H&E Equipment Services Reports Third Quarter 2016 Results

BATON ROUGE, La.--(BUSINESS WIRE)--Oct. 27, 2016-- H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the third quarter ended September 30, 2016.

THIRD QUARTER 2016 SUMMARY

• Revenues decreased 11.6% to $244.7 million versus $276.9 million a year ago.
• Net income was $11.7 million in the third quarter compared to net income of $14.8 million a year ago.
• EBITDA was $81.9 million in the third quarter compared to EBITDA of $86.2 million a year ago, yielding a margin of 33.5% of revenues compared to 31.1% a year ago.
• Rental revenues were $118.5 million in the third quarter compared to $118.1 million a year ago.
• New equipment sales decreased 32.7% to $44.8 million in the third quarter compared to $66.6 million a year ago.
• Used equipment sales decreased 29.1% to $20.6 million in the third quarter compared to $29.1 million a year ago.
• Gross margin was 36.0% compared to 33.5% a year ago.
• Rental gross margins were 49.5% in the third quarter of 2016 and 49.0% a year ago.
• Average time utilization (based on original equipment cost) was 72.1% compared to 73.7% a year ago. Average time utilization (based on units available for rent) was 68.0% compared to 70.2% last year.
• Average rental rates decreased 0.7% compared to a year ago.
• Dollar utilization was 35.4% in the third quarter compared to 36.4% a year ago.
• Average rental fleet age at September 30, 2016, was 31.5 months compared to an industry average age of 42.4 months.

John Engquist, H&E Equipment Services’ chief executive officer, said, “Weather had an impact on our operations as Louisiana experienced a ‘1,000 year’ flooding event in mid-August. Our business incurred a short pause as construction projects were temporarily delayed but has since recovered. Our rental business generated revenues of $118.5 million, up 9.1% sequentially over last quarter and margins were strong at 49.5%. Solid demand for aerial work platforms and earthmoving equipment resulted in strong utilization, at 72.1% based on OEC. Rental rates decreased 0.7% from a year ago but increased 1.0% sequentially over last quarter.”

Engquist concluded, “As we expected, our distribution business remained soft during the quarter as new equipment sales continued to be pressured by very low crane demand. When the energy markets rebound on a sustained basis, we believe there will be substantial pent up demand for cranes. We continue to believe that the non-residential construction markets remain healthy based on current bidding activity levels, solid backlogs, positive customer sentiment and the robust activity associated with ongoing large projects.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2016:

Revenue

Total revenues decreased 11.6% to $244.7 million in the third quarter of 2016 from $276.9 million in the third quarter of 2015. Equipment rental revenues were $118.5 million compared with $118.1 million in the third quarter of 2015. New equipment sales decreased 32.7% to $44.8 million from $66.6 million a year ago. Used equipment sales decreased 29.1% to $20.6 million compared to $29.1 million a year ago. Parts sales decreased 5.6% to $27.3 million from $29.0 million in the third quarter of 2015. Service revenues decreased 3.9% to $16.1 million compared with $16.7 million a year ago.

Gross Profit

Gross profit decreased 5.1% to $88.1 million from $92.8 million in the third quarter of 2015. Gross margin was 36.0% for the quarter ended September 30, 2016, as compared to 33.5% for the quarter ended September 30, 2015. On a segment basis, gross margin on rentals was 49.5% in the third quarter of 2016 and 49.0% in the third quarter of 2015. On average, rental rates were 0.7% lower than rates in the third quarter of 2015. Time utilization (based on original equipment cost) was 72.1% in the third quarter of 2016 compared to 73.7% a year ago. Time utilization (based on units available for rent) was 68.0% in the third quarter of 2016 compared to 70.2% a year ago.

Gross margins on new equipment sales increased to 10.3% compared to 9.8% in the third quarter a year ago. Gross margins on used equipment sales were 30.4%, the same as a year ago. Gross margins on parts sales were 27.9% in the third quarter of 2016 and 27.2% in the third quarter of 2015. Gross margins on service revenues were 66.1% for the third quarter of 2016 compared to 66.6% in the third quarter of 2015.

Rental Fleet

At the end of the third quarter of 2016, the original acquisition cost of the Company’s rental fleet was $1,348.0 million, an increase of $43.0 million from $1,305.0 million at the end of the third quarter of 2015. Dollar utilization was 35.4% compared to 36.4% for the third quarter of 2015.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2016 were $56.0 million compared with $54.7 million last year, a $1.3 million, or 2.3% increase. SG&A expenses in the third quarter of 2016 increased as a percentage of total revenues to 22.9% compared to 19.8% last year. Of the $1.3 million increase, $1.2 million was attributable to new branch expansions compared to a year ago.

Income from Operations

Income from operations for the third quarter of 2016 was $33.1 million, or 13.5% of revenues, compared to $38.5 million, or 13.9% of revenues, a year ago.

Interest Expense

Interest expense for the third quarter of 2016 was $13.5 million, the same as a year ago.

Net Income

Net income was $11.7 million, or $0.33 per diluted share, in the third quarter of 2016 compared to net income of $14.8 million, or $0.42 per diluted share, in the third quarter of 2015. The effective income tax rate was 41.7% in the third quarter compared to 42.1% a year ago.

EBITDA

EBITDA for the third quarter of 2016 was $81.9 million compared to $86.2 million in the third quarter of 2015. EBITDA as a percentage of revenues was 33.5% compared with 31.1% in the third quarter of 2015.

Non-GAAP Financial Measures

This press release contains a certain Non-GAAP measure (EBITDA). Please refer to our Current Report on Form 8-K for a description of this measure and of our use of this measure. This measure as calculated by the Company is not necessarily comparable to similarly titled measures reported by other companies. Additionally, this Non-GAAP measure is not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative 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, October 27, 2016, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 913-312-1377 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 27, 2016, and will continue through November 5, 2016, by dialing 719-457-0820 and entering the confirmation code 2822053.

The live broadcast of the Company’s quarterly conference call will be available online at www.he-equipment.com on October 27, 2016, 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 76 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, rental, parts sales and services 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”, “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; (8) our possible inability to integrate any businesses we acquire; (9) competitive pressures; (10) compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and (11) 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 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,
				2016					2015					2016					2015
Revenues:
Equipment rentals				$	118,535				$	118,055				$	330,023				$	328,072
New equipment sales					44,764					66,552					151,836					175,465
Used equipment sales					20,630					29,111					71,973					83,113
Parts sales					27,335					28,968					81,958					84,400
Service revenues					16,076					16,727					49,322					47,452
Other					17,346					17,440					48,679					48,121
Total revenues					244,686					276,853					733,791					766,623
Cost of revenues:
Rental depreciation					41,528					40,963					120,700					121,121
Rental expense					18,378					19,210					53,162					52,522
New equipment sales					40,147					60,000					135,152					156,068
Used equipment sales					14,364					20,262					49,751					56,761
Parts sales					19,708					21,098					59,184					61,224
Service revenues					5,445					5,582					16,736					16,017
Other					16,991					16,901					48,129					47,329
Total cost of revenues					156,561					184,016					482,814					511,042
Gross profit					88,125					92,837					250,977					255,581
Selling, general, and administrative expenses					55,962					54,704					172,385					162,584
Gain on sales of property and equipment, net					927					339					2,301					1,769
Income from operations					33,090					38,472					80,893					94,766
Interest expense					(13,469	)				(13,481	)				(40,229	)				(40,675	)
Other income, net					386					501					1,505					1,083
Income before provision for income taxes					20,007					25,492					42,169					55,174
Provision for income taxes					8,342					10,720					17,427					22,836
Net income				$	11,665				$	14,772				$	24,742				$	32,338
NET INCOME PER SHARE
Basic – Net income per share				$	0.33				$	0.42				$	0.70				$	0.92
Basic – Weighted average number of common shares outstanding					35,424					35,308					35,373					35,258
Diluted – Net income per share				$	0.33				$	0.42				$	0.70				$	0.92
Diluted – Weighted average number of common shares outstanding					35,504					35,350					35,461					35,317
Dividends declared per common share				$	0.275				$	0.275				$	0.825				$	0.775

H&E EQUIPMENT SERVICES, INC.
SELECTED BALANCE SHEET DATA (unaudited)
(Amounts in thousands)
				September 30,					December 31,
				2016(1)					2015(1)
Cash				$	7,034				$	7,159
Rental equipment, net					922,486					893,393
Total assets					1,291,825					1,299,511
Total debt(2)					841,518					816,764
Total liabilities					1,152,413					1,156,923
Stockholders’ equity					139,412					142,588
Total liabilities and stockholders’ equity				$	1,291,825				$	1,299,511

⁽¹⁾ Amounts presented herein reflect the Company’s adoption of ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, on January 1, 2016, which was applied on a retrospective basis.

⁽²⁾ Total debt consists of the amounts outstanding on the senior secured credit facility, capital lease obligations and the aggregate amount outstanding on the senior unsecured notes.

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,
				2016				2015				2016				2015
Net income				$	11,665			$	14,772			$	24,742			$	32,338
Interest expense					13,469				13,481				40,229				40,675
Provision for income taxes					8,342				10,720				17,427				22,836
Depreciation					48,385				47,204				141,021				139,016
EBITDA				$	81,861			$	86,177			$	223,419			$	234,865

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