HEES - Earnings call transcript Q2 2018 | H&E Equipment Services, Inc.

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Operator

Good morning, and welcome to H&E Equipment Services Second Quarter 2018 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Kevin Inda, Vice President of Investor Relations. Please go ahead, sir.

Kevin S. Inda

released welcome Company's Equipment quarter results XX, which and to conference ended Stephanie, XXXX, the morning. review for were you, to Services H&E call June Thank this earlier the second format on website posted today's which our includes slide at a The presentation, for is www.he-equipment.com. call proceed to X. Please Slide and be Engquist, Operating Magee, Leslie Officer; Executive call Secretary. Brad Officer; Officer the Conducting John Barber, today and Chief will Chief President Chief Financial and proceed Please slide X. to

we've our and these to release, certain During GAAP non-GAAP in measures today's call, will figures measures to we which refer financial is website. reconciled our earnings available on

Before containing we the this meaning offer such believe, could, words and Statements and cautionary within call federal the note; beliefs securities laws. as expressions may, start, that statements. let anticipate constitute me forward-looking of about expect, statements statements contains similar and forward-looking our the expectations

and Engquist. to publicly of the and stated, are of turn results other the A in to cautioned statements. and and other involve undertake or I'll evaluating contained not date summary recent known to not that John periodic reliance Forward-looking consider described call risks place such and this forward-looking today's also Harbor statements is over materially does unknown factors reports. company With the forward-looking and to any from call differ statement actual urged statements any Form the which to contained Investors, these for listeners these presentation the statements Company's are in call. the The potential included investors in factors update carefully revise on those risks forward-looking conference could after now undue the on XX-K the cause statement. Reports slide uncertainties forward-looking Company's includes Annual risk in most in Safe uncertainties, in

John M. Engquist

Thank earnings Welcome Services and XXXX morning, good quarter call. to you, everyone. Equipment second H&E Kevin,

conditions, morning our Kevin then Operating review I our our have Vice Chief for results, quarter Magee, Chief market and with Officer; and second Brad finishes, with brief and our Investor me. overall the take focus Relations usual Slide Officer, few on President your be comments comments, Leslie please. Proceed President to the on Inda, call Barber, our a will this happy As I'll to of business then Leslie financial Finance and we'll our close Leslie quarter. results questions. and When X, will My

and the in quarter, markets in results capitalized Our business results we $XX.X delivered the occurring ago. distribution achieving a on non-residential XX% approximately to quarter, successfully XX.X% adjusted to million board solid EBITDA growth a second I and significant as ago. country. demand the rental year we with the other and compared our during with pleased across second year growth from serve increased our business revenues while million grew $XXX.X construction $XXX.X million the across to Total the am

quarter, diluted $X.XX second generated the $X.XX $XX.X diluted to income net per of or share year we million or share, ago. For a compared $X.X million per

a is well year business ago. Our performing to compared

increasing revenues significant new by rental primarily the year increasing sales compared a second was equipment XX.X% Our new equipment crane increase growth new large earthmoving and to businesses driven rental The with and XX.X% distribution during delivered in and new sales. sales quarter, sales ago.

year from rental to demand the utilization quarter, our metrics $XX.X XX.X% sites rental trends a during at Demand in are million solid positive, $XXX.X terrain rough to rental in dollar sequentially. remained a The consecutive a or XX.X% seeing are demand remains XX.X% XX and quarter, This Proceed gross for all-terrain but ago. cranes locations, Rental slide Rental opened high as time our for $XXX.X increased resulting revenue fifth increase positive regions, Inc. in that million utilization We acquisitions. various beginning margins and CEC please. please. ago. mounted X million achieved a equipment footprint, from year for and branch Slide for the to and nationwide illustrates the XX%, strong X Slide since X.X% we've XX.X% was we acquired crawlers, and to Proceed rates truck the small cranes XXXX XX.X% to challenging. that year-over-year second sites ago year from Greenfield up grew in of X.X%

Greenfields Fort in quarter, second have branches We currently the first Texas biggest year warm-starts. on driver of revenue the presence please. an opened Slide and in continue the to additional our of intend construction During expand by basis. footprint States exploring and United business Aledo, of X throughout business, XX continues Proceed our total our Non-residential LTM to located to our the accounting Greenfield our XX% acquisitions, the Worth to and grow to be we Metroplex. for

throughout XXXX, month X% forecasting As increased XXXX. the this into and industry of construction year spending our end-user from especially strong and of May, other June energy Demand nonresidential as XX, growth the markets data is for the balance in of year sector. is ago, continued a well,

time to ago. and that believe fleet We the a was gas mix and XX.X% for our business. utilization in be markets our advantages continue year second oil quarter, competitive age focused During XX.X% to compared

an XX.X months. fleets to of at Proceed please. the one the to We youngest Slide months XX average in industry XX.X compared have of industry

are for as on over point the forecasts well in as peers general. I'm the to market, results, continued toward with At results. consistent Many financial Leslie in those this and turn indicators industry slide. our quarter this call manufacturers, and non-residential construction the and of growth positive industry second time, the construction major strong data going Our

Leslie S. Magee

cover begin financials everyone. Slide our I'll greater detail. to Thank John. you, XX in on Good morning,

performance second strong in many quarter discussed, respects. John was As our

second were on acquired include our and results legacy operations, quarter which a As Rental acquired April were reminder, Xst which Inc.'s Xnd. on operations CEC's January

primarily $XX.X our million distribution increase $XXX.X Of Inc. total $XX.X the from result total overview, or ago, lower Rental quarter million compared and ago $X.X were increased million driven the primarily as $X.X by the same high-level million respectively. related Margins million XX.X%, in year million year in revenue a $XX margin revenues, mix the acquired equipment to $XX.X $XX million, second both million increased the in compared a XX.X% or ago. profit acquisitions a business. in Gross new were and For a significantly revenues approximately XX% but to a $XXX.X to sales. and of year XX.X% branches CEC strength period to million higher, rental to – with the

branches revenues. CEC acquisitions and look $XXX.X to respectively. the totaled million XX.X% underlying and revenues in Rental increased of top-line with $X.X growth Let's the million. acquired to $X.X take the a Inc. beginning at revenues related rental the Rental XX.X% details revenue million Rental

most XX% high XXX to to referenced, utilization was product utilization XX% XX.X%. of for to OEC to lines year-over-year John based increased sequentially. utilization information We X.X% and note improved points not Earthmoving As Rental September in points XXX all remained include quarter's a and rates be basis our the quarter in year available Please physical With XX.X% average a X.X% quarter the improved and for Crane quarterly returns XXX increased lift the year XX.X%. on the versus ago. includes XXX XX.X% increased and basis Rental acquisition truck period ended to XX.X% equipment XXXX. data Rates points rental again this increased rates, anticipate Inc. recent physical CEC that strong points does also XX, basis year. dollar our OEC except compared Rental rate XX.X% basis of Inc. for this for cranes. utilization to to to ago compared time of General results utilization rates decreased operations. utilization XX.X%. with AWP decreased last

million. New to equipment sales or million increased XX.X% $XX.X $XX.X

new to during largely and acquisitions Rental the and XX.X% quarter. million million million new $X.X equipment CEC to New in sales equipment new $XX $XX.X Sales branches to Inc. The million totaled earthmoving due respectively. crane equipment sales was sales increased acquired the million. $X.X which increased or of improvement in $X.X higher related

not line fluctuations the legacy reminder, equipment Rental a operations. As the sales impact new of Inc. product do include

fleet CEC XX.X% our presentation of line product used the and this quarter be expected Sales sales equipment year in AWP Rental Rental branches Inc. related million, include Used ago. and is used beginning line the acquisitions not of largely to XXXX. did ending legacy sales equipment in respectively. with comprised were data operations. higher this $XX.X as increased $X.X to period crane from result $X to XX% September million Also product $X.X acquired fluctuations sales the used equipment sales available sales. and or a XX% included to million a Inc. equipment sales New XX, impact Used of equipment the the total by compared quarterly million

basis, combined service and revenue million a delivered up ago. from $XX.X a segments year parts X.X% on in Our

million gross on were profit compared this Let on and increase year was million, Consolidated margin profit to of to revenue. in at Total for quarter XX.X% XX.X% the gross increase $XX.X XX%. margins ago, a XX.X% $XXX.X an a me touch time. compared

year pressure growth equipment margins sales in revenue new margins. from the improved a While lower ago, rental gross slight to other and margin in shift segments gross mix margins on resulted consolidated

XX.X% the XX.X% For for XX.X%, on second equipment last sales gross year compared crane gross new lower year, fleet rates. and margins to due utilization and XX.X% XX.X% last gross ago. a segment, margins the on for margin were XX.X% equipment sales largely to margins to with ago to the quarter, were primarily quarter XX.X% compared positive year a to were sales compared Used strong rental by were rental pure margins only XX.X% on year, detail sales. Margins due compared

gross XX.X% year please. were and to basis margins ago. on Move a combined to Slide XX.X% parts service Our XX compared a

quarter in sales result expenses quarter gross performance operations on Slide $XX.X quarter, or a ago. same business per million share or XX.X% from period a margin $XX.X XX.X% million $X.XX to year a operations The increase improved equipment revenues the in last a million second is compared gains increased year Our I'll discuss SG&A a which of $XX.X diluted segments, to to compared XX. ago. per XX.X% $X or ago. from increased in year year property income XX.X% of of ago, this million Proceed to and operating in XX. XX% margins, Net Slide compared income revenues income to diluted XXXX share net revenues other to year. Also, the further $X.XX million leverage second compared primarily were of or solid on to of compared of was the $X.X rental for and

margins EBITDA Our Margins compared were effective year million tax XX.X% $XX.X to Adjusted in revenue rate move Please compared in a improved XX% lower ago. And of in despite slightly shift to rental new margin million compared to result gross mix and to Slide the XX.X% $XXX.X a ago. margins XX. a quarter, a was sales, the ago. second to equipment to business improved declined XX.X% as leverage. a operating year year

compared not the million with XX. a $X.X and SG&A, Other increased related Slide SG&A $X.X were SG&A XX.X% the included compared over in intangibles year. Inc. of in percentage was a expenses Greenfield million Next, branches, due to of acquisitions or and of ago. as associated allocations the $X.X $X.X million other largely acquired employee-related a $XX and expenses same the SG&A CEC expansions Expenses last benefits period Rental higher and related increases of million wages, million the totaled year branch purchase $X.X to XX% revenues of million, Of million. branches Rental was $X.X $X a XX.X% to respectively. acquired increase, to CEC labor, ago. including SG&A year total price increase Inc. million, costs amortization to incentives, the newly also

Next, on slide XX.

second were $X.X and was were the rental transfers the quarter non-cash million, including million. the Our gross during $XXX.X $XX.X capital million. PP&E fleet quarter from CapEx million fleet Net was quarter expenditures Gross $XXX.X for inventory. capital for expenditures net

a on Rental in was presentation. of Our to average cash net at primarily in Rental to was which a due the use Inc. and to operating of June acquired an XX.X this This $XXX.X of reconciliations as CapEx year purchase by was We've fleet months. to net the second cash provided acquisition. end the XX flow a cash X. April use ago was of activities million ago included age rental Inc. the and million $X.X a Free of increase use the year of increase GAAP compares quarter includes compared for fleet and

was ago. the Proceed $XXX.X compared of end was on of facility going second Slide $XXX.X Next, year dollar supports and XX.X% amended strong of to a on balance With structure the OEC based end availability back XX. At credit. the $X.X utilization capital under size outstanding At our quarter, letters to quarter the the at fleet balance outstanding million please. to $XXX.X net a of to XX.X% And a the million a liquidity, from we year was the billion, of strategy. million XX% I'm end, Therefore, quarter, turn had of second Slide increase $X.X Average our time, million. call at ago. the of growth rental John. or sheet our ample XX, this ABL

John M. Engquist

Thanks, Leslie. XX. business. half to start a Slide with in believe business significant we Please proceed strong our of and year, distribution conclude, off this our to To first gains for rental very the is

well. recently acquired our business, the Our including through performing is acquisitions, very branches two

markets this in which and construction. warm and is to the outlook achieve expansion. of of scale organic balance start growth, as through business end size Greenfield the and is forecast for a continued growth year strategic our in expect demand we positive, user Increasing and priority, indicators industry acquisitions non-residential branch strong remains Our our

our paid dividend consecutive we XX. Lastly, XXth quarterly on June cash

always, review questions. your take and Operator, each instructions. please dividends subject like At board to this we'd As time, quarter. to approval feature provide are

Operator

from our we'll first question from Buckingham And Neil Research. Frohnapple Absolutely. take

Neil Frohnapple

congrats a great on John... quarter. Hi,

John M. Engquist

Good morning.

Neil Frohnapple

versus John, strong know of putting as guidance, at your just a XXXX, in rental rates months utilization I have you light the but provide fleet all in you're plans expansion up? don't for least at ago your directionally, high Rental changed few

John M. Engquist

we to our policy to pretty have spending more have in fact little guidance, to give on yes, I'm significantly, we're Look going going increased look direction our due that the a you past. not than but change we CapEx the

on of gross As million year the a know, you first the half spent we basis. $XXX about

We second of in the half be in to much be that capital Approximately the the in could our spending the growth that spending million back the that second majority third capital always of that million, going it will the and expectation $XXX year of spend Our in $XXX will half for quarter. of and half vast we're fluctuate the spend year. quarter. between fourth pull

Neil Frohnapple

Okay.

John M. Engquist

And all capital the quarter. capital – our our be of growth will in third all growth of

Neil Frohnapple

it. had And the how performance that the could it basis? Just the you we a you performed the in curious quarter? talk especially utilization progresses time high expectations. Is year-over-year about can increase quarter? very Got fleet in how considering say XX% move on over that more the you on a Okay. anything level, Obviously, about as size your there through

John M. Engquist

Look, our physical utilization met our expectations.

under-fleeted, down We expected we utilization A somewhat. were ago we our year were utilization believe at levels. to be running unsustainable I

fleet. positive think utilization be our grow and year-over-year just keep time. think at getting I grown we very very, was – our utilization positive flat aerial basically XX% more our We a fleet, I XX% this ago running sequentially, To to fleet we've result. needed while and able and a is year rates

So our we're performing to expectations.

Neil Frohnapple

support more the have your coming further for sentiment XXXX? but external just you great. to talk indicators could Okay, about the then growth of some last customer revenue that quarter, you highlighted larger through one customers of one, strength And visibility in

John M. Engquist

of an or Sure, sectors. concern across Nick. where customers. type strong are country from Sentiment There remains not the all seeing area is any we of region

So I'd really of tell positive. no it's the same, year, you remains throughout change very the more

Neil Frohnapple

Thanks, it on. I'll Great. pass

John M. Engquist

Neil. Thanks,

Operator

Seth to on move Weber Markets. Capital from RBC We'll

Seth Weber

good morning guys. Hey,

John M. Engquist

morning. Good

Seth Weber

is of utilization. little curious, and It – lower thinking, some assets that's was about or call should down whole don't came see dollar we And what I like it's maybe how about the out be year-over-year forward? function little bit I we a earthmoving acquired Thanks. basis thinking were than if going about a function, Wanted to year-over-year. just should or of the if a we ask to bit maybe XX dollar combination forward in to just kind going mix time know a the that of anything there there way right I'm – it points think versus rate specifically? be Is how as just

Bradley W. Barber

Yes.

would we fleet met own comment, the utilization. John I to expectations made similar Seth, about for So our utilization, say dollar our

and always continuing with said, clearly as utilization. our some That new being of level We not there's the with it grow products. bleed we headwind fleet. product bringing and over efficient fleet effect up shows the in quite new are to – existing And time in earthmoving we're economic as are had always invest

So we'll get pricing I continue we're think and be the expect, we where you see and I'll and that hit combination improve the you Otherwise didn't earthmoving think satisfied. of products continue on have expectation one two the we'll had, those may where to other but on you you expected. our there's didn't But performing I to it time we're may utilization. was very incrementally dollar maybe where if tell

Seth Weber

And year Okay. is time flattish and of the basis? the think increased you of the think to rest a right year-over-year on about rates kind way

John M. Engquist

Well, very look think I of continue a it's year we that, utilization time little more a sizing our We see comfortable were solid with definitely just We're increases. will a to get year to again levels rate but of expect a decrease a and we right ago. ago. fleet, sustainable from level utilization running function on bit, it normalized and

Seth Weber

Sure.

some be on a then a the of gas of markets, lot There's extra oil us to exposure the Eagle would energy been any Brad, color little the And Ford. your the of discussion some on about versus Okay. going news on on color bit Permian. just and maybe, on appreciated? there's what's some you the there Thanks. If of the can color give markets

John M. Engquist

best rental exposure additional Eagle strong. have before. remains rates. wouldn't this any It haven't we that They our I Seth, heaviest our Ford. in commentary call for Yes, very are is

measured rationally there's opportunity acting think, very competitors as would incremental and utilization very just very Sentiment we're as oil I And those and so have our that as growth, say an well. that ourselves and well I Our remains it's the consistently strong just is but continues. been in and fields continues. high exceptionally

Bradley W. Barber

activity as Permian and now. Yeah, it's as the in the in the Ford Eagle ever been strong is right

Seth Weber

appreciate very guys. it. Okay, much. Thank you I

Seth Weber

you. Thank

Operator

go Thompson Kathryn Thompson question. ahead Group, Research with with please your

Steven Ramsey

quarter? that Ramsey This throughout qualitatively, on discuss, Rental Steven rates or maybe thinking in looking I is Equipment is the for you Good and feel morning. like think, guess, I Kathryn. rental are at even be cycle, the segment, this how trended if rate could XXXX? just about through the investors the I story, the those looking for in fragile side, cracks one of point would

John M. Engquist

I comment sequential first X.X%, was right. of and you over know the our So, improvement quarter-over-quarter saw rate a

strong. was continue very that is So to will month to month month that And rate our consistent remain an our opportunity We We very rest consistent, of to Rates remain rates were similar for the steady. year. see view gains. the get to to month.

Steven Ramsey

then, space multiples proactively looking you justify that at? you And attractiveness scale more and acquisitions disciplined, transact to remaining continue rental long-term and the does be raising does Great. guys to at for willing bigger, you're getting of benefits which of equipment the as the still the

John M. Engquist

of of market scale going kind our we've our healthy strong that a businesses. pay I We're sense. acquisition pipeline makes at strategy we're pay these all opportunities think strategy that of for be and for And Look, assets. a through looking to multiples increasing what disciplined we're in is size and going to we got

Steven Ramsey

That's you. Thanks. for it me. Got

John M. Engquist

Thank you.

Operator

ahead Stanley your Elliot question. please from with Stifel, go

Stanley Stoker Elliott

taking for morning. Good question. you my guys. Thank Hey,

looking kind done could we even later two be the transactions in On of the piece, already the year? additional at front-end at of though we've possibly M&A some the year,

John M. Engquist

Yes.

think see one you more. I could possibly

Stanley Stoker Elliott

that the when then come And newer starts have you you're piece kind within there, that also then was of crane momentum up? that the that seeing pricing to is pick And that think crane out? products do Okay. the on sales,

John M. Engquist

new products. big, a down out the big machines that margin Well, dollars, losing fact margins We that's that were look. big lower point want some to issue. our are mix crane I lower not but pricing there. We're sales, margin. on sold just They're

issue. What question, the rest was So your Stanley? that was of mix a

Stanley Stoker Elliott

curious come the or growth confirmation that's if the there's through And that for the really do know driving new I or the it's I from more and recently you just manufacturers. of that cycle's the So a cranes? introduced was growth been outsized have what's been that the pipe crane finally lot think products turning

John M. Engquist

tell It's both impeccable little a certainly the products. sold that. Manitowoc And color the by to got I'll of to both. quality We new add product, the is you I've group. the and new some engineering

that So size. product and similar customers our that doubt some notice older new have there no of of new of product that's the taken some – of driven product that is some of replaced

So I by both say is as I it's – but is noting that. of worth balance and quality both, the offering products well new the we've Manitowoc would of quantity being benefited base, it's driven not it's entirely customer that so a well-recognized as the from think

Stanley Stoker Elliott

results Perfect, regions new right just and are a now, from hey, evidently you'd the results. out Are then, feel pretty little color broad-based. then specific on or as good call there last the any really that things get MSAs me, saying, more to really trying

John M. Engquist

geography while tell improvement, It's our on quoting that we rate you has the of I get broad region, strong. utilization time is every and had based, don't consistently into rates country will

of the So results very are regions results country. of our the of the individual overall reflective

would broad-based all a and get. which continues exception not I better, we field, think call so. Otherwise, we there's an So a out it's of to heck of and oil say, area it's be lot

Stanley Stoker Elliott

much Thank Perfect, very best luck. you and guys. of

John M. Engquist

you. Thank

Bradley W. Barber

Thank you.

Operator

UBS. Erika to move We'll on Jackson with

Erika Jackson

it are still on is supply driven market Jackson, and environment? of equipment hearing then just would moment that, ahead you maybe about is to like this you the a giving Hi, what is a whatever maybe what quick I'm the the back extent or to inflation demand some on latitude purely of Steve seeing Fisher. say raise And or you rates possibly out. question months on I inflation degree equipment had at for Erika is six think for I

John M. Engquist

manufactures increases product, no no Unfortunately, a question, supply to users environment. end first we've of for – of. unfortunately. almost some the consequence of we've in driven business, your pay it's to for speak price them, we part had To had it's XXXX our rental So demand what the

XXXX. pricing the X% For some folks meaningful agreements most had X%. any that's the we've manufacturers taking about range for X% talk tone maybe We've we've low-single enter digits the X%, X%, are But to that had. pricing the of for XXXX very conversations in to yet in negotiations

Erika Jackson

helpful. Very you. Great. Thank

Operator

Weber Seth your question. with ahead Markets. from go Please RBC Capital

Seth Weber

for the up. follow Thanks taking Hi.

but if that? said I growth missed sorry it, crane think $XX.X the but – is off a up in new crane – percentage Just there the of sales quarter it was you change I million, the

Leslie S. Magee

percentage is and remember The line that data just about CEC and change XX% that does not for include Inc. product Rental

Seth Weber

Okay.

John M. Engquist

new He's don't have... They talking about cranes.

Leslie S. Magee

Right.

John M. Engquist

Right.

they have don't anyway. yeah, So cranes

Seth Weber

Great.

Okay.

XX% Leslie? you So is to what million $XX said,

Leslie S. Magee

Yes.

Seth Weber

Okay, perfect.

Leslie S. Magee

Correct.

Seth Weber

That's you. all Thank had. I

John M. Engquist

Thanks, Seth.

Operator

to on Baird move We'll Bill from Mastoris Company.

William McGoldrick Mastoris

very Thank I'd questions with, out and do earlier that a has you one one to pursued follow has of you. major up larger there. and acquisitions, on your aggressively many competitors of the like John certainly healthy have first very of to two indicated pipeline you the acquisitions

to If balance that sheet? far are the willing you acquisition, right you found stretch how

John M. Engquist

of probably turn to above want leverage. go four would we not think I

a would would in large acquisition, I think we acquisition, we be – turns. strategic transformational a type four with comfortable

William McGoldrick Mastoris

your to it within one needle in past, your some or And acquisitions? and might maybe bolt-on moves grown pipeline a that business kind you've than the that bit Okay. thinking little this how be about more your is of expect acquisitions more acquisition past of realistic

John M. Engquist

we'll looking We along if at. interested type bolt-on million came a to certainly at million. be EBITDA would of opportunity what right What and we're acquisitions. it That's see $XX generating what is $XX company is we're larger the bulk The now develops there. looking in of primarily

William McGoldrick Mastoris

follow indicated up that Manitowoc Cranes the Okay. question, and to some are the quality sale? And to really sale has improved, that earlier of driving has factors an also that the what the then this are of relates but What's with of driving do that? my cranes. You question,

John M. Engquist

It's construction it's in pretty It's think attached. infrastructure, market. it's it's all broad-based I the sector, increase industrial demand. the

William McGoldrick Mastoris

very you Thank Okay. much.

John M. Engquist

Thank bet. you. You

Operator

no call in now back Engquist. questions queue. to I'd the turn like over are There the further Mr. John to

John M. Engquist

think Thanks, to the everybody. the year we finish really call. you on with quarter being appreciate and I strong. We're going pleased the we're Listen,

forward I you to So call. on joining today. the look us talking for Thanks next to

H&E Equipment Services (HEES) 26 Jul 182018 Q2 Earnings call transcript