H&E Equipment Services(HEES) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company presents its unaudited condensed consolidated financial statements for the period ended September 30, 2019, showing increased assets, revenues, and net income, alongside significant cash flow activities Condensed Consolidated Balance Sheets The balance sheet reflects a significant increase in total assets to $2.07 billion, primarily driven by the adoption of the new lease accounting standard and business acquisitions Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,068,835 | $1,727,181 | | Rental equipment, net | $1,262,663 | $1,141,498 | | Operating lease right-of-use assets, net | $161,289 | $— | | Goodwill | $143,626 | $105,843 | | Total Liabilities | $1,774,917 | $1,470,378 | | Senior unsecured notes, net | $945,369 | $944,780 | | Amounts due on senior secured credit facility | $304,131 | $170,761 | | Operating lease right-of-use liabilities | $163,855 | $— | | Total Stockholders' Equity | $293,918 | $256,803 | - The significant increase in assets and liabilities is primarily due to the adoption of the new lease accounting standard (ASC 842), which required the recognition of $161.3 million in operating lease right-of-use assets and $163.9 million in operating lease right-of-use liabilities[13][40] Condensed Consolidated Statements of Income For the nine months ended September 30, 2019, total revenues grew 12.0% to $1.0 billion, and net income increased 26.6% to $65.3 million, primarily from equipment rental revenues Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $352,997 | $322,141 | $1,000,232 | $892,987 | | Equipment rentals | $204,132 | $165,415 | $572,563 | $455,167 | | Gross Profit | $132,128 | $114,730 | $370,609 | $315,418 | | Income from Operations | $55,503 | $45,318 | $138,851 | $115,747 | | Net Income | $28,431 | $21,314 | $65,288 | $51,563 | | Diluted EPS | $0.79 | $0.59 | $1.81 | $1.44 | - For the nine months ended September 30, 2019, total revenues increased by 12.0% and net income grew by 26.6% compared to the same period in 2018, driven primarily by a significant increase in equipment rental revenues[15] Condensed Consolidated Statements of Cash Flows Operating activities generated $207.6 million in cash, while investing activities used $315.2 million, largely for acquisitions and equipment purchases Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $207,607 | $138,025 | | Net cash used in investing activities | ($315,157) | ($486,806) | | Acquisition of businesses, net of cash acquired | ($106,746) | ($196,027) | | Purchases of rental equipment | ($269,150) | ($350,646) | | Net cash provided by financing activities | $101,469 | $187,991 | | Net change in cash | ($6,081) | ($160,790) | | Cash, end of period | $10,596 | $5,088 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, including the adoption of ASC 842, the acquisition of We-Rent-It, segment performance, and debt structure - The company adopted the new lease accounting standard, ASC Topic 842, on January 1, 2019, resulting in the recognition of $162.8 million in operating lease liabilities and $160.6 million in right-of-use assets upon adoption, and changes to income statement presentation for certain ancillary rental fees[34][36][40] - On February 1, 2019, the company acquired We-Rent-It (WRI) for approximately $108.5 million, expanding its presence in central Texas and adding $37.8 million in goodwill[76][77][78] Segment Revenues and Gross Profit (Nine Months Ended Sep 30, in thousands) | Segment | 2019 Revenues | 2019 Gross Profit | 2018 Revenues | 2018 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Equipment rentals | $572,563 | $258,498 | $455,167 | $195,549 | | New equipment sales | $177,709 | $21,071 | $183,265 | $20,800 | | Used equipment sales | $96,942 | $33,200 | $87,287 | $28,066 | | Parts sales | $93,798 | $25,048 | $89,916 | $24,239 | | Services revenues | $50,398 | $34,137 | $48,250 | $31,820 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 12.0% increase in total revenues, driven by equipment rental growth and the We-Rent-It acquisition, with strong liquidity and capital expenditures Results of Operations Total revenues increased 9.6% in Q3 2019 and 12.0% year-to-date, primarily due to an 18.2% rise in equipment rental revenues and improved gross profit margins Q3 2019 vs Q3 2018 Performance (in thousands) | Metric | Q3 2019 | Q3 2018 (As Adjusted) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $352,997 | $322,141 | $30,856 | 9.6% | | Equipment Rental Revenues | $204,132 | $172,771 | $31,361 | 18.2% | | Total Gross Profit | $132,128 | $114,730 | $17,398 | 15.2% | YTD 2019 vs YTD 2018 Performance (in thousands) | Metric | YTD 2019 | YTD 2018 (As Adjusted) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,000,232 | $892,987 | $107,245 | 12.0% | | Equipment Rental Revenues | $572,563 | $475,578 | $96,985 | 20.4% | | Total Gross Profit | $370,609 | $315,418 | $55,191 | 17.5% | - Key rental metrics improved in Q3 2019 vs Q3 2018: average rental rates increased by 2.4%, and rental equipment dollar utilization rose to 37.5% from 35.9%[192][193] - SG&A expenses for the nine months ended September 30, 2019, increased by $28.5 million (13.9%) to $233.8 million, primarily due to acquisitions, a larger workforce, and higher incentive compensation[240] Liquidity and Capital Resources The company's liquidity is supported by $207.6 million in operating cash flow and $449.1 million available under its credit facility, despite significant capital expenditures - For the nine months ended September 30, 2019, net cash from operations was $207.6 million, a significant increase from $138.0 million in the prior-year period[244][245] - Gross rental fleet capital expenditures for the nine-month period were approximately $307.4 million, including non-cash transfers[258] - As of October 18, 2019, the company had $449.1 million of available borrowings under its Credit Facility, net of a $7.7 million outstanding letter of credit[256][259] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its variable-rate Senior Secured Credit Facility, with a 1.0% rate increase impacting annualized interest expense by $3.0 million - The company is exposed to interest rate risk through its variable-rate Credit Facility, which had $304.1 million outstanding at September 30, 2019[267] - A hypothetical 1.0% increase in interest rates on the Credit Facility would increase annualized interest expense by approximately $3.0 million[267] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls during Q3 2019 - The CEO and CFO concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[269] - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2019[271] PART II. OTHER INFORMATION Legal Proceedings Management believes ongoing legal proceedings will not materially affect the company's financial position, results of operations, or liquidity - Management does not expect ongoing legal proceedings to have a material adverse effect on the company's financial condition or results[272] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 were reported - No material changes to the company's risk factors were reported as of the filing date of this Form 10-Q[274] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - The company reported no unregistered sales of equity securities during the period[275] Exhibits The report lists exhibits filed with the Form 10-Q, including certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL data files - Exhibits filed include CEO and CFO certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act[281]