H&E Equipment Services Reports Third Quarter 2009 Results

November 4, 2009 7:00 AM EST

BATON ROUGE, La.--(BUSINESS WIRE)-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced operating results for the third quarter ended September 30, 2009.

THIRD QUARTER 2009 SUMMARY

    --  Revenues decreased 37.0% to $175.6 million versus $278.6 million a year
        ago.
    --  EBITDA decreased 56.4% to $29.3 million, or a 16.7% margin, compared to
        $67.2 million, or a 24.1% margin, a year ago.
    --  Income from operations decreased 86.0% to $5.2 million compared to $37.2
        million a year ago.
    --  Net loss was $2.3 million, or ($0.07) per diluted share, compared to net
        income of $17.6 million, or $0.50 per diluted share.
    --  Reduced debt by $42.0 million during the quarter.

"Our business environment remains very challenging and we have not seen any seasonal increase in demand during the third quarter. While we are pleased to have experienced stabilization of our fleet utilization during the third quarter, we have not seen improvement in the structural economic problems that continue to impact the demand for our products and services. While utilization has stabilized, it has stabilized at a low level. As a result, rental pricing remains weak," said John Engquist, H&E Equipment Services' president and chief executive officer. "We have successfully reduced debt and increased liquidity during this prolonged recession. We continue to focus on our balance sheet, which positions our company to deal with the current weak environment and to take full advantage of the recovery when it begins."

"In spite of the severe decline in our markets and the earnings results based on contraction in our top-line revenues, we continued to make significant progress in fulfilling our balance sheet objectives. We reduced debt under our revolver by $42 million in the third quarter," commented Leslie Magee, H&E Equipment Services' chief financial officer. "Subsequently, we have fully repaid our revolver, leaving $312 million of borrowing availability on the credit facility and we expect to continue to generate cash throughout the fourth quarter. The demand for rental equipment and new and used equipment remains weak. In general, our customers lack a near-term need for construction equipment based on today's limited visibility of a recovery in our end-markets. We have seen few signs of a boost in the confidence levels of our end-users, which is necessary to initiate increased capital spending by our customers. Consequently, we remain focused on asset management, debt reduction and cash generation. We ended the quarter with negative net rental cap-ex, further fleet reductions of $38.8 million and lower inventories."

FINANCIAL DISCUSSION FOR THIRD QUARTER 2009

Our third quarter 2009 results of operations include the sale of a substantial portion of our Yale lift truck assets in the Intermountain region including rental fleet, new and used equipment inventories and parts inventories for total cash proceeds of approximately $15.7 million. At the time of the sale, these Yale lift trucks comprised approximately 3.5% of our total rental fleet assets and 71% of the total lift trucks in our rental fleet based on net book value. The sale of all related assets resulted in a gross profit margin of less than 5% in each asset category. Approximately 81% of the total sale proceeds were attributable to the sale of rental fleet assets. In connection with the transaction, we also recognized approximately $0.9 million in deferred service revenues from the termination of maintenance contracts associated with the Yale rental fleet assets sold.

Revenue

Total revenues decreased 37.0% to $175.6 million from $278.6 million in the third quarter of 2008. Equipment rental revenues decreased 42.3% to $45.1 million compared with $78.2 million in the third quarter of 2008. New equipment sales decreased 50.2% to $48.7 million from $97.8 million. Used equipment sales decreased 17.9% to $32.7 million compared to $39.9 million. Parts sales declined 16.7% to $25.8 million from $31.0 million in the third quarter of 2008. Service revenues decreased 17.0% to $15.2 million compared with $18.3 million in the third quarter of 2008. The sale of the Yale lift truck assets, included in the current period amounts above, had the effect of partially offsetting these revenue declines, particularly in used equipment sales.

Gross Profit

Gross profit decreased 51.6% to $40.0 million from $82.5 million in the third quarter of 2008. Gross margin was 22.8% for the quarter ended September 30, 2009 as compared to 29.6% for the quarter ended September 30, 2008. The lower gross margin in the current quarter is primarily due to lower rental gross margins and the sale of the Yale lift truck assets.

On a segment basis, gross margin on rentals decreased to 30.6% from 50.3% in the third quarter of 2008 due to declines in rental rates and lower time utilization combined with an increase in rental and depreciation expense as a percentage of revenues. On average, rental rates declined 19.1% as compared to the third quarter of 2008 and 3.4% as compared to the second quarter of 2009. Time utilization was 54.3% in the third quarter of 2009 as compared to 67.4% a year ago and 55.3% in the second quarter of 2009.

Gross margins on new equipment sales were 10.5%, which were down from 13.4% in comparison to the third quarter a year ago largely due to lower margins on new crane sales. Gross margins on used equipment sales decreased to 17.2% from 23.3% a year ago. Gross margins on used equipment sales were lower principally due to the sale of approximately $13.4 million of Yale used lift trucks. Gross margin on parts sales decreased to 26.5% from 29.5% last year due to the mix of parts sold, including the sale of approximately $1.1 million of Yale parts. Gross margin on service revenues decreased to 62.9% from 64.0% in the third quarter of 2008 due to revenue mix. The impact of mix on service gross margins was partially offset by the recognition of deferred service revenue associated with terminated maintenance contracts on the Yale rental fleet assets sold.

Rental Fleet

At the end of the third quarter of 2009, the original acquisition cost of the Company's rental fleet was $694.1 million, down $112.2 million from $806.3 million at the end of the third quarter of 2008. Dollar utilization was 25.5% compared to 38.8% for the third quarter of 2008. Dollar returns decreased reflecting lower year-over-year average rental rates and lower time utilization as discussed above.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2009 were $35.1 million compared with $45.6 million last year, a $10.5 million, or 23.0% decrease. The decrease was primarily attributable to lower salaries and wages and other related employee expenses as a result of workforce reductions since the beginning of 2009 combined with lower incentive compensation that resulted from lower revenues. For the third quarter of 2009, SG&A expenses increased as a percentage of total revenues to 20.0% as compared with 16.3% last year.

Income from Operations

Income from operations for the third quarter of 2009 decreased 86.0% to $5.2 million, or an operating margin of 3.0%, compared with $37.2 million, or an operating margin of 13.3%, a year ago.

Interest Expense

Interest expense for the third quarter of 2009 decreased $1.7 million to $7.8 million from $9.5 million primarily due to a decrease in average borrowings on the Company's senior secured credit facility and lower floor plan payables.

Net Income (Loss)

Net loss was $2.3 million, or ($0.07) per diluted share, compared to $17.6 million, or $0.50 per diluted share in the third quarter of 2008.

EBITDA

EBITDA for the third quarter of 2009 decreased $37.9 million to $29.3 million from $67.2 million in the third quarter of 2008. EBITDA as a percentage of revenues was 16.7% compared with 24.1% in the third quarter of 2008.

Non-GAAP Financial Measures

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

Conference Call

The Company's management will hold a conference call to discuss third quarter results today, November 4, 2009, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 913-312-1510 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 1:00 p.m. (Eastern Time) on November 4, 2009, and will continue to be available through November 12, 2009, by dialing 719-457-0820 and entering confirmation code 4542660.

The live broadcast of the Company's quarterly conference call will be available online at www.he-equipment.com or www.earnings.com on November 4, 2009, 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 63 full-service facilities throughout the West Coast, Intermountain, Southwest, Gulf Coast, Mid-Atlantic and Southeast regions of the United States. The Company is focused on heavy construction and industrial equipment and rents, sells and provides parts and service 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, and 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 service operations.

Forward-Looking Statements

Certain statements in this press release are "forward-looking statements" within the meaning of the federal securities laws. Statements about our beliefs and expectations and statements containing the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend" and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results that 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 activity in the markets where we operate in North America as well as the impact of the current macroeconomic downturn and current conditions of the global credit markets and its effect on construction activity and the economy in general; (2) relationships with new equipment suppliers; (3) increased maintenance and repair costs as we age our fleet and decreases in our equipments' residual value; (4) our indebtedness; (5) the risks associated with the expansion of our business; (6) our possible inability to effectively integrate any businesses we acquire; (7) competitive pressures; (8) compliance with laws and regulations, including those relating to environmental matters; and (9) 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 SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date of this release.

H&E EQUIPMENT SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Amounts in thousands, except per share amounts)

                             Three Months Ended        Nine Months Ended

                             September 30,             September 30,

                             2009         2008         2009         2008

Revenues:

Equipment rentals            $ 45,108     $ 78,181     $ 150,669    $ 224,626

New equipment sales            48,685       97,797       172,010      274,135

Used equipment sales           32,698       39,873       69,254       128,436

Parts sales                    25,786       30,951       78,144       89,112

Service revenues               15,225       18,333       46,164       52,651

Other                          8,126        13,512       25,824       38,097

Total revenues                 175,628      278,647      542,065      807,057

Cost of revenues:

Rental depreciation            21,105       26,362       67,789       78,838

Rental expense                 10,209       12,514       32,441       36,460

New equipment sales            43,549       84,739       150,519      237,449

Used equipment sales           27,069       30,578       56,482       97,960

Parts sales                    18,952       21,809       56,339       62,815

Service revenues               5,646        6,592        17,059       19,016

Other                          9,131        13,556       26,683       38,735

Total cost of revenues         135,661      196,150      407,312      571,273

Gross profit                   39,967       82,497       134,753      235,784

Selling, general, and          35,073       45,556       110,342      138,097
administrative expenses

Gain on sales of property      289          219          472          515
and equipment

Income from operations         5,183        37,160       24,883       98,202

Interest expense               (7,847  )    (9,495  )    (24,039 )    (29,193 )

Other income, net              123          250          518          731

Income (loss) before
provision (benefit) for        (2,541  )    27,915       1,362        69,740
income taxes

Provision (benefit) for        (261    )    10,311       1,201        25,809
income taxes

Net income (loss)            $ (2,280  )  $ 17,604     $ 161        $ 43,931

NET INCOME (LOSS) PER SHARE

Basic - Net income (loss)    $ (0.07   )  $ 0.50       $ -          $ 1.22
per share

Basic - Weighted average
number of common shares        34,625       35,075       34,601       35,912
outstanding

Diluted - Net income (loss)  $ (0.07   )  $ 0.50       $ -          $ 1.22
per share

Diluted - Weighted average
number of common shares        34,625       35,090       34,638       35,918
outstanding

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

                                            September 30,  December 31,

                                            2009           2008

Cash                                        $ 8,699        $ 11,266

Rental equipment, net                         460,459        554,457

Total assets                                  789,955        966,634

Total debt (1)                                257,168        330,584

Total liabilities                             499,049        676,427

Stockholders' equity                          290,906        290,207

Total liabilities and stockholders' equity  $ 789,955      $ 966,634

(1) Total debt consists of the aggregate amounts outstanding on the senior
secured credit facility, senior unsecured notes, capital lease obligation
and notes payable obligations.

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

                                      Three Months Ended    Nine Months Ended

                                      September 30,         September 30,

                                      2009        2008      2009       2008

Net income (loss)                     $ (2,280 )  $ 17,604  $ 161      $ 43,931

Interest expense                        7,847       9,495     24,039     29,193

Provision (benefit) for income taxes    (261   )    10,311    1,201      25,809

Depreciation                            23,804      29,153    76,039     87,167

Amortization of intangibles             148         641       444        2,108

EBITDA                                $ 29,258    $ 67,204  $ 101,884  $ 188,208

    Source: H&E Equipment Services, Inc.

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