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H&E Equipment Services Reports Second Quarter 2018 Results

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H&E Equipment Services, Inc. (NASDAQ:HEES) today announced results for
the second quarter ended June 30, 2018.

SECOND QUARTER 2018 SUMMARY1

  • Revenues increased 24.5% to $310.4 million versus $249.4 million a
    year ago. Included in total revenues were $9.8 million from the legacy
    CEC business ("CEC") which we acquired on January 1, 2018, and $7.6
    million from the legacy Rental Inc. business, which we acquired on
    April 2, 2018.
  • Net income was $20.8 million in the second quarter compared to net
    income of $9.9 million a year ago. The effective income tax rate was
    25.5% in the second quarter of 2018 and 37.0% in the second quarter of
    2017.
  • Adjusted EBITDA increased 28.7% to $101.8 million in the second
    quarter compared to $79.1 million a year ago, yielding a margin of
    32.8% of revenues compared to 31.7% a year ago. CEC contributed EBITDA
    of $6.2 million with a margin of 63.5% and Rental Inc. contributed
    EBITDA of $2.5 million with a margin of 33.1%.
  • Rental revenues increased 21.5% to $143.8 million in the second
    quarter compared to $118.4 million a year ago.
  • New equipment sales increased 50.1% to $68.5 million in the second
    quarter compared to $45.7 million a year ago.
  • Used equipment sales increased 33.3% to $32.1 million in the second
    quarter compared to $24.1 million a year ago.
  • Gross margin was 34.8% compared to 35.0% a year ago.
  • Rental gross margins were 49.1% in the second quarter of 2018 compared
    to 47.6% a year ago.
  • Average time utilization (based on original equipment cost) was 72.0%
    compared to 72.2% a year ago. The size of the Company's rental fleet
    based on original acquisition cost increased 22.0% from a year ago.
  • Average rental rates increased 2.4% compared to a year ago and 0.7%
    sequentially.
  • Dollar utilization was 35.4% in the second quarter compared to 34.9% a
    year ago.
  • Average rental fleet age at June 30, 2018, was 34.2 months compared to
    an industry average age of 43.6 months.
  • Added nine branches this year with the CEC and Rental Inc.
    acquisitions, as well as one Greenfield in Aledo, Texas, increasing
    branch count to 89.

John Engquist, H&E Equipment Services' chief executive officer, said,
"Our second quarter performance was strong as both our rental and
distribution businesses achieved significant growth from a year ago.
Rental revenues increased 21.5% resulting primarily from high
utilization on a significantly larger fleet combined with solid
increases in rates. New equipment sales increased 50.1% and were
primarily driven by new crane sales and earthmoving sales. We are
pleased with the growth opportunities in the industry as well as our
efforts to capitalize on these opportunities."

Engquist concluded, "Our outlook for the balance of this year remains
positive as demand in our end-user markets is strong and many industry
indicators forecast continued growth in non-residential construction.
Increasing the size and scale of our business is a strategic priority,
which we expect to achieve through organic growth, acquisitions and
Greenfield and warm-start branch expansion."

FINANCIAL DISCUSSION FOR SECOND QUARTER 2018:

Revenue

Total revenues increased 24.5% to $310.4 million in the second quarter
of 2018 from $249.4 million in the second quarter of 2017. Equipment
rental revenues increased 21.5% to $143.8 million compared with $118.4
million in the second quarter of 2017. CEC contributed $8.7 million in
rental revenue and Rental Inc. contributed $3.4 million in rental
revenue during the quarter. New equipment sales increased 50.1% to $68.5
million from $45.7 million a year ago. Used equipment sales increased
33.3% to $32.1 million compared to $24.1 million a year ago. Parts sales
increased 1.9% to $30.3 million from $29.7 million in the second quarter
of 2017. Service revenues increased 5.3% to $16.8 million compared to
$15.9 million a year ago.

Gross Profit

Gross profit increased 23.8% to $108.1 million from $87.3 million in the
second quarter of 2017. Gross margin was 34.8% for the quarter ended
June 30, 2018, as compared to 35.0% for the quarter ended June 30, 2017.
On a segment basis, gross margin on rentals was 49.1% in the second
quarter of 2018 compared to 47.6% in the second quarter of 2017. On
average, rental rates were 2.4% higher than rates in the second quarter
of 2017. Time utilization (based on original equipment cost) was 72.0%
in the second quarter of 2018 compared to 72.2% a year ago.

Gross margins on new equipment sales were 10.7% in the second quarter
compared to 11.4% a year ago. Gross margins on used equipment sales
increased to 32.3% compared to 29.5% a year ago. Gross margins on parts
sales were 27.6% in the second quarter of 2018 compared to 26.9% in the
second quarter of 2017. Gross margins on service revenues were 65.7% for
the second quarter of 2018 compared to 66.6% in the second quarter of
2017.

Rental Fleet

At the end of the second quarter of 2018, the original acquisition cost
of the Company's rental fleet was $1.7 billion, an increase of $301.7
million from the end of the second quarter of 2017. Dollar utilization
was 35.4% compared to 34.9% for the second quarter of 2017.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2018 were $69.0 million compared
with $59.8 million the prior year, a $9.2 million, or 15.4%, increase.
SG&A expenses in the second quarter of 2018 as a percentage of total
revenues were 22.3% compared to 24.0% a year ago. The increase in SG&A
was largely attributable to higher labor, wages, incentives and other
employee benefits costs of $7.5 million. SG&A expenses related to the
legacy CEC's operations for the quarter were $1.8 million. Also, our
results for the second quarter of 2018 included three months of legacy
Rental Inc.'s operations totaling $1.5 million in SG&A expenses. SG&A
expenses also include $0.8 million of amortization of intangibles
associated with the purchase price allocations of CEC and Rental Inc.
Expenses related to Greenfield branch expansions increased $1.0 million
compared to a year ago.

Income from Operations

Income from operations for the second quarter of 2018 increased 50.3% to
$43.1 million, or 13.9% of revenues, compared to $28.7 million, or 11.5%
of revenues, a year ago.

Interest Expense

Interest expense was $15.7 million for the second quarter of 2018
compared to $13.4 million a year ago.

Net Income

Net income was $20.8 million, or $0.58 per diluted share, in the second
quarter of 2018 compared to net income of $9.9 million, or $0.28 per
diluted share, in the second quarter of 2017. Our effective income tax
rate was 25.5% in the second quarter of 2018 compared to 37.0% in the
year ago period.

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2018 increased 28.7% to $101.8
million compared to $79.1 million in the second quarter of 2017.
Adjusted EBITDA as a percentage of revenues was 32.8% compared with
31.7% in the second quarter of 2017.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA and
Adjusted EBITDA). Please refer to our Current Report on Form 8-K for a
description of these measures and of our use of these measures. These
measures as calculated by the Company are not necessarily comparable to
similarly titled measures reported by other companies. Additionally,
these Non-GAAP measures are not a measurement of financial performance
or liquidity under GAAP and should not be considered as alternatives to
the Company's other financial information determined under GAAP.

1 Rate information for the second quarter of 2018 included in
this press release does not include the impact of legacy Rental Inc.
operations. This data is expected to be available and included in future
disclosures beginning with the period ending September 30, 2018.

Conference Call

The Company's management will hold a conference call to discuss second
quarter results today, July 26, 2018 at 10:00 a.m. (Eastern Time). To
listen to the call, participants should dial 786-789-4797 approximately
10 minutes prior to the start of the call. A telephonic replay will
become available after 1:00 p.m. (Eastern Time) on July 26, 2018, and
will continue through August 4, 2018, by dialing 719-457-0820 and
entering the confirmation code 2356501.

The live broadcast of the Company's quarterly conference call will be
available online at www.he-equipment.com
on July 26, 2018, beginning at 10:00 a.m. (Eastern Time) and will
continue to be available for 30 days. Related presentation materials
will be posted to the "Investor Relations" section of the Company's web
site at www.he-equipment.com
prior to the call. The presentation materials will be in Adobe Acrobat
format.

About H&E Equipment Services, Inc.

The Company is one of the largest integrated equipment services
companies in the United States with 89 full-service facilities
throughout the West Coast, Intermountain, Southwest, Gulf Coast,
Mid-Atlantic and Southeast regions. The Company is focused on heavy
construction and industrial equipment and rents, sells and provides
parts and services support for four core categories of specialized
equipment: (1) hi-lift or aerial platform equipment; (2) cranes; (3)
earthmoving equipment; and (4) industrial lift trucks. By providing
equipment rental, sales, on-site parts, repair and maintenance functions
under one roof, the Company is a one-stop provider for its customers'
varied equipment needs. This full service approach provides the Company
with multiple points of customer contact, enabling it to maintain a high
quality rental fleet, as well as an effective distribution channel for
fleet disposal and provides cross-selling opportunities among its new
and used equipment sales, rental, parts sales and services operations.

Forward-Looking Statements

Statements contained in this press release that are not historical
facts, including statements about H&E's beliefs and expectations, are
"forward-looking statements" within the meaning of the federal
securities laws. Statements that are not historical facts, including
statements about our beliefs and expectations are forward-looking
statements. Statements containing the words "may", "could", "would",
"should", "believe", "expect", "anticipate", "plan", "estimate",
"target", "project", "intend", "foresee" and similar expressions
constitute forward-looking statements. Forward-looking statements
involve known and unknown risks and uncertainties, which could cause
actual results to differ materially from those contained in any
forward-looking statement. Such factors include, but are not limited to,
the following: (1) general economic conditions and construction and
industrial activity in the markets where we operate in North America;
(2) our ability to forecast trends in our business accurately, and the
impact of economic downturns and economic uncertainty in the markets we
serve; (3) the impact of conditions in the global credit and commodity
markets and their effect on construction spending and the economy in
general; (4) relationships with equipment suppliers; (5) increased
maintenance and repair costs as we age our fleet and decreases in our
equipment's residual value; (6) our indebtedness; (7) risks associated
with the expansion of our business and any potential acquisitions we may
make, including any related capital expenditures, or our inability to
consummate such acquisitions; (8) our possible inability to integrate
any businesses we acquire; (9) competitive pressures; (10) security
breaches and other disruptions in our information technology systems;
(11) adverse weather events or natural disasters; (12) compliance with
laws and regulations, including those relating to environmental matters
and corporate governance matters; and (13) other factors discussed in
our public filings, including the risk factors included in the Company's
most recent Annual Report on Form 10-K. Investors, potential investors
and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements. Except as required by
applicable law, including the securities laws of the United States and
the rules and regulations of the Securities and Exchange Commission, we
are under no obligation to publicly update or revise any forward-looking
statements after the date of this release. These statements are based on
the current beliefs and assumptions of H&E's management, which in turn
are based on currently available information and important, underlying
assumptions. H&E is under no obligation to publicly update or revise any
forward-looking statements after this press release, whether as a result
of any new information, future events or otherwise. Investors, potential
investors, security holders and other readers are urged to consider the
above mentioned factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements.

 

H&E EQUIPMENT SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Amounts in thousands, except per share amounts)

 

Three Months Ended

 

Six Months Ended

June 30,

June 30,

 

2018

     

2017

   

2018

     

2017

 
 
Revenues:
Equipment rentals $ 143,829 $ 118,370 $ 273,190 $ 225,687
New equipment sales 68,539 45,669 115,032 79,943
Used equipment sales 32,140 24,106 56,993 52,969
Parts sales 30,281 29,725 58,432 56,725
Service revenues 16,788 15,944 31,824 31,024
Other   18,787     15,549     35,375     29,843  
Total revenues 310,364 249,363 570,846 476,191
 
Cost of revenues:
Rental depreciation 51,171 41,838 97,640 82,741
Rental expense 22,073 20,162 43,345 38,536
New equipment sales 61,226 40,450 102,071 70,831
Used equipment sales 21,772 17,002 38,709 36,863
Parts sales 21,931 21,722 42,548 41,158
Service revenues 5,752 5,332 10,802 10,331
Other   18,336     15,517     35,043     30,719  
Total cost of revenues   202,261     162,023     370,158     311,179  
 
Gross profit 108,103 87,340 200,688 165,012
 

Selling, general, and administrative expenses

69,046 59,807 134,926 117,125
Merger costs 68 - 220 -

Gain on sales of property and equipment, net

  4,114     1,135     4,887     2,106  
 
Income from operations 43,103 28,668 70,429 49,993
 
Interest expense (15,693 ) (13,373 ) (30,346 ) (26,605 )
Other income, net   459     373     854     810  

Income before provision for income taxes

27,869 15,668 40,937 24,198
 
Provision for income taxes   7,098     5,790     10,688     8,930  
 
Net income $ 20,771   $ 9,878   $ 30,249   $ 15,268  
 
NET INCOME PER SHARE
Basic – Net income per share $ 0.58   $ 0.28   $ 0.85   $ 0.43  

Basic – Weighted average number of common shares outstanding

  35,634     35,473     35,613     35,469  
 
Diluted – Net income per share $ 0.58   $ 0.28   $ 0.84   $ 0.43  

Diluted – Weighted average number of common shares outstanding

  35,906     35,631     35,893     35,626  
Dividends declared per common share $ 0.275   $ 0.275   $ 0.55   $ 0.55  
     

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

 
 

June 30,

December 31,

 

2018

 

2017

 
Cash $ 9,579 $ 165,878
Rental equipment, net 1,090,380 904,824
Total assets 1,699,648 1,467,717

Total debt (1)

1,083,492 951,486
Total liabilities 1,470,292 1,250,924
Stockholders' equity 229,356 216,793
Total liabilities and stockholders' equity $ 1,699,648 $ 1,467,717
 
(1)   Total debt consists of the aggregate amounts outstanding on the
senior secured credit facility, senior unsecured notes and capital
lease obligations.
       

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

 
 

Three Months Ended

Six Months Ended

June 30,

June 30,

 

2018

 

2017

 

2018

 

2017

 
Net income $ 20,771 $ 9,878 $ 30,249 $ 15,268
Interest expense 15,693 13,373 30,346 26,605
Provision for income taxes 7,098 5,790 10,688 8,930
Depreciation 57,372 47,858 109,725 94,856
Amortization of intangibles   780   -   1,485   -
 
EBITDA $ 101,714 $ 76,899 $ 182,493 $ 145,659
 
Merger costs 68 2,200 220 2,200
 
Adjusted EBITDA $ 101,782 $ 79,099 $ 182,713 $ 147,859

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