Hertz Global Holdings intends to spin off Hertz Equipment Rental Corp. into a separate public company by the second quarter of 2016, company officials told a conference call of investors Friday after announcing the re-statement of its earnings results for the past few years.
“We now expect to finalize the separation sometime in the second quarter of 2016,” said Tom Kennedy, senior executive vice president and chief financial officer. “Between now and then, we will be working to complete the audited carve-out financial statements for the equipment rental business and requisite SEC filing activities for the separation, as well as focusing on improving the performance of HERC on its new leadership team.”
Kennedy said Hertz has changed and enhanced leadership in all of Hertz’ business units associated with restatement matters.
“The company began dedicating additional resources to the accounting and reporting functions during the 2013 year-end close process,” Kennedy said. “During 2014 and 2015, management deployed additional resources and took further steps to strengthen the control processes and procedures, in order to identify and rectify past accounting misstatements and prevent a recurrence of the circumstances that resulted in the need to restate prior-period financial re-statements, including instituting a number of compensating controls."
Hertz CEO John Tague said the company is targeting a net debt to EBITDA ratio of 3.5 to 4 times for HERC at the time of separation. “As standalone earnings, free cash flow generation will allow the de-leveraging, while the long-term capital structure and liquidity profile will provide capacity for growth,” Tague said.
While both Tague and Kennedy praised HERC’s new leadership team, led by recently named CEO Larry Silber and chief operating officer Bruce Dressel, Tague acknowledged that the equipment rental giant faced new headwinds in the slumping oil-and-gas industry, which, according to previous reports, accounted for as much as a quarter of HERC’s revenue.
While Silber didn’t participate in last week’s call, Tague said he would be on the company’s conference call reporting its second quarter results next month, at which time he would offer details of HERC’s strategy going forward.
“The business clearly has been challenged by the oil-and-gas [slowdown] in the first part of the year,” said Tague. “We think as we go on to the second half of the year based on equipment reallocation and equipment sales, we’re repositioning the supply of equipment relative to what we think is demand, we’ve seen improvements in certain parts of the country, trying to offset some of that degradation of oil and gas. Oil and gas was clearly somewhat of a higher margin business, so not only [is there a] revenue impact there is impact on the margins.”