10-Q 1 hees-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-51759

 

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

81-0553291

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

7500 Pecue Lane,

 

70809

Baton Rouge, Louisiana

 

(ZIP Code)

(Address of Principal Executive Offices)

 

 

Registrant’s Telephone Number, Including Area Code: (225) 298-5200

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

HEES

Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

                         Accelerated Filer

Non-Accelerated Filer

 

 

 

 

 

 

Smaller Reporting Company

                         Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 20, 2022, there were 36,161,554 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

 

 

 


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

March 31, 2022

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

5

 

 

 

Item 1. Financial Statements:

 

5

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021

 

5

Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2022 and 2021

 

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021

 

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4. Controls and Procedures

 

28

 

 

 

PART II. OTHER INFORMATION

 

29

 

 

 

Item 1. Legal Proceedings

 

29

Item 1A. Risk Factors

 

29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 3. Defaults upon Senior Securities

 

29

Item 4. Mine Safety Disclosures

 

29

Item 5. Other Information

 

29

Item 6. Exhibits

 

30

Signatures

 

31

 

 

 

2


 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response to the pandemic, material delays and cancellations of construction or infrastructure projects, labor shortages, supply chain disruptions and other impacts to the business;
general economic conditions and construction and industrial activity in the markets where we operate in North America;
our ability to forecast trends in our business accurately, and the impact of economic downturns and economic uncertainty on the markets we serve (including as a result of current uncertainty due to COVID-19 and inflation);
the impact of conditions in the global credit and commodity markets (including as a result of current volatility and uncertainty in credit and commodity markets due to COVID-19) and their effect on construction spending and the economy in general;
trends in oil and natural gas which could adversely affect the demand for our services and products;
relationships with equipment suppliers;
increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;
our indebtedness;
risks associated with the expansion of our business and any potential acquisitions we may make, including any related capital expenditures, or our ability to consummate such acquisitions;
our possible inability to integrate any businesses we acquire;
competitive pressures;
security breaches and other disruptions in our information technology systems;
adverse weather events or natural disasters;
compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and
other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward‑looking statements and are cautioned not to place undue reliance on such forward‑looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

 

3


 

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. All of our annual, quarterly and current reports, and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.

 

4


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

 

 

 

 

Balances at

 


 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash

 

$

351,797

 

 

$

357,296

 

Receivables, net of allowance for doubtful accounts of $4,281 and $4,178, respectively

 

 

161,102

 

 

 

157,226

 

Inventories, net of reserves for obsolescence of $68 and $73, respectively

 

 

103,358

 

 

 

75,299

 

Prepaid expenses and other assets

 

 

26,481

 

 

 

21,081

 

Rental equipment, net of accumulated depreciation of $759,204 and $722,646, respectively

 

 

1,121,617

 

 

 

1,116,456

 

Property and equipment, net of accumulated depreciation and amortization of $166,206 and $161,913, respectively

 

 

116,162

 

 

 

112,281

 

Operating lease right-of-use assets, net of accumulated amortization of $40,867 and $36,884, respectively

 

 

154,428

 

 

 

151,222

 

Deferred financing costs, net of accumulated amortization of $15,993 and $15,818, respectively

 

 

1,283

 

 

 

1,458

 

Intangible assets, net of accumulated depreciation and amortization of $15,702 and $14,709, respectively

 

 

23,998

 

 

 

24,991

 

Goodwill

 

 

63,137

 

 

 

63,137

 

Total assets

 

$

2,123,363

 

 

$

2,080,447

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

112,857

 

 

$

95,604

 

Manufacturer flooring plans payable

 

 

19,518

 

 

 

20,924

 

Accrued expenses payable and other liabilities

 

 

74,595

 

 

 

63,908

 

Dividends payable

 

 

37

 

 

 

128

 

Senior unsecured notes, net of unaccreted discount of $7,858 and $8,151 and deferred financing costs of $1,815 and $1,882, respectively

 

 

1,240,327

 

 

 

1,239,967

 

Operating lease liabilities

 

 

158,736

 

 

 

155,303

 

Deferred income taxes

 

 

206,131

 

 

 

201,231

 

Total liabilities

 

 

1,812,201

 

 

 

1,777,065

 

Commitments and Contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 40,382,124 and 40,353,299 shares issued at March 31, 2022 and December 31, 2021, respectively, and 36,161,554 and 36,141,667 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

403

 

 

 

403

 

Additional paid-in capital

 

 

246,316

 

 

 

244,638

 

Treasury stock at cost, 4,220,570 and 4,211,632 shares of common stock held at March 31, 2022 and December 31, 2021, respectively

 

 

(68,637

)

 

 

(68,294

)

Retained earnings

 

 

133,080

 

 

 

126,635

 

Total stockholders’ equity

 

 

311,162

 

 

 

303,382

 

Total liabilities and stockholders’ equity

 

$

2,123,363

 

 

$

2,080,447

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Equipment rentals

 

$

199,225

 

 

$

153,219

 

Used equipment sales

 

 

21,526

 

 

 

38,854

 

New equipment sales

 

 

26,036

 

 

 

23,173

 

Parts sales

 

 

16,059

 

 

 

15,556

 

Services revenues

 

 

8,134

 

 

 

8,011

 

Other

 

 

1,470

 

 

 

1,619

 

Total revenues

 

 

272,450

 

 

 

240,432

 

Cost of revenues:

 

 

 

 

 

 

Rental depreciation

 

 

60,021

 

 

 

53,453

 

Rental expense

 

 

28,759

 

 

 

25,065

 

Rental other

 

 

20,913

 

 

 

16,494

 

 

 

 

109,693

 

 

 

95,012

 

Used equipment sales

 

 

12,548

 

 

 

26,360

 

New equipment sales

 

 

22,329

 

 

 

20,399

 

Parts sales

 

 

11,704

 

 

 

11,153

 

Services revenues

 

 

2,814

 

 

 

2,615

 

Other

 

 

1,782

 

 

 

1,481

 

Total cost of revenues

 

 

160,870

 

 

 

157,020

 

Gross profit

 

 

111,580

 

 

 

83,412

 

Selling, general and administrative expenses

 

 

78,278

 

 

 

68,145

 

Merger and other

 

 

 

 

 

100

 

Gain on sales of property and equipment, net

 

 

1,386

 

 

 

154

 

Income from operations

 

 

34,688

 

 

 

15,321

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(13,447

)

 

 

(13,443

)

Other, net

 

 

880

 

 

 

661

 

Total other expense, net

 

 

(12,567

)

 

 

(12,782

)

Income before provision for income taxes

 

 

22,121

 

 

 

2,539

 

Provision for income taxes

 

 

5,825

 

 

 

684

 

Net income from continuing operations

 

$

16,296

 

 

$

1,855

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

Income from discontinued operations before provision for income taxes

 

 

 

 

 

3,152

 

Provision for income taxes

 

 

 

 

 

856

 

Net income from discontinued operations

 

$

 

 

$

2,296

 

 

 

 

 

 

 

 

Net income

 

$

16,296

 

 

$

4,151

 

 

 

6


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net income from continuing operations per common share:

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.05

 

Diluted

 

$

0.45

 

 

$

0.05

 

Net income from discontinued operations per common share:

 

 

 

 

 

 

Basic

 

$

 

 

$

0.06

 

Diluted

 

$

 

 

$

0.06

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.11

 

Diluted

 

$

0.45

 

 

$

0.11

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

36,363

 

 

 

36,185

 

Diluted

 

 

36,539

 

 

 

36,387

 

Dividends declared per common share outstanding

 

$

0.275

 

 

$

0.275

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

7


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

16,296

 

 

$

4,151

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

6,857

 

 

 

6,904

 

Depreciation of rental equipment

 

 

60,021

 

 

 

55,349

 

Amortization of finance lease right-of-use assets

 

 

 

 

 

41

 

Amortization of intangible assets

 

 

993

 

 

 

993

 

Amortization of deferred financing costs

 

 

242

 

 

 

242

 

Accretion of note discount, net of premium amortization

 

 

293

 

 

 

293

 

Non-cash operating lease expense

 

 

3,983

 

 

 

3,580

 

Provision for losses on accounts receivable

 

 

645

 

 

 

331

 

Provision for inventory obsolescence

 

 

 

 

 

26

 

Change in deferred income taxes

 

 

4,900

 

 

 

789

 

Stock-based compensation expense

 

 

1,678

 

 

 

1,601

 

Gain from sales of property and equipment, net

 

 

(1,386

)

 

 

(154

)

Gain from sales of rental equipment, net

 

 

(8,906

)

 

 

(13,194

)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Receivables

 

 

(4,521

)

 

 

22,692

 

Inventories

 

 

(59,671

)

 

 

(99,013

)

Prepaid expenses and other assets

 

 

(5,400

)

 

 

(7,249

)

Accounts payable

 

 

17,253

 

 

 

62,418

 

Manufacturer flooring plans payable

 

 

(1,406

)

 

 

909

 

Accrued expenses payable and other liabilities

 

 

6,614

 

 

 

6,206

 

Net cash provided by operating activities

 

 

38,485

 

 

 

46,915

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(10,656

)

 

 

(7,329

)

Purchases of rental equipment

 

 

(44,389

)

 

 

(56,313

)

Proceeds from sales of property and equipment

 

 

1,621

 

 

 

156

 

Proceeds from sales of rental equipment

 

 

19,725

 

 

 

38,801

 

    Net cash used in investing activities

 

 

(33,699

)

 

 

(24,685

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on senior secured credit facility

 

 

284,165

 

 

 

307,341

 

Payments on senior secured credit facility

 

 

(284,165

)

 

 

(307,341

)

Dividends paid

 

 

(9,942

)

 

 

(9,933

)

Purchases of treasury stock

 

 

(343

)

 

 

(435

)

Payments of deferred financing costs

 

 

 

 

 

(136

)

Payments of finance lease obligations

 

 

 

 

 

(63

)

    Net cash used in financing activities

 

 

(10,285

)

 

 

(10,567

)

Net increase (decrease) in cash

 

 

(5,499

)

 

 

11,663

 

Cash, beginning of period

 

 

357,296

 

 

 

310,882

 

Cash, end of period

 

$

351,797

 

 

$

322,545

 

 

 

8


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

Noncash asset purchases:

 

 

 

 

 

 

Assets transferred from used and new inventory to rental fleet

 

$

31,612

 

 

$

15,360

 

Purchases of property and equipment included in accrued expenses
   payable and other liabilities

 

$

(317

)

 

$

158

 

Operating lease assets obtained in exchange for new
   operating lease liabilities

 

$

7,189

 

 

$

8,355

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

797

 

 

$

807

 

Income taxes paid (net of refunds received)

 

$

(51

)

 

$

(60

)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

9


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Organization and Nature of Operations

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we”, “us”, “our” or the “Company.”

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2021, from which the consolidated balance sheet amounts as of December 31, 2021 were derived. All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements.

On October 1, 2021, the Company sold its crane business (the “Crane Sale”). The results of operations of the Crane Sale are reported in discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. The Condensed Consolidated Statements of Cash Flows include cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3 “Acquisitions and Dispositions”. All results and information in the consolidated financial statements are presented as continuing operations and exclude the Crane Sale unless otherwise noted specifically as discontinued operations. For additional information, refer to Note 3.

The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, and consistent with industry practice, the accompanying condensed consolidated balance sheets are presented on an unclassified basis.

Nature of Operations

Founded in 1961, H&E Equipment Services, Inc. is one of the largest rental equipment companies in the nation, serving customers across 25 states. The Company’s fleet is versatile with an equipment mix comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast States, Southeast, and Mid-Atlantic regions.

COVID-19

The novel coronavirus (“COVID-19”), first identified in late 2019, spread rapidly throughout the world and in March 2020, the World Health Organization characterized COVID-19 as a pandemic and recommended containment and mitigation measures worldwide. During 2020, the spread of COVID-19 resulted in economic contraction and increased business uncertainty. As the impact of COVID-19 became more widespread, our equipment rental utilization and sales volumes declined from February through mid-April 2020, where we began to see utilization and sales levels stabilize and improve for the remainder of 2020. We continued to see improvements with utilization levels beginning in March 2021 returning to approximate pre-COVID utilization levels. The timing and extent of any subsequent contraction due to COVID-19 will depend on a number of factors, including a widespread resurgence in COVID-19 infections, the rate of vaccinations, vaccine efficacy, a global supply chain disruption, the impact to capital and financial markets and the related impact on our customers.

 

 

10


 

(2) Significant Accounting Policies

We describe our significant accounting policies in Note 2 of the notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021. During the three months ended March 31, 2022, there were no significant changes to those accounting policies.

Use of Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Revenue Recognition

We recognize revenue in accordance with two different Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) standards: 1) Topic 606 and 2) Topic 842.

Under Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

Under Topic 842, Leases, we account for equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.

In the table below, revenues as presented in our condensed consolidated statements of income for the three months ended March 31, 2022 and 2021 are summarized by type and by the applicable accounting standard.

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned equipment rentals

 

$

170,729

 

 

$

109

 

 

$

170,838

 

 

$

129,464

 

 

$

52

 

 

$

129,516

 

Re-rent revenue

 

 

6,344

 

 

 

 

 

 

6,344

 

 

 

7,630

 

 

 

 

 

 

7,630

 

Ancillary and other rental revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delivery and pick-up

 

 

 

 

 

11,100

 

 

 

11,100

 

 

 

 

 

 

8,396

 

 

 

8,396

 

Other

 

 

10,943

 

 

 

 

 

 

10,943

 

 

 

7,677

 

 

 

 

 

 

7,677

 

Total ancillary rental revenues

 

 

10,943

 

 

 

11,100

 

 

 

22,043

 

 

 

7,677

 

 

 

8,396

 

 

 

16,073

 

Total equipment rental revenues

 

 

188,016

 

 

 

11,209

 

 

 

199,225

 

 

 

144,771

 

 

 

8,448

 

 

 

153,219

 

Used equipment sales

 

 

 

 

 

21,526

 

 

 

21,526

 

 

 

 

 

 

38,854

 

 

 

38,854

 

New equipment sales

 

 

 

 

 

26,036

 

 

 

26,036

 

 

 

 

 

 

23,173

 

 

 

23,173

 

Parts sales

 

 

 

 

 

16,059

 

 

 

16,059

 

 

 

 

 

 

15,556

 

 

 

15,556

 

Service revenues

 

 

 

 

 

8,134

 

 

 

8,134

 

 

 

 

 

 

8,011

 

 

 

8,011

 

Other

 

 

 

 

 

1,470

 

 

 

1,470

 

 

 

 

 

 

1,619

 

 

 

1,619

 

Total revenues

 

$

188,016

 

 

$

84,434

 

 

$

272,450

 

 

$

144,771

 

 

$

95,661

 

 

$

240,432

 

 

 

11


 

Revenues by reporting segment are presented in Note 11 of our Condensed Consolidated Financial Statements, using the revenue captions reflected in our consolidated statements of income. We believe that the disaggregation of our revenues from contracts to customers as reflected above, coupled with further discussion below and the reporting segments in Note 11, depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. For further information related to our accounting for revenues pursuant to Topic 606 and Topic 842, see Significant Accounting Policies in Note 2 to our Annual Report on Form 10-K for the year ended December 31, 2021.

Receivables and contract assets and liabilities

We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowance for doubtful accounts address our total revenues from Topic 606 and Topic 842.

We believe concentration of credit risk with respect to our receivables is limited because our customer base is comprised of a large number of geographically diverse customers. No single customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented in this Quarterly Report on Form 10-Q. We manage credit risk through credit approvals, credit limits and other monitoring procedures.

Pursuant to Topic 842 and Topic 326 for rental and non-rental receivables, respectively, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. Our largest exposure to doubtful accounts is in our rental operations, which as discussed above is accounted for under Topic 842 and represents 73% of our total revenues and an approximate corresponding percentage of our receivables, net and associated allowance for doubtful accounts as of March 31, 2022. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts. Bad debt expense as a percentage of total revenues for the three months ended March 31, 2022 and 2021 were approximately 0.3% and 0.2%.

We do not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenues during the three months ended March 31, 2022 or 2021 that was included in the contract liability balance as of the beginning of such periods.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or a