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 June 30, 20202021
☐ | 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 July 28, 2020,27, 2021, there were 35,913,41636,092,603 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
June 30, 20202021
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, |
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.
3
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, 2019 and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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.
4
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 |
| |||||||||||||
|
| Balances at |
|
| June 30, |
|
| December 31, |
| |||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 6,251 |
|
| $ | 14,247 |
|
| $ | 202,487 |
|
| $ | 310,882 |
|
Receivables, net of allowance for doubtful accounts of $5,001 and $5,236, respectively |
|
| 146,490 |
|
|
| 192,204 |
| ||||||||
Inventories, net of reserves for obsolescence of $245 and $331, respectively |
|
| 79,453 |
|
|
| 85,478 |
| ||||||||
Receivables, net of allowance for doubtful accounts of $4,721 and $4,741, respectively |
|
| 170,516 |
|
|
| 178,858 |
| ||||||||
Inventories, net of reserves for obsolescence of $270 and $350, respectively |
|
| 128,422 |
|
|
| 72,488 |
| ||||||||
Prepaid expenses and other assets |
|
| 18,784 |
|
|
| 10,262 |
|
|
| 17,381 |
|
|
| 10,379 |
|
Rental equipment, net of accumulated depreciation of $709,487 and $676,376, respectively |
|
| 1,133,857 |
|
|
| 1,217,673 |
| ||||||||
Property and equipment, net of accumulated depreciation and amortization of $158,592 and $156,782, respectively |
|
| 126,291 |
|
|
| 130,564 |
| ||||||||
Operating lease right-of-use assets, net of accumulated amortization of $17,315 and $11,197, respectively |
|
| 165,529 |
|
|
| 156,570 |
| ||||||||
Finance lease right-of-use assets, net of accumulated amortization of $2,132 and $2,051, respectively |
|
| 284 |
|
|
| 365 |
| ||||||||
Deferred financing costs, net of accumulated amortization of $14,769 and $14,419, respectively |
|
| 2,507 |
|
|
| 2,857 |
| ||||||||
Intangible assets, net of accumulated amortization of $8,754 and $6,952, respectively |
|
| 30,946 |
|
|
| 32,948 |
| ||||||||
Rental equipment, net of accumulated depreciation of $708,199 and $701,588, respectively |
|
| 1,112,959 |
|
|
| 1,028,745 |
| ||||||||
Property and equipment, net of accumulated depreciation and amortization of $170,781 and $158,803, respectively |
|
| 118,709 |
|
|
| 116,740 |
| ||||||||
Operating lease right-of-use assets, net of accumulated amortization of $31,346 and $23,920, respectively |
|
| 167,661 |
|
|
| 162,220 |
| ||||||||
Finance lease right-of-use assets, net of accumulated amortization of $2,295 and $2,213, respectively |
|
| 122 |
|
|
| 203 |
| ||||||||
Deferred financing costs, net of accumulated amortization of $15,469 and $15,119, respectively |
|
| 1,807 |
|
|
| 2,157 |
| ||||||||
Intangible assets, net of accumulated amortization of $12,724 and $10,939, respectively |
|
| 26,976 |
|
|
| 28,961 |
| ||||||||
Goodwill |
|
| 68,851 |
|
|
| 131,442 |
|
|
| 68,851 |
|
|
| 68,851 |
|
Total assets |
| $ | 1,779,243 |
|
| $ | 1,974,610 |
|
| $ | 2,015,891 |
|
| $ | 1,980,484 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due on senior secured credit facility |
| $ | 67,561 |
|
| $ | 216,879 |
| ||||||||
Accounts payable |
|
| 72,333 |
|
|
| 58,853 |
|
|
| 113,099 |
|
|
| 89,295 |
|
Manufacturer flooring plans payable |
|
| 16,677 |
|
|
| 25,201 |
|
|
| 7,326 |
|
|
| 9,615 |
|
Accrued expenses payable and other liabilities |
|
| 70,467 |
|
|
| 78,382 |
|
|
| 66,916 |
|
|
| 67,290 |
|
Dividends payable |
|
| 115 |
|
|
| 171 |
|
|
| 88 |
|
|
| 155 |
|
Senior unsecured notes, net of unaccreted discount of $2,453 and $2,691 and deferred financing costs of $1,589 and $1,743, respectively |
|
| 945,958 |
|
|
| 945,566 |
| ||||||||
Senior unsecured notes, net of unaccreted discount of $8,737 and $9,323 and deferred financing costs of $2,018 and $2,017, respectively |
|
| 1,239,245 |
|
|
| 1,238,660 |
| ||||||||
Operating lease right-of-use liabilities |
|
| 168,771 |
|
|
| 159,265 |
|
|
| 171,699 |
|
|
| 165,921 |
|
Finance lease right-of-use liabilities |
|
| 430 |
|
|
| 550 |
|
|
| 177 |
|
|
| 305 |
|
Deferred income taxes |
|
| 172,915 |
|
|
| 180,126 |
|
|
| 176,879 |
|
|
| 171,010 |
|
Deferred compensation payable |
|
| 2,148 |
|
|
| 2,098 |
| ||||||||
Total liabilities |
|
| 1,517,375 |
|
|
| 1,667,091 |
|
|
| 1,775,429 |
|
|
| 1,742,251 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 25,000,000 shares authorized; 0 shares issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.01 par value, 175,000,000 shares authorized; 40,013,557 and 39,921,838 shares issued at June 30, 2020 and December 31, 2019, respectively, and 35,913,416 and 35,848,089 shares outstanding at June 30, 2020 and December 31, 2019, respectively |
|
| 399 |
|
|
| 398 |
| ||||||||
Common stock, $0.01 par value, 175,000,000 shares authorized; 40,278,843 and 40,242,711 shares issued at June 30, 2021 and December 31, 2020, respectively, and 36,116,063 and 36,092,555 shares outstanding at June 30, 2021 and December 31, 2020, respectively |
|
| 402 |
|
|
| 401 |
| ||||||||
Additional paid-in capital |
|
| 238,500 |
|
|
| 235,844 |
|
|
| 242,749 |
|
|
| 240,206 |
|
Treasury stock at cost, 4,100,141 and 4,073,749 shares of common stock held at June 30, 2020 and December 31, 2019, respectively |
|
| (65,253 | ) |
|
| (64,783 | ) | ||||||||
Treasury stock at cost, 4,162,780 and 4,150,156 shares of common stock held at June 30, 2021 and December 31, 2020, respectively |
|
| (66,623 | ) |
|
| (66,188 | ) | ||||||||
Retained earnings |
|
| 88,222 |
|
|
| 136,060 |
|
|
| 63,934 |
|
|
| 63,814 |
|
Total stockholders’ equity |
|
| 261,868 |
|
|
| 307,519 |
|
|
| 240,462 |
|
|
| 238,233 |
|
Total liabilities and stockholders’ equity |
| $ | 1,779,243 |
|
| $ | 1,974,610 |
|
| $ | 2,015,891 |
|
| $ | 1,980,484 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
54
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 155,794 |
|
| $ | 192,302 |
|
| $ | 330,313 |
|
| $ | 368,431 |
|
| $ | 179,037 |
|
| $ | 155,794 |
|
| $ | 335,261 |
|
| $ | 330,313 |
|
New equipment sales |
|
| 43,947 |
|
|
| 53,596 |
|
|
| 74,820 |
|
|
| 112,699 |
|
|
| 49,919 |
|
|
| 43,947 |
|
|
| 87,664 |
|
|
| 74,820 |
|
Used equipment sales |
|
| 34,013 |
|
|
| 36,128 |
|
|
| 65,231 |
|
|
| 65,762 |
|
|
| 41,358 |
|
|
| 34,013 |
|
|
| 83,124 |
|
|
| 65,231 |
|
Parts sales |
|
| 26,220 |
|
|
| 31,871 |
|
|
| 55,989 |
|
|
| 62,299 |
|
|
| 27,424 |
|
|
| 26,220 |
|
|
| 53,036 |
|
|
| 55,989 |
|
Services revenues |
|
| 15,657 |
|
|
| 16,725 |
|
|
| 32,479 |
|
|
| 32,293 |
|
|
| 14,977 |
|
|
| 15,657 |
|
|
| 29,487 |
|
|
| 32,479 |
|
Other |
|
| 2,705 |
|
|
| 2,975 |
|
|
| 5,426 |
|
|
| 5,751 |
|
|
| 3,048 |
|
|
| 2,705 |
|
|
| 5,636 |
|
|
| 5,426 |
|
Total revenues |
|
| 278,336 |
|
|
| 333,597 |
|
|
| 564,258 |
|
|
| 647,235 |
|
|
| 315,763 |
|
|
| 278,336 |
|
|
| 594,208 |
|
|
| 564,258 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 59,156 |
|
|
| 61,434 |
|
|
| 119,142 |
|
|
| 118,582 |
|
|
| 58,337 |
|
|
| 59,156 |
|
|
| 113,686 |
|
|
| 119,142 |
|
Rental expense |
|
| 23,264 |
|
|
| 27,019 |
|
|
| 48,833 |
|
|
| 51,787 |
|
|
| 28,081 |
|
|
| 23,264 |
|
|
| 53,769 |
|
|
| 48,833 |
|
Rental other |
|
| 14,226 |
|
|
| 17,847 |
|
|
| 31,031 |
|
|
| 34,122 |
|
|
| 18,731 |
|
|
| 14,226 |
|
|
| 35,454 |
|
|
| 31,031 |
|
|
|
| 96,646 |
|
|
| 106,300 |
|
|
| 199,006 |
|
|
| 204,491 |
|
|
| 105,149 |
|
|
| 96,646 |
|
|
| 202,909 |
|
|
| 199,006 |
|
New equipment sales |
|
| 39,259 |
|
|
| 47,064 |
|
|
| 66,685 |
|
|
| 99,163 |
|
|
| 44,176 |
|
|
| 39,259 |
|
|
| 77,618 |
|
|
| 66,685 |
|
Used equipment sales |
|
| 23,282 |
|
|
| 23,321 |
|
|
| 43,720 |
|
|
| 42,333 |
|
|
| 27,008 |
|
|
| 23,282 |
|
|
| 55,373 |
|
|
| 43,720 |
|
Parts sales |
|
| 19,352 |
|
|
| 23,290 |
|
|
| 41,255 |
|
|
| 45,579 |
|
|
| 20,356 |
|
|
| 19,352 |
|
|
| 39,103 |
|
|
| 41,255 |
|
Services revenues |
|
| 5,173 |
|
|
| 5,359 |
|
|
| 10,713 |
|
|
| 10,363 |
|
|
| 4,789 |
|
|
| 5,173 |
|
|
| 9,486 |
|
|
| 10,713 |
|
Other |
|
| 2,554 |
|
|
| 3,482 |
|
|
| 5,326 |
|
|
| 6,825 |
|
|
| 2,920 |
|
|
| 2,554 |
|
|
| 5,351 |
|
|
| 5,326 |
|
Total cost of revenues |
|
| 186,266 |
|
|
| 208,816 |
|
|
| 366,705 |
|
|
| 408,754 |
|
|
| 204,398 |
|
|
| 186,266 |
|
|
| 389,840 |
|
|
| 366,705 |
|
Gross profit |
|
| 92,070 |
|
|
| 124,781 |
|
|
| 197,553 |
|
|
| 238,481 |
|
|
| 111,365 |
|
|
| 92,070 |
|
|
| 204,368 |
|
|
| 197,553 |
|
Selling, general and administrative expenses |
|
| 67,861 |
|
|
| 77,840 |
|
|
| 147,485 |
|
|
| 156,487 |
|
|
| 77,006 |
|
|
| 67,861 |
|
|
| 150,959 |
|
|
| 147,485 |
|
Impairment of goodwill |
|
| — |
|
|
| — |
|
|
| 61,994 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61,994 |
|
Merger costs |
|
| 118 |
|
|
| 148 |
|
|
| 158 |
|
|
| 267 |
| ||||||||||||||||
Merger and other |
|
| 680 |
|
|
| 118 |
|
|
| 1,417 |
|
|
| 158 |
| ||||||||||||||||
Gain on sales of property and equipment, net |
|
| 2,894 |
|
|
| 880 |
|
|
| 7,158 |
|
|
| 1,621 |
|
|
| 680 |
|
|
| 2,894 |
|
|
| 834 |
|
|
| 7,158 |
|
Income (loss) from operations |
|
| 26,985 |
|
|
| 47,673 |
|
|
| (4,926 | ) |
|
| 83,348 |
|
|
| 34,359 |
|
|
| 26,985 |
|
|
| 52,826 |
|
|
| (4,926 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (15,572 | ) |
|
| (17,267 | ) |
|
| (31,602 | ) |
|
| (34,122 | ) |
|
| (13,425 | ) |
|
| (15,572 | ) |
|
| (26,868 | ) |
|
| (31,602 | ) |
Other, net |
|
| 642 |
|
|
| 489 |
|
|
| 1,272 |
|
|
| 1,021 |
|
|
| 808 |
|
|
| 642 |
|
|
| 1,475 |
|
|
| 1,272 |
|
Total other expense, net |
|
| (14,930 | ) |
|
| (16,778 | ) |
|
| (30,330 | ) |
|
| (33,101 | ) |
|
| (12,617 | ) |
|
| (14,930 | ) |
|
| (25,393 | ) |
|
| (30,330 | ) |
Income (loss) before provision (benefit) for income taxes |
|
| 12,055 |
|
|
| 30,895 |
|
|
| (35,256 | ) |
|
| 50,247 |
|
|
| 21,742 |
|
|
| 12,055 |
|
|
| 27,433 |
|
|
| (35,256 | ) |
Provision (benefit) for income taxes |
|
| 3,240 |
|
|
| 8,281 |
|
|
| (7,103 | ) |
|
| 13,390 |
|
|
| 5,976 |
|
|
| 3,240 |
|
|
| 7,516 |
|
|
| (7,103 | ) |
Net income (loss) |
| $ | 8,815 |
|
| $ | 22,614 |
|
| $ | (28,153 | ) |
| $ | 36,857 |
|
| $ | 15,766 |
|
| $ | 8,815 |
|
| $ | 19,917 |
|
| $ | (28,153 | ) |
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.24 |
|
| $ | 0.63 |
|
| $ | (0.78 | ) |
| $ | 1.03 |
|
| $ | 0.44 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | (0.78 | ) |
Diluted |
| $ | 0.24 |
|
| $ | 0.63 |
|
| $ | (0.78 | ) |
| $ | 1.02 |
|
| $ | 0.43 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | (0.78 | ) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 36,031 |
|
|
| 35,826 |
|
|
| 35,998 |
|
|
| 35,807 |
|
|
| 36,216 |
|
|
| 36,031 |
|
|
| 36,200 |
|
|
| 35,998 |
|
Diluted |
|
| 36,107 |
|
|
| 36,016 |
|
|
| 35,998 |
|
|
| 35,994 |
|
|
| 36,437 |
|
|
| 36,107 |
|
|
| 36,412 |
|
|
| 35,998 |
|
Dividends declared per common share outstanding |
| $ | 0.275 |
|
| $ | 0.275 |
|
| $ | 0.55 |
|
| $ | 0.55 |
|
| $ | 0.275 |
|
| $ | 0.275 |
|
| $ | 0.55 |
|
| $ | 0.55 |
|
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)
|
| Six Months Ended |
| |||||||||||||
|
| Six Months Ended June 30, |
|
| June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (28,153 | ) |
| $ | 36,857 |
|
| $ | 19,917 |
|
| $ | (28,153 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
| 14,769 |
|
|
| 13,627 |
|
|
| 14,001 |
|
|
| 14,769 |
|
Depreciation of rental equipment |
|
| 119,142 |
|
|
| 118,582 |
|
|
| 113,686 |
|
|
| 119,142 |
|
Amortization of finance lease right-of-use assets |
|
| 81 |
|
|
| 81 |
|
|
| 81 |
|
|
| 81 |
|
Amortization of intangible assets |
|
| 2,002 |
|
|
| 2,049 |
|
|
| 1,985 |
|
|
| 2,002 |
|
Amortization of deferred financing costs |
|
| 504 |
|
|
| 504 |
|
|
| 486 |
|
|
| 504 |
|
Accretion of note discount, net of premium amortization |
|
| 238 |
|
|
| 239 |
|
|
| 586 |
|
|
| 238 |
|
Non-cash operating lease expense |
|
| 5,760 |
|
|
| 5,273 |
|
|
| 7,426 |
|
|
| 5,760 |
|
Impairment of goodwill |
|
| 61,994 |
|
|
| — |
|
|
| — |
|
|
| 61,994 |
|
Provision for losses on accounts receivable |
|
| 2,950 |
|
|
| 2,480 |
|
|
| 787 |
|
|
| 2,950 |
|
Provision for inventory obsolescence |
|
| 12 |
|
|
| 115 |
|
|
| 38 |
|
|
| 12 |
|
Change in deferred income taxes |
|
| (7,211 | ) |
|
| 12,239 |
|
|
| 5,869 |
|
|
| (7,211 | ) |
Stock-based compensation expense |
|
| 2,656 |
|
|
| 2,023 |
|
|
| 2,543 |
|
|
| 2,656 |
|
Gain from sales of property and equipment, net |
|
| (7,158 | ) |
|
| (1,621 | ) |
|
| (834 | ) |
|
| (7,158 | ) |
Gain from sales of rental equipment, net |
|
| (21,224 | ) |
|
| (23,239 | ) |
|
| (27,070 | ) |
|
| (21,224 | ) |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 42,764 |
|
|
| 4,764 |
|
|
| 7,555 |
|
|
| 42,764 |
|
Inventories |
|
| (12,397 | ) |
|
| (55,997 | ) |
|
| (73,651 | ) |
|
| (12,397 | ) |
Prepaid expenses and other assets |
|
| (8,540 | ) |
|
| (2,969 | ) |
|
| (7,137 | ) |
|
| (8,540 | ) |
Accounts payable |
|
| 14,077 |
|
|
| 16,592 |
|
|
| 23,804 |
|
|
| 14,077 |
|
Manufacturer flooring plans payable |
|
| (8,524 | ) |
|
| 1,400 |
|
|
| (2,289 | ) |
|
| (8,524 | ) |
Accrued expenses payable and other liabilities |
|
| (13,326 | ) |
|
| 1,898 |
|
|
| (7,324 | ) |
|
| (13,326 | ) |
Deferred compensation payable |
|
| 50 |
|
|
| 55 |
|
|
| — |
|
|
| 50 |
|
Net cash provided by operating activities |
|
| 160,466 |
|
|
| 134,952 |
|
|
| 80,459 |
|
|
| 160,466 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
| — |
|
|
| (106,746 | ) | ||||||||
Purchases of property and equipment |
|
| (13,511 | ) |
|
| (18,568 | ) |
|
| (16,227 | ) |
|
| (13,511 | ) |
Purchases of rental equipment |
|
| (55,448 | ) |
|
| (174,674 | ) |
|
| (228,453 | ) |
|
| (55,448 | ) |
Proceeds from sales of property and equipment |
|
| 10,390 |
|
|
| 2,173 |
|
|
| 1,088 |
|
|
| 10,390 |
|
Proceeds from sales of rental equipment |
|
| 59,756 |
|
|
| 61,668 |
|
|
| 75,302 |
|
|
| 59,756 |
|
Net cash provided by (used in) investing activities |
|
| 1,187 |
|
|
| (236,147 | ) |
|
| (168,290 | ) |
|
| 1,187 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on senior secured credit facility |
|
| 496,011 |
|
|
| 797,029 |
|
|
| 620,584 |
|
|
| 496,011 |
|
Payments on senior secured credit facility |
|
| (645,329 | ) |
|
| (685,080 | ) |
|
| (620,584 | ) |
|
| (645,329 | ) |
Dividends paid |
|
| (19,741 | ) |
|
| (19,670 | ) |
|
| (19,865 | ) |
|
| (19,741 | ) |
Purchases of treasury stock |
|
| (470 | ) |
|
| (387 | ) |
|
| (435 | ) |
|
| (470 | ) |
Payments of deferred financing costs |
|
| — |
|
|
| (559 | ) |
|
| (136 | ) |
|
| — |
|
Payments of finance lease obligations |
|
| (120 | ) |
|
| (114 | ) |
|
| (128 | ) |
|
| (120 | ) |
Net cash provided by (used in) financing activities |
|
| (169,649 | ) |
|
| 91,219 |
| ||||||||
Net cash used in financing activities |
|
| (20,564 | ) |
|
| (169,649 | ) | ||||||||
Net decrease in cash |
|
| (7,996 | ) |
|
| (9,976 | ) |
|
| (108,395 | ) |
|
| (7,996 | ) |
Cash, beginning of period |
|
| 14,247 |
|
|
| 16,677 |
|
|
| 310,882 |
|
|
| 14,247 |
|
Cash, end of period |
| $ | 6,251 |
|
| $ | 6,701 |
|
| $ | 202,487 |
|
| $ | 6,251 |
|
7
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued acquisition purchase price consideration |
| $ | — |
|
| $ | 3,432 |
| ||||||||
Noncash asset purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets transferred from new and used inventory to rental fleet |
| $ | 18,410 |
|
| $ | 33,591 |
|
| $ | 17,679 |
|
| $ | 18,410 |
|
Purchases of property and equipment included in accrued expenses payable and other liabilities |
| $ | 218 |
|
| $ | 453 |
|
| $ | 3 |
|
| $ | 218 |
|
Operating lease right-of-use assets and lease liabilities recorded upon adoption of ASC 842 |
| $ | — |
|
| $ | 162,814 |
| ||||||||
Finance lease right-of-use assets and lease liabilities recorded upon adoption of ASC 842 |
| $ | — |
|
| $ | 782 |
| ||||||||
Operating lease assets obtained in exchange for new operating lease liabilities |
| $ | 15,077 |
|
| $ | 8,657 |
|
| $ | 12,868 |
|
| $ | 15,077 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 31,402 |
|
| $ | 32,954 |
|
| $ | 25,946 |
|
| $ | 31,402 |
|
Income taxes paid (refunds received), net |
| $ | (1,540 | ) |
| $ | 1,765 |
|
| $ | 1,545 |
|
| $ | (1,540 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Nature of Operations
Basis of Presentation
Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020,2021, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, from which the consolidated balance sheet amounts as of December 31, 20192020 were derived.
All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements. Business combinations accounted for as purchases are included in the condensed consolidated financial statements from their respective dates of acquisition.
The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, and consistent with industry practice, the accompanying condensed consolidated balance sheets are presented on an unclassified basis.
Nature of Operations
As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and services support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) material handling equipment. ByWe offer a full-service approach by providing equipment rental, sales, on-site parts, repair and maintenance functions under one roof we are a one-stop provider for our customers’ varied equipment needs. This full service approach provides us with multiple points of customer contact, enables us to maintain a high qualityour rental fleet, as well as an effectivea distribution channel for fleet disposal, and provides cross‑cross selling opportunities among our new and used equipment sales, rental, parts sales and services operations.
COVID-19
The novel coronavirus (“COVID-19”) was first identified in late 2019. COVID-19 spread rapidly throughout the world and, in March 2020, the World Health Organization characterized COVID-19 as a pandemic and recommended containment and mitigation measures worldwide. COVID-19 is a pandemic of respiratory disease spreading from person-to-person that poses a serious public health risk. The subsequent spread of COVID-19 during 2020 and the resulting economic contraction has resulted in increased business uncertainty in our industry. Even as some states have begun to partially or completely lift stay-at-home restriction orders to reopen their economies, several areas ofAs the country are now experiencing increases in the numberimpact of COVID-19 cases, thereby limitingbecame more widespread, our equipment rental utilization and sales volumes began to decline from February 2020 levels through mid-April 2020, where we began to see utilization and sales levels stabilize and improve for the paceremainder of 2020. We continue to see overall improvements with utilization levels beginning in March 2021 returning to approximate pre-COVID utilization levels. The timing and extent of any economic recovery that may have otherwise occurred, and certain jurisdictions have begun to re-implement containment restrictions.
We began to experience a declinesubsequent contraction in revenues in March 2020, whenour equipment rental utilization and sales volumes declineddue to COVID-19 will depend on a number of factors, including a widespread resurgence in response to shelter-in-place orders and other end-user market restrictions. Such declines continued into mid-April, when we began to see improvement in rental and sales volumes in response to an easingCOVID-19 infections, the rate of the various market restrictions. These sequential improvements continued through the remainder of the second quarter and into early third quarter. The extent of any further recovery, or subsequent contraction, in our
9
business volumes fromvaccinations, the impact of the COVID-19 pandemic, and the resulting impact toour financial results and liquidity, will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers.
We have proactively taken,remain focused on the safety and will continue to take, the necessary actions to right-sizewell-being of our business in this environment to strengthen cash flow, reduce operating costs,employees, customers and further strengthen our balance sheet and liquidity position. These actions include headcount reductions, modified work schedules reducing hours where needed, furloughs in selected branch locations,communities as well as appropriate adjustmentswe maintain a high-level of service to our capital and discretionary spending plans. customers.
(2) Significant Accounting Policies
We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. During the three and six month periods ended June 30, 2020,2021, there were no significant changes to those accounting policies.
Use of Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.
Revenue Recognition
We recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 842.
Under Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. As described below, we adopted Topic 842, Leases, on January 1, 2019. We recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 842.
Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.
10Under Topic 842, Leases, we account for equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.
For additional information related to our revenue recognition policies pursuant to Topic 606 and Topic 842, please see Significant Accounting Policies in note 2 to our Form 10-K for the year ended December 31, 2020. In the table below, revenues as presented in our condensed consolidated statements of operations for the three and six month periods ended June 30, 20202021 and 20192020 are summarized by type and by the applicable accounting standard.
|
| Three Month Period Ended June 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned equipment rentals |
| $ | 135,503 |
|
| $ | 204 |
|
| $ | 135,707 |
|
| $ | 167,072 |
|
| $ | 245 |
|
| $ | 167,317 |
|
| $ | 150,659 |
|
| $ | 343 |
|
| $ | 151,002 |
|
| $ | 135,503 |
|
| $ | 204 |
|
| $ | 135,707 |
|
Re-rent revenue |
|
| 5,069 |
|
|
| — |
|
|
| 5,069 |
|
|
| 6,520 |
|
|
| — |
|
|
| 6,520 |
|
|
| 9,297 |
|
|
| — |
|
|
| 9,297 |
|
|
| 5,069 |
|
|
| — |
|
|
| 5,069 |
|
Ancillary and other rental revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery and pick-up |
|
| — |
|
|
| 8,603 |
|
|
| 8,603 |
|
|
| — |
|
|
| 10,313 |
|
|
| 10,313 |
|
|
| — |
|
|
| 10,087 |
|
|
| 10,087 |
|
|
| — |
|
|
| 8,603 |
|
|
| 8,603 |
|
Other |
|
| 6,415 |
|
|
| — |
|
|
| 6,415 |
|
|
| 8,152 |
|
|
| — |
|
|
| 8,152 |
|
|
| 8,651 |
|
|
| — |
|
|
| 8,651 |
|
|
| 6,415 |
|
|
| — |
|
|
| 6,415 |
|
Total ancillary rental revenues |
|
| 6,415 |
|
|
| 8,603 |
|
|
| 15,018 |
|
|
| 8,152 |
|
|
| 10,313 |
|
|
| 18,465 |
|
|
| 8,651 |
|
|
| 10,087 |
|
|
| 18,738 |
|
|
| 6,415 |
|
|
| 8,603 |
|
|
| 15,018 |
|
Total equipment rental revenues |
|
| 146,987 |
|
|
| 8,807 |
|
|
| 155,794 |
|
|
| 181,744 |
|
|
| 10,558 |
|
|
| 192,302 |
|
|
| 168,607 |
|
|
| 10,430 |
|
|
| 179,037 |
|
|
| 146,987 |
|
|
| 8,807 |
|
|
| 155,794 |
|
New equipment sales |
|
| — |
|
|
| 43,947 |
|
|
| 43,947 |
|
|
| — |
|
|
| 53,596 |
|
|
| 53,596 |
|
|
| — |
|
|
| 49,919 |
|
|
| 49,919 |
|
|
| — |
|
|
| 43,947 |
|
|
| 43,947 |
|
Used equipment sales |
|
| — |
|
|
| 34,013 |
|
|
| 34,013 |
|
|
| — |
|
|
| 36,128 |
|
|
| 36,128 |
|
|
| — |
|
|
| 41,358 |
|
|
| 41,358 |
|
|
| — |
|
|
| 34,013 |
|
|
| 34,013 |
|
Parts sales |
|
| — |
|
|
| 26,220 |
|
|
| 26,220 |
|
|
| — |
|
|
| 31,871 |
|
|
| 31,871 |
|
|
| — |
|
|
| 27,424 |
|
|
| 27,424 |
|
|
| — |
|
|
| 26,220 |
|
|
| 26,220 |
|
Service revenues |
|
| — |
|
|
| 15,657 |
|
|
| 15,657 |
|
|
| — |
|
|
| 16,725 |
|
|
| 16,725 |
|
|
| — |
|
|
| 14,977 |
|
|
| 14,977 |
|
|
| — |
|
|
| 15,657 |
|
|
| 15,657 |
|
Other |
|
| — |
|
|
| 2,705 |
|
|
| 2,705 |
|
|
| — |
|
|
| 2,975 |
|
|
| 2,975 |
|
|
| — |
|
|
| 3,048 |
|
|
| 3,048 |
|
|
| — |
|
|
| 2,705 |
|
|
| 2,705 |
|
Total revenues |
| $ | 146,987 |
|
| $ | 131,349 |
|
| $ | 278,336 |
|
| $ | 181,744 |
|
| $ | 151,853 |
|
| $ | 333,597 |
|
| $ | 168,607 |
|
| $ | 147,156 |
|
| $ | 315,763 |
|
| $ | 146,987 |
|
| $ | 131,349 |
|
| $ | 278,336 |
|
|
| Six Month Period Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned equipment rentals |
| $ | 289,173 |
|
| $ | 462 |
|
| $ | 289,635 |
|
| $ | 320,422 |
|
| $ | 519 |
|
| $ | 320,941 |
|
| $ | 282,719 |
|
| $ | 530 |
|
| $ | 283,249 |
|
| $ | 289,173 |
|
| $ | 462 |
|
| $ | 289,635 |
|
Re-rent revenue |
|
| 9,760 |
|
|
| — |
|
|
| 9,760 |
|
|
| 12,556 |
|
|
| — |
|
|
| 12,556 |
|
|
| 16,991 |
|
|
| — |
|
|
| 16,991 |
|
|
| 9,760 |
|
|
| — |
|
|
| 9,760 |
|
Ancillary and other rental revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery and pick-up |
|
| — |
|
|
| 17,729 |
|
|
| 17,729 |
|
|
| — |
|
|
| 19,295 |
|
|
| 19,295 |
|
|
| — |
|
|
| 18,483 |
|
|
| 18,483 |
|
|
| — |
|
|
| 17,729 |
|
|
| 17,729 |
|
Other |
|
| 13,189 |
|
|
| — |
|
|
| 13,189 |
|
|
| 15,639 |
|
|
| — |
|
|
| 15,639 |
|
|
| 16,538 |
|
|
| — |
|
|
| 16,538 |
|
|
| 13,189 |
|
|
| — |
|
|
| 13,189 |
|
Total ancillary rental revenues |
|
| 13,189 |
|
|
| 17,729 |
|
|
| 30,918 |
|
|
| 15,639 |
|
|
| 19,295 |
|
|
| 34,934 |
|
|
| 16,538 |
|
|
| 18,483 |
|
|
| 35,021 |
|
|
| 13,189 |
|
|
| 17,729 |
|
|
| 30,918 |
|
Total equipment rental revenues |
|
| 312,122 |
|
|
| 18,191 |
|
|
| 330,313 |
|
|
| 348,617 |
|
|
| 19,814 |
|
|
| 368,431 |
|
|
| 316,248 |
|
|
| 19,013 |
|
|
| 335,261 |
|
|
| 312,122 |
|
|
| 18,191 |
|
|
| 330,313 |
|
New equipment sales |
|
| — |
|
|
| 74,820 |
|
|
| 74,820 |
|
|
| — |
|
|
| 112,699 |
|
|
| 112,699 |
|
|
| — |
|
|
| 87,664 |
|
|
| 87,664 |
|
|
| — |
|
|
| 74,820 |
|
|
| 74,820 |
|
Used equipment sales |
|
| — |
|
|
| 65,231 |
|
|
| 65,231 |
|
|
| — |
|
|
| 65,762 |
|
|
| 65,762 |
|
|
| — |
|
|
| 83,124 |
|
|
| 83,124 |
|
|
| — |
|
|
| 65,231 |
|
|
| 65,231 |
|
Parts sales |
|
| — |
|
|
| 55,989 |
|
|
| 55,989 |
|
|
| — |
|
|
| 62,299 |
|
|
| 62,299 |
|
|
| — |
|
|
| 53,036 |
|
|
| 53,036 |
|
|
| — |
|
|
| 55,989 |
|
|
| 55,989 |
|
Service revenues |
|
| — |
|
|
| 32,479 |
|
|
| 32,479 |
|
|
| — |
|
|
| 32,293 |
|
|
| 32,293 |
|
|
| — |
|
|
| 29,487 |
|
|
| 29,487 |
|
|
| — |
|
|
| 32,479 |
|
|
| 32,479 |
|
Other |
|
| — |
|
|
| 5,426 |
|
|
| 5,426 |
|
|
| — |
|
|
| 5,751 |
|
|
| 5,751 |
|
|
| — |
|
|
| 5,636 |
|
|
| 5,636 |
|
|
| — |
|
|
| 5,426 |
|
|
| 5,426 |
|
Total revenues |
| $ | 312,122 |
|
| $ | 252,136 |
|
| $ | 564,258 |
|
| $ | 348,617 |
|
| $ | 298,618 |
|
| $ | 647,235 |
|
| $ | 316,248 |
|
| $ | 277,960 |
|
| $ | 594,208 |
|
| $ | 312,122 |
|
| $ | 252,136 |
|
| $ | 564,258 |
|
Revenues by reporting segment are presented in note 1210 of our condensed consolidated financial statements, using the revenue captions reflected in our consolidated statements of operations. We believe that the disaggregation of our revenues from contracts withto customers as reflected above, coupled with further discussion below and the reporting segments in note 12,10, depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. For further information related to our accounting for revenues pursuant to Topic 606 and Topic 842, see Significant Accounting Policies in note 2 to our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Receivables and contract assets and liabilities
We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowance for doubtful accounts address our total revenues from Topic 606 and Topic 842.
We believe concentration of credit risk with respect to our receivables is limited because our customer base is comprised of a large number of geographically diverse customers. NaN single customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented in this Quarterly Report on Form 10-Q. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
11
Pursuant to Topic 842 and Topic 326 for rental and non-rental receivables, respectively, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on
10
delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. Our largest exposure to doubtful accounts is in our rental operations. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts.accounts.
We do not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenues during the three and six month periods ended June 30, 2021 or 2020 or 2019 that werewas included in the contract liability balance as of the beginning of such periods.
Goodwill
Goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.
We evaluate goodwill for impairment at least annually, or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e., a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. We have identified two components within our Rental operating segment (Equipment Rental Component 1 and Equipment Rental Component 2) and have determined that each of our other operating segments (New Equipment Sales, Used Equipment Sales, Parts Sales and Service Revenues) represent a reporting unit, resulting in 6 total reporting units. As further described in our Annual Report on Form 10-K for the year ended December 31, 2019, we recorded in the fourth quarter of 2019 impairment charges of $10.7 million and $1.5 million related to our new equipment sales goodwill reporting unit and our service revenues goodwill reporting unit, respectively. As a result, and as indicated in the goodwill reporting unit carrying values rollforward below, these two reporting units had 0 carrying value at December 31, 2019. As further described below, as of March 31, 2020, we recorded an impairment charge of $62.0 million related to our Equipment Rental Component 2 reporting unit. As a result, and as indicated in the goodwill reporting unit carrying values rollforward below, this reporting unit has no remaining carrying value.
The goodwill impairment test consists of one step, comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit.
Based on our evaluation of the impact to our business in the first quarter of 2020 from the COVID-19 pandemic, we identified triggering events requiring an interim impairment test as of March 31, 2020. These triggering events included2020, resulting in a deterioration in macroeconomic conditions, declines in business volume in our industry, a decline in our actual revenue and earnings compared with our planned revenue and earnings, and a sustained decrease in our stock price.
For the interim$62.0 million impairment test as of March 31, 2020, we estimated the fair value of our reporting units by equally weighting results from the income approach and the market approach and we compared those fair valuescharge to the carrying values of our four reporting units with carrying values, and determined that our Equipment Rental Component 2 reporting unit had a fair value less than its carrying value, resultingunit. For additional information related to our goodwill impairment charge in a $62.0 million impairment charge. The impairment was largely duethe first quarter of 2020, please see footnote 2 to Equipment Rental Component 2’s forecasted declinesthe Company’s consolidated financial statements included as Item 8 in 2020 rental revenues, which was driven by the decrease in equipment rental demand that began in March 2020 as COVID-19’s impact became more widespread across our geographic footprint, combined with our revenue growth rate and cash flow assumptionsCompany’s Annual Report on Form 10-K for the remaining forecast period under the income approach, and the decline in the fair value of Equipment Rental Component 2 based on the market approach from declining business enterprise values of comparable companies in our industry, resulting in a decrease in revenue and EBITDA multiples of those companies. We determined that our Equipment Rental Component 1, Used Equipment Sales and Parts Sales reporting units were not impaired as their respective fair values exceeded their respective carrying values by approximately 34%, 90%, and 40%, respectively.year ended December 31, 2020.
Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and
12
operating expenses. We also make certain forecasts about future economic conditions, such as the timing and duration of economic expansion or contraction cycles in our business, interest rates, and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. An adverse change in any of the assumptions used in our impairment testing (e.g. projected revenue and profit, discount rates, industry price multiples, etc.), including the uncertainty related to the depth and duration of COVID-19’s impact on our forecasted cash flows, could affect our fair value measurements and result in future impairments. If we are unable to achieve the financial forecasts used in our impairment analysis, we may also be required to record an impairment charge to our goodwill.
The impairment charge is a non-cash item and will not affect our cash flows, liquidity or borrowing capacity under the senior credit facility, and the charge is excluded from our financial results in evaluating our financial covenant under the senior secured credit facility.
The changes in the carrying amount of goodwill for our reporting units for the periods ended June 30, 2020 and December 31, 2019 were as follows (amounts in thousands):
|
| Eq. Rental Comp. 1 |
|
| Eq. Rental Comp. 2 |
|
| New Eq. Sales |
|
| Used Eq. Sales |
|
| Parts Sales |
|
| Service Revenues |
|
| Total |
| |||||||
Balance at December 31, 2018 |
| $ | 34,297 |
|
| $ | 42,536 |
|
| $ | 10,434 |
|
| $ | 8,461 |
|
| $ | 8,910 |
|
| $ | 1,205 |
|
| $ | 105,843 |
|
Increases (1) |
|
| 14,918 |
|
|
| 19,775 |
|
|
| 254 |
|
|
| 500 |
|
|
| 2,045 |
|
|
| 291 |
|
|
| 37,783 |
|
Decreases (2) |
|
| — |
|
|
| — |
|
|
| (10,688 | ) |
|
| — |
|
|
| — |
|
|
| (1,496 | ) |
|
| (12,184 | ) |
Balance at December 31, 2019 |
|
| 49,215 |
|
|
| 62,311 |
|
|
| — |
|
|
| 8,961 |
|
|
| 10,955 |
|
|
| — |
|
|
| 131,442 |
|
Decreases (3) |
|
| (239 | ) |
|
| (317 | ) |
|
| — |
|
|
| (8 | ) |
|
| (33 | ) |
|
| — |
|
|
| (597 | ) |
Decreases (4) |
|
| — |
|
|
| (61,994 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,994 | ) |
Balance at June 30, 2020 |
| $ | 48,976 |
|
| $ | — |
|
| $ | — |
|
| $ | 8,953 |
|
| $ | 10,922 |
|
| $ | — |
|
| $ | 68,851 |
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2020, and generally requires prospective adoption. While we continue to evaluate the new guidance of ASU 2019-12, we currently do not expect the guidance to have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. The Company is currently evaluatingWe intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the new guidance.
In March 2020, the Securities and Exchange Commission (“SEC”) adopted final rules that amend the financial disclosure requirements for subsidiary issuers and guarantorsdiscontinuation of registered debt securities in Rule 3-10 of Regulation S-X. The SEC also amended the disclosure requirements for affiliates whose securities are pledgedLIBOR as collateral for registered securities in Rule 3-16 of Regulation S-X. The disclosure requirements,there can be no assurances as amended, are now relocated to newly created Rules 13-01 and 13-02 in Regulation S-X, while the amended eligibility requirements remain in Rule 3-10. The SEC amended its financial disclosure requirements for
13
companies that conduct registered debt offerings involving subsidiaries as either issuerswhether such replacement or guarantors and affiliates whose securities are pledged as collateral. The SEC also narrowed the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlined the alternative disclosures required in lieu of those statements. Further, the SEC replaced the requirement for separate financial statements of affiliates whose securities are pledged as collateral for registered securities with requirements similar to those adopted for subsidiary issuers and guarantors. Previously, with limited exceptions, a parent entity was required to provide detailed disclosures with regard to guarantors of registered debt offerings within the footnotesbase rate will be more or less favorable than LIBOR. Our exposure related to the consolidated financial statements. Under the new regulations, disclosure exceptions have been expanded and required disclosures may be provided within Item 2. — “Management’s Discussion and Analysisexpected cessation of Financial Condition and Results of Operations” rather than in the notesLIBOR is limited to the consolidated financial statements. Further, summarized guarantor balance sheets and income statements are permitted, withinterest expense we incur on balances outstanding under our Senior Secured Credit Facility (the “Credit Facility”). The potential impact from the requirement to provide guarantor cash flow statements eliminated. Summarized guarantor financial statements only need be disclosed forcessation of LIBOR as a reference rate, as well as the current fiscal year rather than all years presented in the financial statements as was previously required. The ruleapplicability of ASU 2020-04, is effective January 4, 2021, but earlier compliance is permitted.not currently estimable.
On May 20, 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. As noted in the final rule, the amendments are intended to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. Among other changes, the final rule modifies the significance tests and improves the disclosure requirements for acquired or to be acquired businesses, real estate operations, and pro forma financial information. The final rule is applicable for a registrant’s fiscal year beginning after December 31, 2020, but early application is permitted. The Company is currently evaluating the impact of the final rules.
Pronouncements Adopted in 20202021
Credit Losses
OnIn December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted ASU 2019-12 on January 1, 2020, we adopted Accounting Standards Codification Topic 326, Credit Losses (Topic 326). This standard establishes an impairment model (known as2021 and the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, we recognize an allowance for our estimate of expected credit losses over the entire contractual term of our receivables from the date of initial recognition of the financial instrument. Measurement of expected credit losses are based on relevant forecasts that affect collectability. Topic 326 applies to trade receivables from certain revenue transactions including receivables from equipment sales, parts and service sales. Under Topic 606 (Revenue from Contracts with Customers), revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that these trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The adoption of Topic 326 did not have a material impact on our condensed consolidated financial statements and related disclosures or our existing internal controls because our non-rental accounts receivable are of short duration and there is not a material difference between incurred losses and expected losses.presented herein.
Fair Value
On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement - Disclosure Framework. ASU 2018-13 modifies the disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements and footnotes.
14
(3) Acquisitions
2019 Acquisition
Cobra Equipment Rentals LLC (dba “We-Rent-It”)
Effective February 1, 2019, we completed the acquisition of We-Rent-It (“WRI”), an equipment rental company with 6 branches located in central Texas. The acquisition expands our presence in the surrounding markets.
The aggregate consideration paid to the owners of WRI was approximately $107.9 million. The acquisition and related fees and expenses were funded from borrowings under our Credit Facility (defined below). The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. The final closing statement was settled during the first quarter of 2020, resulting in a $0.6 million decrease in the total consideration paid.
|
| $’s in thousands |
| |
Cash |
| $ | 1,745 |
|
Accounts receivable |
|
| 5,119 |
|
Inventory |
|
| 731 |
|
Prepaid expenses and other assets |
|
| 544 |
|
Rental equipment |
|
| 51,747 |
|
Property and equipment |
|
| 3,207 |
|
Other assets |
|
| 21 |
|
Intangible assets (1) |
|
| 8,700 |
|
Total identifiable assets acquired |
|
| 71,814 |
|
Accounts payable |
|
| (115 | ) |
Accrued expenses payable and other liabilities |
|
| (991 | ) |
Total liabilities assumed |
|
| (1,106 | ) |
Net identifiable assets acquired |
|
| 70,708 |
|
Goodwill (2) |
|
| 37,186 |
|
Net assets acquired |
| $ | 107,894 |
|
|
|
|
| Fair Value (amounts in thousands) |
|
| Life (years) |
| ||
Customer relationships |
| $ | 8,500 |
|
|
| 10 |
|
Tradenames |
|
| 200 |
|
|
| 1 |
|
|
| $ | 8,700 |
|
|
|
|
|
|
|
Rental Component 1 |
| $ | 14,679 |
|
Rental Component 2 |
|
| 19,458 |
|
New Equipment |
|
| 254 |
|
Used Equipment |
|
| 492 |
|
Parts |
|
| 2,012 |
|
Service |
|
| 291 |
|
|
| $ | 37,186 |
|
The level of goodwill that resulted from the WRI acquisition is primarily reflective of WRI’s going-concern value, the value of WRI’s assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.
Total WRI acquisition costs were $0.4 million. Since our acquisition of WRI on February 1, 2019, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired WRI locations, as well as branch consolidations among the WRI branches acquired and H&E branches have occurred, and therefore, it is impractical to reasonably estimate the amount of WRI revenues and earnings since the acquisition date.
Pro forma financial information
We completed the We-Rent-It acquisition on February 1, 2019. Therefore, our condensed consolidated statements of operations for the three and six month periods ended June 30, 2020 and 2019 and included herein, includes We-Rent-It for the period of February 1, 2019 through June 30, 2020. The pro forma information below gives effect to the WRI acquisition as if it had been completed on January 1, 2018 (the WRI pro forma acquisition date).
The pro forma information below is not necessarily indicative of our results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, nor does it reflect additional revenue opportunities following the acquisition. The pro forma adjustments reflected in the tables below are subject to change as additional analysis is performed. Pursuant to ASC 805, Business Combinations, pro forma disclosures should be repeated whenever the year or interim period of the acquisition is presented. Since the WRI acquisition was completed in the first quarter of 2019, the pro forma information below gives effect to the WRI acquisition as if the acquisition occurred on January 1, 2018 (the WRI pro forma acquisition date) for the quarterly periods ended June 30, 2018. The tables below present unaudited pro forma consolidated statements of operations information for the three and six month periods ended June 30, 2018 as if WRI was included in our consolidated results for the entire period presented.
|
| (amounts in thousands, except per share data) |
| |||||||||
|
| Three Month Period Ended June 30, 2018 |
| |||||||||
|
| H&E(1) |
|
| We-Rent-It |
|
| Total |
| |||
Total revenues |
| $ | 310,364 |
|
| $ | 9,640 |
|
| $ | 320,004 |
|
Pretax income |
|
| 27,869 |
|
|
| 2,432 |
|
|
| 30,301 |
|
Pro forma adjustments to pretax income: |
|
|
|
|
|
|
|
|
|
|
|
|
Impact of fair value mark-ups/useful life changes on depreciation (2) |
|
| — |
|
|
| (1,976 | ) |
|
| (1,976 | ) |
Intangible asset amortization (3) |
|
| — |
|
|
| (313 | ) |
|
| (313 | ) |
Interest expense (4) |
|
| — |
|
|
| (1,476 | ) |
|
| (1,476 | ) |
Elimination of historic interest expense (5) |
|
| — |
|
|
| 126 |
|
|
| 126 |
|
Pro forma pretax income (loss) |
|
| 27,869 |
|
|
| (1,207 | ) |
|
| 26,662 |
|
Income tax expense (benefit) |
|
| 7,098 |
|
|
| (301 | ) |
|
| 6,797 |
|
Net income (loss) |
| $ | 20,771 |
|
| $ | (906 | ) |
| $ | 19,865 |
|
Net income (loss) per share – basic (6) |
| $ | 0.58 |
|
| $ | (0.03 | ) |
| $ | 0.56 |
|
Net income (loss) per share – diluted (6) |
| $ | 0.58 |
|
| $ | (0.03 | ) |
| $ | 0.55 |
|
|
| (amounts in thousands, except per share data) |
| |||||||||||||
|
| Six Month Period Ended June 30, 2018 |
| |||||||||||||
|
| H&E(1) |
|
| Rental Inc.(7) |
|
| We-Rent-It |
|
| Total |
| ||||
Total revenues |
| $ | 570,846 |
|
| $ | 7,408 |
|
| $ | 17,227 |
|
| $ | 595,481 |
|
Pretax income |
|
| 40,937 |
|
|
| 1,020 |
|
|
| 3,216 |
|
|
| 45,173 |
|
Pro forma adjustments to pretax income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of fair value mark-ups/useful life changes on depreciation (2) |
|
| — |
|
|
| (749 | ) |
|
| (2,226 | ) |
|
| (2,975 | ) |
Intangible asset amortization (3) |
|
| — |
|
|
| (275 | ) |
|
| (435 | ) |
|
| (710 | ) |
Interest expense (4) |
|
| — |
|
|
| (480 | ) |
|
| (2,832 | ) |
|
| (3,312 | ) |
Elimination of historic interest expense (5) |
|
| — |
|
|
| 82 |
|
|
| 206 |
|
|
| 288 |
|
Pro forma pretax income (loss) |
|
| 40,937 |
|
|
| (402 | ) |
|
| (2,071 | ) |
|
| 38,464 |
|
Income tax expense (benefit) |
|
| 10,688 |
|
|
| (105 | ) |
|
| (536 | ) |
|
| 10,047 |
|
Net income (loss) |
| $ | 30,249 |
|
| $ | (297 | ) |
| $ | (1,535 | ) |
| $ | 28,417 |
|
Net income (loss) per share – basic (6) |
| $ | 0.85 |
|
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | 0.80 |
|
Net income (loss) per share – diluted (6) |
| $ | 0.84 |
|
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | 0.79 |
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
(4) Fair Value of Financial Instruments
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions
The carrying value of financial instruments reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures as of June 30, 20202021 and December 31, 20192020 are presented in the table below (amounts in thousands).
|
| June 30, 2020 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 3.50% (Level 3) |
| $ | 16,677 |
|
| $ | 15,042 |
|
Senior unsecured notes due 2025 with interest computed at 5.625% (Level 2) |
|
| 945,958 |
|
|
| 959,500 |
|
|
| June 30, 2021 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 3.5% (Level 3) |
| $ | 7,326 |
|
| $ | 6,608 |
|
Senior unsecured notes due 2028 with interest computed at 3.875% (Level 2) |
|
| 1,239,245 |
|
|
| 1,231,338 |
|
|
| December 31, 2019 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 5.25% (Level 3) |
| $ | 25,201 |
|
| $ | 21,615 |
|
Senior unsecured notes due 2025 with interest computed at 5.625% (Level 2) |
|
| 945,566 |
|
|
| 995,125 |
|
|
| December 31, 2020 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 3.5% (Level 3) |
| $ | 9,615 |
|
| $ | 8,976 |
|
Senior unsecured notes due 2028 with interest computed at 3.875% (Level 2) |
|
| 1,238,660 |
|
|
| 1,259,413 |
|
At June 30, 20202021 and December 31, 2019,2020, the fair value of our senior unsecured notes due 20252028 was based on quoted bond trading market prices for those notes. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures have been calculated based upon market quotes and present value calculations based on market rates.
During the three and six month periods ended June 30, 2020 and 2019, there were 0 transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturing floor plans payable based on the U.S. prime rate plus the applicable margin on our Senior Secured Credit Facility. The discount rate as of June 30, 2020 and December 31, 2019 is disclosed in the above table.
During the three and six month periods ended June 30, 2021 and 2020, there were 0 transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy.
(5)
(4) Stockholders’ Equity
The following table summarizes the quarterly activity in Stockholders’ Equity for the periods ended June 30, 20202021 and 2019,2020, respectively (amounts in thousands, except share data):
17
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||||||||||||||
|
| Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Stockholders’ Equity |
| ||||||||||||||||||||||||||||||
Balances at December 31, 2020 |
|
| 40,242,711 |
|
| $ | 401 |
|
| $ | 240,206 |
|
| $ | (66,188 | ) |
| $ | 63,814 |
|
| $ | 238,233 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,601 |
|
|
| — |
|
|
| — |
|
|
| 1,601 |
| ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,854 | ) |
|
| (9,854 | ) | ||||||||||||||||||||||||
Issuance of common stock, net of restricted stock forfeitures |
|
| 45,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Repurchase of 12,624 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (435 | ) |
|
| — |
|
|
| (435 | ) | ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,151 |
|
|
| 4,151 |
| ||||||||||||||||||||||||
Balances at March 31, 2021 |
|
| 40,288,138 |
|
|
| 401 |
|
|
| 241,807 |
|
|
| (66,623 | ) |
|
| 58,111 |
|
|
| 233,696 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 942 |
|
|
| — |
|
|
| — |
|
|
| 942 |
| ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,943 | ) |
|
| (9,943 | ) | ||||||||||||||||||||||||
Restricted stock forfeitures |
|
| (9,295 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,766 |
|
|
| 15,766 |
| ||||||||||||||||||||||||
Balances at June 30, 2021 |
|
| 40,278,843 |
|
| $ | 402 |
|
| $ | 242,749 |
|
| $ | (66,623 | ) |
| $ | 63,934 |
|
| $ | 240,462 |
| ||||||||||||||||||||||||
|
| Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balances at December 31, 2019 |
|
| 39,921,838 |
|
| $ | 398 |
|
| $ | 235,844 |
|
| $ | (64,783 | ) |
| $ | 136,060 |
|
| $ | 307,519 |
|
|
| 39,921,838 |
|
| $ | 398 |
|
| $ | 235,844 |
|
| $ | (64,783 | ) |
| $ | 136,060 |
|
| $ | 307,519 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,652 |
|
|
| — |
|
|
| — |
|
|
| 1,652 |
|
|
| — |
|
|
| — |
|
|
| 1,652 |
|
|
| — |
|
|
| — |
|
|
| 1,652 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,789 | ) |
|
| (9,789 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,789 | ) |
|
| (9,789 | ) |
Issuance of common stock, net of restricted stock forfeitures |
|
| 98,451 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 98,451 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Repurchase of 26,392 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (470 | ) |
|
| — |
|
|
| (470 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (470 | ) |
|
| — |
|
|
| (470 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,968 | ) |
|
| (36,968 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,968 | ) |
|
| (36,968 | ) |
Balances at March 31, 2020 |
|
| 40,020,289 |
|
|
| 399 |
|
|
| 237,496 |
|
|
| (65,253 | ) |
|
| 89,303 |
|
|
| 261,945 |
|
|
| 40,020,289 |
|
|
| 399 |
|
|
| 237,496 |
|
|
| (65,253 | ) |
|
| 89,303 |
|
|
| 261,945 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,004 |
|
|
| — |
|
|
| — |
|
|
| 1,004 |
|
|
| — |
|
|
| — |
|
|
| 1,004 |
|
|
| — |
|
|
| — |
|
|
| 1,004 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,896 | ) |
|
| (9,896 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,896 | ) |
|
| (9,896 | ) |
Restricted stock forfeitures |
|
| (6,732 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,732 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,815 |
|
|
| 8,815 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,815 |
|
|
| 8,815 |
|
Balances at June 30, 2020 |
| $ | 40,013,557 |
|
| $ | 399 |
|
| $ | 238,500 |
|
| $ | (65,253 | ) |
| $ | 88,222 |
|
| $ | 261,868 |
|
|
| 40,013,557 |
|
| $ | 399 |
|
| $ | 238,500 |
|
| $ | (65,253 | ) |
| $ | 88,222 |
|
| $ | 261,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Balances at December 31, 2018 |
|
| 39,748,562 |
|
| $ | 396 |
|
| $ | 231,174 |
|
| $ | (63,099 | ) |
| $ | 88,332 |
|
| $ | 256,803 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,188 |
|
|
| — |
|
|
| — |
|
|
| 1,188 |
| ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,793 | ) |
|
| (9,793 | ) | ||||||||||||||||||||||||
Issuance of common stock, net of restricted stock forfeitures |
|
| 59,510 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||||||
Repurchase of 14,272 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (387 | ) |
|
| — |
|
|
| (387 | ) | ||||||||||||||||||||||||
Cumulative effect adjustment pursuant to the adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (56 | ) |
|
| (56 | ) | ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,243 |
|
|
| 14,243 |
| ||||||||||||||||||||||||
Balances at March 31, 2019 |
|
| 39,808,072 |
|
|
| 397 |
|
|
| 232,362 |
|
|
| (63,486 | ) |
|
| 92,726 |
|
|
| 261,999 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 835 |
|
|
| — |
|
|
| — |
|
|
| 835 |
| ||||||||||||||||||||||||
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,857 | ) |
|
| (9,857 | ) | ||||||||||||||||||||||||
Restricted stock forfeitures |
|
| (2,666 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22,614 |
|
|
| 22,614 |
| ||||||||||||||||||||||||
Balances at June 30, 2019 |
|
| 39,805,406 |
|
| $ | 397 |
|
| $ | 233,197 |
|
| $ | (63,486 | ) |
| $ | 105,483 |
|
| $ | 275,591 |
|
(6)(5) Stock-Based Compensation
We account for our stock-based compensation plans using the fair value recognition provisions of ASC 718, Stock Compensation. Under the provisions of ASC 718, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). Shares available for future stock-based payment awards under our 2016 Stock-Based Incentive Compensation Plan were 1,553,6951,288,409 shares as of June 30, 2020.2021.
1813
Non-vested Stock
The following table summarizes our non-vested stock activity for the six month period ended June 30, 2020:2021:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||
Non-vested stock at December 31, 2019 |
|
| 377,740 |
|
| $ | 29.26 |
| ||||||||
Non-vested stock at December 31, 2020 |
|
| 524,876 |
|
| $ | 23.00 |
| ||||||||
Granted |
|
| 23,608 |
|
| $ | 27.11 |
|
|
| 23,296 |
|
| $ | 27.48 |
|
Vested |
|
| (73,564 | ) |
| $ | 24.03 |
|
|
| (55,092 | ) |
| $ | 32.85 |
|
Forfeited |
|
| (8,608 | ) |
| $ | 31.15 |
|
|
| (22,960 | ) |
| $ | 25.14 |
|
Non-vested stock at June 30, 2020 |
|
| 319,176 |
|
| $ | 30.26 |
| ||||||||
Non-vested stock at June 30, 2021 |
|
| 470,120 |
|
| $ | 21.97 |
|
As of June 30, 2020,2021, we had unrecognized compensation expense of approximately $4.2$4.0 million related to non-vested stock that we expect to be recognized over a weighted-average period of approximately 1.7 years. The following table summarizes compensation expense related to non-vested stock, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and six month periods ended June 30, 20202021 and 20192020 (amounts in thousands):
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Compensation expense |
| $ | 1,004 |
|
| $ | 835 |
|
| $ | 2,656 |
|
| $ | 2,023 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Compensation expense |
| $ | 943 |
|
| $ | 1,004 |
|
| $ | 2,543 |
|
| $ | 2,656 |
|
(7)
(6) Income (loss)(Loss) per Share
Income (loss) per common share for the three and six month periods ended June 30, 20202021 and 20192020 are based on the weighted average number of common shares outstanding during the periods. The effects of potentially dilutive securities that are anti-dilutive are not included in the computation of dilutive income (loss) per share. We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.
Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. The number of restricted common shares outstanding was approximately 0.6%0.9% of total outstanding shares for each ofboth the three and six month periods ended June 30, 20202021 and 2019,2020, and, consequently, was immaterial to the basic and diluted EPS calculations. Therefore, use of the two-class method had no impact on our basic and diluted EPS calculations for the periods presented. The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and six month periods ended June 30, 20202021 and 20192020 (amounts in thousands, except per share amounts):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 8,815 |
|
| $ | 22,614 |
|
| $ | (28,153 | ) |
| $ | 36,857 |
|
| $ | 15,766 |
|
| $ | 8,815 |
|
| $ | 19,917 |
|
| $ | (28,153 | ) |
Weighted average number of common shares outstanding |
|
| 36,031 |
|
|
| 35,826 |
|
|
| 35,998 |
|
|
| 35,807 |
|
|
| 36,216 |
|
|
| 36,031 |
|
|
| 36,200 |
|
|
| 35,998 |
|
Net income (loss) per share of common stock – basic |
| $ | 0.24 |
|
| $ | 0.63 |
|
| $ | (0.78 | ) |
| $ | 1.03 |
|
| $ | 0.44 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | (0.78 | ) |
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 8,815 |
|
| $ | 22,614 |
|
| $ | (28,153 | ) |
| $ | 36,857 |
|
| $ | 15,766 |
|
| $ | 8,815 |
|
| $ | 19,917 |
|
| $ | (28,153 | ) |
Weighted average number of common shares outstanding |
|
| 36,031 |
|
|
| 35,826 |
|
|
| 35,998 |
|
|
| 35,807 |
|
|
| 36,216 |
|
|
| 36,031 |
|
|
| 36,200 |
|
|
| 35,998 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive non-vested restricted stock |
|
| 76 |
|
|
| 190 |
|
|
| — |
|
|
| 187 |
|
|
| 221 |
|
|
| 76 |
|
|
| 212 |
|
|
| — |
|
Weighted average number of common shares outstanding – diluted |
|
| 36,107 |
|
|
| 36,016 |
|
|
| 35,998 |
|
|
| 35,994 |
|
|
| 36,437 |
|
|
| 36,107 |
|
|
| 36,412 |
|
|
| 35,998 |
|
Net income (loss) per share of common stock – diluted |
| $ | 0.24 |
|
| $ | 0.63 |
|
| $ | (0.78 | ) |
| $ | 1.02 |
|
| $ | 0.43 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | (0.78 | ) |
Common shares excluded from the denominator as anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
(8)
(7) Senior Secured Credit Facility
We and our subsidiaries are parties to a $750.0 million Credit Facility with Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named therein (the “Credit Facility”). For further information related to significant terms of the Credit Facility, see the notesfootnote 10 to the Company’s consolidated financial statements included as Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
As of June 30, 2020,2021, we were in compliance with our financial covenants under the Amended and Restated Credit Agreement. At June 30, 2020,2021, we had $67.6 million of0 borrowings outstanding under the Credit Facility and could borrow up to approximately $674.7$741.3 million, net of an $8.7 million outstanding letter of credit, and remain in compliance with the debt covenants under the Credit Facility. At July 28, 2020, we had $699.9 million of available borrowings under our Credit Facility, net of a $7.7 million outstanding letter of credit.
(9)(8) Senior Unsecured Notes
On December 14, 2020, we completed an offering of $1,250 million aggregate principal amount of 3.875% senior notes due 2028 (the “New Notes”) and the settlement of a cash tender offer with respect to our previously outstanding 5.625% senior notes due 2025 (the “Old Notes”). For further information related to significant terms of the Senior Unsecured Notes, see the notesfootnote 9 to the Company’s consolidated financial statements included as Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020. As of June 30, 2020,2021, we were in compliance with the covenants governing our notes.
The following table reconciles our Senior Unsecured Notes to our Condensed Consolidated Balance Sheets (amounts in thousands):
Balance at December 31, 2018 |
| $ | 944,780 |
|
Accretion of discount through December 31, 2019 |
|
| 1,539 |
|
Amortization of note premium through December 31, 2019 |
|
| (1,062 | ) |
Amortization of deferred financing costs through December 31, 2019 |
|
| 309 |
|
Balance at December 31, 2019 |
| $ | 945,566 |
|
Accretion of discount through June 30, 2020 |
|
| 770 |
|
Amortization of note premium through June 30, 2020 |
|
| (532 | ) |
Amortization of deferred financing costs through June 30, 2020 |
|
| 154 |
|
Balance at June 30, 2020 |
| $ | 945,958 |
|
Balance at December 31, 2019 |
| $ | 945,566 |
|
Accretion of discount on Old Notes through December 14, 2020 |
|
| 1,466 |
|
Amortization of note premium on Old Notes through December 14, 2020 |
|
| (1,011 | ) |
Amortization of deferred financing costs on Old Notes through December 14, 2020 |
|
| 293 |
|
Aggregate principal amount paid on Old Notes |
|
| (950,000 | ) |
Writeoff of unaccreted discount on Old Notes |
|
| 7,225 |
|
Writeoff of unamortized premium on Old Notes |
|
| (4,988 | ) |
Writeoff of deferred financing costs on Old Notes |
|
| 1,449 |
|
Aggregate principal amount issued on New Notes |
|
| 1,250,000 |
|
Notes discount and deferred transaction costs on New Notes |
|
| (11,404 | ) |
Accretion of discount on New Notes from December 14, 2020 through December 31, 2020 |
|
| 53 |
|
Amortization of deferred financing costs on New Notes from December 14, 2020 through December 31, 2020 |
|
| 11 |
|
Balance at December 31, 2020 |
| $ | 1,238,660 |
|
Accretion of discount on New Notes through June 30, 2021 |
|
| 586 |
|
Additional deferred financing costs on New Notes through June 30, 2021 |
|
| (136 | ) |
Amortization of deferred financing costs on New Notes through June 30, 2021 |
|
| 135 |
|
Balance at June 30, 2021 |
| $ | 1,239,245 |
|
(10)(9) Leases
We adopted Topic 842 on January 1, 2019. For a discussion of our adoption of Topic 842 and related disclosures, see note 2 and note 11 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
At June 30, 2020,2021, as disclosed in our condensed consolidated balance sheet, we had net operating lease right-of-use assets of $165.5$167.7 million and net finance lease right-of-use assets of $0.3$0.1 million. Our operating lease liabilities at June 30, 20202021 were $168.8$171.7 million and finance lease liabilities were $0.4$0.2 million. The weighted average remaining lease term for operating leases was approximately 10.09.1 years and the weighted average remaining lease term for finance leases was approximately 1.80.8 years. The weighted average discount rate for operating and finance leases was approximately 6.6%6.3% and 5.9%, respectively.
(11) Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law and includes certain income tax provisions relevant to businesses. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was the quarter ended March 31, 2020. For the six month period endedfuture minimum lease payments of operating leases executed but not commenced as of June 30, 2020,2021 are estimated to be $0.1 million, $0.5 million, $0.5 million, $0.5 million and $0.5 million for the CARES Act did not have a material impact on our provision for income taxes. However, certain provisions of the CARES Act did have a favorable cash impact. Specifically, the elimination of the 80% of taxable income limitation on net operating loss carryforwards may allow corporate entities to fully utilize net operating loss carryforwards to offset taxable income in 2018, 2019 or 2020, whichyears ended December 31, 2021, 2022, 2023, 2024 and 2025, respectively, and $3.2 million thereafter. It is expected to result in a further reduction of approximately $4.9 million of future estimated income tax payments for the Company. Secondly, taxpayers with alternative minimum tax credits may claim a refund for the entire amount of such credit instead of recovering the credit through refunds over a period of multiple years, as required by the 2017 Tax Cut and Jobs Act, which resulted in a $1.5 million federal tax refund claim for the Company, which we received in June 2020. Lastly, the non-income tax-based provision allowing an employer to pay its share of Social Security payroll taxes that would otherwise be due from the date of enactment through
20
December 31, 2020 over the following two years is expected to result in the deferral of approximately $6 million of those payroll taxes, half of which we expect to remit by September 15, 2021 and the remaining amounts in 2022.these leases will commence during 2021.
(12)(10) Segment Information
We have identified 5 reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and services revenues. These segments are based upon how management of the Company allocates resources and assesses performance. Non-segmented revenues and non-segmented costs relate to equipment support activities including transportation, hauling, parts freight and damage-waiver charges and are not allocated to the other reportable segments. There were no sales between segments for any of the periods presented. Selling, general and administrative expenses as well as all other income and expense items below gross profit are not generally allocated to reportable segments.
We do not compile discrete financial information by segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 155,794 |
|
| $ | 192,302 |
|
| $ | 330,313 |
|
| $ | 368,431 |
|
| $ | 179,037 |
|
| $ | 155,794 |
|
| $ | 335,261 |
|
| $ | 330,313 |
|
New equipment sales |
|
| 43,947 |
|
|
| 53,596 |
|
|
| 74,820 |
|
|
| 112,699 |
|
|
| 49,919 |
|
|
| 43,947 |
|
|
| 87,664 |
|
|
| 74,820 |
|
Used equipment sales |
|
| 34,013 |
|
|
| 36,128 |
|
|
| 65,231 |
|
|
| 65,762 |
|
|
| 41,358 |
|
|
| 34,013 |
|
|
| 83,124 |
|
|
| 65,231 |
|
Parts sales |
|
| 26,220 |
|
|
| 31,871 |
|
|
| 55,989 |
|
|
| 62,299 |
|
|
| 27,424 |
|
|
| 26,220 |
|
|
| 53,036 |
|
|
| 55,989 |
|
Services revenues |
|
| 15,657 |
|
|
| 16,725 |
|
|
| 32,479 |
|
|
| 32,293 |
|
|
| 14,977 |
|
|
| 15,657 |
|
|
| 29,487 |
|
|
| 32,479 |
|
Total segmented revenues |
|
| 275,631 |
|
|
| 330,622 |
|
|
| 558,832 |
|
|
| 641,484 |
|
|
| 312,715 |
|
|
| 275,631 |
|
|
| 588,572 |
|
|
| 558,832 |
|
Non-segmented revenues |
|
| 2,705 |
|
|
| 2,975 |
|
|
| 5,426 |
|
|
| 5,751 |
|
|
| 3,048 |
|
|
| 2,705 |
|
|
| 5,636 |
|
|
| 5,426 |
|
Total revenues |
| $ | 278,336 |
|
| $ | 333,597 |
|
| $ | 564,258 |
|
| $ | 647,235 |
|
| $ | 315,763 |
|
| $ | 278,336 |
|
| $ | 594,208 |
|
| $ | 564,258 |
|
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 59,148 |
|
| $ | 86,002 |
|
| $ | 131,307 |
|
| $ | 163,940 |
|
| $ | 73,888 |
|
| $ | 59,148 |
|
| $ | 132,352 |
|
| $ | 131,307 |
|
New equipment sales |
|
| 4,688 |
|
|
| 6,532 |
|
|
| 8,135 |
|
|
| 13,536 |
|
|
| 5,743 |
|
|
| 4,688 |
|
|
| 10,046 |
|
|
| 8,135 |
|
Used equipment sales |
|
| 10,731 |
|
|
| 12,807 |
|
|
| 21,511 |
|
|
| 23,429 |
|
|
| 14,350 |
|
|
| 10,731 |
|
|
| 27,751 |
|
|
| 21,511 |
|
Parts sales |
|
| 6,868 |
|
|
| 8,581 |
|
|
| 14,734 |
|
|
| 16,720 |
|
|
| 7,068 |
|
|
| 6,868 |
|
|
| 13,933 |
|
|
| 14,734 |
|
Services revenues |
|
| 10,484 |
|
|
| 11,366 |
|
|
| 21,766 |
|
|
| 21,930 |
|
|
| 10,188 |
|
|
| 10,484 |
|
|
| 20,001 |
|
|
| 21,766 |
|
Total segmented gross profit |
|
| 91,919 |
|
|
| 125,288 |
|
|
| 197,453 |
|
|
| 239,555 |
|
|
| 111,237 |
|
|
| 91,919 |
|
|
| 204,083 |
|
|
| 197,453 |
|
Non-segmented gross profit (loss) |
|
| 151 |
|
|
| (507 | ) |
|
| 100 |
|
|
| (1,074 | ) | ||||||||||||||||
Non-segmented gross profit |
|
| 128 |
|
|
| 151 |
|
|
| 285 |
|
|
| 100 |
| ||||||||||||||||
Total gross profit |
| $ | 92,070 |
|
| $ | 124,781 |
|
| $ | 197,553 |
|
| $ | 238,481 |
|
| $ | 111,365 |
|
| $ | 92,070 |
|
| $ | 204,368 |
|
| $ | 197,553 |
|
|
| Balances at |
|
| Balances at |
| ||||||||||
|
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Segment identified assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales |
| $ | 62,201 |
|
| $ | 67,542 |
|
| $ | 111,222 |
|
| $ | 58,414 |
|
Equipment rentals |
|
| 1,133,857 |
|
|
| 1,217,673 |
|
|
| 1,112,959 |
|
|
| 1,028,745 |
|
Parts and services |
|
| 17,252 |
|
|
| 17,936 |
|
|
| 17,200 |
|
|
| 14,074 |
|
Total segment identified assets |
|
| 1,213,310 |
|
|
| 1,303,151 |
|
|
| 1,241,381 |
|
|
| 1,101,233 |
|
Non-segment identified assets |
|
| 565,933 |
|
|
| 671,459 |
|
|
| 774,510 |
|
|
| 879,251 |
|
Total assets |
| $ | 1,779,243 |
|
| $ | 1,974,610 |
|
| $ | 2,015,891 |
|
| $ | 1,980,484 |
|
The Company operates primarily in the United States and our sales to international customers for the three month periods ended June 30, 2021 and 2020 were 0.1% and 2019 were 0.2% and 0.1% of total revenues, respectively, and for the six month periods ended June 30, 2021 and 2020 were 0.2% and 2019 were 0.3% and 0.2%,of total revenues, respectively. NaN one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.
21(11) Subsequent Events
(13) Condensed Consolidating Financial Information
On July 20, 2021, the Company announced that it entered into a definitive agreement to sell its crane business to a wholly-owned subsidiary of Guarantor Subsidiaries
AllThe Manitowoc Company, Inc. for $130 million in cash, subject to adjustment based on actual amounts of net working capital and crane rental fleet net book value delivered at transaction closing. The Company expects the transaction to close during the fourth quarter of 2021, subject to customary closing conditions, including regulatory approval under the Hart-Scott-Rodino Act. The Company reports financial results of the indebtednesscrane business within its rental revenues, new equipment sales, used equipment sales, parts and services segments. Total revenues attributable to the crane business were approximately $86.3 million during the first six months of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc.fiscal 2021 and its wholly‑owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc., H&E Equipment Services (Mid-Atlantic), Inc.approximately $158.5 million in fiscal 2020. Net assets of the crane business were approximately $100.0 million as of June 30, 2021. The amounts presented above are preliminary and H&E Finance Corp. The guarantor subsidiaries are all wholly‑owned and the guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to change.
In connection with the pending sale, we expect to classify the results of operations of the crane business as discontinued operations beginning in the third quarter of 2021. The assets and liabilities associated with the discontinued operations will be reflected as held for sale beginning in the third quarter of 2021. When the transaction is completed, the Company expects to record a standard limitation which provides thatgain on the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.
The consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp. are not included within the consolidating financial statements because H&E Finance Corp. has no assets or operations.
CONDENSED CONSOLIDATING BALANCE SHEETdisposal transaction.
|
| As of June 30, 2020 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 6,251 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,251 |
|
Receivables, net |
|
| 126,359 |
|
|
| 20,131 |
|
|
| — |
|
|
| 146,490 |
|
Inventories, net |
|
| 75,550 |
|
|
| 3,903 |
|
|
| — |
|
|
| 79,453 |
|
Prepaid expenses and other assets |
|
| 18,565 |
|
|
| 219 |
|
|
| — |
|
|
| 18,784 |
|
Rental equipment, net |
|
| 999,960 |
|
|
| 133,897 |
|
|
| — |
|
|
| 1,133,857 |
|
Property and equipment, net |
|
| 108,670 |
|
|
| 17,621 |
|
|
| — |
|
|
| 126,291 |
|
Operating lease right-of-use assets, net |
|
| 144,870 |
|
|
| 20,659 |
|
|
| — |
|
|
| 165,529 |
|
Finance lease right-of-use assets, net |
|
| — |
|
|
| 284 |
|
|
| — |
|
|
| 284 |
|
Deferred financing costs, net |
|
| 2,507 |
|
|
| — |
|
|
| — |
|
|
| 2,507 |
|
Investment in guarantor subsidiaries |
|
| 187,894 |
|
|
| — |
|
|
| (187,894 | ) |
|
| — |
|
Intangible assets, net |
|
| 30,946 |
|
|
| — |
|
|
| — |
|
|
| 30,946 |
|
Goodwill |
|
| 57,185 |
|
|
| 11,666 |
|
|
| — |
|
|
| 68,851 |
|
Total assets |
| $ | 1,758,757 |
|
| $ | 208,380 |
|
| $ | (187,894 | ) |
| $ | 1,779,243 |
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due on senior secured credit facility |
|
| 67,561 |
|
| $ | — |
|
| $ | — |
|
| $ | 67,561 |
|
Accounts payable |
|
| 69,102 |
|
|
| 3,231 |
|
|
| — |
|
|
| 72,333 |
|
Manufacturer flooring plans payable |
|
| 16,677 |
|
|
| — |
|
|
| — |
|
|
| 16,677 |
|
Accrued expenses payable and other liabilities |
|
| 74,854 |
|
|
| (4,387 | ) |
|
| — |
|
|
| 70,467 |
|
Dividends payable |
|
| 179 |
|
|
| (64 | ) |
|
| — |
|
|
| 115 |
|
Senior unsecured notes, net |
|
| 945,958 |
|
|
| — |
|
|
| — |
|
|
| 945,958 |
|
Operating lease right-of-use liabilities |
|
| 147,495 |
|
|
| 21,276 |
|
|
| — |
|
|
| 168,771 |
|
Finance lease right-of-use liabilities |
|
| — |
|
|
| 430 |
|
|
| — |
|
|
| 430 |
|
Deferred income taxes |
|
| 172,915 |
|
|
| — |
|
|
| — |
|
|
| 172,915 |
|
Deferred compensation payable |
|
| 2,148 |
|
|
| — |
|
|
| — |
|
|
| 2,148 |
|
Total liabilities |
|
| 1,496,889 |
|
|
| 20,486 |
|
|
| — |
|
|
| 1,517,375 |
|
Stockholders’ equity |
|
| 261,868 |
|
|
| 187,894 |
|
|
| (187,894 | ) |
|
| 261,868 |
|
Total liabilities and stockholders’ equity |
| $ | 1,758,757 |
|
| $ | 208,380 |
|
| $ | (187,894 | ) |
| $ | 1,779,243 |
|
22
CONDENSED CONSOLIDATING BALANCE SHEET
|
| As of December 31, 2019 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 14,247 |
|
| $ | — |
|
| $ | — |
|
| $ | 14,247 |
|
Receivables, net |
|
| 164,260 |
|
|
| 27,944 |
|
|
| — |
|
|
| 192,204 |
|
Inventories, net |
|
| 81,945 |
|
|
| 3,533 |
|
|
| — |
|
|
| 85,478 |
|
Prepaid expenses and other assets |
|
| 10,129 |
|
|
| 133 |
|
|
| — |
|
|
| 10,262 |
|
Rental equipment, net |
|
| 1,062,154 |
|
|
| 155,519 |
|
|
| — |
|
|
| 1,217,673 |
|
Property and equipment, net |
|
| 111,429 |
|
|
| 19,135 |
|
|
| — |
|
|
| 130,564 |
|
Operating lease right-of-use assets, net |
|
| 137,625 |
|
|
| 18,945 |
|
|
| — |
|
|
| 156,570 |
|
Finance lease right-of-use assets, net |
|
| — |
|
|
| 365 |
|
|
| — |
|
|
| 365 |
|
Deferred financing costs, net |
|
| 2,857 |
|
|
| — |
|
|
| — |
|
|
| 2,857 |
|
Investment in guarantor subsidiaries |
|
| 235,749 |
|
|
| — |
|
|
| (235,749 | ) |
|
| — |
|
Intangible assets, net |
|
| 32,948 |
|
|
| — |
|
|
| — |
|
|
| 32,948 |
|
Goodwill |
|
| 101,916 |
|
|
| 29,526 |
|
|
| — |
|
|
| 131,442 |
|
Total assets |
| $ | 1,955,259 |
|
| $ | 255,100 |
|
| $ | (235,749 | ) |
| $ | 1,974,610 |
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due under senior secured credit facility |
| $ | 216,879 |
|
| $ | — |
|
| $ | — |
|
| $ | 216,879 |
|
Accounts payable |
|
| 56,225 |
|
|
| 2,628 |
|
|
| — |
|
|
| 58,853 |
|
Manufacturer flooring plans payable |
|
| 25,201 |
|
|
| — |
|
|
| — |
|
|
| 25,201 |
|
Accrued expenses payable and other liabilities |
|
| 81,646 |
|
|
| (3,264 | ) |
|
| — |
|
|
| 78,382 |
|
Dividends payable |
|
| 231 |
|
|
| (60 | ) |
|
| — |
|
|
| 171 |
|
Senior unsecured notes, net |
|
| 945,566 |
|
|
| — |
|
|
| — |
|
|
| 945,566 |
|
Operating lease right-of-use liabilities, net |
|
| 139,768 |
|
|
| 19,497 |
|
|
| — |
|
|
| 159,265 |
|
Finance lease right-of-use liabilities, net |
|
| — |
|
|
| 550 |
|
|
| — |
|
|
| 550 |
|
Deferred income taxes |
|
| 180,126 |
|
|
| — |
|
|
| — |
|
|
| 180,126 |
|
Deferred compensation payable |
|
| 2,098 |
|
|
| — |
|
|
| — |
|
|
| 2,098 |
|
Total liabilities |
|
| 1,647,740 |
|
|
| 19,351 |
|
|
| — |
|
|
| 1,667,091 |
|
Stockholders’ equity |
|
| 307,519 |
|
|
| 235,749 |
|
|
| (235,749 | ) |
|
| 307,519 |
|
Total liabilities and stockholders’ equity |
| $ | 1,955,259 |
|
| $ | 255,100 |
|
| $ | (235,749 | ) |
| $ | 1,974,610 |
|
23
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
| Three Months Ended June 30, 2020 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 135,148 |
|
| $ | 20,646 |
|
| $ | — |
|
| $ | 155,794 |
|
New equipment sales |
|
| 42,494 |
|
|
| 1,453 |
|
|
| — |
|
|
| 43,947 |
|
Used equipment sales |
|
| 29,522 |
|
|
| 4,491 |
|
|
| — |
|
|
| 34,013 |
|
Parts sales |
|
| 23,630 |
|
|
| 2,590 |
|
|
| — |
|
|
| 26,220 |
|
Services revenues |
|
| 14,061 |
|
|
| 1,596 |
|
|
| — |
|
|
| 15,657 |
|
Other |
|
| 2,343 |
|
|
| 362 |
|
|
| — |
|
|
| 2,705 |
|
Total revenues |
|
| 247,198 |
|
|
| 31,138 |
|
|
| — |
|
|
| 278,336 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 51,573 |
|
|
| 7,583 |
|
|
| — |
|
|
| 59,156 |
|
Rental expense |
|
| 20,202 |
|
|
| 3,062 |
|
|
| — |
|
|
| 23,264 |
|
Rental other |
|
| 12,143 |
|
|
| 2,083 |
|
|
| — |
|
|
| 14,226 |
|
|
|
| 83,918 |
|
|
| 12,728 |
|
|
| — |
|
|
| 96,646 |
|
New equipment sales |
|
| 38,028 |
|
|
| 1,231 |
|
|
| — |
|
|
| 39,259 |
|
Used equipment sales |
|
| 20,469 |
|
|
| 2,813 |
|
|
| — |
|
|
| 23,282 |
|
Parts sales |
|
| 17,543 |
|
|
| 1,809 |
|
|
| — |
|
|
| 19,352 |
|
Services revenues |
|
| 4,679 |
|
|
| 494 |
|
|
| — |
|
|
| 5,173 |
|
Other |
|
| 2,305 |
|
|
| 249 |
|
|
| — |
|
|
| 2,554 |
|
Total cost of revenues |
|
| 166,942 |
|
|
| 19,324 |
|
|
| — |
|
|
| 186,266 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 51,230 |
|
|
| 7,918 |
|
|
| — |
|
|
| 59,148 |
|
New equipment sales |
|
| 4,466 |
|
|
| 222 |
|
|
| — |
|
|
| 4,688 |
|
Used equipment sales |
|
| 9,053 |
|
|
| 1,678 |
|
|
| — |
|
|
| 10,731 |
|
Parts sales |
|
| 6,087 |
|
|
| 781 |
|
|
| — |
|
|
| 6,868 |
|
Services revenues |
|
| 9,382 |
|
|
| 1,102 |
|
|
| — |
|
|
| 10,484 |
|
Other |
|
| 38 |
|
|
| 113 |
|
|
| — |
|
|
| 151 |
|
Gross profit |
|
| 80,256 |
|
|
| 11,814 |
|
|
| — |
|
|
| 92,070 |
|
Selling, general and administrative expenses |
|
| 59,223 |
|
|
| 8,638 |
|
|
| — |
|
|
| 67,861 |
|
Merger costs |
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| 118 |
|
Equity in earnings of guarantor subsidiaries |
|
| 771 |
|
|
| — |
|
|
| (771 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 2,497 |
|
|
| 397 |
|
|
| — |
|
|
| 2,894 |
|
Income from operations |
|
| 24,183 |
|
|
| 3,573 |
|
|
| (771 | ) |
|
| 26,985 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (12,712 | ) |
|
| (2,860 | ) |
|
| — |
|
|
| (15,572 | ) |
Other, net |
|
| 584 |
|
|
| 58 |
|
|
| — |
|
|
| 642 |
|
Total other expense, net |
|
| (12,128 | ) |
|
| (2,802 | ) |
|
| — |
|
|
| (14,930 | ) |
Income before income taxes |
|
| 12,055 |
|
|
| 771 |
|
|
| (771 | ) |
|
| 12,055 |
|
Income tax expense |
|
| 3,240 |
|
|
| — |
|
|
| — |
|
|
| 3,240 |
|
Net income |
| $ | 8,815 |
|
| $ | 771 |
|
| $ | (771 | ) |
| $ | 8,815 |
|
24
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
| Three Months Ended June 30, 2019 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 169,106 |
|
| $ | 23,196 |
|
| $ | — |
|
| $ | 192,302 |
|
New equipment sales |
|
| 47,040 |
|
|
| 6,556 |
|
|
| — |
|
|
| 53,596 |
|
Used equipment sales |
|
| 30,369 |
|
|
| 5,759 |
|
|
| — |
|
|
| 36,128 |
|
Parts sales |
|
| 27,488 |
|
|
| 4,383 |
|
|
| — |
|
|
| 31,871 |
|
Services revenues |
|
| 14,141 |
|
|
| 2,584 |
|
|
| — |
|
|
| 16,725 |
|
Other |
|
| (291 | ) |
|
| 3,266 |
|
|
| — |
|
|
| 2,975 |
|
Total revenues |
|
| 287,853 |
|
|
| 45,744 |
|
|
| — |
|
|
| 333,597 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 53,361 |
|
|
| 8,073 |
|
|
| — |
|
|
| 61,434 |
|
Rental expense |
|
| 23,143 |
|
|
| 3,876 |
|
|
| — |
|
|
| 27,019 |
|
Rental other |
|
| 17,847 |
|
|
| — |
|
|
| — |
|
|
| 17,847 |
|
|
|
| 94,351 |
|
|
| 11,949 |
|
|
| — |
|
|
| 106,300 |
|
New equipment sales |
|
| 41,179 |
|
|
| 5,885 |
|
|
| — |
|
|
| 47,064 |
|
Used equipment sales |
|
| 19,622 |
|
|
| 3,699 |
|
|
| — |
|
|
| 23,321 |
|
Parts sales |
|
| 20,220 |
|
|
| 3,070 |
|
|
| — |
|
|
| 23,290 |
|
Services revenues |
|
| 4,558 |
|
|
| 801 |
|
|
| — |
|
|
| 5,359 |
|
Other |
|
| 361 |
|
|
| 3,121 |
|
|
| — |
|
|
| 3,482 |
|
Total cost of revenues |
|
| 180,291 |
|
|
| 28,525 |
|
|
| — |
|
|
| 208,816 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 74,755 |
|
|
| 11,247 |
|
|
| — |
|
|
| 86,002 |
|
New equipment sales |
|
| 5,861 |
|
|
| 671 |
|
|
| — |
|
|
| 6,532 |
|
Used equipment sales |
|
| 10,747 |
|
|
| 2,060 |
|
|
| — |
|
|
| 12,807 |
|
Parts sales |
|
| 7,268 |
|
|
| 1,313 |
|
|
| — |
|
|
| 8,581 |
|
Services revenues |
|
| 9,583 |
|
|
| 1,783 |
|
|
| — |
|
|
| 11,366 |
|
Other |
|
| (652 | ) |
|
| 145 |
|
|
| — |
|
|
| (507 | ) |
Gross profit |
|
| 107,562 |
|
|
| 17,219 |
|
|
| — |
|
|
| 124,781 |
|
Selling, general and administrative expenses |
|
| 67,858 |
|
|
| 9,982 |
|
|
| — |
|
|
| 77,840 |
|
Merger costs |
|
| 148 |
|
|
| — |
|
|
| — |
|
|
| 148 |
|
Equity in earnings of guarantor subsidiaries |
|
| 4,230 |
|
|
| — |
|
|
| (4,230 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 556 |
|
|
| 324 |
|
|
| — |
|
|
| 880 |
|
Income from operations |
|
| 44,342 |
|
|
| 7,561 |
|
|
| (4,230 | ) |
|
| 47,673 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (13,886 | ) |
|
| (3,381 | ) |
|
| — |
|
|
| (17,267 | ) |
Other, net |
|
| 439 |
|
|
| 50 |
|
|
| — |
|
|
| 489 |
|
Total other expense, net |
|
| (13,447 | ) |
|
| (3,331 | ) |
|
| — |
|
|
| (16,778 | ) |
Income before income taxes |
|
| 30,895 |
|
|
| 4,230 |
|
|
| (4,230 | ) |
|
| 30,895 |
|
Income tax expense |
|
| 8,281 |
|
|
| — |
|
|
| — |
|
|
| 8,281 |
|
Net income |
| $ | 22,614 |
|
| $ | 4,230 |
|
| $ | (4,230 | ) |
| $ | 22,614 |
|
25
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
| Six Months Ended June 30, 2020 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 286,995 |
|
| $ | 43,318 |
|
| $ | — |
|
| $ | 330,313 |
|
New equipment sales |
|
| 71,498 |
|
|
| 3,322 |
|
|
| — |
|
|
| 74,820 |
|
Used equipment sales |
|
| 56,452 |
|
|
| 8,779 |
|
|
| — |
|
|
| 65,231 |
|
Parts sales |
|
| 49,511 |
|
|
| 6,478 |
|
|
| — |
|
|
| 55,989 |
|
Services revenues |
|
| 28,243 |
|
|
| 4,236 |
|
|
| — |
|
|
| 32,479 |
|
Other |
|
| 4,589 |
|
|
| 837 |
|
|
| — |
|
|
| 5,426 |
|
Total revenues |
|
| 497,288 |
|
|
| 66,970 |
|
|
| — |
|
|
| 564,258 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 103,538 |
|
|
| 15,604 |
|
|
| — |
|
|
| 119,142 |
|
Rental expense |
|
| 42,504 |
|
|
| 6,329 |
|
|
| — |
|
|
| 48,833 |
|
Rental other |
|
| 26,236 |
|
|
| 4,795 |
|
|
| — |
|
|
| 31,031 |
|
|
|
| 172,278 |
|
|
| 26,728 |
|
|
| — |
|
|
| 199,006 |
|
New equipment sales |
|
| 63,822 |
|
|
| 2,863 |
|
|
| — |
|
|
| 66,685 |
|
Used equipment sales |
|
| 38,290 |
|
|
| 5,430 |
|
|
| — |
|
|
| 43,720 |
|
Parts sales |
|
| 36,672 |
|
|
| 4,583 |
|
|
| — |
|
|
| 41,255 |
|
Services revenues |
|
| 9,367 |
|
|
| 1,346 |
|
|
| — |
|
|
| 10,713 |
|
Other |
|
| 4,678 |
|
|
| 648 |
|
|
| — |
|
|
| 5,326 |
|
Total cost of revenues |
|
| 325,107 |
|
|
| 41,598 |
|
|
| — |
|
|
| 366,705 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 114,717 |
|
|
| 16,590 |
|
|
| — |
|
|
| 131,307 |
|
New equipment sales |
|
| 7,676 |
|
|
| 459 |
|
|
| — |
|
|
| 8,135 |
|
Used equipment sales |
|
| 18,162 |
|
|
| 3,349 |
|
|
| — |
|
|
| 21,511 |
|
Parts sales |
|
| 12,839 |
|
|
| 1,895 |
|
|
| — |
|
|
| 14,734 |
|
Services revenues |
|
| 18,876 |
|
|
| 2,890 |
|
|
| — |
|
|
| 21,766 |
|
Other |
|
| (89 | ) |
|
| 189 |
|
|
| — |
|
|
| 100 |
|
Gross profit |
|
| 172,181 |
|
|
| 25,372 |
|
|
| — |
|
|
| 197,553 |
|
Selling, general and administrative expenses |
|
| 128,752 |
|
|
| 18,733 |
|
|
| — |
|
|
| 147,485 |
|
Impairment of goodwill |
|
| 61,994 |
|
|
| — |
|
|
| — |
|
|
| 61,994 |
|
Merger costs |
|
| 158 |
|
|
| — |
|
|
| — |
|
|
| 158 |
|
Equity in earnings of guarantor subsidiaries |
|
| 1,678 |
|
|
| — |
|
|
| (1,678 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 6,270 |
|
|
| 888 |
|
|
| — |
|
|
| 7,158 |
|
Income (loss) from operations |
|
| (10,775 | ) |
|
| 7,527 |
|
|
| (1,678 | ) |
|
| (4,926 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (25,647 | ) |
|
| (5,955 | ) |
|
| — |
|
|
| (31,602 | ) |
Other, net |
|
| 1,166 |
|
|
| 106 |
|
|
| — |
|
|
| 1,272 |
|
Total other expense, net |
|
| (24,481 | ) |
|
| (5,849 | ) |
|
| — |
|
|
| (30,330 | ) |
Income (loss) before income taxes |
|
| (35,256 | ) |
|
| 1,678 |
|
|
| (1,678 | ) |
|
| (35,256 | ) |
Income tax benefit |
|
| (7,103 | ) |
|
| — |
|
|
| — |
|
|
| (7,103 | ) |
Net income (loss) |
| $ | (28,153 | ) |
| $ | 1,678 |
|
| $ | (1,678 | ) |
| $ | (28,153 | ) |
26
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
| Six Months Ended June 30, 2019 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 323,965 |
|
| $ | 44,466 |
|
| $ | — |
|
| $ | 368,431 |
|
New equipment sales |
|
| 99,616 |
|
|
| 13,083 |
|
|
| — |
|
|
| 112,699 |
|
Used equipment sales |
|
| 55,580 |
|
|
| 10,182 |
|
|
| — |
|
|
| 65,762 |
|
Parts sales |
|
| 54,042 |
|
|
| 8,257 |
|
|
| — |
|
|
| 62,299 |
|
Services revenues |
|
| 27,307 |
|
|
| 4,986 |
|
|
| — |
|
|
| 32,293 |
|
Other |
|
| (224 | ) |
|
| 5,975 |
|
|
| — |
|
|
| 5,751 |
|
Total revenues |
|
| 560,286 |
|
|
| 86,949 |
|
|
| — |
|
|
| 647,235 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 102,623 |
|
|
| 15,959 |
|
|
| — |
|
|
| 118,582 |
|
Rental expense |
|
| 44,295 |
|
|
| 7,492 |
|
|
| — |
|
|
| 51,787 |
|
Rental other |
|
| 34,122 |
|
|
| — |
|
|
| — |
|
|
| 34,122 |
|
|
|
| 181,040 |
|
|
| 23,451 |
|
|
| — |
|
|
| 204,491 |
|
New equipment sales |
|
| 87,639 |
|
|
| 11,524 |
|
|
| — |
|
|
| 99,163 |
|
Used equipment sales |
|
| 35,833 |
|
|
| 6,500 |
|
|
| — |
|
|
| 42,333 |
|
Parts sales |
|
| 39,812 |
|
|
| 5,767 |
|
|
| — |
|
|
| 45,579 |
|
Services revenues |
|
| 8,841 |
|
|
| 1,522 |
|
|
| — |
|
|
| 10,363 |
|
Other |
|
| 860 |
|
|
| 5,965 |
|
|
| — |
|
|
| 6,825 |
|
Total cost of revenues |
|
| 354,025 |
|
|
| 54,729 |
|
|
| — |
|
|
| 408,754 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 142,925 |
|
|
| 21,015 |
|
|
| — |
|
|
| 163,940 |
|
New equipment sales |
|
| 11,977 |
|
|
| 1,559 |
|
|
| — |
|
|
| 13,536 |
|
Used equipment sales |
|
| 19,747 |
|
|
| 3,682 |
|
|
| — |
|
|
| 23,429 |
|
Parts sales |
|
| 14,230 |
|
|
| 2,490 |
|
|
| — |
|
|
| 16,720 |
|
Services revenues |
|
| 18,466 |
|
|
| 3,464 |
|
|
| — |
|
|
| 21,930 |
|
Other |
|
| (1,084 | ) |
|
| 10 |
|
|
| — |
|
|
| (1,074 | ) |
Gross profit |
|
| 206,261 |
|
|
| 32,220 |
|
|
| — |
|
|
| 238,481 |
|
Selling, general and administrative expenses |
|
| 136,413 |
|
|
| 20,074 |
|
|
| — |
|
|
| 156,487 |
|
Merger costs |
|
| 267 |
|
|
| — |
|
|
| — |
|
|
| 267 |
|
Equity in earnings of guarantor subsidiaries |
|
| 5,955 |
|
|
| — |
|
|
| (5,955 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 1,263 |
|
|
| 358 |
|
|
| — |
|
|
| 1,621 |
|
Income from operations |
|
| 76,799 |
|
|
| 12,504 |
|
|
| (5,955 | ) |
|
| 83,348 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (27,448 | ) |
|
| (6,674 | ) |
|
| — |
|
|
| (34,122 | ) |
Other, net |
|
| 896 |
|
|
| 125 |
|
|
| — |
|
|
| 1,021 |
|
Total other expense, net |
|
| (26,552 | ) |
|
| (6,549 | ) |
|
| — |
|
|
| (33,101 | ) |
Income before income taxes |
|
| 50,247 |
|
|
| 5,955 |
|
|
| (5,955 | ) |
|
| 50,247 |
|
Income tax expense |
|
| 13,390 |
|
|
| — |
|
|
| — |
|
|
| 13,390 |
|
Net income |
| $ | 36,857 |
|
| $ | 5,955 |
|
| $ | (5,955 | ) |
| $ | 36,857 |
|
27
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
| Six Months Ended June 30, 2020 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (28,153 | ) |
| $ | 1,678 |
|
| $ | (1,678 | ) |
| $ | (28,153 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and equipment |
|
| 11,934 |
|
|
| 2,835 |
|
|
| — |
|
|
| 14,769 |
|
Depreciation of rental equipment |
|
| 103,538 |
|
|
| 15,604 |
|
|
| — |
|
|
| 119,142 |
|
Amortization of finance lease right-of-use assets |
|
| — |
|
|
| 81 |
|
|
| — |
|
|
| 81 |
|
Amortization of intangible assets |
|
| 2,002 |
|
|
| — |
|
|
| — |
|
|
| 2,002 |
|
Amortization of deferred financing costs |
|
| 504 |
|
|
| — |
|
|
| — |
|
|
| 504 |
|
Accretion of note discount, net of premium amortization |
|
| 238 |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
Non-cash operating lease expense |
|
| 5,695 |
|
|
| 65 |
|
|
| — |
|
|
| 5,760 |
|
Impairment of goodwill |
|
| 61,994 |
|
|
| — |
|
|
| — |
|
|
| 61,994 |
|
Provision for losses on accounts receivable |
|
| 2,725 |
|
|
| 225 |
|
|
| — |
|
|
| 2,950 |
|
Provision for inventory obsolescence |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Change in deferred income taxes |
|
| (7,211 | ) |
|
| — |
|
|
| — |
|
|
| (7,211 | ) |
Stock-based compensation expense |
|
| 2,656 |
|
|
| — |
|
|
| — |
|
|
| 2,656 |
|
Gain from sales of property and equipment, net |
|
| (6,270 | ) |
|
| (888 | ) |
|
| — |
|
|
| (7,158 | ) |
Gain from sales of rental equipment, net |
|
| (17,912 | ) |
|
| (3,312 | ) |
|
| — |
|
|
| (21,224 | ) |
Equity in earnings of guarantor subsidiaries |
|
| (1,678 | ) |
|
| — |
|
|
| 1,678 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 35,176 |
|
|
| 7,588 |
|
|
| — |
|
|
| 42,764 |
|
Inventories |
|
| (10,995 | ) |
|
| (1,402 | ) |
|
| — |
|
|
| (12,397 | ) |
Prepaid expenses and other assets |
|
| (8,454 | ) |
|
| (86 | ) |
|
| — |
|
|
| (8,540 | ) |
Accounts payable |
|
| 13,474 |
|
|
| 603 |
|
|
| — |
|
|
| 14,077 |
|
Manufacturer flooring plans payable |
|
| (8,524 | ) |
|
| — |
|
|
| — |
|
|
| (8,524 | ) |
Accrued expenses payable and other liabilities |
|
| (12,203 | ) |
|
| (1,123 | ) |
|
| — |
|
|
| (13,326 | ) |
Deferred compensation payable |
|
| 50 |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
Net cash provided by operating activities |
|
| 138,598 |
|
|
| 21,868 |
|
|
| — |
|
|
| 160,466 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (11,666 | ) |
|
| (1,845 | ) |
|
| — |
|
|
| (13,511 | ) |
Purchases of rental equipment |
|
| (57,228 | ) |
|
| 1,780 |
|
|
| — |
|
|
| (55,448 | ) |
Proceeds from sales of property and equipment |
|
| 8,978 |
|
|
| 1,412 |
|
|
| — |
|
|
| 10,390 |
|
Proceeds from sales of rental equipment |
|
| 51,174 |
|
|
| 8,582 |
|
|
| — |
|
|
| 59,756 |
|
Investment in subsidiaries |
|
| 31,673 |
|
|
| — |
|
|
| (31,673 | ) |
|
| — |
|
Net cash provided by investing activities |
|
| 22,931 |
|
|
| 9,929 |
|
|
| (31,673 | ) |
|
| 1,187 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on senior secured credit facility |
|
| 496,011 |
|
|
| — |
|
|
| — |
|
|
| 496,011 |
|
Payments on senior secured credit facility |
|
| (645,329 | ) |
|
| — |
|
|
| — |
|
|
| (645,329 | ) |
Dividends paid |
|
| (19,737 | ) |
|
| (4 | ) |
|
| — |
|
|
| (19,741 | ) |
Purchases of treasury stock |
|
| (470 | ) |
|
| — |
|
|
| — |
|
|
| (470 | ) |
Payments on finance lease obligations |
|
| — |
|
|
| (120 | ) |
|
| — |
|
|
| (120 | ) |
Capital contributions |
|
| — |
|
|
| (31,673 | ) |
|
| 31,673 |
|
|
| — |
|
Net cash used in financing activities |
|
| (169,525 | ) |
|
| (31,797 | ) |
|
| 31,673 |
|
|
| (169,649 | ) |
Net decrease in cash |
|
| (7,996 | ) |
|
| — |
|
|
| — |
|
|
| (7,996 | ) |
Cash, beginning of period |
|
| 14,247 |
|
|
| — |
|
|
| — |
|
|
| 14,247 |
|
Cash, end of period |
| $ | 6,251 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,251 |
|
28
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
| Six Months Ended June 30, 2019 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 36,857 |
|
| $ | 5,955 |
|
| $ | (5,955 | ) |
| $ | 36,857 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
| 11,993 |
|
|
| 1,634 |
|
|
| — |
|
|
| 13,627 |
|
Depreciation of rental equipment |
|
| 102,623 |
|
|
| 15,959 |
|
|
| — |
|
|
| 118,582 |
|
Amortization of finance lease right-of-use assets |
|
| — |
|
|
| 81 |
|
|
| — |
|
|
| 81 |
|
Amortization of intangible assets |
|
| 2,049 |
|
|
| — |
|
|
| — |
|
|
| 2,049 |
|
Amortization of deferred financing costs |
|
| 504 |
|
|
| — |
|
|
| — |
|
|
| 504 |
|
Accretion of note discount, net of premium amortization |
|
| 239 |
|
|
| — |
|
|
| — |
|
|
| 239 |
|
Non-cash operating lease expense |
|
| 5,206 |
|
|
| 67 |
|
|
| — |
|
|
| 5,273 |
|
Provision for losses on accounts receivable |
|
| 2,197 |
|
|
| 283 |
|
|
| — |
|
|
| 2,480 |
|
Provision for inventory obsolescence |
|
| 115 |
|
|
| — |
|
|
| — |
|
|
| 115 |
|
Change in deferred income taxes |
|
| 12,239 |
|
|
| — |
|
|
| — |
|
|
| 12,239 |
|
Stock-based compensation expense |
|
| 2,023 |
|
|
| — |
|
|
| — |
|
|
| 2,023 |
|
Gain from sales of property and equipment, net |
|
| (1,263 | ) |
|
| (358 | ) |
|
| — |
|
|
| (1,621 | ) |
Gain from sales of rental equipment, net |
|
| (19,568 | ) |
|
| (3,671 | ) |
|
| — |
|
|
| (23,239 | ) |
Equity in earnings of guarantor subsidiaries |
|
| (5,955 | ) |
|
| — |
|
|
| 5,955 |
|
|
| — |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 840 |
|
|
| 3,924 |
|
|
| — |
|
|
| 4,764 |
|
Inventories |
|
| (49,636 | ) |
|
| (6,361 | ) |
|
| — |
|
|
| (55,997 | ) |
Prepaid expenses and other assets |
|
| (2,887 | ) |
|
| (82 | ) |
|
| — |
|
|
| (2,969 | ) |
Accounts payable |
|
| 16,782 |
|
|
| (190 | ) |
|
| — |
|
|
| 16,592 |
|
Manufacturer flooring plans payable |
|
| 1,888 |
|
|
| (488 | ) |
|
| — |
|
|
| 1,400 |
|
Accrued expenses payable and other liabilities |
|
| 723 |
|
|
| 1,175 |
|
|
| — |
|
|
| 1,898 |
|
Deferred compensation payable |
|
| 55 |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
Net cash provided by operating activities |
|
| 117,024 |
|
|
| 17,928 |
|
|
| — |
|
|
| 134,952 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired |
|
| (106,746 | ) |
|
| — |
|
|
| — |
|
|
| (106,746 | ) |
Purchases of property and equipment |
|
| (15,723 | ) |
|
| (2,845 | ) |
|
| — |
|
|
| (18,568 | ) |
Purchases of rental equipment |
|
| (153,724 | ) |
|
| (20,950 | ) |
|
| — |
|
|
| (174,674 | ) |
Proceeds from sales of property and equipment |
|
| 1,777 |
|
|
| 396 |
|
|
| — |
|
|
| 2,173 |
|
Proceeds from sales of rental equipment |
|
| 51,799 |
|
|
| 9,869 |
|
|
| — |
|
|
| 61,668 |
|
Investment in subsidiaries |
|
| 4,337 |
|
|
| — |
|
|
| (4,337 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (218,280 | ) |
|
| (13,530 | ) |
|
| (4,337 | ) |
|
| (236,147 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on senior secured credit facility |
|
| 797,029 |
|
|
| — |
|
|
| — |
|
|
| 797,029 |
|
Payments on senior secured credit facility |
|
| (685,080 | ) |
|
| — |
|
|
| — |
|
|
| (685,080 | ) |
Dividends paid |
|
| (19,667 | ) |
|
| (3 | ) |
|
| — |
|
|
| (19,670 | ) |
Purchases of treasury stock |
|
| (387 | ) |
|
| — |
|
|
| — |
|
|
| (387 | ) |
Payments of deferred financing costs |
|
| (559 | ) |
|
| — |
|
|
| — |
|
|
| (559 | ) |
Payments of finance lease obligations |
|
| (56 | ) |
|
| (58 | ) |
|
| — |
|
|
| (114 | ) |
Capital contributions |
|
| — |
|
|
| (4,337 | ) |
|
| 4,337 |
|
|
| — |
|
Net cash provided by (used in) financing activities |
|
| 91,280 |
|
|
| (4,398 | ) |
|
| 4,337 |
|
|
| 91,219 |
|
Net decrease in cash |
|
| (9,976 | ) |
|
| — |
|
|
| — |
|
|
| (9,976 | ) |
Cash, beginning of period |
|
| 16,677 |
|
|
| — |
|
|
| — |
|
|
| 16,677 |
|
Cash, end of period |
|
| 6,701 |
|
|
| — |
|
|
| — |
|
|
| 6,701 |
|
29
ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the financial position of H&E Equipment Services, Inc. and its subsidiaries as of June 30, 2020,2021, and its results of operations for the three and six month periods ended June 30, 2020,2021, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2019.2020. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A — “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.
The outbreak of the COVID-19 pandemic continues to affect certain regions of the United States of America and the world, including in the primary regions we operate. Many State Governors have issued temporary Executive Orders that, among other stipulations, effectively prohibit in-person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. While we are considered an essential business pursuant to the various Executive Orders, if repercussions of the outbreak are prolonged, it could have a significant adverse impact to the underlying industries of some of our customers or in some or all of the primary markets in which we operate, including our customers in the oil and gas industry. To date, our branch locations remain operational and we have not incurred any significant interruptions to our day-to-day operations or supply chain, except most of our corporate employees are working remotely.world. In response to the COVID-19 pandemic, we proactively implemented certain measures to strengthen cash flow, manage costs, strengthen liquidity and enhance employee safety. These measures included the reduction of payroll costs, a reduction in capital expenditures and other discretionary spending, the elimination of most business travel and restriction of visitors to our corporate office, enhanced cleaning and disinfection procedures and the promotion of social distancing at our corporate office and branch locations, promotionlocations. We remain focused on the safety and well-being of social distancingour employees, customers and the wearingcommunities as we maintain a high-level of face coverings (masks) atservice to our corporate office and branch locations, and requirements for employees to work from home where possible.customers.
As the impact of COVID-19 became more widespread, in March 2020, our equipment rental utilization and sales volumes began to decline from February 2020 levels and this decline continued through mid-April 2020, where we began to see utilization and sales levels stabilizeimprove and improvestabilize for the remainder of the second quarter and into early July. However, the2020. We continue to see improvements with utilization levels beginning in March 2021 returning to approximate pre-COVID utilization levels. The timing and the extent of any continued recovery, or subsequent contraction in our equipment rental utilization and sales volumes cannot be reasonably estimated at this time. As such, the extent of the ultimate impact of the pandemic on the Company's operational and financial performancedue to COVID-19 will depend on various developments,a number of factors, including a widespread resurgence in COVID-19 infections, the duration and spreadrate of the outbreak,vaccinations, the impact onto capital and financial markets governmental limitations on business operations generally, and its and theirthe related impact on potential customers, employees, vendors and distribution partners, all of which cannot be reasonably predicted at this time.our customers. For a discussion of liquidity, see Liquidity and Capital Resources below.
Overview
Background
As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and services support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) material handling equipment. By providing equipment rental, sales, on-site parts, repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full service approach provides us with multiple points of customer contact, enables us to maintain a high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales, rental, parts sales and services operations.
As of July 28, 2020,27, 2021, we operated 96106 full-service facilities throughout the Intermountain, Southwest, Gulf Coast, West Coast, Southeast and Mid-Atlantic regions of the United States. Our work force includes distinct, focused sales forces for our new and used equipment sales and rental operations, highly skilled service technicians, product specialists and regional and district managers. We focus our sales and rental activities on, and organize our personnel principally by, our four core equipment categories. We believe this allows us to provide specialized equipment knowledge, improve the effectiveness of our rental and sales force and strengthen our customer relationships. In addition, we have branch managers for each location who are responsible for managing their assets and financial results. We believe this fosters accountability in our business and strengthens our local and regional relationships.
Through our predecessor companies, we have been in the equipment services business for approximately 5960 years. H&E Equipment Services L.L.C. (“H&E LLC”) was formed in June 2002 through the business combination of Head & Engquist, Equipment, LLC (“Head & Engquist”), a wholly-owned subsidiary of Gulf Wide, Industries, L.L.C. (“Gulf Wide”), and ICM
30
Equipment Company L.L.C. (“ICM”).ICM. Head & Engquist, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated equipment service companies operating in contiguous geographic markets. In the June 2002 transaction, Head & Engquist and ICM were mergedconnection with and into Gulf Wide, which was renamed H&E LLC. Prior to the combination, Head & Engquist operated 25 facilities in the Gulf Coast region, and ICM operated 16 facilities in the Intermountain region of the United States.
Prior to our initial public offering in February 2006, our business was conducted through H&E LLC. In connection with our initial public offering, we converted H&E LLC into H&E Equipment Services, Inc. In order to have an operating Delaware corporation as the issuer for our initial public offering, H&E Equipment Services, Inc. was formed as, a Delaware corporation and wholly-owned subsidiary of H&E Holdings L.L.C. (“H&E Holdings”), and immediately prior to the closing of our initial public offering, on February 3, 2006, H&E LLC and H&E Holdings merged with and into H&E Equipment Services, Inc., which survived the reincorporation merger as the operating company. Effective February 3, 2006, H&E LLC and H&E Holdings no longer existed under operation of law pursuant to the reincorporation merger.corporation.
Effective February 1, 2019, we completed the acquisition of We-Rent-It, a privately-held equipment rental company with six branch locations in Central Texas.
Critical Accounting Policies
Item 7, included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, presents the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition, and results of operations and cash flows, and which require complex management judgment and assumptions, or involve uncertainties. There have been no significant changes to these critical accounting policies and estimates during the three and six month
18
periods ended June 30, 2020.2021. Our critical accounting policies include, among others, useful lives of rental equipment and property and equipment, acquisition and disposition accounting, goodwill, long-lived assets and income taxes.
Information regarding our other significant accounting policies is included in note 2 to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 20192020 and in note 2 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Business Segments
We have five reportable segments because we derive our revenues from five principal business activities: (1) equipment rentals; (2) new equipment sales; (3) used equipment sales; (4) parts sales; and (5) repair and maintenance services. These segments are based upon how we allocate resources and assess performance. In addition, we also have non-segmented revenues and costs that relate to equipment support activities.
| • | Equipment Rentals. Our rental operation primarily rents our four core types of construction and industrial equipment. We have a well-maintained rental fleet and our own dedicated sales force, focused by equipment type. We actively manage the size, quality, age and composition of our rental fleet based on our analysis of key measures such as time utilization (which we analyze as equipment usage based on: (1) a percentage of original equipment |
| • | New Equipment Sales. Our new equipment sales operation sells new equipment in all of our four core product categories. We have a retail sales force focused by equipment type that is separate from our rental sales force. Manufacturer purchase terms and pricing are managed by our product specialists. |
| • | Used Equipment Sales. Our used equipment sales are generated primarily from sales of used equipment from our rental fleet, as well as from sales of inventoried equipment that we acquire through trade-ins from our equipment customers and through selective purchases of high quality used equipment. Used equipment is sold by our dedicated retail sales force. Our used equipment sales are an effective way for us to manage the size and composition of our rental fleet and provide a profitable distribution channel for disposal of rental equipment. |
| • | Parts Sales. Our parts business sells new and used parts for the equipment we sell and also provides parts to our own rental fleet. To a lesser degree, we also sell parts for equipment produced by manufacturers whose products we neither rent nor sell. In order to provide timely parts and services support to our customers as well as our own rental fleet, we maintain an extensive parts inventory. |
| • | Services. Our services operation provides maintenance and repair services for our customers’ equipment and to our own rental fleet at our facilities as well as at our customers’ locations. As the authorized distributor for numerous equipment manufacturers, we are able to provide service to that equipment that will be covered under the manufacturer’s warranty. |
31
Our non-segmented revenues and costs relate primarily to ancillary charges associated with equipment support activities that we provide to customers in connection with newmaintenance and used equipment sales and parts andrepair services, revenues and are not generally allocated to reportable segments.
For additional information about our business segments, see note 1210 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Revenue Sources
We generate all of our total revenues from our five business segments and our non-segmented equipment support activities. Equipment rentals for the periods presented in this Quarterly Report on Form 10-Q account for more than half of our total revenues. For the six month period ended June 30, 2020,2021, approximately 58.5%56.4% of our total revenues were attributable to equipment rentals, 13.3%14.8% of our total revenues were attributable to new equipment sales, 11.6%14.0% were attributable to used equipment sales, 9.9%8.9% were attributable to parts sales, 5.8%5.0% were attributable to our services revenues and 0.9% were attributable to non-segmented other revenues.
The equipment that we sell, rent and service is principally used in the construction industry, as well as by companies for commercial and industrial uses such as plant maintenance and turnarounds, as well as in the petrochemical and energy sectors. As a result, our total revenues are affected by several factors including, but not limited to, the demand for and availability of rental equipment, rental rates and other competitive factors, the demand for new and used equipment, the level of construction and industrial activities, spending levels by our customers, adverse weather conditions and general economic conditions.
Equipment Rentals. Our rental operation primarily rents our four core types of construction and industrial equipment. We have a well-maintained rental fleet and our own dedicated sales force, focused by equipment type. We actively manage the size, quality,
19
age and composition of our rental fleet based on our analysis of key measures such as time utilization (which we analyze as equipment usage based on: (1) a percentage of original equipment cost,cost; and (2) the number of rental equipment units available for rent), rental rate trends and targets, rental equipment dollar utilization, and maintenance and repair costs, which we closely monitor. We maintain fleet quality through regional and district quality control managers and our parts and services operations.
New Equipment Sales. We seek to optimize revenues from new equipment sales by selling equipment through a professional in-house retail sales force focused by product type. While sales of new equipment are impacted by the availability of equipment from the manufacturer, we believe our status as a leading distributor for some of our key suppliers improves our ability to obtain equipment. New equipment sales are an important component of our integrated model due to customer interaction and service contact and newcontact. New equipment sales also lead to future parts and services revenues.
Used Equipment Sales. We generate the majority of our used equipment sales revenues by selling equipment from our rental fleet. The remainder of our used equipment sales revenues comes from the sale of inventoried equipment that we acquire through trade-ins from our equipment customers and selective purchases of high-quality used equipment. Our policy is not to offer specified price trade-in arrangements on equipment for sale. Sales of our rental fleet equipment allow us to manage the size, quality, composition and age of our rental fleet, and provide us with a profitable distribution channel for the disposal of rental equipment.
Parts Sales. We generate revenues from the sale of new and used parts for equipment that we rent or sell, as well as for other makes of equipment. Our product support sales representatives are instrumental in generating our parts revenues. They are product specialists and receive performance incentives for achieving certain sales levels. Most of our parts sales come from our extensive in-house parts inventory. Our parts sales provide us with a relatively stable revenue stream that is generally less sensitive to the economic cycles that tend to affect our rental and equipment sales operations.
Services. We derive our services revenues from maintenance and repair services to customers for their owned equipment. In addition to repair and maintenance on an as-needed or scheduled basis, we also provide ongoing preventative maintenance services to industrial customers. Our after-market service provides a high-margin, relatively stable source of revenue through changing economic cycles.
Our non-segmented revenues relate to equipment support activities that we provide to customers in connection with new and used equipment sales and parts and services revenues and are not generally allocated to reportable segments.
Principal Costs and Expenses
Our largest expenses are the costs to purchase the new equipment we sell, the costs associated with the used equipment we sell, rental expenses, rental depreciation and costs associated with parts sales and services, all of which are included in cost of revenues. For the six month period ended June 30, 2020,2021, our total cost of revenues was approximately $366.7$389.8 million. Our operating expenses consist principally of selling, general and administrative expenses. For the six month period ended June 30, 2020,2021, our selling, general and administrative expenses were $147.5$151.0 million. In addition, we have interest expense related to our debt instruments. Operating expenses and all other income and expense items below the gross profit line of our consolidated statements of operations are not generally allocated to our reportable segments.
32
We are also subject to federal and state income taxes. Future income tax examinations by state and federal agencies could result in additional income tax expense based on probable outcomes of such matters.
Cost of Revenues:
Rental Depreciation. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment. Estimated useful lives vary based upon type of equipment. Generally, we depreciate cranes and aerial work platforms over a ten year estimated useful life, earthmoving over a five year estimated useful life with a 25% salvage value, and industrial lift trucksmaterial handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment.
Rental Expense. Rental expense represents the costs associated with rental equipment, including, among other things, the cost of servicingrepairing and maintaining our rental equipment, property taxes on our fleet and other miscellaneous costs of owning rental equipment.
Rental Other. Rental other expenses consist primarily of equipment support activities that we provide our customers in connection with renting equipment, such as hauling services, damage waiver policies, environmental fees and other recovery fees.
New Equipment Sales. Cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold, net of any amount of credit given to the customer towards the equipment for trade-ins.
20
Used Equipment Sales. Cost of used equipment sold consists of the net book value of rental equipment for used equipment sold from our rental fleet, the equipment costs for used equipment we purchase for sale or the trade-in value of used equipment that we obtain from customers in equipment sales transactions.
Parts Sales. Cost of parts sales represents costs attributable to the sale of parts directly to customers.
Services Support. Cost of services revenues represents costs attributable to service provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers.
Our non-segmented other expenses include costs relate toassociated with ancillary charges associated with equipment support activities that we provide to customers in connection with newmaintenance and used equipment sales and parts and services revenues and are not generally allocated to reportable segments.repair services.
Selling, General and Administrative Expenses:
Our selling, general and administrative (“SG&A”) expenses include sales and marketing expenses, payroll and related benefit costs, including stock based compensation, insurance expenses, legal and professional fees, rent and other occupancy costs, property and other taxes, administrative overhead, depreciation associated with property and equipment (other than rental equipment) and amortization expense associated with intangible assets, finance leases and software.assets. These expenses are not generally allocated to our reportable segments.
Interest Expense:
Interest expense for the periods presented represents the interest on our outstanding debt instruments, including aggregate amounts outstanding under our revolving senior secured credit facility (the “Credit Facility”),Credit Facility, senior unsecured notes due 20252028 and our finance lease obligations. Interest expense also includes interest on our outstanding manufacturer flooring plans payable, which are used to finance inventory and rental equipment purchases. Non-cash interest expense related to the amortization cost of deferred financing costs and the accretion/amortization of note discount/premium are also included in interest expense.
Principal Cash Flows
We generate cash primarily from our operating activities and, historically, we have used cash flows from operating activities, manufacturer floor plan financings and available borrowings under the Credit Facility as the primary sources of funds to purchase inventory and to fund working capital and capital expenditures, growth and expansion opportunities (see also Liquidity“Liquidity and Capital ResourcesResources” below). Our management of our working capital is closely tied to operating cash flows, as working capital can be significantly impacted by, among other things, our accounts receivable activities, the level of new and used equipment inventories, which may increase or decrease in response to current and expected demand, and the size and timing of our trade accounts payable payment cycles.
Rental Fleet
A substantial portion of our overall value is in our rental fleet equipment. The net book value of our rental equipment at June 30, 20202021 was $1.1 billion, or approximately 63.7%55.2% of our total assets. Our rental fleet as of June 30, 20202021 consisted of 42,36441,136 units having an original acquisition cost (which we define as the cost originally paid to manufacturers or the original amount financed under operating leases)manufacturers) of approximately $1.9$1.8 billion. As of June 30, 2020,2021, our rental fleet composition was as follows (dollars in millions):
33
|
| Units |
|
| % of Total Units |
|
| Original Acquisition Cost |
|
| % of Original Acquisition Cost |
|
| Average Age in Months |
| |||||
Hi-Lift or Aerial Work Platforms |
|
| 22,411 |
|
|
| 52.9 | % |
| $ | 716.3 |
|
|
| 38.0 | % |
|
| 46.0 |
|
Cranes |
|
| 214 |
|
|
| 0.5 | % |
|
| 81.3 |
|
|
| 4.3 | % |
|
| 57.9 |
|
Earthmoving |
|
| 4,792 |
|
|
| 11.3 | % |
|
| 432.9 |
|
|
| 22.9 | % |
|
| 25.6 |
|
Material Handling(1) |
|
| 6,914 |
|
|
| 16.3 | % |
|
| 528.6 |
|
|
| 28.0 | % |
|
| 39.5 |
|
Other |
|
| 8,033 |
|
|
| 19.0 | % |
|
| 128.0 |
|
|
| 6.8 | % |
|
| 27.2 |
|
Total |
|
| 42,364 |
|
|
| 100.0 | % |
| $ | 1,887.1 |
|
|
| 100.0 | % |
|
| 39.1 |
|
_______________
|
|
|
| Units |
|
| % of Total Units |
|
| Original Acquisition Cost |
|
| % of Original Acquisition Cost |
|
| Average Age in Months |
| |||||
Hi-Lift or Aerial Work Platforms |
|
| 21,397 |
|
|
| 52.0 | % |
| $ | 695.3 |
|
|
| 37.7 | % |
|
| 49.4 |
|
Cranes |
|
| 168 |
|
|
| 0.4 | % |
|
| 66.9 |
|
|
| 3.6 | % |
|
| 51.8 |
|
Earthmoving |
|
| 5,002 |
|
|
| 12.2 | % |
|
| 443.1 |
|
|
| 24.0 | % |
|
| 22.4 |
|
Material Handling |
|
| 6,536 |
|
|
| 15.9 | % |
|
| 508.1 |
|
|
| 27.5 | % |
|
| 40.2 |
|
Other |
|
| 8,033 |
|
|
| 19.5 | % |
|
| 133.0 |
|
|
| 7.2 | % |
|
| 23.7 |
|
Total |
|
| 41,136 |
|
|
| 100.0 | % |
| $ | 1,846.4 |
|
|
| 100.0 | % |
|
| 39.7 |
|
Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgments by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand. The mix and age of our rental fleet, as well as our cash flows, are impacted by sales of equipment from the rental fleet, which are influenced by used equipment pricing at the retail and secondary auction market levels, and the capital expenditures to acquire new rental fleet equipment. In making equipment acquisition decisions, we evaluate current economic and market conditions, competition, manufacturers’ availability, pricing and return on investment over
21
the estimated useful life of the specific equipment, among other things. As a result of our in-house service capabilities and extensive maintenance program, we believe our rental fleet is well-maintained.
The original acquisition cost of our gross rental fleet decreasedincreased by approximately $55.7$82.7 million, or 2.9%4.7%, for the six month period ended June 30, 2020,2021, largely reflective of a decreasean increase in rental fleet capital expenditures. The average age of our rental fleet equipment increaseddecreased by approximately 2.81.2 months for the six month period ended June 30, 2020.2021. Our average rental rates for the six month period ended June 30, 20202021 were 1.6%2.3% lower than the same period last year. This average rental rate change reflects a change in calculation methodology. We have adjusted our methodology for calculating average rental rates based on the American Rental Association’s calculation methodology, which we believe is a more widely-used calculation methodology in our industry and provides greater industry comparability relative to our prior calculation of average rental rates. See further discussion on rental rates in “Results of Operations” below.
The rental equipment mix among our four core product lines for the six month period ended June 30, 20202021 was largely consistent with that of the prior year comparable period as a percentage of original acquisition cost.
Principal External Factors that Affect our Businesses
We are subject to a number of external factors that may adversely affect our businesses. These factors, and other factors, are discussed below and under the heading “Forward-Looking Statements,” and in Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.
| • | Economic downturns. The demand for our products is dependent on the general economy, the stability of the global credit markets, the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and manufacturing industries, as well as adverse credit market conditions, can cause demand for our products to materially decrease. |
| • | Spending levels by customers. Rentals and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our total revenues. As a result, we depend upon customers in these businesses and their ability and willingness to make capital expenditures to rent or buy specialized equipment. Accordingly, our business is impacted by fluctuations in customers’ spending levels on capital expenditures and by the availability of credit to those customers. |
| • | Adverse weather. Adverse weather in a geographic region in which we operate may depress demand for equipment in that region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather conditions may prohibit our customers from continuing their work projects. Adverse weather also has a seasonal impact in parts of our Intermountain region, particularly in the winter months. |
34
• Regional and Industry-Specific Activity and Trends. Expenditures by our customers may be impacted by the overall level of construction activity in the markets and regions in which they operate, the price of oil and other commodities and other general economic trends impacting the industries in which our customers and end users operate. As our customers adjust their activity and spending levels in response to these external factors, our rentals and sales of equipment to those customers will be impacted. For example, high levels of industrial activity in our Gulf Coast and Intermountain regions have been a meaningful driver of recent growth in our revenues. Conversely, declines in oil and natural gas prices and the related downturn in oil industry activities can result in a significant decrease in our new equipment sales, primarily the sale of new cranes, due to lower demand. Most recently, in the first quarter of 2020, worldwide crude oil and natural gas prices sharply declined as a result of the lack of agreement on production levels by members of the Organization of the Petroleum Exporting Countries and other oil- and gas-producing countries, which resulted in production outstripping the demand for oil and gas. Additionally, the effects of the COVID-19 pandemic, have Results of Operations The tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for our business segments and non-segmented revenues for the three and six month periods ended June 30, 22 Three Months Ended June 30, Revenues. Three Months Ended Total Total Three Months Ended Total Total June 30, Dollar Percentage June 30, Dollar Percentage 2020 2019 Decrease Decrease 2021 2020 Increase (Decrease) Increase (Decrease) (in thousands, except percentages) (in thousands, except percentages) Segment Revenues: Equipment rentals Rentals $ 140,776 $ 173,837 $ (33,061 ) (19.0 )% $ 160,299 $ 140,776 $ 19,523 13.9 % Rentals other 15,018 18,465 (3,447 ) (18.7 )% 18,738 15,018 3,720 24.8 % Total equipment rentals 155,794 192,302 (36,508 ) (19.0 )% 179,037 155,794 23,243 14.9 % New equipment sales 43,947 53,596 (9,649 ) (18.0 )% 49,919 43,947 5,972 13.6 % Used equipment sales 34,013 36,128 (2,115 ) (5.9 )% 41,358 �� 34,013 7,345 21.6 % Parts sales 26,220 31,871 (5,651 ) (17.7 )% 27,424 26,220 1,204 4.6 % Services revenues 15,657 16,725 (1,068 ) (6.4 )% 14,977 15,657 (680 ) (4.3 )% Non-Segmented revenues 2,705 2,975 (270 ) (9.1 )% 3,048 2,705 343 12.7 % Total revenues $ 278,336 $ 333,597 $ (55,261 ) (16.6 )% $ 315,763 $ 278,336 $ 37,427 13.4 % Total Revenues. Our total revenues were approximately $315.8 million for the three month period ended June 30, 2021 compared to $278.3 million for the three month period ended June 30, 2020, Equipment Rental Revenues. Our total revenues from equipment rentals for the three month period ended June 30, Rentals $1.6 million. Our average rental rates for the three month period ended June 30, Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the three month period ended June 30, Rentals New Equipment Sales Revenues. Our new equipment sales for the three month period ended June 30, 23 Used Equipment Sales Revenues. Our used equipment sales Parts Sales Revenues. Our parts sales revenues for the three month period ended June 30, Services Revenues. Our services revenues for the three month period ended June 30, Non-Segmented Other Revenues. Our non-segmented other revenues relate to equipment support activities that we provide to customers in connection with new and used equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the three month period ended June 30, Gross Profit. Three Months Ended Total Total Three Months Ended Total Total June 30, Dollar Percentage June 30, Dollar Percentage 2020 2019 Increase (Decrease) Increase (Decrease) 2021 2020 Increase (Decrease) Increase (Decrease) (in thousands, except percentages) (in thousands, except percentages) Segment Gross Profit: Equipment rentals Rentals $ 58,356 $ 85,384 $ (27,028 ) (31.7 )% $ 73,881 $ 58,356 $ 15,525 26.6 % Rentals other 792 618 174 28.2 % 7 792 (785 ) (99.1 )% Total equipment rentals 59,148 86,002 (26,854 ) (31.2 )% 73,888 59,148 14,740 24.9 % New equipment sales 4,688 6,532 (1,844 ) (28.2 )% 5,743 4,688 1,055 22.5 % Used equipment sales 10,731 12,807 (2,076 ) (16.2 )% 14,350 10,731 3,619 33.7 % Parts sales 6,868 8,581 (1,713 ) (20.0 )% 7,068 6,868 200 2.9 % Services revenues 10,484 11,366 (882 ) (7.8 )% 10,188 10,484 (296 ) (2.8 )% Non-Segmented revenues gross profit (loss) 151 (507 ) 658 129.8 % Non-segmented revenues gross profit 128 151 (23 ) (15.2 )% Total gross profit $ 92,070 $ 124,781 $ (32,711 ) (26.2 )% $ 111,365 $ 92,070 $ 19,295 21.0 % Total Gross Profit. Our total gross profit was Equipment Rentals Gross Profit. Our total gross profit from equipment rentals for the three month period ended June 30, Rentals: Rental revenues gross profit 24 Gross profit margin on Rentals Other: Our rentals other New Equipment Sales Gross Profit. Our new equipment sales gross profit for the three month period ended June 30, Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the three month period ended June 30, increase of Parts Sales Gross Profit. Our parts sales gross profit for the three month period ended June 30, Services Revenues Gross Profit. For the three month period ended June 30, Non-Segmented Other Revenues Gross Selling, General and Administrative Expenses (“SG&A”). SG&A expenses Approximately Gain on Sales of Property & Equipment (Net). We had net gains on sales of property and equipment of 25 Other Income (Expense). For the three month period ended June 30, Income Taxes. We recorded income tax expense of $6.0 million for the three month period ended June 30, Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at June 30, Regional and Industry-Specific Activity and Trends. Expenditures by our customers may be impacted by the overall level of construction activity in the markets and regions in which they operate, the price of oil and other commodities and other general economic trends impacting the industries in which our customers and end users operate. As our customers adjust their activity and spending levels in response to these external factors, our rentals and sales of equipment to those customers will be impacted. For example, high levels of industrial activity in our Gulf Coast and Intermountain regions in recent years been a meaningful driver of growth in our revenues. Conversely, declines in oil and natural gas prices and the related downturn in oil industry activities can result in a significant decrease in our new equipment sales, primarily the sale of new cranes, due to lower demand. Most recently, in the first quarter of 2020, worldwide crude oil and natural gas prices sharply declined as a result of the lack of agreement on production levels by members of the Organization of the Petroleum Exporting Countries and other oil- and gas-producing countries, which has resulted in production outstripping the demand for oil and natural gas. Additionally, the effects of the COVID-19 outbreak, has decreased demand for oil and gas products as companies and other organizations have suspended or curtailed operations and travel. Although worldwide crude oil and natural gas prices have partially recovered from the 2020 first quarter decline, we believe the uncertainty regarding future oil and natural gas prices continues to impact customer capital expenditure decisions. 20202021 and 2019.2020. The period-to-period comparisons of our financial results are not necessarily indicative of future results.20202021 Compared to the Three Months Ended June 30, 20192020compared to $333.6 million for the three month period ended June 30, 2019, a decreasean increase of $55.3$37.4 million, or 16.6%13.4%. Revenues for all reportable segments and non-segmented other revenues are further discussed below.2020 decreased2021 increased approximately $36.5$23.2 million, or 19.0%14.9%, to $155.8$179.0 million from $192.3$155.8 million in the three month period ended June 30, 2019.2020. The decreaseincrease in equipment rental revenues was largely due to decreasedincreased demand fromcompared to the impact of theprior year COVID-19 economic downturn. :. Rental revenues decreased $33.1increased $19.5 million, or 19.0%13.9%, to $160.3 million for the three month period ended June 30, 2021 compared to $140.8 million for the three month period ended June 30, 2020 compared to $173.8 million for the three month period ended June 30, 2019.2020. Rental revenues from aerial work platform equipment decreased $13.9increased $6.5 million, earthmoving equipment increased $6.4 million, material handling equipment decreased $7.5increased $5.0 million and other equipment rental revenues decreased $5.7increased $3.2 million. Earthmoving equipment rental revenues andPartially offsetting these increases, crane rental revenues decreased $4.6 million and $1.3 million, respectively. These product line equipment rental revenue fluctuations do not include the impact of legacy WRI equipment rental revenues for April 2019.20202021 decreased 2.8%0.3% compared to the same three month period last year and decreasedincreased approximately 2.8%1.0% from the three month period ended March 31, 2020. Our average rental rates for the three35month period ended June 30, 2019 do not include April 2019 rental rate data for legacy WRI operations. These average rental rate changes reflect a change in calculation methodology. We have adjusted our methodology for calculating average rental rates based on the American Rental Association’s calculation methodology, which we believe is a more widely-used calculation methodology in our industry and provides greater industry comparability relative to our prior calculation of average rental rates.2021.20202021 was 29.6%35.2% compared to 36.5%29.6% in the three month period ended June 30, 2019, a decrease2020, an increase of 6.9%5.6%. The decreaseincrease in comparative rental equipment dollar utilization was the net result of thean increase in rental equipment time utilization, combined with a decrease in equipment rental rates as noted above, combined with a decrease in rental equipment time utilization.above. Rental equipment time utilization as a percentage of original equipment cost was approximately 59.5%68.3% for the three month period ended June 30, 20202021 compared to 71.2%59.5% in the three month period ended June 30, 2019, a decrease2020, an increase of 11.7%8.8%. The decreaseincrease in rental equipment time utilization as a percentage of original equipment cost was largely due to increased demand during the effects of the COVID-19 pandemiccurrent year compared to COVID-19’s impact on economic activity.activity during the prior year. Other:Other. Our rentals other revenuesrevenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues for the three month period ended June 30, 20202021 were $15.0$18.7 million compared to $18.5$15.0 million for the three month period ended June 30, 2019, a decrease2020, an increase of $3.4$3.7 million, or 18.7%24.8%, primarily due to the decreaseincrease in equipment rental revenues as described above.2020 decreased $9.62021 increased $6.0 million, or 18.0%13.6%, to $43.9$49.9 million from $53.6$43.9 million for the three month period ended June 30, 2019.2020. This decreaseincrease was largely due to an $11.2$8.2 million decreaseincrease in new crane sales reflecting continuing uncertainty related to oil and gas prices, a $2.6$3.7 million decreaseincrease in other new equipment sales and a $1.5 million decrease in new material handling equipment sales, reflecting the uncertainty surrounding the COVID-19 pandemic.sales. These decreasesincreases were partially offset by a $6.4$4.6 million increasedecrease in new earthmoving equipment sales and a $0.9 million decrease in new aerial work platform equipment sales.decreased $2.1increased $7.3 million, or 5.9%21.6%, to $34.0$41.4 million for the three month period ended June 30, 2020,2021, from $36.1$34.0 million for the same three month period in 2019.2020. This decreaseincrease was driven by a $2.4$4.0 million decreaseincrease in used material handling equipment sales, a $3.4 million increase in used aerial work platform equipment sales a $1.9 million decrease in used material handling equipment sales and a $0.8$2.0 million decreaseincrease in used crane equipment sales, which was partially offset by a $1.8$2.0 million increasedecrease in used earthmoving equipment sales and a $1.0 million increase in used other equipment sales. 2020 decreased $5.72021 increased $1.2 million, or 17.7%4.6%, to $26.2$27.4 million from approximately $31.9$26.2 million for the same three month period last year. The decreaseincrease in parts sales was attributable to decreasesincreases across all equipment parts sales.sales, with the exception of aerial work platform parts sales which decreased.20202021 decreased $1.1$0.7 million, or 6.4%4.3%, to $15.7$15.0 million from $16.7$15.7 million for the same three month period last year. The decrease is primarily due to decreases in craneaerial work platform and earthmoving equipmentother services revenues.2020,2021, our other revenues were approximately $2.7$3.0 million, a decreasean increase of $0.3 million, or 9.1%12.7%, from $3.0$2.7 million in the same three month period in 2019.2020. 36$92.1$111.4 million for the three month period ended June 30, 20202021 compared to $124.8$92.1 million for the same three month period in 2019, a decrease2020, an increase of $32.7$19.3 million, or 26.2%21.0%. Total gross profit margin for the three month period ended June 30, 20202021 was approximately 33.1%35.3%, a decreasean increase of 4.3%2.2% from the 37.4%33.1% gross profit margin for the same three month period in 2019.2020. Gross profit and gross margin for all reportable segments and non-segmented other revenues are further described below:2020 decreased2021 increased approximately $26.9$14.7 million, or 31.2%24.9%, to $59.1$73.9 million from $86.0$59.1 million in the same three month period in 2019.2020. Total gross profit margin from equipment rentals for the three month periods ended June 30, 20202021 and 20192020 was approximately 38.0%41.3% and 44.7%38.0%, respectively, a decreasean increase of 6.7%3.3%. See Rentals and Rentals Other below for additional information.decreased $27.0increased $15.5 million, or 31.7%26.6%, to $58.4$73.9 million for the three month period ended June 30, 20202021 compared to $85.4$58.4 million for the same three month period in 2019.2020. The gross profit decreaseincrease was the result of a $33.1$19.5 million decreaseincrease in equipment rental revenues for the three month period ended June 30, 20202021 compared to the same period last year which was partially offset byand a $2.3$0.8 million decrease in rental equipment depreciation expense, andwhich was partially offset by a $3.8$4.8 million decreaseincrease in rental expenses. The decreases in both depreciation expense and rental expenses are primarily due to a smaller fleet size in 2020 compared to 2019. The original acquisition cost of our rental fleet at June 30, 20202021 decreased $43.8$40.7 million, or 2.3%2.2%, from June 30, 2019.2020. equipment rentals for the three month periods ended June 30, 20202021 and June 30, 20192020 was approximately 41.5%46.1% and 49.1%41.5%, respectively. Depreciation expense was 42.0%36.4% of equipment rental revenues for the three month period ended June 30, 20202021 compared to 35.3%42.0% for the same period in 2019, an2020, a decrease of 5.6%. The decrease in depreciation expense as a percentage of rental revenues are largely due to the increase of 6.7%.in revenues in 2021 as compared to the same period in 2020. As a percentage of revenues, rental expenses were 16.5%17.5% for the three month period ended June 30, 20202021 compared to 15.5%16.5% for the same period last year, an increase of 1.0%. These increases in depreciation expense and rental expenses as a percentage of equipment rental revenues are largely due to the decline in rental revenues in the comparative periods.revenuesrevenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross profit for the three month period ended June 30, 20202021 was $0.8less than $0.1 million compared to $0.6$0.8 million for the same period in 2019, an increase2020, a decrease of $0.2$0.8 million. GrossThere was no gross profit margin was 5.3% for the three month period ended June 30, 20202021 compared to 3.3%5.3% for the same period last year, an increase of 2.0%.year.2020 decreased $1.82021 increased $1.1 million, or 28.2%22.5%, to $4.7$5.7 million compared to $6.5$4.7 million for the same three month period in 20192020 on a total new equipment sales decreaseincrease of $9.6$6.0 million. Gross profit margin on new equipment sales was 10.7%11.5% for the three month period ended June 30, 2020,2021, compared to 12.2%10.7% for the same period last year, a decreasean increase of 1.5%0.8%. The decreaseincrease in gross profit margin was primarily due to the mix of new equipment sold and lowerimproving gross margins on new crane and new earthmoving equipment sales.2020 decreased $2.12021 increased $3.6 million, or 16.2%33.7%, to $10.7$14.4 million from $12.8$10.7 million in the same period in 20192020 on a used equipment sales decrease37$2.1$7.3 million. Gross profit margin on used equipment sales for the three month period ended June 30, 20202021 was approximately 31.6%34.7%, down 3.8%up 3.1% from 35.4%31.6% for the same three month period in 2019,2020. This increase was primarily as a result of the mix of used equipment sold.sold combined with the improved gross margins on the sale of used aerial work platforms, earthmoving and material handling equipment. Our used equipment sales from the rental fleet, which comprised 90.3%88.3% and 92.4%90.3% of our used equipment sales for the three month periods ended June 30, 20202021 and 2019,2020, respectively, were approximately 153.2%161.3% and 160.8%153.2% of net book value for the three month periods ended June 30, 20202021 and 2019,2020, respectively.20202021 was approximately $6.9$7.1 million, a decreasean increase of $1.7$0.2 million, or 20.0%2.9%, from gross profit of $8.6$6.9 million for the same period last year on a parts sales decreaseincrease of $5.7$1.2 million. Gross profit margin for the three month period ended June 30, 20202021 was 26.2%25.8%, a decrease of 0.7%0.4%, compared to a gross margin of 26.9%26.2% for the three month period ended June 30, 2019.2020. The decrease in parts sales gross margin is due to the mix of parts sold.2020,2021, our services revenues gross profit decreased $0.9$0.3 million, or 7.8%2.8%, to approximately $10.5$10.2 million from $11.4$10.5 million for the same three month period in 20192020 on a $1.1$0.7 million decrease in services revenues. Gross profit margin for the three month period ended June 30, 20202021 was 67.0%68.0%, a decrease of 1.0% from approximately 68.0%67.0% in the same three month period in 2019,2020, as a result of services revenues mix.Profit (Loss).Profit. Our non-segmented other revenues relate to equipment support activities that we provide to customers in connection with new and used equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the three month period ended June 30, 2020,2021, our other revenues gross profit was approximately $0.2$0.1 million compared to a gross lossprofit of $0.5$0.2 million in the same period in 2019, an increase2020, a decrease of $0.7$0.1 million.decreased $9.9increased $9.1 million, or 12.8%13.5%, to $77.0 million for the three month period ended June 30, 2021 compared to $67.9 million for the three month period ended June 30, 2020 compared to $77.8 million for the three month period ended June 30, 2019.2020. Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses decreased $9.9increased $9.0 million, primarily as a result of lowerhigher commissions and incentive pay combined with headcount reductionsincreases and reducedincreased employee hours in response to COVID-19’srebounding from the impact toof the COVID-19 pandemic on our business. Promotional expenses and supplies costs decreased $1.0 million and $0.8 million, respectively, due to additional cost-saving measures. Facility rent expenses and repairs and maintenance costs decreased $0.3increased $0.9 million. Partially offsetting these decreasesincreases was a $2.0$1.1 million increaseand $0.9 million decrease in liability insurance costs.costs and bad debt expense, respectively.$1.0$3.2 million of the total increase in SG&A expenses was attributable to branches opened since January 1, 20192020 with less than three months of comparable operations in either or both of the three month periods ended June 30, 20202021 and 2019.2020. SG&A expenses as a percentage of total revenues for both the three month periods ended June 30, 20202021 and 20192020 were 24.4% and 23.3%, respectively.. $2.9$0.7 million for the three month period ended June 30, 20202021 compared to $0.9$2.9 million for the same period last year, an increasea decrease of $2.0$2.2 million. This increasedecrease is primarily due to a prior year gain on a company-owned closed property and other gains on the sale of property and equipment in the normal course of business.2020,2021, our net other expenses decreased approximately $1.8$2.3 million to $14.9$12.6 million compared to $16.8$14.9 million for the same three month period in 2019,2020, primarily as a result of lower interest expense. Interest expense decreased $1.7$2.1 million to $15.6$13.4 million for the three month period ended June 30, 20202021 compared to $17.3$15.6 million for the same period last year. TheThis decrease inwas the result of lower interest expense was due primarily to a decrease inon our averageCredit Facility as we had no borrowings under the Credit Facility during the second quarter of 2021 and lower interest expense on our senior unsecured notes, resulting from the Company’s refinancing of its senior unsecured notes in the fourth quarter of 2020.20202021 compared to the same period last year.Income Taxes. We recorded income tax expense of $3.2 million for the three month period ended June 30, 2020 compared to income tax expense of $8.3 million for the three month period ended June 30, 2019.2020. Our effective income tax rate for the three month period ended June 30, 20202021 was 26.9%27.5% compared to 26.8%26.9% for the same period in 2019.On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act”). The income tax related provisions of the CARES Act did not have a material impact to our recorded income tax expense for the three month period ended June 30, 2020. See note 11 in this Quarterly Report on Form 10-Q for a discussion of the CARES Act’s favorable cash impact to our liquidity. We are continuing to evaluate any further impact that the CARES Act may have on the Company's future operations, financial position, and liquidity.20202021 are fully realizable through future reversals of existing taxable temporary differences and future taxable income, and are not subject to any limitations.
38
Six Months Ended June 30, 20202021 Compared to the Six Months Ended June 30, 20192020
Revenues.
|
| Six Months Ended |
|
| Total |
|
| Total |
|
| Six Months Ended |
|
| Total |
|
| Total |
| ||||||||||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
|
| June 30, |
|
| Dollar |
|
| Percentage |
| ||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
|
| 2021 |
|
| 2020 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||||||
|
| (in thousands, except percentages) |
|
| (in thousands, except percentages) |
| ||||||||||||||||||||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals |
| $ | 299,394 |
|
| $ | 333,497 |
|
| $ | (34,103 | ) |
|
| (10.2 | )% |
| $ | 300,240 |
|
| $ | 299,394 |
|
| $ | 846 |
|
|
| 0.3 | % |
Rentals other |
|
| 30,919 |
|
|
| 34,934 |
|
|
| (4,015 | ) |
|
| (11.5 | )% |
|
| 35,021 |
|
|
| 30,919 |
|
|
| 4,102 |
|
|
| 13.3 | % |
Total equipment rentals |
|
| 330,313 |
|
|
| 368,431 |
|
|
| (38,118 | ) |
|
| (10.3 | )% |
|
| 335,261 |
|
|
| 330,313 |
|
|
| 4,948 |
|
|
| 1.5 | % |
New equipment sales |
|
| 74,820 |
|
|
| 112,699 |
|
|
| (37,879 | ) |
|
| (33.6 | )% |
|
| 87,664 |
|
|
| 74,820 |
|
|
| 12,844 |
|
|
| 17.2 | % |
Used equipment sales |
|
| 65,231 |
|
|
| 65,762 |
|
|
| (531 | ) |
|
| (0.8 | )% |
|
| 83,124 |
|
|
| 65,231 |
|
|
| 17,893 |
|
|
| 27.4 | % |
Parts sales |
|
| 55,989 |
|
|
| 62,299 |
|
|
| (6,310 | ) |
|
| (10.1 | )% |
|
| 53,036 |
|
|
| 55,989 |
|
|
| (2,953 | ) |
|
| (5.3 | )% |
Services revenues |
|
| 32,479 |
|
|
| 32,293 |
|
|
| 186 |
|
|
| 0.6 | % |
|
| 29,487 |
|
|
| 32,479 |
|
|
| (2,992 | ) |
|
| (9.2 | )% |
Non-Segmented revenues |
|
| 5,426 |
|
|
| 5,751 |
|
|
| (325 | ) |
|
| (5.7 | )% |
|
| 5,636 |
|
|
| 5,426 |
|
|
| 210 |
|
|
| 3.9 | % |
Total revenues |
| $ | 564,258 |
|
| $ | 647,235 |
|
| $ | (82,977 | ) |
|
| (12.8 | )% |
| $ | 594,208 |
|
| $ | 564,258 |
|
| $ | 29,950 |
|
|
| 5.3 | % |
Total Revenues. Our total revenues were approximately $594.2 million for the six month period ended June 30, 2021 compared to $564.3 million for the six month period ended June 30, 2020, compared to $647.2 million for the six month period ended June 30, 2019, a decreasean increase of $83.030.0 million, or 12.8%5.3%. Our total revenues in 2021 were adversely impacted by inclement weather during February 2021 and decreased comparative demand from the impact of the COVID-19 economic downturn in the first half of the first quarter of 2021. Revenues for all reportable segments and non-segmented other revenues are further discussed below.
Equipment Rental Revenues. Our total revenues from equipment rentals for the six month period ended June 30, 2020 decreased $38.12021 increased $4.9 million, or 10.3%1.5%, to $330.3$335.3 million from $368.4$330.3 million in the six month period ended June 30, 2019.2020. The decreaseincrease in equipment rental revenues was largely due to decreasedincreased demand fromcompared to the prior year impact fromof the COVID-19 economic downturn.
RentalsRentals.: Rental revenues decreased $34.1increased $0.8 million, or 10.2%0.3%, to $300.2 million for the six month period ended June 30, 2021 compared to $299.4 million for the six month period ended June 30, 2020 compared to $333.5 million for the six month period ended June 30, 2019.2020. Rental revenues from aerial work platformearthmoving equipment decreased $16.3increased $3.5 million and other equipment increased $1.3 million. Partially offsetting these rental revenues increases were decreases on crane equipment of $3.8 million and material handling equipment decreased $6.8 million, other equipment decreased $4.6 million and crane equipment decreased $2.1of $0.3 million. These decreases are partially offset by a $0.4 million increase of earthmoving equipment rentals. These product line equipment rental revenue fluctuations do not include the impact of legacy WRI equipment rental revenues of approximately $4.7 million for the prior year period.
Our average rental rates for the six month period ended June 30, 20202021 decreased 1.6%2.3% compared to the same period last year. Our average rental rates do not include the impactAs noted above, extreme winter weather in February 2021 resulted in temporary branch closures in approximately 40% of legacy WRI equipment rental revenuesour locations for February through April 2019. This average rental rate change reflects a change in calculation methodology. We have adjusted our methodology for calculating average rental rates based on the American Rental Association’s calculation methodology, which we believe is a more widely-used calculation methodology in our industry and provides greater industry comparability relativeup to our prior calculation of average rental rates.one week.
Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the six month period ended June 30, 20202021 was 31.4%33.6% compared to 35.9%31.4% in the six month period ended June 30, 2019, a decrease2020, an increase of 4.5%2.2%. The decreaseincrease in comparative rental equipment dollar utilization was the net result of an increase in rental equipment time utilization and the decrease in equipment rental rates as noted above and a decrease in rental equipment time utilization.above. Rental equipment time utilization as a percentage of original equipment cost was approximately 61.9%65.9% for the six month period ended June 30, 20202021 compared to 70.6%61.9% in the six month period ended June 30, 2019, a decrease2020, an increase of 8.7%4.0%. The decreaseincrease in rental equipment time utilization as a percentage of original equipment cost was largely due to the decreaseincrease in demand dueas opposed to the economic downturn surrounding the COVID-19 pandemic.pandemic in the prior year.
26
Rentals Other:Other. Our rentals other revenuesrevenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues for the six month period ended June 30, 20202021 were $30.9$35.0 million compared to $34.9$30.9 million for the six month period ended June 30, 2019, a decrease2020, an increase of $4.0$4.1 million, or 11.5%, primarily due to the decreases in equipment rental revenues as described above.13.3%.
39
New Equipment Sales Revenues. Our new equipment sales for the six month period ended June 30, 2020 decreased $37.92021 increased $12.8 million, or 33.6%17.2%, to $74.8$87.7 million from $112.7$74.8 million for the six month period ended June 30, 2019. This decrease, as noted below, was driven primarily by decreased sales of new cranes from continuing uncertainty related to oil and gas prices, and decreases in sales of our other product lines as customers began to delay, and in some cases, cancel large capital purchases due to the uncertainty surrounding the COVID-19 pandemic.2020. Sales of new cranes decreased $23.0increased $14.2 million and material handlingother equipment decreased $5.2increased $4.8 million. Sales of new other equipment sales, new earthmoving equipment, salesnew material handling equipment and new aerial work platform equipment sales decreased $5.0$4.6 million, $3.4$0.9 million and $1.3$0.6 million, respectively.
Used Equipment Sales Revenues. Our used equipment sales decreased $0.5increased $17.9 million, or 0.8%27.4%, to $65.2$83.1 million for the six month period ended June 30, 2020,2021, from approximately $65.8$65.2 million for the same six month period in 2019.2020. Sales of used material handling equipment increased $8.4 million and sales of used aerial work platform equipment decreased $4.0 million and salesincreased $6.3 million. Sales of used cranes, and used material handling equipment decreased $2.3 millionother and $1.9 million, respectively. Partially offsetting these decreases were increases in sales of used earthmoving equipment and used other equipment of $6.0increased $1.9 million, $0.9 million and $1.7$0.5 million, respectively.
Parts Sales Revenues. Our parts sales revenues for the six month period ended June 30, 20202021 decreased $6.3$3.0 million, or 10.1%5.3%, to $56.0$53.0 million from $62.3$56.0 million for the same six month period last year. The decrease in parts sales was primarily attributable to decreases in allcrane and aerial work platform equipment parts sales across all product lines.lines, reflecting COVID-19’s remaining impact on our parts business.
Services Revenues. Our services revenues for the six month period ended June 30, 2020 increased $0.22021 decreased $3.0 million, or 0.6%9.2%, to approximately $32.5$29.5 million from $32.3$32.5 million for the same six month period last year. The decrease in service revenues was primarily attributable to decreases across all product lines, which was partially offset by an increase in crane service revenues.
Non-Segmented Other Revenues. Our non-segmented other revenues relate to equipment support activities that we provide to customers in connection with new and used equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the six month periods ended June 30, 20202021 and 2019,2020, our non-segmented other revenues were approximately $5.6 million and $5.4 million, and $5.8respectively, an increase of $0.2 million, respectively.or 3.9%.
Gross Profit.
|
| Six Months Ended |
|
| Total |
|
| Total |
|
| Six Months Ended |
|
| Total |
|
| Total |
| ||||||||||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
|
| June 30, |
|
| Dollar |
|
| Percentage |
| ||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
|
| 2021 |
|
| 2020 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||||||
|
| (in thousands, except percentages) |
|
| (in thousands, except percentages) |
| ||||||||||||||||||||||||||
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Segment Gross Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals |
| $ | 131,419 |
|
| $ | 163,128 |
|
| $ | (31,709 | ) |
|
| (19.4 | )% |
| $ | 132,785 |
|
| $ | 131,419 |
|
| $ | 1,366 |
|
|
| 1.0 | % |
Rentals other |
|
| (112 | ) |
|
| 812 |
|
|
| (924 | ) |
|
| (113.8 | )% |
|
| (433 | ) |
|
| (112 | ) |
|
| (321 | ) |
|
| (286.6 | )% |
Total equipment rentals |
|
| 131,307 |
|
|
| 163,940 |
|
|
| (32,633 | ) |
|
| (19.9 | )% |
|
| 132,352 |
|
|
| 131,307 |
|
|
| 1,045 |
|
|
| 0.8 | % |
New equipment sales |
|
| 8,135 |
|
|
| 13,536 |
|
|
| (5,401 | ) |
|
| (39.9 | )% |
|
| 10,046 |
|
|
| 8,135 |
|
|
| 1,911 |
|
|
| 23.5 | % |
Used equipment sales |
|
| 21,511 |
|
|
| 23,429 |
|
|
| (1,918 | ) |
|
| (8.2 | )% |
|
| 27,751 |
|
|
| 21,511 |
|
|
| 6,240 |
|
|
| 29.0 | % |
Parts sales |
|
| 14,734 |
|
|
| 16,720 |
|
|
| (1,986 | ) |
|
| (11.9 | )% |
|
| 13,933 |
|
|
| 14,734 |
|
|
| (801 | ) |
|
| (5.4 | )% |
Services revenues |
|
| 21,766 |
|
|
| 21,930 |
|
|
| (164 | ) |
|
| (0.7 | )% |
|
| 20,001 |
|
|
| 21,766 |
|
|
| (1,765 | ) |
|
| (8.1 | )% |
Non-Segmented revenues gross profit (loss) |
|
| 100 |
|
|
| (1,074 | ) |
|
| 1,174 |
|
|
| 109.3 | % | ||||||||||||||||
Non-segmented revenues gross profit |
|
| 285 |
|
|
| 100 |
|
|
| 185 |
|
|
| 185.0 | % | ||||||||||||||||
Total gross profit |
| $ | 197,553 |
|
| $ | 238,481 |
|
| $ | (40,928 | ) |
|
| (17.2 | )% |
| $ | 204,368 |
|
| $ | 197,553 |
|
| $ | 6,815 |
|
|
| 3.4 | % |
Total Gross Profit. Our total gross profit was $197.6$204.4 million for the six month period ended June 30, 20202021 compared to $238.5$197.6 million for the same six month period in 2019, a decrease2020, an increase of $40.9$6.8 million, or 17.2%3.4%. Total gross profit margin for the six month period ended June 30, 20202021 was approximately 35.0%34.4%, a decrease of 1.8%0.6% from the 36.8%35.0% gross profit margin for the same six month period in 2019.2020. Gross profit and gross margin for all reportable segments and non-segmented other revenues are further described below:
40
Equipment Rentals Gross Profit. Our total gross profit from equipment rentals for the six month period ended June 30, 2020 decreased $32.72021 increased $1.0 million, or 19.9%0.8%, to $131.3$132.4 million from $163.9$131.3 million in the same six month period in 2019.2020. Total gross profit margin from equipment rentals for the six month period ended June 30, 20202021 was approximately 39.8%39.5% compared to 44.5%39.8% for the same period in 2019,2020, a decrease of 4.7%0.3%.
27
Rentals: Rental revenues gross profit decreased $31.7increased $1.4 million, or 19.4%1.0%, to $131.4$132.8 million for the six month period ended June 30, 20202021 compared to $163.1$131.4 million for the same six month period in 2019.2020. The gross profit decreaseincrease was the result of a $34.1$0.8 million decreaseincrease in equipment rental revenues for the six month period ended June 30, 20202021 compared to the same period last year and a $0.6$5.5 million increasedecrease in rental depreciation, which was partially offset by a $3.0$4.9 million decreaseincrease in rental expensesexpenses.
Gross profit margin on equipment rentals for the six month period ended June 30, 20202021 was approximately 43.9%44.2% compared to 48.9%43.9% for the same period in 2019, a decrease2020, an increase of 5.0%0.3%. Depreciation expense was 39.8%37.9% of equipment rental revenues for the six month period ended June 30, 20202021 compared to 35.6%39.8% for the same period in 2019, an increase2020, a decrease of approximately 4.2%1.9%. As a percentage of revenues, rental expenses were 16.3%17.9% for the six month period ended June 30, 20202021 compared to 15.5%16.3% for the same period last year, an increase of approximately 0.8%, resulting primarily from the decrease in rental revenues.1.6%.
Rentals Other: Our rentals other revenuesrevenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross loss for the six month period ended June 30, 20202021 was $0.1$0.4 million compared to gross profitloss of $0.8$0.1 million for the same period in 2019,2020, a decrease of $0.9$0.3 million. Gross loss margin was 0.4%1.2% for the six month period ended June 30, 20202021 compared to a gross profitloss margin of 2.3%0.4% for the same period last year, a decrease of 2.7%0.8%.
New Equipment Sales Gross Profit. Our new equipment sales gross profit for the six month period ended June 30, 2020 decreased $5.42021 increased $1.9 million, or 39.9%23.5%, to $8.1$10.0 million compared to approximately $13.5$8.1 million for the same six month period in 20192020 on a total new equipment sales decreaseincrease of $37.9$12.8 million. Gross profit margin on new equipment sales was 10.9%11.5% for the six month period ended June 30, 2020,2021, compared to 12.0%10.9% for the same period last year, a decreasean increase of 1.1%0.6%. The decreaseincrease in gross profit margin was primarily due to the mix of new equipment sold combined with lower gross margins on new crane sales and new earthmoving equipment sales.sold.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the six month period ended June 30, 2020 decreased $1.92021 increased $6.2 million, or 8.2%29.0%, to $21.5$27.8 million from $23.4$21.5 million in the same period in 20192020 on a used equipment sales decreaseincrease of $0.5$17.9 million. Gross profit margin on used equipment sales for the six month period ended June 30, 20202021 was approximately 33.0%33.4%, down 2.6%up 0.4% from 35.6%33.0% for the same six month period in 2019,2020, primarily as a result of the mix of used equipment sold and lowerhigher used earthmovingmaterial handling equipment and used aerial work platform equipment and used crane sales gross margins. Our used equipment sales from the rental fleet, which comprised 91.6%90.6% and 93.8%91.6% of our used equipment sales for the six month periods ended June 30, 20202021 and 2019,2020, respectively, were approximately 155.1%156.1% and 160.5%155.1% of net book value for the six month periods ended June 30, 20202021 and 2019,2020, respectively.
Parts Sales Gross Profit. Our parts sales gross profit for the six month period ended June 30, 20202021 was $14.7$13.9 million, a decrease of $2.0$0.8 million, or 11.9%5.4%, from gross profit of $16.7$14.7 million for the same period last year on a parts sales decrease of $6.3$3.0 million. Gross profit margin for both the six month period ended June 30, 2021 and 2020 was 26.3% compared to 26.8% for the same period in 2019, a decrease of 0.5%, resulting from the mix of parts sold..
Services Revenues Gross Profit. For the six month period ended June 30, 2020,2021, our services revenues gross profit decreased $0.2$1.8 million, or 0.7%8.1%, to $21.8$20.0 million from $21.9$21.8 million for the same six month period in 20192020 on a $0.2$3.0 million increasedecrease in services revenues. Gross profit margin for the six month period ended June 30, 20202021 was 67.0%67.8%, a decreasean increase of 0.9%0.8% from approximately 67.9%67.0% in the same six month period in 2019,2020, as a result of services revenues mix.
Non-Segmented Other Revenues Gross Loss.Profit. Our non-segmented other revenues relate to equipment support activities that we provide to customers in connection with new and used equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the six month period ended June 30, 2020,2021, our other revenues gross profit was $0.1$0.3 million compared to a gross lossprofit of $1.1$0.1 million in the same period in 2019.2020, an increase of $0.2 million.
Selling, General and Administrative Expenses (“SG&A”). SG&A expenses decreased $9.0increased $3.5 million, or 5.8%2.4%, to $151.0 million for the six month period ended June 30, 2021 compared to $147.5 million for the six month period ended June 30, 2020 compared to $156.5 million for the six month period ended June 30, 2019.2020. Employee salaries, wages, payroll taxes and related employee benefit and other employee related expenses decreased $11.6increased $5.6 million, primarily as a result of lower commissions andhigher incentive pay combined with increased headcount reductions and reducedincreased employee hours in response to COVID-19’srebounding from the impact toof the COVID-19 pandemic on our business. Supplies cost decreased $1.1 million and promotional expenses decreased $0.9 million. Facility rent expenses and repairs and maintenance costs decreased $0.5increased $1.2 million. These decreasesincreases were partially offset by a $3.6$2.3 million
41
increase in liability insurance costs, a $1.1 million increase in legal and professional fees, a $0.5 million increase decrease in bad debt expense and a $0.5$1.9 million decrease in liability insurance costs. Legal and professional fees decreased $0.3 million, offset by a $1.0 million increase in depreciation and amortization expense.our litigation accrual.
Approximately $1.5$5.5 million of the total increase in SG&A expenses was attributable to branches opened since January 1, 20192020 with less than six months of comparable operations in either or both of the six month periods ended June 30, 20202021 and 2019.2020. SG&A expenses as a percentage of total revenues for the six month periods ended June 30, 2021 and 2020 were 25.4% and 2019 were 26.1% and 24.2%, respectively.
28
Impairment of Goodwill. Impairment of goodwill incurred in the six month period ended June 30, 2020 was $62.0 million. The impairment was related to one of our six reporting units, Equipment Rental Component 2, during the first quarter of 2020. There was no impairment of goodwill for the six month period ended June 30, 2019.2021. See note 2 to the consolidated financial statements for additional information.
Gain on Sales of Property & Equipment (Net). We had net gains on sales of property and equipment of $7.2$0.8 million for the six month period ended June 30, 20202021 compared to $1.6$7.2 million for the same period last year, an increasea decrease of $5.5$6.3 million. This increasedecrease is primarily due to a prior year gain on a sale-leaseback transaction in the first quarter of 2020 and a prior year gain on a company-owned closed branch location in the second quarter of 2020.
Other Income (Expense). For the six month period ended June 30, 2020,2021, our net other expenses decreased approximately $2.8$4.9 million to $30.3$25.4 million compared to $33.1$30.3 million for the same six month period in 2019,2020, primarily as a result of lower interest expense. Interest expense decreased approximately $2.5$4.7 million to $31.6$26.9 million for the six month period ended June 30, 20202021 compared to $34.1$31.6 million for the same period last year. TheThis decrease inwas the result of lower interest expense was due primarily to a decrease inon our averageCredit Facility as we had no borrowings under the Credit Facility during the first quarter of 2021 and lower interest expense on our senior unsecured notes, resulting from the Company’s refinancing of its senior unsecured notes in the fourth quarter of 2020.
Income Taxes. We recorded an income tax expense of $7.5 million for the six month period ended June 30, 20202021 compared to the same period last year.
Income Taxes. We recorded an income tax benefit of $7.1 million for the six month period ended June 30, 2020 compared to an income tax expense of $13.4 million for the six month period ended June 30, 2019.2020. Our effective income tax rate for the six month period ended June 30, 20202021 was 20.1%27.4% compared to 26.6%20.1% for the same period in 2019.2021. The decreaseincrease in our effective tax rate is primarily due to the net change in permanent differences in relation to profit before tax. Our rate for the six month period ended June 20,30, 2020 includes the impact of 1.6% related to nondeductible goodwill impairment.
On March 27, 2020, President Trump signed into law the CARES Act. The income tax related provisions of the CARES Act did not have a material impact to our recorded income tax benefit for the six month period ended June 30, 2020. See note 11 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion of the CARES Act’s favorable cash impact to our liquidity. We are continuing to evaluate any further impact that the CARES Act may have on the Company's future operations, financial position, and liquidity.
Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at June 30, 20202021 are fully realizable through future reversals of existing taxable temporary differences and future taxable income, and areincome. For the six months ended June 30, 2021, we have a valuation allowance of $6.4 million for certain state tax credits that may not subject to any limitations.be realized.
Liquidity and Capital Resources
Cash flow from operating activities. For the six month period ended June 30, 2021, the net cash provided by our operating activities was approximately $80.5 million. Our reported net income of $19.9 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, deferred income taxes, net amortization (accretion) of note discount, provision for losses on accounts receivable, provision for inventory obsolescence, stock-based compensation expense and net gains on the sale of long-lived assets, provided positive cash flows of $139.5 million. These cash flows from operating activities were also positively impacted by a $7.6 million decrease in accounts receivable and a $23.8 million increase in accounts payable. Partially offsetting these positive cash flows were a $73.7 million increase in inventories, a $7.1 million increase in prepaid expenses and other assets, a $2.3 million decrease in manufacturing flooring plans payable, and a $7.3 million decrease in accrued expense payable and other liabilities.
For the six month period ended June 30, 2020, the net cash provided by our operating activities was approximately $160.5 million. Our reported net loss of $28.2 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, deferred income taxes, net amortization (accretion) of note discount (premium), provision for losses on accounts receivable, provision for inventory obsolescence, stock-based compensation expense, impairment of goodwill and net gains on the sale of long-lived assets, provided positive cash flows of $146.3 million. These cash flows from operating activities were also positively impacted by a $42.8 million decrease in accounts receivable and a $14.1 million increase in accounts payable. Partially offsetting these positive cash flows were a $12.4 million increase in inventories, an $8.5 million increase in prepaid expenses and other assets, an $8.5 million decrease in manufacturing flooring plans payable, and a $13.3 million decrease in accrued expense payable and other liabilities, and an $8.5 million increase in prepaid expenses and other assets.liabilities.
Cash flow from investing activities. For the six month period ended June 30, 2019, the2021, our net cash provided byused in our operatinginvesting activities was approximately $135.0$168.3 million. Our reported net incomePurchases of $36.9rental and non-rental equipment were $244.7 million when adjusted for non-cash income and expense items, such as depreciation and amortization, deferred income taxes, net amortization (accretion) of note discount (premium), provision for losses on accounts receivable, provision for inventory obsolescence, stock-based compensation expense and net gains onproceeds from the sale of long-lived assets, provided positive cash flows of $169.2rental and non-rental equipment were $76.4 million. These cash flows from operating activities were also positively impacted by a $16.6 million increase in accounts payable, a $1.9 million increase in accrued expense payable and other liabilities, a $4.8 million decrease in accounts receivable and a $1.4 million increase in manufacturing flooring plans payable. Partially offsetting these positive cash flows were a $56.0 million increase in inventories, and a $3.0 million increase in prepaid expenses and other assets.
42
Cash flow from investing activities. For the six month period ended June 30, 2020, our net cash provided by our investing activities was approximately $1.2 million. Purchases of rental and non-rental equipment were $69.0 million and proceeds from the sale of rental and non-rental equipment were $70.1 million.
Cash flow from financing activities. For the six month period ended June 30, 2019,2021, our net cash provided by our investingfinancing activities was exceeded by our cash used in our investingfinancing activities, resulting in net cash used in our investingfinancing activities of approximately $236.1$20.6 million. The acquisitionWe netted borrowings and payments under our Credit Facility for the six month period ended June 30, 2021. Dividends paid totaled $19.9 million, or $0.55 per common share. Treasury stock purchases totaled $0.4 million, payments of WRI totaled $106.7 million (net of cash acquired). Purchases of rental and non-rental equipmentdeferred financing costs were $193.2$0.1 million and proceeds from the sale of rental and non-rental equipmentfinance lease principal payments were $63.8$0.1 million.
Cash flow from financing activities. 29
For the six month period ended June 30, 2020, our net cash provided by our financing activities was exceeded by our cash used in our financing activities, resulting in net cash used in our financing activities of $169.6 million. Net payments under our Credit Facility for the six month period ended June 30, 2020 were $149.3 million and dividends paid totaled $19.7 million, or $0.55 per common share. Treasury stock purchases totaled $0.5 million and finance lease principal payments were $0.1 million.
ForSenior Unsecured Notes
On December 14, 2020, we completed the six month period ended June 30, 2019, netoffering of our $1.25 billion, 3.875% senior unsecured notes due 2028 (the “New Notes”), and the settlement of a cash provided bytender offer and redemption notice to repurchase or redeem all of our financing activities was $91.2 million. Net borrowings under our Credit Facility for the six month period ended June 30, 2019 were $111.9previously outstanding $950 million, which was partially offset by dividends paid totaling $19.7 million, or $0.55 per common share. Payments of deferred financing costs were $0.6 million. Treasury stock purchases totaled $0.4 million and finance lease5.625% senior unsecured notes due 2025 (the “Old Notes”). No principal payments on the New Notes are due until their scheduled maturity date (December 15, 2028).
The New Notes were $0.1 million. issued by H&E Equipment Services, Inc. (the parent company) and are guaranteed by GNE Investments, Inc. and its wholly-owned subsidiaries Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc., H&E Equipment Services (Mid-Atlantic), Inc. and H&E Finance Corp (collectively, the guarantor subsidiaries). The guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on our ability to obtain funds from the guarantor subsidiaries by dividend or loan. There are no registration rights associated with the New Notes or the subsidiary guarantees.
Senior Secured Credit Facility
We and our subsidiaries are parties to a $750.0 million Credit Facility with Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named therein. At June 30, 2020,2021, we had totalno outstanding borrowings under the Credit Facility of $67.6 million and we could borrow up to $674.7 million and remain in compliance with the debt covenants under the Credit Facility.$741.3 million. At July 28, 2020,27, 2021, we had $699.9$741.3 million of available borrowings under our Credit Facility, net of a $7.7an $8.7 million outstanding letter of credit. We do not anticipate any near-term impacts to our liquidity under the Credit Facility as a result of the COVID-19 pandemic, nor do we anticipate any covenant violations related to the Credit Facility. See also Cash Requirements Related to Operations below.
Cash Requirements Related to Operations
Our principal sources of liquidity have been from cash provided by operating activities and the sales of new, used and rental fleet equipment, proceeds from the issuance of debt, and borrowings available under the Credit Facility. Our principal uses of cash historically have been to fund operating activities and working capital (including new and used equipment inventories), purchases of rental fleet equipment and property and equipment, fund payments due under facility operating leases and manufacturer flooring plans payable, and to meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations, the frequency of which could be tempered depending on the depth and duration of the current COVID-19 pandemic.locations.
The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. Our gross rental fleet capital expenditures for the six month periodsperiod ended June 30, 20202021 and 20192020 were approximately $73.9$246.1 million and $208.3$73.9 million, respectively, including $17.7 million and $18.4 million, and $33.6 millionrespectively, of non-cash transfers from new and used equipment to rental fleet inventory, respectively.inventory. This increase in rental fleet capital expenditures reflects our response to improved rental demand in 2021 compared to the decrease in our rental fleet capital expenditures in response to COVID-19. Our gross property and equipment capital expenditures for the six month periodsperiod ended June 30, 2021 and 2020 were $16.2 million and 2019 were $13.5 million, and $18.6 million, respectively. The above comparative capital expenditures are reflective of the significant decreases in our capital expenditures as a result of the downturn in our business and continuing economic uncertainty related to COVID-19.
To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness (including the Credit Facility, the SeniorNew Notes and our other indebtedness), will depend upon our future operating performance and the availability of borrowings under the Credit Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the Credit Facility will be adequate to meet our future liquidity needs for the foreseeable future. At December 31, 2019, March 31, 2020 and June 30, 2020,2021, we have cash on hand of approximately $202.5 million. At June 30, 2021, we had available borrowings of $525.4$741.3 million, $557.3net of $8.7 million andof outstanding letters of credit, compared to $674.7 million respectively,at June 30, 2020, net of $7.7 million of outstanding letters of credit. At July 28, 2020, we had $699.9 million of available borrowings under the Credit Facility, net of $7.7 million of outstanding letters of credit. These sequential improvementsThis improvement in the amounts we have available for borrowing under the Credit Facility since December 31, 2019 areis substantially due to the decrease in capital expenditures as noted in the preceding paragraph. We expect toincreased cash management. At July 27, 2021, we had $741.3
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maintain capital expenditure discipline formillion of available borrowings under the remainderCredit Facility, net of 2020, and as a result, wean $8.7 million of outstanding letters of credit. We do not expect our liquidity to be materially negatively impacted by the current COVID-19 pandemic.
Quarterly Dividend
On May 19, 2020,14, 2021, the Company announced a quarterly dividend of $0.275 per share to stockholders of record, which was paid on June 12, 2020,18, 2021, totaling approximately $9.9 million. The Company intends to continue to pay regular quarterly cash dividends; however, the declaration of any subsequent dividends is discretionary and will be subject to a final determination by the Board of Directors each quarter after its review of, among other things, business and market conditions.
Contractual and Commercial Commitments
There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Off-Balance Sheet Arrangements
There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our earnings may be affected byThere has been no significant changes in interest rates since interest expense onour exposure to market risk during the Credit Facility is currently calculated based upon the index rate plus an applicable margin of 0.50% to 1.00%, depending on the Average Availability (as defined in the Credit Facility), in the case of index rate revolving loans and LIBOR plus an applicable margin of 1.25% to 1.75%, depending on the Average Availability (as defined in the Credit Facility), in the case of LIBOR revolving loans. Atthree months ended June 30, 2020, we had outstanding borrowings under the Credit Facility totaling $67.6 million. A 1.0% increase in the interest rate on the Credit Facility would result in an increase2021. For a discussion of approximately $0.7 million in interest expense on an annualized basis. At July 28, 2020, we had borrowings outstanding totaling approximately $42.4 million, with $699.9 million of available borrowings, net of $7.7 million of outstanding letters of credit. We did not have significantour exposure to changing interest rates as of June 30, 2020market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fixed-rate senior unsecured notes. Historically, we have not engaged in derivatives or other financial instruments for trading, speculative or hedging purposes, though we may do so from time to time if such instruments are available to us on acceptable terms and prevailing market conditions are accommodating.fiscal year ended December 31, 2020.
Item 4. Controls and Procedures
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or furnishes under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.
Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a‑15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended)Act) as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of June 30, 2020,2021, our current disclosure controls and procedures were effective.
The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
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Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the three month period ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various claims and legal actions arising in the ordinary course of our business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these various matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
We are exposed to various claims relating to our business, including those for which we retain portions of the losses through the application of deductibles and self-insured retentions, or self-insurance. Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies. On July 29, 2020, our excess insurance carrier agreed
We are involved in principle to settlevarious other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these various matters will not have a contingent liability for $6.0 million related to a Company automobile liability claim, subject to Probate Court approval andmaterial adverse effect on the executionCompany��s consolidated financial position, results of a settlement agreement by the claimant and our excess insurance carrier. Pursuant to ASC 450, Contingencies, and other relevant guidance, when the contingency become both probable and estimable, our consolidated balance sheets will reflect a liability for the total amount of estimated claim and an asset for the portion of the claim recoverable through insurance. The gross-up presentation requirement for this claim is not material to our June 30, 2020 condensed consolidated balance sheetoperations or our condensed consolidated statement of cash flows, and it is not reflected in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020. Our loss exposure related to this claim is limited to our insurance policy deductible per claim, which is immaterial to our consolidated statement of operations. liquidity.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A — “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our business, financial condition or future results.
As of the date of this Quarterly Report on Form 10-Q, and other than the risk factors set forth below, there have been no material changes with respect tofrom the Company’s risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business.
The recent outbreak of coronavirus in China is spreading globally and has adversely affected economic conditions throughout the United States of America and the world, including in the primary regions we operate. Many State Governors have issued temporary Executive Orders that, among other stipulations, effectively prohibit in-person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. While we are considered an essential business pursuant to the various Executive Orders and our branch locations generally remain operational, if repercussions of the outbreak are prolonged, it could have a significant adverse impact to the underlying industries of some of our customers or in some or all of the primary markets in which we operate, including our customers in the oil and natural gas industry. The extent of the ultimate impact of the pandemic on the Company's operational and financial performance and liquidity will depend on various developments, including the duration and spread of the outbreak, governmental limitations on business operations generally, and its and their impact on potential customers, employees, and suppliers vendors and distribution partners, all of which are uncertain and cannot be reasonably predicted at this time. As we cannot predict the duration or scope of the COVID-19 pandemic, any resulting financial impact cannot be reasonably estimated at this time, but is anticipated to have a material adverse impact on our business, results of operations, financial condition and liquidity.
Our business could be adversely affected by declines in construction and industrial activities, or a downturn in the economy in general, which could lead to decreased demand for equipment, depressed equipment rental rates and lower sales prices, resulting in a decline in our revenues, gross margins and operating results.
Our equipment is principally used in connection with construction and industrial activities. Consequently, a downturn in construction or industrial activities, or the economy in general, may lead to a decrease in the demand for equipment or depress rental rates and the sales prices for our equipment. Our business may also be negatively impacted, either temporarily or long-term, by:
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Weakness or deterioration in the non-residential construction and industrial sectors caused by these or other factors could have a material adverse effect on our financial position, results of operations and cash flows in the future and may also have a material adverse effect on residual values realized on the disposition of our rental fleet. For example, during fiscal years 2009 and 2010, the economic downturn and related economic uncertainty, combined with weakness in the construction industry and a decrease in industrial activity, resulted in a significant decrease in the demand for our new and used equipment and depressed equipment rental rates, which resulted in decreased revenues and lower gross margins realized on our equipment rentals and on the sale of our new and used inventory during those periods. More recently, the decline in oil prices and the related downturn in oil industry activities during fiscal years 2014, 2015 and 2016 resulted in a significant decrease in our new equipment sales, primarily the sale of new cranes, due to lower demand. Recently, in early 2020, oil prices and consumption have decreased significantly and we believe the uncertainty regarding future oil prices and consumption may negatively impact customer capital expenditure decisions.
2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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31.1 |
| Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
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31.2 |
| Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
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32.1 |
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101.INS |
| Inline XBRL Instance Document |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| H&E EQUIPMENT SERVICES, INC. | |
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Dated: August | By: | /s/ Bradley W. Barber |
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| Bradley W. Barber Chief Executive Officer & (Principal Executive Officer) |
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Dated: August | By: | /s/ Leslie S. Magee |
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| Leslie S. Magee Chief Financial Officer (Principal Financial and Accounting Officer) |
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