H&E Equipment Services, Inc.

Good morning and welcome to H&E Equipment Services First Quarter 2022 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jeff Chastain, Vice President of Investor Relations. Please go ahead.

Okay. Thank you, Betsy, and welcome, everyone. We appreciate you joining us today for our review of H&E's First Quarter 2022 results. A copy of the press release covering our first quarter results was issued this morning and can be found along with all the 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 in Events and Presentations. On slide two, you'll see a list of the executive officers participating on today's call. They are Brad Barber, Chief Executive Officer, John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Brad will begin this morning's discussion, but before I turn the call over to him, I've been asked to remind you 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 include the risk described in the risk factors in the company's 2021 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 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. Finally, unless specifically noted, all results and comparisons for today's reported and discussed this morning are presented on a continuing operations basis. With the preliminary details complete, I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Equipment.

Thank you, Jeff. Good morning and welcome, everyone. We appreciate your participation as we review the first quarter 2022 results and your continued interest in H&E. As illustrated in our first quarter performance, 2022 is off to a strong start. We've begun the year with an abundance of opportunities, minimal seasonal impacts, and minimal seasonal impacts from weather. As a result, our first quarter financial results benefited from a healthy blend of strong demand, tight equipment supplies, rising rental rates, and fleet growth. On top of these impressive underlying fundamentals, we maintain our focus on operational excellence while realizing meaningful progress towards our stated growth initiatives. Proceed to slide four, please. I'll start this morning with our first quarter highlights that provide a glimpse at the excellent financial metrics posted in the quarter. I will then narrow my discussion to our rental segment and identify the key drivers of performance for the quarter. Also, I want to share some thoughts on the equipment rental industry as we consider the outlook for the remainder of 2022. Finally, I'll review our 22 growth initiatives and the excellent progress achieved during the first quarter. Lastly, we'll follow with a thorough discussion on first quarter financial results, including updates on our capital structure and liquidity. Then we will be happy to take your questions. On to slide six, please. First quarter highlights showed significant improvement across all of our important measures. We were encouraged by the continued strength of customer demand in the quarter that commonly experiences lower activity due to seasonal challenges. As I commented earlier, strong demand coupled with equipment shortages, rising rental rates, and fleet growth gave rise to an outstanding business environment, allowing us to achieve strong financial metrics. Consider our physical utilization in the first quarter of 70.4%, which was 630 basis points ahead of the year-ago quarter and represented the highest first quarter utilization in three years when measured on a continuing operations basis. The strong utilization measure combined with ongoing rental rate appreciation and fleet growth were key elements leading to a 30% increase in total equipment rental revenues. At $199.2 million, total equipment rental revenues were 73% of the consolidated revenues in the first quarter compared to 64% in the quarter year ago. The higher rental concentration follows the timely implementation of strategic steps taken in 2021 to expand our rental exposure, leading to higher, more sustained revenues and enhanced margins. Adjusted EBITDA increased 34.5% compared to the same quarter in 2021, posting a margin of 38% or an improvement of 600 basis points. Finally, our rental fleet, based on original equipment cost, or OEC, closed the first quarter of just over 1.9 billion, representing growth of 218.8 million, or 13% when compared to the year-ago quarter, and included gross expenditures in the first quarter of 22 of 76 million. Slide seven, please. Turning to our rental business. Revenues in the first quarter totaled 177.2 million, or 29.2% better than the same quarter in 2021. We continued to demonstrate strong margin appreciation with a rental gross margin in the first quarter of 49.9%, or 720 basis points ahead of the year-ago quarter. In addition to strong seasonal utilization and $76 million in gross fleet investment, our rental segment benefited from the positive trajectory of rental rates, which closed the first quarter 6.5% better than the year-ago quarter and up 1.6% sequentially. With these factors in place, dollar utilization in the first quarter increased to 37.6%, a 500 basis point improvement when compared to the same quarter in 2021. Our impressive start to 2022 is indicative of the operating advantages obtained from our increased rental concentration and an industry that remains fundamentally robust. With regard to the industry, sound fundamentals are likely to continue as we enter the seasonal strength of the equipment rental business cycle sustaining our encouraging outlook for 2022. Slide eight, please. Several factors suggest the equipment rental industry is likely to experience further improvement. These factors include persistent customer demand, which is expected to support steady fleet utilization into the next two quarters as we absorb the largest portions of our rental investment. The steady utilization, together with the ongoing equipment supply limitations, caused by the OEM supply chain disruption, is expected to support an environment that is ripe for continued sequential quarterly rental rate improvement. Also, our end markets are displaying impressive growth, driven by non-residential construction and industrial activity, which accounted for 77% of H&E's revenues in 2021. The likelihood for further expansion in these end markets is supported by key industry measurements of future construction activity, including the Architectural Building Index, or ABI, as well as the Dodge Momentum Index, with both registering scores that forecast excellent growth prospects over the next 12 to 18 months. It is worth noting we have seen no discernible impact in these important markets, such as project delays or cancellations due to inflationary pressures or labor shortages. Demand from other markets, such as oil and gas, have begun to accelerate with the sharp increase of crude prices and several of our branches located in the Gulf Coast states are benefiting. Finally, infrastructure spending is likely to materialize by late 22 or early 23 with the commencement of state projects. Spending associated with the Infrastructure Investment and Jobs Act is expected to continue for several years. Before I turn the call over to Leslie for a review of our financial performance, I want to provide an update on our progress toward defined 2022 growth initiatives. On to slide nine, please. With regard to our planned 2022 gross capital investment in our rental fleet of 550 to 600 million, we recorded gross investment in the first quarter of 76 million. While we've seen some minor delays with isolated equipment deliveries, we remain confident in achieving our stated investment goal. As is typical for our industry, we're planning to receive the majority of our equipment purchases during the second and third quarters. Slide 10, please. In addition to growing our fleet through significant capital investment, the expansion of our branch network remains an important and effective part of our growth strategy as both initiatives position our company to advantageously address the expanding regional opportunities available in this highly resilient business environment. Following the addition of 10 branches in 2021, all of which are demonstrating strong performance, we concluded the first quarter with two new locations as we advance our goal to no fewer than 10 warm starts in Greenfield locations over this year. These new openings included Fairbairn, Georgia, representing H&E's sixth location in the state, and Philadelphia, where the company established its first branch in the state of Pennsylvania. The new Philadelphia location is currently our northernmost branch in the East Coast and will provide access to a growing base of non-residential construction and industrial projects in the region. Also, following the close of the first quarter, we expanded our presence in Arkansas to two locations, with the opening of a location in El Dorado. With these three additions, H&E has expanded its network of locations to 105 across 25 states, and we remain confident in achieving our stated goal for branch openings in 2022. Finally, we're confident that our expansion efforts can be supplemented through acquisition. We continue to evaluate opportunities that offer access to new geographies as well as further penetration into existing regions. As I complete my comments this morning, I want to reiterate the fundamentally robust nature of the equipment rental industry. Demand for our rental fleet remains strong. Our end markets continue to grow. The supply of equipment is constrained. infrastructure projects are an emerging source of demand, and rental rates are on a positive trajectory. Within this attractive environment, H&E is operating from an enhanced position with greater rental concentration, a strong equipment mix, a young and growing rental fleet, and an expanding branch network that we can further complement through acquisitions. We look forward to what the remainder of this year brings. On to slide 11, and I'll turn the call now over to Leslie McGee for our financial performance. Leslie?