H&E Equipment Services, Inc.

Good morning and welcome to H&E Equipment Services first quarter 2021 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.

Thank you, Kate, and welcome to H&E Equipment Services conference call. To review the company's results for the first quarter ended March 31st, 2021, which were released earlier this morning. The format for today's call includes a slide presentation, which is posted on our website at www.he-equipment.com. Please proceed to Slide 2. Conducting the call today will be John Inquist, Executive Chairman of the Board of Directors, Brad Barber, Chief Executive Officer, and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to Slide 3. During today's call, we'll refer to certain non-GAAP financial measures, and we've reconciled these measures to GAAP figures in our earnings release and in the appendix to this presentation, each of which is available on our website. Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meeting of federal securities laws, statements about our beliefs and expectations, and statements containing words such as may, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. A summary of these uncertainties is included in the safe harbor statement in the company's slide presentation for today's call, and also includes the risk described in the risk factors on the company's most recent annual report on Form 10-K In other periodic reports, investors, potential investors, and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call. With that stated, I will now turn the call over to Brad Barth.

Brad Barth Kevin, and good morning, everyone. Welcome to H&E Equipment Services' first quarter 2021 earnings call. On the call with me today are John Inquist, Executive Chairman, Leslie McGee, our Chief Financial Officer, and Kevin Enda, our Vice President of Investor Relations. I will begin on slide four. I will briefly discuss our first quarter highlights, the performance and the trends in our rental business, and provide an update on our growth strategy. Leslie will review our financial results for the quarter in more detail. After, we will take your questions. Slide six, please. We're becoming increasingly optimistic that the cycle may be nearing a return to pre-pandemic levels. Demand in our end-user markets continued to improve throughout the first quarter, particularly with our rental utilization. The historic winter storm in February was an unexpected headwind for our business during the quarter, as approximately 40% of our branches were closed for nearly a week. Even after the weather cleared, the severity of the storm had an extended impact in some of the hardest hit areas. Despite the impact from the storm and lower than expected financial results from this disruption, we're pleased with our operational performance and continued forward momentum in our rental business. Total revenues in the first quarter were down 2.6% or 7.5 million from a year ago, and we're making significant strides towards further improvement as the year progresses. Slide seven, please. Now let me provide some additional color on the momentum in our rental business. To frame the cadence of improving customer demand during the quarter, look at our physical utilization trends during the period. As I said on our fourth quarter call, we started the year just under 60% and we expected utilization to be slightly challenging during the first quarter due to typical seasonality. From the end of December to the end of January, utilization increased 430 basis points. From the end of January to the end of February, utilization rose another 170 basis points, despite the impact from the winter storms. From the end of February to the end of March, we gained another 260 basis points. Also, in early March, physical utilization surpassed our 2020 levels, which was before we realized the full impact of COVID later in the month. Thus, we eventually landed at utilization of 63.5% for the first quarter, which was down just 80 basis points from a year ago. Currently, utilization is running significantly higher than this time a year ago, up nearly 1,000 basis points, ahead of the 2020 and within 370 basis points of the same period in 2019, which was a very good year for our rental business. We are pleased that our rental rates are also stabilizing, down 4% versus a year ago and 0.2% sequentially, an improvement from declines of 4.5% and 0.3% in the fourth quarter. As we progress into the stronger seasonal quarters, we expect to see rental rates show sequential positive increases. We are also encouraged by the recent rebound in several key industry indicators. The February Dodge Momentum Index rose 7.1% to 149 from the revised January reading of 139.1, the highest level in nearly three years. The March ABI increased to 55.6% from 53.3% in February, reaching the highest point since July 2007. The ABC Backlog Indicator and ABC Customer Competence Index have also shown solid improvement in recent months. This data certainly correlates with the sentiment of our customers, which continues to grow increasingly positive as we move into the year. As we know, a federal infrastructure proposal is on the table, and over time we will see how the potential bill unfolds. Any meaningful bill that passes would likely be a benefit to H&E. With earth moving comprising 23% or $400 million of our $1.8 billion total rental fleet and consisting of a wide range of dirt products, we're in a good position to benefit from an infrastructure-related project. Let me quickly provide some observations about the Gulf Coast. specifically Texas. The state fully lifted restrictions associated with COVID-19 much earlier than many others and our business there is doing well. Energy related work is coming back and new projects are abundant. Furthermore, Texas is not waiting on an infrastructure bill. Texas DOT recently announced it would let almost 10 billion in new construction projects in fiscal year 2021, which is up 27.5% year over year. Additionally, the winter storms wreaked havoc on Texas, as well as other adjoining states with mass power outages, water system failures, and other major problems. Correcting these issues will be a massive effort and could result in significant spending on projects to ensure these infrastructure failures never occur again. We remain very bullish about our opportunities in Texas and along the Gulf Coast. Overall, demand is solid. Industry indicators are positive and business conditions continue to improve. Our market position is strong, and we have an expansive and growing footprint in high-growth geographies. We like our exposure to a wide range of verticals in the non-residential construction segment and other healthy end markets. H&E has all the tools to capitalize on these improving conditions. Slide eight, please. Let me conclude by providing an update on our growth strategy. In terms of our organic growth plans, we believe that our expansion team is on track to accomplish our goal of opening eight to 10 starts this year. We opened two new branches in the first quarter in Lodi, California and Concord, North Carolina. With Lodi, we have 10 branches in California and further expect to expand our presence in this state. Our new branch in Concord, North Carolina will complement our existing branch in Charlotte and brings the number of H&E branches in the state to eight. Thus far in the second quarter, we have opened another five branches including Murfreesboro, Tennessee, Longview, Texas, Macon, Georgia, Knoxville, Tennessee, and Marietta, Georgia. Our Murfreesboro location positions us within a second branch just 25 miles from our existing Nashville facility to adequately support our current customer activity and new business from nearby municipalities. With Longview, we'll be able to capture new business and provide greater convenience to our customers in areas between the growing Dallas, Texas, and Shreveport, Louisiana markets. We now have 22 branches in Texas. Macon allows us to serve customers between central Georgia and existing facilities in Atlanta, Savannah, and Opelika. Marietta positions a third branch near Atlanta, one of the fastest growing cities in the past 10 years, and increases our total locations in the state to five. Knoxville is the third largest city in the state and gives us our fifth location in Tennessee. With seven new locations open year-to-date, we're clearly executing upon this component of our growth strategy. Lastly, our balance sheet remains strong and we're continuing to explore opportunities to deploy capital for acquisitions in the general rental and specialty segments that will complement our existing business and further expand our geographic scale and product offering. With this, I will now turn the call over to Leslie to discuss our first quarter financial results in more detail. Leslie?