H&E Equipment Services, Inc. [HEES] Filings

10-Q 1 hees-20220930.htm 10-Q 10-Q

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 September 30, 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 October 20, 2022, there were 36,310,190 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

September 30, 2022


		Page
PART I. FINANCIAL INFORMATION		5

Item 1. Financial Statements:		5
Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021		5
Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021		6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 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		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		33

PART II. OTHER INFORMATION		33

Item 1. Legal Proceedings		33
Item 1A. Risk Factors		33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3. Defaults upon Senior Securities		33
Item 4. Mine Safety Disclosures		33
Item 5. Other Information		33
Item 6. Exhibits		34

Signatures		35

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.

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.

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
	September 30,			December 31,
	2022			2021
	(Unaudited)
ASSETS
Cash and cash equivalents	$	220,479		$	357,296
Receivables, net of allowance for doubtful accounts of $5,039 and $4,178, respectively		203,166			157,226
Inventories, net of reserves for obsolescence of $86 and $73, respectively		117,447			75,299
Prepaid expenses and other assets		21,321			21,081
Rental equipment, net of accumulated depreciation of $837,794 and $722,646, respectively		1,280,123			1,116,456
Property and equipment, net of accumulated depreciation and amortization of $176,379 and $161,913, respectively		129,636			112,281
Operating lease right-of-use assets, net of accumulated amortization of $47,387 and $36,884, respectively		158,833			151,222
Finance lease right-of-use assets, net of accumulated amortization of $64		1,586			—
Deferred financing costs, net of accumulated amortization of $16,343 and $15,818, respectively		933			1,458
Intangible assets, net of accumulated amortization of $17,687 and $14,709, respectively		22,013			24,991
Goodwill		63,137			63,137
Total assets	$	2,218,674		$	2,080,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable		121,917			95,604
Manufacturer flooring plans payable		16,624			20,924
Accrued expenses payable and other liabilities		90,567			63,908
Dividends payable		217			128
Senior unsecured notes, net of unaccreted discount of $7,272 and $8,151 and deferred financing costs of $1,679 and $1,882, respectively		1,241,049			1,239,967
Operating lease liabilities		163,322			155,303
Finance lease liabilities		1,619			—
Deferred income taxes		225,633			201,231
Total liabilities		1,860,948			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; 40,567,876 and 40,353,299 shares issued at September 30, 2022 and December 31, 2021, respectively, and 36,310,190 and 36,141,667 shares outstanding at September 30, 2022 and December 31, 2021, respectively		405			403
Additional paid-in capital		249,553			244,638
Treasury stock at cost, 4,257,686 and 4,211,632 shares of common stock held at September 30, 2022 and December 31, 2021, respectively		(69,925	)		(68,294	)
Retained earnings		177,693			126,635
Total stockholders’ equity		357,726			303,382
Total liabilities and stockholders’ equity	$	2,218,674		$	2,080,447

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues:
Equipment rentals	$	253,564		$	197,184		$	680,366		$	526,014
Used equipment sales		20,300			31,071			60,659			105,746
New equipment sales		23,491			19,355			71,013			70,161
Parts sales		16,745			17,503			48,976			49,939
Services revenues		8,610			8,624			25,633			24,694
Other		1,570			1,699			4,754			4,991
Total revenues		324,280			275,436			891,401			781,545
Cost of revenues:
Rental depreciation		65,952			58,339			188,261			168,305
Rental expense		33,543			28,326			93,117			80,900
Rental other		25,989			20,510			70,775			55,394
		125,484			107,175			352,153			304,599
Used equipment sales		9,396			19,383			31,815			68,426
New equipment sales		20,249			16,946			60,849			61,576
Parts sales		11,881			13,209			35,417			36,715
Services revenues		3,165			3,000			9,122			8,193
Other		2,222			1,815			6,248			4,896
Total cost of revenues		172,397			161,528			495,604			484,405
Gross profit		151,883			113,908			395,797			297,140
Selling, general and administrative expenses		87,871			74,403			248,813			213,259
Merger and other		547			9			547			115
Gain on sales of property and equipment, net		529			6,166			2,911			6,951
Income from operations		63,994			45,662			149,348			90,717
Other income (expense):
Interest expense		(13,548	)		(13,430	)		(40,495	)		(40,298	)
Other, net		883			615			2,656			2,026
Total other expense, net		(12,665	)		(12,815	)		(37,839	)		(38,272	)
Income from operations before provision for income taxes		51,329			32,847			111,509			52,445
Provision for income taxes		12,953			8,119			28,967			13,611
Net income from continuing operations	$	38,376		$	24,728		$	82,542		$	38,834

Discontinued Operations:
Income (loss) from discontinued operations before provision (benefit) for income taxes	$	—		$	6,411		$	(2,049	)	$	14,246
Provision (benefit) for income taxes		—			1,602			(525	)		3,626
Net income (loss) from discontinued operations	$	—		$	4,809		$	(1,524	)	$	10,620

Net income	$	38,376		$	29,537		$	81,018		$	49,454

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Unaudited)

(Amounts in thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022			2021
Net income from continuing operations per common share:
Basic	$	1.05	$	0.68	$	2.27		$	1.07
Diluted	$	1.05	$	0.68	$	2.26		$	1.07
Net income (loss) from discontinued operations per common share:
Basic	$	—	$	0.13	$	(0.04	)	$	0.29
Diluted	$	—	$	0.13	$	(0.04	)	$	0.29
Net income per common share:
Basic	$	1.05	$	0.81	$	2.23		$	1.36
Diluted	$	1.05	$	0.81	$	2.22		$	1.36
Weighted average common shares outstanding:
Basic		36,462		36,296		36,402			36,232
Diluted		36,553		36,436		36,544			36,420
Dividends declared per common share outstanding	$	0.275	$	0.275	$	0.825		$	0.825

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Nine Months Ended
	September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	81,018		$	49,454
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		20,889			20,661
Depreciation of rental equipment		188,261			172,025
Amortization of finance lease right-of-use assets		64			122
Amortization of intangible assets		2,978			2,978
Amortization of deferred financing costs		728			729
Accretion of note discount, net of premium amortization		879			879
Non-cash operating lease expense		10,503			11,145
Provision for losses on accounts receivable		2,289			1,200
Provision for inventory obsolescence		32			54
Change in deferred income taxes		24,402			14,445
Stock-based compensation expense		4,915			3,600
Loss on sale of discontinued operations		1,917			—
Gain from sales of property and equipment, net		(2,911	)		(7,000	)
Gain from sales of rental equipment, net		(28,126	)		(39,274	)
Changes in operating assets and liabilities: