H&E Equipment Services, Inc.

Good morning, and welcome to H&E Equipment Services' third quarter 2022 earnings conference call. All participants will be in 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event 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.

Thank you, and good morning, everyone. Welcome to a review of H&E's results for the third quarter of 2022. We appreciate your participation and your continued support. A copy of the press release covering our third quarter results was just issued earlier today and can be found along with all supporting statements and schedules at the H&E website, 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. As you will see on slide two of the presentation, I'm joined today by Brad Barber, Chief Executive Officer, John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Brad will begin today's discussion, but before I turn the call over to him, I'll call your attention to slide three and 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 includes the risks 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 our caution 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. Finally, unless specifically noted, our results and comparisons for the periods reported and discussed this morning are presented on a continuing operations basis. I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Equipment Services.

Thank you, Jeff. Good morning and welcome to our review of the third quarter 2022 financial results. Your participation in today's call and continued interest in H&E are appreciated. Our third quarter financial results were exceptional and continue to trend to financial improvement across consecutive quarters. Our intensified focus on rental operations has been a significant component of our consistency in 2022. Our industry-leading rental rates, fleet utilization, fleet growth, and steady expansion of our branch network have also contributed to the quarter's outstanding results. Collectively, these factors have led to substantial improved financial performance in the third quarter, which included record revenues in our equipment rental segment, strong gains in profitability, and notable margin appreciation on both a business segment and consolidated basis. Proceed to slide four. I'll begin this morning with a review of our financial highlights for the quarter, followed by a discussion of several of the critical performance factors that contributed to another impressive quarterly result for our equipment rental segment. In addition, I'll address our outlook for the industry and why I currently believe strong business conditions should persist through the fourth quarter and into 2023. Then I will close with a rundown of considerable progress achieved towards expanding our business and positioning H&E for future success. Relating to the latter point, I will discuss our previously announced acquisition of OneSource Equipment Rental Incorporated, which we closed earlier this month. Lastly, we'll follow with a thorough review of third quarter financial results, including business segment performance and an update on our capital structure and liquidity. Then, we will be happy to address your questions. On to slide six. A review of our third quarter highlights reveals the continued strength and vigor in the equipment rental business cycle. Business conditions remained fundamentally strong throughout the quarter, with elevated activity across our branch network. Given these robust business fundamentals, total revenues in the third quarter reached $324.3 million, or 17.7% better than the same quarter in 2021, while improving 10% on a sequential quarterly basis. Also, adjusted EBITDA gained 24.1% on a year-over-year basis, closing the quarter at $139.4 million while posting a margin of 43%, with both financial measures representing records for our company. Revenues from our equipment rental segment, which include ancillary rental revenues, were up 28.6% on a year-over-year basis and 11.4% sequentially, totaling a record of $253.6 million. The strength of this performance was due, in part, to a combination of healthy rental rate appreciation, a strong physical fleet utilization, which averaged 73.3%, or 140 basis points ahead of the same quarter in 2021. Also, equipment rental revenues benefited from continued fleet growth. Our rental fleet, as measured by original equipment cost, or OEC, was $305.4 million larger than a year-ago measure on an increase or an increase of 16.7%. A fundamentally sound business cycle will typically exhibit three important attributes, rental rate appreciation, strong utilization, and growth in the rental fleet. Each was present in the third quarter, and it resulted in record revenue performance. On to slide seven, please. Rental revenue in the third quarter totaled 224.1 million, a year-over-year increase of 26.9%, and a sequential quarterly improvement of 11.4%. The record results surpassed the previous record set last quarter. Rental growth margin rose to 55.6%, or 470 basis points better than the year-ago quarter, and 190 basis points ahead of the second quarter of 2022. The segment's results were supported by another quarter of excellent pricing achievement, as demonstrated by a year-over-year rental rate increase of 10.1% and a sequential quarterly gain of 3.2%. On average, our rental rates have increased an impressive 8.9% through the nine months ending September 30, 2022. Our ability to achieve such impressive levels of rate increase was made possible by our proprietary SmartRate platform and exceptional execution by our professional sales force. An excellent pricing environment was supported by a combination of persistent customer demand and a constrained supply of equipment, which together sustained high utilization through the quarter. As noted earlier, our third quarter average fiscal utilization was 73.3%, representing our highest quarterly measure since the second half of 2017. The result was 140 basis points ahead of the third quarter of 2021, and 10 basis points better than the previous quarter in 2022. Despite growing our fleet OEC by $277 million since the beginning of 2022, including $129 million in the third quarter, utilization of our fleet has shown sequential quarterly improvement in 2022, which is indicative of the strong underlying demand for our equipment as well as our exceptional operational capabilities. The robust industry environment resulted in a third quarter dollar utilization of 42.7%, or 380 basis points better than the third quarter of 2021, and 180 basis points ahead of the previous quarter in 2022. The result was yet another record in the quarter. As we manage through the final quarter of 2022 and consider business prospects for 2023, we're continually encouraged by what we see and hear. Slide eight, please. We continue to experience a steady backlog of projects in the non-residential construction and industrial end markets. Feedback from our customer base remains reassuring with projects proceeding as planned. Also, with the continuation of a robust demand, global supply chains remain challenged, limiting the immediate availability of equipment. These factors reinforce a strong business environment, and apart from traditional seasonality, are expected to sustain a set of underlying fundamentals characterized by strong fleet utilization and favorable pricing trends into 2023. In addition, we remain encouraged by the indicators for future construction activity. Recent measures from Dodge Momentum Index and the Architectural Billing Index and the associated builder and contractors continue to signal the likelihood of further expansion well into 2023 as additional construction projects enter the planning stages. Furthermore, we expect to benefit from the onset of numerous infrastructure projects beginning in 2023 as well as other construction projects that contribute to the expansion of the U.S. manufacturing capabilities and renewable energy. We believe these programs will provide greater visibility to emerging construction opportunities. Our evaluation of projected construction activity in the end markets we serve reinforces our confidence in the future and represents a sturdy base of support and an important catalyst for growing our company. Slide nine, please. Throughout the third quarter, we demonstrated exceptional progress in our strategic initiatives, which earlier this year we identified as record fleet investment for the rental fleet and continued expansion of our branch network. In fact, 2022 has been a year of record growth and expansion for H&E. Despite continued disruptions to global supply chain, we increased the year-to-date gross capital investment of our fleet to 379.5 million, including 163.9 million in the third quarter. The size of our fleet, as measured by OEC, is now just over 2.1 billion, representing a record for the company. We expect to close 2022 with gross capital expenditures in a range of 465 million to 500 million. Regarding expansion of our operations, our acquisition of OneSource, which closed on October 1st, 2022, increased our branch network by 10 locations, including an initial presence in three states, Illinois, Indiana, and Kentucky. Additionally, we gained density with locations within our existing coverage area. OneSource is an excellent cultural fit for H&E with an emphasis on operations excellence and customer satisfaction. The integration process is underway, and we're excited about the prospects for our combined operations, as well as our growing presence in the Midwest and South. Slide 10, please. The consistent progress of our accelerated new location program was evident in the third quarter, with four branches open during the period. The openings included our 10th branch in Florida, our 12th branch in California, our 21st branch in Texas, and our first branch in Delaware. The latest branch openings bring the total of new locations this year to eight. With more openings expected in the fourth quarter, we are confident in achieving our goal of no fewer than 10 new locations in 2022. As I conclude my comments on the quarter and prepare to turn the call over to Leslie, I want to review the substantial progress achieved over the last 12 months to position the company for better long-term success. The progress began in 2021 with a transformative divestiture, including the sale of the crane business. This was a consequential step in our evolution to a pure play rental focus. A short time later, we exited earth moving distribution in the state of Arkansas, and we continue to evaluate strategic opportunities that would further concentrate our focus on rental operations. H&E has clearly demonstrated the ability to transition our business while successfully executing strategic growth initiatives. In less than two years, we have substantially exited our lower margin, less predictable distribution business, and simultaneously delivered significant improvement in key financial metrics following our intensified focus on the rental business. Also, we have added 28 locations to our branch network, expanding to 120 locations across 29 states while investing significant capital in our rental fleet, which now sits at a record OEC of more than $2.1 billion. Through this period of transition and growth, our operational performance has remained exceptional. With our greater concentration on rental operations, H&E remains poised for revenue growth and margin appreciation throughout this fundamentally robust business environment, while benefit from a steadier base of revenues and margins through the entirety of the business cycle. I also want to highlight our outstanding suite of information systems and platforms that are instrumental in achieving many best in class performance measures. These systems will continue to evolve and support our operating proficiency. Finally, H&E has both an experienced and motivated team of loyal professionals who demonstrate a dedication to excellence and respect towards our customers and each other. In addition to our intensified focus on rental operations, It is our robust systems, talented workforce, and attractive geographic footprint that position H&E for a successful future. Slide 11, please. I will now turn the call over to Leslie for a review of our third quarter financial performance. Leslie?