H&E Equipment Services recently reported its financial results for the first quarter of 2015.
John Engquist, H&E Equipment Services’ chief executive officer, said, “Overall, the first quarter approximated our expectations as we anticipated a challenging first quarter in certain areas of our business due to normal seasonality, extreme winter weather in many of our regions and the sharp decline in the oil and gas markets. Demand for rental equipment remained strong despite significant weather headwinds, with revenue increasing 17.6% from a year ago. Certain market indicators continue to validate an accelerating recovery in the commercial construction markets in spite of the ongoing weakness in the oil and gas industries. As we cautioned on our fourth quarter earnings call, a decline in new equipment sales, specifically cranes, was expected due to decreased oil and gas activities. While we did experience some decline in rental demand due to the softness in the oil patch, increased commercial construction activity in other markets helped mitigate the decreased activity and our strong fleet management systems and transferrable fleet mix allowed us to quickly and efficiently redeploy portions of our fleet into other regions.”
Engquist concluded, “We believe the healthy momentum in the commercial construction markets and significant industrial expansion in Louisiana and Texas will continue to drive further growth in 2015, especially in the back half of the year. Given the recent drop in the price of oil and gas and the difficulty investors may have in understanding the impact of such change on the trends in our business, we are providing 2015 guidance for revenue and EBITDA,” said Engquist. “We have no current intent to provide this type of guidance for periods beyond 2015. For 2015, we expect our revenues to range from $1.065 billion to $1.088 billion and EBITDA in the range of $334 million to $352 million.”
FIRST QUARTER 2015 SUMMARY
FINANCIAL DISCUSSION FOR FIRST QUARTER 2015:
Revenue
Total revenues decreased 4.1% to $227.4 million in the first quarter of 2015 from $237.2 million in the first quarter of 2014. Equipment rental revenues increased to $101.4 million compared with $86.2 million in the first quarter of 2014. New equipment sales decreased 36.0% to $44.5 million from $69.5 million a year ago. Used equipment sales decreased 14.6% to $25.1 million compared to $29.3 million a year ago. Parts sales increased 5.0% to $27.1 million from $25.8 million in the first quarter of 2014. Service revenues increased 9.6% to $15.0 million compared with $13.6 million a year ago.
Gross Profit
Gross profit increased 4.9% to $76.3 million from $72.8 million in the first quarter of 2014. Gross margin was 33.6% for the quarter ended March 31, 2015, as compared to 30.7% for the quarter ended March 31, 2014. On a segment basis, gross margin on rentals was 45.2% in the first quarter of 2015 and 2014. On average, rental rates were 3.0% higher than rates in the first quarter of 2014. Time utilization (based on original equipment cost) was 67.5% in the first quarter of 2015 compared to 69.2% a year ago. Time utilization (based on units available for rent) was 64.2% in the first quarter of 2015 compared to 64.5% a year ago.
Gross margins on new equipment sales were 11.7% compared to 11.2% in the first quarter a year ago. Gross margins on used equipment sales were 32.6% compared to 30.4% a year ago. Gross margins on parts sales were 27.9% in the first quarter of 2015 and 29.1% in the first quarter of 2014. Gross margins on service revenues were 64.7% for the first quarter of 2015 compared to 65.3% in the first quarter of 2014.
Rental Fleet
At the end of the first quarter of 2015, the original acquisition cost of the Company’s rental fleet was $1,258.6 million, an increase of $234.5 million from $1,024.1 million at the end of the first quarter of 2014. Dollar utilization was 32.3% compared to 34.1% for the first quarter of 2014.
Selling, General and Administrative Expenses
SG&A expenses for the first quarter of 2015 were $53.5 million compared with $48.9 million last year, a $4.6 million, or 9.4% increase. SG&A expenses in the first quarter of 2015 increased as a percentage of total revenues to 23.5% compared to 20.6% last year. The increase in SG&A expenses is largely due to higher salaries and wages.
Income from Operations
Income from operations for the first quarter of 2015 was $23.3 million, or 10.3% of revenues, compared to $24.6 million, or 10.4% of revenues, a year ago.
Interest Expense
Interest expense for the first quarter of 2015 was $13.4 million compared with $12.7 million a year ago.
Net Income
Net income was $6.1 million, or $0.17 per diluted share, in the first quarter of 2015 compared to net income of $7.4 million, or $0.21 per diluted share, in the first quarter of 2014. The effective income tax rate was 40.6% in the first quarter compared to 39.3% a year ago.
EBITDA
EBITDA for the first quarter of 2015 increased 10.5%, or $6.6 million, to $69.3 million from $62.7 million in the first quarter of 2014. EBITDA as a percentage of revenues was 30.5% compared with 26.4% in the first quarter of 2014.
2015 Outlook
“We believe our business outlook remains positive due to the expected strength in the commercial construction markets and significant industrial expansion in Louisiana and Texas. Given the recent drop in the price of oil and gas and the difficulty investors may have in understanding the impact of such change on the trends in our business, we are providing 2015 guidance for revenue and EBITDA,” said Engquist. We have no current intent to provide this type of guidance for periods beyond 2015.
H&E EQUIPMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited) | ||||||||
(Amounts in thousands, except per share amounts) | ||||||||
|
| |||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
| ||||||||
Revenues: | ||||||||
Equipment rentals | $ | 101,389 | $ | 86,224 | ||||
New equipment sales | 44,537 | 69,547 | ||||||
Used equipment sales | 25,070 | 29,345 | ||||||
Parts sales | 27,085 | 25,802 | ||||||
Service revenues | 14,956 | 13,648 | ||||||
Other |
| 14,373 |
|
| 12,663 |
| ||
Total revenues |
| 227,410 |
|
| 237,229 |
| ||
| ||||||||
Cost of revenues: | ||||||||
Rental depreciation | 39,944 | 32,998 | ||||||
Rental expense | 15,611 | 14,224 | ||||||
New equipment sales | 39,319 | 61,734 | ||||||
Used equipment sales | 16,886 | 20,418 | ||||||
Parts sales | 19,519 | 18,282 | ||||||
Service revenues | 5,277 | 4,741 | ||||||
Other |
| 14,514 |
|
| 12,048 |
| ||
Total cost of revenues |
| 151,070 |
|
| 164,445 |
| ||
| ||||||||
Gross profit | 76,340 | 72,784 | ||||||
| ||||||||
Selling, general, and administrative expenses | 53,466 | 48,856 | ||||||
Gain on sales of property and equipment, net |
| 458 |
|
| 663 |
| ||
| ||||||||
Income from operations |
| 23,332 |
|
| 24,591 |
| ||
| ||||||||
Interest expense | (13,445 | ) | (12,650 | ) | ||||
Other income, net |
| 354 |
|
| 306 |
| ||
| ||||||||
Income before provision for income taxes | 10,241 | 12,247 | ||||||
| ||||||||
Provision for income taxes |
| 4,155 |
|
| 4,811 |
| ||
| ||||||||
Net income | $ | 6,086 |
| $ | 7,436 |
| ||
| ||||||||
NET INCOME PER SHARE | ||||||||
Basic – Net income per share | $ | 0.17 |
| $ | 0.21 |
| ||
Basic – Weighted average number of common shares outstanding |
| 35,227 |
|
| 35,108 |
| ||
| ||||||||
Diluted – Net income per share | $ | 0.17 |
| $ | 0.21 |
| ||
Diluted – Weighted average number of common shares outstanding |
| 35,286 |
|
| 35,218 |
| ||
Dividends declared per common share | $ | 0.25 |
| $ | - |
| ||
|
|
| |||||
H&E EQUIPMENT SERVICES, INC. | ||||||
SELECTED BALANCE SHEET DATA (unaudited) | ||||||
(Amounts in thousands) | ||||||
| ||||||
| ||||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
| ||||||
Cash | $ | 4,552 | $ | 15,861 | ||
Rental equipment, net | 888,205 | 889,706 | ||||
Total assets | 1,345,699 | 1,358,804 | ||||
Total debt (1) | 894,899 | 892,018 | ||||
Total liabilities | 1,214,040 | 1,225,437 | ||||
Stockholders’ equity | 131,659 | 133,367 | ||||
Total liabilities and stockholders’ equity | $ | 1,345,699 | $ | 1,358,804 | ||
| ||||||
| ||||||
(1) Total debt consists of the amounts outstanding on the senior secured credit facility, capital lease obligations and the aggregate amount outstanding on the senior unsecured notes. | ||||||
|
| ||||||
H&E EQUIPMENT SERVICES, INC. | ||||||
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||
(Amounts in thousands) | ||||||
|
| |||||
| ||||||
Three Months Ended | ||||||
March 31, | ||||||
2015 | 2014 | |||||
| ||||||
Net income | $ | 6,086 | $ | 7,436 | ||
Interest expense | 13,445 | 12,650 | ||||
Provision for income taxes | 4,155 | 4,811 | ||||
Depreciation |
| 45,568 |
| 37,778 | ||
| ||||||
EBITDA | $ | 69,254 | $ | 62,675 | ||
|