H&E Equipment Services (NASDAQ: HEES) reported Q3 EPS of $0.28, $0.03 worse than the analyst estimate of $0.31. Revenue for the quarter came in at $289.3 million versus the consensus estimate of $282.42 million.

THIRD QUARTER 2020 SUMMARY

• Revenues decreased 18.1% to $289.3 million versus $353.0 million a year ago.
• Net income was $10.1 million in the third quarter of 2020 compared to net income of $28.4 million a year ago. The effective income tax rate was 40.9% in the third quarter of 2020 and 26.7% in the third quarter of 2019. The increase in the effective income tax rate was primarily due to unfavorable permanent differences in relation to profit before tax. Excluding the impact of our 2020 first quarter goodwill impairment charge, our effective tax rate in the third quarter would have been 26.2%.
• Adjusted EBITDA decreased 22.5% to $98.8 million in the third quarter of 2020 compared to $127.5 million a year ago, yielding a margin of 34.1% of revenues compared to 36.1% a year ago.
• Total equipment rental revenues for the third quarter of 2020 were $165.8 million, a decrease of $38.3 million, or 18.8%, compared to $204.1 million a year ago. Rental revenues for the third quarter of 2020 were $149.4 million, a decrease of approximately $35.4 million, or 19.1%, compared to $184.8 million in the third quarter of 2019.
• New equipment sales decreased 42.7% to $37.2 million in the third quarter of 2020 compared to $65.0 million a year ago.
• Used equipment sales increased 28.3% to $40.0 million in the third quarter of 2020 compared to $31.2 million a year ago.
• Gross margin was 34.2% compared to 37.4% a year ago. The decrease in gross margin was largely the result of lower rental gross margins.
• Total equipment rental gross margins were 39.4% in the third quarter of 2020 compared to 46.3% a year ago. Rental gross margins were 44.0% in the third quarter of 2020 compared to 50.8% last year. The decrease was primarily due to lower time utilization and rates.
• Average time utilization (based on original equipment cost) was 63.8% compared to 71.4% a year ago. The size of the Company’s rental fleet based on original acquisition cost decreased 7.8% from a year ago, to $1.8 billion.
• Average rental rates decreased 4.0% compared to a year ago and declined 0.4% sequentially, based on ARA guidelines.
• Dollar utilization was 32.4% in the third quarter of 2020 compared to 37.5% a year ago.
• Average rental fleet age at September 30, 2020, was 40.0 months compared to an industry average age of 50.7 months.

Brad Barber, H&E Equipment Services, Inc.’s chief executive officer and president, said, “We are encouraged that demand in our end-user rental markets accelerated during the third quarter. As a result of increased project activity and our focus on operating execution, physical utilization was 63.8% for the third quarter. This improvement represented a 430 basis point increase from the second quarter.”

Barber added, “While we are seeing meaningful improvements in our rental business, our financial results remain below year-ago levels. Total revenues were down 18.1%, or $63.7 million, compared to a year ago. This was largely the result of an 18.8%, or $38.3 million, decline in total rental revenue and a 42.7%, or $27.8 million, decline in new equipment sales from a year ago. Adjusted EBITDA declined 22.5%, or $28.7 million, from a year ago, and margins decreased 200 basis points to 34.1%. However, our ongoing actions to reduce capital expenditures and operating costs resulted in significant free cash flow for the quarter. We have also continued to improve our leverage and liquidity.”

Barber concluded, “The current environment could further increase the secular shift toward renting equipment versus owning, creating greater opportunities for us to increase market share. Based on our improving visibility, we plan to accelerate our growth strategy. This includes significantly increasing the number of warm starts next year. We remain focused on pursuing acquisition opportunities in both the general rental and specialty rental businesses.”

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