H&E Equipment Services, Inc.

Good morning, and welcome to H&E Equipment Services' third quarter 2024 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.

Thank you, Operator. Good morning, and welcome to all our participants on today's call to review the third quarter 2024 financial performance of H&E Rentals. A press release reviewing the company's results for the quarter was issued earlier today and can be found along with all supporting statements and schedules on the H&E Rentals website, hnerentals.com. A slide presentation will accompany today's discussion and is also posted on our website under the Investor Relations tab in Events and Presentations. On slide two, you'll see that Brad Barber, our Chief Executive Officer, as well as John Inquist, President and Chief Operating Officer, and Leslie McGee, Chief Financial Officer and Corporate Secretary, are all joining me on today's call. 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 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. That concludes the preliminary details for our call today, so I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Rentals.

Thank you, Jeff. Good morning, and welcome to the review of our third quarter 2024 financial results. As always, your participation and continued interest in H&E is appreciated. Proceed to slide four. With the exception of the growing mega project opportunities, spending levels across the non-residential construction verticals remain mixed in the third quarter, with total construction spending continuing to exhibit slower year-over-year growth. The spending environment led to further constraint of key industry measures, as evidenced by lower physical utilization, an incremental decline in rental rates, and ample availability of certain equipment types. The weaker measure weighed on our financial performance in the quarter, with the results generally trailing the year-ago period. Despite these select near-term headwinds, we continue to execute our long-term strategic branch expansion program, leading to a growing operational presence across our 32-state footprint. I'll provide more details on our third quarter key financial metrics, as well as the performance of our rental business segment. I want to give my thoughts on the rental equipment industry as we approach 2025 and identify some factors that give us confidence and lend support to a more positive industry assessment. Finally, I'll review the details behind our 2024 expansion achievements and some early thoughts on what comes next. Leslie will follow with an expanded commentary on our third quarter financial performance, and then we will open the call for questions. On to slide six, please. Our third quarter key financial metrics were mixed. Total revenues declined 4% from the year-ago quarter due primarily to a more than 47% reduction in sales of rental equipment. We lowered fleet sales by design to leverage both our young fleet age and record investment in 2023. Margins on the sales of rental equipment were again very strong and exceeded 60% in the quarter. Total equipment rental revenues improved 3.3% in the quarter as a 240 basis point decline in physicalization was offset by the addition of 27 new locations since the close of the third quarter of 2023, including acquired ranches. On a trailing 12-month basis, our equipment rental revenues improved 9.2% compared to the same trailing 12-month period in 2023. I'll have more to say about our impressive expansion achievements in a moment. Finally, our fleet size, as measured by original equipment cost, or OEC, closed the third quarter at just below $3 billion, an increase of 8.1% compared to an OEC at the conclusion of the year-ago quarter. The slower pace of growth in OEC in 2024 reflects our reduced gross capex expenditures compared to a record investment in each of the years 2022 and 2023. Our 2024 gross fleet investment through September 30, 2024, was $327.8 million, a 45% decline compared to the same period in 2023. On to slide seven. Turning to our rental performance, revenues improved 2.8% in the third quarter compared to the year-ago period, with the addition of 27 new locations offsetting the decrease in utilization. Rental gross margins in the quarter were 51.2%, down 210 basis points from the third quarter of 2023, largely due to a decline in physical utilization and a lesser degree with rental rates. Rental rates in the quarter demonstrated resiliency, declining by only 0.1% on a year-over-year basis due in part to a continued shift of our rental fleet to mega-project work, where greater price flexibility is matched with longer-term project assignments. Average rental rates through the nine months ending September 30, 2024, rose 1.5% compared to the same period in 2023. Fiscal utilization declined 240 basis points 67.6%, reflecting lower project activity and some modest impact from the 27 new locations added over the last year. On a sequential quarterly basis, rental rates declined 0.6%, while physical utilization improved 120 basis points. Additionally, our branch expansion activity was responsible for a slight margin headwind in the quarter due to the misalignment of new branch costs and revenues generated that commonly occur before newly opened locations achieve our targeted performance metrics. As we have discussed and seen before, it is common for this misalignment to unwind over an average of 12 to 18 months. Finally, dollar utilization in the quarter was 39.4% compared to 41.5% in the third quarter of 2023. I now want to transition to discussing the equipment rental industry with some thoughts on the remainder of 2024, but more importantly, an early and increasingly encouraging evaluation of 2025. Slide 8, please. The 2024 equipment rental operating environment has largely developed without meaningful deviation from our expectations. Construction spending in the U.S. continues to demonstrate the slowing rate of growth observed over the first half of 2024. Local project activity remains muted due in part to an extended period of elevated interest rates, and we continue to manage a slight oversupply of certain types of equipment. We believe a trend of moderating activity will persist through the remainder of the year with physical fleet utilization and rental rates expected to remain below year-ago measures. Beyond the fourth quarter, the developing outlook for our industry is more encouraging into 2025, with many factors to consider. For example, the Dodge Momentum Index, or DMI, a leading indicator of construction spending, has exhibited gains for five of the last six months and remains at robust levels. Also, construction employment remains on a steady upward trajectory, with five consecutive months of growth through September 2024. Equally important, a cycle of easing interest rates is expected to have positive implications for local construction activity as projects are reevaluated under more favorable lending conditions. Furthermore, industry competitors continue to demonstrate a disciplined approach regarding rental rates and purchases of equipment. Finally, the strong expansion of megaprojects remains a significant driver of growth for our industry both today as well as into the future. An increasing number of these projects reside or are planned within our regions of operation. On to slide nine, please. As I've noted on previous calls, megaprojects are characterized by elevated equipment volumes and extended project durations, leading to premium utilization metrics and excellent yield on deployed equipment. Due to their remarkable equipment needs, multiple large equipment rental providers are active on most projects. With visibility beyond 2025, megaprojects remain a stable base of demand for construction rental equipment. Slide 10. Our branch expansion and increased operational scale has led to greater exposure to megaprojects, including a growing presence on data centers, solar and wind farms, and LNG export facilities, to name a few. Bidding activity continues to trend favorably, as does equipment deployed as a percent of OEC. A recent evaluation of data from Dodge Construction Network and PEC found projects with a total estimated value of $537 billion currently reside in our regions of operation. An estimated 35% of these projects have commenced construction, and H&E equipment is deployed on nearly half of these projects. The remaining balance of projects is indicative of the robust opportunity that lies ahead for H&E and the equipment rental industry. We believe H&E's participation in megaprojects opportunities will continue to grow as our disciplined approach to branch expansion and building scale evolves. I now want to bring you up to date on recent achievements in our strategic expansion initiatives. Slide 11, please. A record number of eight branches were added in the third quarter, while a ninth branch was opened in the month of October. The strong outcome reflected the outstanding execution of our accelerated new location program, which has achieved a record 16 additional locations in 2024, exceeding our stated expansion expectation. The new locations have expanded our presence in several regions. Our U.S. geographic coverage in 2024 has now grown to 157 locations across 32 states as of September 30th. When accounting for both new locations and branches added through acquisition, our branch count is up over 14% following the close of 2023 and approximately 54% since the close of 2021. Both measures are a dominant accomplishment within our industry. Our target range for 2024 gross fleet expenditures remains $350 to $400 million, with growth expenditures through the third quarter of $328 million. To conclude, our expansion achievements remain a significant highlight in 2024. Our growth trajectory remains among the best in the industry, as evidenced by a 54% increase in branch counts since the close of 2021. Our approach to expansion is disciplined and includes a thorough evaluation of long-term growth trends for each location under consideration. We know that with the addition of each new branch location, we fortify our competitive position in the equipment rental industry. At the same time, We grow our presence in attractive geographies with attractive long-term construction opportunities and establish a platform for future financial improvement. The modest headwind associated with our growth initiatives are insignificant when compared to the long-term financial contribution that is possible from a well-executed plan. Our expansion represents an investment in our future and will benefit H&E for decades to come. With this, I'm going to ask you to proceed to slide 12, and I will now turn the call over to Leslie, who will discuss the third quarter of financial performance in greater detail. Leslie.