H&E Equipment Services(HEES) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q1 2023 increased by 18.4% year-over-year to $322.5 million, driven primarily by higher rental and used equipment sales [43][44] - EBITDA for Q1 2023 was $140.1 million, reflecting a 35.4% increase compared to the same quarter in 2022, with an EBITDA margin of 43.4%, up 540 basis points [10][22] - Net income rose by 57.5% to $25.7 million, or $0.71 per diluted share, compared to $16.3 million, or $0.45 per diluted share, in the prior year [46] Business Segment Data and Key Metrics Changes - Rental revenues increased by 31% to $232.1 million, supported by fleet growth and rental rate appreciation [19][34] - New equipment sales declined by 70% to $7.8 million, primarily due to the divestiture of the low-margin distribution business [20] - Used equipment sales rose by 49.2% to $32.1 million, attributed to a strong market for used equipment and effective fleet management [44] Market Data and Key Metrics Changes - The rental fleet's original equipment cost (OEC) grew by 28.1% or $534 million compared to Q1 2022 [32] - Dollar utilization improved to 38.6%, a 100-basis-point increase from the previous year [12][72] - The company reported a resilient business environment with strong project backlogs, particularly in non-residential and industrial segments, which accounted for 77% of revenues [37] Company Strategy and Development Direction - The company aims to open 10 to 15 new locations in 2023, focusing on greater density in key geographic regions [17][106] - The growth strategy includes significant improvements in the rental fleet, continued branch expansion, and opportunistic mergers and acquisitions (M&A) [16][96] - The company maintains a conservative capital structure with no senior net maturities until 2028, supporting its growth initiatives [74] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business environment, citing strong customer sentiment and a robust project pipeline, with more multiyear projects than in previous years [53][76] - The company anticipates modest sequential rental rate improvements throughout 2023, supported by favorable market dynamics [11][39] - Management noted that inflationary pressures and interest rate actions are being monitored, but have not yet impacted project financing [86] Other Important Information - SG&A expenses increased to 29.6% of revenues, up from 28.7% in the prior year, primarily due to branch expansion costs [23] - The average age of the rental fleet was 43.7 months, younger than the industry average of 51.9 months [48][120] - The company paid a regular quarterly dividend of $0.275 per share in Q1 2023, with intentions to continue this practice [73] Q&A Session Summary Question: How has customer feedback changed through the first quarter? - Customer sentiment remains strong, with no observed inflection points in project backlogs [53] Question: What are the expectations for SG&A leverage this year? - The company expects SG&A to remain flat relative to last year, balancing growth and expansion with cost management [55] Question: Are there challenges in financing projects? - There has been no reported impact on project financing from regional banks or customers, maintaining a positive outlook [86] Question: How is the integration of One Source progressing? - The integration of One Source has been successful, and the M&A pipeline remains strong with disciplined acquisition strategies [94][96] Question: What is the outlook for opening new locations? - The company expects to continue opening 10 to 15 locations annually unless economic disruptions occur [106]