H&E Equipment Services reports 2021 second quarter results
H&E Equipment Services, Inc. released its results for the second quarter ended June 30, 2021, reporting strong year-over-year performance as activity in the rental equipment industry displays further improvement.
Second Quarter 2021 Summary:
- Revenues increased 13.4% to $315.8 million versus $278.3 million a year ago.
- Net income was $15.8 million compared to $8.8 million a year ago. The effective income tax rate was 27.5% in the second quarter of 2021 and 26.9% in the second quarter of 2020.
- Adjusted EBITDA increased 7.4% to $102.3 million in the second quarter of 2021 compared to $95.3 million a year ago, yielding a margin of 32.4% of revenues compared to 34.2% a year ago.
- Total equipment rental revenues for the second quarter of 2021 were $179.0 million, an increase of $23.2 million, or 14.9%, compared to $155.8 million a year ago. Rental revenues for the second quarter of 2021 were $160.3 million, an increase of approximately $19.5 million, or 13.9%, compared to $140.8 million in the second quarter of 2020.
- New equipment sales increased 13.6% to $49.9 million in the second quarter of 2021 compared to $43.9 million a year ago.
- Used equipment sales increased 21.6% to $41.4 million in the second quarter of 2021 compared to $34.0 million a year ago.
- The gross margin was 35.3% compared to 33.1% a year ago.
- Total equipment rental gross margins were 41.3% in the second quarter of 2021 compared to 38.0% a year ago. Rental gross margins were 46.1% in the second quarter of 2021 compared to 41.5% a year ago.
- Average time utilization (based on original equipment cost) was 68.3% compared to 59.5% a year ago. The size of the Company’s rental fleet based on original acquisition cost decreased 2.2% from a year ago, to $1.8 billion. On a sequential basis, the rental fleet grew 5.4% when compared to the first quarter of 2021.
- Average rental rates declined 0.3% compared to a year ago and improved 1.0% when compared to the first quarter of 2021.
- Dollar utilization was 35.2% in the second quarter of 2021 compared to 29.6% a year ago.
- The average rental fleet age on June 30, 2021, was 39.7 months compared to an industry average age of 52.1 months.
- Announced the pending sale of the crane business for $130 million in cash.
- Paid regular quarterly cash dividend of $0.275 per share of common stock.
Addressing the strong financial results for the second quarter of 2021, Brad Barber, Chief Executive Officer of H&E Equipment Services, Inc., stated, “Physical utilization of 68.3% was 880 basis points ahead of the same quarter in 2020 when worsening economic conditions caused by the onset of the COVID-19 global pandemic drove the metric to its lowest level since 2010. On a sequential basis, our second-quarter utilization exceeded the first-quarter result by 480 basis points at a time when we grew our fleet by more than 5%. The rising demand from customers led to a 1% improvement in second-quarter rental rates when compared to the preceding quarter, representing the first sequential quarterly improvement since late-2019. With improving utilization, rising rental rates, and fleet growth, we are increasingly encouraged by the prospects for our industry as we enter the second half of 2021.”
Mr. Barber elaborated on the improving industry outlook, noting, “Customer inquiries addressing current equipment needs remain strong and we expect the elevated demand to persist for the foreseeable future. Key industry indices, which in some cases are near record levels, point to a continuation of project expansion into 2022, especially in the non-residential construction market. Physical utilization of our fleet remains on a favorable trend, closing August 1, 2021, at 71.9%, reflecting the increasing demand for our young rental fleet.”
Providing a final comment on the Company’s success with strategic initiatives, Mr. Barber said, “Our recent disclosure regarding the pending sale of our crane business represents a transformative event for H&E. Following the close of the transaction, expected during the fourth quarter of 2021, we expect to fortify our position in the rental equipment business and in turn benefit from a more stable revenue base and margin appreciation while positioning the Company to capture incremental opportunities resulting from the highly favorable industry trends. In addition, proceeds from the sale are expected to be utilized in numerous ways, including further growth in our rental fleet, expansion of branch operations, and other strategic growth initiatives that should advantageously position H&E for the expected industry expansion. Further steps have been taken in support of our transition to a pure-play equipment rental business. Recently, we reached an agreement to sell two earthmoving distribution branches in Arkansas and plan to start a new rental-only branch in the Greater Little Rock market.”
FINANCIAL DISCUSSION FOR SECOND QUARTER 2021:
Revenue
Total revenues increased 13.4% to $315.8 million in the second quarter of 2021 from $278.3 million in the second quarter of 2020. Total equipment rental revenues increased 14.9% to $179.0 million compared to $155.8 million in the second quarter of 2020. Rental revenues increased 13.9% to $160.3 million compared to $140.8 million in the second quarter of 2020. New equipment sales increased 13.6% to $49.9 million compared to $43.9 million a year ago. Used equipment sales increased 21.6% to $41.4 million compared to $34.0 million a year ago. Parts sales increased 4.6% to $27.4 million compared to $26.2 million a year ago. Service revenues decreased 4.3% to $15.0 million compared to $15.7 million a year ago.
Gross Profit
Gross profit increased 21.0% to $111.4 million from $92.1 million in the second quarter of 2020. The gross margin was 35.3% for the second quarter of 2021, as compared to 33.1% for the second quarter of 2020. On a segment basis, the gross margin on total equipment rentals was 41.3% in the second quarter of 2021 compared to 38.0% in the second quarter of 2020. Rental margins were 46.1% in the second quarter of 2021 compared to 41.5% for the second quarter of 2020. On average, rental rates in the second quarter of 2021 were 0.3% lower than rental rates in the second quarter of 2020. Time utilization (based on original equipment cost) was 68.3% in the second quarter of 2021 compared to 59.5% in the second quarter of 2020. Gross margins on new equipment sales were 11.5% in the second quarter of 2021 compared to 10.7% in the second quarter of 2020. Gross margins on used equipment sales were 34.7% compared to 31.6% in the second quarter of 2020. Gross margins on parts sales were 25.8% in the second quarter of 2021 compared to 26.2% in the second quarter of 2020. Gross margins on service revenues were 68.0% for the second quarter of 2021 compared to 67.0% in the second quarter of 2020.
Rental Fleet
At the end of the second quarter of 2021, the original acquisition cost of the Company’s rental fleet was $1.8 billion, which represented a 2.2%, or $40.7 million, a decrease from the end of the second quarter of 2020. Dollar utilization for the second quarter of 2021 was 35.2% compared to 29.6% for the second quarter of 2020.
Selling, General and Administrative Expenses
SG&A expenses for the second quarter of 2021 were $77.0 million compared with $67.9 million in the comparable quarter in 2020, a $9.1 million, or 13.5%, increase. SG&A expenses in the second quarter of 2021 as a percentage of total revenues were 24.4%, unchanged from the second quarter in 2020. Employee salaries, wages, payroll taxes, and related employee benefits, and other employee-related expenses increased by $9.0 million. Also, facilities and promotion expenses increased $0.9 million and $0.6 million, respectively, due in part to an increase in the Company’s total branch count. Partially offsetting these increases were a $1.1 million decrease in liability insurance and a $0.9 million decrease in bad debt expense. Approximately $3.2 million of SG&A expenses were attributable to warm start branches opened since January 1, 2021.
Income from Operations
Income from operations for the second quarter of 2021 was $34.4 million, or 10.9% of revenues, compared to $27.0 million, or 9.7% of revenues, for the second quarter of 2020.
Interest Expense
Interest expense was $13.4 million for the second quarter of 2021 compared to $15.6 million for the second quarter of 2020.
Net Income
Net income was $15.8 million, or $0.43 per diluted share, in the second quarter of 2021 compared to net income of $8.8 million, or $0.24 per diluted share, in the second quarter of 2020. The effective income tax rate was 27.5% in the second quarter of 2021 compared to 26.9% in the second quarter of 2020.
