News Release
H&E Equipment Services, Inc. has announced its financial results for the fourth quarter and year ended December 31, 2015.
FOURTH QUARTER 2015 SUMMARY:
Revenues decreased 8.2% to $273.2 million versus $297.8 million a year ago with decreased revenues in the distribution business partially offset by increased revenues in the rental business.
Net income was $12.0 million in the fourth quarter, compared to $16.7 million a year ago, a decrease of $4.7 million, or 28.2%, from a year ago.
The effective income tax rate increased to 41.6% compared to 40.4% a year ago.
EBITDA decreased 6.6% to $81.3 million from $87.1 million, yielding a margin of 29.8% compared to 29.2% a year ago.
Rental revenues increased 3.7%, or $4.1 million, to $115.0 million, due to a larger fleet. Average rental rates this quarter increased compared to both a year ago and to last quarter.
Gross margin increased to 33.0%, compared to 31.9% a year ago.
Average time utilization (based on original equipment cost) was 72.0% compared to 72.4% a year ago and 73.7% in the third quarter of 2015.
Average time utilization (based on units available for rent) was 69.3% compared to 67.4% last year and 70.2% last quarter.
Average rental rates increased 0.6% compared to a year ago and improved 0.4% compared to the third quarter of this year.
Dollar utilization was 35.5% compared to 35.8% a year ago.
Average rental fleet age at December 31, 2015, was 31.4 months, down from 31.7 months at the end of the last year, and younger than the current industry average age of 42.4 months.
John Engquist, H&E Equipment Services’ chief executive officer, said, “We delivered solid results for the quarter and year despite the turmoil in the oil patch, the historic flooding that occurred in May, and the exceptional rainfall we saw in many of our end markets in the fourth quarter. Our rental business continues to strengthen, with revenues increasing 3.7% for the quarter and 9.6% for the year, and helped offset the weakness in our distribution business, specifically new crane sales. Once again, we achieved positive rental rate growth both year over year and sequentially over last quarter, which we believe demonstrates the ongoing strength in the non-residential construction markets. We believe the uncertainty over the direction of the economy will help drive increased rental penetration as our customers believe it is more prudent to rent rather than make large capital purchases.”
Engquist concluded, “In terms of 2016, non-residential construction activity remains strong across our footprint, especially in the Gulf Coast where a significant number of large capital projects remain on schedule to begin over the next several years. Furthermore, the Gulf Coast region continues to experience the highest levels of commercial construction starts and activity in the U.S. However, until the oil patch rebounds and stabilizes, we expect to continue to have limited visibility into our distribution business. At 31.4 months, we continue to utilize the youngest fleet in the industry, which allows us to take a conservative approach to capital spending in 2016. We intend to closely monitor manufacturer inventory levels and make our cap-ex decisions as close to the point of need as possible. We believe we can react to market demand, positive or negative, very quickly.”
FINANCIAL DISCUSSION FOR FOURTH QUARTER 2015:
Revenue
Total revenues decreased 8.2% to $273.2 million from $297.8 million in the fourth quarter of 2014. Equipment rental revenues increased 3.7% to $115.0 million compared with $110.8 million in the fourth quarter of 2014. New equipment sales decreased 28.0% to $62.7 million from $87.2 million in the fourth quarter of 2014. Used equipment sales decreased 5.4% to $35.2 million compared to $37.2 million in the fourth quarter of 2014. Parts sales decreased 12.5% to $26.7 million from $30.6 million in the fourth quarter of 2014. Services revenues increased 3.7% to $16.5 million compared to $15.9 million a year ago.
Gross Profit
Gross profit decreased 5.1% to $90.2 million from $95.0 million in the fourth quarter of 2014 on lower revenues. Gross margin increased to 33.0% for the quarter ended December 31, 2015, compared to gross margin of 31.9% for the quarter ended December 31, 2014.
On a segment basis, fourth quarter 2015 gross margin on rentals was 47.5% compared to 49.3% in the fourth quarter of 2014 due to increased rental expenses as a percentage of comparative equipment rental revenues. On average, rental rates increased 0.6% compared to the fourth quarter of 2014. Time utilization (based on original equipment cost) was 72.0% in the fourth quarter of 2015 compared to 72.4% a year ago.
Gross margin on new equipment sales was 10.4% in the fourth quarter of 2015 compared to 11.9% in the fourth quarter a year ago, and gross margin on used equipment sales was 30.2% compared to 29.9% a year ago. Gross margin on parts sales was 26.7% in the fourth quarter of 2015 and 27.7% a year ago. Gross margin on service revenues was 65.6% compared to 64.6% in the prior year.
Rental Fleet
At the end of the fourth quarter of 2015, the original acquisition cost of the Company’s rental fleet was $1.3 billion, an increase of $43.2 million from $1.2 billion at the end of 2014. Dollar utilization was 35.5% during the fourth quarter of 2015 compared to 35.8% for the fourth quarter of 2014.
Selling, General, and Administrative Expenses
SG&A expenses for the fourth quarter of 2015 were $57.6 million compared with $54.2 million last year, a $3.4 million increase, or 6.4%. The net increase in SG&A expenses is primarily a result of increased employee benefit costs, other employee costs, facility and related expenses, leasing costs, bad debt expense and depreciation expense. Of the $3.4 million increase, $1.8 million was attributable to new branch expenses compared to a year ago. For the fourth quarter of 2015, SG&A expenses as a percentage of total revenues were 21.1% compared to 18.2% a year ago.
Income from Operations
Income from operations for the fourth quarter of 2015 was $33.5 million, or 12.3% of revenues, compared with $41.2 million, or 13.8% of revenues, a year ago.
Interest Expense
Interest expense for the fourth quarter of 2015 was $13.4 million compared to $13.6 million in the fourth quarter of 2014.
Net Income
Net income was $12.0 million, or $0.34 per diluted share, compared to net income of $16.7 million, or $0.47 per diluted share, a year ago. The effective income tax rate increased to 41.6% compared to 40.4% a year ago due to lower favorable permanent differences in relation to pre-tax income.
EBITDA
EBITDA for the fourth quarter of 2015 decreased 6.6% to $81.3 million compared to $87.1 million a year ago. EBITDA, as a percentage of revenues, was 29.8% compared to 29.2% a year ago.
FINANCIAL DISCUSSION FOR THE YEAR ENDED DECEMBER 31, 2015:
Revenue
Total revenues decreased 4.6%, or $50.6 million, to $1.04 billion from $1.09 billion in 2014. Equipment rental revenues increased 9.6% to $443.0 million compared with $404.1 million in 2014. New equipment sales decreased 27.4% to $238.2 million from $328.0 million in 2014. Used equipment sales decreased 3.9% to $118.3 million compared to $123.2 million in 2014. Parts sales decreased 2.3% to $111.1 million from $113.7 million in 2014. Services revenues increased 4.3% to $64.0 million compared with $61.3 million a year ago.
Gross Profit
Gross profit decreased 0.6% to $345.7 million from $347.9 million in 2014 on lower revenues. Gross margin was 33.2% for 2015 as compared to 31.9% for 2014.
On a segment basis, gross margin on rentals decreased to 47.2% in 2015 from 48.5% in 2014 primarily due to increased depreciation and rental expense as a percentage of equipment rental revenues. On average, 2015 rental rates increased 1.3% as compared to 2014. In 2015, time utilization (based on original equipment cost) was 70.9% compared to 72.2% last year.
Gross margin on new equipment sales was 10.9%, down from 11.7% in 2014. Gross margin on used equipment sales increased to 31.3% from 31.0%. Gross margin on parts sales decreased to 27.3% from 28.7%. Gross margin on service revenues was 66.1% compared to 64.9% in 2014.
Selling, General and Administrative Expenses
SG&A expenses for 2015 were $220.2 million compared with $206.5 million last year, an increase of $13.7 million, or 6.7%. The net increase in SG&A expenses was primarily a result of increased salaries, wages, payroll taxes, related employee costs, facility costs, professional and service fees, leasing costs, liability insurance costs, depreciation expense, promotional expenses and bad debt expense. Of the $13.7 million increase, $4.4 million was attributable to new branch expenses compared to a year ago. In 2015, SG&A expenses as a percentage of total revenues were 21.2% compared to 18.9% in 2014.
Income from Operations
Income from operations in 2015 was $128.2 million, or 12.3% of revenues, compared to $143.7 million, or 13.2% of revenues, in 2014.
Interest Expense
Interest expense in 2015 was $54.0 million compared to $52.4 million in 2014.
Net Income
Net income was $44.3 million, or $1.25 per diluted share, compared to $55.1 million, or $1.56 per diluted share, a year ago. The effective income tax rate increased to 41.5% in 2015 compared to 40.5% in 2014 due to lower favorable permanent differences in relation to pre-tax income.
EBITDA
EBITDA for 2015 increased $4.6 million to $316.2 million from $311.6 million in 2014. EBITDA as a percentage of revenues was 30.4% in 2015 compared to 28.6% in 2014.
Non-GAAP Financial Measures
This press release contains a certain Non-GAAP measure (EBITDA). Please refer to our Current Report on Form 8-K for a description of this measure and a discussion of our use of this measure. EBITDA as calculated by the Company, is not necessarily comparable to similarly titled measures reported by other companies. Additionally, this Non-GAAP measure is not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative to the Company's other financial information determined under GAAP.
Conference Call
The company’s management held a conference call to discuss fourth quarter results on February 25, 2016. A telephonic replay is available through March 5, 2016, by dialing 719-457-0820 and entering confirmation code 3494628.
The live broadcast of the quarterly conference call is available online at www.he-equipment.com through March 24.
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