Company Quick10K Filing
H&E Equipment Services
Price28.62 EPS3
Shares36 P/E11
MCap1,032 P/FCF5
Net Debt-11 EBIT166
TEV1,021 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-10-25
10-Q 2019-06-30 Filed 2019-07-25
10-Q 2019-03-31 Filed 2019-04-26
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-27
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-30
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-03-05
10-Q 2012-09-30 Filed 2012-11-01
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-03-02
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-03-03
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-05
8-K 2020-05-19
8-K 2020-05-19
8-K 2020-05-08
8-K 2020-02-20
8-K 2020-02-14
8-K 2019-11-12
8-K 2019-10-24
8-K 2019-09-11
8-K 2019-08-29
8-K 2019-08-14
8-K 2019-07-25
8-K 2019-05-15
8-K 2019-05-10
8-K 2019-05-10
8-K 2019-04-25
8-K 2019-03-06
8-K 2019-02-21
8-K 2019-02-08
8-K 2019-02-01
8-K 2018-11-07
8-K 2018-11-06
8-K 2018-10-25
8-K 2018-08-15
8-K 2018-08-07
8-K 2018-07-26
8-K 2018-05-15
8-K 2018-05-15
8-K 2018-05-08
8-K 2018-04-26
8-K 2018-03-09
8-K 2018-02-22
8-K 2018-02-16

HEES 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 hees-ex311_7.htm
EX-31.2 hees-ex312_6.htm
EX-32.1 hees-ex321_8.htm

H&E Equipment Services Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.71.30.80.40.02012201420172020
Assets, Equity
0.40.30.20.20.10.02012201420172020
Rev, G Profit, Net Income
0.20.1-0.0-0.2-0.3-0.42012201420172020
Ops, Inv, Fin

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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, 2020

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 May 1, 2020, there were 35,919,949 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, 2020

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

5

 

 

 

Item 1. Financial Statements:

 

5

Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

 

5

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

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

 

27

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 4. Controls and Procedures

 

37

 

 

 

PART II.  OTHER INFORMATION

 

39

 

 

 

Item 1. Legal Proceedings

 

39

Item 1A. Risk Factors

 

39

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

 

40

Item 3. Defaults upon Senior Securities

 

40

Item 4. Mine Safety Disclosures

 

40

Item 5. Other Information

 

40

Item 6. Exhibits

 

41

 

 

 

Signatures

 

42

 

 

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, material delays and cancellations of construction or infrastructure projects, 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);

 

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 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, 2019.

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, 2019 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q

3


for the three month period ended March 31, 2020, 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 amounts)

 

 

 

 

Balances at

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

12,440

 

 

$

14,247

 

Receivables, net of allowance for doubtful accounts of $4,774 and $5,236, respectively

 

 

169,415

 

 

 

192,204

 

Inventories, net of reserves for obsolescence of $338 and $331, respectively

 

 

106,157

 

 

 

85,478

 

Prepaid expenses and other assets

 

 

17,361

 

 

 

10,262

 

Rental equipment, net of accumulated depreciation of $696,538 and $676,376, respectively

 

 

1,171,663

 

 

 

1,217,673

 

Property and equipment, net of accumulated depreciation and amortization of $157,202 and $156,782, respectively

 

 

130,614

 

 

 

130,564

 

Operating lease right-of-use assets, net of accumulated amortization of $14,135 and $11,197, respectively

 

 

169,539

 

 

 

156,570

 

Finance lease right-of-use assets, net of accumulated amortization of $2,092 and $2,051, respectively

 

 

325

 

 

 

365

 

Deferred financing costs, net of accumulated amortization of $14,594 and $14,419, respectively

 

 

2,682

 

 

 

2,857

 

Intangible assets, net of accumulated amortization of $7,762 and $6,952, respectively

 

 

31,938

 

 

 

32,948

 

Goodwill

 

 

68,851

 

 

 

131,442

 

Total assets

 

$

1,880,985

 

 

$

1,974,610

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Amounts due on senior secured credit facility

 

$

184,921

 

 

$

216,879

 

Accounts payable

 

 

67,790

 

 

 

58,853

 

Manufacturer flooring plans payable

 

 

17,761

 

 

 

25,201

 

Accrued expenses payable and other liabilities

 

 

57,394

 

 

 

78,382

 

Dividends payable

 

 

95

 

 

 

171

 

Senior unsecured notes, net of unaccreted discount of $2,572 and $2,691 and

   deferred financing costs of $1,666 and $1,743, respectively

 

 

945,762

 

 

 

945,566

 

Operating lease right-of-use liabilities

 

 

172,376

 

 

 

159,265

 

Finance lease right-of-use liabilities

 

 

490

 

 

 

550

 

Deferred income taxes

 

 

170,328

 

 

 

180,126

 

Deferred compensation payable

 

 

2,123

 

 

 

2,098

 

Total liabilities

 

 

1,619,040

 

 

 

1,667,091

 

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; 40,020,289 and 39,921,838 shares issued at March 31, 2020 and December 31, 2019, respectively, and 35,920,148 and 35,848,089 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

399

 

 

 

398

 

Additional paid-in capital

 

 

237,496

 

 

 

235,844

 

Treasury stock at cost, 4,100,141 and 4,073,749 shares of common stock

   held at March 31, 2020 and December 31, 2019, respectively

 

 

(65,253

)

 

 

(64,783

)

Retained earnings

 

 

89,303

 

 

 

136,060

 

Total stockholders’ equity

 

 

261,945

 

 

 

307,519

 

Total liabilities and stockholders’ equity

 

$

1,880,985

 

 

$

1,974,610

 

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 OPERATIONS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

  

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Equipment rentals

 

$

174,519

 

 

$

176,129

 

New equipment sales

 

 

30,873

 

 

 

59,103

 

Used equipment sales

 

 

31,218

 

 

 

29,634

 

Parts sales

 

 

29,769

 

 

 

30,428

 

Services revenues

 

 

16,822

 

 

 

15,568

 

Other

 

 

2,721

 

 

 

2,776

 

Total revenues

 

 

285,922

 

 

 

313,638

 

Cost of revenues:

 

 

 

 

 

 

 

 

Rental depreciation

 

 

59,986

 

 

 

57,148

 

Rental expense

 

 

25,569

 

 

 

24,768

 

Rental other

 

 

16,805

 

 

 

16,275

 

 

 

 

102,360

 

 

 

98,191

 

New equipment sales

 

 

27,426

 

 

 

52,099

 

Used equipment sales

 

 

20,438

 

 

 

19,012

 

Parts sales

 

 

21,903

 

 

 

22,289

 

Services revenues

 

 

5,540

 

 

 

5,004

 

Other

 

 

2,772

 

 

 

3,343

 

Total cost of revenues

 

 

180,439

 

 

 

199,938

 

Gross profit

 

 

105,483

 

 

 

113,700

 

Selling, general and administrative expenses

 

 

79,624

 

 

 

78,647

 

Impairment of goodwill

 

 

61,994

 

 

 

 

Merger costs

 

 

40

 

 

 

119

 

Gain on sales of property and equipment, net

 

 

4,264

 

 

 

741

 

Income (loss) from operations

 

 

(31,911

)

 

 

35,675

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(16,030

)

 

 

(16,855

)

Other, net

 

 

630

 

 

 

532

 

Total other expense, net

 

 

(15,400

)

 

 

(16,323

)

Income (loss) before provision (benefit) for income taxes

 

 

(47,311

)

 

 

19,352

 

Provision (benefit) for income taxes

 

 

(10,343

)

 

 

5,109

 

Net income (loss)

 

$

(36,968

)

 

$

14,243

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(1.03

)

 

$

0.40

 

Diluted

 

$

(1.03

)

 

$

0.40

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

35,965

 

 

 

35,787

 

Diluted

 

 

35,965

 

 

 

35,973

 

Dividends declared per common share outstanding

 

$

0.275

 

 

$

0.275

 

 

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

 

 

6


`H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(36,968

)

 

$

14,243

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

7,398

 

 

 

6,479

 

Depreciation of rental equipment

 

 

59,986

 

 

 

57,148

 

Amortization of finance lease right-of-use assets

 

 

40

 

 

 

41

 

Amortization of intangible assets

 

 

1,010

 

 

 

952

 

Amortization of deferred financing costs

 

 

251

 

 

 

254

 

Accretion of note discount, net of premium amortization

 

 

120

 

 

 

120

 

Non-cash operating lease expense

 

 

2,821

 

 

 

2,583

 

Provision for losses on accounts receivable

 

 

1,673

 

 

 

1,301

 

Provision for inventory obsolescence

 

 

12

 

 

 

42

 

Change in deferred income taxes

 

 

(9,798

)

 

 

4,977

 

Stock-based compensation expense

 

 

1,652

 

 

 

1,188

 

Impairment of goodwill

 

 

61,994

 

 

 

 

Gain from sales of property and equipment, net

 

 

(4,264

)

 

 

(741

)

Gain from sales of rental equipment, net

 

 

(10,567

)

 

 

(10,621

)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Receivables

 

 

21,116

 

 

 

17,605

 

Inventories

 

 

(33,371

)

 

 

(58,062

)

Prepaid expenses and other assets

 

 

(7,118

)

 

 

(2,117

)

Accounts payable

 

 

9,533

 

 

 

13,539

 

Manufacturer flooring plans payable

 

 

(7,440

)

 

 

2,684

 

Accrued expenses payable and other liabilities

 

 

(23,643

)

 

 

(12,574

)

Deferred compensation payable

 

 

25

 

 

 

27

 

Net cash provided by operating activities

 

 

34,462

 

 

 

39,068

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

      Acquisition of businesses, net of cash acquired

 

 

 

 

 

(106,746

)

Purchases of property and equipment

 

 

(10,069

)

 

 

(7,221

)

Purchases of rental equipment

 

 

(19,785

)

 

 

(48,644

)

Proceeds from sales of property and equipment

 

 

6,880

 

 

 

931

 

Proceeds from sales of rental equipment

 

 

29,056

 

 

 

28,292

 

    Net cash provided by (used in) investing activities

 

 

6,082

 

 

 

(133,388

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on senior secured credit facility

 

 

299,524

 

 

 

447,503

 

Payments on senior secured credit facility

 

 

(331,482

)

 

 

(352,617

)

Dividends paid

 

 

(9,863

)

 

 

(9,832

)

Purchases of treasury stock

 

 

(470

)

 

 

(387

)

Payments of deferred financing costs

 

 

 

 

 

(525

)

Payments of finance lease obligations

 

 

(60

)

 

 

(57

)

    Net cash provided by (used in) financing activities

 

 

(42,351

)

 

 

84,085

 

Net decrease in cash

 

 

(1,807

)

 

 

(10,235

)

Cash, beginning of period

 

 

14,247

 

 

 

16,677

 

Cash, end of period

 

$

12,440

 

 

$

6,442

 

7


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Amounts in thousands)

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Noncash asset purchases:

 

 

 

 

 

 

 

 

Assets transferred from new and used inventory to rental fleet

 

$

12,680

 

 

$

21,112

 

Purchases of property and equipment included in accrued expenses

   payable and other liabilities

 

$

5

 

 

$

345

 

Operating lease right-of-use assets and lease liabilities recorded upon

    adoption of ASC 842

 

$

 

 

$

162,814

 

Finance lease right-of-use assets and lease liabilities recorded upon

    adoption of ASC 842

 

$

 

 

$

782

 

Operating lease assets obtained in exchange for new

   operating lease liabilities

 

$

15,906

 

 

$

8,348

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

29,305

 

 

$

29,481

 

Income taxes paid (net of refunds received)

 

$

(99

)

 

$

(519

)

 

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

 

 

8


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” or “us” or “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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, 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, 2019, from which the consolidated balance sheet amounts as of December 31, 2019 were derived.

All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements. Business combinations accounted for as purchases are included in the condensed consolidated financial statements from their respective dates of acquisition.

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

As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and services support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) material handling equipment. By providing equipment rental, sales, on-site parts, repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full service approach provides us with multiple points of customer contact, enables us to maintain a high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross‑selling opportunities among our new and used equipment sales, rental, parts sales and services operations.

 

COVID-19

The novel coronavirus (“COVID-19”) was first identified in late 2019. COVID-19 spread rapidly throughout the world and, in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 is a pandemic of respiratory disease spreading from person-to-person that poses a serious public health risk. It has significantly disrupted supply chains and businesses around the world. The extent and duration of the COVID-19 impact on our operations and financial position is highly uncertain.

We care about our employees, customers and the communities we serve nationwide, so we took quick and strict action based on CDC and WHO recommendations to combat illness in our workforce and to lessen business interruption for our Company and customers.  We have been designated an essential business and our branches remain open to serve our customers. We are very focused on safely providing the equipment, parts, and service that customers need to continue their work.

We began to experience a decline in revenues in March 2020, when rental and sales volumes declined in response to shelter-in-place orders and other end-user market restrictions. We have taken, and will continue to take, the necessary actions to right-size our business in this environment, which is evolving on a daily basis.  These actions include headcount reductions, modified work

9


schedules reducing hours where needed, furloughs in selected branch locations, as well as appropriate adjustments to our capital spending plans.  

 

 

(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, 2019.  During the three month period ended March 31, 2020, 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

Under Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. As described below and in note 12 to these consolidated financial statements, we adopted Topic 842, Leases, on January 1, 2019. We recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 842.

Under Topic 606, revenue from contracts with customers 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.

In the table below, revenue as presented in our condensed consolidated statement of operations for the three month periods ended March 31, 2020 and 2019 is summarized by type and by the applicable accounting standard.

 

 

 

Three Month Period Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned equipment rentals

 

$

153,670

 

 

$

258

 

 

$

153,928

 

 

$

153,350

 

 

$

274

 

 

$

153,624

 

Re-rent revenue

 

 

4,690

 

 

 

 

 

 

4,690

 

 

 

6,036

 

 

 

 

 

 

6,036

 

Ancillary and other rental revenues: