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.

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.

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