H&E Equipment Services, Inc. Reports Third Quarter 2022 Results

Rhea-AI Summary

H&E Equipment Services (NASDAQ: HEES) reported robust financial performance for Q3 2022, with total revenues rising by 17.7% to $324.3 million, driven largely by a 28.6% increase in equipment rental revenues. Net income soared 55.2% to $38.4 million. Adjusted EBITDA reached $139.4 million, reflecting a margin of 43%. The company achieved record fleet utilization at 73.3% and improved gross margins across segments. Despite a 34.7% drop in used equipment sales, new equipment sales saw a 21.4% increase. H&E continues expanding its branch network and anticipates favorable industry conditions ahead.

Positive

• Total revenues increased by 17.7% to $324.3 million.
• Net income rose by 55.2% to $38.4 million.
• Adjusted EBITDA increased by 24.1% to $139.4 million, with a margin of 43%.
• Equipment rental revenues grew by 28.6% to $253.6 million.
• Average rental rate increased by 10.1% year-over-year.
• Fleet size grew by $305.4 million, or 16.7%, totaling approximately $2.1 billion.

Negative

• Used equipment sales decreased by 34.7% to $20.3 million.
• SG&A expenses rose by 18.1% to $87.9 million due to increased salaries and operational costs.

BATON ROUGE, La.--(BUSINESS WIRE)-- H&E Equipment Services, Inc. (NASDAQ: HEES) (“H&E” or the “Company”) today announced results for the third quarter ended September 30, 2022, citing record results for its rental business segment, meaningful fleet growth and further expansion of its branch network. On October 1, 2021, the Company sold its crane business, (the “Crane Sale”). All results and comparisons for the periods reported are presented on a continuing operations basis with the Crane Sale reported as discontinued operations in certain statements and schedules accompanying this report.

THIRD QUARTER 2022 SUMMARY

• Revenues increased 17.7% to $324.3 million compared to $275.4 million in the third quarter of 2021.
• Net income increased 55.2% to $38.4 million compared to $24.7 million in the third quarter of 2021. The effective income tax rate was 25.2% compared to 24.7% in the third quarter of 2021.
• Adjusted EBITDA totaled $139.4 million, an increase of 24.1% compared to $112.3 million in the third quarter of 2021, resulting in a margin of 43.0% of revenues compared to 40.8% in the third quarter of 2021.
• Total equipment rental revenues were $253.6 million, an increase of $56.4 million, or 28.6%, compared to $197.2 million in the third quarter of 2021. Rental revenues were $224.1 million, an increase of $47.5 million, or 26.9%, compared to $176.7 million in the third quarter of 2021.
• Used equipment sales decreased 34.7% to $20.3 million compared to $31.1 million in the third quarter of 2021. Margins improved to 53.7% compared to 37.6% in the third quarter of 2021.
• New equipment sales totaled $23.5 million, an increase of 21.4% when compared to $19.4 million in the third quarter of 2021.
• Gross margin improved to 46.8% compared to 41.4% in the third quarter of 2021.
• Total equipment rental gross margins were 50.5% compared to 45.6% in the third quarter of 2021. Rental gross margins were 55.6% compared to 50.9% over the same period of comparison.
• Average time utilization (based on original equipment cost) was 73.3% compared to 71.9% in the third quarter of 2021. The Company’s rental fleet, based on original acquisition cost, closed the third quarter of 2022 at approximately $2.1 billion, an increase of $305.4 million, or 16.7%, compared to the third quarter of 2021.
• Average rental rates increased 10.1% when compared to the third quarter of 2021, and 3.2% when compared to the second quarter of 2022.
• Dollar utilization improved to 42.7% compared to 38.9% in the third quarter of 2021.
• Average rental fleet age on September 30, 2022, was 40.6 months compared to an industry average age of 53.0 months.
• Paid regular quarterly cash dividend of $0.275 per share of common stock.

"A combination of exceptional rental rate appreciation, robust physical fleet utilization and further fleet growth resulted in record performance for our equipment rental segment," stated Brad Barber, chief executive officer of H&E. "We continue to lead the industry in average rental rate improvement, with rates in the third quarter advancing 10.1% when compared to the same quarter in 2021, and 3.2% on a sequential quarterly basis. I believe several factors contribute to our consistent pricing success, including outstanding operational execution and the use of our proprietary “Smart Rates” platform, along with an advantageous mix of equipment, and expanding geographic reach. Also, average physical fleet utilization continued to rise, closing the quarter at 73.3%, or 140 and 10 basis points ahead of the year-ago and sequential quarters, respectively. Finally, our fleet, as measured by original equipment cost (OEC), grew $305.4 million, or 16.7% from the year-ago quarter and $277.0 million, or 14.9%, since the close of 2021. We ended the third quarter with record fleet OEC of more than $2.1 billion while establishing record revenue, gross profit, and gross margin in our equipment rental segment. On a consolidated basis, records were set for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin."

Mr. Barber offered an encouraging perspective on the equipment rental industry, explaining, "We expect favorable industry fundamentals to prevail through the close of 2022 and into 2023. This promising outlook is supported by a backlog of projects in the non-residential construction and industrial end markets that continue to sustain strong customer demand. In addition, global supply chains continue to constrict the availability of rental equipment. These factors reinforce a fundamentally sound business environment, leading to solid fleet utilization and favorable pricing trends. As early as 2023, we expect to benefit from the onset of numerous infrastructure projects, as well as other construction projects focused on the expansion of U.S. manufacturing capabilities and renewable energy. Collectively, these programs are expected to provide greater visibility to emerging construction opportunities."

H&E has successfully demonstrated its ability to grow, with 2022 being a record year of expansion for the Company. Concluding, Mr. Barber said, "Our strategic growth and expansion initiatives made exceptional progress in the third quarter. The previously announced acquisition of One Source Equipment Rentals Inc. (One Source), which closed on October 1, 2022, increases our branch network by 10 locations, including an initial presence in Illinois, Indiana and Kentucky. In addition, the consistent progress of our accelerated new location program was evident in the third quarter, with four branches opened during the period. The latest branch openings bring the total of new locations this year to eight. With more openings expected in the fourth quarter, we are confident in achieving our goal of no less than 10 new locations in 2022. In less than two years, we have added 28 locations to our branch network and now operate 120 branches across 29 states."

FINANCIAL DISCUSSION FOR THIRD QUARTER 2022

Revenue

Total revenues improved to $324.3 million, or 17.7%, in the third quarter of 2022 from $275.4 million in the third quarter of 2021. Total equipment rental revenues of $253.6 million improved 28.6% compared to $197.2 million in the third quarter of 2021. Rental revenues of $224.1 million increased 26.9% compared to $176.7 million in the third quarter of 2021. Used equipment sales of $20.3 million decreased 34.7% compared to $31.1 million in the third quarter of 2021. New equipment sales of $23.5 million increased 21.4% compared to $19.4 million in the same quarter of 2021. Parts sales of $16.7 million declined 4.3% when compared to the third quarter of 2021, while service revenues of $8.6 million were essentially unchanged over the same period of comparison.

Gross Profit

Gross profit of $151.9 million in the third quarter of 2022 increased 33.3% compared to $113.9 million in the third quarter of 2021. Gross margin improved to 46.8% for the third quarter of 2022 compared to 41.4% for the same quarter in 2021. On a segment basis, gross margin on total equipment rentals was 50.5% in the third quarter of 2022 compared to 45.6% in the third quarter of 2021. Rental margins were 55.6% compared to 50.9% over the same period of comparison. On average, rental rates in the third quarter of 2022 were 10.1% better than rates in the third quarter of 2021. Time utilization (based on original equipment cost) was 73.3% in the third quarter of 2022 compared to 71.9% in the third quarter of 2021. Gross margins on used equipment sales improved to 53.7% in the third quarter of 2022 compared to 37.6% in the third quarter of 2021. Gross margins on new equipment sales were 13.8% in the third quarter of 2022 compared to 12.4% over the same period of comparison. Gross margins on parts sales were 29.0% in the third quarter of 2022, compared to 24.5% in the third quarter of 2021, while gross margins on service revenues were 63.2% compared to 65.2% over the same period of comparison.

Rental Fleet

The original acquisition cost of the Company’s rental fleet as of September 30, 2022, was approximately $2.1 billion, representing an increase of $305.4 million, or 16.7%, from the end of the third quarter of 2021. Dollar utilization for the third quarter of 2022 improved to 42.7% compared to 38.9% in the third quarter of 2021.

Selling, General and Administrative Expenses

Selling, General and Administrative (SG&A) expenses for the third quarter of 2022 were $87.9 million, an increase of $13.5 million, or 18.1%, compared to $74.4 million in the third quarter of 2021. The higher expenses were largely attributable to increased employee salaries, wages, incentive compensation related to increased profitability, headcount, payroll taxes and related employee costs. Higher facilities expenses, costs associated with liability insurance and professional fees also contributed to the increase in costs. SG&A expenses in the third quarter of 2022 as a percentage of total revenues were 27.1% compared to 27.0% in the third quarter of 2021. Approximately $3.3 million of SG&A expenses in the third quarter of 2022 were attributable to nine new branches opened since the third quarter of 2021.

Income from Operations

Income from operations for the third quarter of 2022 was $64.0 million, or 19.7% of revenues, compared to $45.7 million, or 16.6% of revenues, in the third quarter of 2021.

Interest Expense

Interest expense was $13.5 million for the third quarter of 2022, essentially unchanged from the third quarter of 2021.

Net Income

Net income in the third quarter of 2022 was $38.4 million, or $1.05 per diluted share, compared to net income in the third quarter of 2021 of $24.7 million, or $0.68 per diluted share. The effective income tax rate for the third quarter of 2022 was 25.2% compared to an effective income tax rate of 24.7% in the same quarter of 2021.

Adjusted EBITDA

Adjusted EBITDA in the third quarter of 2022 increased to $139.4 million, representing 43.0% of revenues, compared to $112.3 million, or 40.8% of revenues, in the same quarter of 2021.

Non-GAAP Financial Measures

This press release contains certain non-GAAP measures (EBITDA, Adjusted EBITDA, and the disaggregation of equipment rental revenues and cost of sales numbers) detailed below. Please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 27, 2022, 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 2022 results today, October 27, 2022, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 844-887-9400 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 27, 2022, and will continue through November 3, 2022, by dialing 877-344-7529 and entering the confirmation code 6431956.

The live broadcast of H&E Equipment Services' quarterly conference call will be available online at www.he-equipment.com on October 27, 2022, beginning at 10:00 a.m. (Eastern Time) and will remain 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.

Founded in 1961, H&E Equipment Services, Inc. is one of the largest rental equipment companies in the nation. The Company’s fleet is among the industry’s youngest and most versatile with a superior equipment mix comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest, and Mid-Atlantic regions.

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 to the pandemic, material delays and cancellations of construction or infrastructure projects, labor shortages, 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 and inflation); (4) 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; (5) trends in oil and natural gas could adversely affect the demand for our services and products; (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. 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, whether as a result of any new information, future events or otherwise. 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. 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 September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Revenues:
Equipment rentals		$	253,564			$	197,184			$	680,366			$	526,014
Used equipment sales			20,300				31,071				60,659				105,746
New equipment sales			23,491				19,355				71,013				70,161
Parts sales			16,745				17,503				48,976				49,939
Services revenues			8,610				8,624				25,633				24,694
Other			1,570				1,699				4,754				4,991
Total revenues			324,280				275,436				891,401				781,545
Cost of revenues:
Rental depreciation			65,952				58,339				188,261				168,305
Rental expense			33,543				28,326				93,117				80,900
Rental other			25,989				20,510				70,775				55,394
			125,484				107,175				352,153				304,599
Used equipment sales			9,396				19,383				31,815				68,426
New equipment sales			20,249				16,946				60,849				61,576
Parts sales			11,881				13,209				35,417				36,715
Services revenues			3,165				3,000				9,122				8,193
Other			2,222				1,815				6,248				4,896
Total cost of revenues			172,397				161,528				495,604				484,405
Gross profit			151,883				113,908				395,797				297,140
Selling, general and administrative expenses			87,871				74,403				248,813				213,259
Merger and other			547				9				547				115
Gain on sales of property and equipment, net			529				6,166				2,911				6,951
Income from operations			63,994				45,662				149,348				90,717
Other income (expense):
Interest expense			(13,548	)			(13,430	)			(40,495	)			(40,298	)
Other, net			883				615				2,656				2,026
Total other expense, net			(12,665	)			(12,815	)			(37,839	)			(38,272	)
Income from operations before provision for income taxes			51,329				32,847				111,509				52,445
Provision for income taxes			12,953				8,119				28,967				13,611
Net income from continuing operations		$	38,376			$	24,728			$	82,542			$	38,834
Discontinued Operations:
Income (loss) from discontinued operations before provision (benefit) for income taxes		$	—			$	6,411			$	(2,049	)		$	14,246
Provision (benefit) for income taxes			—				1,602				(525	)			3,626
Net income (loss) from discontinued operations		$	—			$	4,809			$	(1,524	)		$	10,620
Net income		$	38,376			$	29,537			$	81,018			$	49,454

H&E EQUIPMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Amounts in thousands, except per share amounts)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Net income from continuing operations per common share:
Basic		$	1.05			$	0.68			$	2.27			$	1.07
Diluted		$	1.05			$	0.68			$	2.26			$	1.07
Net income (loss) from discontinued operations per common share:
Basic		$	—			$	0.13			$	(0.04	)		$	0.29
Diluted		$	—			$	0.13			$	(0.04	)		$	0.29
Net income per common share:
Basic		$	1.05			$	0.81			$	2.23			$	1.36
Diluted		$	1.05			$	0.81			$	2.22			$	1.36
Weighted average common shares outstanding:
Basic			36,462				36,296				36,402				36,232
Diluted			36,553				36,436				36,544				36,420
Dividends declared per common share outstanding		$	0.275			$	0.275			$	0.825			$	0.825

H&E EQUIPMENT SERVICES, INC.
SELECTED BALANCE SHEET DATA (unaudited)
(Amounts in thousands)
		September 30, 2022				December 31, 2021
Cash and cash equivalents		$	220,479			$	357,296
Rental equipment, net			1,280,123				1,116,456
Total assets			2,218,674				2,080,447
Total debt (1)			1,251,619				1,250,000
Total liabilities			1,860,948				1,777,065
Stockholders' equity			357,726				303,382
Total liabilities and stockholders' equity		$	2,218,674			$	2,080,447

(1)

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

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,
		2022				2021				2022				2021
Net Income		$	38,376			$	29,537			$	81,018			$	49,454
Net Income (loss) from discontinued operations			—				4,809				(1,524	)			10,620
Net Income from continuing operations			38,376				24,728				82,542				38,834
Interest Expense			13,548				13,430				40,495				40,298
Provision for income taxes			12,953				8,119				28,967				13,611
Depreciation			73,000				65,040				209,214				188,005
Amortization of intangibles			993				993				2,978				2,978
EBITDA from continuing operations		$	138,870			$	112,310			$	364,196			$	283,726
Merger and other			547				9				547				115
Adjusted EBITDA from continuing operations		$	139,417			$	112,319			$	364,743			$	283,841
Net income (loss) from discontinued operations		$	—			$	4,809			$	(1,524	)		$	10,620
Provision (benefit) for income taxes			—				1,602				(525	)			3,626
Depreciation			—				—				—				4,803
EBITDA from discontinued operations		$	—			$	6,411			$	(2,049	)		$	19,049
Merger and other			—				384				132				1,695
Loss on sale of discontinued operations			—				—				1,917				—
Adjusted EBITDA from discontinued operations		$	—			$	6,795			$	—			$	20,744
Adjusted EBITDA		$	139,417			$	119,114			$	364,743			$	304,585

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,
		2022				2021				2022				2021
RENTAL
Equipment rentals (1)		$	224,126			$	176,655			$	602,551			$	471,012
Rental other			29,438				20,529				77,815				55,002
Total equipment rentals			253,564				197,184				680,366				526,014
RENTAL COST OF SALES
Rental depreciation			65,952				58,339				188,261				168,305
Rental expense			33,543				28,326				93,117				80,900
Rental other			25,989				20,510				70,775				55,394
Total rental cost of sales			125,484				107,175				352,153				304,599
RENTAL REVENUES GROSS PROFIT (LOSS)
Equipment rentals			124,631				89,990				321,173				221,807
Rentals other			3,449				19				7,040				(392	)
Total rental revenues gross profit		$	128,080			$	90,009			$	328,213			$	221,415
RENTAL REVENUES GROSS MARGIN
Equipment rentals			55.6	%			50.9	%			53.3	%			47.1	%
Rentals other			11.7	%			0.1	%			9.0	%			-0.7	%
Total rental revenues gross margin			50.5	%			45.6	%			48.2	%			42.1	%

(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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221027005079/en/

Leslie S. Magee

Chief Financial Officer

225-298-5261

lmagee@he-equipment.com

Jeffrey L. Chastain

Vice President of Investor Relations

225-952-2308

jchastain@he-equipment.com

Source: H&E Equipment Services, Inc.

FAQ

What were the Q3 2022 revenue figures for H&E Equipment Services (HEES)?

H&E Equipment Services reported revenues of $324.3 million for Q3 2022, a 17.7% increase from the previous year.

How much did net income grow in Q3 2022 for HEES?

Net income for H&E Equipment Services increased by 55.2% to $38.4 million in Q3 2022.

What is the reported adjusted EBITDA for HEES in Q3 2022?

Adjusted EBITDA for H&E Equipment Services in Q3 2022 was $139.4 million, representing a margin of 43%.

How did equipment rental revenues perform in Q3 2022 for H&E Equipment Services?

Equipment rental revenues for H&E Equipment Services grew by 28.6% to $253.6 million in Q3 2022.

What impact did used equipment sales have on HEES's Q3 2022 results?

Used equipment sales for H&E Equipment Services dropped by 34.7% to $20.3 million in Q3 2022.