H&E Equipment Services Reports Fourth Quarter 2018 Results

BATON ROUGE, La.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24HEES&src=ctag” target=”_blank”gt;$HEESlt;/agt;–H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for
the fourth quarter and year ended December 31, 2018.

FOURTH QUARTER 2018 SUMMARY

  • Revenues increased 17.4% to $346.0 million versus $294.7 million a
    year ago.
  • Pre-tax income was $34.8 million, an increase of $7.2 million, or
    26.1%, from a year ago.
  • Net income was $25.1 million in the fourth quarter compared to net
    income of $85.9 million a year ago. We recorded income tax expense of
    $9.7 million versus an income tax benefit of $58.4 million a year ago.
    The prior period $58.4 million tax benefit was due to a one-time
    revaluation of our deferred tax assets and liabilities resulting from
    the decrease in the corporate federal income tax rate enacted in
    December 2017. The effective income tax rate was 27.9% in the fourth
    quarter of 2018 and (211.7)% in the fourth quarter of 2017.
  • Adjusted EBITDA increased 26.2% to $114.6 million in the fourth
    quarter compared to $90.7 million a year ago, yielding a margin of
    33.1% of revenues compared to 30.8% a year ago.
  • Rental revenues increased 27.6% to $163.0 million in the fourth
    quarter compared to $127.7 million a year ago.
  • New equipment sales increased 7.1% to $79.7 million in the fourth
    quarter compared to $74.4 million a year ago.
  • Used equipment sales increased 17.8% to $37.8 million in the fourth
    quarter compared to $32.1 million a year ago.
  • Gross margin was 35.6% compared to 34.2% a year ago. The increase in
    gross margin was the result of a shift in revenue mix to higher margin
    rental revenues combined with strong operating performance from
    several business segments.
  • Rental gross margins were 51.5% in the fourth quarter of 2018 compared
    to 51.0% a year ago.
  • Average time utilization (based on original equipment cost) was 72.9%
    compared to 74.2% a year ago. The size of the Company’s rental fleet
    based on original acquisition cost increased 25.7% from a year ago, to
    $1.8 billion.
  • Average rental rates increased 2.0% compared to a year ago and 0.5%
    sequentially.
  • Dollar utilization was 37.0% in the fourth quarter compared to 36.2% a
    year ago.
  • Average rental fleet age at December 31, 2018, was 34.5 months
    compared to an industry average age of 45.4 months.

Brad Barber, H&E Equipment Services’ chief executive officer and
president, said, “As a result of strong demand for rental equipment and
new machinery combined with solid execution throughout our business,
fourth quarter total revenues increased 17.4% and Adjusted EBITDA
increased 26.2% from a year ago. Project activity in the non-residential
construction markets remained healthy and we continued to achieve rate
improvement and high physical utilization levels, which drove a 27.6%
increase in rental revenue from the prior year quarter. New equipment
sales exceeded our expectations, increasing 7.1% from a year ago, which
we believe to be a tough comp. The increase in new equipment sales was
largely due to higher aerial and crane sales, up 95.5% and 5.7%,
respectively.”

Barber concluded, “Our outlook for 2019 is positive as industry rental
revenues are forecast to increase, growth in the non-residential
construction markets is expected to continue and our larger contractor
customers remain confident about the level of projects in their
pipelines. Even with a fleet size that is 25.7%, or $361.0 million by
original acquisition cost, larger than a year ago, physical utilization
is currently running above year-ago levels. We remain focused on
additional growth through acquisitions and warm starts, with two
acquisitions in 2018 and our recent purchase of Texas-based We-Rent-It.”

FINANCIAL DISCUSSION FOR FOURTH QUARTER 2018:

Revenue

Total revenues increased 17.4% to $346.0 million in the fourth quarter
of 2018 from $294.7 million in the fourth quarter of 2017. Equipment
rental revenues increased 27.6% to $163.0 million compared with $127.7
million in the fourth quarter of 2017. New equipment sales increased
7.1% to $79.7 million from $74.4 million a year ago. Used equipment
sales increased 17.8% to $37.8 million compared to $32.1 million a year
ago. Parts sales increased 9.1% to $30.5 million from $28.0 million in
the fourth quarter of 2017. Service revenues decreased 3.3% to $15.2
million compared to $15.8 million a year ago.

Gross Profit

Gross profit increased 22.1% to $123.1 million from $100.9 million in
the fourth quarter of 2017. Gross margin was 35.6% for the quarter ended
December 31, 2018, as compared to 34.2% for the quarter ended December
31, 2017. On a segment basis, gross margin on rentals was 51.5% in the
fourth quarter of 2018 compared to 51.0% in the fourth quarter of 2017.
On average, rental rates were 2.0% higher than rates in the fourth
quarter of 2017. Time utilization (based on original equipment cost) was
72.9% in the fourth quarter of 2018 compared to 74.2% a year ago.

Gross margins on new equipment sales increased to 12.7% in the fourth
quarter compared to 11.0% a year ago. Gross margins on used equipment
sales were 29.1% compared to 31.0% a year ago. Gross margins on parts
sales were 26.0% in the fourth quarter of 2018 compared to 27.1% in the
fourth quarter of 2017. Gross margins on service revenues were 67.9% for
the fourth quarter of 2018 compared to 66.9% in the fourth quarter of
2017.

Rental Fleet

At the end of the fourth quarter of 2018, the original acquisition cost
of the Company’s rental fleet was $1.8 billion, an increase of $361.0
million from the end of the fourth quarter of 2017. Dollar utilization
was 37.0% compared to 36.2% for the fourth quarter of 2017.

Selling, General and Administrative Expenses

SG&A expenses for the fourth quarter of 2018 were $73.0 million compared
with $60.5 million the prior year, a $12.6 million, or 20.8%, increase.
SG&A expenses in the fourth quarter of 2018 as a percentage of total
revenues were 21.1% compared to 20.5% a year ago. The increase in SG&A
was attributable to higher labor, wages, incentives, related employee
benefit costs and other employee expenses of $8.1 million due to the CEC
and Rental Inc. acquisitions completed in 2018, a larger workforce and
higher compensation related to our improved profitability. In addition,
our results for the quarter ended December 31, 2018, included $0.9
million of amortization expense associated with the recognition of
intangible assets from the CEC and Rental Inc. purchase price
allocations. Expenses related to Greenfield branch expansions increased
$0.4 million compared to a year ago.

Income from Operations

Income from operations for the fourth quarter of 2018 increased 26.4% to
$50.9 million, or 14.7% of revenues, compared to $40.3 million, or 13.7%
of revenues, a year ago.

Interest Expense

Interest expense was $16.6 million for the fourth quarter of 2018
compared to $13.3 million a year ago.

Net Income

Net income was $25.1 million, or $0.70 per diluted share, in the fourth
quarter of 2018 compared to net income of $85.9 million, or $2.40 per
diluted share, in the fourth quarter of 2017. We recorded an income tax
benefit of $58.4 million a year ago, resulting from a one-time
revaluation of our deferred tax assets and liabilities due to the
decrease in the corporate federal income tax rate enacted in December
2017. The effective income tax rate was 27.9% in the fourth quarter of
2018 and (211.7)% in the fourth quarter of 2017.

Adjusted EBITDA

Adjusted EBITDA for the fourth quarter of 2018 increased 26.2% to $114.6
million compared to $90.7 million in the fourth quarter of 2017.
Adjusted EBITDA as a percentage of revenues was 33.1% compared with
30.8% in the fourth quarter of 2017.

FINANCIAL DISCUSSION FOR THE YEAR ENDED
DECEMBER 31, 2018:

Revenue

Total revenues increased 20.3%, or $208.9 million, to $1.2 billion in
2018 from $1.0 billion in 2017. Equipment rental revenues increased
23.6% to $592.2 million compared with $479.0 million in 2017. New
equipment sales increased 29.3% to $262.9 million from $203.3 million a
year ago. Used equipment sales increased 16.6% to $125.1 million
compared to $107.3 million a year ago. Parts sales increased 5.4% to
$120.5 million from $114.3 million in 2017. Service revenues increased
1.0% to $63.5 million from $62.9 million a year ago.

Gross Profit

Gross profit increased 21.8%, or $78.6 million, to $438.5 million from
$359.9 million in 2017. Gross margin was 35.4% for 2018 compared to
34.9% for 2017. On a segment basis, gross margin on rentals increased to
49.7% in 2018 from 48.4% in 2017. On average, 2018 rental rates
increased 2.1% compared to 2017. In 2018, time utilization (based on
original equipment cost) was 71.6% compared to 72.1% a year ago.

Gross margins on new equipment sales increased to 11.7% from 11.1% a
year ago. Gross margins on used equipment sales increased to 31.2%
compared to 30.9% a year ago. Gross margins on parts sales were 26.7%
compared to 27.2% a year ago. Gross margins on service revenues were
66.4% in 2018 and 2017.

Selling, General and Administrative Expenses

SG&A expenses for 2018 were $278.3 million compared with $232.8 million
in 2017, an increase of $45.5 million, or 19.6%. In 2018, SG&A expenses
as a percentage of total revenues decreased to 22.5% compared to 22.6% a
year ago. The increase in SG&A expenses was attributable to higher
labor, wages, incentives, related employee benefits costs and other
employee expenses of $30.8 million due to the CEC and Rental Inc.
acquisitions completed in 2018, a larger workforce and higher
compensation related to our improved profitability. Legal and
professional fees increased $3.6 million. Supply costs increased $2.0
million. Utility costs increased $1.7 million and other facility related
expenses increased $1.8 million. Promotional expenses increased $1.1
million. Liability insurance cost increased $0.9 million. In addition,
our results for the year ended December 31, 2018, included $3.3 million
of amortization expense associated with the recognition of intangible
assets from the CEC and Rental Inc. purchase price allocations. Expenses
related to Greenfield branch expansions increased $4.0 million compared
to a year ago.

Income from Operations

Income from operations in 2018 increased 20.8% to $166.6 million, or
13.5% of revenues, compared to $137.9 million, or 13.4% of revenues, in
2017. The year ago period included $5.8 million of merger breakup fee
proceeds, net of merger costs. Excluding the merger breakup fee
proceeds, net of merger costs, 2018 income from operations increased
26.7%.

Interest Expense

Interest expense in 2018 was $63.7 million, an $8.7 million increase
from $55.0 million a year ago.

Net Income1

Net income was $76.6 million, or $2.13 per diluted share, compared to
net income of $109.7 million, or $3.07 per diluted share, in 20171.
We recorded an income tax benefit of $50.3 million in 2017 from a
one-time re-measurement of our deferred tax assets and liabilities
resulting from the decrease in the corporate federal income tax rate
from 35% to 21%. The effective income tax rate was 26.8% in 2018
compared to (84.8%) in 2017.

__________

1

In the third quarter of 2017, the Company completed its offering of
new 8-year 5.625% senior unsecured notes and the repurchase and
redemption of its previously outstanding 7% senior unsecured notes.
The Company’s operating results for the year ended 2017 include a
$25.4 million non-recurring item associated with the premiums paid
to repurchase and redeem the old notes and the write-off of
unamortized note discount and deferred transaction costs associated
therewith and $5.8 million of income, net of merger costs, resulting
from the termination of our merger agreement with Neff Corporation.
 

Adjusted EBITDA

Adjusted EBITDA for 2018 increased 23.9% to $405.4 million from $327.1
million in 2017. Adjusted EBITDA as a percentage of revenues was 32.7%
compared with 31.8% in 2017.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA and
Adjusted EBITDA). 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 fourth
quarter and full-year 2018 results today, February 21, 2019 at 10:00
a.m. (Eastern Time). To listen to the call, participants should dial
323-794-2551 approximately 10 minutes prior to the start of the call. A
telephonic replay will become available after 1:00 p.m. (Eastern Time)
on February 21, 2019, and will continue through March 2, 2019, by
dialing 719-457-0820 and entering the confirmation code 1714345.

The live broadcast of the Company’s quarterly conference call will be
available online at www.he-equipment.com
on February 21, 2019, 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) 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, 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 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 and any potential acquisitions we may
make, including any related capital expenditures, or our inability to
consummate such acquisitions; (8) our possible inability to integrate
any businesses we acquire; (9) competitive pressures; (10) security
breaches and other disruptions in our information technology systems;
(11) adverse weather events or natural disasters; (12) 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 (13) 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 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 INCOME (unaudited)
(Amounts in thousands, except per share amounts)
   
Three Months Ended Twelve Months Ended
Dec. 31,   Dec. 31, Dec. 31,   Dec. 31,

2018

2017

2018

2017

Revenues:
Equipment rentals $ 162,966 $ 127,713 $ 592,193 $ 479,016
New equipment sales 79,683 74,418 262,948 203,301
Used equipment sales 37,838 32,110 125,125 107,329
Parts sales 30,538 27,994 120,454 114,253
Service revenues 15,238 15,752 63,488 62,873
Other   19,711     16,679     74,753     63,247  
Total revenues 345,974 294,666 1,238,961 1,030,019
 
Cost of revenues:
Rental depreciation 55,753 43,459 208,453 169,455
Rental expense 23,239 19,182 89,520 77,706
New equipment sales 69,592 66,262 232,057 180,702
Used equipment sales 26,831 22,153 86,052 74,132
Parts sales 22,586 20,400 88,263 83,135
Service revenues 4,898 5,213 21,328 21,111
Other   19,959     17,127     74,754     63,870  
Total cost of revenues   222,858     193,796     800,427     670,111  
 
Gross Profit 123,116 100,870 438,534 359,908
 
Selling, general, and administrative expenses 73,026 60,456 278,298 232,784
Merger costs, net of merger breakup fee proceeds

(269

)

(724

)

(708

)

5,782

Gain on sales of property and equipment, net   1,078     578     7,118     5,009  
 
Income from Operations 50,899 40,268 166,646 137,915
 
Loss on early extinguishment of debt (25,363 )
Interest expense (16,646 ) (13,293 ) (63,707 ) (54,958 )
Other income, net   502     594     1,724     1,750  
Income before provision (benefit) for income taxes 34,755 27,569 104,663 59,344
 
Provision (benefit) for income taxes   9,695     (58,359 )   28,040     (50,314 )
 
Net income $ 25,060   $ 85,928   $ 76,623   $ 109,658  
 
NET INCOME PER SHARE:
Basic – Net income per share $ 0.70   $ 2.41   $ 2.15   $ 3.09  
Basic – Weighted average number of common shares outstanding  

35,764

    35,582    

35,677

    35,516  
Diluted – Net income per share $ 0.70   $ 2.40   $ 2.13   $ 3.07  

Diluted – Weighted average number of common shares outstanding

 

35,901

   

35,827

   

35,903

   

35,699

 
Dividends declared per common share $ 0.275   $ 0.275   $ 1.100   $ 1.100  
 
 
H&E EQUIPMENT SERVICES, INC.
SELECTED BALANCE SHEET DATA (unaudited)
(Amounts in thousands)
   
Dec. 31, Dec. 31,

2018

2017

Cash $ 16,667 $ 165,878
Rental equipment, net 1,141,498 904,824
Total assets 1,727,181 1,467,717
Total debt (1) 1,121,487 951,486
Total liabilities 1,470,378 1,250,924
Stockholders’ equity 256,803 216,793
Total liabilities and stockholders’ equity $ 1,727,181 $ 1,467,717
 

(1)

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

 
 
H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands)
 
  Three Months Ended

Dec. 31,

  Twelve Months Ended

Dec. 31,

2018

 

2017

2018

 

2017

 
 
Net Income $ 25,060 $ 85,928 $ 76,623 $ 109,658
Interest Expense 16,646 13,293 63,707 54,958
Provision (benefit) for income taxes 9,695 (58,359 ) 28,040 (50,314 )
Depreciation 61,979 49,157 233,046 193,245
Amortization of intangibles 905 3,320
 
EBITDA $ 114,285 $ 90,019 $ 404,736 $ 307,547
 
Merger costs, net of merger breakup fee proceeds

269

724

708

(5,782

)

Loss on early extinguishment of debt 25,363
 
Adjusted EBITDA $ 114,554 $ 90,743 $ 405,444 $ 327,128

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

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