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HE

H&E Equipment Services, Inc. (HEES)·Q2 2024 Earnings Summary

Executive Summary

  • Mixed quarter: revenue grew 4.5% YoY to $376.3M while diluted EPS fell to $0.91 as higher SG&A, lower utilization, and higher interest expense compressed margins; Adjusted EBITDA rose 2.8% to $173.2M with a 46.0% margin .
  • Rental revenue remained resilient (+6.5% YoY to $275.5M) aided by network expansion (149 branches, 31 states) and +1.9% rental rate growth; sequential rates dipped 0.1% and utilization improved sequentially but remained below prior year .
  • Guidance/tone: FY24 gross fleet CapEx maintained at $350–$400M (cut at Q1), 12–15 new branches on track; management cautioned on H2 EBITDA flow-through pressures (lower fleet sales, expansion costs) and slight sequential rental rate pressure from megaproject mix .
  • Stock narrative catalysts: accelerating megaproject exposure and infrastructure demand vs. moderating local/smaller project activity; watch Q3 seasonal utilization recovery, rate mix impact, H2 fleet sales cadence, and sustained CapEx discipline supporting FCF and dividend .

What Went Well and What Went Wrong

  • What Went Well

    • Network-led growth: “23 new locations… over the last twelve months” and 149 branches across 31 states; rental revenue +6.5% YoY and total equipment rental revenue +7.2% .
    • Pricing and used-equipment profitability: Average rental rates +1.9% YoY; sales of rental equipment margins elevated at 62.4% (near record) .
    • Strategic positioning: Management emphasized accelerating participation in multi‑year megaprojects and infrastructure funding as more stable, durable demand drivers: “Megaprojects are a meaningful growth opportunity… provide a more stable base of demand” .

  • What Went Wrong

    • Utilization and margins: Time utilization fell to 66.4% (−290 bps YoY), dollar utilization to 38.6% (vs 40.6%), compressing gross margin to 45.5% (−120 bps YoY) .
    • Cost inflation from expansion: SG&A +12.7% YoY to $111.8M (29.7% of revenue) with ~$10.8M tied to new/acquired branches; operating margin fell to 16.7% (vs 19.3%) .
    • Earnings pressure: Interest expense rose to $18.2M; diluted EPS declined to $0.91 (vs $1.14) on lower op margin and higher tax rate (27.8%) .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($M)$360.2 $371.4 $376.3
Diluted EPS ($)$1.14 $0.71 $0.91
Adjusted EBITDA ($M)$168.6 $161.7 $173.2
Adjusted EBITDA Margin %46.8% 43.6% 46.0%
Gross Margin %46.7% 44.4% 45.5%
Income from Operations ($M)$69.5 $52.0 $62.8
Operating Margin %19.3% 14.0% 16.7%
Rental Revenues ($M)$258.7 $261.7 $275.5
Time Utilization %69.3% 63.6% 66.4%
Dollar Utilization %40.6% 37.0% 38.6%

Segment/Category revenue breakdown (YoY)

Category ($M)Q2 2023Q2 2024
Total Equipment Rentals$291.5 $312.4
• Equipment rentals (core)$258.7 $275.5
• Rental other$32.7 $36.9
Sales of Rental Equipment$39.7 $34.9
Sales of New Equipment$8.9 $10.7
Parts, Service and Other$20.3 $18.3

KPIs and Fleet

KPIQ2 2023Q1 2024Q2 2024
Avg Rental Rate YoY Change—+2.9% +1.9%
Time Utilization %69.3% 63.6% 66.4%
Dollar Utilization %40.6% 37.0% 38.6%
Fleet OEC ($B)—“just over” $2.8 $2.9 (↑10.7% YoY)
Avg Fleet Age (months)—39.9 40.0 (industry 48.1)

Balance Sheet/Liquidity (point‑in‑time)

  • Total Assets $2,850.8M; Total Debt $1,541.2M; Equity $576.0M at 6/30/24 .
  • Liquidity $459M; Net leverage 2.2x; no maturities before Dec‑2028 (notes + ABL) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Fleet CapExFY2024$350–$400M (revised down at Q1 from $450–$500M) $350–$400M reiterated Maintained
New Branch OpeningsFY202412–15 locations target 12–15 “well within reach” Maintained
Fleet Sales (volume)H2 2024Expect lower YoY discussed earlier in year Expect “to increase to a larger degree” lower YoY in back half Lowered
EBITDA Flow‑ThroughH2 2024—Pressure expected (moderating rate increases, lower utilization YoY, lower fleet sales, higher new‑store costs) Lowered
Quarterly DividendOngoingIntend to continue $0.275/sh Paid Q2; declared $0.275 for Sep 13, 2024 payment Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
Rental ratesQ4’23: +3.8% YoY; +0.8% q/q . Q1’24: +2.9% YoY; −0.2% q/q; expect flattish/slightly up for year .+1.9% YoY; −0.1% q/q; slight sequential pressure expected from megaproject mix (not discounting locally) .Moderating
UtilizationQ4’23: 68.4% (normalized from ‘22) . Q1’24: 63.6% (weather/starts/expansion); expect back‑half leverage .66.4% (−290 bps YoY, +280 bps seq); expect typical Q3 seasonal bump .Recovering seq., below YoY
Gross fleet CapExPlan $450–$500M (Q4’23) → cut to $350–$400M (Q1’24) .Reiterated $350–$400M; disciplined, no upside to range .Tighter discipline
Megaproject exposure2024 demand supported by megaprojects; multi‑year visibility .Participation rising weekly; pipeline “up substantially” YoY .Accelerating
Used equipment marginsRecord 66% in Q4’23 . Near‑record 62.9% in Q1’24 .62.4% Q2’24; H2 fleet sales to decline YoY .Elevated; sales slowing
FCF outlookExpect positive FCF in 2024 (lower CapEx) .Meaningful FCF in 2024 when adjusted for transactions; dividend continued .Improving
Technology advantage—Telematics/online portal/payments cited as gating factors for megaproject participation .Increasingly strategic

Management Commentary

  • Strategic focus and market stance: “We reiterate our view of a more moderate level of spending… Higher project financing costs… Conversely, we are encouraged by continued growth in mega projects and increased infrastructure project funding” .
  • Expansion progress: “We opened six new branch locations during the second quarter… We concluded the second quarter of 2024 with 149 branches across 31 states” .
  • Megaprojects: “Megaprojects are a meaningful growth opportunity… given their size and long duration, they provide a more stable base of demand” .
  • Capital allocation and discipline: “Our 2024 expected gross fleet expenditures remain in a range of $350 million to $400 million” .
  • Operating cadence: “Adjusted EBITDA… $173.2 million… 46.0% of revenues” with SG&A elevation tied to expansion .
  • Technology moat: “Our technology is second to no one… customers pay their bill online… manage telematic data… Without these, you’re excluded from megaprojects” .

Q&A Highlights

  • Rates: Performance “as expected,” but anticipate slight sequential pressure due to higher megaproject weighting; no broad discounting in local markets .
  • Utilization: Slight disappointment in Q2; decline driven by fewer small/mid projects, not weather; expect Q3 seasonal lift similar to prior year .
  • CapEx: FY24 gross fleet CapEx maintained at $350–$400M; front‑end loaded cadence; discipline rules out exceeding the range .
  • H2 earnings dynamics: Expect pressure on EBITDA flow‑through margins (lower fleet sales, moderating rate increases, higher expansion costs) .
  • FCF & capital returns: Expect “nice” FCF in 2024; dividend to continue; buybacks remain a consideration but focus stays on growth and tuck‑in M&A .

Estimates Context

  • S&P Global (Capital IQ) consensus for HEES Q2 2024 revenue and EPS was unavailable in our system at the time of analysis; therefore, we cannot assess beats/misses versus Wall Street consensus. Values would normally be retrieved from S&P Global; however, the HEES mapping was unavailable in our SPGI feed at this time.

Key Takeaways for Investors

  • Near‑term: Watch Q3 seasonal utilization; a typical uptick could offset rate mix pressure from megaprojects and support EBITDA margins into peak season .
  • Pricing vs mix: Rate environment is broadly disciplined; any sequential rate softness is mix‑driven (megaprojects) rather than competitive discounting in local markets .
  • Growth vs returns: CapEx discipline (maintained $350–$400M) plus lower H2 fleet sales should aid FCF while the company continues opening 12–15 branches; dividend intact .
  • Structural demand: Accelerating megaproject and infrastructure exposure enhances multi‑year visibility and equipment absorption; this is the core bull narrative .
  • Cost vigilance: SG&A inflation from rapid expansion is the main earnings headwind to monitor; leverage on utilization and maturing locations is key to margin recovery .
  • Balance sheet capacity: 2.2x net leverage, no maturities before Dec‑2028, and ample liquidity provide flexibility for continued warm‑starts and tuck‑ins .
  • Risk checks: Smaller/local contractor softness and higher financing costs remain drags on utilization; monitor rate policy shifts and the cadence of megaproject deployments .

Citations:

  • Q2 2024 press release and financial tables:
  • Q2 2024 earnings call transcript:
  • Q1 2024 earnings call transcript:
  • Q4 2023 earnings call transcript:
  • Dividend press release: