United Rentals, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
United Rentals, Inc. and wholly owned United Rentals (North America), Inc. filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company rents construction, industrial, specialty, mobile storage and modular office equipment, primarily in the United States and Canada, with limited operations in Europe, Australia and New Zealand. Results include the May 2021 acquisition of General Finance Corporation.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $2,596 million | $2,187 million | $6,940 million | $6,251 million |
| Equipment rental revenue | $2,277 million | $1,861 million | $5,895 million | $5,286 million |
| Operating income | $679 million | $551 million | $1,532 million | $1,290 million |
| Net income | $409 million | $208 million | $905 million | $593 million |
| Diluted EPS | $5.63 | $2.87 | $12.45 | $8.12 |
| Adjusted EBITDA | $1,233 million | $1,081 million | $3,105 million | $2,895 million |
| Adjusted EBITDA margin | 47.5% | 49.4% | 44.7% | 46.3% |
| Net cash from operating activities | Not separately provided | Not separately provided | $3,021 million | $2,288 million |
| Free cash flow | Not separately provided | Not separately provided | $1,254 million | $2,006 million |
Q3 total gross margin was 42.5%, compared with 40.5% in the prior-year quarter. Nine-month gross margin was 38.8%, compared with 37.0%. Equipment-rental gross margin was 43.0% in Q3 and 39.1% for the nine-month period.
At September 30, 2021, cash and cash equivalents were $320 million, total debt was $10.104 billion, and total liquidity was $2.611 billion. Rental equipment, net, was $10.541 billion, compared with $8.705 billion at December 31, 2020. Total assets were $20.306 billion and stockholders’ equity was $5.483 billion.
Material changes versus the prior comparable period
- Q3 revenue increased 18.7%; nine-month revenue increased 11.0%. Equipment-rental revenue increased 22.4% in Q3 and 11.5% for nine months.
- Q3 net income increased 96.6% and diluted EPS increased from $2.87 to $5.63. Nine-month net income increased 52.6% and diluted EPS increased from $8.12 to $12.45.
- Management attributed rental growth primarily to improved fleet productivity, higher average original equipment cost, end-market recovery and the General Finance acquisition.
- General rentals equipment-rental revenue increased 17.6% in Q3 and 8.3% for nine months. Specialty equipment-rental revenue increased 36.4% and 22.0%, respectively, including General Finance.
- SG&A increased 40.5% in Q3 and 21.6% for nine months, primarily because of higher bonus and stock-compensation expenses.
- Net interest expense decreased 52.5% in Q3 and 39.2% for nine months, partly because the prior-year periods included substantially larger debt-redemption losses.
- Free cash flow decreased to $1.254 billion from $2.006 billion, primarily because net rental capital expenditures increased by $1.462 billion year over year.
Debt, liquidity and capital allocation
- The company issued $750 million of 3.75% senior notes due 2032 and redeemed $1.0 billion of 5.875% senior notes due 2026. The redemption generated a $30 million loss included in interest expense.
- The accounts receivable securitization facility was amended and increased from $800 million to $900 million, with maturity extended to June 2022. The ABL facility was amended to support subsidiaries in Australia and New Zealand.
- As of September 30, 2021, ABL availability, net of letters of credit, was $2.223 billion; outstanding ABL debt was $1.456 billion. The accounts receivable securitization facility had $68 million of remaining borrowing capacity and $832 million outstanding.
- The company was in compliance with its debt covenants. The ABL fixed-charge coverage covenant was not applicable because specified availability exceeded the threshold.
- The $500 million share-repurchase program remained paused since March 18, 2020. Third-quarter share purchases consisted of shares withheld for employee tax obligations, not program repurchases.
Outlook, commentary, risks and unusual items
Management reported continuing recovery in construction and industrial markets and stated that 2021 net rental capital expenditures were expected to exceed historic pre-COVID-19 levels. The company believes existing cash sources will support operations over the next 12 months. No formal revenue or earnings guidance is provided in the filing text.
- COVID-19, including emerging variants, could affect demand, operations, supply chains, labor availability and customer collectibility.
- The business is cyclical and sensitive to construction and industrial activity, rental rates, time utilization, fleet levels, used-equipment pricing and oil and gas trends.
- Significant indebtedness requires substantial cash flow for debt service and may limit financial flexibility. Refinancing, covenant compliance, interest-rate increases and credit-rating changes remain risks.
- Supply-chain disruptions could affect equipment availability, maintenance costs and replacement costs.
- The General Finance purchase price allocation remains preliminary; goodwill and acquired rental-equipment values could change materially during the measurement period.
- The General Finance acquisition cost $1.032 billion and added approximately 100,000 fleet units, mobile-storage and modular-office operations, and entry into Australia and New Zealand.
- There were no material asset-impairment charges in 2021; the prior-year nine-month period included $36 million of impairment charges. The company recorded $3 million of merger-related costs and $1 million of restructuring charges in the first nine months of 2021.
- Ordinary-course legal claims and proceedings were not expected to have a material adverse effect based on the company’s current assessment.
Important facts for investors to verify
- Whether rental-rate, utilization and fleet-productivity gains continue after the favorable comparison with the COVID-19-affected 2020 period.
- The final purchase accounting for General Finance, including goodwill, acquired fleet values, depreciation and amortization.
- The sustainability of used-equipment pricing and the resulting rental-fleet disposal gains.
- Capital-expenditure requirements, free cash flow conversion and the effect of fleet investment on leverage.
- Liquidity, refinancing needs and compliance with borrowing-base, receivables and other debt covenants.
- The timing and potential size of any restart of the paused share-repurchase program.
- Exposure to COVID-19 developments, supply-chain constraints, labor shortages, interest rates and cyclical construction and industrial demand.