H&E Equipment Services reports Fourth Quarter and Full Year 2022 results
H&E Equipment Services, Inc. has announced results for the fourth quarter and full year that ended December 31, 2022, bringing to close a year of record financial performance and significant expansion. 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.
Fourth Quarter 2022 summary
- Revenues increased 25.6% to $353.1 million compared to $281.3 million in the fourth quarter of 2021.
- Net income was $51.2 million compared to $21.7 million in the fourth quarter of 2021. The effective income tax rate was 26.1% compared to 25.8% in the fourth quarter of 2021.
- EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 56.1% to $171.5 million compared to $109.9 million in the fourth quarter of 2021, resulting in a margin of 48.6% of revenues compared to 39.1% over the same period of comparison.
- Total equipment rental revenues were $275.7 million, an increase of $72.0 million, or 35.3%, compared to $203.7 million in the fourth quarter of 2021. Rental revenues were $245.0 million, an increase of $63.0 million, or 34.6%, compared to $182.0 million in the fourth quarter of 2021.
- Used equipment sales increased 2.5% to $30.2 million compared to $29.5 million in the same quarter of 2021. Margins also improved to 51.2% compared to 39.3% in the fourth quarter of 2021.
- New equipment sales totaled $21.5 million, a decline of 4.5% when compared to $22.5 million in the fourth quarter of 2021.
- Gross margin improved to 45.1% compared to 42.0% in the same quarter of 2021.
- Total equipment rental gross margins were 47.9% compared to 46.3% in the fourth quarter of 2021. Rental gross margins were 53.1% compared to 51.7% over the same period of comparison.
- Average time utilization (based on original equipment cost) was 72.0% compared to 73.1% in the fourth quarter of 2021. The Company’s rental fleet based on original acquisition cost ended 2022 at approximately $2.4 billion, representing a 26.8% increase from 2021.
- Average rental rates, excluding One Source, improved by 10.6% when compared to the fourth quarter of 2021 and 1.8% when compared to the third quarter of 2022.
- Dollar utilization improved to 41.9% compared to 39.3% in the fourth quarter of 2021.
- The average rental fleet age on December 31, 2022, was 43.6 months compared to an industry average age of 53.3 months.
- Closed the sale of the Komatsu earthmoving distribution business for proceeds of $29.2 million. A gain of $15.4 million was recognized on the sale and recorded as a $12.9 million gain on the sale of property and equipment and a $2.5 million gain on other, net.
- Paid regular quarterly cash dividend of $0.275 per share of common stock.
Brad Barber, chief executive officer, summarized H&E’s superior performance in the fourth quarter, commenting, “Our results showed solid fleet utilization, continued gains in equipment pricing, further fleet growth, and branch expansion. In addition, figures for the quarter included the operations from One Source Equipment Rentals, Inc. (“One Source”) following the closing of our acquisition on October 1, 2022. Physical fleet utilization remained at a healthy level, averaging 72.0% despite pressure from typical seasonal factors that contributed to a decline in the measure of 110 basis points when compared to the fourth quarter of 2021 and 130 basis points on a sequential quarterly basis. Rental rates, which exclude One Source, improved by 10.6% compared to the same quarter a year ago and 1.8% on a sequential quarterly basis. Both measures remained among the best in our industry. Our fleet original equipment cost (“OEC”) closed the quarter at a record of approximately $2.4 billion, with gross capital expenditures in the quarter of $128.3 million and a record gross investment of $507.8 million for all of 2022. Finally, we opened two new branch locations in the quarter, closing the year with a total of 10 branch openings for the second consecutive year. We began 2023 with a network of 120 branches across 29 states.”
Mr. Barber explained the Company’s optimism for 2023, stating, “Favorable trends have emerged in the equipment rental industry and represent a promising outlook. We expect the robust business environment to persist through the year as strong project backlogs and accelerating federally funded programs escalate spending, particularly in the non-residential and industrial end markets. We believe these positive trends are sustainable, due in part to a rise in federal programs addressing improvements in infrastructure that require extended periods to complete. In addition, we expect further growth in rental penetration to drive new demand for equipment as the combination of unfavorable fiscal conditions, including rising interest rates, and lingering delays in equipment deliverability encourage a shift by certain customers away from the ownership of equipment. These multiple catalysts for increased rental demand should maintain healthy equipment utilization and contribute to an attractive pricing environment characterized by modest sequential quarterly rate improvement.”
In closing remarks, Mr. Barber described the Company’s growth objectives for 2023 and stressed the importance of a successful expansion strategy. He summed up the year by saying, “Numerous achievements in 2022, which included the completion of our transition to a pure-play rental business and 18% growth in our branch location count, have served to fortify a sound base for future operations and strategic growth. These achievements contributed to our impressive financial performance, including record revenues and margins, while adding greater scale after our expansion into new geographies and increased branch density in existing regions. We remain focused on further growth initiatives in 2023 and believe this fundamentally sound industry will continue to create opportunities. Growth initiatives for the year include further expansion of our branch network, with a revised range of 10 to 15 new locations, up from 10 new branches in each of the last two years. Also, we are targeting a gross fleet investment of $500 million to $550 million as we continue to support existing stores and the new branch locations with both a young fleet and a diversified mix of equipment lines. Finally, attractive acquisition opportunities continue to appear in our industry and an evaluation of suitable targets remains part of our comprehensive growth strategy in 2023.”
Financial discussion for the Fourth Quarter 2022
Revenue
Total revenues increased 25.6% to $353.1 million in the fourth quarter of 2022 from $281.3 million in the fourth quarter of 2021. Total equipment rental revenues increased 35.3% to $275.7 million compared to $203.7 million in the fourth quarter of 2021. Rental revenues increased 34.6% to $245.0 million compared to $182.0 million in the fourth quarter of 2021. Used equipment sales increased 2.5% to $30.2 million compared to $29.5 million in the same quarter of 2021. New equipment sales decreased by 4.5% to $21.5 million compared to $22.5 million in the same quarter of 2021. Parts sales of $15.7 million were unchanged from the fourth quarter of 2021 while service revenues of $8.6 million increased by 3.0% compared to $8.3 million over the same period of comparison.
Gross Profit
Gross profit increased 34.8% in the fourth quarter of 2022 to $159.4 million compared to $118.2 million in the fourth quarter of 2021. Gross margin of 45.1% for the fourth quarter of 2022 compared to 42.0% for the fourth quarter of 2021. On a segment basis, the gross margin on total equipment rentals was 47.9% in the fourth quarter of 2022 compared to 46.3% in the fourth quarter of 2021. Rental margins were 53.1% compared to 51.7% over the same period of comparison. On average, rental rates in the fourth quarter of 2022 were 10.6% better than rates in the fourth quarter of 2021. Time utilization (based on original equipment cost) was 72.0% in the fourth quarter of 2022 compared to 73.1% in the fourth quarter of 2021. Gross margins on used equipment sales were 51.2%, up from 39.3% over the same period of comparison. Gross margins on new equipment sales were 13.6% in the fourth quarter of 2022 compared to 14.5% in the fourth quarter of 2021. Gross margins on parts sales and service revenues were 28.6% and 63.9%, respectively, in the fourth quarter of 2022 and compared to gross margins of 25.8% and 63.5%, respectively, over the same period of comparison.
Rental Fleet
At the end of the fourth quarter of 2022, the original acquisition cost of the Company’s rental fleet was approximately $2.4 billion, which represented a 26.8%, or $498.5 million increase from the end of the fourth quarter of 2021. Dollar utilization for the fourth quarter of 2022 improved to 41.9% compared to 39.3% in the fourth quarter of 2021.
Selling, General, and Administrative Expenses
SG&A expenses for the fourth quarter of 2022 were $94.5 million, an increase of $17.1 million, or 22.0%, compared to $77.4 million in the fourth quarter of 2021. The higher expenses were primarily due to a $9.4 million increase in employee salaries, wages, incentive compensation related to increased profitability, payroll taxes and related employee benefits, a $1.6 million increase in facilities expenses, a $1.3 million increase in professional fees and a $1.0 million increase in depreciation expense. SG&A expenses in the fourth quarter of 2022 as a percentage of total revenues were 26.8% compared to 27.5% in the fourth quarter of 2021. Approximately $3.3 million of SG&A expenses in the fourth quarter were attributable to the One Source acquisition, while another $3.6 million of expenses resulted from branch openings since the fourth quarter of 2021.
Income from Operations
Income from operations for the fourth quarter of 2022 was $78.8 million, or 22.3% of revenues, compared to $41.6 million, or 14.8% of revenues.
Interest Expense
Interest expense was $13.5 million for the fourth quarter of 2022, or essentially unchanged from the fourth quarter of 2021.
Net Income
Net income in the fourth quarter of 2022 was $51.2 million, or $1.41 per diluted share, compared to the net income in the fourth quarter of 2021 of $21.7 million, or $0.59 per diluted share. The effective income tax rate for the fourth quarter of 2022 was 26.1% compared to 25.8% in the same quarter of 2021.
EBITDA
EBITDA in the fourth quarter of 2022 increased 56.1% to $171.5 million, or 48.6% of revenues, compared to $109.9 million, or 39.1% of revenues, in the fourth quarter of 2021.
FINANCIAL DISCUSSION FOR THE YEAR ENDED DECEMBER 31, 2022
Revenue
Revenues totaled $1.2 billion, an increase of $181.7 million, or 17.1% when compared to $1.1 billion in 2021. Total equipment rental revenues increased 31.0% to $956.0 million compared to $729.7 million in 2021. Rental revenues increased 29.8% to $847.6 million compared to $653.0 million in 2021. Used equipment sales decreased 32.8% to $90.9 million from $135.2 million in the previous year. New equipment sales decreased slightly to $92.5 million compared to $92.7 million in the previous year. Parts sales declined 1.5% to $64.6 million from $65.6 million in 2021 while service revenues increased 3.6% to $34.2 million from $33.0 million in the previous year.
Gross Profit
Gross profit increased 33.7%, or $139.8 million, to $555.2 million in 2022 from $415.4 million in 2021. Gross margin improved by 550 basis points in 2022 to 44.6% compared to 39.1% in 2021. On a segment basis, the gross margin on total equipment rentals was 48.1% compared to 43.3% in 2021. Rental margins were 53.2% compared to 48.4% in the previous year. On average, 2022 rental rates, excluding One Source, increased by 9.3% compared to 2021. In 2022, time utilization (based on original equipment cost) of 72.3% was 260 basis points better than the year-ago result of 69.7%. Gross margins on used equipment sales improved to 48.8% compared to 36.2% in the previous year. Gross margins on new equipment sales were 14.2% compared to 12.8% in the previous year. Gross margins on parts sales were 27.9% compared to 26.3% a year ago while gross margins on service revenues were 64.3% in 2022 compared to 66.0% in 2021.
Selling, General, and Administrative Expenses
SG&A expenses for 2022 were $343.8 million compared to $290.8 million in 2021, an increase of $53.1 million, or 18.2%. The increase was primarily attributable to a $30.0 million increase in employee salaries, wages, incentive compensation, payroll taxes, and related employee benefits, a $5.5 million increase in facilities expenses following the addition of 10 new branches, a $4.1 million increase in professional fees and a $2.7 million increase in costs associated with liability insurance. Approximately $18.0 million of the increased SG&A expenses in 2022 were related to the Company’s expansion efforts, including $14.7 million of new branch expansion and $3.3 million resulting from the One Source acquisition. In 2022, SG&A expenses as a percentage of total revenues were 27.6% compared to 27.4% a year ago.
Income from Operations
Income from operations in 2022 totaled $228.2 million, or 18.3% of revenues, compared to $132.3 million, or 12.5% of revenues in 2021.
Interest Expense
Interest expense in 2022 was $54.0 million, or essentially unchanged from the previous year.
Net Income (Loss)
Net income in 2022 totaled $133.7 million, or $3.70 per diluted share, compared to the net income in 2021 of $60.6 million, or $1.66 per diluted share. The effective income tax rate in 2022 was 26.0% compared to 25.9% in 2021.
EBITDA
EBITDA for 2022 was $535.7 million compared to $393.6 million in 2021. EBITDA in 2022 as a percentage of revenues was 43.0% compared to 37.0% in 2021.
