BONITA SPRINGS - Herc Holdings Inc. (NYSE: HRI) ('Herc Holdings' or the 'Company') today reported financial results for the quarter ended September 30, 2023.
Equipment rental revenue was $765 million and total revenues were $908 million in the third quarter of 2023, compared to $706 million and $745 million, respectively, for the same period last year. In the third quarter of 2023, the Company reported net income of $113 million, or $3.96 per diluted share, an increase of 18% compared to $101 million, or $3.36 per diluted share, in the same 2022 period.
'We continued to leverage our core strengths in market coverage, fleet management, pricing discipline and a best-in-class team to deliver double-digit revenue and Adjusted EBITDA growth in the third quarter,' said Larry Silber, president and chief executive officer. 'Over the course of the quarter, we also successfully rebalanced our fleet after a wave of back-ordered supply was delivered in the first half of the year. And, with the health of the supply chain improving, we were able to accelerate used-fleet sales after two years to refresh our offering and make way for the new equipment.'
'Continued investments in our premium fleet offering, strategic acquisitions and advanced technologies, along with robust demand across key end markets and a focus on cost discipline are driving the momentum in our business and will support sustainable, profitable growth over the long term,' said Silber.
'Today, we also are announcing that we will begin exploring strategic alternatives for Cinelease, our studio management and lighting and grip equipment rental business. This decision was made due to the changing dynamics for lighting and grip rental providers in the film and studio entertainment industry, which has shifted to requiring significant capital investment in studios. For Herc to allocate capital for growth in this new real-estate-focused business model would be a divergence from our stated strategy,' said Silber.
2023 Third Quarter Financial Results
Total revenues increased 22% to $908 million compared to $745 million in the prior-year period. The year-over-year increase of $163 million primarily related to an increase in equipment rental revenue of $59 million, reflecting positive pricing of 6.9% and increased volume of 11.5%, partially offset by unfavorable mix driven by the studio entertainment business and inflation. Sales of rental equipment increased by $103 million during the period resulting from the return to more normal fleet rotation as deliveries become more predictable in certain categories of equipment.
Dollar utilization was 42.1% compared to 45.3% in the prior-year period. A slowdown in the studio entertainment business as a result of labor disruptions in the film and television industry contributed 200 basis points of the change, as well as the continued supply chain challenges in certain categories of equipment that have disrupted the normal cadence of deliveries.
Direct operating expenses were $288 million, or 37.6% of equipment rental revenue, compared to $278 million, or 39.4% in the prior-year period, reflecting better cost performance and fixed cost absorption on higher revenue despite increases related to additional headcount, facilities expenses and maintenance costs associated with strong rental activity and an expanding branch network.
Depreciation of rental equipment increased 19% to $167 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 16% to $29 million primarily due to amortization of acquisition intangible assets.
Selling, general and administrative expenses was $115 million, or 15.0% of equipment rental revenue, compared to $112 million, or 15.9% in the prior-year period due to continued focus on improving operating leverage while expanding revenues.
Interest expense increased to $60 million compared with $33 million in the prior-year period due to higher interest rates on floating rate debt and increased borrowings on the ABL Credit Facility primarily to fund acquisition growth.
Net income was $113 million compared to $101 million in the prior-year period. Adjusted net income increased 11% to $114 million, or $4.00 per diluted share, compared to $103 million, or $3.42 per diluted share, in the prior-year period. The effective tax rate was 23% compared to 25% in the prior-year period.
Adjusted EBITDA increased 19% to $410 million compared to $345 million in the prior-year period and adjusted EBITDA margin was 45.2% compared to 46.3% in the prior-year period. Margin performance was impacted by a decline in the Company's studio entertainment revenue year over year, as well as a significant increase in sales of used equipment in the latest quarter.
2023 Nine Months Financial Results
Total revenues increased 25% to $2,450 million compared to $1,953 million in the prior-year period. The year-over-year increase of $497 million was related to an increase in equipment rental revenue of $283 million, reflecting positive pricing of 7.2% and increased volume of 16.8%, partially offset by unfavorable mix driven by the studio entertainment business and inflation. Sales of rental equipment increased $210 million compared to the prior-year period.
Dollar utilization decreased to 40.8% compared to 43.2% in the prior-year period. The change is primarily due to a slowdown in the studio entertainment business as a result of labor disruptions in the film and television industry, as well as the continued supply chain challenges in certain categories of equipment that have disrupted the normal cadence of deliveries.
Direct operating expenses were $851 million, or 40.1% of equipment rental revenue compared to $752 million, or 40.9% the prior-year period, reflecting better cost performance and fixed cost absorption on higher revenue despite increases related to additional headcount, facilities expenses and maintenance costs associated with strong rental activity and an expanding branch network.
Depreciation of rental equipment increased 23% to $480 million, due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 20% to $83 million primarily due to amortization of acquisition intangible assets.
Selling, general and administrative expenses was $332 million, or 15.7% of equipment rental revenue, compared to $298 million, or 16.2% in the prior-year period due to continued focus on improving operating leverage while expanding revenues.
Interest expense increased to $162 million compared with $81 million in the prior-year period due to higher interest rates on floating rate debt and increased borrowings on the ABL Credit Facility primarily to fund acquisition growth.
Net income was $256 million compared to $232 million in the prior-year period. Adjusted net income increased 10% to $260 million, or $9.03 per diluted share, compared to $237 million, or 7.83 per diluted share, in the prior-year period. The effective tax rate was 21% in 2023 compared to 23% in the prior-year period.
Adjusted EBITDA increased 24% to $1,070 million compared to $866 million in the prior-year period and adjusted EBITDA margin was 43.7% compared to 44.3% in the prior-year period. Margin performance was impacted by a decline in the Company's studio entertainment revenue year over year, as well as a significant increase in sales of used equipment during 2023.
About Herc Holdings Inc.
Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with 379 locations in North America. With over 58 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. Our fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, lighting, trench shoring, and studio and production equipment. Our equipment rental business is supported by ProSolutions, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration and pumps, 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 7,000 employees who equip our customers and communities to build a brighter future. Herc Holdings' 2022 total revenues were approximately $2.7 billion. All references to 'Herc Holdings' or the 'Company' in this press release refer to Herc Holdings Inc. and its subsidiaries, unless otherwise indicated.
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, our capital allocation strategy, liquidity and capital management, exploring strategic alternatives for Cinelease, including the timing of the review process, the outcome of the process and the costs and benefits of the process, 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.
Contact:
Leslie Hunziker
Tel: 239-301-1675
Email: Leslie.Hunziker@hercrentals.com
HERC HOLDINGS INC. 
