United Rentals, Inc. 2022 Form 10-K Summary
Business context and reporting period
United Rentals, Inc. and United Rentals (North America), Inc. filed a joint Form 10-K for the fiscal year ended December 31, 2022. United Rentals is the world’s largest equipment rental company, primarily serving the United States and Canada, with limited operations in Europe, Australia and New Zealand. Its two reportable segments are general rentals and specialty.
The company operated 1,521 rental locations, with approximately 1.02 million fleet units and fleet original equipment cost of $19.6 billion at year-end. Equipment rental revenue represented 87% of total revenue. The fourth quarter was seasonally stronger than the prior year, but rental activity is generally lower during winter months.
Financial and operating metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $11.642 billion | $9.716 billion | +19.8% |
| Equipment rental revenue | $10.116 billion | $8.207 billion | +23.3% |
| Gross profit | $4.996 billion | $3.853 billion | +29.7% |
| Operating income | $3.232 billion | $2.277 billion | +41.9% |
| Net income | $2.105 billion | $1.386 billion | +51.9% |
| Diluted EPS | $29.65 | $19.04 | +55.8% |
| Adjusted EBITDA | $5.618 billion | $4.414 billion | +27.3% |
| Net cash from operating activities | $4.433 billion | $3.689 billion | +20.2% |
| Free cash flow | $1.764 billion | $1.514 billion | +16.5% |
Net income margin increased to 18.1% from 14.3%, while adjusted EBITDA margin increased to 48.3% from 45.4%. Total gross margin rose to 42.9% from 39.7%; equipment rental gross margin increased to 42.0% from 39.8%, and sales of rental equipment gross margin increased to 58.7% from 44.5%.
Equipment rental growth reflected a 13.6% increase in average fleet OEC, a 9.4% increase in fleet productivity and a 1.8% contribution from ancillary and re-rent revenue. Sales of rental equipment revenue was largely flat, although units sold declined approximately 17% as management retained fleet to meet strong demand and preserve availability.
Fourth-quarter 2022 revenue was $3.296 billion, gross profit was $1.488 billion, operating income was $1.024 billion and net income was $639 million. Diluted fourth-quarter EPS was $9.15, compared with $6.61 in the fourth quarter of 2021.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $106 million at December 31, 2022, compared with $144 million a year earlier.
- Rental equipment, net increased to $13.277 billion from $10.560 billion.
- Total debt was $11.370 billion, up 17.4% from $9.685 billion; total indebtedness including related obligations was described as approximately $11.4 billion.
- Variable-rate debt was $3.5 billion, or 31% of total indebtedness; fixed-rate debt was $7.8 billion.
- Available liquidity was $2.896 billion, consisting of cash and availability under the ABL and accounts receivable securitization facilities.
- The ABL facility was increased to $4.25 billion and had $2.650 billion of borrowing capacity, net of letters of credit, at year-end. The accounts receivable securitization facility was increased to $1.1 billion and had $140 million of borrowing capacity.
- Management stated that existing sources of cash were expected to support operations for the next 12 months. Debt and finance lease payments total $11.447 billion, including $161 million due in 2023, $1.007 billion in 2024 and $960 million in 2025.
- The company was in compliance with its debt covenants at year-end. The ABL fixed-charge coverage covenant was inapplicable because specified availability exceeded the required threshold.
Material changes versus the prior comparable period
- On December 7, 2022, United Rentals acquired the assets of Ahern Rentals for $2.012 billion. The transaction added approximately $1.352 billion of rental equipment and $470 million of preliminary goodwill. Purchase accounting remained incomplete at year-end, and recorded values may change materially.
- The Ahern acquisition was funded through $1.5 billion of 6% senior secured notes due 2029 and borrowings under the ABL facility.
- Net rental capital expenditures increased to $2.471 billion from $2.030 billion. Total purchases of rental and non-rental equipment and intangible assets were $3.690 billion.
- United Rentals redeemed $500 million principal amount of 5.5% senior notes in May 2022 and recognized a $16 million loss on redemption.
- The company repurchased $1.0 billion of common stock under its prior program. A new $1.25 billion program authorized in October 2022 had no repurchases through year-end and was paused during Ahern integration.
- Accounts receivable increased 19.5%, rental equipment increased 25.7%, and total assets increased to $24.183 billion from $20.292 billion.
- General rentals revenue increased to $8.584 billion from $7.351 billion; specialty revenue increased to $3.058 billion from $2.365 billion. Specialty rental revenue grew 29.9%, including the impact of the General Finance acquisition.
Guidance, outlook, commentary and risks
Management expects North American equipment rental industry revenue to grow approximately 4% in 2023, versus estimated industry growth of 11% in 2022. The company expected to resume share repurchases in the first quarter of 2023 and indicated an intention to repurchase approximately $1.0 billion during 2023, although the program is discretionary and subject to market conditions, debt covenants and capital allocation decisions.
In January 2023, the board approved a quarterly dividend program and declared a first dividend of $1.48 per share, payable February 22, 2023. Future dividends remain subject to board approval, financial condition, capital needs and contractual restrictions.
- Key macroeconomic exposures include inflation, higher interest rates, economic weakness, reduced construction or industrial activity, supply chain disruption and geopolitical conflict.
- Higher rates increase interest expense; management estimated that a one-percentage-point increase in variable borrowing rates would reduce annual after-tax earnings by approximately $26 million.
- Demand, rental rates, utilization, customer mix, fleet mix and used-equipment resale values may fluctuate with industry cycles.
- Significant debt, refinancing requirements, borrowing-base limitations and restrictive covenants may constrain financial flexibility. Credit ratings at January 23, 2023 were Ba1/Stable from Moody’s and BB+/Stable from Standard & Poor’s.
- Integration of Ahern Rentals, completion of its purchase accounting, acquisition execution and realization of expected synergies remain important contingencies.
- Goodwill was $6.026 billion. The 2022 impairment test found that all reporting units exceeded carrying value, although Mobile Storage had a comparatively limited 8% excess fair value cushion.
- The company remains exposed to credit losses, cybersecurity incidents, labor shortages or disputes, environmental and safety liabilities, climate-related regulation, litigation, insurance limitations and foreign currency risk.
Important facts for investors to verify
- Reconcile reported revenue and adjusted EBITDA growth with the effects of General Finance, Ahern Rentals, fleet expansion, pricing, utilization and mix.
- Review final purchase accounting for Ahern Rentals, including acquired equipment values, intangible assets, goodwill and future depreciation or amortization.
- Monitor leverage, debt maturities, variable-rate exposure, refinancing needs and availability under the ABL and receivables facilities.
- Assess whether strong rental rates and utilization can persist if North American industry growth slows to the company’s projected 4% in 2023.
- Evaluate capital allocation among fleet investment, acquisitions, the proposed $1.0 billion of 2023 repurchases, dividends and debt reduction.
- Consider the sensitivity of results to used-equipment resale prices, fleet residual values, maintenance costs, inflation and supply chain conditions.
- Review the company’s $6.0 billion goodwill balance and the relatively narrow Mobile Storage impairment-testing cushion.
- Confirm that the declared dividend and planned repurchases remain permitted under debt agreements and supported by subsidiary distributions and cash generation.
The consolidated financial statements received an unqualified audit opinion from Ernst & Young LLP, and management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2022.