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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to        

Commission file number: 000-51759

 

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

81-0553291

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

7500 Pecue Lane,

 

70809

Baton Rouge, Louisiana

 

(ZIP Code)

(Address of Principal Executive Offices)

 

 

 

Registrant’s Telephone Number, Including Area Code: (225) 298-5200

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

HEES

Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

                         Accelerated Filer                  

Non-Accelerated Filer

 

 

 

 

 

Smaller Reporting Company  

                         Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 26, 2021, there were 36,143,039 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

 

 

 


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

September 30, 2021

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

4

 

 

 

Item 1. Financial Statements:

 

4

Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020

 

4

Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020

 

5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

35

Item 4. Controls and Procedures

 

35

 

 

 

PART II.  OTHER INFORMATION

 

36

 

 

 

Item 1. Legal Proceedings

 

36

Item 1A. Risk Factors

 

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

36

Item 3. Defaults upon Senior Securities

 

36

Item 4. Mine Safety Disclosures

 

36

Item 5. Other Information

 

36

Item 6. Exhibits

 

37

 

 

 

Signatures

 

38

 

 

2


 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

 

risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response to the pandemic, material delays and cancellations of construction or infrastructure projects, supply chain disruptions and other impacts to the business;

 

general economic conditions and construction and industrial activity in the markets where we operate in North America;

 

our ability to forecast trends in our business accurately, and the impact of economic downturns and economic uncertainty on the markets we serve (including as a result of current uncertainty due to COVID-19);

 

the impact of conditions in the global credit and commodity markets (including as a result of current volatility and uncertainty in credit and commodity markets due to COVID-19) and their effect on construction spending and the economy in general;

 

trends in oil and natural gas could adversely affect the demand for our services and products;

 

relationships with equipment suppliers;

 

increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;

 

our indebtedness;

 

risks associated with the expansion of our business and any potential acquisitions we may make, including any related capital expenditures, or our ability to consummate such acquisitions;

 

our possible inability to integrate any businesses we acquire;

 

competitive pressures;

 

security breaches and other disruptions in our information technology systems;

 

adverse weather events or natural disasters;

 

compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and

 

other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward‑looking statements and are cautioned not to place undue reliance on such forward‑looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. All of our annual, quarterly and current reports, and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.

 

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

 

 

 

 

Balances at

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

235,024

 

 

$

310,882

 

Receivables, net of allowance for doubtful accounts of $4,637 and $4,489, respectively

 

 

157,576

 

 

 

150,502

 

Inventories, net of reserves for obsolescence of $281 and $230, respectively

 

 

65,620

 

 

 

41,890

 

Prepaid expenses and other assets

 

 

15,652

 

 

 

10,293

 

Rental equipment, net of accumulated depreciation of $696,445 and $667,445, respectively

 

 

1,112,056

 

 

 

989,423

 

Property and equipment, net of accumulated depreciation and amortization of $158,998 and $145,422, respectively

 

 

109,575

 

 

 

108,919

 

Operating lease right-of-use assets, net of accumulated amortization of $35,065 and $23,268, respectively

 

 

153,677

 

 

 

152,662

 

Finance lease right-of-use assets, net of accumulated amortization of $2,335 and $2,213, respectively

 

 

81

 

 

 

203

 

Deferred financing costs, net of accumulated amortization of $15,644 and $15,119, respectively

 

 

1,633

 

 

 

2,157

 

Intangible assets, net of accumulated amortization of $13,717 and $10,939, respectively

 

 

25,983

 

 

 

28,961

 

Goodwill

 

 

63,137

 

 

 

63,137

 

Assets held for sale

 

 

110,900

 

 

 

121,455

 

Total assets

 

$

2,050,914

 

 

$

1,980,484

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

85,527

 

 

 

75,262

 

Manufacturer flooring plans payable

 

 

17,543

 

 

 

9,615

 

Accrued expenses payable and other liabilities

 

 

88,609

 

 

 

67,120

 

Dividends payable

 

 

108

 

 

 

155

 

Senior unsecured notes, net of unaccreted discount of $8,444 and $9,323 and deferred financing costs of $1,950 and $2,017, respectively

 

 

1,239,606

 

 

 

1,238,660

 

Operating lease right-of-use liabilities

 

 

157,537

 

 

 

156,282

 

Finance lease right-of-use liabilities

 

 

111

 

 

 

305

 

Deferred income taxes

 

 

185,455

 

 

 

171,010

 

Liabilities held for sale

 

 

16,995

 

 

 

23,842

 

Total liabilities

 

 

1,791,491

 

 

 

1,742,251

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 40,354,671 and 40,242,711 shares issued at September 30, 2021 and December 31, 2020, respectively, and 36,143,039 and 36,092,555 shares outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

403

 

 

 

401

 

Additional paid-in capital

 

 

243,806

 

 

 

240,206

 

Treasury stock at cost, 4,211,632 and 4,150,156 shares of common stock held at September 30, 2021 and December 31, 2020, respectively

 

 

(68,293

)

 

 

(66,188

)

Retained earnings

 

 

83,507

 

 

 

63,814

 

Total stockholders’ equity

 

 

259,423

 

 

 

238,233

 

Total liabilities and stockholders’ equity

 

$

2,050,914

 

 

$

1,980,484

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment rentals

 

$

197,184

 

 

$

161,461

 

 

$

526,014

 

 

$

481,563

 

Used equipment sales

 

 

31,071

 

 

 

36,216

 

 

 

105,746

 

 

 

94,890

 

New equipment sales

 

 

19,355

 

 

 

27,827

 

 

 

70,161

 

 

 

79,957

 

Parts sales

 

 

17,503

 

 

 

16,291

 

 

 

49,939

 

 

 

50,197

 

Services revenues

 

 

8,624

 

 

 

8,489

 

 

 

24,694

 

 

 

27,245

 

Other

 

 

1,699

 

 

 

1,629

 

 

 

4,991

 

 

 

5,403

 

Total revenues

 

 

275,436

 

 

 

251,913

 

 

 

781,545

 

 

 

739,255

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental depreciation

 

 

58,339

 

 

 

55,972

 

 

 

168,305

 

 

 

170,900

 

Rental expense

 

 

28,326

 

 

 

25,006

 

 

 

80,900

 

 

 

72,570

 

Rental other

 

 

20,510

 

 

 

16,537

 

 

 

55,394

 

 

 

46,883

 

 

 

 

107,175

 

 

 

97,515

 

 

 

304,599

 

 

 

290,353

 

Used equipment sales

 

 

19,383

 

 

 

25,204

 

 

 

68,426

 

 

 

64,119

 

New equipment sales

 

 

16,946

 

 

 

24,769

 

 

 

61,576

 

 

 

71,198

 

Parts sales

 

 

13,209

 

 

 

12,054

 

 

 

36,715

 

 

 

36,508

 

Services revenues

 

 

3,000

 

 

 

2,756

 

 

 

8,193

 

 

 

8,695

 

Other

 

 

1,815

 

 

 

1,606

 

 

 

4,896

 

 

 

5,436

 

Total cost of revenues

 

 

161,528

 

 

 

163,904

 

 

 

484,405

 

 

 

476,309

 

Gross profit

 

 

113,908

 

 

 

88,009

 

 

 

297,140

 

 

 

262,946

 

Selling, general and administrative expenses

 

 

74,403

 

 

 

64,540

 

 

 

213,259

 

 

 

200,442

 

Impairment of goodwill

 

 

 

 

 

 

 

 

 

 

 

55,664

 

Merger and other

 

 

9

 

 

 

150

 

 

 

115

 

 

 

308

 

Gain on sales of property and equipment, net

 

 

6,166

 

 

 

2,047

 

 

 

6,951

 

 

 

6,818

 

Income from operations

 

 

45,662

 

 

 

25,366

 

 

 

90,717

 

 

 

13,350

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(13,430

)

 

 

(14,887

)

 

 

(40,298

)

 

 

(46,489

)

Other, net

 

 

615

 

 

 

989

 

 

 

2,026

 

 

 

2,256

 

Total other expense, net

 

 

(12,815

)

 

 

(13,898

)

 

 

(38,272

)

 

 

(44,233

)

Income (loss) from continuing operations before provision (benefit) for income taxes

 

 

32,847

 

 

 

11,468

 

 

 

52,445

 

 

 

(30,883

)

Provision (benefit) for income taxes

 

 

8,119

 

 

 

3,485

 

 

 

13,611

 

 

 

(5,820

)

Net income (loss) from continuing operations

 

$

24,728

 

 

$

7,983

 

 

$

38,834

 

 

$

(25,063

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations before provision for income taxes

 

$

6,411

 

 

$

5,614

 

 

$

14,246

 

 

$

12,709

 

Provision for income taxes

 

 

1,602

 

 

 

3,494

 

 

 

3,626

 

 

 

5,696

 

Net income from discontinued operations

 

$

4,809

 

 

$

2,120

 

 

$

10,620

 

 

$

7,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

29,537

 

 

$

10,103

 

 

$

49,454

 

 

$

(18,050

)

 

 

 

 


5


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss) from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

 

$

0.22

 

 

$

1.07

 

 

$

(0.70

)

Diluted

 

$

0.68

 

 

$

0.22

 

 

$

1.07

 

 

$

(0.70

)

Net income from discontinued operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.06

 

 

$

0.29

 

 

$

0.19

 

Diluted

 

$

0.13

 

 

$

0.06

 

 

$

0.29

 

 

$

0.19

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.81

 

 

$

0.28

 

 

$

1.36

 

 

$

(0.50

)

Diluted

 

$

0.81

 

 

$

0.28

 

 

$

1.36

 

 

$

(0.50

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,296

 

 

 

36,110

 

 

 

36,232

 

 

 

36,035

 

Diluted

 

 

36,436

 

 

 

36,249

 

 

 

36,420

 

 

 

36,035

 

Dividends declared per common share outstanding

 

$

0.275

 

 

$

0.275

 

 

$

0.825

 

 

$

0.825

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

49,454

 

 

$

(18,050

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

20,661

 

 

 

22,288

 

Depreciation of rental equipment

 

 

172,025

 

 

 

177,225

 

Amortization of finance lease right-of-use assets

 

 

122

 

 

 

121

 

Amortization of intangible assets

 

 

2,978

 

 

 

2,996

 

Amortization of deferred financing costs

 

 

729

 

 

 

755

 

Accretion of note discount, net of premium amortization

 

 

879

 

 

 

358

 

Non-cash operating lease expense

 

 

11,145

 

 

 

10,619

 

Impairment of goodwill

 

 

 

 

 

61,994

 

Provision for losses on accounts receivable

 

 

1,200

 

 

 

3,340

 

Provision for inventory obsolescence

 

 

54

 

 

 

95

 

Change in deferred income taxes

 

 

14,445

 

 

 

(1,374

)

Stock-based compensation expense

 

 

3,600

 

 

 

3,295

 

Gain from sales of property and equipment, net

 

 

(7,000

)

 

 

(9,260

)

Gain from sales of rental equipment, net

 

 

(39,274

)

 

 

(33,102

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

3,210

 

 

 

21,269

 

Inventories

 

 

(46,684

)

 

 

(7,712

)

Prepaid expenses and other assets

 

 

(5,494

)

 

 

(1,355

)

Accounts payable

 

 

1,132

 

 

 

11,549

 

Manufacturer flooring plans payable

 

 

7,928

 

 

 

(13,555

)

Accrued expenses payable and other liabilities

 

 

10,954

 

 

 

(14,478

)

Deferred compensation payable