H&E Equipment Services, Inc.

Good day and welcome to the H&E Equipment Services Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jeff Chastain, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Chuck, and welcome, everyone, to this review of third quarter 2021 results hosted by the management of H&E Equipment Services. We appreciate your interest in the company. A copy of the press release covering our third 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 at the H&E website under the Investor Relations tab and Events Presentations. If you proceed to slide two, I'll introduce those who are joining me today, which include Brad Barber, Chief Executive Officer, John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Moving to slide three, before I turn the call over to Brad, I want to 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. 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. Also 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 to today's presentation materials. With those details out of the way, 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 and express my appreciation for joining us on today's call as we review the third quarter results of H&E Equipment Services. Before I begin my comments on the quarter, I want to welcome our President and Chief Operating Officer, John Inquist, who is joining Leslie and me on the call. John has held many positions within the company over the last 19 years and was promoted to the role of President and COO earlier this year. John will be joining the team on all future calls. I will begin this morning stating how pleased I am with our excellent third quarter financial performance, which included impressive year-over-year and sequential improvement. Improved performance was especially evident in our equipment rental business. It was indicative of outstanding operational execution during a period of strong activity. Also, with the crane business sale completed, we recognized a significant milestone in our transformation to a pure play rental business model. Closing this transaction strategically strengthens H&E's competitive position for the future. Proceed to slide four. I'll provide more detail on both our financial performance and the sale of the crane business in a moment. In addition, I'll identify some of the important drivers of business activity that led to our impressive third quarter financial results and what we might expect as 2021 draws to a close. Finally, following our successful efforts to intensify our focus on the equipment rental business, I want to explain our strategy for penetrating our existing geography as well as expanding our geographic footprint and why we expect this strategy to position H&E to benefit from the strong market environment. Lastly, we'll then follow with a more comprehensive review of third quarter financial results. Then we will take your questions. Slide six, please. I will begin my discussion on the third quarter financial results with an explanation. Our agreement to sell our crane business required that the operations of this business be reported in discontinued operations. To avoid confusion, the financial highlights on slide six are consolidated, presented as both continuing and discontinued operations. For the remainder of our presentation, results and information presented as continued operations and exclude the crane business unless otherwise specifically noted as discontinued operations. As I mentioned earlier, financial metrics for the third quarter of 2021 were decidedly improved compared to the same quarter in 2020, which were in part diminished by the effects of the COVID-19 global pandemic. However, our industry has demonstrated both discipline and a sturdy rebound from the pandemic-induced declines that dominated 2020. On a consolidated basis, total revenues in the third quarter of 2021 of $319.4 million improved 10.4% when compared to the same quarter in 2020. In addition, adjusted EBITDA grew to $119.1 million and up 20.6% while posting a margin of 37.3%, an improvement of 320 basis points over the period of comparison. Slide seven, please. With regards to continuing operations, total revenues improved to $275.4 million, or 9.3% when compared to the third quarter of 2020. This favorable outcome was largely due to a 22.1% increase in total rental revenues to $197.2 million. Also, adjusted EBITDA in the third quarter improved to $112.3 million, up 24.1% over the period of comparison, equating to an adjusted EBITDA margin of 40.8%. or 490 basis points better than a year-ago quarter. On to slide eight, please. Our rental business showed outstanding results for the third quarter. When compared to the third quarter of 2020, rental revenues increased 21.6% to 176.7 million, with a gross margin of 50.9%, or 660 basis points ahead of year-ago quarter. The combination of higher physical utilization and strengthening rental rates contributed significantly to the quarter's performance gains, which included a 600 basis point increase in dial utilization to 38.9% compared to the year-ago quarter. Slide 9, please. Multiple factors produced this strong outcome. Customer demand for our diverse mix of rental equipment remained vigorous throughout the third quarter as non-residential construction projects intensified. This elevated demand drove our average physical utilization to 71.9% or 840 basis points ahead of the year-ago period and improved 320 basis points on a sequential quarterly basis. This represented our highest utilization since the fourth quarter of 2018. At the same time, rental rates continued their positive trend and finished the third quarter of 2021 2.6% higher on a sequential quarterly basis and 2.9% ahead of the same quarter last year. Such strong financial results would not be possible without our focus on operational excellence, which remains a core component of our success. Since the close of the third quarter, our physical utilization continued to reflect outstanding operational execution and strong customer demand, reaching a peak of just over 75% in October. While we're enjoying the momentum coming into the final quarter this year, We still expect to see utilization levels moderate as seasonal factors emerge during the second half of the quarter. As we enter the final quarter of 2021, I remain enthusiastic about the future of the equipment rental industry. Strong evidence of a broadening construction market remains in place. It's led in part by non-residential construction activity which is H&E's primary end market and accounted for 68% of revenues over the trailing 12 months from September 30, 2021. Customer inquiries remain elevated and all industry indicators continue to hover at near record levels. As evidence of the company's growing confidence in expansion of primary markets, H&E expects to disclose strong fleet growth plans for 2022, with a gross investment that is expected to significantly exceed our total expenditures of any of the previous years of our 60-year history. We will disclose our final capital expenditure spending plan for 2022 following the completion of our evaluation and thereafter begin offering quarterly capital expenditure guidance. On to slide 10, please. Before I turn the call over to Leslie for the financial review, I want to offer some brief remarks on how we're positioning H&E for future success as we enjoy strong cyclical recovery in our industry. First and foremost, we have completed significant steps that clearly advance H&E's transition to a pure rental business. These include the sale of the crane business, which closed on October 1st, as well as the mid-September 2021 sale of two earth-moving distribution branches. These steps and other future initiatives will establish a pathway to higher and more sustainable revenue growth, as well as margin appreciation throughout the business cycle. Proceeds from the crane sale will facilitate continued investment in our rental fleet as we evaluate the expanding needs of our customers while improving the mix of our fleet, which remains one of the youngest in the industry. Slide 11, please. Also, proceeds will be used to support further development of our branch network. Warm starts and greenfield branch expansions remains an integral part of our expansion plans, and we continue to evaluate acquisition opportunities. Thus far in 2021, we have opened 10 new branches, including an October new location in Ogden, Utah, placing H&E in 24 states across the U.S., and we plan to establish no fewer than 10 new branches in 2022. To conclude, next month H&E will celebrate 60 years in business. As we approach this milestone, I am very confident in the company's ability to capitalize on growth initiatives that should further enhance our competitive position. Reinforcing my confidence are factors such as our young rental fleet and diverse geographic presence. Also, the strength of our balance sheet, our ample liquidity, and our robust, scalable digital customer platform. And last, but certainly not least, the ability and experience of our leadership team, as well as our growing group of dedicated employees across our expanding branch network. Taking each of these factors into account, I believe H&E is ideally positioned to capitalize on our future growth initiatives. With that, please proceed to slide 12, and I'm going to turn the call over to Leslie McGee. Leslie?