H&E Equipment Services Reports Second Quarter 2016 Results

BATON ROUGE, La.--()--H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for the second quarter ended June 30, 2016.

SECOND QUARTER 2016 SUMMARY

  • Revenues decreased 7.7% to $242.1 million versus $262.4 million a year ago.
  • Net income was $7.5 million in the second quarter compared to net income of $11.5 million a year ago.
  • EBITDA was $72.5 million in the second quarter compared to EBITDA of $79.4 million a year ago, yielding a margin of 29.9% of revenues compared to 30.3% a year ago.
  • Rental revenues were $108.7 million in the second quarter compared to $108.6 million a year ago.
  • New equipment sales decreased 22.5% to $49.9 million in the second quarter compared to $64.4 million a year ago.
  • Parts and service revenues on a combined basis decreased 1.2% to $43.6 million in the second quarter compared to $44.1 million a year ago.
  • Gross margin was 33.8% as compared to 32.9% a year ago.
  • Rental gross margins were 46.9% in the second quarter of 2016 and 46.7% a year ago.
  • Average time utilization (based on original equipment cost) was 70.1% compared to 70.3% a year ago. Average time utilization (based on units available for rent) was 67.5% compared to 67.7% last year.
  • Average rental rates decreased 0.3% compared to a year ago.
  • Dollar utilization was 33.9% in the second quarter compared to 34.2% a year ago.
  • Average rental fleet age at June 30, 2016, was 31.6 months compared to an industry average age of 42.7 months.

John Engquist, H&E Equipment Services’ chief executive officer, said, “The overall non-residential construction industry remains healthy and demand for rental equipment remains solid. Unfortunately, the heavy rainfall and subsequent flooding in South Texas and Louisiana was a major headwind during the quarter, having a significant impact on the demand for earthmoving equipment. Despite the weather challenges, our utilization based on OEC for the second quarter was 70.1%, down just 20 basis points from a year ago as a result of higher demand for aerial work platforms. As we expected, rental rates declined slightly from a year ago and our distribution business continued to be negatively impacted by weak crane demand as a result of the ongoing weakness in the oil and gas markets.”

Engquist concluded, “From a mid-year perspective, demand in our non-residential construction markets remains favorable across our entire footprint. Despite the significantly lower number of energy and chemical related project starts compared to last year, activity in our Gulf Coast industrial markets is positive with ongoing maintenance work on existing plants and new projects. Texas remains a strong market with new projects unrelated to the oil patch, including new warehouses and distribution centers, infrastructure and industrial projects, and new office buildings to support the state’s strong, recent employment growth.”

FINANCIAL DISCUSSION FOR SECOND QUARTER 2016:

Revenue

Total revenues decreased 7.7% to $242.1 million in the second quarter of 2016 from $262.4 million in the second quarter of 2015. Equipment rental revenues were $108.7 million compared with $108.6 million in the second quarter of 2015. New equipment sales decreased 22.5% to $49.9 million from $64.4 million a year ago. Used equipment sales decreased 17.8% to $23.8 million compared to $28.9 million a year ago. Parts sales decreased 6.0% to $26.7 million from $28.3 million in the second quarter of 2015. Service revenues increased 7.5% to $16.9 million compared with $15.8 million a year ago.

Gross Profit

Gross profit decreased 5.4% to $81.7 million from $86.4 million in the second quarter of 2015. Gross margin was 33.8% for the quarter ended June 30, 2016, as compared to 32.9% for the quarter ended June 30, 2015. On a segment basis, gross margin on rentals was 46.9% in the second quarter of 2016 and 46.7% in the second quarter of 2015. On average, rental rates were 0.3% lower than rates in the second quarter of 2015. Time utilization (based on original equipment cost) was 70.1% in the second quarter of 2016 compared to 70.3% a year ago. Time utilization (based on units available for rent) was 67.5% in the second quarter of 2016 compared to 67.7% a year ago.

Gross margins on new equipment sales decreased to 10.7% compared to 11.8% in the second quarter a year ago. Gross margins on used equipment sales were 29.0% compared to 32.2% a year ago. Gross margins on parts sales were 27.9% in the second quarter of 2016 and 27.3% in the second quarter of 2015. Gross margins on service revenues were 64.7% for the second quarter of 2016 compared to 67.3% in the second quarter of 2015.

Rental Fleet

At the end of the second quarter of 2016, the original acquisition cost of the Company’s rental fleet was $1,295.1 million, an increase of $13.9 million from $1,281.2 million at the end of the second quarter of 2015. Dollar utilization was 33.9% compared to 34.2% for the second quarter of 2015.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2016 were $57.0 million compared with $54.4 million last year, a $2.6 million, or 4.8% increase. SG&A expenses in the second quarter of 2016 increased as a percentage of total revenues to 23.6% compared to 20.7% last year. The net increase in SG&A expenses is largely due to higher salaries and wages, professional services and facility expenses. Of the $2.6 million increase, $1.9 million was attributable to new branch expansions compared to a year ago.

Income from Operations

Income from operations for the second quarter of 2016 was $25.4 million, or 10.5% of revenues, compared to $33.0 million, or 12.6% of revenues, a year ago.

Interest Expense

Interest expense for the second quarter of 2016 was $13.4 million compared to $13.7 million a year ago.

Net Income

Net income was $7.5 million, or $0.21 per diluted share, in the second quarter of 2016 compared to net income of $11.5 million, or $0.33 per diluted share, in the second quarter of 2015. The effective income tax rate was 41.0% in the second quarter compared to 40.9% a year ago.

EBITDA

EBITDA for the second quarter of 2016 was $72.5 million compared to $79.4 million in the second quarter of 2015. EBITDA as a percentage of revenues was 29.9% compared with 30.3% in the second 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 second quarter results today, July 28, 2016, at 11:00 a.m. (Eastern Time). To listen to the call, participants should dial 913-312-0726 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 2:00 p.m. (Eastern Time) on July 28, 2016, and will continue to be available through August 5, 2016, by dialing 719-457-0820 and entering confirmation code 3488802.

The live broadcast of the Company’s quarterly conference call will be available online at www.he-equipment.com on July 28, 2016, beginning at 11:00 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

   

Six Months Ended

June 30,

June 30,

2016

   

2015

2016

   

2015

 
Revenues:
Equipment rentals $ 108,650 $ 108,628 $ 211,488 $ 210,017
New equipment sales 49,893 64,376 107,072 108,913
Used equipment sales 23,769 28,932 51,343 54,002
Parts sales 26,654 28,347 54,623 55,432
Service revenues 16,945 15,769 33,246 30,725
Other   16,184     16,308     31,333     30,681  
Total revenues 242,095 262,360 489,105 489,770
 
Cost of revenues:
Rental depreciation 39,675 40,214 79,172 80,158
Rental expense 18,021 17,701 34,784 33,312
New equipment sales 44,531 56,749 95,005 96,068
Used equipment sales 16,875 19,613 35,387 36,499
Parts sales 19,213 20,607 39,476 40,126
Service revenues 5,990 5,158 11,291 10,435
Other   16,082     15,914     31,138     30,428  
Total cost of revenues   160,387     175,956     326,253     327,026  
 
Gross profit 81,708 86,404 162,852 162,744
 

Selling, general, and administrative expenses

57,049 54,414 116,423 107,880

Gain on sales of property and equipment, net

  712     972     1,374     1,430  
 
Income from operations 25,371 32,962 47,803 56,294
 
Interest expense (13,353 ) (13,749 ) (26,760 ) (27,194 )
Other income, net   689     228     1,119     582  

Income before provision for income taxes

12,707 19,441 22,162 29,682
 
Provision for income taxes   5,204     7,961     9,085     12,116  
 
Net income $ 7,503   $ 11,480   $ 13,077   $ 17,566  
 
NET INCOME PER SHARE
Basic – Net income per share $ 0.21   $ 0.33   $ 0.37   $ 0.50  

Basic – Weighted average number of common shares outstanding

  35,354     35,238     35,347     35,232  
 
Diluted – Net income per share $ 0.21   $ 0.33   $ 0.37   $ 0.50  

Diluted – Weighted average number of common shares outstanding

  35,480     35,314     35,439     35,300  
Dividends declared per common share $ 0.275   $ 0.25   $ 0.55   $ 0.50  
 
 
 
 
 
 
 

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

 
 

June 30,

 

December 31,

2016(1)

2015(1)

 
Cash $ 10,353 $ 7,159
Rental equipment, net 888,792 893,393
Total assets 1,303,552 1,299,511

Total debt(2)

806,311 816,764
Total liabilities 1,165,993 1,156,923
Stockholders’ equity 137,559 142,588
Total liabilities and stockholders’ equity $ 1,303,552 $ 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

     

Six Months Ended

June 30,

June 30,

2016

   

2015

2016

   

2015

 
Net income $ 7,503 $ 11,480 $ 13,077 $ 17,566
Interest expense 13,353 13,749 26,760 27,194
Provision for income taxes 5,204 7,961 9,085 12,116
Depreciation   46,437   46,245   92,636   91,812
 
EBITDA $ 72,497 $ 79,435 $ 141,558 $ 148,688
 
 
 
 

Contacts

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

$Cashtags

Contacts

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