Good morning and welcome to H&E Equipment Services Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jeff Chastain, Vice President of Investor Relations. Please go ahead..

Thank you, Jason, and welcome everyone to this review of second quarter 2021 results hosted by the management of H&E Equipment Services. Your interest in the Company is appreciated.

A copy of the press release covering our second quarter results was issued this morning and can be found along with all supporting statements and schedules at the H&E website and that's www.he-equipment.com. Our discussion this morning is accompanied by a slide presentation, which can also found on the website under the Investor Relations section.

On Slide 2, you'll see a list of the Executive Officers of H&E that are joining me today and they are John Engquist, Executive Chairman of the Board of Directors; Brad Barber, Chief Executive Officer; and Leslie Magee, Chief Financial Officer and Corporate Secretary..

Thank you, Jeff, and good morning everyone. I'd also like to welcome you to our review of H&E Equipment Services' results for the second quarter of 2021. I'm going to bring you up to date with some encouraging developments in our industry and our progress with strategic initiatives. I'll begin on Slide 4.

I'll begin this morning with brief comments on some of the headline numbers for the second quarter along with impressive quarterly performance and favorable trends within the rental business.

I'll also provide an update on our strategic growth initiatives and achievements, including comments on the pending sale of our crane business that was disclosed in July. Leslie will follow with a more detailed review of second quarter financial results. After, we will take your questions. Slide 6, please.

Our results for the second quarter show a continuation of favorable industry trends and the development of a robust business environment in the rental equipment industry.

Our Company has skillfully fought through the headwinds caused by the COVID-19 global pandemic, which was painfully evident in our financial performance a year-ago as well as the historic winter storm in the first quarter of 2021, which hindered business activities in several - for several weeks across a large portion of our geographic footprint..

Good morning, everyone, and thank you, Brad. I'll begin this morning's financial review on Slide 12. As Brad noted, results for the second quarter were impressive compared to the same period in 2020 when business activity was significantly curtailed by the onset of the COVID-19 pandemic.

It is encouraging to see continued evidence of a robust industry recovery as indicated by many of our performance metrics. For example, four of our five business segments reported better year-over-year revenues in the quarter resulting in a $37.4 million or 13.4% improvement in total revenues to 12 - to $315.8 million.

Looking at our rental segment, revenue in the second quarter of 2021 was $19.5 million or 13.9% better than the same quarter in 2020 to $160.3 million. The result was primarily driven by better physical utilization, which grew to 68.3% compared to 59.5% during the same period in 2020.

Dollar returns in the second quarter were 560 basis points better than a year-ago at 35.2% compared to 29.6%..

The first question comes from Steven Ramsey from Thompson Research Group. Please go ahead..

Maybe to start with the rate improvement sequentially, I guess do you expect the second half to be positive as utilization keeps improving? And maybe can you talk to on rate, are they getting better broadly or are specific markets driving it and certain markets still lagging?.

Yes. Good morning, Steven. So, we do expect sequential rate improvement to continue going forward for the remainder of the year and into 2022. It's broad based. It's across really our entire geographic footprint, the opportunity is there.

I mean there are puts and takes within the physical utilization or that demand piece that's so important to be able to raise rental rates, but we believe we're going to be positive sequentially going forward.

I also believe we are likely to have positive year-over-year rates start to show up during this quarter and we'll be talking about those in greater detail of course on our next call..

Excellent. And then maybe can you talk to you - on the fleet size up 5% from year-end.

Maybe can you talk to how much of that is filling in existing branches? How much of that is going to the new branch openings that you have going thus far? And just the take-up rate as you get those into the market if it may be faster than usual given the fleet dynamics in the industry?.

Yes. So more of that capital - if I just look at the total amount of the capital you referenced, more of it in the quarter went to the warm start locations. We have some growth at same-store locations as part of that recovery year-over-year.

As far as rates go, look, we're experiencing the same types of rates in our new locations as we do our existing locations. Maybe stated differently, it is not part of our strategy to enter a market with low rates to make penetration.

We make our rate decisions based on supply/demand, customer profile, and a variety of other customer-centered type data points. So, those rates are very similar. And as evidenced in our utilization, I would point out that yesterday and Leslie just covered in our prepared comments, that 71.9%.

At that point in time we measure utilization as you can suspect on a daily basis, weekly, monthly; in a variety of ways. But every week - every Monday I look at where our utilization was compared to the prior year as well by product type, region, the various geographies.

Yesterday was the first time that we eclipsed our utilization in the same time in 2019.

So as I stated in my prepared comments being able to grow our fleet 5%, improve our rental rates 1% sequentially, putting ourselves in position to have year-over-year rate increases moving forward which I think is likely really bodes well and now we have actually intersected 2019's utilization levels.

Fleet still down I think 2.2% we quoted, but the fleet will continue to grow for the remainder of the year. And as we stated previously, we expect our overall fleet growth issue to be in that mid to upper mid-single-digit growth. We are really positioning ourselves well to come into 2022 and perform at an exceptional level..

Last quick one from me. Oil and gas contribution to Q2 and in the near to medium term here as activity seems to pick up there.

Is that a driver of rate? Is that still a rate premium market for you guys?.

It's still a rate premium market. We're opportunistic. But yes, those markets have certainly improved. There are not a meaningful driver of our overall revenue, but they certainly are positive for us..

The next question comes from Stanley Elliott from Stifel. Please go ahead..

Thank you all for taking the question. Brad, early in the presentation you mentioned elevated inquiries.

I'm curious if that's kind of more near-term work or if your contractors and some of your customers are starting to think about work kind of into 2022 and through the year?.

Well, it's both. Our near-term inquiries are going up as evidenced in our performance, right. So, I think that speaks most clearly to what's going on every day in our locations. As we talk about leaning forward, I referenced the ABI, the DMI; these indices that collectively are very helpful.

I will tell you that's triangulated against the feedback we're getting from our customers and I can tell you people - our customers have a very bright view of 2022. More often than not the conversations with these customers really center around them being able to get the workforce to perform the work that's there.

Everyone always got a largest concern in their opportunity, but their concern is not an amount of work that's going to be driven their way. And everyone's aware that 63% of our revenue we derive from that non-residential commercial construction market. So, we're well positioned.

And so my comments are both certainly right now today and for the remainder of this year as well as into 2022, people are feeling good..

And then thinking about the growth profile, I mean you've done a nice job with the warm starts here.

Does the selling of the crane business and exiting out of some of the other earthmoving distribution business, does that change your view on wanting to get a little more aggressive in terms of M&A?.

It does. I mean listen, I wouldn't want to give you the sense that we've not had an aggressive attitude towards acquisition opportunities. 2020 for the obvious reasons did not present much opportunity for buyers or sellers.

I can tell you we are seeing the pipelines of opportunity heating up here later in the year and we are very actively pursuing those and hopefully we will find something that aligns well with our interest that is a good investment for H&E..

And then lastly, with a lot of the warm starts, looks like they're kind of - you got 10 plan this year and you're kind of at that number so 77-ish sort of an SG&A run rate looks pretty good and should we just start to see some leverage kind of off of that number on a go-forward basis?.

I said at the beginning of the year that compared to the full year of 2020, we expect some slight leverage. So, it still remains and I would really look more at that percentage of SG&A as a percentage of revenues than the flat dollar amount. I think that should be more of your guidance..

Yes. No, that's fair. Just kind of tricky with last year being so crazy. Thank you so much for the time and best of luck..

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Jeff Chastain for any closing remarks..

Okay. Well, before we conclude today's call, I'd like to thank everyone for your participation and continued interest in H&E and we look forward to speaking with you again soon. Jason, we appreciate you coordinating today's call. Good day, everyone..

The conference has now concluded. Thank you attending today's presentation. You may now disconnect..