H&E Equipment Services(HEES) - 2024 Q4 - Annual Results

Executive Summary & Strategic Update This section covers the strategic announcement of H&E's acquisition by Herc Holdings and highlights key financial results for Q4 and full year 2024 Strategic Announcement H&E Equipment Services, Inc. announced its agreement to be acquired by Herc Holdings Inc., bringing together two companies with extensive industry experience - H&E Equipment Services, Inc. (NASDAQ: HEES) announced its agreement to be acquired by Herc Holdings Inc. (NYSE: HRI)[3] - The acquisition will combine two companies with a combined 120 years of industry experience[3] Fourth Quarter and Full Year 2024 Highlights H&E Rentals reported a slight revenue decrease and a significant drop in net income and Adjusted EBITDA for Q4 2024, while full-year revenues increased with modest declines in net income and Adjusted EBITDA Fourth Quarter 2024 Key Financial Highlights | Metric | Q4 2024 | Q4 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Revenues | $384.1M | $385.8M | -0.4% | | Net income | $32.8M | $53.5M | -38.7% | | Adjusted EBITDA | $174.9M | $185.2M | -5.6% | | Adjusted EBITDA margin | 45.5% | 48.0% | -2.5 pp | Full Year 2024 Key Financial Highlights | Metric | FY 2024 | FY 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Revenues | $1,516.6M | $1,469.2M | +3.2% | | Net income | $123.0M | $169.3M | -27.4% | | Adjusted EBITDA | $685.2M | $688.2M | -0.4% | | Adjusted EBITDA margin | 45.2% | 46.8% | -1.6 pp | Financial Discussion - Fourth Quarter 2024 This section details H&E's financial performance for Q4 2024, covering revenue, gross profit, rental fleet metrics, operating expenses, and net income Revenue Performance Total revenues for Q4 2024 slightly decreased by 0.4% to $384.1 million, driven by a decline in rental equipment sales offset by new equipment sales growth Q4 2024 Revenue Breakdown | Revenue Type | Q4 2024 (Millions) | Q4 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenues | $384.1 | $385.8 | -0.4% | | Total equipment rental revenues | $319.4 | $316.9 | +0.8% | | Rental revenues | $283.0 | $280.6 | +0.9% | | Sales of rental equipment | $28.4 | $40.6 | -30.1% | | Sales of new equipment | $20.5 | $9.8 | +109.0% | Gross Profit and Margins Gross profit decreased by 10.1% to $167.6 million in Q4 2024, with overall gross margin declining due to lower rental and equipment sales margins Q4 2024 Gross Profit and Margins | Metric | Q4 2024 | Q4 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Gross Profit | $167.6M | $186.3M | -10.1% | | Total Gross Margin | 43.6% | 48.3% | -4.7 pp | | Total equipment rental gross margins | 44.9% | 48.2% | -3.3 pp | | Rental gross margins | 50.9% | 54.2% | -3.3 pp | | Sales of rental equipment gross margins | 58.9% | 66.0% | -7.1 pp | | Sales of new equipment gross margins | 17.8% | 15.3% | +2.5 pp | Rental Fleet Metrics The rental fleet's original equipment cost increased by 5.5% to $2.9 billion, but dollar and time utilization, along with average rental rates, decreased - Original equipment cost of rental fleet: ~$2.9 billion (up 5.5% compared to Q4 2023)[8][10] Q4 2024 Rental Fleet Utilization and Rates | Metric | Q4 2024 | Q4 2023 | Change | | :----------------------- | :------ | :------ | :----- | | Dollar utilization | 38.2% | 40.3% | -2.1 pp | | Time utilization | 66.4% | 68.4% | -2.0 pp | | Average rental rates | -1.1% | N/A | -1.1% YoY | - Average rental fleet age on December 31, 2024, was 41.7 months, compared to an industry average of 48.6 months[10] Selling, General and Administrative Expenses SG&A expenses increased by 9.7% to $117.0 million in Q4 2024, primarily due to higher professional fees and facilities costs Q4 2024 SG&A Expenses | Metric | Q4 2024 (Millions) | Q4 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | SG&A expenses | $117.0 | $106.6 | +9.7% | | SG&A as % of total revenues | 30.5% | 27.6% | +2.9 pp | - Increase primarily due to higher professional fees (including $4.4 million in transaction-related costs), increased facilities costs, and higher depreciation and amortization expenses[9] - Approximately $10.5 million of SG&A expenses were attributable to the Company's expansion activities[9] Income from Operations Income from operations for Q4 2024 decreased to $53.8 million (14.0% of revenues) from $81.2 million (21.1% of revenues) in Q4 2023 Q4 2024 Income from Operations | Metric | Q4 2024 (Millions) | Q4 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Income from operations | $53.8 | $81.2 | -33.7% | | Income from operations as % of revenues | 14.0% | 21.1% | -7.1 pp | - Income from operations included pre-tax transaction expenses of $4.4 million[10] - Adjusted income from operations (excluding transaction expenses) was $58.2 million, or 15.2% of revenues[11] Interest Expense Interest expense for Q4 2024 increased to $17.6 million compared to $16.3 million in the prior year quarter Q4 2024 Interest Expense | Metric | Q4 2024 (Millions) | Q4 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Interest expense | $17.6 | $16.3 | +7.9% | Net Income and EPS Net income for Q4 2024 was $32.8 million, or $0.90 per diluted share, a significant decrease from Q4 2023 Q4 2024 Net Income and EPS | Metric | Q4 2024 | Q4 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Net income | $32.8M | $53.5M | -38.7% | | Diluted EPS | $0.90 | $1.47 | -38.7% | - Adjusted net income (excluding transaction expenses) was $36.1 million, or $0.99 per diluted share[13] - The effective income tax rate for Q4 2024 was 13.6% (14.8% adjusted for transaction expenses) compared to 19.4% in Q4 2023[5][13] Adjusted EBITDA Adjusted EBITDA decreased by 5.6% to $174.9 million in Q4 2024, with the margin declining to 45.5% Q4 2024 Adjusted EBITDA | Metric | Q4 2024 (Millions) | Q4 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Adjusted EBITDA | $174.9 | $185.2 | -5.6% | | Adjusted EBITDA margin | 45.5% | 48.0% | -2.5 pp | Financial Discussion - Full Year 2024 This section analyzes H&E's full-year 2024 financial performance, including revenue, gross profit, operating expenses, and net income Revenue Performance Total revenues for full year 2024 increased by 3.2% to $1,516.6 million, driven by equipment rental and new equipment sales growth FY 2024 Revenue Breakdown | Revenue Type | FY 2024 (Millions) | FY 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenues | $1,516.6 | $1,469.2 | +3.2% | | Total equipment rental revenues | $1,253.3 | $1,186.2 | +5.7% | | Rental revenues | $1,108.3 | $1,051.6 | +5.4% | | Sales of rental equipment | $139.2 | $165.1 | -15.7% | | Sales of new equipment | $55.6 | $39.1 | +42.2% | Gross Profit and Margins Gross profit for 2024 slightly decreased by 1.4% to $675.2 million, with overall gross margin declining to 44.5% FY 2024 Gross Profit and Margins | Metric | FY 2024 | FY 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Gross Profit | $675.2M | $684.5M | -1.4% | | Total Gross Margin | 44.5% | 46.6% | -2.1 pp | | Total equipment rental gross margins | 44.8% | 46.7% | -1.9 pp | | Rental gross margins | 50.4% | 52.1% | -1.7 pp | | Sales of rental equipment gross margins | 61.4% | 60.5% | +0.9 pp | | Sales of new equipment gross margins | 18.0% | 14.1% | +3.9 pp | - Average 2024 rental rates increased 0.8% compared to 2023[16] - Time utilization (based on original equipment cost) was 66.0% in 2024 compared to 68.8% in 2023[16] Selling, General and Administrative Expenses SG&A expenses increased by 12.4% to $455.6 million in 2024, primarily due to higher employee-related costs and expansion activities FY 2024 SG&A Expenses | Metric | FY 2024 (Millions) | FY 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | SG&A expenses | $455.6 | $405.4 | +12.4% | | SG&A as % of total revenues | 30.0% | 27.6% | +2.4 pp | - Increase primarily due to higher employee salaries, wages, payroll taxes, and other related employee costs, as well as higher expenses attributable to depreciation and amortization, facilities and professional fees[17] - Approximately $44.5 million of the increase in SG&A expenses in 2024 were associated with branches opened or acquired during or after the fourth quarter of 2023[17] Income from Operations Income from operations for 2024 decreased to $229.3 million (15.1% of revenues) from $276.7 million (18.8% of revenues) in 2023 FY 2024 Income from Operations | Metric | FY 2024 (Millions) | FY 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Income from operations | $229.3 | $276.7 | -17.1% | | Income from operations as % of revenues | 15.1% | 18.8% | -3.7 pp | - Income from operations in 2024 included pre-tax transaction expenses of $4.4 million[18][19] - Adjusted income from operations (excluding transaction expenses) was $233.7 million, or 15.4% of revenues[19] Interest Expense Interest expense for the full year 2024 increased to $73.0 million compared to $60.9 million in the previous year FY 2024 Interest Expense | Metric | FY 2024 (Millions) | FY 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Interest expense | $73.0 | $60.9 | +19.9% | Net Income and EPS Net income for 2024 totaled $123.0 million, or $3.37 per diluted share, a decrease from $169.3 million in 2023 FY 2024 Net Income and EPS | Metric | FY 2024 | FY 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Net income | $123.0M | $169.3M | -27.4% | | Diluted EPS | $3.37 | $4.66 | -27.7% | - Adjusted net income (excluding transaction expenses) was $126.3 million, or $3.46 per diluted share[21] - The effective income tax rate in 2024 was 24.3% compared to 24.2% in 2023[21] Adjusted EBITDA Adjusted EBITDA for 2024 slightly decreased by 0.4% to $685.2 million, with the Adjusted EBITDA margin declining to 45.2% FY 2024 Adjusted EBITDA | Metric | FY 2024 (Millions) | FY 2023 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Adjusted EBITDA | $685.2 | $688.2 | -0.4% | | Adjusted EBITDA margin | 45.2% | 46.8% | -1.6 pp | Non-GAAP Financial Measures This section defines and explains the rationale behind the company's use of non-GAAP financial measures like EBITDA and Adjusted Income Measures Definitions and Rationale The report utilizes non-GAAP measures such as EBITDA and Adjusted Income Measures to evaluate performance, cautioning against their use in isolation from GAAP results - Non-GAAP measures include EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Net Income per share[23][26] - Adjusted EBITDA is defined as EBITDA adjusted for non-cash stock-based compensation expense, impairment of goodwill, and transaction expenses[23] - Adjusted Income Measures are defined as Income from Operations, Net Income, and Net Income per Share, adjusted for the impairment of goodwill and transaction expenses[26] - These measures are used to evaluate business performance, develop budgets, and provide supplemental information to investors, but should not be considered in isolation or as substitutes for GAAP results[24][25][26] Company Information This section provides background on H&E Rentals and outlines the nature of forward-looking statements within the report About H&E Rentals Founded in 1961, H&E is one of the largest rental equipment companies in the U.S., offering a diverse fleet across high-growth geographies - Founded in 1961, H&E is one of the largest rental equipment companies in the nation[30] - The Company's fleet is comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines[30] - H&E serves diverse end markets in many high-growth geographies with branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and Mid-Atlantic regions[30] Forward-Looking Statements The press release contains forward-looking statements subject to various risks and uncertainties, including those related to the pending acquisition - Statements in the press release that are not historical facts are 'forward-looking statements' subject to known and unknown risks and uncertainties[31] - Risk factors include general economic and geopolitical conditions, construction and industrial activity, ability to forecast trends, global credit and commodity markets, supply chain disruptions, increased maintenance costs, cybersecurity attacks, adverse weather, climate change regulation, and risks related to the pending transaction with Herc Holdings Inc[31][32] - Investors are urged to consider these factors carefully and are cautioned not to place undue reliance on such forward-looking statements, as the company is under no obligation to publicly update or revise them[31][32] Unaudited Financial Statements & Reconciliations This section presents unaudited financial statements and reconciliations of non-GAAP measures for the reported periods Consolidated Statements of Income This section presents the unaudited consolidated statements of income for Q4 and full year 2024 and 2023, detailing revenues, costs, and net income Consolidated Statements of Income (Unaudited, Amounts in thousands) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Revenues: | | | | | | Equipment rentals | $319,425 | $316,874 | $1,253,325 | $1,186,152 | | Sales of rental equipment | 28,359 | 40,598 | 139,201 | 165,074 | | Sales of new equipment | 20,461 | 9,791 | 55,597 | 39,099 | | Parts, service and other | 15,837 | 18,543 | 68,460 | 78,891 | | Total revenues | 384,082 | 385,806 | 1,516,583 | 1,469,216 | | Gross profit | 167,601 | 186,339 | 675,200 | 684,461 | | Selling, general and administrative expenses | 116,996 | 106,620 | 455,554 | 405,432 | | Income from operations | 53,821 | 81,242 | 229,311 | 276,704 | | Interest expense | (17,590) | (16,349) | (72,954) | (60,891) | | Net income | $32,764 | $53,524 | $122,982 | $169,293 | | Diluted EPS | $0.90 | $1.47 | $3.37 | $4.66 | Selected Balance Sheet Data This section provides key unaudited balance sheet data as of December 31, 2024, and 2023, including assets, liabilities, and equity Selected Balance Sheet Data (Unaudited, Amounts in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Cash | $16,413 | $8,500 | | Rental equipment, net | 1,841,855 | 1,756,578 | | Total assets | 2,795,530 | 2,639,886 | | Total debt | 1,453,311 | 1,434,661 | | Total liabilities | 2,173,050 | 2,105,597 | | Stockholders' equity | 622,480 | 534,289 | | Total liabilities and stockholders' equity | $2,795,530 | $2,639,886 | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including adjusted income and EBITDA Adjusted Income Measures Reconciliation (Q4 2024) This table reconciles GAAP income from operations, net income, and diluted EPS to their adjusted non-GAAP counterparts for Q4 2024, primarily by adding back transaction expenses and adjusting for their tax impact Q4 2024 Adjusted Income Measures Reconciliation (Unaudited, Amounts in thousands) | Metric | As Reported | Adjustment | As Adjusted | | :------------------------------------ | :---------- | :--------- | :---------- | | Income from continuing operations | $53,821 | $4,394 | $58,215 | | Net income from continuing operations | $32,764 | $3,313 | $36,077 | | Diluted - Net income per common share | $0.90 | $0.09 | $0.99 | - The adjustment relates to transaction expenses incurred[38] Adjusted Income Measures Reconciliation (Full Year 2024 & 2023) This section provides reconciliations for full-year 2024 and 2023, adjusting GAAP income from operations, net income, and diluted EPS for transaction expenses in 2024 and goodwill impairment in 2023, along with their respective tax impacts FY 2024 Adjusted Income Measures Reconciliation (Unaudited, Amounts in thousands) | Metric | As Reported | Adjustment | As Adjusted | | :------------------------------------ | :---------- | :--------- | :---------- | | Income from continuing operations | $229,311 | $4,394 | $233,705 | | Net income from continuing operations | $122,982 | $3,313 | $126,295 | | Diluted - Net income per common share | $3.37 | $0.09 | $3.46 | FY 2023 Adjusted Income Measures Reconciliation (Unaudited, Amounts in thousands) | Metric | As Reported | Adjustment | As Adjusted | | :------------------------------------ | :---------- | :--------- | :---------- | | Income from continuing operations | $276,704 | $5,714 | $282,418 | | Net income from continuing operations | $169,293 | $4,407 | $173,700 | | Diluted - Net income per common share | $4.66 | $0.12 | $4.78 | - Adjustments relate to transaction expenses incurred in 2024 and impairment of goodwill in 2023[39] EBITDA and Adjusted EBITDA Reconciliation This table reconciles net income to EBITDA and then to Adjusted EBITDA for both the three and twelve months ended December 31, 2024, and 2023, by adding back interest expense, income taxes, depreciation, amortization, non-cash stock-based compensation, goodwill impairment, and transaction expenses EBITDA and Adjusted EBITDA Reconciliation (Unaudited, Amounts in thousands) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net Income | $32,764 | $53,524 | $122,982 | $169,293 | | Interest Expense | 17,590 | 16,349 | 72,954 | 60,891 | | Provision for income taxes | 5,174 | 12,902 | 39,564 | 53,904 | | Depreciation | 109,701 | 98,330 | 423,757 | 381,959 | | Amortization of intangibles | 2,597 | 1,407 | 10,265 | 6,455 | | EBITDA | $167,826 | $182,512 | $669,522 | $672,502 | | Impairment of goodwill | — | — | — | 5,714 | | Non-cash stock-based compensation expense | 2,630 | 2,722 | 11,236 | 10,026 | | Transaction expense | 4,394 | — | 4,394 | — | | Adjusted EBITDA | $174,850 | $185,234 | $685,152 | $688,242 | Rental Revenues and Cost of Sales Disaggregation This supplemental schedule disaggregates equipment rental revenues and their corresponding costs for the three and twelve months ended December 31, 2024, and 2023, providing detailed gross profit and gross margin figures for equipment rentals and 'rental other' categories Rental Revenues and Cost of Sales Disaggregation (Unaudited, Amounts in thousands) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------------------ | :------ | :------ | :------ | :------ | | RENTAL REVENUES: | | | | | | Equipment rentals | $282,965 | $280,576 | $1,108,273 | $1,051,632 | | Rental other | 36,460 | 36,298 | 145,052 | 134,520 | | Total equipment rentals | 319,425 | 316,874 | 1,253,325 | 1,186,152 | | TOTAL RENTAL COST OF SALES | 175,846 | 164,017 | 691,758 | 632,713 | | TOTAL RENTAL REVENUES GROSS PROFIT | $143,579 | $152,857 | $561,567 | $553,439 | | RENTAL REVENUES GROSS MARGIN: | | | | | | Equipment rentals | 50.9% | 54.2% | 50.4% | 52.1% | | Rentals other | -1.3% | 2.2% | 1.8% | 4.2% | | Total rental revenues gross margin | 44.9% | 48.2% | 44.8% | 46.7% |