H&E Equipment Services(HEES) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues decreased by 16.6% or $55.3 million to $278.3 million compared to the same period last year [18] - Net income was $8.8 million or $0.24 per diluted share, down from $22.6 million or $0.63 per diluted share in the second quarter of 2019 [27] - Adjusted EBITDA decreased by 19.3% to $95.3 million, with adjusted EBITDA margins declining by 120 basis points to 34.2% [28] Business Line Data and Key Metrics Changes - Rental revenues decreased by 19% to $140.8 million from $173.8 million a year ago, with average time utilization dropping to 59.5% from 71.2% [19][15] - New equipment sales decreased by 18% or $9.6 million to $43.9 million, primarily due to a 44% decline in new crane sales [20][21] - Used equipment sales decreased by 5.9% to $34 million, with earthmoving sales increasing by 42.4% [22] Market Data and Key Metrics Changes - The size of the rental fleet decreased by 2.3% or $43.8 million compared to the prior year [33] - The company’s exposure to oil and gas remains low at 5% of total revenues [16] - Average dollar utilization was 29.6%, reflecting lower time utilization and rates [33] Company Strategy and Development Direction - The company is focused on rightsizing its rental fleet and managing its balance sheet effectively [12] - Plans to continue with rightsizing the rental fleet by removing the oldest and least productive assets [12] - The company opened one new branch in the Los Angeles metropolitan area and anticipates one or two more warm starts this year [16][62] Management's Comments on Operating Environment and Future Outlook - Management expressed that headwinds related to COVID-19 will persist through the year, with uncertainty regarding the economic recovery [17] - There are encouraging trends in the rental business, with physical utilization currently running approximately 600 basis points above the trough in April [11] - Management noted that while there are challenges, they are working hard to generate returns for shareholders [17] Other Important Information - The company generated $121.1 million in free cash flow during the second quarter, a significant increase from a use of $6.9 million a year ago [32] - SG&A expenses decreased by 12.8% year-over-year, but increased as a percentage of revenues due to a sharper decline in revenues [26][29] - The company maintains a strong balance sheet with ample liquidity and no near-term maturities [34] Q&A Session Summary Question: Time utilization numbers and projections for Q3 - Management confirmed that current utilization is approximately 63% and is expected to maintain at that level going forward [41] Question: Stability of rental rates and ARA reporting methodology - Management indicated that rental rates have stabilized and explained the transition to ARA methodology for reporting [45][46] Question: Permanence of SG&A cuts and future cost structure - Management stated that headcount reductions are not expected to return, while some COVID-related reductions may fluctuate [52][53] Question: Fleet size and CapEx discipline - Management anticipates a mid to upper single-digit fleet decline for the year, emphasizing conservative management [56] Question: Greenfield expansion strategy - Management plans to evaluate further greenfield opportunities based on market clarity, with one new branch already opened [62] Question: Impact of project cancellations and customer backlogs - Management noted a mix of cancellations and postponements, with more positives than cancellations observed [65] Question: Encouraging signs in business flow and regional performance - Management highlighted optimism in certain regions and noted that some areas are performing better than last year [71][74]