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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-14387
Commission File Number 1-13663
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United Rentals, Inc.
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
___________________________________
| | | | | | | | |
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Delaware | | 06-1522496 |
Delaware | | 86-0933835 |
(States of Incorporation) | | (I.R.S. Employer Identification Nos.) |
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100 First Stamford Place, Suite 700
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Stamford | | |
Connecticut | | 06902 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrants’ Telephone Number, Including Area Code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $.01 par value, of United Rentals, Inc. | | URI | | New York Stock Exchange |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | | ☒ | Accelerated Filer | | ☐ |
Non-Accelerated Filer | | ☐ | Smaller Reporting Company | | ☐ |
Emerging Growth Company | | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes x No
As of October 21, 2024, there were 65,622,379 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
INDEX
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PART I | | |
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Item 1 | | |
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Item 2 | | |
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Item 3 | | |
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Item 4 | | |
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PART II | | |
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Item 1 | | |
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Item 1A | | |
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Item 2 | | |
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Item 5 | | |
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Item 6 | | |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of strategy or outlook. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected.
Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following:
•the impact of global economic conditions (including inflation, interest rates, supply chain constraints, trade wars and sanctions), geopolitical risks (including risks related to international conflicts and the upcoming elections in the United States) and public health crises and epidemics on us, our customers and our suppliers, in the United States and the rest of the world;
•declines in construction or industrial activity, which can adversely impact our revenues and, because many of our costs are fixed, our profitability;
•rates we charge and time utilization we achieve being less than anticipated;
•changes in customer, fleet, geographic and segment mix;
•excess fleet in the equipment rental industry;
•inability to benefit from government spending, including spending associated with infrastructure projects, or a reduction in government spending;
•trends in oil and natural gas, including significant increases in the prices of oil or natural gas, could adversely affect the demand for our services and products;
•competition from existing and new competitors;
•the cyclical nature of the industry in which we operate and the industries of our customers, such as those in the construction industry;
•costs we incur being more than anticipated, including as a result of inflation, and the inability to realize expected savings in the amounts or time frames planned;
•our significant indebtedness (which totaled $13.4 billion at September 30, 2024) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;
•inability to refinance our indebtedness on terms that are favorable to us, including as a result of volatility and uncertainty in capital or credit markets or increases in interest rates, or at all;
•incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
•noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings;
•restrictive covenants and the amount of borrowings permitted under our debt instruments, which can limit our financial and operational flexibility;
•inability to access the capital that our businesses or growth plans may require, including as a result of uncertainty in capital or credit markets;
•the possibility that companies that we have acquired or may acquire could have undiscovered liabilities, or that companies or assets that we have acquired or may acquire could involve other unexpected costs, may strain our management capabilities, or may be difficult to integrate, and that we may not realize the expected benefits from an acquisition over the timeframe we expect, or at all;
•incurrence of impairment charges;
•fluctuations in the price of our common stock and inability to complete stock repurchases or pay dividends in the time frames and/or on the terms anticipated;
•our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
•inability to manage credit risk adequately or to collect on contracts with a large number of customers;
•turnover in our management team and inability to attract and retain key personnel, as well as loss, absenteeism or the inability of employees to work or perform key functions in light of public health crises or epidemics;
•inability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms or at all, as a result of supply chain disruptions, insolvency, financial difficulties or other factors;
•increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment;
•inability to sell our new or used fleet in the amounts, or at the prices, we expect;
•risks related to security breaches, cybersecurity attacks, failure to protect personal information, compliance with privacy, data protection and cyber incident reporting laws and regulations, and other significant disruptions in our information technology systems;
•risks related to climate change and climate change regulation;
•risks related to our environmental and social goals, including our greenhouse gas intensity reduction goal;
•the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
•shortfalls in our insurance coverage;
•increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
•incurrence of expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
•the costs of complying with environmental, safety and foreign laws and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk, and tariffs;
•the outcome or other potential consequences of regulatory and investigatory matters and litigation;
•labor shortages and/or disputes, work stoppages or other labor difficulties, which may impact our productivity and increase our costs, and changes in law that could affect our labor relations or operations generally; and
•the effect of changes in tax law.
For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2023, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
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| September 30, 2024 | | December 31, 2023 |
| (unaudited) | |
ASSETS | | | |
Cash and cash equivalents | $ | 479 | | | $ | 363 | |
Accounts receivable, net | 2,396 | | | 2,230 | |
Inventory | 211 | | | 205 | |
Prepaid expenses and other assets | 235 | | | 135 | |
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Total current assets | 3,321 | | | 2,933 | |
Rental equipment, net | 15,241 | | | 14,001 | |
Property and equipment, net | 1,000 | | | 903 | |
Goodwill | 6,853 | | | 5,940 | |
Other intangible assets, net | 694 | | | 670 | |
Operating lease right-of-use assets | 1,255 | | | 1,099 | |
Other long-term assets | 48 | | | 43 | |
Total assets | $ | 28,412 | | | $ | 25,589 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Short-term debt and current maturities of long-term debt | $ | 1,510 | | | $ | 1,465 | |
Accounts payable | 1,216 | | | 905 | |
Accrued expenses and other liabilities | 1,300 | | | 1,267 | |
Total current liabilities | 4,026 | | | 3,637 | |
Long-term debt | 11,884 | | | 10,053 | |
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Deferred taxes | 2,675 | | | 2,701 | |
Operating lease liabilities | 1,021 | | | 895 | |
Other long-term liabilities | 225 | | | 173 | |
Total liabilities | 19,831 | | | 17,459 | |
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Common stock—$0.01 par value, 500,000,000 shares authorized, 115,114,012 and 65,702,533 shares issued and outstanding, respectively, at September 30, 2024 and 115,010,396 and 67,269,577 shares issued and outstanding, respectively, at December 31, 2023 | 1 | | | 1 | |
Additional paid-in capital | 2,686 | | | 2,650 | |
Retained earnings | 13,231 | | | 11,672 | |
Treasury stock at cost—49,411,479 and 47,740,819 shares at September 30, 2024 and December 31, 2023, respectively | (7,100) | | | (5,965) | |
Accumulated other comprehensive loss | (237) | | | (228) | |
Total stockholders’ equity | 8,581 | | | 8,130 | |
Total liabilities and stockholders’ equity | $ | 28,412 | | | $ | 25,589 | |
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share amounts)
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenues: | | | | | | | |
Equipment rentals | $ | 3,463 | | | $ | 3,224 | | | $ | 9,607 | | | $ | 8,945 | |
Sales of rental equipment | 321 | | | 366 | | | 1,069 | | | 1,136 | |
Sales of new equipment | 77 | | | 52 | | | 186 | | | 166 | |
Contractor supplies sales | 38 | | | 39 | | | 116 | | | 110 | |
Service and other revenues | 93 | | | 84 | | | 272 | | | 247 | |
Total revenues | 3,992 | | | 3,765 | | | 11,250 | | | 10,604 | |
Cost of revenues: | | | | | | | |
Cost of equipment rentals, excluding depreciation | 1,392 | | | 1,286 | | | 3,958 | | | 3,664 | |
Depreciation of rental equipment | 629 | | | 588 | | | 1,819 | | | 1,755 | |
Cost of rental equipment sales | 176 | | | 185 | | | 564 | | | 569 | |
Cost of new equipment sales | 65 | | | 43 | | | 152 | | | 137 | |
Cost of contractor supplies sales | 26 | | | 28 | | | 80 | | | 78 | |
Cost of service and other revenues | 56 | | | 50 | | | 165 | | | 150 | |
Total cost of revenues | 2,344 | | | 2,180 | | | 6,738 | | | 6,353 | |
Gross profit | 1,648 | | | 1,585 | | | 4,512 | | | 4,251 | |
Selling, general and administrative expenses | 416 | | | 374 | | | 1,209 | | | 1,134 | |
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Restructuring charge | 1 | | | 5 | | | 3 | | | 24 | |
Non-rental depreciation and amortization | 109 | | | 107 | | | 322 | | | 329 | |
Operating income | 1,122 | | | 1,099 | | | 2,978 | | | 2,764 | |
Interest expense, net | 178 | | | 163 | | | 511 | | | 474 | |
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Other income, net | (5) | | | (7) | | | (12) | | | (19) | |
Income before provision for income taxes | 949 | | | 943 | | | 2,479 | | | 2,309 | |
Provision for income taxes | 241 | | | 240 | | | 593 | | | 564 | |
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Net income | $ | 708 | | | $ | 703 | | | $ | 1,886 | | | $ | 1,745 | |
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Basic earnings per share | $ | 10.73 | | | $ | 10.30 | | | $ | 28.33 | | | $ | 25.37 | |
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Diluted earnings per share | $ | 10.70 | | | $ | 10.29 | | | $ | 28.25 | | | $ | 25.30 | |
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 708 | | | $ | 703 | | | $ | 1,886 | | | $ | 1,745 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Foreign currency translation adjustments (1) | 55 | | | (27) | | | (9) | | | (3) | |
Fixed price diesel swaps | — | | | — | | | — | | | (1) | |
Other comprehensive (loss) income (1) | 55 | | | (27) | | | (9) | | | (4) | |
Comprehensive income | $ | 763 | | | $ | 676 | | | $ | 1,877 | | | $ | 1,741 | |
(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income (loss) during 2024 or 2023. There were no material taxes associated with other comprehensive income (loss) during 2024 or 2023.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
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| Three Months Ended September 30, 2024 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) (2) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (3) |
Balance at June 30, 2024 | 66 | | | $ | 1 | | | $ | 2,664 | | | $ | 12,630 | | | 49 | | | $ | (6,722) | | | $ | (292) | |
Net income | | | | | | | 708 | | | | | | | |
Dividends declared (3) | | | | | | | (107) | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | 55 | |
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Stock compensation expense, net | — | | | | | 24 | | | | | | | | | |
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Tax withholding for share based compensation | — | | | | | (2) | | | | | | | | | |
Repurchase of common stock | — | | | | | | | | | — | | | (378) | | | |
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Balance at September 30, 2024 | 66 | | | $ | 1 | | | $ | 2,686 | | | $ | 13,231 | | | 49 | | | $ | (7,100) | | | $ | (237) | |
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| Three Months Ended September 30, 2023 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) (2) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (3) |
Balance at June 30, 2023 | 68 | | | $ | 1 | | | $ | 2,621 | | | $ | 10,493 | | | 47 | | | $ | (5,460) | | | $ | (241) | |
Net income | | | | | | | 703 | | | | | | | |
Dividends declared (3) | | | | | | | (102) | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | (27) | |
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Stock compensation expense, net | — | | | | | 23 | | | | | | | | | |
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Tax withholding for share based compensation | — | | | | | (2) | | | | | | | | | |
Repurchase of common stock | — | | | | | | | | | — | | | (253) | | | |
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Balance at September 30, 2023 | 68 | | | $ | 1 | | | $ | 2,642 | | | $ | 11,094 | | | 47 | | | $ | (5,713) | | | $ | (268) | |
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| Nine Months Ended September 30, 2024 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at December 31, 2023 | 67 | | | $ | 1 | | | $ | 2,650 | | | $ | 11,672 | | | 48 | | | $ | (5,965) | | | $ | (228) | |
Net income | | | | | | | 1,886 | | | | | | | |
Dividends declared (3) | | | | | | | (327) | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | (9) | |
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Stock compensation expense, net | — | | | | | 79 | | | | | | | | | |
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Tax withholding for share based compensation | — | | | | | (43) | | | | | | | | | |
Repurchase of common stock | (1) | | | | | | | | | 1 | | | (1,135) | | | |
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Balance at September 30, 2024 | 66 | | | $ | 1 | | | $ | 2,686 | | | $ | 13,231 | | | 49 | | | $ | (7,100) | | | $ | (237) | |
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| Nine Months Ended September 30, 2023 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at December 31, 2022 | 69 | | | $ | 1 | | | $ | 2,626 | | | $ | 9,656 | | | 45 | | | $ | (4,957) | | | $ | (264) | |
Net income | | | | | | | 1,745 | | | | | | | |
Dividends declared (3) | | | | | | | (307) | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | (3) | |
Fixed price diesel swaps | | | | | | | | | | | | | (1) | |
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Stock compensation expense, net | 1 | | | | | 72 | | | | | | | | | |
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Tax withholding for share based compensation | — | | | | | (56) | | | | | | | | | |
Repurchase of common stock | (2) | | | | | | | | | 2 | | | (756) | | | |
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Balance at September 30, 2023 | 68 | | | $ | 1 | | | $ | 2,642 | | | $ | 11,094 | | | 47 | | | $ | (5,713) | | | $ | (268) | |
(1)Common stock outstanding decreased by approximately two million net shares during the year ended December 31, 2023.
(2)The Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.
(3)We declared dividends of $1.63 and $1.48 per share during the three months ended September 30, 2024 and 2023, respectively, and $4.89 and $4.44 per share during the nine months ended September 30, 2024 and 2023, respectively.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
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| Nine Months Ended |
| September 30, |
| 2024 | | 2023 |
Cash Flows From Operating Activities: | | | |
Net income | $ | 1,886 | | | $ | 1,745 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 2,141 | | | 2,084 | |
Amortization of deferred financing costs and original issue discounts | 11 | | | 11 | |
Gain on sales of rental equipment | (505) | | | (567) | |
Gain on sales of non-rental equipment | (13) | | | (16) | |
Insurance proceeds from damaged equipment | (38) | | | (30) | |
Stock compensation expense, net | 79 | | | 72 | |
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Restructuring charge | 3 | | | 24 | |
Loss on repurchase/redemption/amendment of debt securities | 1 | | | — | |
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(Decrease) increase in deferred taxes | (31) | | | 88 | |
Changes in operating assets and liabilities, net of amounts acquired: | | | |
Increase in accounts receivable | (51) | | | (254) | |
Decrease in inventory | 5 | | | 22 | |
(Increase) decrease in prepaid expenses and other assets | (44) | | | 183 | |
Increase (decrease) in accounts payable | 152 | | | (15) | |
Decrease in accrued expenses and other liabilities | (98) | | | (57) | |
Net cash provided by operating activities | 3,498 | | | 3,290 | |
Cash Flows From Investing Activities: | | | |
Payments for purchases of rental equipment | (3,178) | | | (3,078) | |
Payments for purchases of non-rental equipment and intangible assets | (266) | | | (267) | |
Proceeds from sales of rental equipment | 1,069 | | | 1,136 | |
Proceeds from sales of non-rental equipment | 50 | | | 46 | |
Insurance proceeds from damaged equipment | 38 | | | 30 | |
Purchases of other companies, net of cash acquired | (1,342) | | | (406) | |
Purchases of investments | (4) | | | — | |
Net cash used in investing activities | (3,633) | | | (2,539) | |
Cash Flows From Financing Activities: | | | |
Proceeds from debt | 9,729 | | | 6,718 | |
Payments of debt | (7,964) | | | (6,175) | |
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Common stock repurchased, including tax withholdings for share based compensation | (1,168) | | | (806) | |
Payments of financing costs | (17) | | | — | |
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Dividends paid | (326) | | | (305) | |
Net cash provided by (used in) financing activities | 254 | | | (568) | |
Effect of foreign exchange rates | (3) | | | (5) | |
Net increase in cash and cash equivalents | 116 | | | 178 | |
Cash and cash equivalents at beginning of period | 363 | | | 106 | |
Cash and cash equivalents at end of period | $ | 479 | | | $ | 284 | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for income taxes, net | $ | 812 | | | $ | 389 | |
Cash paid for interest | 544 | | | 495 | |
See accompanying notes.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise indicated)
1. Organization, Description of Business and Basis of Presentation
United Rentals, Inc. (“Holdings,” “URI” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. We primarily operate in the United States and Canada, and have a limited presence in Europe, Australia and New Zealand. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the 2023 Form 10-K.
In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year.
New Accounting Pronouncements
Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued ASU 2023-07, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. These requirements are not expected to have an impact on our financial statements, but will result in significantly expanded reportable segment disclosures.
Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. These requirements are not expected to have an impact on our financial statements, but will impact our income tax disclosures.
2. Revenue Recognition
Revenue Recognition Accounting Standards
We recognize revenue in accordance with two different accounting standards: 1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 842 (which addresses lease revenue). Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. As reflected below, most of our revenue is accounted for under Topic 842. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Nature of goods and services
In the following table, revenue is summarized by type and by the applicable accounting standard. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Three Months Ended September 30, |
| | | 2024 | | | | | | 2023 | | | |
| Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total | |
Revenues: | | | | | | | | | | | | |
Owned equipment rentals | $ | 2,804 | | | $ | — | | | $ | 2,804 | | | $ | 2,651 | | | $ | — | | | $ | 2,651 | | |
Re-rent revenue | 71 | | — | | 71 | | 68 | | — | | 68 | |
Ancillary and other rental revenues: | | | | | | | | | | | | |
Delivery and pick-up | — | | 297 | | 297 | | — | | 258 | | 258 | |
Other | 243 | | 48 | | 291 | | 204 | | 43 | | 247 | |
Total ancillary and other rental revenues | 243 | | | 345 | | | 588 | | | 204 | | | 301 | | | 505 | | |
Total equipment rentals | 3,118 | | | 345 | | | 3,463 | | | 2,923 | | | 301 | | | 3,224 | | |
Sales of rental equipment | — | | 321 | | 321 | | — | | 366 | | 366 | |
Sales of new equipment | — | | 77 | | 77 | | — | | 52 | | 52 | |
Contractor supplies sales | — | | 38 | | 38 | | — | | 39 | | 39 | |
Service and other revenues | — | | 93 | | 93 | | — | | 84 | | 84 | |
Total revenues | $ | 3,118 | | | $ | 874 | | | $ | 3,992 | | | $ | 2,923 | | | $ | 842 | | | $ | 3,765 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| | | 2024 | | | | | | 2023 | | | |
| Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total | |
Revenues: | | | | | | | | | | | | |
Owned equipment rentals | $ | 7,812 | | | $ | — | | | $ | 7,812 | | | $ | 7,378 | | | $ | — | | | $ | 7,378 | | |
Re-rent revenue | 184 | | — | | 184 | | 176 | | — | | 176 | |
Ancillary and other rental revenues: | | | | | | | | | | | | |
Delivery and pick-up | — | | 778 | | 778 | | — | | 699 | | 699 | |
Other | 685 | | 148 | | 833 | | 554 | | 138 | | 692 | |
Total ancillary and other rental revenues | 685 | | | 926 | | | 1,611 | | | 554 | | | 837 | | | 1,391 | | |
Total equipment rentals | 8,681 | | | 926 | | | 9,607 | | | 8,108 | | | 837 | | | 8,945 | | |
Sales of rental equipment | — | | 1,069 | | 1,069 | | — | | 1,136 | | 1,136 | |
Sales of new equipment | — | | 186 | | 186 | | — | | 166 | | 166 | |
Contractor supplies sales | — | | 116 | | 116 | | — | | 110 | | 110 | |
Service and other revenues | — | | 272 | | 272 | | — | | 247 | | 247 | |
Total revenues | $ | 8,681 | | | $ | 2,569 | | | $ | 11,250 | | | $ | 8,108 | | | $ | 2,496 | | | $ | 10,604 | | |
Revenues by reportable segment are presented in note 4 of the condensed consolidated financial statements, using the revenue captions reflected in our condensed consolidated statements of operations. The majority of our revenue is recognized in our general rentals segment and in the U.S. (for the nine months ended September 30, 2024, 71 percent and 91 percent, respectively). We believe that the disaggregation of our revenue from contracts to customers as reflected above, coupled with the further discussion below and the reportable segment disclosures in note 4, depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Lease revenues (Topic 842)
The accounting for the types of revenue that are accounted for under Topic 842 is discussed below.
Owned equipment rentals represent our most significant revenue type (they accounted for 69 percent of total revenues for the nine months ended September 30, 2024) and are governed by our standard rental contract. We account for such rentals as operating leases. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Our lease revenues do not include material amounts of variable payments.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we own. We do not generally provide an option for the lessee to purchase the rented equipment at the end of the lease, and do not generate material revenue from sales of equipment under such options.
We recognize revenues from renting equipment on a straight-line basis. Our rental contract periods are hourly, daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is calculated by dividing the monthly rate of $900 by the monthly term of 28 days. This daily rate assumes that the equipment will be on rent for the full 28 days, as we are unsure of when the customer will return the equipment and therefore unsure of which rental contract period will apply.
As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, we will have customers return equipment and be contractually required to pay us more than the cumulative amount of revenue recognized to date under the straight-line methodology. For instance, continuing the above example, if the customer rented the above piece of equipment on December 29 and returned it at the close of business on January 1, we would recognize incremental revenue on January 1 of $171.44 (in actual dollars, representing the difference between the amount the customer is contractually required to pay, or $300 at the weekly rate, and the cumulative amount recognized to date on a straight-line basis, or $128.56, which represents four days at $32.14 per day).
We record amounts billed to customers in excess of recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue (associated with both Topic 842 and Topic 606) of $174 and $138 as of September 30, 2024 and December 31, 2023, respectively.
As noted above, we are unsure of when the customer will return rented equipment. As such, we do not know how much the customer will owe us upon return of the equipment and cannot provide a maturity analysis of future lease payments. Our equipment is generally rented for short periods of time. Lessees do not provide residual value guarantees on rented equipment.
We expect to derive significant future benefits from our equipment following the end of the rental term. Our rentals are generally short-term in nature, and our equipment is typically rented for the majority of the time that we own it. We additionally recognize revenue from sales of rental equipment when we dispose of the equipment.
Re-rent revenue: Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.
“Other” equipment rental revenue is primarily comprised of 1) Rental Protection Plan (or "RPP") revenue associated with the damage waiver customers can purchase when they rent our equipment to protect against potential loss or damage, 2) environmental charges associated with the rental of equipment, 3) charges for rented equipment that is damaged by our customers and 4) charges for setup and other services performed on rented equipment.
Revenues from contracts with customers (Topic 606)
The accounting for the types of revenue that are accounted for under Topic 606 is discussed below. Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.
Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.
“Other” equipment rental revenue is primarily comprised of revenues associated with the consumption of fuel by our customers which are recognized when the equipment is returned by the customer (and consumption, if any, can be measured).
Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is probable.
Service and other revenues primarily represent revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). Service revenue is recognized as the services are performed.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Receivables and contract assets and liabilities
As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 77 percent of our total revenues for the nine months ended September 30, 2024). The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowance for credit losses address receivables arising from revenues from both Topic 606 and Topic 842.
Concentration of credit risk with respect to our receivables is limited because a large number of geographically diverse customers makes up our customer base. Our largest customer accounted for one percent or less of total revenues for the nine months ended September 30, 2024, and for each of the last three full years. Our customer with the largest receivable balance represented approximately one percent of total receivables at September 30, 2024 and December 31, 2023. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Our allowance for credit losses reflects our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectibility. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See the table below for a rollforward of our allowance for credit losses.
The measurement of expected credit losses is based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. Trade receivables are the only material financial asset we have that is subject to the requirement to measure expected credit losses as noted above, as this requirement does not apply to receivables arising from operating lease revenues. Substantially all of our non-lease trade receivables are due in one year or less. As discussed above, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 77 percent of our total revenues for the nine months ended September 30, 2024, and these revenues account for corresponding portions of the $2.396 billion of net accounts receivable and the associated allowance for credit losses of $184 as of September 30, 2024).
As discussed above, most of our equipment rental revenue is accounted for under Topic 842. The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. The rollforward of our allowance for credit losses (in total, and associated with revenues arising from both Topic 606 and Topic 842) is shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 | | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2024 | | Nine Months Ended September 30, 2023 |
Beginning balance | $ | 176 | | | $ | 147 | | | $ | 169 | | | $ | 134 | |
| | | | | | | |
Charged to costs and expenses (1) | 6 | | | 4 | | | 13 | | | 9 | |
Charged to revenue (2) | 17 | | | 16 | | | 40 | | | 37 | |
Deductions and other (3) | (15) | | | (9) | | | (38) | | | (22) | |
Ending balance | $ | 184 | | | $ | 158 | | | $ | 184 | | | $ | 158 | |
_________________
(1) Reflects bad debt expenses recognized within selling, general and administrative expenses (associated with Topic 606 revenues).
(2) Primarily reflects credit losses associated with lease revenues that were recognized as a reduction to equipment rentals revenue (primarily associated with Topic 842 revenues).
(3) Primarily represents write-offs of accounts, net of immaterial recoveries and other activity.
We do not have material contract assets, or impairment losses associated therewith, or material contract liabilities, associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
customers in excess of recognizable revenue. We did not recognize material revenue during the three or nine months ended September 30, 2024 or 2023 that was included in the contract liability balance as of the beginning of such periods.
Performance obligations
Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amounts of such revenue recognized during the three and nine months ended September 30, 2024 and 2023 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of September 30, 2024.
Payment terms
Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. For certain products or services and customer types, we require payment before the products or services are delivered to the customer. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties. See above for a discussion of how we manage credit risk.
Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities.
Contract costs
We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Most of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
Contract estimates and judgments
Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the following reasons:
•The transaction price is generally fixed and stated in our contracts;
•As noted above, our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;
•Our revenues do not include material amounts of variable consideration, or result in significant obligations associated with returns, refunds or warranties; and
•Most of our revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, our Topic 606 revenue is generally recognized at the time of delivery to, or pick-up by, the customer.
Our revenues accounted for under Topic 842 also generally do not require significant estimates or judgments. We monitor and review our estimated standalone selling prices on a regular basis.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
3. Acquisitions
On March 15, 2024, we completed the acquisition of Yak Access, LLC, Yak Mat, LLC and New South Access & Environmental Solutions, LLC (collectively, “Yak”). Yak was a leader in the North American matting industry with a fleet of approximately 600,000 hardwood, softwood, and composite mats that provide surface protection across both construction and maintenance, repair and operations (“MRO”) applications, and served customers primarily in the industrial sector across over 40 states. The acquisition:
• Provided entry into the matting market via an industry leader with established scale across fleet, operations, and talent;
• Augmented exposure to the energy and power verticals, where significant investment is expected over the next several decades; and
• Enhanced our one-stop-shop value proposition with immediate cross-selling opportunities to existing and new construction and MRO customers.
The acquisition date fair value of the purchase price to acquire Yak was $1.158 billion, comprised of cash and $41 of estimated contingent consideration ($50 is the maximum amount of contingent consideration) that could become payable to the seller based on revenue attainment in the first two years after closing. The acquisition and related fees and expenses were funded through the issuance of $1.100 billion principal amount of 6 1/8 Senior Notes (see note 7 to the condensed consolidated financial statements for further information) and drawings on our senior secured asset-based revolving credit facility (“ABL facility”).
The table below summarizes the fair values of the assets acquired and liabilities assumed. The purchase price allocations for these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. The accounting for the acquisition that has not yet been completed principally relates to finalizing the valuations of the acquired rental equipment, intangible assets and taxes. During the three months ended September 30, 2024, we recognized measurement period adjustments that were not material.
| | | | | |
| |
Accounts receivable (1) | $ | 99 | |
Inventory | 8 | |
| |
Rental equipment | 132 | |
Property and equipment | 32 | |
Intangible assets (customer relationships) (2) | 140 | |
Operating lease right-of-use assets | 4 | |
Other assets | 17 | |
Total identifiable assets acquired | 432 | |
| |
Accounts payable, accrued expenses and other liabilities | (102) | |
| |
Operating lease liabilities | (4) | |
| |
Total liabilities assumed | (106) | |
Net identifiable assets acquired | 326 | |
Goodwill (3) | 832 | |
Net assets acquired | $ | 1,158 | |
(1)The estimated fair value of accounts receivables acquired was $99, and the gross contractual amount was $102. We estimated that $3 would be uncollectible.
(2)The customer relationships are being amortized over a 6 year life.
(3)All of the goodwill was assigned to our specialty segment. As noted above, we have not yet obtained all the information required to finalize the valuations of the assets acquired and liabilities assumed. As such, we expect that goodwill will change from the amount noted above. Once finalized, we expect that the goodwill that results from the acquisition will be primarily reflective of Yak's going-concern value, the value of Yak's assembled workforce and new customer relationships expected to arise from the acquisition. All of the goodwill is expected to be deductible for income tax purposes (because the acquired Yak entities were sold as disregarded entities, the acquisition was treated as an asset purchase for income tax purposes, which resulted in the goodwill that is deductible for income tax purposes equaling the total acquired goodwill).
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
The debt issuance costs associated with the issuance of debt to partially fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our consolidated balance sheets. The total post-acquisition revenue attributable to the acquired Yak locations was $104 and $206 for the three and nine months ended September 30, 2024, respectively. It is not practicable to reasonably estimate the amount of earnings of Yak since the acquisition date, primarily due to our corporate structure and the allocation of corporate costs.
Pro forma financial information
The pro forma information below gives effect to the Yak acquisition as if it had been completed on January 1, 2023. Pro forma information for the three months ended September 30, 2024 is excluded from the presentation below because Yak was included in our results for the entire period. Pro forma information for the nine months ended September 30, 2024 is presented below because Yak was not included in our results in 2024 prior to the acquisition date. The pro forma information is not necessarily indicative of our results had the acquisition been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and also does not reflect additional revenue opportunities following the acquisition. The pro forma information includes adjustments to record the acquired assets and liabilities of Yak at their respective fair values and to give effect to the financing for the acquisition. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The purchase price allocations for the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. Increases or decreases in the estimated fair values of the net assets acquired may impact our statements of income in future periods. The table below presents unaudited pro forma consolidated income statement information as if Yak had been included in our consolidated results for the entire periods reflected:
| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| | | 2023 | | 2024 | | 2023 |
United Rentals historic revenue (1) | | | $ | 3,765 | | | $ | 11,250 | | | $ | 10,604 | |
Yak historic revenue (2) | | | 86 | | | 97 | | | 270 | |
Pro forma revenue (1) | | | 3,851 | | | 11,347 | | | 10,874 | |
United Rentals historic pretax income | | | 943 | | | 2,479 | | | 2,309 | |
Yak historic pretax (loss) income | | | (9) | | | 10 | | | 68 | |
Combined pretax income | | | 934 | | | 2,489 | | | 2,377 | |
Pro forma adjustments to combined pretax income: | | | | | | | |
Impact of fair value mark-ups/useful life changes on depreciation (3) | | | — | | | — | | | 1 | |
| | | | | | | |
Intangible asset amortization (4) | | | (4) | | | — | | | (12) | |
| | | | | | | |
Interest expense (5) | | | (18) | | | (14) | | | (52) | |
Elimination of historic interest (6) | | | 14 | | | 11 | | | 53 | |
| | | | | | | |
Elimination of refinancing transactions (7) | | | — | | | (40) | | | (101) | |
Transaction bonuses and other (8) | | | — | | | 22 | | | 2 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Pro forma pretax income | | | $ | 926 | | | $ | 2,468 | | | $ | 2,268 | |
___________________
(1)United Rentals historic revenue for the nine months ended September 30, 2024 includes the post-acquisition revenue attributable to the acquired Yak locations of $206 that is discussed above. Pro forma revenue for the nine months ended September 30, 2024 includes $303 of pre/post-acquisition revenue from the acquired Yak locations, comprised of $97 of historic Yak revenue and $206 of post-acquisition revenue attributable to the acquired Yak locations.
(2)Yak revenue reflects only the historical results of the entities being acquired, and includes an estimate of revenue from mat rentals to a commonly controlled entity that were eliminated in consolidation by Yak.
(3)Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups of the equipment acquired in the Yak acquisition. There were no material changes to the useful lives and salvage values of the acquired equipment.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
(4)Intangible asset amortization was adjusted to include amortization of the acquired intangible assets.
(5)As discussed above, the acquisition and related fees and expenses were funded through the issuance of senior notes and drawings on our ABL facility. Interest expense was adjusted to reflect interest on the debt used to finance the acquisition.
(6)Historic interest on debt that is not part of the combined entity was eliminated.
(7)Reflects gains on the extinguishment of debt, net of refinancing transaction expenses.
(8)Primarily reflects bonuses paid in connection with the acquisition.
During 2024 and 2023, we completed other acquisitions that were not significant individually or in the aggregate. See the condensed consolidated statements of cash flows for the total cash outflow for purchases of other companies (including Yak), net of cash acquired.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
4. Segment Information
Our reportable segments are i) general rentals and ii) specialty. For general rentals, the divisions discussed below, which are our operating segments, are aggregated into the reportable segment. The specialty segment is a single division that is both an operating segment and a reportable segment. We believe that the divisions that are aggregated into our reportable segments have similar economic characteristics, as each division is capital intensive, offers similar products to similar customers, uses similar methods to distribute its products, and is subject to similar competitive risks. The aggregation of our divisions also reflects the management structure that we use for making operating decisions and assessing performance. We evaluate segment performance primarily based on segment equipment rentals gross profit.
The general rentals segment includes the rental of i) general construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earthmoving equipment and material handling equipment, ii) aerial work platforms, such as boom lifts and scissor lifts and iii) general tools and light equipment, such as pressure washers, water pumps and power tools. The general rentals segment reflects the aggregation of four geographic divisions—Central, Northeast, Southeast and West—and operates throughout the United States and Canada.
The specialty segment, which, as noted above, is a single division that is both an operating segment and a reportable segment, rents products (and provides setup and other services on such rented equipment) including i) trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and temperature control equipment, iii) fluid solutions equipment primarily used for fluid containment, transfer and treatment, iv) mobile storage equipment and modular office space and v) surface protection mats. The specialty segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment primarily operates in the United States and Canada, and has a limited presence in Europe, Australia and New Zealand.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
The following tables set forth financial information by segment. | | | | | | | | | | | | | | | | | |
| General rentals | | Specialty | | Total |
Three Months Ended September 30, 2024 | | | | | |
Equipment rentals | $ | 2,327 | | | $ | 1,136 | | | $ | 3,463 | |
Sales of rental equipment | 274 | | | 47 | | | 321 | |
Sales of new equipment | 36 | | | 41 | | | 77 | |
Contractor supplies sales | 22 | | | 16 | | | 38 | |
Service and other revenues | 86 | | | 7 | | | 93 | |
Total revenue | 2,745 | | | 1,247 | | | 3,992 | |
Depreciation and amortization expense | 568 | | | 170 | | | 738 | |
Equipment rentals gross profit | 874 | | | 568 | | | 1,442 | |
Three Months Ended September 30, 2023 | | | | | |
Equipment rentals | $ | 2,307 | | | $ | 917 | | | $ | 3,224 | |
Sales of rental equipment | 320 | | | 46 | | | 366 | |
Sales of new equipment | 24 | | | 28 | | | 52 | |
Contractor supplies sales | 23 | | | 16 | | | 39 | |
Service and other revenues | 78 | | | 6 | | | 84 | |
Total revenue | 2,752 | | | 1,013 | | | 3,765 | |
Depreciation and amortization expense | 580 | | | 115 | | | 695 | |
Equipment rentals gross profit | 872 | | | 478 | | | 1,350 | |
Nine Months Ended September 30, 2024 | | | | | |
Equipment rentals | $ | 6,606 | | | $ | 3,001 | | | $ | 9,607 | |
Sales of rental equipment | 933 | | | 136 | | | 1,069 | |
Sales of new equipment | 92 | | | 94 | | | 186 | |
Contractor supplies sales | 65 | | | 51 | | | 116 | |
Service and other revenues | 248 | | | 24 | | | 272 | |
Total revenue | 7,944 | | | 3,306 | | | 11,250 | |
Depreciation and amortization expense | 1,683 | | | 458 | | | 2,141 | |
Equipment rentals gross profit | 2,357 | | | 1,473 | | | 3,830 | |
Capital expenditures (1) | 2,738 | | | 815 | | | 3,553 | |
Nine Months Ended September 30, 2023 | | | | | |
Equipment rentals | $ | 6,514 | | | $ | 2,431 | | | $ | 8,945 | |
Sales of rental equipment | 1,012 | | | 124 | | | 1,136 | |
Sales of new equipment | 66 | | | 100 | | | 166 | |
Contractor supplies sales | 67 | | | 43 | | | 110 | |
Service and other revenues | 225 | | | 22 | | | 247 | |
Total revenue | 7,884 | | | 2,720 | | | 10,604 | |
Depreciation and amortization expense | 1,737 | | | 347 | | | 2,084 | |
Equipment rentals gross profit | 2,323 | | | 1,203 | | | 3,526 | |
Capital expenditures (1) | 2,663 | | | 682 | | | 3,345 | |
___________________
(1)The condensed consolidated statements of cash flows include the payments for capital expenditures, while the table above reflects the gross capital expenditures. Accounts payable as of September 30, 2024 and December 31, 2023 included $183 and $74, respectively, of amounts due but unpaid for purchases of rental equipment. The net impact of accrued purchases of rental equipment was not material for the nine months ended September 30, 2023.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Total reportable segment assets | | | |
General rentals | $ | 21,176 | | | $ | 20,411 | |
Specialty (1) | 7,236 | | | 5,178 | |
Total assets | $ | 28,412 | | | $ | 25,589 | |
___________________
(1)The increase in the specialty segment assets includes the impact of the Yak acquisition discussed in note 3 to the condensed consolidated financial statements.
Equipment rentals gross profit is the primary measure management reviews to make operating decisions and assess segment performance. The following is a reconciliation of equipment rentals gross profit to income before provision for income taxes:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Total equipment rentals gross profit | $ | 1,442 | | | $ | 1,350 | | | $ | 3,830 | | | $ | 3,526 | |
Gross profit from other lines of business | 206 | | | 235 | | | 682 | | | 725 | |
Selling, general and administrative expenses | (416) | | | (374) | | | (1,209) | | | (1,134) | |
| | | | | | | |
Restructuring charge (1) | (1) | | | (5) | | | (3) | | | (24) | |
Non-rental depreciation and amortization | (109) | | | (107) | | | (322) | | | (329) | |
Interest expense, net | (178) | | | (163) | | | (511) | | | (474) | |
| | | | | | | |
Other income, net | 5 | | | 7 | | | 12 | | | 19 | |
Income before provision for income taxes | $ | 949 | | | $ | 943 | | | $ | 2,479 | | | $ | 2,309 | |
___________________
(1)Primarily reflects severance and branch closure charges associated with our restructuring programs. The restructuring charges generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition. The amounts above primarily reflect charges associated with the restructuring program initiated following the December 2022 acquisition of Ahern Rentals, Inc. As of September 30, 2024, there were no open restructuring programs.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
5. Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | |
| General rentals | | Specialty | | Total |
Balance at January 1, 2024 (1) | $ | 4,775 | | | $ | 1,165 | | | $ | 5,940 | |
Goodwill related to acquisitions (2) | 3 | | | 907 | | | 910 | |
Foreign currency translation and other adjustments | (3) | | | 6 | | | 3 | |
Balance at September 30, 2024 (1) | $ | 4,775 | | $ | 2,078 | | $ | 6,853 |
_________________
(1)The total carrying amount of goodwill for all periods in the table above is reflected net of $1.557 billion of accumulated impairment charges, which were primarily recorded in our general rentals segment.
(2)Includes goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period. The goodwill related to acquisitions above primarily reflects the March 2024 acquisition of Yak, which is discussed note 3 to our condensed consolidated financial statements.
Other intangible assets were comprised of the following at September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Non-compete agreements | 3 years | | | $ | 167 | | | | | $ | 76 | | | | | $ | 91 | | |
Customer relationships | 6 years | | | $ | 2,647 | | | | | $ | 2,048 | | | | | $ | 599 | | |
Trade names and associated trademarks | 2 years | | | $ | 11 | | | | | $ | 7 | | | | | $ | 4 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Non-compete agreements | 4 years | | | $ | 176 | | | | | $ | 58 | | | | | $ | 118 | | |
Customer relationships | 6 years | | | $ | 2,468 | | | | | $ | 1,919 | | | | | $ | 549 | | |
Trade names and associated trademarks | 2 years | | | $ | 9 | | | | | $ | 6 | | | | | $ | 3 | | |
Our other intangibles assets, net at September 30, 2024 includes the assets in the table below associated with the acquisition of Yak that is discussed in note 3 to our condensed consolidated financial statements. No residual value has been assigned to these assets. The customer relationships are being amortized using the sum of the years' digits method, and we believe that this method best reflects the estimated pattern in which the economic benefits will be consumed. The intangible asset values are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period.
| | | | | | | | | | | | | | |
| September 30, 2024 |
| Weighted-Average Remaining Amortization Period | | | Net Carrying Amount |
| | | | |
Customer relationships | 6 years | | | 120 | |
| | | | |
Amortization expense for other intangible assets was $64 and $66 for the three months ended September 30, 2024 and 2023, respectively, and $190 and $210 for the nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024, estimated amortization expense for other intangible assets for each of the next five years and thereafter is as follows:
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
| | | | | | | | | | | |
2024 | | $ | 63 | | |
2025 | 218 | | |
2026 | 166 | | |
2027 | 114 | | |
2028 | 62 | | |
Thereafter | 71 | | |
Total | | $ | 694 | | |
6. Fair Value Measurements
As of September 30, 2024 and December 31, 2023, the amounts of our assets and liabilities that were accounted for at fair value were immaterial.
Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
a)quoted prices for similar assets or liabilities in active markets;
b)quoted prices for identical or similar assets or liabilities in inactive markets;
c)inputs other than quoted prices that are observable for the asset or liability;
d)inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
Fair Value of Financial Instruments
The carrying amounts reported in our condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our variable rate debt facilities and finance leases approximated their book values as of September 30, 2024 and December 31, 2023. The estimated fair values of our other financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of September 30, 2024 and December 31, 2023 have been calculated based upon available market information, and were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
Senior notes | $ | 8,817 | | | $ | 8,745 | | | $ | 7,720 | | | $ | 7,442 | |
| | | | | | | |
| | | | | | | |
7. Debt
Debt, net of unamortized original issue discounts or premiums, and unamortized debt issuance costs, consists of the following:
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Repurchase facility (terminated in 2024) (1) | $ | — | | | $ | 100 | |
Accounts receivable securitization facility expiring 2025 (1) (2) | 1,423 | | | 1,300 | |
| | | |
$4.25 billion ABL facility expiring 2027 (1) | 1,915 | | | 1,261 | |
| | | |
Term loan facility expiring 2031 (1) (3) | 986 | | | 945 | |
5 1/2 percent Senior Notes due 2027 | 499 | | | 498 | |
3 7/8 percent Senior Secured Notes due 2027 | 746 | | | 745 | |
4 7/8 percent Senior Notes due 2028 (4) | 1,666 | | | 1,665 | |
6 percent Senior Secured Notes due 2029 | 1,489 | | | 1,488 | |
5 1/4 percent Senior Notes due 2030 | 745 | | | 745 | |
4 percent Senior Notes due 2030 | 745 | | | 744 | |
3 7/8 percent Senior Notes due 2031 | 1,092 | | | 1,091 | |
3 3/4 percent Senior Notes due 2032 | 745 | | | 744 | |
6 1/8 percent Senior Notes due 2034 (5) | 1,090 | | | — | |
Finance leases | 253 | | | 192 | |
| | | |
| | | |
| | | |
| | | |
Total debt | 13,394 | | | 11,518 | |
Less short-term portion (6) | (1,510) | | | (1,465) | |
Total long-term debt | $ | 11,884 | | | $ | 10,053 | |
___________________
(1)The table below presents financial information associated with our variable rate indebtedness as of and for the nine months ended September 30, 2024. The repurchase facility is not included below because (i) there were no borrowings under it during the nine months ended September 30, 2024 and (ii) it was terminated in May 2024. We have borrowed the full available amount under the term loan facility. The principal obligation under the term loan facility is required to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the facility. The average amount of debt outstanding under the term loan facility decreases slightly each quarter due to the requirement to repay a portion of the principal obligation.
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| ABL facility | | Accounts receivable securitization facility | | Term loan facility | | |
Borrowing capacity, net of letters of credit | $ | 2,311 | | |