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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  May 8, 2020

 

H&E Equipment Services, Inc.

(Exact name of registrant as specified in its charter)

 

Commission File Number:  000-51759

 

Delaware		81-0553291
(State or other jurisdiction of		(IRS Employer
incorporation)		Identification No.)

 

7500 Pecue Lane

Baton Rouge, LA 70809

(Address of principal executive offices, including zip code)

 

(225) 298-5200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	HEES	Nasdaq Global Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

 

 

 

 

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Item 2.02    Results of Operations and Financial Condition.

 

On May 8, 2020, we issued a press release announcing our financial results for the three month period ended March 31, 2020. A copy of the press release is attached as Exhibit 99.1.

 

The information in this Form 8-K and the attached exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 8.01    Other Events

 

EBITDA and Adjusted EBITDA are non-GAAP measures as defined under the rules of the SEC. We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA for the periods presented as EBITDA adjusted for the following: (1) merger costs and (2) impairment of goodwill.

 

We use EBITDA and Adjusted EBITDA in our business operations to, among other things, evaluate the performance of our business, develop budgets and measure our performance against those budgets. We also believe that analysts and investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate a company’s overall operating performance. However, EBITDA and Adjusted EBITDA have material limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We consider them useful tools to assist us in evaluating performance because they eliminate items related to components of our capital structure, taxes and non-cash charges. The items that we have eliminated in determining EBITDA for the periods presented are interest expense, income taxes, depreciation of fixed assets (which includes rental equipment and property and equipment) and amortization of intangible assets and, in the case of Adjusted EBITDA, any other non-recurring items described above applicable to the particular period. However, some of these eliminated items are significant to our business. For example, (i) interest expense is a necessary element of our costs and ability to generate revenue because we incur a significant amount of interest expense related to our outstanding indebtedness; (ii) payment of income taxes is a necessary element of our costs; and (iii) depreciation is a necessary element of our costs and ability to generate revenue because rental equipment is the single largest component of our total assets and we recognize a significant amount of depreciation expense over the estimated useful life of this equipment. Any measure that eliminates components of our capital structure and costs associated with carrying significant amounts of fixed assets on our consolidated balance sheet has material limitations as a performance measure. In light of the foregoing limitations, we do not rely solely on EBITDA and Adjusted EBITDA as performance measures and also consider our GAAP results. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and, accordingly, should not be considered alternatives to net income, operating income or any other measures derived in accordance with GAAP. Because EBITDA and Adjusted EBITDA may not be calculated in the same manner by all companies, these measures may not be comparable to other similarly titled measures used by other companies.

 

We use Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share in our business operations to, among other things, analyze our financial performance on a comparative period basis without the effects of significant one-time, non-recurring items. We define Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share for the periods presented as Income (Loss) from Operations, Net Income (Loss) and Net Income (Loss) per Share, respectively, adjusted for the impairment of goodwill. Additionally, we believe Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share provide useful information concerning future profitability. However, Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share are not measurements of our financial performance under GAAP and, accordingly, should not be considered as alternatives to GAAP Income (Loss) from Operations, Net Income (Loss) and Net Income (Loss) per Share. Because Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share may not be calculated in the same manner by all companies, these measures may not be comparable to other similarly titled measures used by other companies.

 

 

 

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Item 9.01    Financial Statements and Exhibits.

 

Exhibit 99.1

Press Release, dated May 8, 2020, announcing financial results for the three month period ended March 31, 2020.

Exhibit 104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: May 8, 2020	By:	/s/ Leslie S. Magee
		Leslie S. Magee
		Chief Financial Officer

 

 

 

  

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Exhibit 99.1

News Release

 

 

 

 

 

Contacts:

 

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

 

H&E Equipment Services Reports First Quarter 2020 Results and Announces Non-Cash Goodwill Impairment Charge

 

BATON ROUGE, Louisiana -- (May 8, 2020) -- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the first quarter ended March 31, 2020, including a $62.0 million non-cash goodwill impairment charge.

 

FIRST QUARTER 2020 SUMMARY

 

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The non-cash goodwill impairment charge of $62.0 million was identified in connection with an interim goodwill impairment test necessitated by our identification of certain impairment triggering events associated with the impact to our business from the COVID-19 pandemic.  The impairment charge will not result in any cash expenditures and will not affect the Company’s cash position, liquidity, availability or covenant test under its senior secured credit facility.

 

Brad Barber, H&E Equipment Services’ chief executive officer and president, said, “Our results for the quarter were impacted by the ongoing rebalancing of supply and demand, seasonality and the COVID-19 outbreak.  Demand in our end-user non-residential and other construction markets in January and February of this year was slightly softer than our expectations, pressuring physical utilization.  Wet weather was an added headwind during the quarter across a large portion of our operating footprint.  In March, weather improved, but the economic realities of COVID-19 began to emerge and additional pressure became evident in our end-user markets.”

 

Barber added, “Consequently, total revenues declined 8.8%, or $27.7 million, from a year ago.  Most of this decline was attributable to a 47.8%, or $28.2 million, decrease in new equipment sales.  Demand for new cranes and earthmoving equipment was down significantly from a year ago as customers began to delay large capital purchases due to the uncertainty surrounding the COVID-19 outbreak.  Despite a 570 basis point decline in physical utilization and pressure on rates, total rental revenue declined 0.9%, or $1.6 million, from a year ago. Adjusted EBITDA declined 1.7% but margins improved by 250 basis points largely due to a shift in revenue mix from a year ago.”

 

Barber continued, “While this year began like many other years, we are now dealing with the unprecedented realities of COVID-19.  We care about our employees, customers and the communities we serve nationwide, so we took quick and strict action based on CDC and WHO recommendations to combat illness in our workforce and to lessen business interruption for our Company and customers.  We have been designated an essential business and our branches remain open to serve our customers. However, the economic impact of COVID-19 has been pervasive across the markets we serve, resulting in project delays and cancellations, which have created significant pressure on rental fleet utilization that has continued into the second quarter.”  

 

Barber concluded, “The ongoing and evolving COVID-19 pandemic and related governmental restrictions, such as stay-at-home orders, present unprecedented challenges for all of us in 2020. We remain focused on managing our business for long-term success and driving value for our stockholders. We have a solid balance sheet and ample liquidity. We are confident in the talent we have at all levels in our Company to see us through the difficulties presented by COVID-19.”

 

FINANCIAL DISCUSSION FOR FIRST QUARTER 2020:

 

Revenue

Total revenues decreased 8.8% to $285.9 million in the first quarter of 2020 from $313.6 million in the first quarter of 2019.  Total equipment rental revenues decreased 0.9% to $174.5 million compared to $176.1 million in the first quarter of 2019. Rental revenues decreased 0.7% to $158.6 million compared with $159.7 million in the first quarter of 2019.  New equipment sales decreased 47.8% to $30.9 million compared to $59.1 million a year ago.  Used equipment sales increased 5.3% to $31.2 million compared to $29.6 million a year ago.  Parts sales were $29.8

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million compared to $30.4 million a year ago.  Service revenues increased 8.1% to $16.8 million compared to $15.6 million a year ago.  

 

Gross Profit

Gross profit decreased 7.2% to $105.5 million from $113.7 million in the first quarter of 2019.  Gross margin was 36.9% for the quarter ended March 31, 2020, as compared to 36.3% for the quarter ended March 31, 2019.  On a segment basis, gross margin on total equipment rentals was 41.3% in the first quarter of 2020 compared to 44.3% in the first quarter of 2019.  Rental margins were 46.1% in the first quarter of 2020 compared to 48.7% last year.  On average, rental rates were 0.4% lower than rates in the first quarter of 2019.  Time utilization (based on original equipment cost) was 64.3% in the first quarter of 2020 compared to 70.0% a year ago.  

 

Gross margins on new equipment sales were 11.2% in the first quarter compared to 11.9% a year ago.  Gross margins on used equipment sales were 34.5% compared to 35.8% a year ago.  Gross margins on parts sales were 26.4% in the first quarter of 2020 compared to 26.8% a year ago.  Gross margins on service revenues were 67.1% for the first quarter of 2020 compared to 67.9% in the first quarter of 2019.  

 

Rental Fleet

At the end of the first quarter of 2020, the original acquisition cost of the Company’s rental fleet was $1.9 billion, a 3.3%, or $61.2 million increase from the end of the first quarter of 2019.  Dollar utilization for the first quarter of 2020 was 33.1% compared to 35.2% for the first quarter of 2019.

 

Selling, General and Administrative Expenses

SG&A expenses for the first quarter of 2020 were $79.6 million compared with $78.6 million the prior year, a $1.0 million, or 1.2%, increase.  SG&A expenses in the first quarter of 2020 as a percentage of total revenues were 27.8% compared to 25.1% a year ago.  Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses decreased $1.7 million.  Offsetting this decrease was a $1.5 million increase in liability insurance and a $0.9 million increase in outside services.  Depreciation and amortization increased $0.3 million.  Expenses related to Greenfield branch expansions increased $0.5 million compared to a year ago.

 

Income (Loss) from Operations

Loss from operations for the first quarter of 2020 was ($31.9) million, compared to income from operations of $35.7 million a year ago.  Included in loss from operations for the first quarter of 2020 was a $62.0 million non-cash goodwill impairment charge.  Also included in first quarter 2020 loss from operations was an increase in gain on sales of property and equipment of $3.5 million compared to a year ago.  Excluding the impairment charge, income from operations was $30.1 million, or 10.5% of revenues, compared to $35.7 million, or 11.4% of revenues, a year ago.

 

Interest Expense

Interest expense was $16.0 million for the first quarter of 2020 compared to $16.9 million a year ago.

 

Net Income (Loss)

Net loss was $37.0 million, or ($1.03) per share, in the first quarter of 2020 compared to net income of $14.2 million, or $0.40 per diluted share, in the first quarter of 2019.  The effective income tax rate was 21.9% in the first quarter of 2020 and 26.4% in the first quarter of 2019.  Excluding the impairment charge, net income was $10.8 million, or $0.30 per diluted share, in the first quarter of 2020 compared to net income of $14.2 million, or $0.40 per diluted share, in the first quarter of 2019.  On an adjusted basis, the effective income tax rate was 26.2% in the first quarter of 2020 and 26.4% in the first quarter of 2019.

 

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Adjusted EBITDA

Adjusted EBITDA for the first quarter of 2020 decreased 1.7% to $99.2 million compared to $100.9 million in the first quarter of 2019.  Adjusted EBITDA as a percentage of revenues was 34.7% compared with 32.2% in the first quarter of 2019.

 

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per share and the disaggregation of equipment rental revenues and cost of sales 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 first quarter results today, May 8, 2020 at 10:00 a.m. (Eastern Time).  To listen to the call, participants should dial 786-789-4797 approximately 10 minutes prior to the start of the call.  A telephonic replay will become available after 1:00 p.m. (Eastern Time) on May 8, 2020, and will continue through May 17, 2020, by dialing 719-457-0820 and entering the confirmation code 6179837.

 

The live broadcast of H&E Equipment Services’ quarterly conference call will be available online at www.he-equipment.com on May 8, 2020, 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 95 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) material handling equipment.  By providing equipment rental, sales, on site parts, repair services, 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 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) risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of construction or infrastructure projects, supply chain

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disruptions and other impacts to the business; (2) general economic conditions and construction and industrial activity in the markets where we operate in North America; (3) our ability to forecast trends in our business accurately, and the impact of economic downturns and economic uncertainty in the markets we serve (including as a result of current uncertainty due to COVID-19); (4) trends in oil and natural gas could adversely affect the demand for our services and products; (5) the impact of conditions in the global credit and commodity markets (including as a result of current volatility and uncertainty in credit and commodity markets due to COVID-19) and their effect on construction spending and the economy in general; (6) relationships with equipment suppliers; (7) increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value; (8) our indebtedness; (9) 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; (10) our possible inability to integrate any businesses we acquire; (11) competitive pressures; (12) security breaches and other disruptions in our information technology systems; (13) adverse weather events or natural disasters; (14) 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 (15) 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.

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