United Rentals, Inc. has announced financial results for the second quarter of 20191.
Total revenue increased 21.1% to $2.290 billion and rental revenue increased 20.2% to $1.960 billion. On a GAAP basis, the company reported second quarter net income of $270 million, or $3.44 per diluted share ("EPS"), compared with $270 million, or $3.20 per diluted share, for the same period in 2018. Second quarter 2019 included a pretax debt redemption loss of $32 million, or $0.30 per diluted share after taxes. Diluted EPS for the quarter increased 7.5% year-over-year. Adjusted EPS2 for the quarter increased 23.1% year-over-year to $4.74.
Adjusted EBITDA2 increased 18.3% year-over-year to $1.073 billion, while adjusted EBITDA margin decreased 110 basis points to 46.9%. On a pro forma basis, year-over-year, net income increased 7.1%, adjusted EBITDA increased 6.6% and adjusted EBITDA margin increased 40 basis points.
Matthew Flannery, chief executive officer of United Rentals, said, "We were pleased with our solid growth in revenue for both our general rental and specialty segments and our adjusted EBITDA for the second quarter. Importantly, the market outlook for the second half of 2019 remains positive based on feedback from our customers and the field. The multiple integrations we have underway will continue to gain traction in the back part of the year."
Flannery continued, "Our updates to guidance reflect a slightly slower than expected pace for the BlueLine integration, as well as historically bad weather in several key regions this past quarter. As a result, we've trimmed the upper ends on total revenue and adjusted EBITDA by approximately 1%, and capex by $150 million, while raising our free cash flow expectation. We remain confident in the health of the cycle and are well positioned to serve our customers with the strongest service offering in our history."
- Rental Revenue: Rental revenue3 was a second quarter record at $1.960 billion, reflecting increases of 20.2% and 4.8% year-over-year on an as-reported and pro forma basis, respectively. The as-reported increase is primarily due to the impact of the BakerCorp and BlueLine acquisitions. The pro forma increase is primarily due to growth in the company's construction end-markets.
1. The company completed the acquisitions of BakerCorp International Holdings, Inc. ("BakerCorp") and Vander Holding Corporation and its subsidiaries ("BlueLine") in July 2018 and October 2018, respectively. BakerCorp and BlueLine are included in the company's results subsequent to the acquisition dates. Pro forma results reflect the combination of United Rentals, BakerCorp and BlueLine for all periods presented. The acquired BakerCorp locations are reflected in the Trench, Power and Fluid Solutions specialty segment.
2. Adjusted EPS (earnings per share) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP measures as defined in the tables below. See the tables below for amounts and reconciliations to the most comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by total revenue.
3. Rental revenue includes owned equipment rental revenue, re-rent revenue and ancillary revenue.
- Fleet Productivity4: Second quarter fleet productivity decreased 3.1% year-over-year, primarily due to the impact of the BakerCorp and BlueLine acquisitions. On a pro forma basis, fleet productivity increased 0.7%, reflecting improvements in rental rates and fleet mix, partially offset by lower time utilization, primarily due to acquisition integration activities and adverse weather.
- Used Equipment: The company generated $197 million of proceeds from used equipment sales in the second quarter at a GAAP gross margin of 41.1% and an adjusted gross margin of 49.2>#sup###5; this compares with $157 million at a GAAP gross margin of 41.4% and an adjusted gross margin of 51.6% for the same period last year.
- Profitability: Net income for the second quarter of $270 million was flat with last year. Net interest expense increased $68 million year-over-year primarily due to debt issued to fund the BakerCorp and BlueLine acquisitions, and a loss of $32 million associated with the full redemption of our 5 3/4% Senior Notes. Operating income increased 12.6% year-over-year to $529 million. Adjusted EBITDA increased 18.3% year-over-year to $1.073 billion, while adjusted EBITDA margin decreased 110 basis points to 46.9%. The decline in adjusted EBITDA margin primarily reflects the acquisitions of BakerCorp and BlueLine. On a pro forma basis, year-over-year, net income increased 7.1%, adjusted EBITDA increased 6.6% and adjusted EBITDA margin increased 40 basis points.
- General rentals: Second quarter rental revenue for the company's general rentals segment increased by 14.6% and 2.1% year-over-year on an actual and pro forma basis, respectively. Rental gross margin decreased by 200 basis points to 38.8%, primarily due to the impact of the BlueLine acquisition. Depreciation of rental equipment increased 20.6%, with the BlueLine acquisition being a significant driver of the increase.
- Specialty: Second quarter rental revenue for the company's specialty segment, Trench, Power and Fluid Solutions, increased by 44.8% year-over-year, including an organic increase of 12.6%. Rental gross margin decreased by 250 basis points to 46.0%, primarily due to the impact of acquisitions.
- Cash flow: For the first six months of 2019, net cash from operating activities decreased 3.6% to $1.590 billion and free cash flow6, including aggregated merger and restructuring payments, increased 11.0% to $780 million. Free cash flow for the first six months of 2019 included rental gross capital expenditures of $1.129 billion, a 7.9% decrease from a year ago.
- Capital Allocation: In June 2019, the company announced that it had lowered its targeted leverage range to 2.0x-3.0x, from 2.5x-3.5x, and expects to end the year with a net leverage ratio of approximately 2.5x. The company's net leverage ratio was 2.8x at June 30, 2019. During the first six months of 2019, the company reduced net debt by $84 million relative to year-end 2018 levels, primarily due to the net impact of issuing $750 million of debt due in 2030 and redeeming $850 million of debt that would have been due in 2024. During the same period, the company also repurchased $420 million of common stock under its current $1.25 billion repurchase program, reducing its diluted share count by 2.1%. As of June 30, 2019, the company has repurchased $840 million of common stock under this program, which it expects to complete by year-end.
4. Fleet productivity reflects the combined impact of changes in rental rates, time utilization and mix on owned equipment rental revenue. See "Fleet Productivity Operating Metric" below for more information.
5. Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC, NES, Neff and BlueLine fleet that was sold.
6. Free cash flow is a non-GAAP measure. See the table below for amounts and a reconciliation to the most comparable GAAP measure.
Updated 2019 Outlook
The company has updated its full-year outlook as follows: