H&E Equipment Services, Inc.

services fourth quarter 2021 earnings conference call. Today's call is being recorded. At this time, I'd like to turn it over to Mr. Jeff Chastain, Vice President of Investor Relations. Please go ahead.

Thank you, Keith, and welcome, everyone. We appreciate your participation on today's call and your continued interest in H&E Equipment Services. A copy of the press release covering our fourth quarter and full year 2021 results was issued this morning and can be found along with all supporting statements and schedules at the H&E website. 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 and presentations. On slide two, you'll see a list of those from the senior management team participating on today's call. They include Brad Barber, chief executive officer, John Inquist, president and chief operating officer, and Leslie McGee, chief financial officer and corporate secretary. Proceeding to slide three, and before I turn the call over to Brad, I'll remind you once again, 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 slide presentation for today's call and also include the risks described in the risk factors discussion in the company's 2021 Form 10-K to be filed later today as well as 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. Also, I'll note this morning that we are referencing non-GAAP financial measures and you can 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. And then finally, Unless specifically noted, our results and comparisons for the periods reported this morning are presented on a continuing operations basis. That concludes the initial details of the call today. I appreciate your patience, and 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 also want to welcome you to a review of our financial results for the fourth quarter of 2021, which was another quarter of strong financial performance and excellent operations execution. Thank you for your participation on today's call and for your interest in H&E. I'll begin my comments on slide four. I want to begin this morning with some fourth quarter financial highlights, including expanded observations on the excellent performance of our equipment rental business. Also, I'll address the favorable industry trends that remain in place as we begin 22, and how our execution of key strategic initiatives in 21 has advantageously positioned H&E to benefit from a broadly more vigorous industry recovery. Growing our business remains a guiding principle in 2022, and I want to cover some of the key growth drivers. Once I've completed my comments, Leslie will follow with a thorough review of our fourth quarter financial results. Along with an update on our capital structure and liquidity, then we'll be happy to take your questions. Slide six, please. Fourth quarter financial results were impressive on both the year-over-year and sequential quarterly basis. Results were supported in part by elevated customer demand for our rental fleet that extended well into the fourth quarter with limited impact from the customary seasonal quarterly slowdown. Also embedded in our results were early benefits from the divestiture of the distribution activities in 21. The benefits included improved revenue mix and margin appreciation as we shifted operations to greater rental intensity and additional growth through expansion of our branch network. Time utilization and rental rates continued their rise in the fourth quarter from the pandemic-influenced lows set early in the year. For example, fiscal utilization in the fourth quarter of 73.1% was the highest level achieved in any quarter over the past three years. representing a 750 basis point improvement from the year-ago quarter and 120 basis point better on a sequential quarterly basis. The measure was 440 basis points ahead of the fourth quarter of 2019. On a four-year basis, fiscal utilization averaged 69.7%, or 680 basis points better than the 2020, and was only 30 basis points below average fiscal utilization in 2019. As utilization remained elevated, rental rates in the fourth quarter grew by 4.7% on a year-over-year basis. The strength of this important industry benchmark drove impressive quarterly performance across our key performance metrics. Total revenues in the fourth quarter improved by 5.1% from the year-ago quarter to $281.3 million. Total rental revenues reached $203.7 million, or 25.1% better than a year-ago quarter, and 3.3% better on a sequential quarterly basis. Adjusted EBITDA grew by 18.4% on a year-over-year comparison to $110.4 million, or a margin of 39.3%, which was 450 basis points better than the same quarter in 2020. I also want to highlight our fleet growth in 2021, as we ended the year with approximately $1.9 billion, or 10% larger than 2020, with gross capital expenditures totaling $436.8 million. We achieved this fleet growth despite manufacturing challenges driven by supply chain issues. On to slide seven, please. Addressing our rental business, fourth quarter 2021 revenues totaled $182 million, up 24.7% from the year-ago quarter, and were 3% better on a sequential quarterly basis. Rental gross margin in the fourth quarter grew to 51.7%, 620 basis points better than a year ago, while registering an 80 basis point improvement on a sequential quarterly basis. With physical utilization of 73.1% in the fourth quarter, rental rates experienced further appreciation, climbing 4.7% when compared to the fourth quarter of 2020, with sequential quarterly improvement of 1.5%. Finally, our dollar utilization in the fourth quarter rose to 39.3%, or 520 basis points better than the year-ago quarter of 34.1%. The equipment rental industry staged an impressive recovery in 2021, considering the lingering presence of COVID-19 and its variants. Our company managed the challenges well, while maintaining a focus on improving the enterprise. I believe our recent financial performance highlights the inherent value of the significant steps taken in 2021 that supported our transition to a pure play rental business. H&E exits 2021 on a solid foundation for the future, and we're prepared to continue growing our rental business in 22 as the industry continues to remain robust. On to slide eight, please. We are confident in the continuation of a strong business environment due to some sensible observations. For example, discussions with customers regarding their project visibility suggest that elevated demand for our rental equipment will likely continue through 22. This customer feedback is consistent in each market we serve. We continue to witness strength in non-residential construction activity and believe the acceleration of activity in the industrial markets could be propelled further with the recent rise in commodity prices serving as a meaningful catalyst. Strong performance in 2021 of key industry measures of future construction activity support the likelihood for future expansion of non-residential and industrial activity in 22. Finally, the recently passed infrastructure bill serves as an additional source of future demand for our fleet. We hope to see this additional demand materialize in the second half of 22 or early 23. Elevated utilization, improving rental rates, and equipment constraints represent the features of a healthy business environment that is ripe for expansion. As such, in 22 we plan to grow H&E through significant investment in our rental fleet, further penetration of our existing markets, as well as expansion into new markets. Before I turn the call over to Leslie, I want to provide some details on our plan for growth. On to slide nine, please. Our growth plan underscores H&E's ongoing focus on greater intensity in the equipment rental business following a significant reduction in our exposure to the distribution business. These measures have allowed us to end the year with a pure focus on equipment rental operations in 23 of the 24 states we operate. On our last call, I commented planned capital expenditure for 2022, noting that the likelihood of a significant gross investment in our fleet. Today, I can provide greater clarity on this and report our plans for gross fleet investment in 22 of 550 to 600 million. The investment represents the largest annual gross capital spent in the company's 60-year history and suggests our confidence in a fundamentally robust cycle. This investment will also provide the equipment needed to support another growth initiative, the continued expansion of our branch network with additional Warm Start and Greenfield locations. Slide 10, please. During 2021, H&E added nine Warm Start branch locations and one Greenfield location in Kansas City, Missouri, ending the year with 102 locations across 24 states. You may recall five branches were subtracted in 2021 following the October sale of our crane business. In 22, we plan to expand our reach in the U.S. by adding no fewer than 10 locations representing further penetration into existing markets as well as expansion into new geographies. We have already begun the planned expansion with an opening a new Fairbairn, Georgia location expected early March, our sixth location in the state, and the expected opening of a Greenfield location by the end of the first quarter, increasing our coverage to 25 states. Slide 11, please. I'll conclude my comments this morning where I began, on strategic advances. I want to emphasize the importance of our initiatives in 21, led by reduction in distribution activities and a greater rental exposure. Our efforts drove transformative change with regard to our business model. Higher, more stable revenues through the business cycle should arise from this transition, and I believe margin appreciation is already evident. The implementation of this strategy will dovetail nicely with our growth plans for this new year. As we begin 2022, H&E is well positioned to continue our new strategic growth initiatives. Our young fleet, expanded geographic reach, operational exits, and brand recognition are core to our success. In addition, our conservative balance sheet and strong liquidity profile support our ongoing efforts to supplement our growth through acquisition. On to slide 12, and I'll now turn the call over to Leslie McGee for our financial performance. Leslie?