Outstanding execution by our operations and field support team was enhanced by strong demand in our markets and a positive operating environment.

"Adjusted EBITDA for the full year increased 29.8% to $894.7 million compared with 2020 and 20.7% compared to pre-pandemic 2019. The healthy momentum in volume and rate trends we closed with in 2021 are expected to contribute to strong growth in 2022."

2021 Fourth Quarter Financial Results

• Equipment rental revenue increased 26.9% to $542.4 million compared to $427.3 million in the prior-year period.

• Total revenues increased 11.1% to $578.0 million compared to $520.4 million in the prior-year period. The year-over-year increase of $57.6 million was related primarily to an increase in equipment rental revenue of $115.1 million, partially offset by a reduction in sales of rental equipment of $59.8 million. The reduction in sales of rental equipment resulted from strong rental demand and the strategic management of our fleet to maximize fleet size and minimize the sales of rental equipment.

• Pricing increased 3.5% compared to the same period in 2020.

• Dollar utilization increased to 44.6% compared to 40.6% in the prior-year period.

• Direct operating expenses (DOE) of $238.4 million increased 28.2% compared to the prior-year period. The $52.5 million increase was primarily due to increases related to higher year-over-year rental activity such as personnel-related costs, re-rent, delivery and freight, and maintenance expenses.

• Selling, general and administrative expenses (SG&A) increased 28.7% to $89.8 million compared to $69.8 million in the prior-year period. The $20.0 million increase was primarily attributed to increases in selling expenses, including commissions and bonus incentives, general payroll and benefits, and travel expenses as business travel returned to pre-pandemic levels.

• Impairment expense was $2.8 million compared with $5.9 million in the prior-year period.

• Interest expense of $22.5 million was flat compared to the prior-year period.

• The income tax provision was $19.6 million compared to $9.5 million for the prior-year period.

• The Company reported net income of $71.8 million compared to $35.5 million in the prior-year period. Adjusted net income was $74.9 million compared to $40.2 million in the prior-year period.

• Adjusted EBITDA increased 31.1% to $256.5 million compared to $195.6 million in the prior-year period.

• Adjusted EBITDA margin increased 680 basis points to 44.4% compared to 37.6% in the prior-year period.

2021 Full Year Financial Results

• Equipment rental revenue increased 23.8% to $1,910.4 million compared to $1,543.7 million in the prior-year period.

• Total revenues increased 16.4% to $2,073.1 million compared to $1,781.3 million in the prior-year period. The year-over-year increase of $291.8 million was related primarily to an increase in equipment rental revenue of $366.7 million, partially offset by the reduction in sales of rental equipment of $85.4 million. The reduction in sales of rental equipment resulted from strong rental demand and the strategic management of our fleet to maximize fleet size and minimize the sales of rental equipment.

• Pricing increased 2.1% compared to the same period in 2020.

• Dollar utilization increased to 43.0% compared to 36.1% in the prior-year period.

• Direct operating expenses (DOE) of $850.3 million increased 23.4% compared to the prior-year period. The $161.1 million increase was primarily due to increases related to higher rental activity such as personnel-related costs, delivery and freight, re-rent and maintenance expenses.

• Selling, general and administrative expenses (SG&A) increased 20.7% to $310.8 million compared to $257.4 million in the prior-year period. The $53.4 million increase was primarily attributed to selling expenses, including commissions and bonus incentives, general payroll and benefit increases and travel, offset by a reduction in bad debt expense due to continued improvement in collections.

• Impairment expense of $3.2 million related to the impairment of certain rental equipment compared with $15.4 million in the prior year, which primarily consisted of partial impairment of a long-term receivable related to the sale of a former joint venture and the impairment of certain rental equipment.

• Interest expense decreased to $86.3 million compared to $92.6 million in the prior-year period. The decrease was primarily related to lower interest rates and balances of the Company's ABL Credit Facility in 2021.

• The income tax provision was $66.3 million compared to $20.4 million for the prior-year period. The provision in the year ended December 31, 2021 was primarily driven by the level of pre-tax income.

• The Company reported net income of $224.1 million compared to $73.7 million in the prior-year period. Adjusted net income was $228.6 million compared to $88.5 million in the prior-year period.

• Adjusted EBITDA increased 29.8% to $894.7 million compared to $689.4 million in the prior-year period.

• Adjusted EBITDA margin increased 450 basis points to 43.2% compared to 38.7% in the prior-year period.

Capital Expenditures

• The Company reported net rental equipment capital expenditures of $486.9 million for the twelve months of 2021. Gross rental equipment capital expenditures were $593.8 million compared to $344.1 million in the comparable prior-year period. Proceeds from disposals were $106.9 million compared to $192.5 million last year. See page A-5 for the calculation of net rental equipment capital expenditures.

• As of December 31, 2021, the Company's total fleet was approximately $4.4 billion at OEC.

• Average fleet at OEC in the fourth quarter increased year-over-year by 14.9% compared to the prior-year period.

• Average fleet age was 49 months as of December 31, 2021 compared to 46 months in the comparable prior-year period.

Disciplined Capital Management

• The Company has completed the acquisition of seven equipment rental companies in the fourth quarter of 2021 and 12 since December 30, 2020, for a total net cash outlay of approximately $477 million. The acquisitions accounted for 37 locations in Texas, California, Illinois, New Hampshire, Tennessee, New Mexico, Virginia, Maryland, New Jersey, Pennsylvania and Ontario.

• The Company generated $213.7 million in free cash flow in the twelve months of 2021, compared to $424.5 million in the same period in 2020.

• Cash and cash equivalents were $35.1 million and unused commitments under the ABL Credit Facility and AR Facility contributed to $1.3 billion of liquidity as of December 31, 2021. Net debt was $1.9 billion as of December 31, 2021, with net leverage of 2.1x compared to 2.4x in the same prior-year period.

• The Company's net leverage of 2.1x is at the low end of the targeted net leverage range of 2.0x to 3.0x.

• The Company announced a 15% increase in the quarterly dividend to $0.575, payable to record holders as of February 23, 2022, with payment date of March 10, 2022.

Outlook

The Company increased its full year 2022 adjusted EBITDA guidance range and maintained net rental capital expenditures guidance:

"We shared our 2021 to 2024 annual goals for organic CAGR growth of 12% to 15% in rental revenue and 17% to 20% in adjusted EBITDA at our recent Investor Day," said Silber. "This quarter gets us into high gear and off to a good start on the road to achieve these goals. We have strong momentum and intend to invest in new locations and rental equipment to enhance our urban density and improve our operating leverage and scale. We are focused on balancing our investment growth options between organic and acquisition growth and our overall return to shareholders.

"In addition, we announced a 15% increase in our quarterly dividend, payable in the first quarter. We believe that our shareholder base should benefit from the strong growth in our results by sharing in our anticipated earnings growth through dividend payments."

Earnings Call and Webcast Information

Herc Holdings' fourth quarter 2021 earnings webcast will be held today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may call +1-877-883-0383 and international participants should call 1-412-902-6506, using the access code: 9620606. Please dial in at least 10 minutes before the call start time to ensure that you are connected to the call and to register your name and company.

Those who wish to listen to the live conference call and view the accompanying presentation slides should visit the Events and Presentations tab of the Investor Relations section of the Company's website at IR.HercRentals.com. The press release and presentation slides for the call will be posted to this section of the website prior to the call.

A replay of the conference call will be available via webcast on the company website at IR.HercRentals.com, where it will be archived for 90 days after the call. A telephonic replay will be available for one week. To listen to the archived call by telephone, U.S. participants should dial +1-877-344-7529 and international participants 1-412-317-0088 and enter the conference ID number 8347440.

About Herc Holdings Inc.

Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with 312 locations in North America. With over 56 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. Our classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. Our equipment rental business is supported by ProSolutions®, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, pumps, trench shoring, and studio and production equipment, and our ProContractor professional grade tools. Our product offerings and services are aimed at helping customers work more efficiently, effectively and safely. The Company has approximately 5,600 employees who equip our customers and communities to build a brighter future. Herc Holdings’ 2021 total revenues were approximately $2.1 billion. All references to “Herc Holdings” or the “Company” in this press release refer to Herc Holdings Inc. and its subsidiaries, unless otherwise indicated. For more information on Herc Holdings and its products and services, visit: www.HercRentals.com.

Certain Additional Information

In this release we refer to the following operating measures:

• Dollar utilization: calculated by dividing rental revenue (excluding re-rent, delivery, pick-up and other ancillary revenue) by the average OEC of the equipment fleet for the relevant time period, based on the guidelines of the American Rental Association (ARA).

• OEC: original equipment cost based on the guidelines of the ARA, which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date).

Forward-Looking Statements

This press release includes forward-looking statements as that term is defined by the federal securities laws, including statements concerning our business plans and strategy, projected profitability, performance or cash flows, future capital expenditures, our growth strategy, including our ability to grow organically and through M&A, anticipated financing needs, business trends, the impact of and our response to COVID-19, our capital strategy, liquidity and capital management, and other information that is not historical information. Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "looks," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions. All forward-looking statements are based upon our current expectations and various assumptions and, there can be no assurance that our current expectations will be achieved. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Further information on the risks that may affect our business is included in filings we make with the Securities and Exchange Commission from time to time, including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and in our other SEC filings. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

Information Regarding Non-GAAP Financial Measures

In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this release that is not calculated according to GAAP (“non-GAAP”), such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per diluted common share and free cash flow. Management uses these non-GAAP measures to evaluate operating performance and period-over-period performance of our core business without regard to potential distortions, and believes that investors will likewise find these non-GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For the definitions of these terms, further information about management’s use of these measures as well as a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the supplemental schedules that accompany this release.

(See Accompanying Tables)

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Paul Dickard
Vice President, Communications
[email protected]
239-301-1214

Elizabeth Higashi, CFA
Vice President, Investor Relations & Sustainability
[email protected]
239-301-1024