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H&E Equipment Services Reports Second Quarter 2020 Results

H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the second quarter ended June 30, 2020.

SECOND QUARTER 2020 SUMMARY

  • Revenues decreased 16.6% to $278.3 million versus $333.6 million a year ago.

  • Net income was $8.8 million in the second quarter compared to net income of $22.6 million a year ago. The effective income tax rate was 26.9% in the second quarter of 2020 and 26.8% in the second quarter of 2019.

  • Adjusted EBITDA decreased 19.3% to $95.3 million in the second quarter compared to $118.0 million a year ago, yielding a margin of 34.2% of revenues compared to 35.4% a year ago.

  • Total equipment rental revenues for the second quarter of 2020 were $155.8 million, a decrease of $36.5 million, or 19.0%, compared to $192.3 million a year ago. Rental revenues for the second quarter of 2020 were $140.8 million, a decrease of approximately $33.1 million, or 19.0%, compared to $173.8 million in the second quarter of 2019.

  • New equipment sales decreased 18.0% to $43.9 million in the second quarter compared to $53.6 million a year ago.

  • Used equipment sales decreased 5.9% to $34.0 million in the second quarter compared to $36.1 million a year ago.

  • Gross margin was 33.1% compared to 37.4% a year ago. The decrease in gross margin was largely the result of lower rental gross margins.

  • Total equipment rental gross margins were 38.0% in the second quarter of 2020 compared to 44.7% a year ago. Rental gross margins were 41.5% in the second quarter of 2020 compared to 49.1% last year. The decrease was primarily due to lower time utilization and rates.

  • Average time utilization (based on original equipment cost) was 59.5% compared to 71.2% a year ago. The size of the Company’s rental fleet based on original acquisition cost decreased 2.3% from a year ago, to $1.9 billion.

  • Average rental rates decreased 2.8% compared to a year ago and declined 2.8% sequentially based on ARA guidelines. Beginning with the second quarter of 2020, rate changes will be reported in accordance with ARA guidelines.

  • Dollar utilization was 29.6% in the second quarter compared to 36.5% a year ago.

  • Average rental fleet age at June 30, 2020, was 39.1 months compared to an industry average age of 49.7 months.

Brad Barber, H&E Equipment Services, Inc.’s chief executive officer and president, said, "As a result of the COVID-19 outbreak and subsequent economic slowdown, the second quarter was a challenging period for our business. Work continued in our end-user markets while some projects were paused, delayed or cancelled. As we expected, demand for rental equipment declined which pressured rates, physical utilization and ultimately rental revenue. Utilization bottomed in April; subsequently, utilization improved and stabilized with increased levels of activity in our end-user markets."

Barber added, "Total revenues declined 16.6%, or $55.3 million, from a year ago. The decline was primarily attributable to a 19.0%, or $36.5 million, decline in total rental revenue. Physical utilization declined more than 1,100 basis points and rates were 2.8%1 lower than a year ago. New equipment sales of $43.9 million surpassed our expectations, but were down 18.0% compared to $53.6 million from a year ago. Adjusted EBITDA declined 19.3%, or $22.7 million from a year ago, and margins decreased 120 basis points to 34.2%."

Barber concluded, "Recently, there are some encouraging trends compared to the second quarter; however, we believe the headwinds related to COVID-19 will persist throughout the balance of this year. There is still tremendous uncertainty regarding the cadence of the economic recovery, including the outlook for the non-residential construction markets. We are working very hard to generate returns for our shareholders in the current environment and I am very pleased with how our team has responded to these significant marketplace challenges."

FINANCIAL DISCUSSION FOR SECOND QUARTER 2020:

Revenue

Total revenues decreased 16.6% to $278.3 million in the second quarter of 2020 from $333.6 million in the second quarter of 2019. Total equipment rental revenues decreased 19.0% to $155.8 million compared to $192.3 million in the second quarter of 2019. Rental revenues decreased 19.0% to $140.8 million compared with $173.8 million in the second quarter of 2019. New equipment sales decreased 18.0% to $43.9 million compared to $53.6 million a year ago. Used equipment sales decreased 5.9% to $34.0 million compared to $36.1 million a year ago. Parts sales decreased 17.7% to $26.2 million compared to $31.9 million a year ago. Service revenues decreased 6.4% to $15.7 million compared to $16.7 million a year ago.

Gross Profit

Gross profit decreased 26.2% to $92.1 million from $124.8 million in the second quarter of 2019. Gross margin was 33.1% for the second quarter ended June 30, 2020, as compared to 37.4% for the second quarter ended June 30, 2019. On a segment basis, gross margin on total equipment rentals was 38.0% in the second quarter of 2020 compared to 44.7% in the second quarter of 2019. Rental margins were 41.5% in the second quarter of 2020 compared to 49.1% last year. On average, rental rates were 2.8%1 lower than rates in the second quarter of 2019. Time utilization (based on original equipment cost) was 59.5% in the second quarter of 2020 compared to 71.2% a year ago.

Gross margins on new equipment sales were 10.7% in the second quarter compared to 12.2% a year ago. Gross margins on used equipment sales were 31.6% compared to 35.4% a year ago. Gross margins on parts sales were 26.2% in the second quarter of 2020 compared to 26.9% a year ago. Gross margins on service revenues were 67.0% for the second quarter of 2020 compared to 68.0% in the second quarter of 2019.

1Based on ARA guidelines

Rental Fleet

At the end of the second quarter of 2020, the original acquisition cost of the Company’s rental fleet was $1.9 billion, a 2.3%, or $43.8 million decrease from the end of the second quarter of 2019. Dollar utilization for the second quarter of 2020 was 29.6% compared to 36.5% for the second quarter of 2019.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2020 were $67.9 million compared with $77.8 million the prior year, a $9.9 million, or 12.8%, decrease. SG&A expenses in the second quarter of 2020 as a percentage of total revenues were 24.4% compared to 23.3% a year ago. Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses decreased $9.9 million. Offsetting this decrease was a $2.0 million increase in liability insurance. Expenses related to Greenfield branch expansions increased $1.0 million compared to a year ago.

Income from Operations

Income from operations for the second quarter of 2020 decreased 43.4% to $27.0 million, or 9.7% of revenues, compared to $47.7 million, or 14.3% of revenues, a year ago.

Interest Expense

Interest expense was $15.6 million for the second quarter of 2020 compared to $17.3 million a year ago.

Net Income

Net income was $8.8 million, or $0.24 per diluted share, in the second quarter of 2020 compared to net income of $22.6 million, or $0.63 per diluted share, in the second quarter of 2019. The effective income tax rate was 26.9% in the second quarter of 2020 and 26.8% in the second quarter of 2019.

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2020 decreased 19.3% to $95.3 million compared to $118.0 million in the second quarter of 2019. Adjusted EBITDA as a percentage of revenues was 34.2% compared with 35.4% in the second 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 second quarter results today, August 4, 2020 at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 877-270-2148 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 1:00 p.m. (Eastern Time) on August 4, 2020, and will continue through August 11, 2020, by dialing 877-344-7529 and entering the confirmation code 10146660.

The live broadcast of H&E Equipment Services, Inc.’s quarterly conference call will be available online at www.he-equipment.com on August 4, 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 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) 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 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 and the Company’s most recent 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 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 OPERATIONS (unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

$

155,794

 

$

192,302

 

 

$

330,313

 

$

368,431

New equipment sales

 

43,947

 

 

53,596

 

 

 

74,820

 

 

112,699

Used equipment sales

 

34,013

 

 

36,128

 

 

 

65,231

 

 

65,762

Parts sales

 

26,220

 

 

31,871

 

 

 

55,989

 

 

62,299

Service revenues

 

15,657

 

 

16,725

 

 

 

32,479

 

 

32,293

Other

 

2,705

 

 

2,975

 

 

 

5,426

 

 

5,751

Total revenues

 

278,336

 

 

333,597

 

 

 

564,258

 

 

647,235

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

 

 

 

 

 

 

 

 

 

 

Rental depreciation

 

59,156

 

 

61,434

 

 

 

119,142

 

 

118,582

Rental expense

 

23,264

 

 

27,019

 

 

 

48,833

 

 

51,787

Rental other

 

14,226

 

 

17,847

 

 

 

31,031

 

 

34,122

 

 

96,646

 

 

106,300

 

 

 

199,006

 

 

204,491

New equipment sales

 

39,259

 

 

47,064

 

 

 

66,685

 

 

99,163

Used equipment sales

 

23,282

 

 

23,321

 

 

 

43,720

 

 

42,333

Parts sales

 

19,352

 

 

23,290

 

 

 

41,255

 

 

45,579

Service revenues

 

5,173

 

 

5,359

 

 

 

10,713

 

 

10,363

Other

 

2,554

 

 

3,482

 

 

 

5,326

 

 

6,825

Total cost of revenues

 

186,266

 

 

208,816

 

 

 

366,705

 

 

408,754

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

92,070

 

 

124,781

 

 

 

197,553

 

 

238,481

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

67,861

 

 

77,840

 

 

 

147,485

 

 

156,487

Merger costs

 

118

 

 

148

 

 

 

158

 

 

267

Gain on sales of property and equipment, net

 

(2,894)

 

 

(880)

 

 

 

(7,158)

 

 

(1,621)

Impairment of goodwill

 

-

 

 

-

 

 

 

61,994

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

26,985

 

 

47,673

 

 

 

(4,926)

 

 

83,348

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(15,572)

 

 

(17,267)

 

 

 

(31,602)

 

 

(34,122)

Other income, net

 

642

 

 

489

 

 

 

1,272

 

 

1,021

Income (loss) before provision (benefit) for

income taxes

 

12,055

 

 

30,895

 

 

 

(35,256)

 

 

50,247

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

3,240

 

 

8,281

 

 

 

(7,103)

 

 

13,390

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

$

8,815

 

$

22,614

 

 

$

(28,153)

 

$

36,857

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic – Net income (loss) per share

$

0.24

 

$

0.63

 

 

$

(0.78)

 

$

1.03

Basic – Weighted average number of common

shares outstanding

 

36,031

 

 

35,826

 

 

 

35,998

 

 

35,807

Diluted – Net income (loss) per share

$

0.24

 

$

0.63

 

 

$

(0.78)

 

$

1.02

Diluted – Weighted average number of

common shares outstanding

 

36,107

 

 

36,016

 

 

 

35,998

 

 

35,994

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,

 

 

2020

 

 

2019

Cash

$

6,251

 

$

14,247

Rental equipment, net

 

1,133,857

 

 

1,217,673

Total assets

 

1,779,243

 

 

1,974,610

Total debt (1)

 

1,017,991

 

 

1,167,429

Total liabilities

 

1,517,375

 

 

1,667,091

Stockholders’ equity

 

261,868

 

 

307,519

Total liabilities and stockholders’ equity

$

1,779,243

 

$

1,974,610

(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, except per share amounts)

 

 

 

 

 

Six Months Ended June 30,

 

 

2020

 

 

 

2020

 

 

As Reported

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

 

Gross profit

 

$ 197,553

 

 

$ 197,553

Selling, general and administrative expenses

 

147,485

 

 

147,485

Impairment of goodwill

 

61,994

 

(61,994)

 

Gain on sale of property and equipment, net

 

(7,158)

 

 

(7,158)

Merger costs

 

158

 

 

158

Income (loss) from operations

 

(4,926)

 

61,994

 

57,068

Interest expense

 

(31,602)

 

 

(31,602)

Other income, net

 

1,272

 

 

1,272

Income (loss) before provision (benefit) for income taxes

 

(35,256)

 

61,994

 

26,738

Provision (benefit) for income taxes

 

(7,103)

 

12,929

 

5,826

Net income (loss)

 

$ (28,153)

 

$ 49,065

 

$ 20,912

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2020

 

 

 

2020

 

 

As Reported

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE (1)

 

 

 

 

 

 

Basic – Net income (loss) per share

 

$ (0.78)

 

$ 1.36

 

$ 0.58

Basic – Weighted average number of common

shares outstanding

 

 

 

 

 

 

 

35,998

 

35,998

 

35,998

Diluted – Net income (loss) per share

 

$ (0.78)

 

$ 1.36

 

$ 0.58

Diluted – Weighted average number of common

shares outstanding

 

 

 

 

 

 

 

35,998

 

35,998

 

35,998

(1)

Because of the method used in calculating per share data, the summation of the above per share data may not necessarily total to the as adjusted per share data.

 

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,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

8,815

 

$

22,614

 

$

(28,153)

 

$

36,857

Interest Expense

 

 

15,572

 

 

17,267

 

 

31,602

 

 

34,122

Provision (benefit) for income taxes

 

 

3,240

 

 

8,281

 

 

(7,103)

 

 

13,390

Depreciation

 

 

66,568

 

 

68,622

 

 

133,992

 

 

132,290

Amortization of intangibles

 

 

992

 

 

1,097

 

 

2,002

 

 

2,049

 

 

 

 

 

 

 

 

 

EBITDA

 

$

95,187

 

$

117,881

 

$

132,340

 

$

218,708

 

 

 

 

 

 

 

 

 

Merger costs

 

 

118

 

 

148

 

 

158

 

 

267

Impairment of goodwill

 

 

-

 

 

-

 

 

61,994

 

 

-

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

95,305

 

$

118,029

 

$

194,492

 

$

218,975

 

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

2020

 

 

June 30,

2019

 

 

June 30,

2020

 

 

June 30,

2019

 

RENTAL REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals (1)

 

$

140,776

 

$

173,837

 

$

299,394

 

$

333,497

 

Rentals other

 

 

15,018

 

 

18,465

 

 

30,919

 

 

34,934

 

Total equipment rentals

 

 

155,794

 

 

192,302

 

 

330,313

 

 

368,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL COST OF SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental depreciation

 

 

59,156

 

 

61,434

 

 

119,142

 

 

118,582

 

Rental expense

 

 

23,264

 

 

27,019

 

 

48,833

 

 

51,787

 

Rental other

 

 

14,226

 

 

17,847

 

 

31,031

 

 

34,122

 

Total rental cost of sales

 

 

96,646

 

 

106,300

 

 

199,006

 

 

204,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL REVENUES GROSS

PROFIT (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

58,356

 

 

85,384

 

 

131,419

 

 

163,128

 

Rentals other

 

 

792

 

 

618

 

 

(112)

 

 

812

 

Total rental revenues gross profit

 

 

 

59,148

 

 

 

86,002

 

 

 

131,307

 

 

 

163,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL REVENUES GROSS

MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

41.5%

 

 

49.1%

 

 

43.9%

 

 

48.9%

 

Rentals other

 

 

5.3%

 

 

3.3%

 

 

-0.4%

 

 

2.3%

 

Total rental revenues gross

margin

 

 

38.0%

 

 

44.7%

 

 

39.8%

 

 

44.5%

 

 

(1)

Pursuant to SEC Regulation S-X, our equipment rental revenues are aggregated and presented in our unaudited consolidated statements of operations 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/20200804005264/en/

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