United Rentals, Inc. 2018 Form 10-K Summary
Business Context and Reporting Period
United Rentals, Inc. is a global equipment rental company operating primarily in the United States and Canada, with a limited European presence. The filing covers the fiscal year ended December 31, 2018; fourth-quarter information is presented as unaudited supplemental quarterly data. Operations are reported through general rentals and trench, power and fluid solutions.
- 1,197 rental locations, approximately 660,000 equipment units and fleet original equipment cost of $14.18 billion at year-end.
- 2018 acquisitions included BakerCorp in July and BlueLine in October; NES and Neff were acquired in 2017.
- Approximately 18,500 employees and estimated North American market share of 13.3%.
Financial Performance and Key Metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $8,047 million | $6,641 million | 21.2% increase |
| Equipment rental revenue | $6,940 million | $5,715 million | 21.4% increase |
| Gross profit | $3,364 million | $2,769 million | 21.5% increase |
| Gross margin | 41.8% | 41.7% | 10 basis-point increase |
| Operating income | $1,951 million | $1,507 million | 29.5% increase |
| Net income | $1,096 million | $1,346 million | 18.6% decrease |
| Diluted EPS | $13.12 | $15.73 | 16.6% decrease |
| Net cash from operating activities | $2,853 million | $2,209 million | 29.2% increase |
| Free cash flow | $1,271 million | $907 million | 40.1% increase |
| Adjusted EBITDA | $3,863 million | $3,164 million | 22.1% increase |
| Adjusted EBITDA margin | 48.0% | 47.6% | 40 basis-point increase |
Rental rates increased 2.2%, equipment volume on rent increased 18.8%, and time utilization declined to 68.6% from 69.5%. On a pro forma basis for acquisitions, rental revenue increased 10.5%, rental rates increased 2.6%, volume on rent increased 6.9%, and utilization increased 20 basis points to 68.4%.
Fourth-quarter 2018 revenue was $2,306 million, operating income was $563 million, net income was $310 million and diluted EPS was $3.80. Fourth-quarter results included $22 million of merger-related costs and $16 million of restructuring charges.
At December 31, 2018, total assets were $18.133 billion, total debt was $11.747 billion, cash and cash equivalents were $43 million, and stockholders’ equity was $3.403 billion. Available liquidity was $1.432 billion, including cash of $43 million. Net rental capital expenditures were $1.44 billion.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by acquisitions, a larger fleet, increased rental volume and higher rental rates.
- Operating income and EBITDA increased substantially, supported by operating leverage, lower SG&A as a percentage of revenue, and lower merger-related and restructuring costs.
- Net income and EPS declined because 2017 included a $689 million one-time tax benefit from the Tax Cuts and Jobs Act. The 2018 effective tax rate was 25.7%, compared with a 2017 tax benefit rate of negative 28.4%.
- Debt increased by approximately $2.3 billion, principally to finance the BlueLine acquisition. The company issued $1.1 billion of 6.5% senior notes due 2026 and entered into a $1.0 billion term loan facility.
- Cash flow from operations increased, but cash declined by $309 million to $43 million after acquisitions, capital expenditures and share repurchases.
- The company repurchased $817 million of common stock in 2018, including $420 million under a $1.25 billion program that was temporarily paused after the BlueLine acquisition.
- Trench, power and fluid solutions revenue increased to $1.497 billion from $1.076 billion, while its equipment-rental gross margin declined to 48.2% from 49.6%, partly because of the BakerCorp acquisition and mix effects.
Guidance, Outlook, Risks and Unusual Items
Management expected North American equipment rental industry revenue to grow approximately 6% in 2019 and planned to open at least 25 specialty rental branches or tool hubs. The stated strategy emphasized rate management, fleet and customer mix optimization, Lean initiatives, Project XL, specialty rental expansion and selective acquisitions.
- Leverage and refinancing risk are significant. Variable-rate debt totaled approximately $3.5 billion, or 30% of total debt; management estimated that a one-percentage-point increase in applicable rates would reduce annual after-tax earnings by approximately $26 million.
- Debt maturities include $903 million in 2019 and $1.733 billion in 2021, with total scheduled principal maturities of $11.834 billion.
- The accounts receivable securitization facility, with $850 million outstanding at year-end, expires June 29, 2019 and may be extended only by mutual agreement.
- The business is cyclical and exposed to construction, industrial, infrastructure, oil and gas, interest-rate, weather, competition, fleet-overcapacity and used-equipment resale risks.
- Acquisition integration, goodwill and intangible-asset valuation remain important risks. Goodwill was $5.058 billion, and the Fluid Solutions Europe reporting unit exceeded carrying value by only 7% in the 2018 impairment test.
- The BakerCorp/BlueLine restructuring program is expected to continue through 2019; total future costs were not estimable at filing.
- Operating leases had undiscounted future payments of $707 million. The company expected adoption of the new lease standard on January 1, 2019 to materially increase reported assets and liabilities without a material income-statement effect.
- Ordinary-course legal, environmental, self-insurance, labor, cybersecurity and regulatory matters were disclosed. Management stated that currently known claims were not expected to have a material adverse effect, but outcomes can change.
- The company was in compliance with debt covenants at year-end, and the ABL fixed-charge coverage covenant was not applicable because specified availability exceeded its threshold.
Most Important Facts for Investors to Verify
- Whether acquisition synergies from BakerCorp and BlueLine improve specialty-segment margins and utilization.
- The company’s ability to refinance or repay the 2019 and 2021 debt maturities while continuing fleet investment, acquisitions and repurchases.
- Actual 2019 rental rates, utilization, fleet growth and free cash flow relative to management’s industry-growth outlook.
- The status, renewal terms and availability under the accounts receivable securitization facility after its June 2019 maturity.
- Whether goodwill, particularly in Fluid Solutions Europe, remains recoverable under changing market conditions.
- The final costs and savings from the BakerCorp/BlueLine restructuring program.
- The balance-sheet impact of adopting the new lease accounting standard and any related covenant or leverage effects.
- The effect of interest rates, oil and gas activity, construction demand, used-equipment pricing and foreign exchange on earnings and liquidity.