H&E Rentals reports third quarter 2024 results

Posted on Oct 29, 2024 in Nuts & Bolts

 Today, H&E Equipment Services, Inc. reported financial results for the third quarter, which ended on September 30, 2024. The report includes the Company’s branch expansion achievements, with the addition of eight new locations in the third quarter, expanding the Company’s branch network to 157 locations across 32 states.

THIRD QUARTER 2024 SUMMARY WITH A COMPARISON TO THIRD QUARTER 2023

• Revenues declined 4.0% to $384.9 million compared to $400.7 million.
• Net income was $31.1 million compared to $48.9 million. The effective income tax rate was 28.3% compared to 26.1%.
• Adjusted EBITDA totaled $175.3 million, a decrease of 8.4% compared to $191.4 million. Adjusted EBITDA margins were 45.6% of revenues compared to 47.8%.
• Total equipment rental revenues were $326.2 million, an increase of $10.4 million, or 3.3%, compared to $315.8 million. Rental revenues were $288.1 million, an increase of $7.8 million, or 2.8%, compared to $280.3 million.
• Rental equipment sales decreased 47.3% to $27.8 million compared to $52.7 million.
• Gross margin declined to 44.5% compared to 47.0%.
• Total equipment rental gross margins were 45.3% compared to 47.4%, and rental gross margins were 51.2% compared to 53.3%.
• Average time utilization (based on original equipment cost) was 67.6% compared to 70.0%. Based on original equipment cost, the Company’s rental fleet closed the third quarter of 2024 at slightly below $3.0 billion, an increase of $220.1 million, or 8.1%.
• Average rental rates declined 0.1% compared to the third quarter of 2023 and fell 0.6% compared to the second quarter of 2024.
• Dollar utilization was 39.4% compared to 41.5% in the third quarter of 2023 and 38.6% in the second quarter of 2024.
• The average rental fleet age on September 30, 2024, was 40.8 months, compared to an industry average of 47.9 months.
• Paid regular quarterly cash dividend of $0.275 per share of common stock.

Brad Barber

“Industry fundamentals in the third quarter continued to trail year-ago measures,” said Brad Barber, chief executive officer of H&E Rentals. “Physical fleet utilization averaged 67.6%, or 240 basis points below the third quarter of 2023, evidence of the lower customer demand and a lingering modest oversupply of equipment. On a sequential quarterly basis, utilization improved 120 basis points. In addition, rental rates declined 0.1% compared to the prior-year quarter and were down 0.6% from the second quarter of 2024. Despite weakness in these key metrics, rental revenues grew 2.8% compared to the year-ago quarter due largely to the steady expansion of our branch count since the close of the third quarter of 2023. Finally, gross fleet expenditures in the quarter were $131.3 million, resulting in gross expenditures through the first nine months of 2024 of $327.8 million. We concluded the third quarter with a fleet original equipment cost of slightly below $3.0 billion.”

Mr. Barber acknowledged the Company’s impressive expansion achievements, noting, “A record number of eight branches were added in the third quarter, while a ninth branch was opened in the month of October. The strong outcome reflected the outstanding execution of our accelerated new location program, which has achieved a record 16 additional locations in 2024, exceeding our stated expansion expectation. Through September 30, 2024, our U.S. geographic coverage improved to 157 locations across 32 states. When accounting for both new locations and branches added through acquisition, our branch count is up more than 14% in 2024 and approximately 54% since the close of 2021. Both measures are dominant accomplishments in our industry.”

With the final quarter of 2024 underway, Mr. Barber provided updated expectations for the rental equipment industry, stating, “Construction spending in the U.S. continues to demonstrate the slowing rate of growth observed over the first half of 2024. We believe a trend of moderating activity will persist through the remainder of the year, with physical fleet utilization and rental rates below year-ago measures. Beyond the fourth quarter, the developing outlook for our industry is more encouraging into 2025. The Dodge Momentum Index (DMI), a leading indicator of construction spending, has exhibited gains for five of the last six months, while construction employment remains on a steady upward trajectory. Also, a cycle of easing interest rates is expected to have positive implications for local construction activity as projects are reevaluated under more favorable lending conditions. Finally, the strong expansion of mega-projects remains a significant growth driver for our industry, both today and in the future. Our branch expansion has led to greater and more diverse exposure to mega projects, including a growing presence on data centers, solar and wind farms, and LNG export facilities.”

FINANCIAL DISCUSSION FOR THIRD QUARTER 2024

Revenue
Total revenues were $384.9 million in the third quarter, a decline of 4.0% compared to $400.7 million in the third quarter of 2023. Total equipment rental revenues of $326.2 million improved 3.3% compared to $315.8 million in the third quarter of 2023. Rental revenues of $288.1 million increased 2.8% compared to $280.3 million in the third quarter of 2023. Rental equipment sales totaled $27.8 million, a decrease of 47.3% compared to $52.7 million in the third quarter of 2023. New equipment sales of $14.1 million increased 11.2% compared to $12.6 million in the same quarter of 2023.

Gross Profit
Gross profit totaled $171.5 million in the third quarter of 2024, a decrease of 9.0% compared to $188.4 million in the third quarter of 2023. Gross margin declined to 44.5% for the third quarter of 2024 compared to 47.0% for the same quarter in 2023. On a segment basis, the gross margin on total equipment rentals was 45.3% in the third quarter of 2024 compared to 47.4% in the third quarter of 2023. Rental margins were 51.2% compared to 53.3% over the same comparison period. Rental rates in the third quarter of 2024 declined 0.1% compared to the third quarter of 2023. Time utilization (based on original equipment cost) was 67.6% in the third quarter of 2024 compared to 70.0% in the third quarter of 2023. Gross margins on rental equipment sales improved to 60.2% in the third quarter of 2024 compared to 58.5% in the third quarter of 2023. Gross margins on new equipment sales were 19.8% in the third quarter of 2024 compared to 13.2% over the same comparison period.

Rental Fleet
The original equipment cost of the Company’s rental fleet as of September 30, 2024, was slightly below $3.0 billion, representing an increase of $220.1 million, or 8.1%, compared to the end of the third quarter of 2023. Dollar utilization in the third quarter of 2024 was 39.4% compared to 41.5% in the third quarter of 2023.

Selling, General and Administrative Expenses
Selling, General, and Administrative (“SG&A”) expenses for the third quarter of 2024 were $112.4 million, an increase of $8.2 million, or 7.9%, compared to $104.2 million in the third quarter of 2023. The increase was primarily due to higher expenses associated with facilities, depreciation, amortization, employee salaries, wages, payroll taxes, and other related employee expenses. SG&A expenses in the third quarter of 2024 as a percentage of total revenues were 29.2% compared to 26.0% in the third quarter of 2023. Approximately $11.0 million of the increase in SG&A expenses in the third quarter of 2024 was attributable to a combined 27 branches opened or acquired during or after the third quarter of 2023.

Income from Operations
Operating income for the third quarter of 2024 was $60.7 million, or 15.8% of revenues, compared to $79.2 million, or 19.8% of revenues, in the third quarter of 2023. Results in the year-ago quarter included a $5.7 million non-cash goodwill impairment charge. Adjusted income from operations in the third quarter of 2023, excluding the impairment charge, was $84.9 million, or 21.2% of revenues.

Interest Expense
Interest expense was $18.8 million for the third quarter of 2024, compared to $16.1 million in the third quarter of 2023.

Net Income
Net income in the third quarter of 2024 was $31.1 million, or $0.85 per diluted share, compared to net income in the third quarter of 2023 of $48.9 million, or $1.35 per diluted share. Results in the year-ago quarter included a pre-tax $5.7 million non-cash goodwill impairment charge. Adjusted net income, excluding the impairment charge in the third quarter of 2023, was $53.0 million, or $1.46 per diluted share. The effective income tax rate for the third quarter of 2024 was 28.3% compared to an effective income tax rate of 26.1% in the same quarter of 2023.

Adjusted EBITDA
Adjusted EBITDA in the third quarter of 2024 totaled $175.3 million, or 45.6% of revenues, compared to $191.4 million, or 47.8% of revenues, in the same quarter of 2023.