H&E Equipment Services, Inc.

Good morning and welcome to H&E Equipment Services' second quarter 2023 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, sir.

Thank you, and good morning, everyone. Welcome to our review of second quarter 2023 results, and thank you for your participation and continued interest in H&E. A press release reporting our second quarter results was issued earlier today 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. On slide two, you will see a list of senior managers joining me today. They are Brad Barber, Chief Executive Officer, John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Brad, 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 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 includes the risks described in the risk factors in the company's 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 a 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 attendance to today's presentation materials. I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Equipment Services.

Thank you, Jeff, and good morning, and welcome to our review of second quarter 2023 financial results. We appreciate your participation on today's call. Proceed to slide four, please. I will begin this morning with quarterly financial highlights and a high-level review of the strong financial progress achieved in the second quarter. I will then transition to our rental business and touch upon the major drivers of performance. Next, I want to discuss our perspective on the equipment rental industry, offering observations and identifying recent developments that have served to reinforce our optimism regarding the outlook for the remainder of 2023 and into 2024. Lastly, considering our continued confidence in the industry, I will bring you up to date with our revised 2023 strategic growth targets. Lastly, we'll follow with a review of second quarter financials, including business segment performance, and an update of our capital structure and liquidity. Then we'll be happy to address your questions. Slide six, please. H&E reported superb financial results in the second quarter. As expected, strong industry conditions prevailed throughout the period with healthy customer project backlogs yielding steady demand and further rate appreciation. We also benefited from the successful growth initiative launched in 2022. We were very focused on our 2023 strategic expansion targets and made significant progress in the quarter with substantial fleet growth and six new locations opened. Collectively, these important factors led to strong financial achievement. Our year-over-year growth was impressive, with total revenues and equipment rental revenues up significantly. Both measures reached record levels in the quarter. Total revenues included notable increase in revenue from used equipment sales, reflecting an effective fleet management effort as the market for used equipment remained robust. Record levels were also reported for gross profit and gross margin, while EBITDA, which grew 36%, approached a record level in the quarter, posting a 480 basis point increase in EBITDA margin to 46.2% compared to the year ago. These quarterly financial achievements were made possible by the successful execution of our strategic growth objectives, led by a nearly $602 million increase in our rental fleet OEC, ending the quarter at a record $2.6 billion. Our growing rental fleet was distributed across an expanding branch network, which included 12 new warm starts opened over the last 12 months, and as mentioned, six of these added in the current quarter. The performance of our rental business was equally impressive, so I want to review these major drivers. On to slide seven, please. Rental revenues in the second quarter of 2023 were up 28.6% compared to the year-ago quarter. Rental gross margins were 51.8% compared to 53.7% over the period of comparison. The modest decline in margin was largely due to the impact of purchase accounting following the acquisition of OneSource. Leslie will provide further detail in her financial review. When compared to the first quarter of 2023, rental gross margins achieved a solid gain of 340 basis points. Our rental operations benefited from another quarter of strong pricing performance. Excluding one source, rental rates in the second quarter were up 7.1% compared to the year-ago quarter and were 1.1% better on a sequential quarterly basis. Through the first six months of 2023, rental rates improved 8.2% compared to the same period in 2022 and remain among the best in the industry. Physical utilization in the second quarter of 69.3% represented a normal second quarter outcome when viewed historically, compared to 73.2% during the same period in 2022, a time of unusual tight supply in the industry. When compared to the first quarter of 2023, field of utilization improved 200 basis points. Finally, dollar utilization in the second quarter was 40.6% compared to 40.9% in the second quarter of 2022, or essentially unchanged. Despite the significant growth of our rental fleet, dollar utilization was 200 basis points better on a sequential quarterly basis due primarily to improved rental rates. I now want to address our perspective on the equipment rental industry, including some material developments that should lead to additional opportunities and prospects for growth. On to slide eight, please. Down industry fundamentals persisted through the second quarter, supported in part by resilient non-residential construction spending. Through May 2023, construction spending in this important segment was up 17% year over year, according to the U.S. Census Bureau. As a result, healthy project backlogs remain in place, and we expect them to sustain through 2023, with increasingly positive implications for 2024. Along with a solid base of demand, we're witnessing a steady escalation in the number of large-scale or mega-projects we expect to serve as a catalyst for further construction spending and expansion across the equipment rental industry. Construction of these private and federally funded projects, which include sizable manufacturing installations and public infrastructure programs, are active throughout the geographies we serve and are representing a growing component of our project mix. Also, leading indicators of non-residential construction spending have demonstrated increased stability in recent months and remain solidly ahead of year-ago measures, implying continued growth into 2024. We're encouraged by these attractive and dynamic forces and expect a combination of strong industry fundamentals and the stimulus from major projects to produce solid business opportunities throughout the balance of 2023 and into 2024. Finally, and before I turn the call over to Leslie, I want to address substantial progress achieved in the second quarter towards our growth and expansion objectives and disclose our revised 2023 targets as we position the company for future success. Slide 9, please. Our business expansion initiatives have been and will remain centered on our rental fleet and branch network. Regarding our fleet, gross capital investment in the second quarter totaled approximately $247 million, representing a record quarterly investment by the company, and resulted in capital expenditure of $375 million through June 30, 2023. As we close the second quarter, the size of our rental fleet as measured by original equipment costs totaled approximately $2.6 billion, representing a 30% increase when compared to the OEC on June 30, 2022, and was yet another company milestone. As mentioned earlier in my comments, we opened six locations in the quarter, improving our branch density in the Mid-Atlantic, Southeast, Gulf Coast, and Intermountain regions. Additional locations are set to open in the third and fourth quarters. As we concluded the second quarter, our branch count stood at 126 locations across 29 states, representing a year-over-year growth of 19%, inclusive of warm starts and acquired locations. A map of our current branch network with second quarter branch additions noted is included in the appendix of today's presentation. We follow a disciplined approach to growth and expansion, and we value strong execution. We have consistently demonstrated an ability to adapt to changing market conditions. Accordingly, we believe our decision to raise our 2023 growth initiatives is an appropriate response to our heightened level of confidence in the continuation of attractive industry fundamentals. We also believe it is essential as we position H&E properly for future growth and enhanced financial performance. Our 2023 capital expenditure target has increased to a range of $600 million to $650 million, up from $500 million to $550 million. Also, we have raised our anticipated 2023 branch additions to a range of 12 to 15 locations, up from 10 to 15 locations. In conclusion, our second quarter financial performance is further evidence of the capability and financial potential of H&E. Since we began our transition to a pure play rental focus in 2021, we have demonstrated consistent growth in revenues while significantly elevating operating margins. A commitment to growth and expansion combined with ample capital, robust technical systems, and a dedicated workforce represent the critical drivers of our rising potential. We're excited about the prospects for the equipment rental industry, and we are confident in our ability to address new opportunities as we continue to effectively execute our growth plans and demonstrate operational excellence throughout our expanding footprint. I look forward to updating you on our future achievements. Now on to slide 10, and I'll turn the call over to Leslie, who will provide a review of our second quarter financial performance. Leslie?