H&E Equipment Services, Inc.

Good morning, and welcome to H&E Equipment Services' second 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, Gary, and welcome, everyone. I want to thank you for your participation today as we review our results for the second quarter of 2022. A copy of the press release covering the H&E 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 in Events and Presentations. Joining me today on today's call are Brad Barber, Chief Executive Officer, John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Turn to slide three, and before I turn the call over to Brad for his opening comments, I should 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 other 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 include the risks described and 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 conference call. Also, 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. And finally, Unless specifically noted, all results and comparisons for the periods reported and discussed this morning are presented on a continuing operations basis. With the preliminary announcements out of the way, 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, to our second quarter 2022 financial review. We appreciate your participation and continued interest in H&E. Our second quarter results were outstanding and included several significant achievements. We continue to benefit from excellent fundamental industry conditions throughout our expanding equipment rental business. These highly favorable conditions were led by resilient demand and impressive growth in rental rates. Also, we continue to grow our fleet, which finished the second quarter at a record level for our company. Our fleet is positioned for further growth over the second half of 2022 as we continue our same-store investment and branch expansion strategy. I believe the strategic rationale for our transition during 21 to a pure play rental focus has been validated in 22, as our intensified rental exposure continues to generate significant improvement in margins and other key financial metrics, which I will cover in greater detail. Proceed to slide four, please. I will begin today with comments on our improvement across some top-level financial measures before I bridge the discussion to a review of our rental operations. Next, I will provide a view of current business conditions in the equipment rental industry and close with an update on 2022 growth initiatives. Lastly, we'll follow with an in-depth discussion on second quarter financial results, including business segment performance measures and updates on our capital structure and liquidity. Then we will be happy to take your questions. On to slide six, please. Given the exceptionally robust second quarter business environment, H&E reported decisive year-over-year improvement across our key financial measures, as well as impressive sequentially quarterly growth. For example, total equipment rental revenue of $227.6 million grew almost 30% from the year-ago quarter, while posting sequential growth of 14.2%. Also, adjusted EBITDA of $121.9 million improved almost 29% on a year-over-year basis and 17.8% sequentially, while posting a record 41.4% gross margin. Our adjusted EBITDA margin in the quarter exceeded the year-ago and sequential quarterly margins by 580 and 340 basis points, respectively. As I mentioned earlier, high equipment demand, strong runaway growth, and execution of our fleet expansion strategy were meaningful factors in the quarter improved especially influential for our rental performance. Slide 7. Rental revenue in the second quarter reached a record $201.2 million, improving 28% when compared to the same quarter in 2021 and 13.6% better on a sequential quarterly basis. The result was driven in part by physical utilization of 73.2%, representing our best second quarter utilization measure since 2012 and equated to a 450 and 280 basis point improvement when compared to the year-ago quarter and previous quarter, respectively. As fiscal utilization remained strong, rental rates improved a remarkable 9.4% on a year-over-year basis and 3.5% sequentially. This exceptional price achievement was reinforced by strong operational execution and the use of our integrated and proprietary smart rate pricing programs. With these factors in place, our rental gross margin in the quarter of 53.7% was the highest level achieved since 2006 and was 710 basis points ahead of the year-ago quarter and 380 basis points better on a sequential quarterly basis. In addition, dial utilization reached 40.9% in the quarter compared to 35.9% in the year-ago quarter and 37.6% in the previous quarter. Finally, our ability to capitalize on the excellent business climate by growing our fleet despite ongoing supply chain disruptions contributed to our strong rental performance. Our rental fleet OEC grew by more than $228 million when compared to the year-ago quarter and almost $148 million through the first six months of 2022. As a result of this growth, we set yet another record with a $2 billion investment in our rental fleet. To summarize our quarterly results, I am very encouraged by our excellent financial performance. I believe the results demonstrate the success of several strategic initiatives employed over the last 12 months. We should continue to benefit from these and other initiatives as robust business climate provides additional opportunity for growth. On to slide eight, please. We continue to experience strong business activity with the foundational drivers of the equipment rental business remaining silent. Non-residential construction opportunities are plentiful across our regions of operation, with no visible trends that suggest construction project delays or cancellations. We continue to experience strong demand for our rental fleet, while the industry's supply of construction remains constrained. In fact, current customer feedback addressing equipment needs suggest favorable conditions should persist as we continue through the seasonal strength of our business cycle. As of today, fleet utilization remains at levels consistent with the second quarter. Also, it is encouraging to see leading indicators of construction activity remaining at levels that support expansion, as reflected in the June ABI and the Dodge Momentum Index, with the latter measure reaching a 14-year high. In addition, the commencement of infrastructure projects serves as an additional source of demand toward late 2022 and into 23. I want to reiterate, we see no evidence of disruption to the favorable industry trends at present. Under the prevailing business conditions, healthy utilization levels should continue for the balance of the year with additional improvement in rental rates expected. Before I turn the call over to Leslie, I want to provide an update on our 2022 growth initiatives. Slide nine, please. In a business environment characterized by exceptional equipment demand, supply chain disruptions remain an inconvenient but temporary reality of our industry and continue to hinder the timely deliver of a portion of our equipment orders. Due to the inability of certain manufacturing partners to meet their commitments, we reduced our planned capital expenditure range to $465 million to $500 million, or a reduction of approximately 16% at the midpoint. A reduction in our planned fleet sales will mitigate the business impact of this reduction. Therefore, we expect no change in our year-end OEC when compared to our initial internal expectations for the year. We are disappointed this action is necessary. However, we are prepared to increase our revised expenditure level should we see improving conditions with regard to the sourcing of equipment. Regarding our branch expansion initiative, we remain confident in achieving our goal of no fewer than 10 additions in 2022. Slide 10, please. Four new branches were added through the first six months of the year, including our latest operation in Lakeland, Florida, which represents our ninth location in the state and increases our total branch count to 106. We expect to remain very busy over the third and fourth quarters of 2022 as we execute this important component of our growth strategy. In addition, growing our operations through acquisition remains a priority for H&E, as we continue the evaluation of attractive Volta on opportunities. As Leslie can attest, our strong debt capacity and liquidity position represent excellent resources in support of this growth. In closing, strong utilization of 73.2% and exceptional rental rate growth of 9.4% were central to our outstanding results in the quarter, and I believe both measures continue to be among the best in our industry. These excellent outcomes, combined with rising Rental concentration, which grew to 77% of total consolidated revenues for the quarter, and successful growth initiatives are strengthening our competitive position. Additional branch openings are planned over the second half of the year, and we continue to penetrate highly prospective locations where our customers can source one of the industry's youngest fleets. These important factors allow us to capitalize on the opportunities created in a robust business cycle, and we're confident they will serve us well through the remainder of 2022. I'd ask everyone to move on to slide 11, please, and I'm going to turn the call over to Leslie for a review of our second quarter financial performance. Leslie?