H&E Equipment Services Inc. reports third quarter 2022 results
H&E Equipment Services, Inc. just announced results for the third quarter that 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 by 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.
- The 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 a 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 a 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 THE THIRD QUARTER OF 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 by 28.6% compared to $197.2 million in the third quarter of 2021. Rental revenues of $224.1 million increased by 26.9% compared to $176.7 million in the third quarter of 2021. Used equipment sales of $20.3 million decreased by 34.7% compared to $31.1 million in the third quarter of 2021. New equipment sales of $23.5 million increased by 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 by 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, the 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 the 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.
