H&E Equipment Services Reports Third Quarter 2012 Results

H&E Equipment Services Reports Third Quarter 2012 Results

BATON ROUGE, La.--(BUSINESS WIRE)-- H&E Equipment Services, Inc. (NAS: HEES) today announced results for the third quarter ended September 30, 2012. In the third quarter of 2012, the Company completed its successful offering of new 10-year 7% senior unsecured notes, the repurchase and redemption of its then-outstanding 8 3/8% senior unsecured notes and the payment of a dividend to shareholders of approximately $246 million. The Company's operating results for this quarter include a $10.2 million non-recurring item associated with the premium paid to repurchase and redeem the old notes and the write-off of unamortized deferred transaction costs associated therewith.

THIRD QUARTER 2012 HIGHLIGHTS:

  • Revenues increased 11.0% to $204.5 million versus $184.3 million a year ago.

  • Net income was $3.7 million in the third quarter compared to $4.8 million a year ago. Adjusted Net Income increased $6.1 million to $10.9 million compared to net income of $4.8 million a year ago.

  • Adjusted EBITDA increased 38.3% to $55.9 million from $40.4 million, yielding a margin of 27.3% compared to 21.9% of revenues a year ago.

  • Rental revenues increased 27.2%, or $16.6 million, to $77.8 million due to improved rates, a larger fleet compared to a year ago and strong demand.

  • New equipment sales increased 5.3%, or $2.5 million, to $49.0 million, largely due to higher crane sales.

  • Gross margin was 32.7% as compared to 29.2% a year ago. Rental gross margins increased to 48.9% compared to 44.0% a year ago.

  • Average time utilization (based on original equipment cost) increased to 72.9% compared to 71.8% a year ago and 73.5% in the second quarter of 2012. Average time utilization (based on units available for rent) was 68.9% compared to 68.9% last year and 68.7% last quarter.

  • Average rental rates increased 10.2% compared to a year ago and improved 2.9% compared to the second quarter of this year.

  • Dollar utilization was 36.7% as compared to 33.7% a year ago.

  • Average rental fleet age at September 30, 2012 was 38.6 months, down from 40.4 months at the end of the last quarter and significantly younger than the industry average age of 48 months.

  • Successful notes offering of $530 million of new 10-year 7% senior unsecured notes. Proceeds were used primarily to repurchase or redeem our then-outstanding 8 3/8% senior unsecured notes and fund a dividend to shareholders of approximately $246 million.


"Our rental business remained very strong in the third quarter and we believe this is indicative of a secular shift occurring in the market that will continue into 2013," said John Engquist, H&E Equipment Services' president and chief executive officer. "As a result of increasing demand across all our end user markets, we invested more than $60 million in our fleet, which marked the second consecutive quarter of record levels of fleet investment in our company. Our fleet was approximately 18% larger at the end of the third quarter than at the end of 2011. Despite our record fleet investment this year, utilization is strong and rental rate gains are robust. The distribution side of our business continues to perform solidly as well, with new equipment sales up 5.3% from a year ago. As we move into year end, there is the possibility we could experience increased demand as our customers may look to take advantage of tax incentives before the end of the year."

Engquist concluded, "Based on the current trends in our business, our outlook for the fourth quarter and 2013 remains positive. All segments of our business are performing well and the industrial segments our business serves remain strong. We are also experiencing solid improvement in our markets that were hit the hardest during the recession. With our significant fleet investment and integrated, full-service strategy, we are well positioned to benefit from improvements in market conditions. Lastly, we are pleased to have completed our successful notes offering which allowed us to pay a $246 million dividend to our shareholders, extend our long-term debt maturity profile until 2022 and enhance our liquidity under the senior credit facility for future investment in our business."

FINANCIAL DISCUSSION FOR THIRD QUARTER 2012:

Revenue

Total revenues increased 11.0% to $204.5 million from $184.3 million in the third quarter of 2011. Equipment rental revenues increased 27.2% to $77.8 million compared with $61.2 million in the third quarter of 2011. New equipment sales increased 5.3% to $49.0 million from $46.5 million in the third quarter of 2011. Used equipment sales decreased 8.0% to $25.0 million compared to $27.2 million in the third quarter of 2011. Parts sales increased 5.7% to $26.1 million from $24.6 million in the third quarter of 2011. Service revenues increased 1.7% to $14.4 million compared to $14.2 million a year ago.

Gross Profit

Gross profit increased 24.5% to $66.9 million from $53.7 million in the third quarter of 2011. Gross margin was 32.7% for the quarter ended September 30, 2012, compared to gross margin of 29.2% for the quarter ended September 30, 2011.

On a segment basis, third quarter 2012 gross margin on rentals was 48.9% in this quarter compared to 44.0% in the third quarter of 2011 due to higher average rental rates on new contracts in the period, improved fleet utilization (based on original equipment cost) and lower rental expenses as a percentage of equipment rental revenues. On average, rental rates increased 10.2% as compared to the third quarter of 2011. Time utilization (based on original equipment cost) was 72.9% in the third quarter of 2012 and 71.8% a year ago.

Gross margin on new equipment sales was 11.5% compared to 11.6% in the third quarter a year ago. Gross margin on used equipment sales was 26.4% compared to 23.4% a year ago. Gross margin on parts sales was 26.7% in this quarter and a year ago. Gross margin on service revenues was 61.1% compared to 61.6% in the prior year.

Rental Fleet

At the end of the third quarter of 2012, the original acquisition cost of the Company's rental fleet was $871.0 million, an increase of $144.9 million from $726.1 million at the end of the third quarter of 2011 and an increase of $134.4 million from $736.6 million at the end of 2011. Dollar utilization was 36.7% compared to 33.7% for the third quarter of 2011. Dollar returns increased reflecting higher year-over-year average rental rates and improved time utilization.

Selling, General and Administrative Expenses

SG&A expenses for the third quarter of 2012 were $42.4 million compared with $39.0 million last year, a $3.4 million, or 8.6%, increase. The net increase in SG&A expenses is largely a result of increased commission and incentive pay that resulted from higher rental and sales revenues. For the third quarter of 2012, SG&A expenses as a percentage of total revenues were 20.7% compared to 21.2% a year ago.

Income from Operations

Income from operations for the third quarter of 2012 was $25.0 million, or 12.2% of revenues, compared with $15.1 million, or 8.2% of revenues, a year ago.

Interest Expense

Interest expense for the third quarter of 2012 was $9.8 million compared to $7.2 million in the third quarter of 2011.

Net Income and Adjusted Net Income

Net income was 3.7 million, or $0.11 per diluted share, compared to net income of $4.8 million, or $0.14 per diluted share, a year ago. Adjusted Net Income was $10.9 million, or $0.31 per diluted share. The effective income tax rate was 29.7% compared to 39.1% a year ago.

EBITDA and Adjusted EBITDA

EBITDA for the third quarter of 2012 increased 13.1% to $45.7 million compared to $40.4 million a year ago. EBITDA, as a percentage of revenues, was 22.4% compared to 21.9% a year ago. Adjusted EBITDA increased 38.3% to $55.9 million from $40.4 million a year ago. Adjusted EBITDA as a percentage of total revenues increased to 27.3% compared with 21.9% in the third quarter of 2011.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA and Adjusted Net Income). Please refer to our Current Report on Form 8-K for a description of these measures and a discussion of our use of these measures. EBITDA, Adjusted EBITDA, and Adjusted Net Income as calculated by the Company, are not necessarily comparable to similarly titled measures reported by other companies. Adjusted Net Income provides useful information concerning future profitability. Additionally, these Non-GAAP measures are not measurements 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 results today, November 1, 2012, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial 719-325-2286 approximately 10 minutes prior to the start of the call. A telephonic replay will be available after 1:00 p.m. (Eastern Time) on November 1, 2012, and will continue through November 14, 2012, by dialing 719-457-0820 and entering confirmation code 4757181.

The live broadcast of the Company's quarterly conference call will be available online at www.he-equipment.com or www.earnings.com on November 1, 2012, 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 66 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 as well as the depth and duration of the macroeconomic downturn related to decreases in construction and industrial activities, and the impact of conditions of the global credit markets and their effect on construction spending activity and the economy in general; (2) relationships with equipment suppliers; (3) increased maintenance and repair costs as we age our fleet and decreases in our equipments' residual value; (4) our indebtedness; (5) the risks associated with the expansion of our business; (6) our possible inability to effectively integrate any businesses we acquire; (7) competitive pressures; (8) compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and (9) 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,

2012

2011

2012

2011

Revenues:

Equipment rentals

$

77,808

$

61,190

$

207,941

$

165,440

New equipment sales

49,009

46,543

154,710

133,629

Used equipment sales

24,990

27,172

75,100

65,655

Parts sales

26,058

24,647

74,161

71,166

Service revenues

14,436

14,191

41,615

40,072

Other

12,208

10,546

33,671

27,570

Total revenues

204,509

184,289

587,198

503,532

Cost of revenues:

Rental depreciation

27,150

22,076

74,727

64,146

Rental expense

12,579

12,176

36,375

34,484

New equipment sales

43,367

41,123

136,945

118,271

Used equipment sales

18,399

20,824

53,426

50,444

Parts sales

19,092

18,073

53,826

52,174

Service revenues

5,615

5,451

15,907

15,499

Other

11,384

10,825

32,183

31,862

Total cost of revenues

137,586

130,548

403,389

366,880

Gross profit

66,923

53,741

183,809

136,652

Selling, general, and administrative expenses

42,402

39,042

124,504

114,681

Gain on sales of property and equipment, net

514

372

1,478

521

Income from operations

25,035

15,071

60,783

22,492

Loss on early extinguishment of debt

(10,180

)

-

(10,180

)

-

Interest expense

(9,825

)

(7,222

)

(23,668

)

(21,607

)

Other income, net

243

118

751

626

Income before provision for income taxes

5,273

7,967

27,686

1,511

Provision for income taxes

1,564

3,119

9,554

447

Net income

$

3,709

$

4,848

$

18,132

$

1,064

NET INCOME PER SHARE

Basic - Net income per share

$

0.11

$

0.14

$

0.52

$

0.03

Basic - Weighted average number of common shares outstanding

34,958

34,804

34,867

34,743

Diluted - Net income per share

$

0.11

$

0.14

$

0.52

$

0.03

Diluted - Weighted average number of common shares outstanding

34,974

34,860

34,963

34,884

H&E EQUIPMENT SERVICES, INC.

SELECTED BALANCE SHEET DATA (unaudited)

(Amounts in thousands)

September 30,

December 31,

2012

2011

Cash

$

3,250

$

24,215

Rental equipment, net

571,936

450,877

Total assets

940,226

753,305

Total debt (1)

663,212

268,660

Total liabilities

902,933

489,098

Stockholders' equity

37,293

264,207

Total liabilities and stockholders' equity

$

940,226

$

753,305

(1) Total debt consists of the aggregate amounts outstanding 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

Nine Months Ended

September 30,

September 30,

2012

2011

2012

2011

Net income

$

3,709

$

4,848

$

18,132

$

1,064

Interest expense

9,825

7,222

23,668

21,607

Provision for income taxes

1,564

3,119

9,554

447

Depreciation

30,609

25,139

84,724

73,456

Amortization of intangibles

16

90

66

337

EBITDA

$

45,723

$

40,418

$

136,144

$

96,911

Loss on early extinguishment of debt

10,180

-

10,180

-

Adjusted EBITDA

$

55,903

$

40,418

$

146,324

$

96,911

H&E EQUIPMENT SERVICES, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share amounts)