H&E Equipment Services Reports Third Quarter 2012 Results

BATON ROUGE, La.--(BUSINESS WIRE)--Nov. 1, 2012-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the third quarter ended September 30, 2012. In the third quarter of 2012, the Company completed its successful offering of new 10-year 7% senior unsecured notes, the repurchase and redemption of its then-outstanding 8 3/8% senior unsecured notes and the payment of a dividend to shareholders of approximately $246 million. The Company’s operating results for this quarter include a $10.2 million non-recurring item associated with the premium paid to repurchase and redeem the old notes and the write-off of unamortized deferred transaction costs associated therewith.

THIRD QUARTER 2012 HIGHLIGHTS:

• Revenues increased 11.0% to $204.5 million versus $184.3 million a year ago.
• Net income was $3.7 million in the third quarter compared to $4.8 million a year ago. Adjusted Net Income increased $6.1 million to $10.9 million compared to net income of $4.8 million a year ago.
• Adjusted EBITDA increased 38.3% to $55.9 million from $40.4 million, yielding a margin of 27.3% compared to 21.9% of revenues a year ago.
• Rental revenues increased 27.2%, or $16.6 million, to $77.8 million due to improved rates, a larger fleet compared to a year ago and strong demand.
• New equipment sales increased 5.3%, or $2.5 million, to $49.0 million, largely due to higher crane sales.
• Gross margin was 32.7% as compared to 29.2% a year ago. Rental gross margins increased to 48.9% compared to 44.0% a year ago.
• Average time utilization (based on original equipment cost) increased to 72.9% compared to 71.8% a year ago and 73.5% in the second quarter of 2012. Average time utilization (based on units available for rent) was 68.9% compared to 68.9% last year and 68.7% last quarter.
• Average rental rates increased 10.2% compared to a year ago and improved 2.9% compared to the second quarter of this year.
• Dollar utilization was 36.7% as compared to 33.7% a year ago.
• Average rental fleet age at September 30, 2012 was 38.6 months, down from 40.4 months at the end of the last quarter and significantly younger than the industry average age of 48 months.
• Successful notes offering of $530 million of new 10-year 7% senior unsecured notes. Proceeds were used primarily to repurchase or redeem our then-outstanding 8 3/8% senior unsecured notes and fund a dividend to shareholders of approximately $246 million.

“Our rental business remained very strong in the third quarter and we believe this is indicative of a secular shift occurring in the market that will continue into 2013,” said John Engquist, H&E Equipment Services’ president and chief executive officer. “As a result of increasing demand across all our end user markets, we invested more than $60 million in our fleet, which marked the second consecutive quarter of record levels of fleet investment in our company. Our fleet was approximately 18% larger at the end of the third quarter than at the end of 2011. Despite our record fleet investment this year, utilization is strong and rental rate gains are robust. The distribution side of our business continues to perform solidly as well, with new equipment sales up 5.3% from a year ago. As we move into year end, there is the possibility we could experience increased demand as our customers may look to take advantage of tax incentives before the end of the year.”

Engquist concluded, “Based on the current trends in our business, our outlook for the fourth quarter and 2013 remains positive. All segments of our business are performing well and the industrial segments our business serves remain strong. We are also experiencing solid improvement in our markets that were hit the hardest during the recession. With our significant fleet investment and integrated, full-service strategy, we are well positioned to benefit from improvements in market conditions. Lastly, we are pleased to have completed our successful notes offering which allowed us to pay a $246 million dividend to our shareholders, extend our long-term debt maturity profile until 2022 and enhance our liquidity under the senior credit facility for future investment in our business.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2012:

Revenue

Total revenues increased 11.0% to $204.5 million from $184.3 million in the third quarter of 2011. Equipment rental revenues increased 27.2% to $77.8 million compared with $61.2 million in the third quarter of 2011. New equipment sales increased 5.3% to $49.0 million from $46.5 million in the third quarter of 2011. Used equipment sales decreased 8.0% to $25.0 million compared to $27.2 million in the third quarter of 2011. Parts sales increased 5.7% to $26.1 million from $24.6 million in the third quarter of 2011. Service revenues increased 1.7% to $14.4 million compared to $14.2 million a year ago.

Gross Profit

Gross profit increased 24.5% to $66.9 million from $53.7 million in the third quarter of 2011. Gross margin was 32.7% for the quarter ended September 30, 2012, compared to gross margin of 29.2% for the quarter ended September 30, 2011.

On a segment basis, third quarter 2012 gross margin on rentals was 48.9% in this quarter compared to 44.0% in the third quarter of 2011 due to higher average rental rates on new contracts in the period, improved fleet utilization (based on original equipment cost) and lower rental expenses as a percentage of equipment rental revenues. On average, rental rates increased 10.2% as compared to the third quarter of 2011. Time utilization (based on original equipment cost) was 72.9% in the third quarter of 2012 and 71.8% a year ago.

Gross margin on new equipment sales was 11.5% compared to 11.6% in the third quarter a year ago. Gross margin on used equipment sales was 26.4% compared to 23.4% a year ago. Gross margin on parts sales was 26.7% in this quarter and a year ago. Gross margin on service revenues was 61.1% compared to 61.6% in the prior year.

Rental Fleet

At the end of the third quarter of 2012, the original acquisition cost of the Company’s rental fleet was $871.0 million, an increase of $144.9 million from $726.1 million at the end of the third quarter of 2011 and an increase of $134.4 million from $736.6 million at the end of 2011. Dollar utilization was 36.7% compared to 33.7% for the third quarter of 2011. Dollar returns increased reflecting higher year-over-year average rental rates and improved time utilization.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2012 were $42.4 million compared with $39.0 million last year, a $3.4 million, or 8.6%, increase. The net increase in SG&A expenses is largely a result of increased commission and incentive pay that resulted from higher rental and sales revenues. For the third quarter of 2012, SG&A expenses as a percentage of total revenues were 20.7% compared to 21.2% a year ago.

Income from Operations

Income from operations for the third quarter of 2012 was $25.0 million, or 12.2% of revenues, compared with $15.1 million, or 8.2% of revenues, a year ago.

Interest Expense

Interest expense for the third quarter of 2012 was $9.8 million compared to $7.2 million in the third quarter of 2011.

Net Income and Adjusted Net Income

Net income was 3.7 million, or $0.11 per diluted share, compared to net income of $4.8 million, or $0.14 per diluted share, a year ago. Adjusted Net Income was $10.9 million, or $0.31 per diluted share. The effective income tax rate was 29.7% compared to 39.1% a year ago.

EBITDA and Adjusted EBITDA

EBITDA for the third quarter of 2012 increased 13.1% to $45.7 million compared to $40.4 million a year ago. EBITDA, as a percentage of revenues, was 22.4% compared to 21.9% a year ago. Adjusted EBITDA increased 38.3% to $55.9 million from $40.4 million a year ago. Adjusted EBITDA as a percentage of total revenues increased to 27.3% compared with 21.9% in the third quarter of 2011.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA and Adjusted Net Income). Please refer to our Current Report on Form 8-K for a description of these measures and a discussion of our use of these measures. EBITDA, Adjusted EBITDA, and Adjusted Net Income as calculated by the Company, are not necessarily comparable to similarly titled measures reported by other companies. Adjusted Net Income provides useful information concerning future profitability. Additionally, these Non-GAAP measures are not measurements 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 results today, November 1, 2012, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 719-325-2286 approximately 10 minutes prior to the start of the call. A telephonic replay will be available after 1:00 p.m. (Eastern Time) on November 1, 2012, and will continue through November 14, 2012, by dialing 719-457-0820 and entering confirmation code 4757181.

The live broadcast of the Company’s quarterly conference call will be available online at www.he-equipment.com or www.earnings.com on November 1, 2012, 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 66 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 service 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, and 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, rental, parts sales and service operations.

Forward-Looking Statements

Certain statements in this press release 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” 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 as well as the depth and duration of the macroeconomic downturn related to decreases in construction and industrial activities, and the impact of conditions of the global credit markets and their effect on construction spending activity and the economy in general; (2) relationships with equipment suppliers; (3) increased maintenance and repair costs as we age our fleet and decreases in our equipments’ residual value; (4) our indebtedness; (5) the risks associated with the expansion of our business; (6) our possible inability to effectively integrate any businesses we acquire; (7) competitive pressures; (8) compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and (9) other factors discussed in our public filings, including the risk factors included in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. 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 SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date of this release.

H&E EQUIPMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Amounts in thousands, except per share amounts)
			Three Months Ended										Nine Months Ended
			September 30,										September 30,
			2012					2011					2012					2011
Revenues:
Equipment rentals			$	77,808				$	61,190				$	207,941				$	165,440
New equipment sales				49,009					46,543					154,710					133,629
Used equipment sales				24,990					27,172					75,100					65,655
Parts sales				26,058					24,647					74,161					71,166
Service revenues				14,436					14,191					41,615					40,072
Other				12,208					10,546					33,671					27,570
Total revenues				204,509					184,289					587,198					503,532
Cost of revenues:
Rental depreciation				27,150					22,076					74,727					64,146
Rental expense				12,579					12,176					36,375					34,484
New equipment sales				43,367					41,123					136,945					118,271
Used equipment sales				18,399					20,824					53,426					50,444
Parts sales				19,092					18,073					53,826					52,174
Service revenues				5,615					5,451					15,907					15,499
Other				11,384					10,825					32,183					31,862
Total cost of revenues				137,586					130,548					403,389					366,880
Gross profit				66,923					53,741					183,809					136,652
Selling, general, and administrative expenses				42,402					39,042					124,504					114,681
Gain on sales of property and equipment, net				514					372					1,478					521
Income from operations				25,035					15,071					60,783					22,492
Loss on early extinguishment of debt				(10,180	)				-					(10,180	)				-
Interest expense				(9,825	)				(7,222	)				(23,668	)				(21,607	)
Other income, net				243					118					751					626
Income before provision for income taxes				5,273					7,967					27,686					1,511
Provision for income taxes				1,564					3,119					9,554					447
Net income			$	3,709				$	4,848				$	18,132				$	1,064
NET INCOME PER SHARE
Basic – Net income per share			$	0.11				$	0.14				$	0.52				$	0.03
Basic – Weighted average number of common shares outstanding				34,958					34,804					34,867					34,743
Diluted – Net income per share			$	0.11				$	0.14				$	0.52				$	0.03
Diluted – Weighted average number of common shares outstanding				34,974					34,860					34,963					34,884

H&E EQUIPMENT SERVICES, INC.
SELECTED BALANCE SHEET DATA (unaudited)
(Amounts in thousands)
											September 30,				December 31,
											2012				2011
Cash											$	3,250			$	24,215
Rental equipment, net												571,936				450,877
Total assets												940,226				753,305
Total debt (1)												663,212				268,660
Total liabilities												902,933				489,098
Stockholders’ equity												37,293				264,207
Total liabilities and stockholders’ equity											$	940,226			$	753,305
(1) Total debt consists of the aggregate amounts outstanding on the senior secured credit facility, senior unsecured notes and capital lease obligations.
H&E EQUIPMENT SERVICES, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands)
			Three Months Ended								Nine Months Ended
			September 30,								September 30,
			2012				2011				2012				2011
Net income			$	3,709			$	4,848			$	18,132			$	1,064
Interest expense				9,825				7,222				23,668				21,607
Provision for income taxes				1,564				3,119				9,554				447
Depreciation				30,609				25,139				84,724				73,456
Amortization of intangibles				16				90				66				337
EBITDA			$	45,723			$	40,418			$	136,144			$	96,911
Loss on early extinguishment of debt				10,180				-				10,180				-
Adjusted EBITDA			$	55,903			$	40,418			$	146,324			$	96,911

H&E EQUIPMENT SERVICES, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except per share amounts)
			Three Months Ended September 30, 2012
			As Reported				Adjustment (1)				Adjusted
Income before provision for income taxes			$	5,273			$	10,180			$	15,453
Provision for income taxes				1,564				3,019				4,583
Net income			$	3,709			$	7,161			$	10,870
NET INCOME PER SHARE
Basic – Net income per share			$	0.11							$	0.31
Diluted – Net income per share			$	0.11							$	0.31
Weighted average number of common shares outstanding
Basic				34,958								34,958
Diluted				34,974								34,974
			Nine Months Ended September 30, 2012
			As Reported				Adjustment (1)				Adjusted
Income before provision for income taxes			$	27,686			$	10,180			$	37,866
Provision for income taxes				9,554				3,512				13,066
Net income			$	18,132			$	6,668			$	24,800
NET INCOME PER SHARE
Basic – Net income per share			$	0.52							$	0.71
Diluted – Net income per share			$	0.52							$	0.71
Weighted average number of common shares outstanding
Basic				34,867								34,867
Diluted				34,963								34,963
(1) Adjustment includes premium paid to repurchase or redeem the Company’s 8 3/8% senior unsecured notes and the write-off of unamortized deferred transaction costs.

Source: H&E Equipment Services, Inc.

H&E Equipment Services, Inc.
Leslie S. Magee, 225-298-5261
Chief Financial Officer
lmagee@he-equipment.com
or
Corporate Communications, Inc. (CCI)
Kevin S. Inda, 407-566-1180
kevin.inda@cci-ir.com