H&E Equipment Services(HEES) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements For the first quarter of 2024, H&E Equipment Services reported a 15.2% increase in total revenues to $371.4 million year-over-year, driven by strong performance in equipment rentals and sales of rental equipment, with net income remaining stable at $25.9 million, or $0.71 per diluted share, and the balance sheet expanding to $2.76 billion reflecting growth from the Precision Rentals acquisition and fleet investments, while operating cash flow saw a significant increase to $83.4 million from $43.2 million in the prior-year period Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased to $2.76 billion from $2.64 billion at year-end 2023, primarily driven by increases in rental equipment, goodwill, and intangible assets largely due to the Precision acquisition, while total liabilities also rose to $2.21 billion mainly from increased borrowings on the senior secured credit facility to fund the acquisition Condensed Consolidated Balance Sheets | Account | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $2,757,746 | $2,639,886 | +4.5% | | Rental equipment, net | $1,781,505 | $1,756,578 | +1.4% | | Goodwill | $125,591 | $108,155 | +16.1% | | Intangible assets, net | $66,689 | $32,576 | +104.7% | | Total Liabilities | $2,207,068 | $2,105,597 | +4.8% | | Senior secured credit facility | $254,637 | $181,642 | +40.2% | | Senior unsecured notes, net | $1,243,213 | $1,242,852 | +0.03% | | Total Stockholders' Equity | $550,678 | $534,289 | +3.1% | Condensed Consolidated Statements of Income For the three months ended March 31, 2024, total revenues increased 15.2% to $371.4 million compared to the same period in 2023, led by a 12.7% increase in equipment rentals and a 49.8% surge in sales of rental equipment, with net income remaining flat at $25.9 million and diluted EPS unchanged at $0.71 despite higher revenues and increased expenses Condensed Consolidated Statements of Income | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $371,357 | $322,482 | +15.2% | | Equipment rentals | $295,325 | $262,008 | +12.7% | | Sales of rental equipment | $48,115 | $32,115 | +49.8% | | Gross Profit | $164,865 | $141,378 | +16.6% | | Income from operations | $52,020 | $46,710 | +11.4% | | Net Income | $25,889 | $25,674 | +0.8% | | Diluted EPS | $0.71 | $0.71 | 0.0% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities nearly doubled to $83.4 million in Q1 2024 from $43.2 million in Q1 2023, primarily due to favorable changes in working capital, while investing activities used $142.3 million dominated by the $121.6 million cash payment for the Precision acquisition, and financing activities provided $59.5 million reflecting net borrowings on the credit facility to fund growth initiatives Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $83,350 | $43,225 | | Net cash used in investing activities | ($142,289) | ($56,431) | | Acquisition of business | ($121,571) | $0 | | Purchases of rental equipment | ($31,059) | ($76,578) | | Net cash provided by financing activities | $59,515 | $21,821 | | Net borrowings on senior secured credit facility | $72,995 | $40,000 | | Dividends paid | ($10,029) | ($9,989) | | Net increase in cash | $576 | $8,615 | Note 3 - Acquisitions and Dispositions The company continued its growth-through-acquisition strategy by acquiring Precision Rentals on January 1, 2024, for approximately $123.9 million in cash, expanding its presence in Arizona and Colorado, with the preliminary purchase price allocation adding $63.2 million in rental equipment, $33.0 million in customer relationships, and $17.5 million in goodwill - Completed the acquisition of Precision Rentals on January 1, 2024, for an aggregate cash consideration of approximately $123.9 million[46][47] - The acquisition expanded the company's presence with branches in Arizona and Colorado[46] Preliminary Purchase Price Allocation | Preliminary Purchase Price Allocation | Value ($ thousands) | | :--- | :--- | | Rental equipment | $63,215 | | Customer relationships intangible asset | $33,000 | | Goodwill | $17,536 | | Net identifiable assets acquired | $102,824 | Note 8 & 9 - Debt Instruments As of March 31, 2024, the company had $254.6 million outstanding under its $750.0 million Senior Secured Credit Facility and $1.24 billion in Senior Unsecured Notes due 2028, with borrowings under the credit facility increasing significantly from year-end to fund the Precision acquisition, while remaining in compliance with all debt covenants - At March 31, 2024, borrowings under the Senior Secured Credit Facility were $254.6 million, with approximately $483.0 million of additional borrowing capacity[77] - The weighted average interest rate under the Credit Facility was approximately 7.1% as of March 31, 2024[77] - The company has $1.25 billion in 3.875% Senior Unsecured Notes, which mature in 2028[79] Note 11 - Segment Information Equipment rentals remain the company's largest and most profitable segment, contributing $295.3 million in revenue and $127.9 million in gross profit for Q1 2024, while sales of rental equipment showed significant growth in both revenue and gross profit, reflecting a key part of the company's fleet management strategy Segment Revenues ($ thousands) | Segment Revenues ($ thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Equipment rentals | $295,325 | $262,008 | | Sales of rental equipment | $48,115 | $32,115 | | Sales of new equipment | $10,412 | $7,818 | | Parts sales | $11,029 | $12,157 | | Services revenues | $5,744 | $7,186 | Segment Gross Profit ($ thousands) | Segment Gross Profit ($ thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Equipment rentals | $127,897 | $114,294 | | Sales of rental equipment | $30,286 | $18,827 | | Sales of new equipment | $1,773 | $1,037 | | Parts sales | $2,927 | $3,505 | | Services revenues | $3,381 | $4,596 | Note 12 - Subsequent Events Subsequent to the quarter's end, on April 10, 2024, the company entered into a definitive agreement to acquire Lewistown Rentals for $33.5 million, expanding its footprint with four new branch locations in Montana, with the acquisition expected to close in the second quarter of 2024 - On April 10, 2024, the company agreed to acquire Lewistown Rentals and its affiliates for a purchase price of $33.5 million[87] - The acquisition adds four branch locations in Montana and is expected to close in Q2 2024[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributed the 15.2% year-over-year revenue growth primarily to a larger rental fleet and a 2.9% increase in rental rates, with gross profit margin improving to 44.4% from 43.8% driven by strong margins on sales of used rental equipment, while SG&A expenses rose 19.9% due to increased headcount, wages, and costs associated with branch expansion, maintaining a strong liquidity position of $492.1 million and continuing its dividend program, paying $0.275 per share Rental Fleet The rental fleet's original acquisition cost was approximately $2.8 billion as of March 31, 2024, a slight increase of 1.0% from year-end 2023, with an average fleet age of 39.9 months, as the company actively manages its fleet composition and age through new equipment purchases and strategic sales of used equipment Fleet Composition (as of March 31, 2024) | Fleet Composition (as of March 31, 2024) | Units | % of Total Units | Original Acquisition Cost ($M) | % of Total Cost | Average Age (Months) | | :--- | :--- | :--- | :--- | :--- | :--- | | Aerial Work Platforms | 27,708 | 45.5% | $931.8 | 33.1% | 52.4 | | Earthmoving | 8,555 | 14.1% | $728.9 | 25.9% | 25.5 | | Material Handling Equipment | 10,436 | 17.1% | $844.0 | 30.0% | 40.2 | | Other | 14,186 | 23.3% | $313.3 | 11.0% | 24.2 | | Total | 60,885 | 100.0% | $2,818.0 | 100.0% | 39.9 | - The original acquisition cost of the gross rental fleet increased by approximately $27.0 million, or 1.0%, during the first three months of 2024[115] Results of Operations Total revenues for Q1 2024 increased 15.2% YoY to $371.4 million, with equipment rental revenues growing 12.7% due to a larger fleet and a 2.9% rate increase, and sales of rental equipment surging 49.8% as the company capitalized on strong used equipment demand, leading to a 16.6% rise in total gross profit to $164.9 million and an overall gross margin expansion of 60 basis points to 44.4%, despite SG&A expenses increasing 19.9% reflecting investments in business expansion - Total revenues increased by $48.9 million, or 15.2%, in Q1 2024 compared to Q1 2023[121] - Key drivers for rental revenue growth were a larger fleet and a 2.9% year-over-year increase in average rental rates[122][124] - Gross profit margin on sales of rental equipment increased to 62.9% from 58.6% in the prior-year quarter[134] - SG&A expenses increased by $18.9 million (19.9%), with approximately $10.0 million attributable to expansion efforts since January 1, 2023[137] Liquidity and Capital Resources The company's liquidity remains strong, with $492.1 million available as of March 31, 2024, from cash on hand and borrowing capacity under its credit facility, supported by a robust operating cash flow of $83.4 million, while gross rental fleet capital expenditures were $74.4 million, a decrease from the prior year reflecting a normalization of purchasing, and $10.0 million in dividends were paid during the quarter - As of March 31, 2024, the company had a total liquidity position of $492.1 million, consisting of $9.1 million in cash and $483.0 million in available borrowings[148][149][151] - Gross rental fleet capital expenditures for Q1 2024 were $74.4 million, compared to $127.7 million in Q1 2023[150] - A quarterly dividend of $0.275 per share was paid on March 15, 2024, totaling approximately $10.0 million[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to changes in interest rates, as its Senior Secured Credit Facility carries a variable interest rate based on the Base Rate or SOFR, with no significant changes in the company's exposure to market risk reported during the first quarter of 2024 - The company's earnings are affected by interest rate changes due to the variable-rate nature of its Credit Facility[154] - No significant changes in market risk exposure were reported for the three months ended March 31, 2024[155] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no changes in internal control over financial reporting occurring during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[157] - There were no material changes to the company's internal control over financial reporting during the first quarter of 2024[159] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various claims and legal actions arising in the ordinary course of business, with management not believing the ultimate disposition of these matters will have a material adverse effect on the company's financial position, results of operations, or liquidity - The company is involved in various legal actions in the ordinary course of business, which are not expected to have a material adverse effect[160][161] Item 1A. Risk Factors There have been no material changes to the company's risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors previously disclosed in the 2023 Form 10-K were reported[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company acquired 57,662 shares of its common stock at an average price of $58.79 per share, which were returned by employees to cover withholding taxes related to the vesting of restricted stock units and added to treasury stock, not as part of a publicly announced repurchase plan - In March 2024, the company acquired 57,662 shares at an average price of $58.79 per share[164] - The shares were acquired from employees to satisfy tax withholding obligations upon the vesting of restricted stock units[164]