10-Q 1 hees-20240331.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, 2024

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 23, 2024, there were 36,527,353 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, 2024

 

Page

PART I. FINANCIAL INFORMATION

 

5

 

 

Item 1. Financial Statements:

 

5

Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

 

5

Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2024 and 2023

 

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2024 and 2023

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

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

 

20

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

 

30

Item 5. Other Information

 

30

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:

general economic and geopolitical conditions in North America and elsewhere throughout the globe 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 inflation and increasing interest rates);
the impact of conditions in the global credit and commodity markets 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;
our inability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms or at all, as a result of supply chain disruptions, insolvency, financial difficulties, supplier relationships or other factors;
increased maintenance and repair costs as our fleet ages and decreases in our equipment’s residual value;
risks related to a global pandemic and similar health concerns, 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;
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 ability to integrate any businesses or assets we acquire;
competitive pressures;
security breaches, cybersecurity attacks, increased adoption of artificial intelligence technologies, failure to protect personal information, compliance with data protection laws and other disruptions in our information technology systems;
adverse weather events or natural disasters;
risks related to climate change and climate change regulation;
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, 2023.

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, 2023, 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, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,076

 

 

$

8,500

 

Receivables, net of allowance for doubtful accounts of $7,335 and $7,126, respectively

 

 

243,935

 

 

 

247,430

 

Inventories, net of reserves for obsolescence of $144 and $207, respectively

 

 

100,566

 

 

 

109,931

 

Prepaid expenses and other assets

 

 

19,208

 

 

 

8,740

 

Rental equipment, net of accumulated depreciation of $996,630 and $990,971, respectively

 

 

1,781,505

 

 

 

1,756,578

 

Property and equipment, net of accumulated depreciation and amortization of $200,000 and $193,723, respectively

 

 

217,705

 

 

 

183,773

 

Operating lease right-of-use assets, net of accumulated amortization of $76,696 and $71,021, respectively

 

 

186,339

 

 

 

176,703

 

Finance lease right-of-use assets, net of accumulated amortization of $432 and $345, respectively

 

 

2,805

 

 

 

2,891

 

Deferred financing costs, net of accumulated amortization of $17,888 and $17,606, respectively

 

 

4,327

 

 

 

4,609

 

Intangible assets, net of accumulated depreciation and amortization of $28,311 and $25,824, respectively

 

 

66,689

 

 

 

32,576

 

Goodwill

 

 

125,591

 

 

 

108,155

 

Total assets

 

$

2,757,746

 

 

$

2,639,886

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Senior secured credit facility

 

$

254,637

 

 

$

181,642

 

Accounts payable

 

 

84,585

 

 

 

85,486

 

Manufacturer flooring plans payable

 

 

2,014

 

 

 

2,708

 

Accrued expenses payable and other liabilities

 

 

94,855

 

 

 

87,929

 

Dividends payable

 

 

231

 

 

 

360

 

Senior unsecured notes, net of unaccreted discount of $5,514 and $5,807 and deferred financing costs of $1,273 and $1,341, respectively

 

 

1,243,213

 

 

 

1,242,852

 

Operating lease liabilities

 

 

201,471

 

 

 

183,775

 

Finance lease liabilities

 

 

2,958

 

 

 

3,019

 

Deferred income taxes

 

 

323,104

 

 

 

317,826

 

Total liabilities

 

 

2,207,068

 

 

 

2,105,597

 

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; 40,960,811 and 40,823,375 shares issued at March 31, 2024 and December 31, 2023, respectively, and 36,528,962 and 36,449,188 shares outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

410

 

 

 

408

 

Additional paid-in capital

 

 

265,715

 

 

 

261,927

 

Treasury stock at cost, 4,431,849 and 4,374,187 shares of common stock held at March 31, 2024 and December 31, 2023, respectively

 

 

(79,407

)

 

 

(76,017

)

Retained earnings

 

 

363,960

 

 

 

347,971

 

Total stockholders’ equity

 

 

550,678

 

 

 

534,289

 

Total liabilities and stockholders’ equity

 

$

2,757,746

 

 

$

2,639,886

 

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,

 

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Equipment rentals

 

$

295,325

 

 

$

262,008

 

Sales of rental equipment

 

 

48,115

 

 

 

32,115

 

Sales of new equipment

 

 

10,412

 

 

 

7,818

 

Parts, service and other

 

 

17,505

 

 

 

20,541

 

Total revenues

 

 

371,357

 

 

 

322,482

 

Cost of revenues:

 

 

 

 

 

 

Rental depreciation

 

 

91,398

 

 

 

81,872

 

Rental expense

 

 

43,407

 

 

 

37,867

 

Rental other

 

 

32,623

 

 

 

27,975

 

 

 

 

167,428

 

 

 

147,714

 

Sales of rental equipment

 

 

17,829

 

 

 

13,288

 

Sales of new equipment

 

 

8,639

 

 

 

6,781

 

Parts, service and other

 

 

12,596

 

 

 

13,321

 

Total cost of revenues

 

 

206,492

 

 

 

181,104

 

Gross profit

 

 

164,865

 

 

 

141,378

 

Selling, general and administrative expenses

 

 

114,278

 

 

 

95,335

 

Gain on sales of property and equipment, net

 

 

1,433

 

 

 

667

 

Income from operations

 

 

52,020

 

 

 

46,710

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(18,366

)

 

 

(13,697

)

Other, net

 

 

1,552

 

 

 

1,716

 

Total other expense, net

 

 

(16,814

)

 

 

(11,981

)

Income from operations before provision for income taxes

 

 

35,206

 

 

 

34,729

 

Provision for income taxes

 

 

9,317

 

 

 

9,055

 

Net income

 

$

25,889

 

 

$

25,674

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.72

 

 

$

0.71

 

Diluted

 

$

0.71

 

 

$

0.71

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

36,196

 

 

 

36,025

 

Diluted

 

 

36,562

 

 

 

36,352

 

 

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,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

25,889

 

 

$

25,674

 

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

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

10,413

 

 

 

8,033

 

Depreciation of rental equipment

 

 

91,398

 

 

 

81,872

 

Amortization of finance lease right-of-use assets

 

 

87

 

 

 

40

 

Amortization of intangible assets

 

 

2,487

 

 

 

1,683

 

Amortization of deferred financing costs

 

 

350

 

 

 

309

 

Accretion of note discount, net of premium amortization

 

 

293

 

 

 

293

 

Non-cash operating lease expense

 

 

5,675

 

 

 

4,560

 

Provision for losses on accounts receivable

 

 

1,349

 

 

 

1,107

 

Change in deferred income taxes

 

 

5,278

 

 

 

6,615

 

Stock-based compensation expense

 

 

3,788

 

 

 

2,990

 

Gain from sales of property and equipment, net

 

 

(1,433

)

 

 

(667

)

Gain from sales of rental equipment, net

 

 

(30,265

)

 

 

(18,714

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

6,266

 

 

 

7,474

 

Inventories

 

 

(33,965

)

 

 

(138,147

)

Prepaid expenses and other assets

 

 

(9,803

)

 

 

(6,019

)

Accounts payable

 

 

1,399

 

 

 

65,837

 

Manufacturer flooring plans payable

 

 

(694

)

 

 

274

 

Accrued expenses payable and other liabilities

 

 

4,838

 

 

 

11

 

Net cash provided by operating activities

 

 

83,350

 

 

 

43,225

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of business

 

 

(121,571

)

 

 

 

Purchases of property and equipment

 

 

(39,137

)

 

 

(12,388

)

Purchases of rental equipment

 

 

(31,059

)

 

 

(76,578

)

Proceeds from sales of property and equipment

 

 

1,669

 

 

 

849

 

Proceeds from sales of rental equipment

 

 

47,809

 

 

 

31,686

 

    Net cash used in investing activities

 

 

(142,289

)

 

 

(56,431

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on senior secured credit facility

 

 

587,605

 

 

 

408,301

 

Payments on senior secured credit facility

 

 

(514,610

)

 

 

(368,301

)

Dividends paid

 

 

(10,029

)

 

 

(9,989

)

Purchases of treasury stock

 

 

(3,390

)

 

 

(3,226

)

Payments of deferred financing costs

 

 

 

 

 

(4,939

)

Payments of finance lease obligations

 

 

(61

)

 

 

(25

)

Net cash provided by financing activities

 

 

59,515

 

 

 

21,821

 

Net increase in cash and cash equivalents

 

 

576

 

 

 

8,615

 

Cash and cash equivalents, beginning of period

 

 

8,500

 

 

 

81,330

 

Cash and cash equivalents, end of period

 

$

9,076

 

 

$

89,945

 

 

 

7


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Amounts in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

Non-cash asset purchases:

 

 

 

 

 

 

Assets transferred from inventory to rental fleet

 

$

43,330

 

 

$

51,110

 

Changes in purchases of property and equipment included in accrued expenses
   payable and other liabilities

 

$

(1,970

)

 

$

39

 

Operating lease assets obtained in exchange for new
   operating lease liabilities

 

$

15,311

 

 

$

2,783

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

4,355

 

 

$

767

 

Income taxes paid (net of refunds received)

 

$

(208

)

 

$

406

 

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, H&E Equipment Services (Midwest), Inc. 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, 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, 2023, from which the consolidated balance sheet amounts as of December 31, 2023 were derived. All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements.

The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, 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 at our 140 branch locations across 30 states. The Company’s fleet is 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, Southeast, Midwest and Mid-Atlantic regions.

(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, 2023. During the three months ended March 31, 2024, 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.

Reclassifications

Certain reclassifications have been made to prior period amounts in the Condensed Consolidated Statements of Income to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.

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.

 

9


 

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, 2024 and 2023 are summarized by type and by the applicable accounting standard.

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned equipment rentals

 

$

253,298

 

 

$

122

 

 

$

253,420

 

 

$

223,580

 

 

$

137

 

 

$

223,717

 

Re-rent revenue

 

 

8,321

 

 

 

 

 

 

8,321

 

 

 

8,359

 

 

 

 

 

 

8,359

 

Ancillary and other rental revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delivery and pick-up

 

 

 

 

 

18,607

 

 

 

18,607

 

 

 

 

 

 

15,491

 

 

 

15,491

 

Other

 

 

14,977

 

 

 

 

 

 

14,977

 

 

 

14,441

 

 

 

 

 

 

14,441

 

Total ancillary rental revenues

 

 

14,977

 

 

 

18,607

 

 

 

33,584

 

 

 

14,441

 

 

 

15,491

 

 

 

29,932

 

Total equipment rental revenues

 

 

276,596

 

 

 

18,729

 

 

 

295,325

 

 

 

246,380

 

 

 

15,628

 

 

 

262,008

 

Sales of rental equipment

 

 

 

 

 

48,115

 

 

 

48,115

 

 

 

 

 

 

32,115

 

 

 

32,115

 

Sales of new equipment

 

 

 

 

 

10,412

 

 

 

10,412

 

 

 

 

 

 

7,818

 

 

 

7,818

 

Parts, service and other

 

 

 

 

 

17,505

 

 

 

17,505

 

 

 

 

 

 

20,541

 

 

 

20,541

 

Total revenues

 

$

276,596

 

 

$

94,761

 

 

$

371,357

 

 

$

246,380

 

 

$

76,102

 

 

$

322,482

 

 

Revenues by reporting segment are presented in Note 11 of our Condensed Consolidated Financial Statements. 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, 2023.

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 total revenues 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 75% of our total revenues and an approximate corresponding percentage of our receivables, net and associated allowance for doubtful accounts as of March 31, 2024. 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

 

10


 

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, 2024 and 2023 was approximately 0.4% and 0.3%, respectively.

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, 2024 or 2023 that was included in the contract liability balance as of the beginning of such periods.

Goodwill

Goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. The change to the carrying amount of goodwill for the period ended March 31, 2024 is as follows (amounts in thousands):

 

 

Equipment Rentals

 

 

Sales of Rental Eq.

 

 

Parts Sales

 

 

Total

 

Balance at December 31, 2022 (1)

 

$

88,529

 

 

$

8,447

 

 

$

5,714

 

 

$

102,690

 

Increase (2)

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Decrease (3)

 

 

 

 

 

 

 

 

(5,714

)

 

 

(5,714

)

Decrease (4)

 

 

(132

)

 

 

 

 

 

 

 

 

(132

)

Increase (5)

 

 

11,282

 

 

 

 

 

 

 

 

 

11,282

 

Balance at December 31, 2023 (1)

 

 

99,708

 

 

 

8,447

 

 

 

 

 

 

108,155

 

Increase (6)

 

 

17,536

 

 

 

 

 

 

 

 

 

17,536

 

Decrease (7)

 

 

(100

)

 

 

 

 

 

 

 

 

(100

)

Balance at March 31, 2024 (1)

 

$

117,144

 

 

$

8,447

 

 

$

 

 

$

125,591

 

(1)
The total carrying amount of goodwill as of December 31, 2022 in the table above is reflected net of $92.7 million of accumulated impairment charges. The total carrying amount of goodwill as of December 31, 2023 and March 31, 2024 in the table above is reflected net of $98.4 million of accumulated impairment charges.
(2)
Increase is related to the closing adjustments of the OSR Acquisition during the first quarter of 2023.
(3)
Decrease is related to the Parts Sales goodwill impairment calculated during the third quarter of 2023.
(4)
Decrease is related to the final closing adjustment of the OSR Acquisition during the third quarter of 2023.
(5)
Increase due to the Giffin Equipment (“Giffin”) Acquisition during the fourth quarter of 2023.
(6)
Increase due to the Precision Rentals (“Precision”) Acquisition during the first quarter of 2024.
(7)
Decrease is related to the purchase accounting adjustment of the Giffin Acquisition during the first quarter of 2024.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

Segment Reporting

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves the disclosures about a public entity’s reportable segments and addresses requests for additional, more detailed information about a reportable segment’s expenses. The amendments in this ASU require disclosure of incremental segment information on an annual and interim basis for all public entities. The amendments are effective for our Annual Report on Form 10-K for fiscal years beginning after December 15, 2023, and for the interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 became effective on January 1, 2024 and is not expected to have an impact on our financial statements, but will result in expanded reportable segment disclosures.

Income Taxes

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which should improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU requires that public entities on an annual basis disclose specific categories in the rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and the following information about income taxes paid: the amount of income taxes paid disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions. Lastly, the amendments in this ASU require that entities disclose income (or loss) from continuing operations before income tax expense (or

 

11


 

benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. ASU 2023-09 becomes effective January 1, 2025 and is not expected to have an impact on our financial statements, but will result in expanded tax disclosures.

(3) Acquisitions and Dispositions

2024 Acquisition

Precision Rentals

Effective January 1, 2024, we completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado. The acquisition expands our presence in both geographic markets.

The aggregate cumulative cash consideration paid was approximately $123.9 million, which includes $3.5 million of fair value allocated to a noncompete agreement which is accounted for as a separate transaction from the net assets acquired in the business combination. The acquisition and related fees and expenses were funded from available cash and borrowings. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. The opening balance sheet amounts presented below are preliminary and subject to change as we obtain additional information during the acquisition measurement period regarding each asset acquired and liability assumed and finalize customary closing adjustments with the seller.

 

 

 

$’s in thousands

 

Accounts receivable

 

$

4,120

 

Prepaid expenses and other assets

 

 

737

 

Rental equipment

 

 

63,215

 

Property and equipment

 

 

2,122

 

Operating lease right-of-use assets

 

 

68

 

Customer relationships intangible asset (1)

 

 

33,000

 

Total identifiable assets acquired

 

 

103,262

 

Accounts payable

 

 

(57

)

Accrued expenses payable and other liabilities

 

 

(313

)

Operating lease liabilities

 

 

(68

)

Total liabilities assumed

 

 

(438

)

Net identifiable assets acquired

 

 

102,824

 

Goodwill (2)

 

 

17,536

 

Net assets acquired

 

 

120,360

 

Noncompetition agreement intangible asset (1)(3)

 

 

3,500

 

Total cumulative consideration (4)

 

$

123,860

 

(1)
The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our preliminary purchase accounting assessments:

 

 

Fair Value
(amounts in
thousands)

 

 

Life (years)

 

Customer relationships

 

$

33,000

 

 

 

10

 

Noncompetition agreements

 

 

3,500

 

 

 

5

 

 

 

$

36,500

 

 

 

 

 

(2)
The acquired goodwill has been allocated to the equipment rentals reporting unit.
(3)
The fair value of the noncompetition agreements is considered to be a separate transaction under ASC 805 and as such, has been excluded from the purchase price.
(4)
As a result of customary closing proceedings, $2.3 million of the purchase price consideration is recorded within accounts payable as of March 31, 2024.

The level of goodwill that resulted from the Precision acquisition is primarily reflective of Precision’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.

Total acquisition costs were $0.5 million and included within selling, general and administrative (“SG&A”) expenses on the Consolidated Statement of Income during the quarter ended March 31, 2024 and December 31, 2023. Since our acquisition of

 

12


 

Precision on January 1, 2024, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Precision revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of January 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.

2023 Acquisition

Giffin Equipment

Effective November 1, 2023, we completed the acquisition of Mel Giffin, Inc. (d/b/a Giffin Equipment) (“Giffin”), an equipment rental company with three branches located in California. The acquisition expands our presence in the California market.

The aggregate cash consideration paid was approximately $31.3 million. The acquisition and related fees and expenses were funded from available cash and borrowings. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. The opening balance sheet amounts presented below are preliminary and subject to change as we obtain additional information during the acquisition measurement period regarding each asset acquired and liability assumed and finalize customary closing adjustments with the seller.

 

 

 

$’s in thousands

 

Accounts receivable

 

$

870

 

Prepaid expenses and other assets

 

 

10

 

Rental equipment

 

 

12,291

 

Property and equipment

 

 

431

 

Operating lease right-of-use assets

 

 

121

 

Intangible assets (1)

 

 

6,500

 

Total identifiable assets acquired

 

 

20,223

 

Accrued expenses payable and other liabilities

 

 

(19

)

Operating lease liabilities

 

 

(121

)

Total liabilities assumed

 

 

(140

)

Net identifiable assets acquired

 

 

20,083

 

Goodwill (2)

 

 

11,182

 

Net assets acquired

 

$

31,265

 

(1)
The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our preliminary purchase accounting assessments:

 

 

Fair Value
(amounts in
thousands)

 

 

Life (years)

 

Customer relationships

 

$

3,900

 

 

 

10

 

Noncompetition agreements

 

 

2,600

 

 

 

5

 

 

 

$

6,500

 

 

 

 

 

(2)
The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the Giffin acquisition is primarily reflective of Giffin’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.

Total acquisition costs were $0.1 million and $0.3 million and included within selling, general and administrative (“SG&A”) expenses on the Consolidated Statement of Income during the quarter ended March 31, 2024 and year ended December 31, 2023, respectively. Since our acquisition of Giffin on November 1, 2023, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Giffin revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of November 1, 2023 and the results of operations are included in the Company's consolidated results as of that date.

 

13


 

2022 Acquisition

One Source Equipment Rentals, Inc.

Effective October 1, 2022, we acquired 100% of the equity of One Source Equipment Rentals, Inc. (“OSR”), an equipment rental company with ten branches located in the Midwest. The acquisition expands our presence in the surrounding market, including initial locations in Illinois, Indiana, and Kentucky.

The aggregate cash consideration paid was approximately $136.7 million. The acquisition and related fees and expenses were funded from available cash. Customary closing adjustments were finalized during the first quarter of 2023 and the update of a tax estimate upon filing the final tax returns concluded during the third quarter of 2023. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

 

 

 

$'s in thousands

 

Cash

 

$

337

 

Accounts receivable

 

 

10,406

 

Inventory

 

 

332

 

Prepaid expenses and other assets

 

 

374

 

Rental equipment

 

 

102,436

 

Property and equipment

 

 

4,216

 

Operating lease right-of-use assets

 

 

2,388

 

Intangible assets (1)

 

 

12,300

 

Total identifiable assets acquired

 

 

132,789

 

Accounts payable

 

 

(4,723

)

Tax payable

 

 

(786

)

Operating lease liabilities

 

 

(2,388

)

Deferred income taxes

 

 

(27,653

)

Total liabilities assumed

 

 

(35,550

)

Net identifiable assets acquired

 

 

97,239

 

Goodwill (2)

 

 

39,451

 

Net assets acquired

 

$

136,690

 

 

(1)
The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

 

 

Fair Value
(amounts in
thousands)

 

 

Life (years)

 

Customer relationships

 

$

10,600

 

 

 

10

 

Noncompetition agreements

 

 

1,700

 

 

 

1

 

 

 

$

12,300

 

 

 

 

 

(2)
The acquired goodwill has been allocated to the equipment rentals reporting unit.

Included in the total goodwill amount of $39.5 million is approximately $0.8 million of accrued purchase price consideration to be paid to the sellers pursuant to the terms of the purchase agreement among the parties named thereto. The level of goodwill that resulted from the OSR acquisition is primarily reflective of OSR’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations.

Total acquisition costs were $0.8 million and included within selling, general and administrative (“SG&A”) expenses on the Consolidated Statement of Income during the year ended December 31, 2022. Since our acquisition of OSR on October 1, 2022, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of OSR revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of October 1, 2022 and the results of operations are included in the Company's consolidated results as of that date.

Pro forma financial information (unaudited)

We completed the Giffin acquisition effective November 1, 2023 and the Precision acquisition effective January 1, 2024; therefore, our reported Condensed Consolidated Statement of Income for the quarter ended March 31, 2023 does not include Giffin or Precision.

 

14


 

The pro forma information for the quarter ended March 31, 2023 in the table below (amounts in thousands) is for informational purposes only and gives effect to the Giffin and Precision acquisitions as if both had been completed on January 1, 2023 (the “pro forma acquisition date”). The pro forma information is not necessarily indicative of our results of operations had the acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, nor does it reflect additional revenue opportunities following the acquisition. The unaudited pro forma financial information includes adjustments primarily related to the incremental depreciation and amortization expense of the rental equipment and intangible assets acquired, the elimination of interest expense related to historical debt as well as other expenses that are not part of the combined entity and transaction expenses.

 

 

Three Months Ended March 31,

 

 

 

2023

 

Total revenues

 

$

332,863

 

Net income

 

$

25,690

 

 

(4) Fair Value of Financial Instruments

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

The carrying value of financial instruments reported in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, Senior Secured Credit Facility (the “Credit Facility”), accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature, maturity or market interest rate of these financial instruments. The Company’s outstanding obligations on its Credit Facility are deemed to be at fair value as the interest rates are variable and consistent with prevailing rates, which are considered Level 2 inputs. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures as of March 31, 2024 and December 31, 2023 are presented in the table below (amounts in thousands).

 

 

 

March 31, 2024

 

 

 

Carrying
Amount

 

 

Fair
Value

 

Manufacturer flooring plans payable with interest computed at 8.75% (Level 3)

 

$

2,014

 

 

$

1,703

 

Senior Unsecured Notes due 2028 with interest computed at 3.875% (Level 2)

 

 

1,243,213

 

 

 

1,147,338

 

 

 

December 31, 2023

 

 

 

Carrying
Amount

 

 

Fair
Value

 

Manufacturer flooring plans payable with interest computed at 8.75% (Level 3)

 

$

2,708

 

 

$

2,490

 

Senior unsecured notes due 2028 with interest computed at 3.875% (Level 2)

 

 

1,242,852

 

 

 

1,137,170

 

At March 31, 2024 and December 31, 2023, the fair value of our senior unsecured notes due 2028 (the “Senior Unsecured Notes”) was based on quoted bond trading market prices for those notes. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturing floor plans payable based on the U.S. prime rate plus the applicable margin on our Credit Facility. The discount rate is disclosed in the above table. The assets collateralized against the manufacturer flooring plans payable approximate its carrying value.

During the three months ended March 31, 2024 and 2023, there were no transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy.

 

15


 

(5) Stockholders’ Equity

The following table summarizes the activity in Stockholders’ Equity for the three months ended March 31, 2024 and 2023, respectively (amounts in thousands, except share and per share data):

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Shares
Issued

 

 

Amount

 

 

Paid-in
Capital

 

 

Treasury
Stock

 

 

Retained Earnings

 

 

Stockholders’
Equity

 

Balances at December 31, 2023

 

 

40,823,375

 

 

$

408

 

 

$

261,927

 

 

$

(76,017

)

 

$

347,971

 

 

$

534,289

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,788

 

 

 

 

 

 

 

 

 

3,788

 

Cash dividends declared on common stock ($0.275 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,900

)

 

 

(9,900

)

Issuance of common stock, net of forfeitures

 

 

137,436

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Repurchase of 57,662 shares of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

(3,390

)

 

 

 

 

 

(3,390

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,889

 

 

 

25,889

 

Balances at March 31, 2024

 

 

40,960,811

 

 

$

410

 

 

$

265,715

 

 

$

(79,407

)

 

$

363,960

 

 

$

550,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

40,567,876

 

 

$

405

 

 

$

251,901

 

 

$

(69,964

)

 

$

218,700

 

 

$

401,042

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,990

 

 

 

 

 

 

 

 

 

2,990

 

Cash dividends declared on common stock ($0.275 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,794

)

 

 

(9,794

)

Issuance of common stock, net of forfeitures

 

 

132,501

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1