H&E Equipment Services report Fourth Quarter and Full Year 2023 results
H&E Equipment Services, Inc. has announced results for the fourth quarter and full year ended December 31, 2023, with record strategic expansion, impressive revenue growth, and steady margin appreciation contributing to another year of record financial performance. 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. Also, on December 15, 2022, the Company sold its Komatsu earthmoving distribution business, resulting in a pre-tax gain of $15.4 million in the fourth quarter of 2022, including $12.9 million recorded as a gain on the sale of property and equipment, and $2.5 million as a gain on other, net.
FOURTH QUARTER 2023 SUMMARY WITH A COMPARISON TO FOURTH QUARTER 2022
- Revenues increased 9.3% to $385.8 million compared to $353.1 million.
- Net income totaled $53.5 million compared to $51.2 million. The effective income tax rate was 19.4% compared to 26.1%.
- Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 6.5% to $185.2 million compared to $173.9 million. Prior year results included the pre-tax gain associated with the sale of the Komatsu earthmoving distribution business. Adjusted
- EBITDA margin was 48.0% compared to 49.2%.
- Total equipment rental revenues were $316.9 million, an increase of $41.2 million, or 14.9%, compared to $275.7 million. Rental revenues were $280.6 million, an increase of $35.6 million, or 14.5%, compared to $245.0 million. Sales of rental equipment increased 34.3% to $40.6 million compared to $30.2 million. Margins improved to 66.0% compared to 51.2%.
- Sales of new equipment totaled $9.8 million, a decline of 54.5% compared to $21.5 million.
- Gross margin improved to 48.3% compared to 45.1%.
- Total equipment rental gross margins were 48.2% compared to 47.9%. Rental gross margins were 54.2% compared to 53.1%.
- Average time utilization (based on original equipment cost) was 68.4% compared to 72.0%. The Company’s rental fleet, based on original equipment cost, ended 2023 at approximately $2.8 billion, representing an 18.3% increase.
- Average rental rates improved 3.8% from the year-ago quarter and 0.8% on a sequential quarterly basis.
- Dollar utilization was 40.3% compared to 41.9%.
- Average rental fleet age on December 31, 2023, was 39.7 months compared to an industry average age of 49.0 months.
- Paid regular quarterly cash dividend of $0.275 per share of common stock.
Reviewing the Company’s fourth quarter and full year performance, Brad Barber, chief executive officer of H&E, referred to several important developments. Mr. Barber pointed out, “Strong execution of strategic initiatives and resilient non-residential activity resulted in healthy financial metrics throughout the year. Total revenues in the fourth quarter improved 9.3% compared to the year-ago quarter, while rental revenues grew 14.5% over the same period, resulting in a rental margin of approximately 54.2%. For the full year, total revenues set a Company record of just under $1.5 billion, representing an 18.1% increase compared to total revenues in the previous year. Over the same period, rental revenues grew 24.1%, exceeding $1.0 billion for the first time, and completed the year with an average margin of 52.1%. Indicative of the durable industry fundamentals, rental rates in the fourth quarter improved 3.8% compared to the same quarter in 2022, and 0.8% on a sequential quarterly basis. For the full year, rental rates were 5.6% better than 2022. Our strategic accomplishments in 2023 included a record gross fleet investment totaling $737 million, exceeding our revised target range for the year. We completed the year with a fleet original equipment cost (OEC) of approximately $2.8 billion, or 18.3% greater than our fleet OEC at the conclusion of 2022. Our average fleet age of 39.7 months remained among the youngest in the industry.”
Brad Barber
Mr. Barber went on to state, “The pace of branch expansion remained impressive throughout 2023, further strengthening the Company’s competitive position. The success of our accelerated branch expansion program led to a record 14 branch additions in 2023, including three new locations in the fourth quarter. These branch additions established greater density in the Gulf Coast, Mid-Atlantic, Southeast and Midwest regions, providing the Company with increased exposure to new projects. Also, additional growth and improved positioning was accomplished through the acquisition of attractive and well-managed businesses with operations in core metropolitan statistical areas of the U.S. One transaction, which closed in the fourth quarter, added three locations in California, increasing the number of branch additions to 17 in 2023, or a 14% increase across our branch network when compared to the branch count at the conclusion of 2022.”
Addressing 2024 strategic growth initiatives, Mr. Barber said, “We plan to slow our 2024 gross fleet expenditures to a range of $450 million to $500 million. We believe our record fleet expenditures in 2023 and young fleet age advantageously position the Company to address the ongoing growth in construction markets and these factors should support steady improvement in physical utilization. Regarding our branch network, new branch growth will remain a fundamental component of our strategic plans in 2024 with 12 to 15 new locations expected in our branch
expansion program. In addition, branch growth could be enhanced through attractive acquisition opportunities that offer access to vibrant construction markets in the U.S., as demonstrated by our latest acquisition which closed in early 2024, adding one location each in Phoenix and Denver.”
Mr. Barber noted the outlook for the equipment rental industry remains encouraging, supporting the point by saying, “Commentary from our customers regarding pending construction opportunities in 2024 remains optimistic and supports a business climate characterized by stable to modestly higher non-residential and industrial activity. Construction starts are projected to grow on a year-over-year basis with the growth reinforced by mega projects and increased spending on infrastructure programs. Also, we remain confident that expanding rental penetration will be a meaningful catalyst for increased industry growth.”
FINANCIAL DISCUSSION FOR FOURTH QUARTER 2023
Revenue
Total revenues increased 9.3% to $385.8 million in the fourth quarter of 2023 from $353.1 million in the fourth quarter of 2022. Total equipment rental revenues increased 14.9% to $316.9 million compared to $275.7 million in the year-ago quarter. Rental revenues increased 14.5% to $280.6 million compared to $245.0 million in the same period of comparison. Sales of rental equipment increased 34.3% to $40.6 million compared to $30.2 million in the fourth quarter of 2022. Sales of new equipment decreased 54.5% to $9.8 million compared to $21.5 million in the same quarter of 2022. The decline was due primarily to the divestiture of the Komatsu earthmoving business.
Gross Profit
Gross profit increased 16.9% in the fourth quarter of 2023 to $186.3 million compared to $159.4 million in the fourth quarter of 2022. Gross margin of 48.3% for the fourth quarter of 2023 compared to 45.1% over the same period of comparison. On a segment basis, and relative to the fourth quarter of 2022, gross margin on total equipment rentals was 48.2% compared to 47.9%. Rental margins were 54.2% compared to 53.1%. On average, rental rates in the fourth quarter of 2023 were 3.8% better than rates in the fourth quarter of 2022. Time utilization (based on original equipment cost) was 68.4% in the fourth quarter of 2023 compared to 72.0% in the year-ago quarter. Gross margins on sales of rental equipment were 66.0%, up from 51.2%, while gross margins on sales of new equipment improved to 15.3% compared to 13.6%.
Rental Fleet
At the end of the fourth quarter of 2023, the original equipment cost of the Company’s rental fleet was approximately $2.8 billion, which represented an 18.3%, or $432.6 million increase from the end of the fourth quarter of 2022. Dollar utilization for the fourth quarter of 2023 was 40.3% compared to 41.9% in the fourth quarter of 2022.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for the fourth quarter of 2023 were $106.6 million, an increase of $12.1 million, or 12.8%, compared to $94.5 million in the fourth quarter of 2022. The higher expenses were primarily due to an increase in employee salaries, wages, payroll taxes and related employee benefits, in addition to an increase in facilities, promotion and depreciation expenses. SG&A expenses in the fourth quarter of 2023 as a percentage of total revenues were 27.6% compared to 26.8% in the fourth quarter of 2022. Approximately $6.3 million of SG&A expenses in the fourth quarter were attributable to the Company’s expansion activities since the fourth quarter of 2022.
Income from Operations
Income from operations for the fourth quarter of 2023 was $81.2 million, or 21.1% of revenues, compared to $78.8 million, or 22.3% of revenues in the same quarter of 2022. Results for the prior year quarter included a gain of $12.9 million resulting from the sale of the Komatsu earthmoving distribution business.
Interest Expense
Interest expense was $16.3 million for the fourth quarter of 2023 compared to $13.5 million in fourth quarter of 2022.
Net Income
Net income in the fourth quarter of 2023 was $53.5 million, or $1.47 per diluted share, compared to net income of $51.2 million, or $1.41 per diluted share, in the fourth quarter of 2022. Results for the prior year quarter included a gain of $15.4 million resulting from the sale of the Komatsu earthmoving distribution business. The effective income tax rate for the fourth quarter of 2023 was 19.4% compared to 26.1% in the same quarter of 2022.
Adjusted EBITDA
Adjusted EBITDA in the fourth quarter of 2023 increased 6.5% to $185.2 million compared to $173.9 million in the fourth quarter of 2022. Adjusted EBITDA margin in the fourth quarter of 2023 was 48.0% of revenues compared to 49.2% a year-ago quarter. Results for the fourth quarter of 2022 included a gain of $15.4 million from the sale of the Komatsu earthmoving distribution business.
FINANCIAL DISCUSSION FOR THE YEAR ENDED DECEMBER 31, 2023
Revenue
Revenues totaled $1.5 billion, an increase of $224.7 million, or 18.1%, when compared to $1.2 billion in 2022. Total equipment rental revenues increased 24.1% to $1.2 billion compared to $956.0 million in the previous year. Rental revenues increased 24.1% to $1.1 billion compared to $847.6 million in 2022. Sales of rental equipment increased 81.6% to $165.1 million from $90.9 million in the previous year while sales of new equipment decreased 57.7% to $39.1 million compared to $92.5 million over the same period of comparison. The decline was due primarily to the divestiture of the Komatsu earthmoving business.
Gross Profit
Gross profit increased 23.3%, or $129.3 million, to $684.5 million in 2023 from $555.2 million in 2022. Gross margin improved to 46.6% in 2023 compared to 44.6% for 2022. On a segment basis and relative to the previous year, gross margin on total equipment rentals was 46.7% compared to 48.1% and rental margins were 52.1% compared to 53.2%. On average, 2023 rental rates increased 5.6% compared to 2022. In 2023, time utilization (based on original equipment cost) of 68.8% compared to the year-ago result of 72.3%. Gross margins on sales of rental equipment improved to 60.5% compared to 48.8% while gross margins on sales of new equipment were 14.1% compared to 14.2%.
Selling, General and Administrative Expenses
SG&A expenses for 2023 were $405.4 million compared to $343.8 million in 2022, an increase of $61.6 million, or 17.9%. The increase was primarily attributable to employee salaries, wages, payroll taxes, and related employee benefits, along with higher facilities and depreciation expenses, and an increase in professional fees. Approximately $31.0 million of the increased SG&A expenses in 2023 were related to the Company’s expansion efforts, including an acquisition and 14 warm starts during the year. In 2023, SG&A expenses as a percentage of total revenues were 27.6%, unchanged from 2022.
Income from Operations
Income from operations in 2023 totaled $276.7 million, or 18.8% of revenues, compared to $228.2 million, or 18.3% of revenues in 2022. Results for the prior year included a gain of $12.9 million resulting from the sale of the Komatsu earthmoving distribution business.
Interest Expense
Interest expense in 2023 was $60.9 million compared to $54.0 million in the previous year.
Net Income
Net income in 2023 totaled $169.3 million, or $4.66 per diluted share, compared to net income in 2022 of $133.7 million, or $3.70 per diluted share. Results for the prior year included a gain of $15.4 million resulting from the sale of the Komatsu earthmoving distribution business. The effective income tax rate in 2023 was 24.2% compared to 26.0% in 2022.
Adjusted EBITDA
Adjusted EBITDA for 2023 improved 26.7% to $688.2 million compared to $543.0 million in 2022. Adjusted EBITDA margin in 2023 was 46.8% of revenues compared to 43.6% in 2022. Results for the prior year included a gain of $15.4 million resulting from the sale of the Komatsu earthmoving distribution business.
