H&E Equipment Services Reports Third Quarter 2020 Results

BATON ROUGE, La.–(BUSINESS WIRE)–$HEES–H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the third quarter ended September 30, 2020.

THIRD QUARTER 2020 SUMMARY

  • Revenues decreased 18.1% to $289.3 million versus $353.0 million a year ago.
  • Net income was $10.1 million in the third quarter of 2020 compared to net income of $28.4 million a year ago. The effective income tax rate was 40.9% in the third quarter of 2020 and 26.7% in the third quarter of 2019. The increase in the effective income tax rate was primarily due to unfavorable permanent differences in relation to profit before tax. Excluding the impact of our 2020 first quarter goodwill impairment charge, our effective tax rate in the third quarter would have been 26.2%.
  • Adjusted EBITDA decreased 22.5% to $98.8 million in the third quarter of 2020 compared to $127.5 million a year ago, yielding a margin of 34.1% of revenues compared to 36.1% a year ago.
  • Total equipment rental revenues for the third quarter of 2020 were $165.8 million, a decrease of $38.3 million, or 18.8%, compared to $204.1 million a year ago. Rental revenues for the third quarter of 2020 were $149.4 million, a decrease of approximately $35.4 million, or 19.1%, compared to $184.8 million in the third quarter of 2019.
  • New equipment sales decreased 42.7% to $37.2 million in the third quarter of 2020 compared to $65.0 million a year ago.
  • Used equipment sales increased 28.3% to $40.0 million in the third quarter of 2020 compared to $31.2 million a year ago.
  • Gross margin was 34.2% 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 39.4% in the third quarter of 2020 compared to 46.3% a year ago. Rental gross margins were 44.0% in the third quarter of 2020 compared to 50.8% last year. The decrease was primarily due to lower time utilization and rates.
  • Average time utilization (based on original equipment cost) was 63.8% compared to 71.4% a year ago. The size of the Company’s rental fleet based on original acquisition cost decreased 7.8% from a year ago, to $1.8 billion.
  • Average rental rates decreased 4.0% compared to a year ago and declined 0.4% sequentially, based on ARA guidelines.
  • Dollar utilization was 32.4% in the third quarter of 2020 compared to 37.5% a year ago.
  • Average rental fleet age at September 30, 2020, was 40.0 months compared to an industry average age of 50.7 months.

Brad Barber, H&E Equipment Services, Inc.’s chief executive officer and president, said, “We are encouraged that demand in our end-user rental markets accelerated during the third quarter. As a result of increased project activity and our focus on operating execution, physical utilization was 63.8% for the third quarter. This improvement represented a 430 basis point increase from the second quarter.”

Barber added, “While we are seeing meaningful improvements in our rental business, our financial results remain below year-ago levels. Total revenues were down 18.1%, or $63.7 million, compared to a year ago. This was largely the result of an 18.8%, or $38.3 million, decline in total rental revenue and a 42.7%, or $27.8 million, decline in new equipment sales from a year ago. Adjusted EBITDA declined 22.5%, or $28.7 million, from a year ago, and margins decreased 200 basis points to 34.1%. However, our ongoing actions to reduce capital expenditures and operating costs resulted in significant free cash flow for the quarter. We have also continued to improve our leverage and liquidity.”

Barber concluded, “The current environment could further increase the secular shift toward renting equipment versus owning, creating greater opportunities for us to increase market share. Based on our improving visibility, we plan to accelerate our growth strategy. This includes significantly increasing the number of warm starts next year. We remain focused on pursuing acquisition opportunities in both the general rental and specialty rental businesses.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2020:

Revenue

Total revenues decreased 18.1% to $289.3 million in the third quarter of 2020 from $353.0 million in the third quarter of 2019. Total equipment rental revenues decreased 18.8% to $165.8 million compared to $204.1 million in the third quarter of 2019. Rental revenues decreased 19.1% to $149.4 million compared with $184.8 million in the third quarter of 2019. New equipment sales decreased 42.7% to $37.2 million compared to $65.0 million a year ago. Used equipment sales increased 28.3% to $40.0 million compared to $31.2 million a year ago. Parts sales decreased 11.6% to $27.9 million compared to $31.5 million a year ago. Service revenues decreased 13.6% to $15.6 million compared to $18.1 million a year ago.

Gross Profit

Gross profit decreased 25.0% to $99.1 million from $132.1 million in the third quarter of 2019. Gross margin was 34.2% for the third quarter ended September 30, 2020, as compared to 37.4% for the third quarter ended September 30, 2019. On a segment basis, gross margin on total equipment rentals was 39.4% in the third quarter of 2020 compared to 46.3% in the third quarter of 2019. Rental margins were 44.0% in the third quarter of 2020 compared to 50.8% last year. On average, rental rates were 4.0%1 lower than rates in the third quarter of 2019. Time utilization (based on original equipment cost) was 63.8% in the third quarter of 2020 compared to 71.4% a year ago.

Gross margins on new equipment sales were 11.1% in the third quarter compared to 11.6% a year ago. Gross margins on used equipment sales were 30.3% compared to 31.3% a year ago. Gross margins on parts sales were 24.9% in the third quarter of 2020 compared to 26.4% a year ago. Gross margins on service revenues were 66.8% for the third quarter of 2020 compared to 67.4% in the third quarter of 2019.

____________________

1 Based on ARA guidelines.

Rental Fleet

At the end of the third quarter of 2020, the original acquisition cost of the Company’s rental fleet was $1.8 billion, which is a 7.8%, or $154.5 million, decrease from the end of the third quarter of 2019. Dollar utilization for the third quarter of 2020 was 32.4% compared to 37.5% for the third quarter of 2019.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2020 were $70.0 million compared with $77.3 million the prior year, a $7.3 million, or 9.4%, decrease. SG&A expenses in the third quarter of 2020 as a percentage of total revenues were 24.2% compared to 21.9% a year ago. Employee salaries, wages, payroll taxes and related employee benefits, and other employee related expenses decreased $5.6 million. Expenses related to Greenfield branch expansions increased $1.3 million compared to a year ago.

Income from Operations

Income from operations for the third quarter of 2020 decreased 44.2% to $31.0 million, or 10.7% of revenues, compared to $55.5 million, or 15.7% of revenues, a year ago.

Interest Expense

Interest expense was $14.9 million for the third quarter of 2020 compared to $17.3 million a year ago.

Net Income

Net income was $10.1 million, or $0.28 per diluted share, in the third quarter of 2020 compared to net income of $28.4 million, or $0.79 per diluted share, in the third quarter of 2019. The effective income tax rate was 40.9% in the third quarter of 2020 and 26.7% in the third quarter of 2019. The increase in the effective income tax rate was primarily due to unfavorable permanent differences in relation to profit before tax. Excluding the impact of the 2020 first quarter goodwill impairment charge, our effective tax rate for the nine month period ended September 30, 2020, would have been 23.5%, resulting in a third quarter effective tax rate (net of goodwill impairment) of 26.2%.

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2020 decreased 22.5% to $98.8 million compared to $127.5 million in the third quarter of 2019. Adjusted EBITDA as a percentage of revenues was 34.1% compared with 36.1% in the third quarter of 2019.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted Income 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 third quarter results today, October 28, 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 October 28, 2020, and will continue through November 4, 2020, by dialing 877-344-7529 and entering the confirmation code 10148956.

The live broadcast of H&E Equipment Services, Inc.’s quarterly conference call will be available online at www.he-equipment.com on October 28, 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 97 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

 

 

Nine Months Ended

 

 

Sept. 30,

 

 

Sept. 30,

 

 

 

Sept. 30,

 

 

Sept. 30,

 

 

2020

 

 

2019

 

 

 

2020

 

 

2019

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

$

165,849

 

 

$

204,132

 

 

 

$

496,162

 

 

$

572,563

 

New equipment sales

 

37,248

 

 

 

65,010

 

 

 

 

112,068

 

 

 

177,709

 

Used equipment sales

 

40,000

 

 

 

31,180

 

 

 

 

105,231

 

 

 

96,942

 

Parts sales

 

27,853

 

 

 

31,499

 

 

 

 

83,842

 

 

 

93,798

 

Service revenues

 

15,637

 

 

 

18,105

 

 

 

 

48,116

 

 

 

50,398

 

Other

 

2,673

 

 

 

3,071

 

 

 

 

8,099

 

 

 

8,822

 

Total revenues

 

289,260

 

 

 

352,997

 

 

 

 

853,518

 

 

 

1,000,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

 

 

 

 

 

 

 

 

 

 

Rental depreciation

 

58,083

 

 

 

63,065

 

 

 

 

177,225

 

 

 

181,647

 

Rental expense

 

25,628

 

 

 

27,889

 

 

 

 

74,461

 

 

 

79,676

 

Rental other

 

16,816

 

 

 

18,620

 

 

 

 

47,847

 

 

 

52,742

 

 

 

100,527

 

 

 

109,574

 

 

 

 

299,533

 

 

 

314,065

 

New equipment sales

 

33,124

 

 

 

57,475

 

 

 

 

99,809

 

 

 

156,638

 

Used equipment sales

 

27,872

 

 

 

21,409

 

 

 

 

71,592

 

 

 

63,742

 

Parts sales

 

20,925

 

 

 

23,171

 

 

 

 

62,180

 

 

 

68,750

 

Service revenues

 

5,198

 

 

 

5,898

 

 

 

 

15,911

 

 

 

16,261

 

Other

 

2,547

 

 

 

3,342

 

 

 

 

7,873

 

 

 

10,167

 

Total cost of revenues

 

190,193

 

 

 

220,869

 

 

 

 

556,898

 

 

 

629,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

99,067

 

 

 

132,128

 

 

 

 

296,620

 

 

 

370,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

70,040

 

 

 

77,296

 

 

 

 

217,525

 

 

 

233,783

 

Merger costs

 

150

 

 

 

47

 

 

 

 

308

 

 

 

314

 

Gain on sales of property and equipment, net

 

(2,102

)

 

 

(718

)

 

 

 

(9,260

)

 

 

(2,339

)

Impairment of goodwill

 

 

 

 

 

 

 

 

61,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

30,979

 

 

 

55,503

 

 

 

 

26,053

 

 

 

138,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(14,887

)

 

 

(17,331

)

 

 

 

(46,489

)

 

 

(51,453

)

Other income, net

 

990

 

 

 

588

 

 

 

 

2,262

 

 

 

1,609

 

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

 

17,082

 

 

 

38,760

 

 

 

 

(18,174

)

 

 

89,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

6,979

 

 

 

10,329

 

 

 

 

(124

)

 

 

23,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

$

10,103

 

 

$

28,431

 

 

 

$

(18,050

)

 

$

65,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic – Net income (loss) per share

$

0.28

 

 

$

0.79

 

 

 

$

(0.50

)

 

$

1.82

 

Basic – Weighted average number of common shares outstanding

 

36,110

 

 

 

35,893

 

 

 

 

36,035

 

 

 

35,835

 

Diluted – Net income (loss) per share

$

0.28

 

 

$

0.79

 

 

 

$

(0.50

)

 

$

1.81

 

Diluted – Weighted average number of

common shares outstanding

 

36,249

 

 

 

36,046

 

 

 

 

36,035

 

 

 

36,012

 

Dividends declared per common share

$

0.275

 

 

$

0.275

 

 

 

$

0.825

 

 

$

0.825

 

 

 

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

2020

 

 

2019

Cash

$

11,997

 

$

14,247

Rental equipment, net

 

1,078,403

 

 

1,217,673

Total assets

 

1,731,495

 

 

1,974,610

Total debt (1)

 

968,354

 

 

1,167,429

Total liabilities

 

1,469,736

 

 

1,667,091

Stockholders’ equity

 

261,759

 

 

307,519

Total liabilities and stockholders’ equity

$

1,731,495

 

$

1,974,610

(1)

Total debt consists of the aggregate amounts on the senior secured credit facility, senior unsecured notes and finance lease obligations.

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share amounts)

 

 

 

 

 

Nine Months Ended September 30,

 

 

2020

 

 

 

2020

 

 

As Reported

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

 

Gross profit

 

$

296,620

 

 

 

 

 

$

296,620

 

Selling, general and administrative expenses

 

 

217,525

 

 

 

 

 

 

217,525

 

Impairment of goodwill

 

 

61,994

 

 

 

(61,994

)

 

 

 

Gain on sale of property and equipment, net

 

 

(9,260

)

 

 

 

 

 

(9,260

)

Merger costs

 

 

308

 

 

 

 

 

 

308

 

Income from operations

 

 

26,053

 

 

 

61,994

 

 

 

88,047

 

Interest expense

 

 

(46,489

)

 

 

 

 

 

(46,489

)

Other income, net

 

 

2,262

 

 

 

 

 

 

2,262

 

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

 

 

(18,174

)

 

 

61,994

 

 

 

43,820

 

Provision (benefit) for income taxes

 

 

(124

)

 

 

10,430

 

 

 

10,306

 

Net income (loss)

 

$

(18,050

)

 

$

51,564

 

 

$

33,514

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2020

 

 

 

2020

 

 

As Reported

 

Adjustment

 

As Adjusted

 

 

 

 

 

 

 

NET INCOME (LOSS) PER SHARE (1)

 

 

 

 

 

 

Basic – Net income (loss) per share

 

$

(0.50

)

 

$

1.43

 

 

$

0.93

 

Basic – Weighted average number of common

shares outstanding

 

 

 

 

 

 

 

 

36,035

 

 

 

36,035

 

 

 

36,035

 

Diluted – Net income (loss) per share

 

$

(0.50

)

 

$

1.43

 

 

$

0.93

 

Diluted – Weighted average number of common

shares outstanding

 

 

 

 

 

 

 

 

36,035

 

 

 

36,146

 

 

 

36,146

 

(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

September 30,

 

 

Nine Months Ended

September 30,

 

2020

 

2019

 

 

2020

2019

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

$

10,103

 

$

28,431

 

 

$

(18,050

)

$

65,288

Interest Expense

 

14,887

 

 

17,331

 

 

 

46,489

 

 

51,453

Provision (benefit) for income taxes

 

6,979

 

 

10,329

 

 

 

(124

)

 

23,719

Depreciation

 

65,642

 

 

70,320

 

 

 

199,634

 

 

202,610

Amortization of intangibles

 

994

 

 

1,042

 

 

 

2,996

 

 

3,091

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

$

98,605

 

$

127,453

 

 

$

230,945

 

$

346,161

 

 

 

 

 

 

 

 

 

 

 

 

Merger costs

 

150

 

 

47

 

 

 

308

 

 

314

Impairment of goodwill

 

 

 

 

 

 

61,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

$

98,755

 

$

127,500

 

 

$

293,247

 

$

346,475

 

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

Sept. 30,

2020

 

 

Sept. 30,

2019

 

 

Sept. 30,

2020

 

 

Sept. 30,

2019

 

RENTAL REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals (1)

 

$

149,423

 

$

184,797

 

$

448,817

 

$

518,294

 

Rentals other

 

 

16,426

 

 

19,335

 

 

47,345

 

 

54,269

 

Total equipment rentals

 

 

165,849

 

 

204,132

 

 

496,162

 

 

572,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL COST OF SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental depreciation

 

 

58,083

 

 

63,065

 

 

177,225

 

 

181,647

 

Rental expense

 

 

25,628

 

 

27,889

 

 

74,461

 

 

79,676

 

Rental other

 

 

16,816

 

 

18,620

 

 

47,847

 

 

52,742

 

Total rental cost of sales

 

 

100,527

 

 

109,574

 

 

299,533

 

 

314,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL REVENUES GROSS PROFIT (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

65,712

 

 

93,843

 

 

197,131

 

 

256,971

 

Rentals other

 

 

(390)

 

 

715

 

 

(502)

 

 

1,527

 

Total rental revenues gross profit

65,322

94,558

196,629

258,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RENTAL REVENUES GROSS MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

 

44.0%

 

 

50.8%

 

 

43.9%

 

 

49.6%

 

Rentals other

 

 

-2.3%

 

 

3.7%

 

 

-1.1%

 

 

2.8%

 

Total rental revenues gross margin

 

 

39.4%

 

 

46.3%

 

 

39.6%

 

 

45.1%

 

 

(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.

Contacts

Leslie S. Magee

Chief Financial Officer

225-298-5261

[email protected]

Kevin S. Inda

Vice President of Investor Relations

225-298-5318

[email protected]

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