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H&E Equipment Services Reports Third Quarter 2014 Results

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H&E Equipment Services, Inc. (NASDAQ:HEES) today announced results for the third quarter ended September 30, 2014.

THIRD QUARTER 2014 HIGHLIGHTS:

  • Revenues increased 1.7% to $275.0 million versus $270.4 million a year ago.
  • Net income increased 9.7%, or $1.3 million, to $15.3 million in the third quarter compared to $14.0 million a year ago, despite a much higher quarterly effective income tax rate. The effective income tax rate in the third quarter of 2014 increased to 43.6% compared to 33.5% a year ago due to a lower benefit from permanent items in the current period. Income before provision for taxes in the third quarter increased 29.3% to $27.1 million compared to $21.0 million a year ago.
  • EBITDA increased 18.8% to $83.1 million from $70.0 million, yielding a margin of 30.2% of revenues compared to 25.9% a year ago.
  • Rental revenues increased 21.0%, or $18.8 million, to $108.2 million due to a larger fleet, higher physical utilization and improved rates compared to a year ago.
  • Combined parts and service revenues increased 10.7% in the third quarter to $44.6 million this quarter compared to $40.3 million a year ago.
  • Gross margin this quarter was 33.1% as compared to 29.7% a year ago with improved gross margin results in all business segments. Rental gross margin increased to 50.5% compared to 49.6% a year ago and combined parts and service gross margins increased to 41.6% compared to 40.3% a year ago.
  • Average time utilization (based on original equipment cost) was 74.1% compared to 72.3% a year ago and 72.7% in the second quarter of 2014. Average time utilization (based on units available for rent) was 68.3% compared to 66.6% last year and 67.0% last quarter.
  • Average rental rates increased 2.9% compared to a year ago and improved 1.3% compared to the second quarter of this year.
  • Dollar utilization was 36.9% as compared to 36.7% a year ago.
  • Average rental fleet age at September 30, 2014, was 31.8 months, down from 32.3 months at the end of the last quarter and younger than the industry average age of 42.9 months.

John Engquist, H&E Equipment Services’ chief executive officer, said, “The solid strength and momentum in our business continued in the third quarter and we believe further substantiates the recovery in the non-residential construction market. In the third quarter, we achieved a healthy 21.0% increase in rental revenues, maintained above industry average utilization, and similar to last quarter, our combined parts and service business experienced double-digit growth. Although our new equipment sales were down year over year, we believe that this is primarily due to a challenging comparable quarter last year and demand for new equipment remains strong. We are pleased with the solid leverage in our business as EBITDA increased 18.8% on single-digit revenue growth, validating our strategy and evidencing our ability to capitalize on improving trends and opportunities in our end user markets.”

Engquist concluded, “Our outlook for the remainder of this year and into 2015 remains positive as we believe our company will continue to benefit from the anticipated growth in the commercial construction markets in the United States. The significant capital projects forecasted for our Gulf Coast region related to major chemical, energy and manufacturing are reported to be on track. We anticipate further fleet investment during the fourth quarter based on the current demand in our markets as well as in anticipation of these projects. Our company remains focused on executing our strategy and profitable growth.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2014:

Revenue

Total revenues increased 1.7% to $275.0 million from $270.4 million in the third quarter of 2013. Equipment rental revenues increased 21.0% to $108.2 million compared with $89.4 million in the third quarter of 2013. New equipment sales decreased 10.5% to $80.8 million from $90.2 million in the third quarter of 2013. Used equipment sales decreased 31.5% to $25.2 million compared to $36.8 million in the third quarter of 2013. Parts sales increased 9.2% to $29.0 million from $26.6 million in the third quarter of 2013. Service revenues increased 13.8% to $15.6 million compared to $13.7 million a year ago.

Gross Profit

Gross profit increased 13.4% to $91.1 million from $80.3 million in the third quarter of 2013. Gross margin was 33.1% for the quarter ended September 30, 2014, compared to gross margin of 29.7% for the quarter ended September 30, 2013. On a segment basis, gross margin expanded in each business segment compared to a year ago.

Third quarter 2014 gross margin on equipment rentals was 50.5% compared to 49.6% in the third quarter of 2013 due to higher fleet utilization, improved average rental rates on new contracts in the period and lower rental expenses as a percentage of equipment rental revenues. On average, rental rates increased 2.9% as compared to the third quarter of 2013. Time utilization (based on original equipment cost) was 74.1% in the third quarter of 2014 and 72.3% a year ago.

Gross margin on new equipment sales was 11.3% compared to 10.6% in the third quarter a year ago. Gross margin on used equipment sales was 31.1% compared to 26.3% a year ago. Gross margin on parts sales was 28.6% in this quarter and 28.0% a year ago. Gross margin on service revenues was 65.7% compared to 64.0% in the prior year.

Rental Fleet

At the end of the third quarter of 2014, the original acquisition cost of the Company’s rental fleet was $1.2 billion, an increase of $218.1 million from $978.9 million at the end of the third quarter of 2013 and an increase of $196.2 million from $1.0 billion at the end of 2013. Dollar utilization was 36.9% and 36.7% in the third quarters of 2014 and 2013, respectively.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2014 were $51.6 million compared with $47.0 million last year, a $4.6 million, or 9.8%, increase. For the third quarter of 2014, SG&A expenses as a percentage of total revenues were 18.8% compared to 17.4% a year ago, largely as a result of the impact from the decline in new and used equipment sales in the third quarter of 2014.

Income from Operations

Income from operations for the third quarter of 2014 increased 17.9% to $40.0 million, or 14.5% of revenues, compared with $33.9 million, or 12.6% of revenues, a year ago.

Interest Expense

Interest expense was $13.2 million in each of the third quarters of 2014 and 2013.

Net Income

Net income for the third quarter of 2014 was $15.3 million, or $0.43 per diluted share, compared to net income of $14.0 million, or $0.40 per diluted share, a year ago on a higher effective income tax rate in the current period. In the third quarter of 2014, the effective income tax rate was 43.6% compared to 33.5% a year ago due to a lower benefit from permanent items combined with discrete items in the current quarter.

EBITDA

EBITDA for the third quarter of 2014 increased 18.8% to $83.1 million compared to $70.0 million a year ago. EBITDA, as a percentage of revenues, was 30.2% compared to 25.9% a year ago.

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 a discussion of our use of this measure. EBITDA 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 30, 2014, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 913-312-1437 approximately 10 minutes prior to the start of the call. A telephonic replay will be available after 1:00 p.m. (Eastern Time) on October 30, 2014, and will continue through November 8, 2014, by dialing 719-457-0820 and entering confirmation code 2268117.

The live broadcast of the Company’s quarterly conference call will be available online at www.he-equipment.com on October 30, 2014, 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 69 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 service 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, and 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 service 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” 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) the pace of economic recovery in areas affecting our business (although we have experienced an upturn in our business activities from the most recent economic downturn and related decreases in construction and industrial activities, there is no certainty that this trend will continue; if the pace of the recovery slows or construction and industrial activities decline, our revenues and operating results may be severely affected); (3) the impact of conditions of the global credit markets and their effect on construction spending activity 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) the risks associated with the expansion of our business; (8) our possible inability to effectively 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 and 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 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,

2014

2013

2014

2013

Revenues:
Equipment rentals $ 108,238 $ 89,420 $ 293,276 $ 248,518
New equipment sales 80,758 90,220 240,886 216,979
Used equipment sales 25,198 36,779 85,940 103,589
Parts sales 29,009 26,571 83,182 77,971
Service revenues 15,622 13,729 45,372 42,050
Other 16,219 13,730 43,995 39,070
Total revenues 275,044 270,449 792,651 728,177
Cost of revenues:
Rental depreciation 37,654 31,527 106,101 89,679
Rental expense 15,881 13,550 45,686 41,401
New equipment sales 71,630 80,659 212,777 193,453
Used equipment sales 17,350 27,086 58,824 74,006
Parts sales 20,705 19,123 59,028 56,660
Service revenues 5,356 4,943 15,864 15,743
Other 15,402 13,261 41,453 37,043
Total cost of revenues 183,978 190,149 539,733 507,985
Gross profit 91,066 80,300 252,918 220,192

Selling, general, and administrative expenses

51,585 46,977 152,324 140,347

Gain on sales of property and equipment, net

512 609 1,932 1,715
Income from operations 39,993 33,932 102,526 81,560
Interest expense (13,171 ) (13,193 ) (38,743 ) (38,550 )
Other income, net 293 237 943 945

Income before provision for income taxes

27,115 20,976 64,726 43,955
Provision for income taxes 11,815 7,023 26,264 14,416
Net income $ 15,300 $ 13,953 $ 38,462 $ 29,539
NET INCOME PER SHARE
Basic – Net income per share $

0.43

$

0.40 $ 1.09 $ 0.84

Basic – Weighted average number of common shares outstanding

35,206 35,099 35,142 35,022
Diluted – Net income per share $

0.43

$

0.40 $ 1.09 $ 0.84

Diluted – Weighted average number of common shares outstanding

35,266 35,169 35,240 35,130

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

September 30,

December 31,

2014

2013

Cash $ 5,287 $ 17,607
Rental equipment, net 852,818 688,710
Total assets 1,318,788 1,090,340

Total debt(1)

852,630 734,738
Total liabilities 1,193,116 995,528
Stockholders’ equity 125,672 94,812
Total liabilities and stockholders’ equity $ 1,318,788 $ 1,090,340

(1) Total debt consists of the amounts outstanding on the senior secured credit facility,

capital lease obligations and the aggregate amounts 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,

2014

2013

2014

2013

Net income $ 15,300 $ 13,953 $ 38,462 $ 29,539
Interest expense 13,171 13,193 38,743 38,550
Provision for income taxes 11,815 7,023 26,264 14,416
Depreciation 42,849 35,805 121,014 102,034
EBITDA $ 83,135 $ 69,974 $ 224,483 $ 184,539

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