Herc Holdings(HRI) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Herc Holdings Inc.'s unaudited financial statements as of September 30, 2022, reflect significant growth in assets, revenues, and net income Condensed Consolidated Balance Sheets Total assets grew to $5.7 billion from $4.5 billion at year-end 2021, driven by rental equipment and goodwill investments Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $634.7 | $469.7 | | Rental equipment, net | $3,311.3 | $2,665.3 | | Goodwill | $379.1 | $231.5 | | Total assets | $5,684.0 | $4,490.4 | | Total current liabilities | $584.1 | $529.9 | | Long-term debt, net | $2,761.9 | $1,916.1 | | Total liabilities | $4,600.9 | $3,513.5 | | Total equity | $1,083.1 | $976.9 | Condensed Consolidated Statements of Operations Q3 2022 total revenues increased 35.4% to $745.1 million, with net income up 40.2% to $101.4 million Statement of Operations Summary (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Equipment rental revenue | $706.2 | $519.6 | $1,838.4 | $1,368.0 | | Total revenues | $745.1 | $550.4 | $1,952.8 | $1,495.1 | | Income before income taxes | $135.6 | $96.1 | $300.2 | $199.0 | | Net income | $101.4 | $72.3 | $232.1 | $152.3 | | Diluted EPS | $3.36 | $2.37 | $7.66 | $5.01 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $623.2 million, while investing activities used $1.32 billion for equipment and acquisitions Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $623.2 | $503.2 | | Net cash used in investing activities | $(1,315.7) | $(613.8) | | Net cash provided by financing activities | $715.1 | $112.9 | | Net change in cash and cash equivalents | $21.8 | $2.2 | - The significant increase in cash used for investing activities was driven by $841.2 million in rental equipment expenditures and $440.9 million for acquisitions, net of cash acquired[32] - Financing activities were primarily impacted by net proceeds from revolving lines of credit and securitization, which totaled $851.6 million ($2,079.8 million proceeds less $1,228.2 million repayments). The company also paid $51.5 million in dividends and repurchased $53.3 million of common stock[35] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, business combinations, and debt, highlighting equipment rental and recent acquisitions - For the nine months ended September 30, 2022, approximately 91.8% of total revenue was generated from operations in the United States[46] - The company completed the acquisition of Cloverdale Equipment Company for approximately $178.2 million on April 19, 2022. In addition, 15 other smaller companies were acquired during the first nine months of 2022[65][68] - In July 2022, the ABL Credit Facility was amended to increase revolving credit commitments from $1.75 billion to $3.5 billion and extend the maturity to 2027. In August 2022, the AR Facility was amended to increase commitments from $250 million to $300 million and extend the maturity to August 2023[92][95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2022 performance to robust demand, higher rental volume, and improved pricing, supported by liquidity Results of Operations Q3 2022 equipment rental revenue grew 35.9% due to volume and pricing, with operating and SG&A expenses also increasing Key Performance Metrics - Q3 2022 vs Q3 2021 | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $745.1M | $550.4M | 35.4% | | Equipment Rental Revenue | $706.2M | $519.6M | 35.9% | | Direct Operating Expenses | $277.5M | $208.9M | 32.8% | | SG&A | $111.5M | $81.5M | 36.8% | | Net Income | $101.4M | $72.3M | 40.2% | - The 35.9% increase in Q3 2022 equipment rental revenue was driven by a 34.9% increase in the volume of equipment on rent and a 6.2% improvement in pricing compared to the prior year[140] - The margin on sales of rental equipment improved to 24.7% in Q3 2022 from 17.5% in Q3 2021, attributed to a better sales channel mix and strong used equipment market pricing[142] Liquidity and Capital Resources As of September 30, 2022, the company had $1.5 billion in ABL credit availability and $774.6 million in net rental equipment expenditures - The company's liquidity as of September 30, 2022, included $56.9 million in cash and cash equivalents and approximately $1.5 billion in unused commitments under its ABL Credit Facility[156] Net Rental Equipment Expenditures (in millions) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Rental equipment expenditures | $841.2 | $447.0 | | Disposals of rental equipment | $(66.6) | $(86.1) | | Net rental equipment expenditures | $774.6 | $360.9 | - During 2022, the company repurchased approximately 540,000 shares. As of September 30, 2022, $336.7 million remains available for future repurchases under the authorized program[162] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and fuel prices, with no material change since year-end 2021 - As of September 30, 2022, there has been no material change in the market risk information reported in the Annual Report on Form 10-K for the year ended December 31, 2021[181] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2022, with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective[182] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[183] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various ordinary course legal proceedings, which management believes will not materially affect its financials - The company is subject to a number of claims and proceedings that generally arise in the ordinary conduct of its business, and it does not believe the resulting liabilities will have a material adverse effect on its financial condition[105][185] Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for 2021 - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[186] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company repurchased 543,598 shares at $108.80, with $336.7 million remaining for repurchases Share Repurchases in Q3 2022 | Period | Total Shares Purchased | Average Price Per Share | Amount Remaining in Program | | :--- | :--- | :--- | :--- | | Jul 2022 | 72,086 | $104.65 | - | | Aug 2022 | 5,001 | $113.26 | - | | Sep 2022 | 466,511 | $109.40 | - | | Total Q3 | 543,598 | $108.80 | $336,707,123 | Other Information No other material information was reported for this item during the quarter - None[189] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, financing agreements, and certifications