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H&E Equipment Services Reports Second Quarter 2019 Results

July 25, 2019 7:00 AM

BATON ROUGE, La.--(BUSINESS WIRE)-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the second quarter ended June 30, 2019.

SECOND QUARTER 2019 SUMMARY

____________

(1) For a reconciliation of adjustments to prior year data and historical presentations, see page 7.

Brad Barber, H&E Equipment Services’ chief executive officer and president, said, “We believe our performance is consistent with the ongoing strength in the non-residential construction markets. Our customers remain optimistic with solid visibility into their project pipelines for the remainder of this year and into 2020. As a result of strong demand during the second quarter, combined with solid operational execution, we achieved a 2.2% improvement in rates compared to a year ago and high physical utilization of 71.2%. Rental revenues increased 20.9% from the second quarter of 2018.”

Barber concluded, “Our outlook remains positive as we continue to see broad-based demand across our entire footprint encompassing all product types. The Gulf Coast remains strong and a new wave of large projects are being announced as anticipated. We believe the secular shift toward equipment rentals will continue. We remain focused on improving all areas of our business with an emphasis on growth in rental. We plan to execute this growth through same-store market share improvement, acquisitions and warm-start branch openings.”

FINANCIAL DISCUSSION FOR SECOND QUARTER 2019:

Revenue

Total revenues increased 7.5% to $333.6 million in the second quarter of 2019 from $310.4 million in the second quarter of 2018. Total equipment rental revenues increased 20.6% to $192.3 million compared to $159.5 million in the second quarter of 2018 (as adjusted).(1) Rental revenues (as previously reported) increased 20.9% to $173.8 million compared to $143.8 million in the second quarter of 2018.(1) New equipment sales were $53.6 million compared to $68.5 million a year ago. Used equipment sales increased 12.4% to $36.1 million compared to $32.1 million a year ago. Parts sales increased 5.3% to $31.9 million from $30.3 million in the second quarter of 2018. Service revenues were $16.7 million compared to $16.8 million a year ago.

Gross Profit

Gross profit increased 15.4% to $124.8 million from $108.1 million in the second quarter of 2018. Gross margin was 37.4% for the quarter ended June 30, 2019, as compared to 34.8% for the quarter ended June 30, 2018. On a segment basis, gross margin on total equipment rentals was 44.7% in both the second quarter of 2019 and the second quarter of 2018 (as adjusted).(1) Rental margins (as previously reported) were 49.1% in both periods.(1) On average, rental rates were 2.2% higher than rates in the second quarter of 2018. Time utilization (based on original equipment cost) was 71.2% in the second quarter of 2019 compared to 72.0% a year ago.

Gross margins on new equipment sales were 12.2% in the second quarter compared to 10.7% a year ago. Gross margins on used equipment sales increased to 35.4% from 32.3% a year ago. Gross margins on parts sales were 26.9% in the second quarter of 2019 compared to 27.6% a year ago. Gross margins on service revenues increased to 68.0% for the second quarter of 2019 compared to 65.7% in the second quarter of 2018.

Rental Fleet

At the end of the second quarter of 2019, the original acquisition cost of the Company’s rental fleet was $1.9 billion, an increase of $260.3 million from the end of the second quarter of 2018. Dollar utilization for the second quarter of 2019 was 36.5% compared to 35.4% for the second quarter of 2018.

___________

(1) For a reconciliation of adjustments to prior year data and historical presentations, see page 7.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2019 were $77.8 million compared with $69.0 million the prior year, an $8.8 million, or 12.7%, increase. SG&A expenses in the second quarter of 2019 as a percentage of total revenues were 23.3% compared to 22.3% a year ago. Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses increased $4.8 million, primarily as a result of our acquisition since June 30, 2018, and a larger workforce and higher incentive compensation related to increased profitability. Facility related expenses, primarily rent expense, increased $1.9 million. Depreciation and amortization increased $0.5 million. Expenses related to Greenfield branch expansions increased $0.8 million compared to a year ago.

Income from Operations

Income from operations for the second quarter of 2019 increased 10.6% to $47.7 million, or 14.3% of revenues, compared to $43.1 million, or 13.9% of revenues, a year ago.

Interest Expense

Interest expense was $17.3 million for the second quarter of 2019 compared to $15.7 million a year ago.

Net Income

Net income was $22.6 million, or $0.63 per diluted share, in the second quarter of 2019 compared to net income of $20.8 million, or $0.58 per diluted share, in the second quarter of 2018. The effective income tax rate was 26.8% in the second quarter of 2019 and 25.5% in the second quarter of 2018.

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2019 increased 16.0% to $118.0 million compared to $101.8 million in the second quarter of 2018. Adjusted EBITDA as a percentage of revenues was 35.4% compared with 32.8% in the second quarter of 2018.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA and recasting of certain revenue and cost of revenue numbers detailed below). 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.

Conference Call

The Company’s management will hold a conference call to discuss second quarter 2019 results today, July 25, 2019 at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 323-794-2598 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 25, 2019, and will continue through August 3, 2019, by dialing 719-457-0820 and entering the confirmation code 9872990.

The live broadcast of H&E Equipment Services’ quarterly conference call will be available online at www.he-equipment.com on July 25, 2019, 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 96 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, rentals, 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, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; 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,

June 30,

June 30,

2019

2018

2019

2018

Revenues:

Equipment rentals

$

192,302

$

152,714

$

368,431

$

289,752

New equipment sales

53,596

68,539

112,699

115,032

Used equipment sales

36,128

32,140

65,762

56,993

Parts sales

31,871

30,281

62,299

58,432

Service revenues

16,725

16,788

32,293

31,824

Other

2,975

9,902

5,751

18,813

Total revenues

333,597

310,364

647,235

570,846

Cost of revenues:

Equipment rentals

Rental depreciation

61,434

51,171

118,582

97,640

Rental expense

27,019

22,073

51,787

43,345

Rental other

17,847

13,530

34,122

25,630

106,300

86,774

204,491

166,615

New equipment sales

47,064

61,226

99,163

102,071

Used equipment sales

23,321

21,772

42,333

38,709

Parts sales

23,290

21,931

45,579

42,548

Service revenues

5,359

5,752

10,363

10,802

Other

3,482

4,806

6,825

9,413

Total cost of revenues

208,816

202,261

408,754

370,158

Gross Profit

124,781

108,103

238,481

200,688

Selling, general, and administrative expenses

77,840

69,046

156,487

134,926

Merger Costs

148

68

267

220

Gain on sales of property and equipment, net

880

4,114

1,621

4,887

Income from Operations

47,673

43,103

83,348

70,429

Interest expense

(17,267

)

(15,693

)

(34,122

)

(30,346

)

Other income, net

489

459

1,021

854

Income before provision for income taxes

30,895

27,869

50,247

40,937

Provision for income taxes

8,281

7,098

13,390

10,688

Net income

$

22,614

$

20,771

$

36,857

$

30,249

NET INCOME PER SHARE:

Basic – Net income per share

$

0.63

$

0.58

$

1.03

$

0.85

Basic – Weighted average number of common shares outstanding

35,826

35,634

35,807

35,613

Diluted – Net income per share

$

0.63

$

0.58

$

1.02

$

0.84

Diluted – Weighted average number of common shares outstanding

36,016

35,906

35,994

35,893

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,

2019

2018

Cash

$

6,701

$

16,677

Rental equipment, net

1,244,499

1,141,498

Total assets

2,060,247

1,727,181

Total debt (1)

1,233,378

1,121,487

Total liabilities

1,784,656

1,470,378

Stockholders’ equity

275,591

256,803

Total liabilities and stockholders’ equity

$

2,060,247

$

1,727,181

(1

)

Total debt consists of the aggregate amounts on the senior secured credit facility, senior unsecured notes and finance or capital lease obligations.

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Net Income

$

22,614

$

20,771

$

36,857

$

30,249

Interest Expense

17,267

15,693

34,122

30,346

Provision for income taxes

8,281

7,098

13,390

10,688

Depreciation

68,622

57,372

132,290

109,725

Amortization of intangibles

1,097

780

2,049

1,485

EBITDA

$

117,881

$

101,714

$

218,708

$

182,493

Merger costs

148

68

267

220

Adjusted EBITDA

$

118,029

$

101,782

$

218,975

$

182,713

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

Quarter Ended 6/30/18(1)

Quarter
Ended
6/30/19

As
Previously
Reported

Hauling
Fees(a)

As Currently
Reported

Other
Rental
Fees(b)

As Adjusted

As Currently
Reported

REVENUES

Equipment rentals(2)

Rentals

$

143,829

$

-

$

143,829

$

-

$

143,829

$

173,837

Rentals other

-

8,885

8,885

6,788

15,673

18,465

Total equipment rentals

143,829

8,885

152,714

6,788

159,502

192,302

New equipment sales

68,539

-

68,539

-

68,539

53,596

Used equipment sales

32,140

-

32,140

-

32,140

36,128

Parts sales

30,281

-

30,281

-

30,281

31,871

Services revenues

16,788

-

16,788

-

16,788

16,725

Other

18,787

(8,885

)

9,902

(6,788

)

3,114

2,975

Total revenues

310,364

-

310,364

-

310,364

333,597

COST OF REVENUES

Rental depreciation

51,171

-

51,171

-

51,171

61,434

Rental expense

22,073

-

22,073

-

22,073

27,019

Rental other

-

13,530

13,530

1,402

14,932

17,847

73,244

13,530

86,774

1,402

88,176

106,300

New equipment sales

61,226

-

61,226

-

61,226

47,064

Used equipment sales

21,772

-

21,772

-

21,772

23,321

Parts sales

21,931

-

21,931

-

21,931

23,290

Services revenues

5,752

-

5,752

-

5,752

5,359

Other

18,336

(13,530

)

4,806

(1,402

)

3,404

3,482

Total cost of revenues

202,261

-

202,261

-

202,261

208,816

GROSS PROFIT

Equipment rentals

Rentals

70,585

-

70,585

-

70,585

85,384

Rentals other

-

(4,645

)

(4,645

)

5,386

741

618

70,585

(4,645

)

65,940

5,386

71,326

86,002

New equipment sales

7,313

-

7,313

-

7,313

6,532

Used equipment sales

10,368

-

10,368

-

10,368

12,807

Parts sales

8,350

-

8,350

-

8,350

8,581

Services revenues

11,036

-

11,036

-

11,036

11,366

Other

451

4,645

5,096

(5,386

)

(290

)

(507

)

Total gross profit

$

108,103

$

-

$

108,103

$

-

$

108,103

$

124,781

GROSS MARGIN

Equipment rentals

Rentals

49.1

%

-

49.1

%

-

49.1

%

49.1

%

Rentals other

-

-52.3

%

-52.3

%

79.3

%

4.7

%

3.3

%

49.1

%

-52.3

%

43.2

%

79.3

%

44.7

%

44.7

%

New equipment sales

10.7

%

-

10.7

%

-

10.7

%

12.2

%

Used equipment sales

32.3

%

-

32.3

%

-

32.3

%

35.4

%

Parts sales

27.6

%

-

27.6

%

-

27.6

%

26.9

%

Services revenues

65.7

%

-

65.7

%

-

65.7

%

68.0

%

Other

2.4

%

52.3

%

51.5

%

-79.3

%

-9.3

%

-17.0

%

Total gross margin

34.8

%

-

34.8

%

-

34.8

%

37.4

%

(1)

(a) We have recast the prior year period information to conform to the current year presentation of hauling fees and related cost of revenues included within Equipment Rentals rather than included within Other Revenues as previously reported.

(b) Upon our adoption of the new lease accounting guidance (ASC 842), certain ancillary fees associated with our equipment rental activities, such as damage waiver income, environmental fees and fuel and other recovery fees, are properly included within our Rental Revenue segment rather than Other Revenues as previously reported. Because we elected to not recast prior periods upon ASC 842 adoption, the table above recasts these amounts on an “As Adjusted” basis to conform to the current year presentation.

(2)

Pursuant to SEC Regulation S-X, our equipment rental revenues are aggregated and presented in our unaudited consolidated statements of income in this press release as a single line item, “Equipment Rentals”. The above table disaggregates our equipment rental revenues for discussion and analysis purposes only.

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

Six Months Ended 6/30/18(1)

Six Months
Ended
6/30/19

As
Previously
Reported

Hauling
Fees(a)

As Currently
Reported

Other
Rental
Fees(b)

As Adjusted

As Currently
Reported

REVENUES

Equipment rentals(2)

Rentals

$

273,190

$

-

$

273,190

$

-

$

273,190

$

333,497

Rentals other

-

16,562

16,562

13,055

29,617

34,934

Total equipment rentals

273,190

16,562

289,752

13,055

302,807

368,431

New equipment sales

115,032

-

115,032

-

115,032

112,699

Used equipment sales

56,993

-

56,993

-

56,993

65,762

Parts sales

58,432

-

58,432

-

58,432

62,299

Services revenues

31,824

-

31,824

-

31,824

32,293

Other

35,375

(16,562

)

18,813

(13,055

)

5,758

5,751

Total revenues

570,846

-

570,846

-

570,846

647,235

COST OF REVENUES

Rental depreciation

97,640

-

97,640

-

97,640

118,582

Rental expense

43,345

-

43,345

-

43,345

51,787

Rental other

-

25,630

25,630

2,967

28,597

34,122

140,985

25,630

166,615

2,967

169,582

204,491

New equipment sales

102,071

-

102,071

-

102,071

99,163

Used equipment sales

38,709

-

38,709

-

38,709

42,333

Parts sales

42,548

-

42,548

-

42,548

45,579

Services revenues

10,802

-

10,802

-

10,802

10,363

Other

35,043

(25,630

)

9,413

(2,967

)

6,446

6,825

Total cost of revenues

370,158

-

370,158

-

370,158

408,754

GROSS PROFIT

Equipment rentals

Rentals

132,205

-

132,205

-

132,205

163,128

Rentals other

-

(9,068

)

(9,068

)

10,088

1,020

812

132,205

(9,068

)

123,137

10,088

133,225

163,940

New equipment sales

12,961

-

12,961

-

12,961

13,536

Used equipment sales

18,284

-

18,284

-

18,284

23,429

Parts sales

15,884

-

15,884

-

15,884

16,720

Services revenues

21,022

-

21,022

-

21,022

21,930

Other

332

9,068

9,400

(10,088

)

(688

)

(1,074

)

Total gross profit

$

200,688

$

-

$

200,688

$

-

$

200,688

$

238,481

GROSS MARGIN

Equipment rentals

Rentals

48.4

%

-

48.4

%

-

48.4

%

48.9

%

Rentals other

-

-54.8

%

-54.8

%

77.3

%

3.4

%

2.3

%

48.4

%

-54.8

%

42.5

%

77.3

%

44.0

%

44.5

%

New equipment sales

11.3

%

-

11.3

%

-

11.3

%

12.0

%

Used equipment sales

32.1

%

-

32.1

%

-

32.1

%

35.6

%

Parts sales

27.2

%

-

27.2

%

-

27.2

%

26.8

%

Services revenues

66.1

%

-

66.1

%

-

66.1

%

67.9

%

Other

0.9

%

54.8

%

50.0

%

-77.3

%

-11.9

%

-18.7

%

Total gross margin

35.2

%

-

35.2

%

-

35.2

%

36.8

%

(1)

(a) We have recast the prior year period information to conform to the current year presentation of hauling fees and related cost of revenues included within Equipment Rentals rather than included within Other Revenues as previously reported.

(b) Upon our adoption of the new lease accounting guidance (ASC 842), certain ancillary fees associated with our equipment rental activities, such as damage waiver income, environmental fees and fuel and other recovery fees, are properly included within our Rental Revenue segment rather than Other Revenues as previously reported. Because we elected to not recast prior periods upon ASC 842 adoption, the table above recasts these amounts on an “As Adjusted” basis to conform to the current year presentation.

(2)

Pursuant to SEC Regulation S-X, our equipment rental revenues are aggregated and presented in our unaudited consolidated statements of income in this press release as a single line item, “Equipment Rentals”. The above table disaggregates our equipment rental revenues for discussion and analysis purposes only.

Leslie S. Magee

Chief Financial Officer

225-298-5261

[email protected]

Kevin S. Inda

Vice President of Investor Relations

225-298-5318

[email protected]

Source: H&E Equipment Services, Inc.

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