H&E Equipment Services revenues decrease 16.6% in second quarter 2020

Posted on Aug 6, 2020 in Nuts & Bolts

H&E Equipment Services, Inc. just released results for the second quarter ended June 30, 2020.

SECOND QUARTER 2020 SUMMARY

• Revenues decreased by 16.6% to $278.3 million versus $333.6 million a year ago.
• Net income was $8.8 million in the second quarter compared to net income of $22.6 million a year ago. The effective income tax rate was 26.9% in the second quarter of 2020 and 26.8% in the second quarter of 2019.
• Adjusted EBITDA decreased by 19.3% to $95.3 million in the second quarter compared to $118.0 million a year ago, yielding a margin of 34.2% of revenues compared to 35.4% a year ago.
• Total equipment rental revenues for the second quarter of 2020 were $155.8 million, a decrease of $36.5 million, or 19.0%, compared to $192.3 million a year ago. Rental revenues for the second quarter of 2020 were $140.8 million, a decrease of approximately $33.1 million, or 19.0%, compared to $173.8 million in the second quarter of 2019.
• New equipment sales decreased by 18.0% to $43.9 million in the second quarter compared to $53.6 million a year ago.
• Used equipment sales decreased 5.9% to $34.0 million in the second quarter compared to $36.1 million a year ago.
• Gross margin was 33.1% compared to 37.4% a year ago. The decrease in gross margin was largely the result of lower rental gross margins.
• Total equipment rental gross margins were 38.0% in the second quarter of 2020 compared to 44.7% a year ago. Rental gross margins were 41.5% in the second quarter of 2020 compared to 49.1% last year. The decrease was primarily due to lower time utilization and rates.
• Average time utilization (based on original equipment cost) was 59.5% compared to 71.2% a year ago. The size of the Company’s rental fleet based on original acquisition cost decreased 2.3% from a year ago, to $1.9 billion.
• Average rental rates decreased by 2.8% compared to a year ago and declined 2.8% sequentially based on ARA guidelines. Beginning with the second quarter of 2020, rate changes will be reported in accordance with ARA guidelines.
• Dollar utilization was 29.6% in the second quarter compared to 36.5% a year ago.
• Average rental fleet age at June 30, 2020, was 39.1 months compared to an industry average age of 49.7 months.

Brad Barber, H&E Equipment Services, Inc.’s chief executive officer and president, said, “As a result of the COVID-19 outbreak and subsequent economic slowdown, the second quarter was a challenging period for our business. Work continued in our end-user markets while some projects were paused, delayed, or canceled. As we expected, demand for rental equipment declined which pressured rates, physical utilization, and ultimately rental revenue. Utilization bottomed in April; subsequently, utilization improved and stabilized with increased levels of activity in our end-user markets.”

Barber added, “Total revenues declined 16.6%, or $55.3 million, from a year ago. The decline was primarily attributable to 19.0%, or $36.5 million, a decline in total rental revenue. Physical utilization declined more than 1,100 basis points and rates were 2.8%¹ lower than a year ago. New equipment sales of $43.9 million surpassed our expectations but were down 18.0% compared to $53.6 million from a year ago. Adjusted EBITDA declined 19.3% or $22.7 million from a year ago, and margins decreased 120 basis points to 34.2%.”

Barber concluded, “Recently, there are some encouraging trends compared to the second quarter; however, we believe the headwinds related to COVID-19 will persist throughout the balance of this year. There is still tremendous uncertainty regarding the cadence of the economic recovery, including the outlook for the non-residential construction markets. We are working very hard to generate returns for our shareholders in the current environment and I am very pleased with how our team has responded to these significant marketplace challenges.”

FINANCIAL DISCUSSION FOR SECOND QUARTER of 2020:

Revenue

Total revenues decreased from 16.6% to $278.3 million in the second quarter of 2020 from $333.6 million in the second quarter of 2019. Total equipment rental revenues decreased by 19.0% to $155.8 million compared to $192.3 million in the second quarter of 2019. Rental revenues decreased by 19.0% to $140.8 million compared with $173.8 million in the second quarter of 2019. New equipment sales decreased by 18.0% to $43.9 million compared to $53.6 million a year ago. Used equipment sales decreased 5.9% to $34.0 million compared to $36.1 million a year ago. Parts sales decreased by 17.7% to $26.2 million compared to $31.9 million a year ago. Service revenues decreased by 6.4% to $15.7 million compared to $16.7 million a year ago.

Gross Profit

Gross profit decreased by 26.2% to $92.1 million from $124.8 million in the second quarter of 2019. Gross margin was 33.1% for the second quarter ended June 30, 2020, as compared to 37.4% for the second quarter ended June 30, 2019. On a segment basis, the gross margin on total equipment rentals was 38.0% in the second quarter of 2020 compared to 44.7% in the second quarter of 2019. Rental margins were 41.5% in the second quarter of 2020 compared to 49.1% last year. On average, rental rates were 2.8%¹ lower than rates in the second quarter of 2019. Time utilization (based on original equipment cost) was 59.5% in the second quarter of 2020 compared to 71.2% a year ago.

Gross margins on new equipment sales were 10.7% in the second quarter compared to 12.2% a year ago. Gross margins on used equipment sales were 31.6% compared to 35.4% a year ago. Gross margins on parts sales were 26.2% in the second quarter of 2020 compared to 26.9% a year ago. Gross margins on service revenues were 67.0% for the second quarter of 2020 compared to 68.0% in the second quarter of 2019.

Rental Fleet

At the end of the second quarter of 2020, the original acquisition cost of the Company’s rental fleet was $1.9 billion, a 2.3%, or $43.8 million decreases from the end of the second quarter of 2019. Dollar utilization for the second quarter of 2020 was 29.6% compared to 36.5% for the second quarter of 2019.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2020 were $67.9 million compared with $77.8 million the prior year, a $9.9 million, or 12.8%, decrease. SG&A expenses in the second quarter of 2020 as a percentage of total revenues were 24.4% compared to 23.3% a year ago. Employee salaries, wages, payroll taxes, and related employee benefits and other employee-related expenses decreased $9.9 million. Offsetting this decrease was a $2.0 million increase in liability insurance. Expenses related to Greenfield branch expansions increased $1.0 million compared to a year ago.

Income from Operations

Income from operations for the second quarter of 2020 decreased by 43.4% to $27.0 million, or 9.7% of revenues, compared to $47.7 million, or 14.3% of revenues, a year ago.

Interest Expense

Interest expense was $15.6 million for the second quarter of 2020 compared to $17.3 million a year ago.

Net Income

Net income was $8.8 million, or $0.24 per diluted share, in the second quarter of 2020 compared to net income of $22.6 million, or $0.63 per diluted share, in the second quarter of 2019. The effective income tax rate was 26.9% in the second quarter of 2020 and 26.8% in the second quarter of 2019.

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2020 decreased 19.3% to $95.3 million compared to $118.0 million in the second quarter of 2019. Adjusted EBITDA as a percentage of revenues was 34.2% compared with 35.4% in the second quarter of 2019.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted Income (Loss) from Operations, Adjusted Net Income (Loss), Adjusted Net Income (Loss) per share and the disaggregation of equipment rental revenues and cost of sales numbers) detailed below. Please refer to our Current Report on Form 8-K for a description of these measures and of our use of these measures. These measures as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these Non-GAAP measures are not a measurement of financial performance or liquidity under GAAP and should not be considered as alternatives to the Company’s other financial information determined under GAAP.