HEES - Earnings call transcript Q2 2020 | H&E Equipment Services, Inc.

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Operator

Good morning, and welcome to H&E Equipment Services Second Quarter 2020 Earnings Conference 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 Inda

released welcome company’s Equipment quarter results XX, which and to conference ended Gary, 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 Magee, be Engquist, Barber, and Officer Chief Chairman call Chief Officer the Secretary. of Leslie and Financial the Conducting John Board today Executive President; will Executive of Brad and Directors; Slide to X. proceed Please

to and certain available these presentation, refer financial appendix today’s measures, figures reconciled will During which on call, this we’ve non-GAAP measures in and we is to website. of each our in GAAP our to earnings release the

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

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

Brad Barber

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

we Relations. Engquist, John review briefly our our your results Slide today continuing our and the said, for and I financial our detail. our March, actions me impact quarter more pleased incurred significant our in headcount rightsizing of Financial to due X, the with performance Officer; Inda, call in maximize will Executive X, will business assist included business, focus are the COVID-XX. Kevin a second will with and during Chief specifically, Investor take Magee, quarter. took results we most the in inventory will Chairman; areas the After, questions. areas throughout in Leslie our On to reductions. Slide us These of please. of of Leslie the please. we performance, President all Beginning This quarter with the year. I’m These balance discuss Vice

which the the encouraging XXX utilization as subsequently April, approximately trough bottomed in months. points April. rental trends above utilization our in in following physical and basis is the running in business in stabilized rental Recent Our improved business are currently

to continue of X% least and in fleet plan the rightsizing our rental focusing size On current is on or $XX.X maintaining X.X% fleet a productive oldest assets with are our million, our of focused on balance basis, appropriate year-to-date rental and We’re rental environment. sheet by and removal. inventories the down down $X for and million. or the our fleet inventories the size We managing

operating reduced and cash million will but free reductions detail remain our balance sheet in flow to quarter. headcount approximately $XXX.X successfully further with liquidity, our generated during we year-to-date SG&A Leslie the second continue of costs We further, solid strengthening X%.

provided teams. scalability required our wage amount reduction We our management travel and future and salary plans, an restructuring savings, have of regional has for in that senior in undergone organizational a also and which been the

are of already and Given the the for cost savings. expected current environment, reaping we plan some restructuring accelerated such

of from XX.X% a terms ago. year second financial In declined quarter revenues total results, our

were compared canceled. some continued market, end-user last paused, delayed rental revenues or decreased XX% to While Demand our declined year. for in work projects and rental rental equipment

we utilization rental And was from Utilization physical guidelines, guidelines and experienced rates. decreased for a year by rental the the in from we down XX.X% on pressure changes accordance on are quarter, based expected, consistency. Beginning ARA ago. As rates our reporting both ago. year a with ARA X.X% XX.X%, our this rate

equipment XX%. New down sales were

continued this continue For for the of this year, balance expect segment. this unpredictability – expect we we

of remains energy the We new turmoil Angeles me in last total let Given our area. this metropolitan oil at basis. branch revenues remind X% our on ongoing the a one quarter that the low gas markets, in XX-month to and Los everyone exposure opened

including we’re non-residential – these what Leslie? our the I’ll the call very during trends discuss to compared trends to cadence economic the year. While financial headwinds hard COVID-XX generate we uncertainty, and the through recovery, more while of shareholders quarter environment. tremendous regarding are the Despite There’s to headwinds our quarter, still Leslie second encouraging experienced in evolving persist we this working for balance the current believe related second this for construction outlook turn to the uncertainty of in markets. ongoing the over returns detail. now to will results

Leslie Magee

and everyone, you, morning, thank Good Brad.

our XX results. Let’s of for financial more details Slide proceed to

challenging million Rental period $XX.X the a $XXX.X same total ago. compared to ago year million to as revenues decreased conditions, XX.X% from revenues to the $XXX.X million or due $XXX.X XX% a Brad to market Our decreased year million discussed.

million rates X.X% decreased also year prior X.X% decreased X.X% decreased quarter average utilization year-over-year, and to or based our Rental XX.X% declined on for OEC $XX.X compared XX.X% Our sequentially. The period. rates quarter this the comparable ago. the with a fleet year time of compared to by size

utilization of versus result basis physical XXX lower returns XX.X% declined to As rates, our a in last year. dollar points

a $X.X our other of categories, XX% exceeded declines earthmoving, result last to million equipment XX% or to year. million was decreasing in $XX.X product to $X.X XX.X% primarily expectations $X except in earthmoving, million fleet sales sales all rental our which lines Sales decreased million quarter, which of equipment XX.X%and year during New crane compared a except to or million. increased increased from in Used $XX.X $X.X comprised sales decreasing equipment other this the quarter decline and $XX or or second decline total million compared although which increased $XX.X sales the all XX.X% used million million. or The equipment, $X.X XX.X% used X.X% million, new ago.

basis, generated service down and $XX.X revenue a ago. Our from parts XX.X% on combined in year a million segment

to Let’s profit and now move on margins. gross

profit primarily our XX.X% used to margin decreased to a were lower and XX.X% a ago, margins year rental gross of lower gross risk consolidated Our margins. significantly XX.X% compared million $XX.X equipment and year ago, because from a

million operations in year and XX.X% to year please. compared of XX.X% in declined margins the as ago, decrease lower percentage a lines. decreased a quarter XX.X% Slide in discuss product our ago a of gross well primarily ago. gross gross to pressure or gross XX.X% increased were For were SG&A Income in service and in margin fleet-only Margins worth of on quarter XXXX lines. due XX.X% XX.X% most primary ago. income a to revenue. from I’ll during all $XX.X sales combined and from Used basis revenues, SG&A and to compared second few were but gross XX% this margin XX.X% XX.X% second year-over-year. detail more on rental a year compared result from during million rates primarily here, a by to XX.X% to quarter decreased on SG&A detail declines a pure sales to margins margins business rental in as of to a of ago, Margins by XX.X% all in on a the prior XX.X% to margins XX.X% to due impacted product XX.X% noting mix were year equipment lower a new to compared and revenues slides, largely X.X% a These as margins last operations in in parts equipment from time year the it $XX and year compared decline higher to is XX, for segment, period. the revenues quarter XX.X% sales decreased cost utilization a the year, XX.X% segments or decline

sales ago. was Slide XX.X% compared the was of declining year $X.XX offsetting The per decline margins million sales these points decrease revenue partially sharply to and a segments, increased higher XXXX Adjusted of and XX.X% property XX. was primarily to XX. $XX.X effective in compared were diluted equipment. partially on Net revenue second ago, quarter basis margins to as Please of a at most percentage this to diluted of to $X.XX of the a income quarter million quarter in income year second environment, mix, lower to to XXX impacts percentage second revenues equipment. second this in with EBITDA second a more the XX.X% in share share million XXXX SG&A of of challenging from to a or move $XX.X a compared in of or Proceed the XX.X% XXXX. results EBITDA year costs Adjusted $XXX to rate million income net per with ago, offsetting in quarter, gains due tax $X.X Slide business quarter gains XX.X%. ago, in to negative a SG&A operations compared higher on revenues as quarter higher the these However, income year in and comparison or property

a expenses prior second decreased. SG&A compared XX.X% Slide for the with hours were expenses response and million other expenses pay to $XX.X $X.X reductions headcount impact primarily decreased a our year salaries, $XX.X Promotional costs reduced taxes, commissions expenses business. in compared the as lower XX. employee quarter COVID-XX the on combined and were to result decreased of and total million, with was $X.X compared million $X incentive a for expansion decreased million to to Employees, wages, or as a this related supplies $X and second Offsetting XXXX decrease SG&A Next and branch increased year million million revenues of quarter benefit year XX.X% employee Greenfield employee of $X payroll XXXX of XX.X% liability to increase insurance. ago. percentage ago. million excess a related in Expenses $XXX,XXX. in

was Next $XX.X flow month six the XX second XX. CapEx ending you’ll million, and transfers including in slide, on from for CapEx quarter fleet the fleet this inventory. cash gross our non-cash and Slide period find June On

Our gross $XX.X CapEx to PP&E for quarter only compared fleet year quarter million. down the negative quarter a was the CapEx million million. the ago. and Net was for rental CapEx $X.X XX.X% was second Growth approximately $X.X

as age XX was June average Our XX.X of fleet months.

for ago. free in increase net to to cash was of flow million $X.X free The Our largely of XXXX year lower quarter $XXX.X use the investment cash was a million due compared flow this second fleet a year.

end of was or size of utilization to the At based XX.X% rates. $X.X decrease a fleet XX. billion, rental the second on lower utilization please. Slide year, OEC to Average year dollar million quarter, from on a Next Slide XX, Proceed compared reflecting XX.X% the a our X.X% was and ago. time $XX.X

At $XXX.X with maturities. a quarter, the have amended ample we XX and under and the is strong cash facility Lastly, at of million of outstanding credit. near-term million December end no balance the of million liquidity outstanding ABL which since was balance sheet end, million $XXX.X borrowing the $XX.X last second of net quarter had down of availability $X.X is year. letters We

billion and fixed covenant charge determine our is used exceeded measurement applicable. springing availability the if $X to excess Our is

no this it the in with strong of a before dividends Our while million by policy. and availability therefore, always Board availability cash XX have covenant credit liquidity continue spring, subject $X June excess are approval XXth Directors, with billion, the and we is than requires senior quarterly concerns. position, secured its paid company very we’re covenant our to consecutive intent agreement dividend excess more $XX at of of The to dividend

please provide Q&A Let’s instructions session. Operator, our now get for into questions.

Operator

begin Ross will now Our Instructions] the is America. Bank go session. of We Gilardi first Please from with question-and-answer [Operator question ahead.

Ross Gilardi

guys. Hey, good morning

Brad Barber

Good morning.

Ross Gilardi

was, bottom I at use the the the if remember you quarter, the when said, just think XX% last were want you to about I of time you mean, XX%. time numbers. I had you I correctly, at was and at then around call, call the ask

ended you up averaging for So the XX% quarter.

and trough – sort uncertainty? just just else So I points want using then in rate be that of above XX%. that’s the time just May something project basis trying to out you base and June in or a third the just sure make the to understand pickup stall good for can I the would but run And or COVID the you think right XXX with add, I’m which quarter? the Do

Brad Barber

you absolutely, numbers. the right – the Yes. you on Ross, you’ve have got context – got the

And likely at but about As forward. utilized. view we maintain going it sit here could that or It that today, plus correctly. is level you thinking minus XX% at go incremental, to it’s our are we’re approximately

Ross Gilardi

it Brad? of recently the is call? you’ve So a moved that of more sort And bit you incremental since pickup, then sideways seen last just an more

Brad Barber

we’ve month. last yes, what of on. that at you’re seen. absolutely We’ve It’s but that’s That’s been seen – to incremental improvement appears kind And – spot of point stabilized. this the some really in that has

Ross Gilardi

realize weren’t is change versus quantify to something could that worse Okay. ARA And do like really without just do, into trying line – to in used be get it’s get stronger the seasonally what if a it before didn’t then still in the that say you main explained now gets rate just you’re you And like on reporting of context – call put we’re into the when to put better? X% you how difference a I rate, minutia? down at, lot you I’ll it What admit, and trying a before. of feel on you the it year? this part guess I’m that with does in going

Brad Barber

Yes, sure.

think of we there’s their time company trying some period who for a respective ARA. can this helpful. a I when tracking been give with decision rates aware would they to time. other explanation, Right only reports to the Historically, metrics quite of – I now, the brief we’ve one specifically, both reporting In contracts always opened that we internally methodology. newly measured and make I’m I and be ARA, within use and just think of ARA converted have

a do us it to So ARA for would we within period. ahead so go methodology respective on important and contract rates thought it a the was measures be And fair that comparison.

can to within you lot the we So think, to it. be helpful there’s understand respective I a would But data the more context, get that’s and calculations, broader you.

rates As forward, appear so to that would rental have dynamics rental it math. some pertains within year-over-year, it measuring always we’re going rates But there’s stabilized.

our both rental Our disciplined with larger rates habits. are and their of to most remaining their competitors buying and be competitors

the have at likely stabilized this view So expect forward. grand any we’re level of we rates additional our today. from big it’s expectations going decreases that have at but also don’t don’t point improvements, any We sharp

Ross Gilardi

the think go that peak the you you seasonally a Like fall? quarterly weaker comment, of the later with the the Is what’s Brad? you pressures Okay. year? intensify of do that in into more still the get you what happens low at of And you risk into part once see the time once sort XXs season of

Brad Barber

Yes.

I to think typical going a pressure. be it’s

fleet and next see pressure. speaking, to buying QX. within selling is I inventory, they’re than is I about trying limited. said, will space. say, one’s in we’ve discipline is the sophisticated visibility operators there’s within I Generally that we think even you and talk the to And the no QX to we’re the offset certainly, other off As think us a for expect a position clear year. little not but in don’t typical But But think and going in. I we’re are behaviors participating And generally, and QX, than surprised, environment wouldn’t think I their QX. in forward. that slight saw additional underlying will more in the degradation lead is those difficult rates material we declines any some a rates all in rightsize I stability. we business, seasonal to QX that be

that. that stay we’re we’ll benefit everyone and we disciplined, focused an all think where in I understands be environment and from just

Ross Gilardi

pass Great, I’ll it very much, Okay. on. thanks guys.

Brad Barber

you. Thank

Operator

go Weber with The Capital Seth Markets. question next Please ahead. RBC is from

Seth Weber

majority guys were to what talk for Can of comes If come understand it’s some we some for. came cuts SG&A just these of back, I doing volume in permanence you Hope, when Leslie, you below just morning. the well. looking those well Good guys. commissions. and cuts? volume, the Maybe Hey, back? of if of will

say like you and cuts there’s stuff. sounds on some how programs of So you’ve It been some But or these much of portion that. working would structural?

better the cost just going is forward. So structure Thanks.

Leslie Magee

Right.

Seth. hey So,

related. cuts were my So some mentioned comments prepared in of we headcount the I –

those return account business would at returns. expectation reductions would our be not So as

So point that thing I’ll that one would to. be

COVID-related have example, would in for to, our like, seen some that say, health the reductions quarter. I benefits, point lower claims. Those We just were let’s

those related unknowns. back, But procedures, that one come that of claims that’s to timing of to would we those and up. and would return be Some when difficult delayed back potentially to may project to to as pick just and expect it’s timing procedures normal

So sort with our bonuses don’t this at time. top as expect those you stated, reductions, headcount return reductions, as the are referred ebb and commissions, but revenues. of I to going to, line, things and the Obviously, we to flow

Brad Barber

people Seth, also Yes. driving not If travel, folks on car that cars. in rooms, my been I In airplanes, getting prepared statements, talked about, This are a like quite location, we’re I’d just putting time. has we’re and to for hotel planned some restructure, we’re right? a costs I not generally right? did a staying not we not our add they’re mean, traveling. in not renting

our know company You well. exceptionally

us our over our the to of tighter areas seen restructure districts geography and in to with cover kind decade regions. really for it last was our fill us You’ve within time management

so we’ve so. And done

piece stick. to is absolutely expense a going of that So reduction travel

I more to of going and time you, face every But tell going can come it’s but to we’re efficient I what be percent, difficult be We’re we don’t hold prepared effective. side And and going SG&A more the healthier, forward some smarter will recessionary will here, we the period time, at it level. other and our or back. of true really reflecting some more a think to better. context out a come same

Seth Weber

a on of X% or do of you thinking think, way couple And so of just it? percent, you That the a mean Thanks. down makes year, sense. CapEx a we which right discipline, CapEx, think okay. size, this follow-up agree sort fleet being is industry the about Brad, couple then I to referenced about fleet Great, with.

So is this way to directionally down mid-single about that kind fair digits? low to size the for year a of think fleet

Brad Barber

mid probably I think thinking for it’s upper about more to fleet the year, full single-digit decline us.

on thinking We’re think in get the utilization push But single-digit side, to upper going for more impact it to maybe mid is rates right some how from year to positive we’re more the opportunity. the I conservative we’re more the given about and hope decrease fleet err now.

Seth Weber

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

Brad Barber

thank you. Seth,

Operator

with is go The Stifel. Stanley ahead. question next from Please Elliott

Stanley Elliott

everyone. Hey, nice taking for and the everyone good you question Thank hear voices. morning, to

of it thought the piece, terms the In open like of branch. the It kind thinking I fleet How up it we’re are this now? ideally you to pretty cost-effective some since greenfielding about right times uncertain environment? interesting of would be a was move bring to utilization seems way in in to all fleet

Brad Barber

mean Yes, the we good slown somewhat. pace we a would metropolitan question. And That opened we’ve I marketplace, Los agree. tremendous marketplace. location said, Angeles generally, our in

circumstances. do under We’re going even really to believe well very that. the I current

one Our aggressive how year. make more starts an this starts greenfield or then want of And this year, we’ll warm we evaluation anticipation do that two is be. warm we’ll to

I capitalizing And that. the what think around anticipation there’s timing to on of implied. will just be a our of truth lot you more

become get will got but before year. more more as so likely the end clarity, will X/X start the with of on occur we we’ve the and Got deck likely aggressive another starts, we’ve announced. And one to we

Stanley Elliott

age. that’s great Perfect. Yes, a young the especially move, – given think fleet I your

mean, business a concerned capital comp? environment the equipment the sales, happened is numbers big. people crane like that larger and difficult new just there anything purchases? about Was that Or down the XX% I pretty were the being On within

Brad Barber

all now. than by are It’s impacted downstream least. impact weighted of direct commercial dominated the Energy at heavily that’s certainly will certainly sales, upstream, that driven of on year the more for midstream crane industrial to. we’re the the and continue by being And to really energy. broadly non-res oil, difficult oil, right a aspects The having is likely is difficult environment. sector balance and Cranes are

Stanley Elliott

more see any this your your backlogs me, these if of lastly completely of cancellations? project now? forward, timing is for you customers about most – all are And around are do fluid. what saying I’d the discussions be there’s deferred being of to think going right anything curious Or opportunities Yes. even larger though

Brad Barber

Yes.

occur. of it’s largest the elongated. than some mixed in have have seen we’ve We’ve we them, would much sector, projects cancellations call But at non-res time. – I So you, that the not certainly positives more cancellations, mean not there’s point cancellations. They’re they’re sure indefinite absolute tell firm more kind had seen seen this I sector. of a I’m postponements. in so bag. these commercial we’ve But in both. again much industrial we’ve And been will

Stanley Elliott

very you much. the Appreciate Thank time. guys. Perfect,

Brad Barber

you. Thank

Operator

go question next comes with The ahead. Please Instructions] from Fisher UBS. Steven [Operator

Steven Fisher

kind Thanks. encouraging rates. sort last if wanted could that the what say you Good that other the morning, if business, you’re some are the if talk follow-up to some of elaborate of that, utilization of signs seeing? guys. juxtapose deferrals Brad, you any cancellations of kind are But I’m to flow other with seeing, and that just I and on can of did you’re pauses encouraging signs of and – you’re stabilizing that just on question. you the about that there wondering, seeing, curious

Brad Barber

year the mean you more locations certain face of bullish. and our areas are. and believe in I Well, I’ll got strong we’ve a couple that of company if better We’ve the where But year bit in it it’s a tell than is the of more regions Steven, really there ago, – amazing average can actually ago Sure. as certain got positive branch geographies, we optimism was that. the are slightly are isolated there, a true. of as utilizations cases, every you

impact had opportunity they’ve lot for less they to And And less, so coming. see of a generally they’ve folks, rate. those speaking, had

– are optimistic it. on, positive us they’re That’s to returns want all their focused and our going and on grow business. about talked and there’s of right them other we’ve with one hit orders as cause many two be it solid think unfortunately, manufacturers I people discipline for Now we’ve that before And to of there a because fleets. to the achieving now lot take invest a elements

are operators very respective out our sales Secondarily, opportunity And and markets. I on some And to us that well. basis. likely rep, average some paying our think would attention weather positions we’re they tell a always you our that smaller not opportunity go-forward these average conservative that manage and But And for won’t of conditions opportunities future some there these there their for manager it’s said, lies reflective That shiny appropriate to within looking branch within to what is who grow are to business believe those being a sentiments. we’re going out their today positive but nice is. hear in we business do, continue, way, there our there. as those spots

Steven Fisher

What are you’re better geographies that seeing? the

Brad Barber

I I will I that into bit industrial. can would more that Gulf not those impacted and Coast say has are. you been to what prefer because a geographies little of tell the get oil primarily

those in meaningfully our today. performance of some are geographies other than And better geographies our

Steven Fisher

sales up of quick earthmoving And couple just say were hear did a XX%? clarifications, I over Okay. you that

Brad Barber

That’s correct. was it They or $X think I were million. million $X – yes,

sales positive the of Bear mind, vast other There and we’ve force. been marketing So well, a I the up few million earthmoving sales Komatsu a year-over-year, distributor. resilience with in that’s impact their but of our are the as think states, from quality, more XX.X%. campaigns $X.X majority areas sales Komatsu where in come our had where earthmoving

Steven Fisher

Okay.

of that any weekly particular any affecting seen monthly, there was then in And there. lumpiness may be terms recently the or change some of you’ve mix trends? like that daily, sounds it So

Brad Barber

No, no, nothing noteworthy.

Steven Fisher

lot. a thanks Okay,

Brad Barber

you. Thank

Operator

our for like I question-and-answer turn concludes Brad any over conference the This would to to closing session. Barber remarks. back

Brad Barber

end call. Sure. today’s Thank third I’d again updating you. group look to to quarter. the of on like this second thank earnings for the quarter forward everyone participating after We

Operator

conference now Thank presentation. concluded. The for attending today’s has you

You now disconnect. may

H&E Equipment Services (HEES) 4 Aug 202020 Q2 Earnings call transcript