United Rentals, Inc. 2021 Form 10-K Summary
Business Context and Reporting Period
United Rentals, Inc. is the world’s largest equipment rental company, operating primarily in the United States and Canada, with limited operations in Europe, Australia and New Zealand. The filing covers the fiscal year ended December 31, 2021, including fourth-quarter results. Operations are conducted primarily through wholly owned subsidiary United Rentals (North America), Inc. The business is cyclical and exposed to construction, industrial activity, infrastructure spending, equipment pricing and utilization.
At year-end, the company operated 1,345 rental locations, had approximately 780,000 equipment units and employed approximately 20,400 people. In May 2021, United Rentals acquired General Finance Corporation for $1.032 billion, adding mobile storage and modular office capabilities and expanding its presence in Australia and New Zealand.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $9.716 billion | $8.530 billion | 13.9% increase |
| Equipment rental revenue | $8.207 billion | $7.140 billion | 14.9% increase |
| Gross profit | $3.853 billion | $3.183 billion | 21.0% increase |
| Gross margin | 39.7% | 37.3% | 240 basis-point increase |
| Operating income | $2.277 billion | $1.800 billion | 26.5% increase |
| Net income | $1.386 billion | $890 million | 55.7% increase |
| Diluted EPS | $19.04 | $12.20 | 56.1% increase |
| Net income margin | 14.3% | 10.4% | 390 basis-point increase |
| Adjusted EBITDA | $4.414 billion | $3.932 billion | 12.3% increase |
| Adjusted EBITDA margin | 45.4% | 46.1% | 70 basis-point decrease |
| Cash flow from operations | $3.689 billion | $2.658 billion | 38.8% increase |
| Free cash flow | $1.514 billion | $2.440 billion | Decrease of $926 million |
Equipment rental revenue growth reflected a 4.0% increase in average original equipment cost, 10.4% positive fleet productivity and a 2.0% contribution from ancillary and re-rent revenue. Equipment rental gross margin increased to 39.8% from 38.1%. Sales of rental equipment increased 12.8% to $968 million, supported by strong used-equipment pricing. Sales of new equipment declined 17.8% to $203 million, primarily because of supply-chain challenges.
Fourth-quarter 2021 revenue was $2.776 billion, gross profit was $1.161 billion, operating income was $745 million and net income was $481 million. Diluted fourth-quarter EPS was $6.61. The filing states that no unusual or infrequently occurring items had a material impact on fourth-quarter 2021 financial statements.
Debt, Liquidity and Capital Allocation
- Total debt was $9.685 billion at December 31, 2021, essentially flat with $9.682 billion at year-end 2020.
- Cash and cash equivalents were $144 million. Reported available liquidity was $2.851 billion, including cash and availability under the ABL and accounts receivable securitization facilities.
- Variable-rate debt was approximately $2.8 billion, or 29% of total debt. Management estimated that a one-percentage-point increase in applicable variable interest rates would reduce annual after-tax earnings by approximately $21 million.
- The ABL facility had $2.650 billion of borrowing capacity net of letters of credit and $1.029 billion of outstanding debt. The accounts receivable securitization facility had $900 million of capacity and $843 million of outstanding borrowings; it expires June 24, 2022 and may be extended by mutual agreement.
- In 2021, the company issued $750 million of 3.75% senior notes due 2032 and redeemed $1 billion of 5.875% senior notes due 2026. The redemption generated a $30 million loss.
- Net rental capital expenditures were $2.030 billion, compared with $103 million in 2020. Total purchases of rental and non-rental equipment and intangible assets were $3.198 billion.
- The company reported compliance with its debt covenants at year-end. The ABL fixed-charge coverage covenant was not applicable because specified availability exceeded the required threshold.
- In January 2022, the board authorized a new $1 billion share-repurchase program, replacing the prior $500 million authorization that had been paused in March 2020. The company has not paid common-stock dividends since inception.
Material Changes Versus the Prior Comparable Period
- Revenue and profitability recovered materially from the more severe COVID-19-related rental-volume declines experienced in 2020.
- General rentals revenue increased 9.7% to $7.351 billion, while specialty revenue increased 29.2% to $2.365 billion, including the General Finance acquisition.
- Fleet original equipment cost increased to $15.79 billion from $13.78 billion, equipment units increased to approximately 780,000 from 615,000, and rental locations increased to 1,345 from 1,165.
- Rental equipment, net increased 21.3% to $10.560 billion, primarily due to the General Finance acquisition and significantly higher capital expenditures.
- Accounts receivable increased 27.5% to $1.677 billion, while accounts payable increased 75.1% to $816 million, reflecting higher business activity.
- Interest expense declined 36.6% to $424 million, driven by lower average debt and borrowing costs, despite debt-redemption losses.
- SG&A expense increased 22.5% to $1.199 billion and rose to 12.3% of revenue from 11.5%, primarily due to higher bonus and stock-compensation expense.
- The effective tax rate increased to 24.9% from 21.9%, primarily because 2020 included the release of a valuation allowance on foreign tax credits.
Guidance, Outlook, Risks and Unusual Items
Management expects continued recovery in 2022 and projects approximately 10% growth in North American equipment-rental industry revenue. This is an industry outlook rather than company-specific revenue guidance.
Key risks include the cyclical nature of construction and industrial markets, continuing COVID-19 effects, supply-chain disruptions, labor shortages, inflation in equipment and operating costs, competition and rental-rate pressure, used-equipment residual values, cybersecurity, climate-related regulation, environmental and safety liabilities, foreign currency exposure and acquisition integration.
The General Finance acquisition contributed approximately $144 million of revenue during the portion of 2021 after closing. Purchase accounting remained preliminary, although management did not expect material future changes. Goodwill totaled $5.528 billion, and the company identified goodwill valuation as a critical audit matter. The Mobile Storage and Mobile Storage International reporting units exceeded carrying value by 10% and 17%, respectively, creating comparatively less valuation cushion than other reporting units.
Ordinary-course claims and proceedings include general liability, personal injury, employment, environmental, self-insurance and contract matters. Management stated that currently identified liabilities are not expected to have a material adverse effect individually or in the aggregate, but estimates and insurance coverage remain subject to uncertainty.
Important Facts for Investors to Verify
- Whether the company’s 2022 rental-rate, utilization and fleet-productivity trends sustain the 2021 recovery.
- The maturity and refinancing plan for $906 million of scheduled debt and finance-lease payments in 2022, including the accounts receivable securitization facility expiring in June 2022.
- The effect of substantially higher rental capital expenditures on free cash flow, leverage and return on invested capital.
- The integration, profitability and valuation cushion of the General Finance acquisition, particularly the mobile-storage reporting units.
- The effect of supply-chain constraints, equipment inflation, labor availability and used-equipment pricing on margins and fleet growth.
- The timing and size of share repurchases under the new $1 billion authorization and the interaction with debt covenants and liquidity needs.
- Potential changes in COVID-19 conditions, construction and industrial demand, infrastructure spending, interest rates and fuel prices.
- Goodwill, self-insurance reserves, environmental obligations, legal contingencies and other estimates that could produce future charges.