H&E Equipment Services reports first quarter 2024
H&E Equipment Services, Inc. announced results for the first quarter ended March 31, 2024, with disciplined growth objectives contributing to double-digit improvement in rental revenues.
FIRST QUARTER 2024 SUMMARY WITH A COMPARISON TO FIRST QUARTER 2023
- Revenues increased 15.2% to $371.4 million compared to $322.5 million.
- Net income totaled $25.9 million compared to $25.7 million. The effective income tax rate was 26.5% compared to 26.1%.
- Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 13.1% to $161.7 million compared to $143.0 million. Adjusted EBITDA margin was 43.6% compared to 44.4%.
- Total equipment rental revenues were $295.3 million, an increase of $33.3 million, or 12.7%, compared to $262.0 million. Rental revenues were $261.7 million, an increase of $29.7 million, or 12.8%, compared to $232.1 million.
- Sales of rental equipment increased 49.8% to $48.1 million compared to $32.1 million. Margins improved to 62.9% compared to 58.6%.
- Sales of new equipment totaled $10.4 million, an increase of 33.2% compared to $7.8 million.
- Gross margin improved to 44.4% compared to 43.8%.
- Total equipment rental gross margins were 43.3% compared to 43.6%. Rental gross margins were 48.5% compared to 48.4%.
- Average time utilization (based on original equipment cost) was 63.6% compared to 67.3%. The Company’s rental fleet, based on original equipment cost, increased $383.0 million, or 15.7% to just over $2.8 billion.
- Average rental rates improved 2.9% from the year-ago quarter and declined 0.2% on a sequential quarterly basis.
- Dollar utilization was 37.0% compared to 38.6%.
- Average rental fleet age on March 31, 2024, was 39.9 months compared to an industry average age of 48.9 months.
- Paid regular quarterly cash dividend of $0.275 per share of common stock.
Brad Barber
Summarizing the Company’s first quarter results, Brad Barber, chief executive officer of H&E stated, “Rental revenues grew 12.8% on a year-over-year basis, supported by a modest improvement in rental rates and successful growth activities. Rental rates advanced 2.9% when compared to the year-ago quarter, while on a sequential quarterly basis, rates experienced a negligible decrease of 0.2%. Average physical utilization in the quarter was 63.6% compared to 67.3% in the year-ago quarter, with the decline due to lower than anticipated construction activity, as well as project delays resulting from recurring unfavorable weather conditions, with the work interruptions most pronounced across our western operations. Our continued focus on branch expansion and fleet growth led to further financial gain in the quarter. On a year-over-year basis, our branch network grew 17%, including 15 locations resulting from our accelerated branch expansion program and five other locations added through acquisitions. Our rental fleet closed the first quarter with an original equipment cost (OEC) in excess of $2.8 billion, or 15.7% larger than our OEC on March 31, 2023.”
Providing an updated view on industry prospects, Mr. Barber noted, “Our current outlook for the equipment rental industry indicates a transitioning business environment, with moderating growth levels compared to the exceptional rate of growth in construction spending and strong business dynamics experienced over the past 24 months. We believe the easing in the progression of construction spending is in part the result of a ‘higher for longer’ interest rate environment and generally tighter lending standards, which have contributed to a greater supply of rental equipment. Even though non-residential and industrial project backlogs remain solid, the rate of new project starts has slowed in early 2024. We note several factors that are expected to be instrumental in maintaining, or possibly improving upon an environment currently exhibiting moderate growth and steady industry fundamentals. These factors include the continued escalation of mega projects, an expected increase in infrastructure projects, favorable trends in rental penetration and the steady growth in construction employment. These critical factors reinforce non-residential construction and industrial project activity and serve as the foundation in support of elevated long-term industry growth.”
Mr. Barber addressed the Company’s planned capital expenditures while reiterating branch expansion objectives, stating, “We have reduced our 2024 guidance for gross fleet investment, with the steadying of industry fundamentals justifying a more balanced approach to capital spending over the year. Capital investment in our fleet is now expected to range from $350 million to $400 million, down from our initial guidance for 2024 of $450 million to $500 million. With the availability of equipment from manufacturers returning to normal, we could quickly increase our spending range should industry demand accelerate. The revised spending range will adequately address the planned growth in 2024 across our branch network, which remains at 12 to 15 new locations as we continue to demonstrate strong execution of our accelerated branch expansion strategy. Also, additional branch growth in 2024 could be achieved through the acquisition of attractive rental operations, as demonstrated by the acquisition of Precision Rental, which closed in the first week of 2024, and the recently announced pending acquisition of four locations in the state of Montana. Following the expected close of this latest transaction in the second quarter of 2024, H&E will operate 145 branches across 30 states, including eight branch additions since the close of 2023.”
FINANCIAL DISCUSSION FOR FIRST QUARTER 2024
Revenue
Total revenues increased 15.2% to $371.4 million in the first quarter of 2024 from $322.5 million in the first quarter of 2023. Total equipment rental revenues increased 12.7% to $295.3 million compared to $262.0 million in the year-ago quarter. Rental revenues increased 12.8% to $261.7 million compared to $232.1 million in the same period of comparison. Sales of rental equipment increased 49.8% to $48.1 million compared to $32.1 million in the first quarter of 2023. Sales of new equipment increased 33.2% to $10.4 million compared to $7.8 million in the same quarter of 2023.
Gross Profit
Gross profit increased 16.6% in the first quarter of 2024 to $164.9 million compared to $141.4 million in the first quarter of 2023. Gross margin of 44.4% for the first quarter of 2024 compared to 43.8% over the same period of comparison. On a segment basis, gross margin on total equipment rentals was 43.3% in the first quarter of 2024 compared to 43.6% in the first quarter of 2023. Rental margins were 48.5% compared to 48.4%. On average, rental rates in the first quarter of 2024 improved 2.9% when compared to rates in the first quarter of 2023. Time utilization (based on original equipment cost) was 63.6% in the first quarter of 2024 compared to 67.3% in the year-ago quarter. Gross margins on sales of rental equipment were 62.9%, up from 58.6%, while gross margins on sales of new equipment improved to 17.0% compared to 13.3%.
Rental Fleet
At the end of the first quarter of 2024, the original equipment cost of the Company’s rental fleet was just over $2.8 billion, representing a 15.7%, or $383.0 million increase from the end of the first quarter of 2023. Dollar utilization for the first quarter of 2024 was 37.0% compared to 38.6% in the first quarter of 2023.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for the first quarter of 2024 totaled $114.3 million, an increase of $18.9 million, or 19.9%, compared to $95.3 million in the first quarter of 2023. The increase was primarily due to higher costs associated with employee salaries, wages, payroll taxes and related employee benefits, increased facilities expenses, higher depreciation and amortization expenses and an increase in professional fees. SG&A expenses in the first quarter of 2024, as a percentage of total revenues were 30.8% compared to 29.6% in the first quarter of 2023. Approximately $10.0 million of SG&A expenses in the first quarter were attributable to the Company’s expansion activities since the first quarter of 2023.
Income from Operations
Income from operations for the first quarter of 2024 was $52.0 million, or 14.0% of revenues, compared to $46.7 million, or 14.5% of revenues in the same quarter of 2023.
Interest Expense
Interest expense was $18.4 million for the first quarter of 2024 compared to $13.7 million in first quarter of 2023.
Net Income
Net income in the first quarter of 2024 was $25.9 million, or $0.71 per diluted share, compared to net income of $25.7 million, or $0.71 per diluted share, in the first quarter of 2023. The effective income tax rate for the first quarter of 2024 was 26.5% compared to 26.1% in the same quarter of 2023.
Adjusted EBITDA
Adjusted EBITDA in the first quarter of 2024 increased 13.1% to $161.7 million compared to $143.0 million in the first quarter of 2023. Adjusted EBITDA margin in the first quarter of 2024 was 43.6% of revenues compared to 44.4% in the year-ago quarter.
