H&E Equipment Services Reports Third Quarter 2019 Results

BATON ROUGE, La.--(BUSINESS WIRE)--Oct. 24, 2019-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the third quarter ended September 30, 2019.

THIRD QUARTER 2019 SUMMARY

Revenues increased 9.6% to $353.0 million versus $322.1 million a year ago.
Net income increased 33.4% to $28.4 million in the third quarter compared to net income of $21.3 million a year ago. The effective income tax rate was 26.7% in the third quarter of 2019 and 26.4% in the third quarter of 2018.
Adjusted EBITDA increased 17.9% to $127.5 million in the third quarter compared to $108.2 million a year ago, yielding a margin of 36.1% of revenues compared to 33.6% a year ago.
Total equipment rental revenues for the third quarter of 2019 were $204.1 million, an increase of $31.4 million, or 18.2%, compared to $172.8 million a year ago (as adjusted).⁽¹⁾ Rental revenues (as previously reported) for the third quarter of 2019 were $184.8 million, an increase of $28.8 million, or 18.4%, compared to $156.0 million in the third quarter of 2018.⁽¹⁾
New equipment sales decreased 4.7% to $65.0 million in the third quarter compared to $68.2 million a year ago.
Used equipment sales increased 2.9% to $31.2 million in the third quarter compared to $30.3 million a year ago.
Gross margin was 37.4% compared to 35.6% a year ago. The increase in gross margin was largely the result of a shift in revenue mix to rentals and higher equipment rental gross margins.
Total equipment rental gross margins were 46.3% in the third quarter of 2019 compared to 45.2% in the third quarter of 2018 (as adjusted).⁽¹⁾ Rental gross margins (as previously reported) were 50.8% in the third quarter of 2019 compared to 50.0% a year ago.⁽¹⁾
Average time utilization (based on original equipment cost) was 71.4% compared to 71.0% a year ago. The size of the Company’s rental fleet based on original acquisition cost increased 12.3% from a year ago, to $2.0 billion.

_____________________

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

Average rental rates increased 2.4% compared to a year ago and 1.0% sequentially.
Dollar utilization was 37.5% in the third quarter compared to 35.9% a year ago.
Average rental fleet age at September 30, 2019, was 34.9 months compared to an industry average age of 45.6 months.

Brad Barber, H&E Equipment Services’ chief executive officer and president, said, “Our third quarter results were solid as we continued to experience broad-based demand for rental equipment throughout our end-user construction markets. We achieved a 2.4% improvement in rates compared to a year ago and physical utilization increased 40 basis points to 71.4%, which helped drive an 18.4% increase in rental revenues.”

Barber concluded, “We are pleased with our year-to-date performance and ability to capitalize on the ongoing strength and opportunities in the well-diversified construction markets we serve throughout our 23-state footprint. Increasing the scale of our rental business continues to be a strategic priority for our business. We expect to achieve this goal through organic growth, acquisitions and warm-start store openings. Based on our current performance, solid level of project activity and our customers’ feedback, our market outlook remains positive.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2019:

Revenue

Total revenues increased 9.6% to $353.0 million in the third quarter of 2019 from $322.1 million in the third quarter of 2018. Total equipment rental revenues increased 18.2% to $204.1 million compared to $172.8 million in the third quarter of 2018 (as adjusted).⁽¹⁾ Rental revenues (as previously reported) increased 18.4% to $184.8 million compared to $156.0 million in the third quarter of 2018.⁽¹⁾ New equipment sales were $65.0 million compared to $68.2 million a year ago. Used equipment sales increased 2.9% to $31.2 million compared to $30.3 million a year ago. Parts sales were $31.5 million, the same as the year ago period. Service revenues increased 10.2% to $18.1 million compared to $16.4 million a year ago.

Gross Profit

Gross profit increased 15.2% to $132.1 million from $114.7 million in the third quarter of 2018. Gross margin was 37.4% for the quarter ended September 30, 2019, as compared to 35.6% for the quarter ended September 30, 2018. On a segment basis, gross margin on total equipment rentals was 46.3% in the third quarter of 2019 compared to 45.2% in the third quarter of 2018 (as adjusted).⁽¹⁾ Rental margins (as previously reported) were 50.8% in the third quarter of 2019 compared to 50.0% a year ago.⁽¹⁾ On average, rental rates were 2.4% higher than rates in the third quarter of 2018. Time utilization (based on original equipment cost) was 71.4% in the third quarter of 2019 compared to 71.0% a year ago.

Gross margins on new equipment sales were 11.6% in the third quarter compared to 11.5% a year ago. Gross margins on used equipment sales were 31.3% compared to 32.3% a year ago. Gross margins on parts sales were 26.4% in the third quarter of 2019 compared to 26.5% a year ago. Gross margins on service revenues increased to 67.4% for the third quarter of 2019 compared to 65.7% in the third quarter of 2018.

Rental Fleet

At the end of the third quarter of 2019, the original acquisition cost of the Company’s rental fleet was $2.0 billion, an increase of $216.2 million from the end of the third quarter of 2018. Dollar utilization for the third quarter of 2019 was 37.5% compared to 35.9% for the third 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 third quarter of 2019 were $77.3 million compared with $70.3 million the prior year, a $7.0 million, or 9.9%, increase. SG&A expenses in the third quarter of 2019 as a percentage of total revenues were 21.9% compared to 21.8% a year ago. Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses increased $3.1 million, primarily as a result of our acquisition since September 30, 2018, and a larger workforce and higher incentive compensation related to increased profitability. Facility related expenses, primarily rent expense, increased $1.0 million. Insurance expense increased $0.7 million and depreciation and amortization increased $0.6 million. Expenses related to Greenfield branch expansions increased $0.8 million compared to a year ago.

Income from Operations

Income from operations for the third quarter of 2019 increased 22.5% to $55.5 million, or 15.7% of revenues, compared to $45.3 million, or 14.1% of revenues, a year ago.

Interest Expense

Interest expense was $17.3 million for the third quarter of 2019 compared to $16.7 million a year ago.

Net Income

Net income was $28.4 million, or $0.79 per diluted share, in the third quarter of 2019 compared to net income of $21.3 million, or $0.59 per diluted share, in the third quarter of 2018. The effective income tax rate was 26.7% in the third quarter of 2019 and 26.4% in the third quarter of 2018.

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2019 increased 17.9% to $127.5 million compared to $108.2 million in the third quarter of 2018. Adjusted EBITDA as a percentage of revenues was 36.1% compared with 33.6% in the third 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 third quarter 2019 results today, October 24, 2019 at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 323-794-2575 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 1:00 p.m. (Eastern Time) on October 24, 2019, and will continue through November 2, 2019, by dialing 719-457-0820 and entering the confirmation code 8854109.

The live broadcast of H&E Equipment Services’ quarterly conference call will be available online at www.he-equipment.com on October 24, 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						Nine Months Ended
	Sept. 30,			Sept. 30,			Sept. 30,			Sept. 30,
	2019			2018			2019			2018
Revenues:
Equipment rentals	$	204,132		$	165,415		$	572,563		$	455,167
New equipment sales		65,010			68,233			177,709			183,265
Used equipment sales		31,180			30,294			96,942			87,287
Parts sales		31,499			31,484			93,798			89,916
Service revenues		18,105			16,426			50,398			48,250
Other		3,071			10,289			8,822			29,102
Total revenues		352,997			322,141			1,000,232			892,987

Cost of revenues:
Equipment rentals
Rental depreciation		63,065			55,060			181,647			152,700
Rental expense		27,889			22,936			79,676			66,281
Rental other		18,620			15,007			52,742			40,637
		109,574			93,003			314,065			259,618
New equipment sales		57,475			60,394			156,638			162,465
Used equipment sales		21,409			20,512			63,742			59,221
Parts sales		23,171			23,129			68,750			65,677
Service revenues		5,898			5,628			16,261			16,430
Other		3,342			4,745			10,167			14,158
Total cost of revenues		220,869			207,411			629,623			577,569

Gross Profit		132,128			114,730			370,609			315,418

Selling, general, and administrative expenses		77,296			70,346			233,783			205,272
Merger costs		47			219			314			439
Gain on sales of property and equipment, net		718			1,153			2,339			6,040

Income from Operations		55,503			45,318			138,851			115,747

Interest expense		(17,331	)		(16,715	)		(51,453	)		(47,061	)
Other income, net		588			368			1,609			1,222
Income before provision for income taxes		38,760			28,971			89,007			69,908

Provision for income taxes		10,329			7,657			23,719			18,345

Net income	$	28,431		$	21,314		$	65,288		$	51,563

NET INCOME PER SHARE:
Basic – Net income per share	$	0.79		$	0.60		$	1.82		$	1.45
Basic – Weighted average number of common shares outstanding		35,893			35,719			35,835			35,649
Diluted – Net income per share	$	0.79		$	0.59		$	1.81		$	1.44
Diluted – Weighted average number of common shares outstanding		36,046			35,926			36,012			35,904
Dividends declared per common share		0.275		$	0.275		$	0.825		$	0.825

H&E EQUIPMENT SERVICES, INC.
SELECTED BALANCE SHEET DATA (unaudited)
(Amounts in thousands)

	September 30,		December 31,
	2019		2018
Cash	$	10,596	$	16,677
Rental equipment, net		1,262,663		1,141,498
Total assets		2,068,835		1,727,181
Total debt ⁽¹⁾		1,254,741		1,121,487
Total liabilities		1,774,917		1,470,378
Stockholders’ equity		293,918		256,803
Total liabilities and stockholders’ equity	$	2,068,835	$	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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018


Net Income	$	28,431	$	21,314	$	65,288	$	51,563
Interest Expense		17,331		16,715		51,453		47,061
Provision for income taxes		10,329		7,657		23,719		18,345
Depreciation		70,320		61,342		202,610		171,067
Amortization of intangibles		1,042		930		3,091		2,415

EBITDA	$	127,453	$	107,958	$	346,161	$	290,451

Merger costs		47		219		314		439

Adjusted EBITDA	$	127,500	$	108,177	$	346,475	$	290,890

H&E EQUIPMENT SERVICES, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands)
	Quarter Ended 9/30/18⁽¹⁾															Quarter Ended 9/30/19
	As Previously Reported			Hauling Fees^(a)			As Currently Reported			Other Rental Fees^(b)			As Adjusted			As Currently Reported
REVENUES
Equipment rentals⁽²⁾
Rentals	$	156,037		$	-		$	156,037		$	-		$	156,037		$	184,797
Rentals other		-			9,378			9,378			7,356			16,734			19,335
Total equipment rentals		156,037			9,378			165,415			7,356			172,771			204,132
New equipment sales		68,233			-			68,233			-			68,233			65,010
Used equipment sales		30,294			-			30,294			-			30,294			31,180
Parts sales		31,484			-			31,484			-			31,484			31,499
Services revenues		16,426			-			16,426			-			16,426			18,105
Other		19,667			(9,378	)		10,289			(7,356	)		2,933			3,071
Total revenues		322,141			-			322,141			-			322,141			352,997

COST OF REVENUES
Rental depreciation		55,060			-			55,060			-			55,060			63,065
Rental expense		22,936			-			22,936			-			22,936			27,889
Rental other		-			15,007			15,007			1,673			16,680			18,620
		77,996			15,007			93,003			1,673			94,676			109,574
New equipment sales		60,394			-			60,394			-			60,394			57,475
Used equipment sales		20,512			-			20,512			-			20,512			21,409
Parts sales		23,129			-			23,129			-			23,129			23,171
Services revenues		5,628			-			5,628			-			5,628			5,898
Other		19,752			(15,007	)		4,745			(1,673	)		3,072			3,342
Total cost of revenues		207,411			-			207,411			-			207,411			220,869

GROSS PROFIT
Equipment rentals
Rentals		78,041			-			78,041			-			78,041			93,843
Rentals other		-			(5,629	)		(5,629	)		5,683			54			715
		78,041			(5,629	)		72,412			5,683			78,095			94,558
New equipment sales		7,839			-			7,839			-			7,839			7,535
Used equipment sales		9,782			-			9,782			-			9,782			9,771
Parts sales		8,355			-			8,355			-			8,355			8,328
Services revenues		10,798			-			10,798			-			10,798			12,207
Other		(85	)		5,629			5,544			(5,683	)		(139	)		(271	)
Total gross profit	$	114,730		$	-		$	114,730		$	-		$	114,730		$	132,128

GROSS MARGIN
Equipment rentals
Rentals		50.0	%		-			50.0	%		-			50.0	%		50.8	%
Rentals other		-			-60.0	%		-60.0	%		77.3	%		0.3	%		3.7	%
		50.0	%		-60.0	%		43.8	%		77.3	%		45.2	%		46.3	%
New equipment sales		11.5	%		-			11.5	%		-			11.5	%		11.6	%
Used equipment sales		32.3	%		-			32.3	%		-			32.3	%		31.3	%
Parts sales		26.5	%		-			26.5	%		-			26.5	%		26.4	%
Services revenues		65.7	%		-			65.7	%		-			65.7	%		67.4	%
Other		-0.4	%		60.0	%		53.9	%		-77.3	%		-4.7	%		-8.8	%
Total gross margin		35.6	%		-			35.6	%		-			35.6	%		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)
	Nine Months Ended 9/30/18⁽¹⁾															Nine Months Ended 9/30/19
	As Previously Reported			Hauling Fees^(a)			As Currently Reported			Other Rental Fees^(b)			As Adjusted			As Currently Reported
REVENUES
Equipment rentals⁽²⁾
Rentals	$	429,227		$	-		$	429,227		$	-		$	429,227		$	518,294
Rentals other		-			25,940			25,940			20,411			46,351			54,269
Total equipment rentals		429,227			25,940			455,167			20,411			475,578			572,563
New equipment sales		183,265			-			183,265			-			183,265			177,709
Used equipment sales		87,287			-			87,287			-			87,287			96,942
Parts sales		89,916			-			89,916			-			89,916			93,798
Services revenues		48,250			-			48,250			-			48,250			50,398
Other		55,042			(25,940	)		29,102			(20,411	)		8,691			8,822
Total revenues		892,987			-			892,987			-			892,987			1,000,232

COST OF REVENUES
Rental depreciation		152,700			-			152,700			-			152,700			181,647
Rental expense		66,281			-			66,281			-			66,281			79,676
Rental other		-			40,637			40,637			4,640			45,277			52,742
		218,981			40,637			259,618			4,640			264,258			314,065
New equipment sales		162,465			-			162,465			-			162,465			156,638
Used equipment sales		59,221			-			59,221			-			59,221			63,742
Parts sales		65,677			-			65,677			-			65,677			68,750
Services revenues		16,430			-			16,430			-			16,430			16,261
Other		54,795			(40,637	)		14,158			(4,640	)		9,518			10,167
Total cost of revenues		577,569			-			577,569			-			577,569			629,623

GROSS PROFIT
Equipment rentals
Rentals		210,246			-			210,246			-			210,246			256,971
Rentals other		-			(14,697	)		(14,697	)		15,771			1,074			1,527
		210,246			(14,697	)		195,549			15,771			211,320			258,498
New equipment sales		20,800			-			20,800			-			20,800			21,071
Used equipment sales		28,066			-			28,066			-			28,066			33,200
Parts sales		24,239			-			24,239			-			24,239			25,048
Services revenues		31,820			-			31,820			-			31,820			34,137
Other		247			14,697			14,944			(15,771	)		(827	)		(1,345	)
Total gross profit	$	315,418		$	-		$	315,418		$	-		$	315,418		$	370,609

GROSS MARGIN
Equipment rentals
Rentals		49.0	%		-			49.0	%		-			49.0	%		49.6	%
Rentals other		-			-56.7	%		-56.7	%		77.3	%		2.3	%		2.8	%
		49.0	%		-56.7	%		43.0	%		77.3	%		44.4	%		45.1	%
New equipment sales		11.3	%		-			11.3	%		-			11.3	%		11.9	%
Used equipment sales		32.2	%		-			32.2	%		-			32.2	%		34.2	%
Parts sales		27.0	%		-			27.0	%		-			27.0	%		26.7	%
Services revenues		65.9	%		-			65.9	%		-			65.9	%		67.7	%
Other		0.4	%		56.7	%		51.4	%		-77.3	%		-9.5	%		-15.2	%
Total gross margin		35.3	%		-			35.3	%		-			35.3	%		37.1	%

⁽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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191024005110/en/

Source: H&E Equipment Services, Inc.

Leslie S. Magee
Chief Financial Officer
225-298-5261
lmagee@he-equipment.com

Kevin S. Inda
Vice President of Investor Relations
225-298-5318
kinda@he-equipment.com