H&E Equipment Services (HEES) 21 Feb 202019 Q4 Earnings call transcript

Good morning and welcome the H&E Equipment Services Fourth Quarter 2019 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Kevin Inda, Vice President of Investor Relations. Please go ahead, sir.

XXXX, welcome the H&E fourth company's year December and call Services quarter Margaret, earlier ended review released to results XX, you, to Equipment the conference and this Thank morning. were which for the slide today's our posted www.he-equipment.com. a at which is The format includes presentation, of call on website Slide Please proceed X. to

of and today Chief Executive Barber, call Engquist, Leslie the and Brad Chief be Conducting Officer Executive Chairman and President; Directors; John will of Magee, Financial the Board Officer Secretary.

X. Slide to proceed Please

we'll certain release figures this to measures, the available we call, website. financial today's GAAP During on to to reconcile refer is in and non-GAAP presentation, of appendix these and which measures our each earnings our in

within about start, securities offer Before let anticipate the may, beliefs that our forward-looking the of me expressions this expect, believe, the as expectations and words laws. such note similar containing federal constitute and forward-looking could, statements Statements we cautionary meaning and statements call contains statements.

forward-looking urged factors are risk and to other on are Form consider forward-looking periodic reliance and uncertainties, statements. these most factors in contained XX-K statements the uncertainties on in contained listeners company's in statements statement. for the of place recent in summary unknown those undue And presentation these described in and Forward-looking safe includes call. harbor A also the risks and cautioned today's any from investors slide reports. company's the annual cause known which the actual evaluating is other risks to materially and in such involve forward-looking report not Investors, to differ results the carefully statement potential could included

or date this undertake call. of after forward-looking not statements any does revise company to publicly update The the

Barber. the I call will now Brad With that stated, to over turn

XXXX you, call. Kevin, earnings fourth-quarter H&E everyone. Services and to Thank Welcome Equipment morning, good

Financial call and President our Investor the Executive Inda, Relations. of Leslie John today our Kevin Engquist, are me Chief Chairman; Officer; with On Vice Magee,

please. X, Slide

business When and will a comments. review questions. and results, focus please. will results quarter then with I on After, current market finishes, the financial this and our will year. Leslie will Leslie fourth-quarter X, brief conditions, Slide we the take your our comments morning few close My both for

results Our total in in despite comparison gross from a increases fourth produce achieving year-over-year solid adjusted quarter, profit to business the revenue, a ago. EBITDA continued and tough year

rental fourth that equipment For pushed sales achieving to new approximately our quarter the not record for example, $XX typical utilization XX.X% in our strong high exceptionally of business the period. of revenues crane were and seasonality XXXX, did period. physical million. during the aerial A experience Also, sales

revenue Nonetheless, improved fourth-quarter XXXX earnings to $XXX.X million.

business rental revenues results rates positive generated Our good ago. from higher rental a year with and

$XXX.X margin XXX year XX.X%. XX.X% XX.X% ago. total Adjusted and increased margins XX.X% to increased million Our points EBITDA a gross to basis from to increased

quarter. of the X, in with please. our we're performance Overall, the pleased Slide fourth business

business performed As we XXX-basis year in from demand, our with call, our which expected well. a would decline utilization in Despite utilization this come ago we rental balance physical quarter, XX.X% XX% fourth discussed quarter. last into physical the to a supply pressure in point to

rental Rental million, a revenues increase X.X% $XXX.X ago. increased year we X.X% in rates to a achieved and from

Our XX.X% up ago, million. than fleet considerably size $XXX.X a also was or larger year

stable for industry behavior, to execution the rational returns our as in year, continue of rental expected achievable again. With disciplined will once We rental be this well business the business. markets as good end-user are

demand continue and nonresidential XX be on we expansion. business continues is construction have industry please. our rental and in our X, in We serve key to the organic To in better data, markets, to acquisitions footprint leverage our through our branches believe Slide states advantages. regions XX will activity our of currently solid one customers we and the grow Based serve.

please. X, Slide

business. our fleet and markets for strategic to advantages end Our composition continue be

our terms industry significant continues data mix, to forecast. to based positive In our upon nonresidential exposure be the of a markets revenue

necessary and at our markets low remains maintenance ongoing our industrial work business. the new exposure always project to While XX%, good starts for are

gas is our remains business market a basis low on X%. oil exposure element Our a monitor investment. of composition to the important Fleet best at very the as on fleet mix ensure our possible in returns and daily we

fleet XX.X XX.X please. in to youngest remains average Our at XX, compared industry of one industry Slide of the the months. months, an

markets our we industry now turn remain financial in Given pipelines expected customer points, to the call nonresidential detail. data macro more in the project the results over Leslie stable Leslie? to XXXX. serve current discuss and I'll feedback, are construction to

thank morning, you, and everyone, Brad. Good

more Slide Let's results. for please. XX, proceed Slide to financial XX details our of

the I in of connection a fourth-quarter with goodwill was $XX.X noncash discuss identified impairment impairment annual company's charge test. million Before the financials, XXXX goodwill

The impairment impairment reporting $XX.X charge our of consists a goodwill and goodwill $X.X our million to $XX.X to revenues equipment a impairment million million unit goodwill reporting new unit. service

equipment charge any or not and impairment revenues affect revenues The Our not were cash not availability company's expenditures to will liquidity, related used revenues, test position, senior under result its facility. will goodwill parts credit impaired. and reporting the units covenant in cash rental secured

in delivered with we're especially pleased results business business. XXXX, the our rental and Our results solid in

driven same sales. primarily $XXX.X X.X% partially new by rental our million quarter, revenues or the period in in Total million, offset in a equipment increased the to compared $X.X year by the declines and strength fourth business to ago

As to rental as mentioned, Brad $XXX.X reported, previously million. revenues, X.X% increased

year for Our The comp ago. to quarter, of of $XXX.X average a fleet XX% or XX.X% utilization OEC a increased time year versus by compared XX.X% of tough our size on the based a ago. million

XXX X.X% improved up primarily product rates to rates utilization, X.X% lines. and declined decreased improved to rental points physical sequentially. last In this our dollar basis lower returns versus Rates all Due in year quarter, over XX% year, addition, year.

XX% sales exception year equipment compared million, lines all new sales Our lower $XX.X million to of new product last $XX.X with $XX.X decreased to with million in or the earthmoving.

from or down equipment Used which XX.X% sales million, XX.X% crane used result sales and crane a $XX.X XX% or all to which earthmoving aerial quarter, $XX The sales. increase decrease product and by sales, decreased fleet this in primarily compared million. were lower equipment increased higher driven million million year new largely increasing to or lower XX% except The Sales was $X.X our total-used XX.X% lines comprised ago. was $X.X rental new of aerials. of sales, a

Consolidated increased Our profit parts million ago. gross combined service and basis used-equipment higher let's million to result in sales. a revenue margin. of on a move a a up to this from on XX.X% were to increase year an mix XX.X%, Gross shift and basis, margins segments primarily rentals as year generated year from time, $XXX.X points, XXX a ago. on $XX.X X% compared to a profit of X.X% margins and ago, positive At

other business These by gains gross margins lower partially were segments. in offset

in on gross in sold. basis by and sales equipment margin year increased new equipment last XX.X% in rental quarter, utilization. the from by growth margins to decreased the to XX.X% year XXX were gross XX.X% For to time as XX.X% compared reported, Used-equipment margins, fourth the sales compared mix nearly year XX.X% were a ago ago. previously change the during the impacted detail of point due segment, for largely XX.X% a to Margins quarter, decline

sales ago. fleet-only increased Margins on rental to from a pure XX.X% XX% year

basis a XX, to gross margins XX.X%, XX% and year ago. to compared increased a combined on parts service please. Our Slide

or quarter impairment income quarter. XXXX revenues of compared to of million or million year-ago million $XX.X from XX.X% of the the fourth of for to the result in charge, operations $XX.X decreased XX.X% revenue, XX.X% $XX.X a As

was and charge, primarily Excluding offset revenues. change of segments lower used-equipment of which higher the per diluted was in in charge, excluding revenue quarter margins, million X.X% rentals or Net $X.XX The by diluted of partially share costs. SG&A income a higher million to net or the compared of to a margins operations in Slide $XX.X in of in the $XX.X other $X.XX gross increased the per from quarter fourth shift XX. share XXXX, margins, and or were XXXX. to Proceed to million income sales $XX.X XX.X% mix income result fourth

expanded primarily property $XX.X margins, quarter the other net compared to in rate due ago ago to compared a period. of an $X.XX of Adjusted Adjusted margins million shift in increase EBITDA discrete year was fourth to XX.X%. or and income. XX.X% the ago, million EBITDA XXXX, higher points basis of lower XX.X% tax XX.X% to share was in Slide a due quarter, a an revenues XX. a XXX the per year used-equipment current Adjusted million the in to on diluted to $XXX.X of sales Please sale fourth equipment increase and to effective compared higher income in $XXX.X items income to quarter on this year rentals, move gain

a versus margins Partially higher offsetting were new costs these sales and improvements year ago. lower SG&A

$XX.X of were as XX. Slide prior expenses X.X% quarter $X.X a the year, increase. $XX on million, for with were ago. or to for XXXX, percentage XXXX SG&A the million revenues, a the in expenses compared of fourth XX.X%, year total quarter XX.X% compared of million fourth SG&A a Next,

payroll to workforce related increased Facility-related since increased larger for million. due compensation increased XXXX, million. and rent profitability. services our wages, primarily acquisition XX, expenses, outside salaries, $X.X costs largely Depreciation $X million. incentive benefit taxes, and other Employee million and Costs expense, employee-related $X.X employee to $X.X a expenses December increased higher amortization improved

to related compared to a increased $X.X year expansion million expenses costs Greenfield And ago. branch

capex cash slide, this in fleet flow. Slide million, and our you'll addition, fleet quarter noncash XX. On in the XXXX from inventory. fourth on transfers Next our $XX.X was find including gross But capex

PP&E fleet capex million and quarter $X.X quarter was $X.X for net Gross was capex was the million. million. $XX.X Net the rental for

age million the to fourth flow fleet for of XXXX cash cash average year ago. a months. million, was XX Free $XXX.X Our of $XX.X quarter as free December XX.X of flow compared was

investment. due flow free to increase net The fleet was in cash lower primarily

increase of Next, year OEC on the was year XX% ago. our $X.X fleet of utilization Slide on a XX%, Average was the compared XX.X% XX. or a At $XXX.X fourth a from size based million dollar to end rental ago. quarter, billion, the

the of outstanding $XXX.X million quarter-end, $XXX.X At of credit. Slide to million of balance cash of XX, under of please. XX, the please. million. net availability was had facility to We Proceed ABL outstanding letters at Proceed amended the fourth end the borrowing Slide $X.X quarter,

rental delivered results especially performance of on demand business the financial good for the year. accomplished Our strong in and results were which markets. solid operational business, with pleased nonresidential again our We the

review results. quickly Let XXXX me full-year our

to in in billion $X.X $XXX.X X.X% increased mainly of growth billion revenues million XXXX total the rental XXXX business. $X.X from due our or to Our

$XX.X gross XXXX. from million to $XXX.X in $XXX.X million Our million XX.X% profit increased or

sales points shift margin to basis used-equipment gross due Our profit a to XXX mix higher to margins. XX% revenue increased and rentals largely in

higher and for in XX.X% which with compared shift EBITDA in by sales $XXX.X million million percentage EBITDA adjusted a ago. offset XXXX increased used-equipment XXXX, a primarily to a XX.X% higher XXXX in from to $XXX.X as and SG&A to compared XX.X% increased adjusted of revenue mix Our partially to rentals margins, were to year to revenues due

of compared income $XX.X Our per income $X.XX diluted share or net diluted million to share, $XX.X in XXXX. per or million was $X.XX net

And adjusted to compared income XX.X% $XX.X XXXX. net on an was XX.X% was per million or diluted XXXX, $X.XX basis, tax rate The effective in in share. income

Our year our free largely cash $X.X million free ago. a $XXX to compared capital was free XXXX lower lower and a cash of The of in compared use to in flow of flow expenditures was a XXXX, result million in in flow XXXX. the cash acquisition use investment net of improvement

million, And during million for acquisitions for $XXX.X acquisition one complete did two $XXX to XXXX. XXXX, in we compared

$XXX.X XXXX. in compared million declined Our million, to XXXX capex to net in $XXX.X

$X.XX with quarter time, per each to at payment total to dividends call dividend our common turn back of the share going And paid this during Brad. continued I'm also XXXX. We

Thank this returns business, for solid our we're for solid XXXX to a focused and generating shareholders proceed year Slide was conclude, To Please you, as well. Leslie. year our XX. on

Now into questions. some let's get

instructions Operator, for please session. provide the Q&A

can Thank question Elliott Please now [Operator go Stifel. you, our from ahead. Instructions] sir. We from take Stanley first

a mind? time out you utilization there way of to and parse could A quick how tell much versus else would oil on the anything come that question Is was gas to that specific that piece.

our before, really much as, would That know, you X% oil Ford utilization general X% exposure shale. gas I more to particularly. run total to point revenues. our I've and of than heavy traditionally Eagle of rest mentioned higher the company. is continues the in Not in the to run

impact. tremendous a been not it's So

how leverage early of Should transaction the then think think we anniversary sort of SG&A some in conceptually guess expect some about M&A or just the how that I And your cost, that? done, XXXX. about to within M&A should we of

mention, of item pressure and, I and XX/XX in some of specifically, expect a the in percentage do I XXXX significant at as of significant as that should SG&A we we renewal There program excess say, a Well, on in would similar at XXXX. XXXX. saw increase one SG&A levels insurance we full revenues is our for year experienced

market have much is of is ever and what taken a I undoubtedly we possible. worst are We've on would all seen, that insurance the have excess our that and broker, say During currently as action. that some working replaced say reduce as plan cost to we could they to further

addition grow that. us, slightly SG&A rental before, increase In of talked our this help. just that, to purely then And will as this based percentage but see which item top on you revenue we've business, that, no we on as a insurance gives of of course, about

on about We've then things spending. your then doing mentioned I a stable submarkets. be any regions also think you highway than very take about mean, And I'd should And lastly get others? within for good environment. Perfect. heard me, curious we your non-res to portfolio better

we're that the parts parsing Just trying think business. to out of about the as

Sure. Not Thank you for really. the question.

very continue out our about some trends distinct project of that's you are of the that life like geographies most nothing geography be coming now, likely similar utilization could come a But certain I our our of with that across dissimilar online. product brighter point are online all there's were to or to Our types to types, across geographies. seeing that rest

Thank you.

Next Ramsey from Group. Thompson comes go Please with ahead. question Research Steven

in with market and to than mean greater on years? type drive be stable growth commentary what growth XXXX. new past of investments investments fleet backdrop Good start moderate Or increase does Does the couple seen branches? maybe morning. in wanted would this And the a just therefore, more cash and, we've you of I this provide more to free on modest flow?

morning. Good

to place spend be with the to our tell revenues. be I is our will XXXX similar as growth will going pertains locations. it look, capital, is view view only So, growth can revenues current that our XXXX our in to Greenfield we're our capital you,

And existing forecasting -- that And increases. expansion returns locations, view to associated make to be But, we're related revenue low rate anywhere Our as levels opportunities. going will the utilization single-digit then we'll monitor growth we're with year improvement, start we're spend continue utilization. appropriate then. decisions now, to capital to to those are our is going right for warm

Excellent. there's have to your fleet rates those is, are more certain good feel And too much seeing overall We fleet or fleet do in to company? from to where is getting shape Do too as drive that regions. need you in for regions, you heard areas like shift you high? rates fleet the some better is drive

nice view bit capacity had individual year with markets. but weighted any we're last our let supply think a said demand. really little demand. Sure. is me It's I In supply market. more call, with to And going I in view a our evidenced not spoke our in heavily and again, nice fourth-quarter And we as catching really by was quarter. up our repeatedly It have there's caught a certain XXXX, had to utilization, that quarterly up that say that is

here equipment. end is It's of our of across I this middle hard probably to we toward a can predictions. lot out I that to not see. most transferring point. see the today low of on or need. those seasonal It's we I make sit really raining say country don't the February, you, As moving do plan as

competitors. we're passes, seasonality as think going our to discipline, I the see that to from particularly larger continue

we growth continue warm last utilization on I as I investment to our have. any But typical to be stated around will focus point, manufacturers, that to hope and going to the to our until start question, additional opportunities. our we're And levels. from return more will see discipline what

as kind future that rolling of me on the the months? XX-month next as QX on for outlook. the past your much this the last XX is Has -- your heard not shifted And we maybe XX few the in Excellent. Just tone positive tone call. months

months. wondering just if the in last evolved So few that has

also the We -- say very slightly. absolutely has really to that believe it's of it opportunity exist. I believe are view the the believe markets utilization, utilization. our think current improve around opportunity will stable. I for I and that for I

As we've customers, our to the very our talked a outlook robust locations, salespeople, year. have they our for branch

but forward, And ability and utilization to rates spend. going until our was muted I be to it achieve so incremental we pick our to share we're their little capital more solid positive back see where our optimism, up going a with

We can question go Please from now ahead. RBC take from our next Markets. Seth Capital Weber

with more it for to on was impairment Brendan equipment, is like This charge, start is or guess goodwill I'd that kind broad-based? Thanks. any Hi. I on particular the of Seth.

is on No, reporting the the sales new It's service reporting and which reporting of units. revenues it's equipment. unit, not on type equipment units

not that on discounted It's our specific to it's modeling an of the equipment. it's more to accounting any -- not flow do. the So have type you impairment cash and standard charge

It's equipment not to our specific at all.

I guess what the taking you industry at others over keeping look any like look kind what's or as of pipeline verticals open right Alright. a available And you just then now? does look favoring there? M&A Are the mind and

Yes.

a the So lot that larger you construction rental competitors. states, of see XX typical in. us in Obviously, there's general it's fleet above. of a most our with like represent on for mix and us We with geography that to markets above. another one the locations XX all considering fill We're specialty small it that These year I'll this to it's possibly all the tuck-in to rental and not tires But two forward kicking adverse lot lands. acquisitions. and tell type looking primarily or businesses, that you are of we're finding

a rates comments in time little some in for willing to willing coming to to extent it push able maybe just you're But continuing with small any you're there? you're like the share utilization. And last bit to then year expect me. to rental the sounded improvement And comment, to Okay. be higher

weather we to And on that view in you will so you rental right rates We we flat the would is think we're were flattish think we're talked tell conditions to sitting country, up of the our we it, We call currently are physical to thought achieve physical little they to very to would utilizations, pressure headwind to to maybe the be Rates within a in expectation. year-over-year XXXX, slightly. have now, compared going -- X.X% my it's last I last us year X.X% our But a of as little to that's tell would as to be similar little in up but range. annual at difficult opportunistic slightly push X%, same about about utilization. across basically are February, the year. this going a point XXXX Sure. utilization here somewhere I and have utilization going situation. Right I time. than year, ended own less slightly to by down this driven primarily be I a

our next We'll Thank ahead. question you. from Bank Gilardi Ross of [Operator Instructions] America. go Please from

over mean, to rate half, you'll on flat your kind comment you slightly the of positive sustain first of on down do see year? Or there, the in could mean, improving throughout up year the course to just right in rates I year, rate year second the Brad, quarterly I think the slightly half? progression you the

comments your of to questions. your between be I somewhere it's think both going within or questions in the

And loaded me it's to be be achieve X. I and into going X we reliant loans. Let the positive on believe that's going utilization say more for to heavily year, rates can QX, but

achieve to in stable. disciplined, it's are difficult there. serving little we're than that markets are if is more think remains The But rates. the opportunity. if in an was The we bit XXXX everyone think I there going positive it And a jobs be is XXXX we there. that workflow very can So

the I said thinking prior you expect to surprised guys at you as about mean, at I four was Engquist cash talked John the lever as had to but M&A, the numbers, -- go taking you make one this cash point, up in and leverage year, environment. this flow, overall. of And still you acquisition. flow all? I before by you type And this into to want further business wanted to comfort generate about positive up overall you of be year, to you're further your I enough the X.X slightly do you reset that, think sort you comfortable do some year for you cycle? negative negative times you're cash without feel range to through that And sure which of free less were the or was you free mean, it where have right the in for

going lever John. is this Ross, We're to up. not

up. Our leverage will of can expectations. our free free going come line fourth We're $XXX cash our We're year. significant million That this generated generate is down flow. We I to you this cash leverage in down in quarter. with But tell was the going to not year. come levering

than Ross, what advantage I would look you've represented of so taken we Let was far leverage opportunities about much with acquisition tuck-in in before to and me been say to that continue consider take a more larger of. we've heard taking has add, advantage are think where likely to opportunity us these

So the that the spoke gave, of something more a range for don't that about much two you than we significant end tuck-in. was high confuse

leverage not would That's in we're Yes, turns. low I acquisitions doing year point our we're at really And not leverage. to these ended so levering change sector, we leverage, relative tuck-in out our X.X the will up.

We're to conservative. going remain

some been to the that? the Would and absorb has that you to industry supply, do the then speaking, expect auction get with the that in stable curious excess auction lot tries as in And I retail of broadly your thoughts you're mean, was equipment just channel. the versus I it. it channel seems, used to of a sort than on what agree seeing more continue? Got channel channel. market, you And rebalance retail the

I auction we Florida. last who suspect auction but be of folks toward the you So very I the remarks down bit prepared little are to right on-site And reports, been noticeable. same year. a consensus general the pricing in to talked about, seems and little. small progress favorable. disclosed same there's talking very these the auction And revenues a the the of large returning. this more we've going our been in deterioration, better. on end we used watching had to acceleration has read talked saw utilize price Anecdotally, total. It's in It's week I've Unless and now, you folks

how rental come And that of fleet margin sweet our good, from much our revenues sales, healthy used was Right about then we XX%. of in talk margin. spot

say saw do were be try fleet me new we no last QX, units are end relative margins their let believe doubt the to But I in to going auctioned, dollars normally I as the more rationalize to So our on think, more reporting. pricing. we're perform. and sales expected same how There absolutely I good to see of some firming year. people on tail of

I now additional to to like turn Brad remarks. or for And closing call the any would back

join to operator. time Thank today next like speaking our you, and call. everyone thank Equipment in to We'd Services the H&E look to for call taking quarterly to you forward

ladies today's participation concludes for you you may disconnect. and your conference. gentlemen, that you, now Thank Thank