H&E Equipment Services reports second quarter 2022 results
H&E Equipment Services, Inc., (“H&E”, the “Company”) has announced results for the second quarter ended June 30, 2022, including records for rental revenue and gross profit, consolidated gross profit and margin, and earnings before interest, taxes depreciation, and amortization (“EBITDA”) margin. 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.
SECOND QUARTER 2022 SUMMARY
- Revenues increased 10.9% to $294.7 million compared to $265.7 million in the second quarter of 2021.
- Net income was $27.9 million compared to $12.3 million in the second quarter of 2021. The effective income tax rate was 26.8% compared to 28.2% in the second quarter of 2021.
- Adjusted EBITDA totaled $121.9 million, an increase of 28.8% compared to $94.6 million in the second quarter of 2021, resulting in a margin of 41.4% of revenues compared to 35.6% in the second quarter of 2021.
- Total equipment rental revenues were $227.6 million, an increase of $52.0 million, or 29.6%, compared to $175.6 million in the second quarter of 2021. Rental revenues were $201.2 million, an increase of $44.0 million, or 28.0%, compared to $157.2 million in the second quarter of 2021.
- Used equipment sales decreased 47.4% to $18.8 million compared to $35.8 million in the second quarter of 2021. Margins improved to 47.6% compared to 36.7% in the second quarter of 2021.
- New equipment sales totaled $21.5 million, a decrease of 22.2% when compared to $27.6 million in the second quarter of 2021.
- The gross margin improved to 44.9% compared to 37.6% in the second quarter of 2021.
- Total equipment rental gross margins were 48.6% compared to 41.7% in the second quarter of 2021. Rental gross margins were 53.7% compared to 46.6% over the same period of comparison.
- Average time utilization (based on original equipment cost) was 73.2% compared to 68.7% in the second quarter of 2021. The Company’s rental fleet, based on the original acquisition cost, closed the second quarter of 2022 at just over $2.0 billion, an increase of $228.2 million, or 12.8%, compared to the second quarter of 2021.
- Average rental rates increased 9.4% when compared to the second quarter of 2021, and 3.5% when compared to the first quarter of 2022.
- Dollar utilization improved to 40.9% compared to 35.9% in the second quarter of 2021.
- The average rental fleet age on June 30, 2022, was 41.2 months compared to an industry average age of 53.6 months.
- Paid regular quarterly cash dividend of $0.275 per share of common stock.
Brad Barber
“Our excellent second quarter financial performance showed the continuation of robust fundamental activity across our industry and significant progress toward our 2022 growth initiatives,” noted Brad Barber, Chief Executive Officer of H&E Equipment Services, Inc. Mr. Barber continued, “Rental revenues were 28.0% better than the same quarter in 2021 and improved 13.6% on a sequential quarterly basis. This strong growth led to further appreciation in our rental gross margin, to 53.7%, or 380 basis points ahead of the previous quarter in 2022. This improvement in financial metrics was driven by enhanced contribution from both rental rates and utilization. Rental rates closed the quarter at an impressive 9.4% better than the year-ago quarter and showed a 3.5% gain over the first quarter of 2022. In addition, with high demand for our rental fleet, average physical utilization closed the quarter at 73.2%, or 450 and 280 basis points better when compared to the second quarter of 2021 and the previous quarter in 2022, respectively. We also grew our fleet, closing the quarter with a fleet original equipment cost (“OEC”) of just over $2.0 billion, representing a record level for H&E. These results included a gross investment of $215.6 million since the close of 2021. Finally, the combination of excellent industry conditions and strong operational and strategic execution contributed to a record Adjusted EBITDA in the quarter of $121.9 million, while our Adjusted EBITDA margin improved to 41.4%, or 580 basis points better than the same quarter in 2021 and 340 basis points ahead on a sequential quarterly basis.”
Commenting on current business conditions for the equipment rental industry, Mr. Barber stated, “Non-residential construction opportunities are plentiful across our regions of operation with no visible trends that suggest construction project delays or cancellations. Demand for our rental fleet remains strong, and current customer feedback suggests favorable conditions should persist as we address the seasonal strength of our business cycle. Also, it is encouraging to see key leading indicators of construction activity remaining at levels that support expansion. Under the prevailing business conditions, healthy utilization levels should continue for the balance of the year with additional improvement in rental rates expected.”
Mr. Barber closed with an update on the Company’s 2022 strategic growth initiatives, saying, “In a business environment characterized by exceptional equipment demand, supply chain disruptions remain an inconvenient but temporary reality of our industry and continue to hinder the timely delivery of a portion of our equipment orders. Due to the inability of certain manufacturing partners to meet their commitments to our fleet investment for the year, we will reduce our planned capital expenditures by continuing to slow our fleet sales over the balance of 2022. Following this action, which is expected to result in a revised gross fleet expenditure of approximately $465 million to $500 million, we anticipate no change in our year-end OEC when compared to our initial internal expectation for the year. With regards to our branch expansion initiative, we remain confident in achieving our goal of no fewer than 10 additions in 2022. Four new branches were added through the first six months of the year, including our latest operation in Lakeland, Florida, which represents our ninth location in the state.”
FINANCIAL DISCUSSION FOR SECOND QUARTER 2022
Revenue
Total revenues improved to $294.7 million, or 10.9%, in the second quarter of 2022 from $265.7 million in the second quarter of 2021. Total equipment rental revenues of $227.6 million improved 29.6% compared to $175.6 million in the second quarter of 2021. Rental revenues of $201.2 million increased 28.0% compared to $157.2 million in the second quarter of 2021. Used equipment sales of $18.8 million decreased 47.4% compared to $35.8 million in the second quarter of 2021. New equipment sales of $21.5 million declined 22.2% compared to $27.6 million in the same quarter of 2021. Parts sales of $16.2 million declined 4.2% when compared to the second quarter of 2021, while service revenues of $8.9 million improved 10.3% over the same period of comparison.
Gross Profit
Gross profit of $132.3 million in the second quarter of 2022 increased 32.6% compared to $99.8 million in the second quarter of 2021. The gross margin improved to 44.9% for the second quarter of 2022 compared to 37.6% for the same quarter in 2021. On a segment basis, the gross margin on total equipment rentals was 48.6% in the second quarter of 2022 compared to 41.7% in the second quarter of 2021. Rental margins were 53.7% compared to 46.6% over the same period of comparison. On average, rental rates in the second quarter of 2022 were 9.4% better than rates in the second quarter of 2021. Time utilization (based on original equipment cost) was 73.2% in the second quarter of 2022 compared to 68.7% in the second quarter of 2021. Gross margins on used equipment sales improved to 47.6% in the second quarter of 2022 compared to 36.7% in the second quarter of 2021. Gross margins on new equipment sales were 15.0% in the second quarter of 2022 compared to 12.3% over the same period of comparison. Gross margins on parts sales were 26.8% in the second quarter of 2022, unchanged from the second quarter of 2021, while gross margins on service revenues were 64.6% compared to 68.0% over the same period of comparison.
Rental Fleet
The original acquisition cost of the Company’s rental fleet as of June 30, 2022, was just over $2.0 billion, representing an increase of $228.2 million, or 12.8%, from the end of the second quarter of 2021. Dollar utilization for the second quarter of 2022 improved to 40.9% compared to 35.9% in the second quarter of 2021.
Selling, General and Administrative Expenses
Selling, General, and Administrative (“SG&A”) expenses for the second quarter of 2022 were $82.7 million, an increase of $12.0 million, or 16.9%, compared to $70.7 million in the second quarter of 2021. The higher expenses were primarily due to an increase in employee salaries, wages, and incentive compensation related to increased profitability, and headcount, payroll taxes and related employee costs. In addition, higher facilities expenses and professional fees contributed to the rise in costs. SG&A expenses in the second quarter of 2022 as a percentage of total revenues were 28.1% compared to 26.6% in the second quarter of 2021. Approximately $2.2 million of SG&A expenses in the second quarter of 2022 were attributable to new branches opened since the second quarter of 2021.
Income from Operations
Income from operations for the second quarter of 2022 was $50.7 million, or 17.2% of revenues, compared to $29.7 million, or 11.2% of revenues, in the second quarter of 2021.
Interest Expense
Interest expense was $13.5 million for the second quarter of 2022, essentially unchanged from the second quarter of 2021.
Net Income
Net income in the second quarter of 2022 was $27.9 million, or $0.76 per diluted share, compared to the net income in the second quarter of 2021 of $12.3 million, or $0.34 per diluted share. The effective income tax rate for the second quarter of 2022 was 26.8% compared to an effective income tax rate of 28.2% in the same quarter of 2021.
Adjusted EBITDA
Adjusted EBITDA in the second quarter of 2022 increased to $121.9 million, representing 41.4% of revenues, compared to $94.6 million, or 35.6% 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 July 28, 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.
