H&E Equipment Services, Inc.

and welcome to H&E Equipment Services' first quarter 2024 earnings conference call. Please note 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.

Good morning, and welcome to a review of first quarter 2024 financial performance. Your participation on today's call is appreciated and we thank you for your interest in H&E. A press release reviewing our results for the quarter was issued earlier today and can be found along with all supporting statements and schedules on the H&E website, www.he-equipment.com. A slide presentation will accompany today's discussion and is also posted on our website under the investor relations tab and events and presentations. As noted on slide two, 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 this morning's review, but before I turn the call over to him, please proceed to slide three as I 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 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. That completes our preliminary details, so I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E.

Thank you, Jeff. Good morning. Welcome to our review of first quarter 2024 financial results. We appreciate your participation on today's call. Please proceed to slide four. First quarter financial results included year-over-year double-digit growth across our key financial metrics with performance once again supported by meaningful expansion in our branch network rental fleet, and improvement in rental rates. The degree of year-over-year financial improvement slowed from the pace of recent quarters, due in part to a moderation in some construction projects. Additionally, harsh winter weather and branch expansion impeded the physical utilization in the first quarter. Despite the slower anticipated start, revenues from total equipment rentals completed the 12th consecutive quarter of year-over-year double-digit growth. Sales of rental equipment remained elevated, and we adjusted our fleet management objectives in the face of changing market conditions and persistent healthy demand for equipment. A more detailed explanation will follow on our key financial metrics and the performance of our rental operations. Also, I will provide updated observations on the equipment rental industry and our view of prospects and opportunities for the remainder of the year. Finally, and before I turn the call over to Leslie for a review of our financial performances, I will bring you up to date on our 2024 growth objectives. Slide 6, please. A quick review of our key financial metrics in the quarter reveal year-over-year achievement in most measures. For example, total revenues grew 15.2% supported by strong growth in total equipment rental and sale of rental equipment. Revenues from total equipment rental improved 12.7%, led by steady expansion initiatives addressing both branch and rental fleet growth and further appreciation in rental rates. Sales of rental equipment increased 49.8% on a year-over-year basis. Lower fiscal utilization in the quarter, which averaged 63.6%, prompted us to modify our first quarter fleet management strategy and leverage the ongoing strength in the market for used equipment. Consequently, we achieved near-record margins on the equipment we sold, which had an average age of 72 months. Finally, adjusted EBITDA on the quarter of $161.7 million was 13.1% better than the year-ago result, with a margin of 43.6%. On a trailing 12-month basis ending March 31, 2024, adjusted EBITDA totaled $706.9 million, up 21.7% compared to the trailing 12 months ending March 31, 2023. Over the same period, margins improved 170 basis points to 46.6% compared to 44.9% respectively. The improvement is indicative of our successful expansion efforts. Slide 7, please. Moving to a discussion of our rental performance, revenues in the quarter improved 12.8% compared to the year-ago quarter, with stable gross margins of 48.5% compared to 48.4% in the first quarter of 2023. On a trailing 12-month basis ending March 31, 2024, rental revenues grew 19.8% compared to the trailing 12 months ending March 31, 2023, which again demonstrates the positive contribution from our expansion efforts. Our growth initiatives were a meaningful contributor to the year-over-year improvement. We added 20 new branches over this timeframe, including 15 warm start locations and five locations added through pursuit of acquisitions. Also, we grew our rental fleet 15.7%, or $383 million, resulting in a fleet value as measured by original equipment cost of just over $2.8 billion on March 31, 2024. Our focus on growth will continue in 2024, as I will explain in a moment. Rental rates in the quarter improved 2.9% on a year-over-year basis, adding to the consistent rate appreciation seen since 2022. On a sequential basis, rates in the first quarter experienced a slight decline of 0.2%. Although a slowing rate of change is expected in 2024, we continue to benefit from the gains achieved in rental rates over the past 24 months, have now produced better than a 17% increase in rates through the first quarter of 2024. Physical fleet utilization in the first quarter averaged 63.6%, or a year-over-year decline of 370 basis points. As previously mentioned, the decrease was attributed to lower than anticipated construction activity, as well as project delays resulting from reoccurring unfavorable weather conditions with the work interruptions most pronounced across our western operations. Finally, dollar utilization in the quarter was 37% compared to 38.6% in the first quarter of 2023. The 160 basis point reduction was due primarily to lower fiscal utilization in the quarter, which included a modest headwind from the additional 15 warm start locations and five acquired branches over the last 12 months. Next, I want to discuss some industry trends that we have observed through the first four months of the year and how these evolving developments are expected to weigh on our expectations for the remainder of the year. Slide eight, please. Our industry has enjoyed a phenomenal period of growth over the last two years, highlighted by rapid expansion in non-residential and industrial construction projects. The increase in construction activity has been supplemented by numerous federal programs in support of reshoring efforts, green energy initiatives, and infrastructure improvements, leading to a prolonged period of robust industry fundamentals. This highly attractive business environment is not ending, but appears in the interim to be assuming a normal footing or transition to moderating growth levels compared to the exceptional rate of growth in construction spending and strong business dynamics experienced over the last 24 months. We believe the easing in the progression of construction spending is in part the result of a higher for longer interest rate environment and generally tightening lending standards. This higher interest rate environment, together with the ongoing recovery in our industry supply chain, has led to greater supply of rental equipment. Even though non-residential and industrial project backlogs remain healthy, the rate of new projects starts has slowed in early 2024. We note several factors that are expected to be instrumental in maintaining or possibly improving upon an environment that at present is increasingly defined as one possessing moderate growth prospects and steady industry fundamentals. These factors include continued escalation of megaprojects and include the construction of data centers, semiconductor fabrication facilities, LNG export terminals, and numerous green energy projects. As we've noted previously, megaprojects typically require multiple years to complete and consume large quantities of equipment for extended periods of time. Also, we have observed an increase in the number of infrastructure projects, including road and highway construction and repairs and construction of transportation facilities. We expect to experience growth in infrastructure projects into the future. Finally, we note favorable trends in rental penetration and the steady growth in construction employment. These critical factors reinforce non-residential construction and industrial project activity and serve as the foundation in support of elevated long-term industry growth. Before I hand the call over to Leslie, I want to close with an update on our growth initiatives, including investment in our rental fleet and further branch expansion. On to slide nine, please. Considering my updated thoughts on the industry, we have reduced our 2024 guidance for gross fleet investment with the steadying of industry fundamentals justifying a more balanced approach to capital spending over the year. Growth capital investment in our fleet is now expected to range from $350 million to $400 million, down from our initial guidance for 2024 of $450 million to $500 million. Our revised spending follows a more than 60% increase in our rental fleet OEC over the last 36 months, ending March 31, 2024. In addition to maintaining one of the industry's youngest fleets with an average age of 39.9 months, Our focus on fleet growth has resulted in a superior fleet mix to address the needs of a growing base of customers. Also, with the availability of equipment for manufacturers returning to normal, we could quickly increase our spending range should industry demand accelerate. The revised spending range will adequately address the planned growth in 2024 across our branch network, which remains at 12 to 15 new locations as we continue to demonstrate strong execution from our accelerated branch expansion strategy. Also, additional branch growth in 2024 could be achieved through the acquisition of attractive rental operations, as demonstrated by the acquisition of Precision Rental, which closed in the first week of 2024, and the recently announced pending acquisition of four locations in the state of Montana. Following the expected close of the latest transaction in the second quarter of 2024, H&E will operate 145 branches across 30 states including eight branch additions since the close of 2023. To conclude, we remain in a business environment with encouraging prospects. Our industry is expected to demonstrate further growth in 2024, but at a slower pace than we have become accustomed to over the last 24 months. According to Dodge Construction Network, construction starts are projected to improve 7% in 2024, while U.S. equipment rental revenue is expected to grow nearly 8% as reported by the American Rental Association. As the equipment rental industry goes through a period of transition in 2024, our significant expansion over the last 36 months will undoubtedly prove beneficial. In addition to the previously mentioned growth in our fleet, we've expanded our branch network more than 40% over the same 36-month period on a continued operations basis. building a larger presence in key regions of the U.S. which possess ongoing growth opportunities. Now more than ever, H&E is better positioned to capture developing business opportunities while remaining focused on future growth and improving financial performance. Now on to slide 10, and I'll turn the call over to Leslie, who will provide a review of our first quarter financial performance. Leslie?