H&E Equipment Services, Inc.

Good morning, and welcome to H&E Equipment Services' second quarter 2021 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Jeff Chastain, Vice President of Investor Relations.

Please go ahead. Thank you, Jason, and welcome, everyone, to this review of second quarter 2021 results posted by the management of H&E Equipment Services. Your interest in the company is appreciated. A copy of the press release covering our second quarter results was issued this morning and can be found along with all supporting statements and schedules at the H&E website and that's www.he-equipment.com. Our discussion this morning is accompanied by a slide presentation which can also be found on the website under the investor relations section. On slide two, you'll see a list of the executive officers of H&E that are joining me today, and they are John Inquist, Executive Chairman of the Board of Directors, Brad Barber, Chief Executive Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Please proceed to slide three, and I'll remind you that today's call contains forward-looking statements within the meaning of the 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 contained in the company's slide presentation for today's call, and also include the risks described in the risk factors in the company's most recent annual report on Form 10-K and 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. Finally, note we are referencing non-GAAP financial measures during today's call. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation as supporting schedules to our press release and in the appendix of the day's presentation materials. Well, with that, that completes the preliminary details today. I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Equipment Services.

Thank you, Jeff, and good morning, everyone. I'd also like to welcome you to our review of H&E Equipment Services results for the second quarter of 2021. I'm going to bring you up to date with some encouraging developments in our industry and our progress with strategic initiatives. I'll begin on slide four. I'll begin this morning with brief comments on some of the headline numbers for the second quarter, along with impressive quarterly performance and favorable trends within the rental business. I'll also provide an update on our strategic growth initiatives and achievements, including comments on the pending sale of our crane business that was disclosed in July. Leslie will follow with a more detailed review of second quarter financial results. After, we will take your questions. Slide six, please. Our results for the second quarter show a continuation of favorable industry trends and the development of a robust business environment in the rental equipment industry. Our company has skillfully fought through the headwinds caused by the COVID-19 global pandemic, which was painfully evident in our financial performance a year ago, as well as the historic winter storm in the first quarter of 2021, which hindered business activities for several weeks across a large portion of our geographic footprint. With the unfavorable influence of these events fading, most of our business segments produce favorable year-over-year and sequential comparisons, and our key metrics of performance have turned decisively positive. For example, second quarter physical utilization at 68.3% was 880 basis points ahead of the second quarter of 2020 and represented our highest quarterly fleet utilization since late 2019. When compared to the first quarter of 2021, physical utilization improved by 480 basis points and continued to improve into the third quarter of 2021. Total revenues for the second quarter improved to $315.8 million and represented a 13.4% increase on both year-over-year and sequential basis. EBITDA on an adjusted basis was up 7.4% from the second quarter of 2020 to $102.3 million, and was 23 percent better than the first quarter of 2021. On to slide seven, please. With regard to our rental business, customer needs remain high, supporting favorable utilization trends, as noted earlier, and contributing to better second quarter 2021 rental revenues, which totaled 160.3 million. The result was a 13.9 percent better than a year ago, while improving 14.5 percent on a sequential basis, a sequential quarterly basis. Our second quarter 2021 rental gross margin improved to 46.1%, exceeding gross margins in the second quarter of 2020 and first quarter of 2021 by 460 and 400 basis points respectively. With our fleet utilization continuing to improve, rental rates have also followed trend of steady improvement. When compared to the same quarter in 2020, second quarter 2021 rental rates were just three-tenths below a year ago level. When compared to the first quarter of 2021, rates were better by 1%, representing the first sequential quarterly improvement since late 2019. To put a finer point on our excellent second quarter performance, we demonstrated improved fleet utilization and sequential rate gain, while growing our fleet by 94 million, or more than 5% since the conclusion of our first quarter of 2021. The simultaneous presence of these three important industry metrics is indicative of a healthy business climate and expanding industry recovery, as well as superb execution by our employees, and I'd like to thank them for their focus and dedication through this period. We have numerous reasons at H&E to remain confident in the prospects for our company over the remainder of 2021 and into 22. Slide eight, please. Our confidence is based in part on an elevated number of customer inquiries that continue to build. In large part, the inquiries are for equipment needs that address non-residential construction projects, an end market that is well-served by H&E and represents 63% of our second quarter 2021 revenues. In addition to new project backlog, the non-residential construction market is experiencing an influx of reactivations representing previously postponed projects from 2020 suspended on the onset of COVID-19 pandemic. I would also note the encouraging scores on key industry indicators, such as the Architectural Billing Index, or ABI. This indicator scored 57.1 in June of 2021 compared to a score of 55.6 for March 2021 and 42.6 for December 2020. The Dodge Momentum Index, or DMI, has shown comparable improvement with a June 2021 score of 165.8 compared to a score of 151.4 and 136.6 in March of 2021 and December 2020, respectively. Both indices remain at near all-time highs and collectively imply a pronounced increase in the level of residential building activity over the balance of 2021 and into 2022. H&E's operating profile is ideal for capturing opportunities evolving in the industry expansion. In addition to our solid position in non-residential construction markets, I believe our fleet mix with an industry-leading exposure to earth-moving equipment and our presence in high-growth geographies positions the company's entire complement of assets to leverage the enhanced opportunities generated by the economic recovery and potential infrastructure spending. Slide 9, please. Before I turn the call over to Leslie, I want to close with a few comments about our exemplary achievements and progress in executing our strategic growth initiatives. I'll begin with the announcement on July 20th regarding the pending sale of H&E's crane business. The rationale for exiting this legacy business segment is simple. For years, we have witnessed a trend in our industry where renting equipment has become the preferred option of our customers at the expense of purchasing, and we see no reason for this trend to reverse. Over the last 20 years, H&E has steadily intensified our exposure to the rental equipment industry through the expansion of facilities and acquisitions, further reducing our exposure to distribution activities The sale of our crane business represents a significant step in transitioning to a pure play rental focus in a growth industry. As I noted on July 20th, the potential of our rental business to grow faster than other segments of the company has already been demonstrated. For example, rental revenues registered a compounded annual growth rate of 11% over the five years leading up to 2020, and for the year of 2020, rental accounted for 51% of our total revenues compared to just 32% 10 years ago. We believe a pure focus on the equipment rental should favorably position the company to benefit from higher revenues and margins while expanding core strategic growth opportunities. We expect to demonstrate greater resiliency to market disruptions as we manage through the business cycle, which implies a more stable revenue and margin outcome. Last year, the decline in equipment sales was more than twice that of our rental segment. The all-cash proceeds of approximately 130 million from the sale of our crane business comes at an opportune time for H&E. We have previously noted our ambitious plans for expansion, and there remain several methods by which we can execute these plans. Slide 10, please. One way is through facilities expansion, and I'm extremely pleased with the pace and performance of this growth endeavor during 2021. Nine branches have been opened in 2021, including a july branch in fresno california bringing our total facility count in the state to 10. and yesterday we opened a new branch in kansas city missouri representing the first facility in the state which increases our u.s penetration to 24 states and 107 locations as of today we expect open 10 locations in 2021. it is highly likely that expansion plans will result in more than 10 locations opened in 2022. finally In addition to the sale of our crane business, we have taken further steps in support of our transition to a pure play equipment rental business. Recently, we agreed to sell two earth-moving distribution branches in Arkansas and plan to start a rental-only branch in the Greater Little Rock Market. Once the agreements have closed covering the sale of our crane business and the Arkansas earth-moving distribution locations, H&E Equipment Service will be a pure rental play company in 23 of the 24 states. states in which we operate, with Louisiana being the only state where both rental and distribution activities. I will now turn the call over to Leslie for more detailed review of second quarter financial results. Leslie?