H&E Equipment Services Reports Second Quarter 2019 Results

BATON ROUGE, La.--(BUSINESS WIRE)--Jul. 25, 2019-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the second quarter ended June 30, 2019.

SECOND QUARTER 2019 SUMMARY

Revenues increased 7.5% to $333.6 million versus $310.4 million a year ago.
Net income was $22.6 million in the second quarter compared to net income of $20.8 million a year ago. 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 increased 16.0% to $118.0 million in the second quarter compared to $101.8 million a year ago, yielding a margin of 35.4% of revenues compared to 32.8% a year ago.
Total equipment rental revenues for the second quarter of 2019 were $192.3 million, an increase of $32.8 million, or 20.6%, compared to $159.5 million a year ago (as adjusted).⁽¹⁾ Rental revenues (as previously reported) for the second quarter of 2019 were $173.8 million, an increase of $30.0 million, or 20.9%, compared to $143.8 million in the second quarter of 2018.⁽¹⁾
New equipment sales decreased 21.8% to $53.6 million in the second quarter compared to $68.5 million a year ago.
Used equipment sales increased 12.4% to $36.1 million in the second quarter compared to $32.1 million a year ago.
Gross margin was 37.4% compared to 34.8% a year ago. The increase in gross margin was largely the result of a shift in revenue mix to rentals and the improvement in equipment sales and service gross margins.
Total equipment rental gross margins were 44.7% in the second quarters of 2019 and 2018 (as adjusted).⁽¹⁾ Rental gross margins (as previously reported) were 49.1% in both periods.⁽¹⁾
Average time utilization (based on original equipment cost) was 71.2% compared to 72.0% a year ago. The size of the Company’s rental fleet based on original acquisition cost increased 15.6% from a year ago, to $1.9 billion.
Average rental rates increased 2.2% compared to a year ago and 0.6% sequentially.
Dollar utilization was 36.5% in the second quarter compared to 35.4% a year ago.
Average rental fleet age at June 30, 2019, was 34.6 months compared to an industry average age of 46.0 months.

____________

⁽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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190725005040/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