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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 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

 

 

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

 


 

 

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.

 

5


 

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

 

 

 

 

 

 

 

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

 

 

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.

 

 

7


 

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: