Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenues increased by 4.5% year-over-year, driven by higher rental revenues and sales of new equipment.
- Equipment rental revenues rose by 7.2%, supported by a modest rise in rental rates and expansion initiatives.
- The company opened 15 new locations since the close of Q2 2023, enhancing its branch network and geographic reach.
- Gross profit increased by 1.7% year-over-year, with margins on sales of rental equipment remaining elevated.
- H&E Equipment Services Inc (HEES, Financial) maintained a solid capital position with a net leverage ratio of 2.2 times and ample liquidity of $459 million.
Negative Points
- Sales of rental equipment declined by 11.9% year-over-year, reflecting a challenging business environment.
- Physical fleet utilization decreased to 66.4%, down 290 basis points compared to the year-ago quarter.
- Net income for the second quarter was $33.3 million, down from $41.2 million in the same quarter of 2023.
- SG&A expenses increased by 12.7% year-over-year, driven by higher costs associated with branch expansion and acquisition activities.
- Dollar utilization in the second quarter was 38.6%, a decline from 40.6% in the year-ago quarter, primarily due to lower physical utilization.
Q & A Highlights
Q: How have rental rates performed relative to your expectations, and what are your projections for the rest of the year?
A: Rental rates have performed as expected, with slight incremental improvements. We anticipate rates may come under pressure due to increased participation in mega projects, but we do not expect significant declines. (Bradley Barber, CEO)
Q: How should we think about the dynamic of fleet growth relative to equipment revenue growth, considering the inflationary component?
A: The inflationary impact is minimal compared to the overall scheme. Our focus is on improving physical utilization and balancing supply and demand. (Bradley Barber, CEO)
Q: Do you expect 2025 to see another leg up in growth, or will it be a new normal growth rate?
A: It's early to predict, but we are optimistic. The outlook depends on interest rates. We do not envision a decline from 2024 levels and see potential for improvement if rates decline. (Bradley Barber, CEO)
Q: What kind of incremental flow-through do you expect to see on EBITDA from mega projects for the remainder of the year?
A: We expect some pressure on EBITDA flow-through margins due to moderating rate increases, lower physical utilization, and higher costs from new store openings. (Leslie Magee, CFO)
Q: How did utilization track through the quarter, and was it impacted by weather or other factors?
A: Utilization was consistent, with incremental improvement. The decline was more related to fewer small and midsized jobs rather than weather. (John Engquist, President & COO)
Q: How should investors think about H&E's ability to generate stronger free cash flow through the cycle?
A: We will generate healthy free cash flow this year and continue to pay dividends. Our focus on new store openings and tuck-in acquisitions will balance growth opportunities and free cash flow generation. (Bradley Barber, CEO)
Q: Are you seeing movement of fleet around the network to optimize positioning in good markets?
A: Yes, we move fleet from low-demand areas to higher-demand areas as part of basic fleet management. This year is no different from previous years. (John Engquist, President & COO)
Q: Are you capturing all the opportunities on mega projects, and does this spur investment in specialty equipment?
A: We are capturing significant opportunities, but there is always room for more. Specialty equipment remains a nice-to-have rather than a need-to-have, and we will continue to grow it organically. (Bradley Barber, CEO)
Q: How are you thinking about CapEx for the rest of the year, and have your plans changed between same-store spending and new branches?
A: We are comfortable with our reduced CapEx guidance of $350 million to $400 million. We are not shifting spending from same stores to new locations and remain focused on performance and returns. (Bradley Barber, CEO)
Q: What percentage of your fleet is targeted to mega projects, and how has the growth rate in backlog from mega projects been?
A: While we do not provide specific numbers, our participation in mega projects is substantial and growing. The growth rate in backlog from mega projects has been significant year over year. (Bradley Barber, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
