United Rentals Announces Second Quarter 2015 Results, Updates Full Year Outlook

Announces New $1 Billion Share Repurchase Program

STAMFORD, Conn.--()--United Rentals, Inc. (NYSE:URI) today announced financial results for the second quarter 2015. Total revenue was $1.429 billion and rental revenue was $1.220 billion, compared with $1.399 billion and $1.179 billion, respectively, for the same period last year. On a GAAP basis, the company reported second quarter net income of $86 million, or $0.88 per diluted share, compared with $94 million, or $0.90 per diluted share, for the same period last year.1

Adjusted EPS2 for the quarter was $1.95 per diluted share, compared with $1.65 per diluted share for the same period last year. Adjusted EBITDA3 was $706 million and adjusted EBITDA margin was a second quarter company record at 49.4%, an increase of $43 million and 200 basis points, respectively, from the same period last year.

Second Quarter 2015 Highlights

  • Rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 3.5% year-over-year.4 Within rental revenue, owned equipment rental revenue increased 3.7%, reflecting year-over-year increases of 2.8% in the volume of equipment on rent and 1.5% in rental rates.
  • Return on invested capital was 8.9% for the 12 months ended June 30, 2015, an increase of 0.8 percentage points from the 12 months ended June 30, 2014.
  • Time utilization decreased 150 basis points year-over-year to 66.6%. Excluding the branches with the most exposure to upstream oil and gas, time utilization decreased 30 basis points year-over-year.
  • The company generated $124 million of proceeds from used equipment sales at an adjusted gross margin of 50.0%, compared with $138 million and 48.6% for the same period last year.5
  • Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 143.3% for the quarter.

_______________

     
1. GAAP net income and diluted earnings per share for the second quarter 2015 and 2014 include debt extinguishment losses of $74 million, or $0.76 per diluted share, and $40 million, or $0.38 per diluted share, respectively.
2. Adjusted EPS is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) impact on interest expense related to fair value adjustment of acquired RSC indebtedness; (iv) impact on depreciation related to acquired RSC fleet and property and equipment; (v) impact of the fair value mark-up of acquired RSC fleet; (vi) merger related intangible asset amortization and (vii) loss on repurchase/redemption of debt securities and amendment of ABL facility. See table below for amounts.
3. Adjusted EBITDA is a non-GAAP measure that excludes the impact of the following special items: (i) merger related costs; (ii) restructuring charge; (iii) impact of the fair-value mark up of acquired RSC fleet and (iv) stock compensation expense, net. See table below for amounts.
4. The rental revenue increase includes an adverse impact from currency. Excluding this impact, rental revenue would have increased 4.8% year-over-year.
5. Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC fleet that was sold.
 

CEO Comments

Michael Kneeland, chief executive officer of United Rentals, said, "We solidly improved our profitability in the second quarter year-over-year, with record results for second quarter EBITDA margin and adjusted EPS. The adverse impacts from the drop in oil and gas activity as well as industry fleeting were greater than we anticipated and, as a result, we've updated our outlook on our 2015 targets."

Kneeland continued, "Demand for our equipment is clearly there, and our industry is expected to benefit from solid growth in the years ahead as oil drilling stabilizes and rental fleet is absorbed. Industry experts are projecting years of growth ahead, led by the ongoing rebound in non-residential construction. Given this outlook, and our ability to drive profitable growth and returns, we are accelerating our current $750 million share repurchase program and announcing an additional $1 billion repurchase program. These decisions underscore our commitment to return capital and deliver value to our stockholders."

Six Months 2015 Highlights

  • Total revenue was $2.744 billion and rental revenue was $2.345 billion, compared with $2.577 billion and $2.184 billion, respectively, for the same period last year.
  • Rental revenue increased 7.4% year-over-year.6 Within rental revenue, owned equipment rental revenue increased 7.5%, reflecting year-over-year increases of 5.3% in the volume of equipment on rent and 2.2% in rental rates. 7
  • Adjusted EBITDA was $1.308 billion and adjusted EBITDA margin was 47.7%, an increase of $126 million and 180 basis points, respectively, from the same period last year.
  • Time utilization decreased 100 basis points year-over-year to 65.4%. Excluding the branches with the most exposure to upstream oil and gas, time utilization decreased 10 basis points year-over-year.
  • The company generated $240 million of proceeds from used equipment sales at an adjusted gross margin of 50.4%, compared with $248 million and 48.8% for the same period last year.
  • Flow-through, which represents the year-over-year change in adjusted EBITDA divided by the year-over-year change in total revenue, was 75.4%.

2015 Outlook

The company has updated its full year outlook as follows:

         
Prior Outlook Current Outlook
Total revenue $6.0 billion to $6.1 billion $5.8 billion to $5.9 billion
Adjusted EBITDA $2.95 billion to $3.00 billion $2.80 billion to $2.85 billion
Increase in rental rates (year-over-year) Approximately 3.0% Approximately 0.5%
Time utilization Approximately 69.0% Approximately 67.5%
Net rental capital expenditures after gross purchases

Approximately $1.2 billion, after gross purchases of approximately $1.7 billion

Approximately $1.1 billion, after gross purchases of approximately $1.6 billion

Free cash flow (excluding the impact of merger and
restructuring related costs)

$725 million to $775 million Unchanged
 

_______________

     
6. The rental revenue increase includes an adverse impact from currency. Excluding this impact, rental revenue would have increased 8.8% year-over-year.
7. On April 1, 2014, the company acquired certain assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). National Pump is included in the company's results subsequent to the acquisition date. Excluding the impact of the National Pump acquisition, rental revenue for the first six months of 2015 increased 5.6% year-over-year.
 

Free Cash Flow and Fleet Size

For the first six months of 2015, free cash flow was $432 million, after total rental and non-rental gross capital expenditures of $1.066 billion. By comparison, free cash flow for the first six months of 2014 was $240 million after total rental and non-rental gross capital expenditures of $1.080 billion.8

The size of the rental fleet was $8.86 billion of original equipment cost at June 30, 2015, compared with $8.44 billion at December 31, 2014. The age of the rental fleet was 41.8 months on an OEC-weighted basis at June 30, 2015, compared with 43.0 months at December 31, 2014.

Share Repurchase Programs

As of June 30, 2015, the company has repurchased $573 million of common stock as part of the $750 million share repurchase program that was announced in December 2014. The company has accelerated its plans and now expects to complete the program in 2015.

On July 21, 2015, the company's board of directors authorized a new $1 billion share repurchase program which will commence upon completion of the current $750 million program. The company intends to complete the new $1 billion share repurchase program within 18 months of its initiation.

Return on Invested Capital (ROIC)

Return on invested capital was 8.9% for the 12 months ended June 30, 2015, an increase of 0.8 percentage points from the 12 months ended June 30, 2014. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by average stockholders’ equity (deficit), 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 federal statutory tax rate of 35% is used to calculate after-tax operating income.9

Conference Call

United Rentals will hold a conference call tomorrow, Thursday, July 23, 2015, at 11:00 a.m. Eastern Time. The conference call number is 866-835-8906. The conference call will also be available live by audio webcast at unitedrentals.com, where it will be archived until the next earnings call. The replay number for the call is 703-925-2533, passcode is 1659838.

_______________

     
8. Free cash flow for the first six months of 2015 and 2014 includes aggregate merger and restructuring related payments of $2 million and $14 million, respectively.
9. When adjusting the denominator of the ROIC calculation to also exclude average goodwill, ROIC was 12.1% for the 12 months ended June 30, 2015, an increase of 1.2 percentage points from the 12 months ended June 30, 2014.
 

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 rental and non-rental equipment plus proceeds from sales of rental and non-rental equipment. 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 charge, stock compensation expense, net, and the impact of the fair value mark-up of acquired RSC fleet. Adjusted EPS represents EPS plus the sum of the merger related costs, restructuring charge, the impact on interest expense related to the fair value adjustment of acquired RSC indebtedness, the impact on depreciation related to acquired RSC fleet and property and equipment, the impact of the fair value mark-up of acquired RSC fleet, merger related intangible asset amortization and the loss on repurchase/redemption of debt securities and amendment of ABL facility. 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 (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 free cash flow and adjusted EBITDA to GAAP financial measures is unavailable to the company without unreasonable effort.

About United Rentals

United Rentals, Inc. is the largest equipment rental company in the world. The company has an integrated network of 896 rental locations in 49 states and 10 Canadian provinces. The company’s approximately 12,600 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers approximately 3,300 classes of equipment for rent with a total original cost of $8.86 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 challenges associated with past or future acquisitions, such as undiscovered liabilities, costs, integration issues and/or the inability to achieve the cost and revenue synergies expected; (2) a slowdown in the recovery of North American construction and industrial activities, which decreased during the economic downturn and significantly affected our revenues and profitability, or a slowdown in the energy sector, in general, could reduce demand for equipment and prices that we can charge; (3) 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; (4) the inability to refinance our indebtedness at terms that are favorable to us, or at all; (5) the incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness; (6) noncompliance with covenants in our debt agreements, which could result in termination of our credit facilities and acceleration of outstanding borrowings; (7) restrictive covenants and amount of borrowings permitted under our debt agreements, which could limit our financial and operational flexibility; (8) a decrease in levels of infrastructure spending, including lower than expected government funding for construction projects; (9) fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated; (10) our rates and time utilization being less than anticipated; (11) our inability to manage credit risk adequately or to collect on contracts with customers; (12) our inability to access the capital that our business or growth plans may require; (13) the incurrence of impairment charges; (14) our dependence on distributions from subsidiaries as a result of our holding company structure and the fact that such distributions could be limited by contractual or legal restrictions; (15) an increase in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (16) the incurrence of additional costs and expenses (including indemnification obligations) in connection with litigation, regulatory or investigatory matters; (17) the outcome or other potential consequences of litigation and other claims and regulatory matters relating to our business, including certain claims that our insurance may not cover; (18) the effect that certain provisions in our charter and certain debt agreements and our significant indebtedness may have of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us; (19) management turnover and inability to attract and retain key personnel; (20) our costs being more than anticipated and/or the inability to realize expected savings in the amounts or time frames planned; (21) our dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms; (22) our inability to sell our new or used fleet in the amounts, or at the prices, we expect; (23) competition from existing and new competitors; (24) security breaches, cybersecurity attacks and other significant disruptions in our information technology systems; (25) 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; (26) labor difficulties and labor-based legislation affecting our labor relations and operations generally; and (27) increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment. 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, 2014, 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.

       
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share amounts)
 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Revenues:
Equipment rentals $ 1,220 $ 1,179 $ 2,345 $ 2,184
Sales of rental equipment 124 138 240 248
Sales of new equipment 39 37 72 63
Contractor supplies sales 21 22 39 41
Service and other revenues 25   23   48   41  
Total revenues 1,429   1,399   2,744   2,577  
Cost of revenues:
Cost of equipment rentals, excluding depreciation 445 447 889 856
Depreciation of rental equipment 240 229 475 446
Cost of rental equipment sales 68 80 132 145
Cost of new equipment sales 33 31 60 51
Cost of contractor supplies sales 15 15 27 28
Cost of service and other revenues 10   8   19   14  
Total cost of revenues 811   810   1,602   1,540  
Gross profit 618 589 1,142 1,037
Selling, general and administrative expenses 175 187 356 355
Merger related costs 1 8 (26 ) 9
Restructuring charge (1 ) 1
Non-rental depreciation and amortization 67   70   136   130  
Operating income 375 325 675 543
Interest expense, net 232 187 353 312
Other income, net (6 ) (4 ) (9 ) (5 )
Income before provision for income taxes 149 142 331 236
Provision for income taxes 63   48   130   82  
Net income $ 86   $ 94   $ 201   $ 154  
Diluted earnings per share $ 0.88   $ 0.90   $ 2.04   $ 1.46  
 
       
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions)
 
June 30, 2015 December 31, 2014
ASSETS
Cash and cash equivalents $ 200 $ 158
Accounts receivable, net 894 940
Inventory 81 78
Prepaid expenses and other assets 74 122
Deferred taxes 187   248  
Total current assets 1,436 1,546
Rental equipment, net 6,396 6,008
Property and equipment, net 425 438
Goodwill 3,253 3,272
Other intangible assets, net 1,000 1,106
Other long-term assets 95   97  
Total assets $ 12,605   $ 12,467  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt and current maturities of long-term debt $ 590 $ 618
Accounts payable 683 285
Accrued expenses and other liabilities 309   575  
Total current liabilities 1,582 1,478
Long-term debt 7,820 7,434
Deferred taxes 1,696 1,692
Other long-term liabilities 55   65  
Total liabilities 11,153   10,669  
Temporary equity 1 2
Common stock 1 1
Additional paid-in capital 2,165 2,168
Retained earnings 704 503
Treasury stock (1,273 ) (802 )
Accumulated other comprehensive loss (146 ) (74 )
Total stockholders’ equity 1,451   1,796  
Total liabilities and stockholders’ equity $ 12,605   $ 12,467  
 
   
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Cash Flows From Operating Activities:
Net income $ 86 $ 94 $ 201 $ 154
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 307 299 611 576
Amortization of deferred financing costs and original issue discounts 2 5 5 10
Gain on sales of rental equipment (56 ) (58 ) (108 ) (103 )
Gain on sales of non-rental equipment (2 ) (3 ) (4 ) (4 )
Stock compensation expense, net 11 19 25 31
Merger related costs 1 8 (26 ) 9
Restructuring charge (1 ) 1
Loss on repurchase/redemption of debt securities and amendment of ABL facility 121 64 123 75
Increase in deferred taxes 31 35 70 57
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (44 ) (39 ) 37 8
Decrease (increase) in inventory 1 1 (3 ) (31 )
Increase in prepaid expenses and other assets (21 ) (1 ) (3 ) (5 )
Increase in accounts payable 217 152 401 315
Decrease in accrued expenses and other liabilities (79 ) (29 ) (80 ) (38 )
Net cash provided by operating activities 575 546 1,250 1,054
Cash Flows From Investing Activities:
Purchases of rental equipment (693 ) (695 ) (1,016 ) (1,028 )
Purchases of non-rental equipment (28 ) (34 ) (50 ) (52 )
Proceeds from sales of rental equipment 124 138 240 248
Proceeds from sales of non-rental equipment 4 7 8 18
Purchases of other companies, net of cash acquired (58 ) (755 ) (58 ) (756 )
Net cash used in investing activities (651 ) (1,339 ) (876 ) (1,570 )
Cash Flows From Financing Activities:
Proceeds from debt 3,171 2,378 5,907 4,776
Payments of debt (2,943 ) (1,479 ) (5,647 ) (4,022 )
Payment of contingent consideration (52 ) (52 )
Payments of financing costs (2 ) (2 ) (26 ) (22 )
Proceeds from the exercise of common stock options 1 1 1 2
Common stock repurchased (158 ) (186 ) (501 ) (247 )
Cash received in connection with the 4 percent Convertible Senior Notes and related hedge, net   18     25  
Net cash provided by (used in) financing activities 17 730 (318 ) 512
Effect of foreign exchange rates 2   6   (14 ) (1 )
Net (decrease) increase in cash and cash equivalents (57 ) (57 ) 42 (5 )
Cash and cash equivalents at beginning of period 257   227   158   175  
Cash and cash equivalents at end of period $ 200   $ 170   $ 200   $ 170  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 65 $ 27 $ 30 $ 36
Cash paid for interest 162 140 253 224
 
       
UNITED RENTALS, INC.
SEGMENT PERFORMANCE
($ in millions)
 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014   Change 2015   2014   Change
General Rentals
Reportable segment equipment rentals revenue $ 1,048 $ 1,028 1.9% $ 2,024 $ 1,952 3.7%
Reportable segment equipment rentals gross profit 456 426 7.0% 839 770 9.0%
Reportable segment equipment rentals gross margin 43.5 % 41.4 % 2.1pp 41.5 % 39.4 % 2.1pp
Trench, Power and Pump
Reportable segment equipment rentals revenue $ 172 $ 151 13.9% $ 321 $ 232 38.4%
Reportable segment equipment rentals gross profit 79 77 2.6% 142 112 26.8%
Reportable segment equipment rentals gross margin 45.9 % 51.0 % (5.1pp) 44.2 % 48.3 % (4.1pp)
Total United Rentals
Total equipment rentals revenue $ 1,220 $ 1,179 3.5% $ 2,345 $ 2,184 7.4%
Total equipment rentals gross profit 535 503 6.4% 981 882 11.2%
Total equipment rentals gross margin 43.9 % 42.7 % 1.2pp 41.8 % 40.4 % 1.4pp
 
   
UNITED RENTALS, INC.
DILUTED EARNINGS PER SHARE CALCULATION
(In millions, except per share data)
 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Numerator:
Net income available to common stockholders $ 86 $ 94 $ 201 $ 154
Denominator:
Denominator for basic earnings per share—weighted-average common shares 96.6 97.0 96.9 96.1
Effect of dilutive securities:
Employee stock options and warrants 0.3 0.4 0.3 0.4
4 percent Convertible Senior Notes 0.6 7.8 0.9 9.0
Restricted stock units 0.2   0.4   0.3     0.5

Denominator for diluted earnings per share—adjusted weighted-average
common shares

97.7 105.6 98.4 106.0
Diluted earnings per share $ 0.88 $ 0.90 $ 2.04 $ 1.46
 
 

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 rental depreciation related to acquired RSC fleet and property and equipment, impact of the fair value mark-up of acquired RSC fleet, impact on interest expense related to fair value adjustment of acquired RSC indebtedness, restructuring charge, and loss on repurchase/redemption of debt securities and amendment of ABL facility. 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.
   
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Earnings per share - GAAP, as reported $ 0.88 $ 0.90 $ 2.04 $ 1.46
After-tax impact of:
Merger related costs (1) 0.05 (0.17 ) 0.05
Merger related intangible asset amortization (2) 0.27 0.29 0.57 0.52
Impact on depreciation related to acquired RSC fleet and property and equipment (3) (0.01 ) (0.01 ) (0.01 )
Impact of the fair value mark-up of acquired RSC fleet (4) 0.04 0.06 0.08 0.11
Impact on interest expense related to fair value adjustment of acquired RSC indebtedness (5) (0.01 ) (0.01 ) (0.01 )
Restructuring charge (6) (0.01 ) 0.01
Loss on repurchase/redemption of debt securities and amendment of ABL facility 0.76   0.38   0.77   0.43  
Earnings per share - adjusted $ 1.95   $ 1.65   $ 3.28   $ 2.55  
 
(1)   Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. The income for the six months ended June 30, 2015 reflects a decline in the fair value of the contingent cash consideration component of the National Pump purchase price.
(2) Reflects the amortization of the intangible assets acquired in the RSC and National Pump acquisitions.
(3) Reflects the impact of extending the useful lives of equipment acquired in the RSC acquisition, net of the impact of additional depreciation associated with the fair value mark-up of such equipment.
(4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold.
(5) Reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition.
(6) Primarily reflects branch closure charges associated with the RSC acquisition and our closed restructuring program.
 
 

UNITED RENTALS, INC.

EBITDA AND ADJUSTED EBITDA GAAP RECONCILIATION

(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 charge, stock compensation expense, net, and the impact of the fair value mark-up of acquired RSC fleet. These items are excluded from adjusted EBITDA internally when evaluating our operating performance 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. 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. However, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. The table below provides a reconciliation between net income and EBITDA and adjusted EBITDA.
               
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Net income $ 86 $ 94 $ 201 $ 154
Provision for income taxes 63 48 130 82
Interest expense, net 232 187 353 312
Depreciation of rental equipment 240 229 475 446
Non-rental depreciation and amortization 67   70   136   130
EBITDA (A) $ 688 $ 628 $ 1,295 $ 1,124
Merger related costs (1) 1 8 (26 ) 9
Restructuring charge (2) (1 ) 1
Stock compensation expense, net (3) 11 19 25 31
Impact of the fair value mark-up of acquired RSC fleet (4) 6   9   13   18
Adjusted EBITDA (B) $ 706   $ 663   $ 1,308   $ 1,182
 
A) Our EBITDA margin was 48.1% and 44.9% for the three months ended June 30, 2015 and 2014, respectively, and 47.2% and 43.6% for the six months ended June 30, 2015 and 2014, respectively.
B) Our adjusted EBITDA margin was 49.4% and 47.4% for the three months ended June 30, 2015 and 2014, respectively, and 47.7% and 45.9% for the six months ended June 30, 2015 and 2014, respectively.
 
(1) Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. The income for the six months ended June 30, 2015 reflects a decline in the fair value of the contingent cash consideration component of the National Pump purchase price.
(2) Primarily reflects branch closure charges associated with the RSC acquisition and our closed restructuring program.
(3) Represents non-cash, share-based payments associated with the granting of equity instruments.
(4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold.
 
   
UNITED RENTALS, INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO EBITDA AND ADJUSTED EBITDA
(In millions)
 
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Net cash provided by operating activities $ 575 $ 546 $ 1,250 $ 1,054

Adjustments for items included in net cash provided by operating activities
but excluded from the calculation of EBITDA:

Amortization of deferred financing costs and original issue discounts (2 ) (5 ) (5 ) (10 )
Gain on sales of rental equipment 56 58 108 103
Gain on sales of non-rental equipment 2 3 4 4
Merger related costs (1) (1 ) (8 ) 26 (9 )
Restructuring charge (2) 1 (1 )
Stock compensation expense, net (3) (11 ) (19 ) (25 ) (31 )
Loss on repurchase/redemption of debt securities and amendment of ABL facility (121 ) (64 ) (123 ) (75 )
Changes in assets and liabilities (37 ) (51 ) (222 ) (172 )
Cash paid for interest 162 140 253 224
Cash paid for income taxes, net 65   27   30   36  
EBITDA $ 688 $ 628 $ 1,295 $ 1,124
Add back:
Merger related costs (1) 1 8 (26 ) 9
Restructuring charge (2) (1 ) 1
Stock compensation expense, net (3) 11 19 25 31
Impact of the fair value mark-up of acquired RSC fleet (4) 6   9   13   18  
Adjusted EBITDA $ 706   $ 663   $ 1,308   $ 1,182  
 
(1)   Reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 National Pump acquisition. The income for the six months ended June 30, 2015 reflects a decline in the fair value of the contingent cash consideration component of the National Pump purchase price.
(2) Primarily reflects branch closure charges associated with the RSC acquisition and our closed restructuring program.
(3) Represents non-cash, share-based payments associated with the granting of equity instruments.
(4) Reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC acquisition and subsequently sold.
 
 

UNITED RENTALS, INC.

FREE CASH FLOW GAAP RECONCILIATION

(In millions)

 
We define free cash (usage) flow as (i) net cash provided by operating activities less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment. Management believes that free cash (usage) flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash (usage) flow is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash (usage) 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 (usage) flow.
               
Three Months Ended Six Months Ended
June 30, June 30,
2015   2014 2015   2014
Net cash provided by operating activities $ 575 $ 546 $ 1,250 $ 1,054
Purchases of rental equipment (693 ) (695 ) (1,016 ) (1,028 )
Purchases of non-rental equipment (28 ) (34 ) (50 ) (52 )
Proceeds from sales of rental equipment 124 138 240 248
Proceeds from sales of non-rental equipment 4   7   8   18  
Free cash (usage) flow $ (18 ) $ (38 ) $ 432   $ 240  
 

Contacts

United Rentals, Inc.
Fred Bratman, 203-618-7318
Cell: 917-847-4507
fbratman@ur.com

Contacts

United Rentals, Inc.
Fred Bratman, 203-618-7318
Cell: 917-847-4507
fbratman@ur.com