H&E Equipment Services Reports Fourth Quarter 2017 Results

BATON ROUGE, La.–(BUSINESS WIRE)–$HEES–H&E Equipment Services, Inc. (NASDAQ: HEES) today announced results for
the fourth quarter and year ended December 31, 2017.

FOURTH QUARTER 2017 SUMMARY

• Revenues increased 20.6% to $294.7 million versus $244.3 million a
  year ago.
• Net income was $85.9 million in the fourth quarter compared to net
  income of $12.4 million a year ago. We recorded an income tax benefit
  of $58.4 million versus income tax expense of $4.4 million a year ago,
  resulting from a one-time revaluation of our deferred tax assets and
  liabilities resulting from the decrease in the corporate federal
  income tax rate enacted in December. The effective income tax rate was
  (211.7%) in the fourth quarter of 2017 and 26.3% in the fourth quarter
  of 2016.
• Adjusted EBITDA increased 15.0% to $90.7 million in the fourth quarter
  compared to $78.9 million a year ago, yielding a margin of 30.8% of
  revenues compared to 32.3% a year ago.
• Rental revenues increased 10.9% to $127.7 million in the fourth
  quarter compared to $115.2 million a year ago.
• New equipment sales increased 65.9% to $74.4 million in the fourth
  quarter compared to $44.9 million a year ago.
• Used equipment sales increased 28.8% to $32.1 million in the fourth
  quarter compared to $24.9 million a year ago.
• Gross margin was 34.2% compared to 34.6% a year ago.
• Rental gross margins were 51.0% in the fourth quarter of 2017 compared
  to 47.7% a year ago.
• Average time utilization (based on original equipment cost) was 74.2%
  compared to 70.3% a year ago. Average time utilization (based on units
  available for rent) was 71.3% compared to 67.6% last year.
• Average rental rates increased 1.0% compared to a year ago and 0.6%
  sequentially.
• Dollar utilization was 36.2% in the fourth quarter compared to 34.3% a
  year ago.
• Average rental fleet age at December 31, 2017, was 34.6 months
  compared to an industry average age of 44.4 months.
• Completed a successful add-on notes offering of $200 million aggregate
  principal amount of new 8-year 5.625% senior unsecured notes issued
  under an indenture dated as of August 24, 2017, with identical terms
  as the Company’s $750 million of senior unsecured notes issued in
  August 2017. The add-on offering closed on November 22, 2017, and
  priced at 104.25% of par value.

John Engquist, H&E Equipment Services’ chief executive officer, said,
“Solid performance by both our rental and distribution businesses drove
a 20.6% increase in revenues for the fourth quarter compared to the year
ago period. The non-residential construction markets were exceptionally
strong, resulting in extremely high demand for rental equipment.
Physical utilization increased nearly 400 basis points to 74.2% for the
quarter and we achieved a 1.0% increase in rates from the prior year.
Rental revenue increased 10.9% and margins increased 330 basis points to
51.0% compared to the year ago quarter. Increased demand for new cranes
and earthmoving equipment drove a 65.9% improvement in new equipment
sales. We are extremely pleased with our results and the current trends
in our end-user markets.”

Engquist concluded, “We expect 2018 to be a very opportunistic year for
our business and industry given the current strength in the
non-residential construction markets. Oil prices are above a year ago,
resulting in a rebound in exploration activity and energy-related
projects. The new tax reform plan could also drive increased investment
in construction. Should the administration and Congress pass an
infrastructure bill, we believe the industry could see an expanded
cycle. We also believe our operating environment is positive and we are
focused on expanding our business in terms of both fleet size and
geographic footprint. Our recent acquisition of CEC is representative of
the types of acquisitions we intend to pursue – acquisitions which are
very complementary to our business and increase our density in active
markets or allow us to enter new markets. We also plan to continue our
Greenfield or warm start expansion strategy.”

FINANCIAL DISCUSSION FOR FOURTH QUARTER 2017:

Revenue

Total revenues increased 20.6% to $294.7 million in the fourth quarter
of 2017 from $244.3 million in the fourth quarter of 2016. Equipment
rental revenues increased 10.9% to $127.7 million compared with $115.2
million in the fourth quarter of 2016. New equipment sales increased
65.9% to $74.4 million from $44.9 million a year ago. Used equipment
sales increased 28.8% to $32.1 million compared to $24.9 million a year
ago. Parts sales decreased 3.2% to $26.3 million from $27.2 million in
the fourth quarter of 2016. Service revenues increased 2.6% to $15.8
million from $15.4 million a year ago.

Gross Profit

Gross profit increased 19.2% to $100.9 million from $84.6 million in the
fourth quarter of 2016. Gross margin was 34.2% for the quarter ended
December 31, 2017, as compared to 34.6% for the quarter ended December
31, 2016. On a segment basis, gross margin on rentals was 51.0% in the
fourth quarter of 2017 compared to 47.7% in the fourth quarter of 2016.
On average, rental rates were 1.0% higher than rates in the fourth
quarter of 2016. Time utilization (based on original equipment cost) was
74.2% in the fourth quarter of 2017 compared to 70.3% a year ago. Time
utilization (based on units available for rent) was 71.3% in the fourth
quarter of 2017 compared to 67.6% a year ago.

Gross margins on new equipment sales increased to 11.0% in the fourth
quarter compared to 9.9% a year ago. Gross margins on used equipment
sales were 31.0% compared to 31.9% a year ago. Gross margins on parts
sales increased to 27.8% in the fourth quarter of 2017 compared to 27.2%
in the fourth quarter of 2016. Gross margins on service revenues
increased to 66.9% for the fourth quarter of 2017 compared to 66.8% in
the fourth quarter of 2016.

Rental Fleet

At the end of the fourth quarter of 2017, the original acquisition cost
of the Company’s rental fleet was $1.4 billion, an increase of $68.9
million from the end of the fourth quarter of 2016. Dollar utilization
was 36.2% compared to 34.3% for the fourth quarter of 2016.

Selling, General and Administrative Expenses

SG&A expenses for the fourth quarter of 2017 were $60.5 million compared
with $55.7 million the prior year, a $4.7 million, or 8.5%, increase.
SG&A expenses in the fourth quarter of 2017 decreased as a percentage of
total revenues to 20.5% compared to 22.8% the prior year. The increase
in SG&A was largely attributable to higher labor and benefits costs.
Expenses related to new branch expansions increased $0.9 million
compared to a year ago.

Income from Operations

Income from operations for the fourth quarter of 2017 increased 34.8% to
$40.3 million, or 13.7% of revenues, compared to $29.9 million, or 12.2%
of revenues, a year ago.

Interest Expense

Interest expense was $13.3 million for the fourth quarter of 2017
compared to $13.4 million a year ago.

Net Income

Net income was $85.9 million, or $2.40 per diluted share, in the fourth
quarter of 2017 compared to net income of $12.4 million, or $0.35 per
diluted share, in the fourth quarter of 2016. We recorded an income tax
benefit of $58.4 million in the fourth quarter of 2017 compared to
income tax expense of $4.4 million in the fourth quarter of 2016 from a
one-time re-measurement of our deferred tax assets and liabilities
resulting from the decrease in the corporate federal income tax rate
from 35% to 21% under the Tax Cuts and Jobs Act, which was enacted
during the fourth quarter of 2017. As a result, the effective income tax
rate was (211.7%) in the fourth quarter of 2017 compared to 26.3% in the
year ago period.

Adjusted EBITDA

Adjusted EBITDA for the fourth quarter of 2017 increased 15.0% to $90.7
million compared to $78.9 million in the fourth quarter of 2016.
Adjusted EBITDA as a percentage of revenues was 30.8% compared with
32.3% in the fourth quarter of 2016.

FINANCIAL DISCUSSION FOR THE YEAR ENDED
DECEMBER 31, 2017:

Revenue

Total revenues increased 5.3%, or $51.9 million, to $1.0 billion in 2017
from $978.1 million in 2016. Equipment rental revenues increased 7.6% to
$479.0 million compared with $445.2 million in 2016. New equipment sales
increased 3.4% to $203.3 million from $196.7 million a year ago. Used
equipment sales increased 10.8% to $107.3 million compared to $96.9
million a year ago. Parts sales decreased 1.6% to $107.4 million from
$109.1 million in 2016. Service revenues decreased 2.8% to $62.9 million
from $64.7 million a year ago.

Gross Profit

Gross profit increased 7.2%, or $24.3 million, to $359.9 million from
$335.6 million in 2016. Gross margin was 34.9% for 2017 compared to
34.3% for 2016. On a segment basis, gross margin on rentals increased to
48.4% in 2017 from 47.4% in 2016. On average, 2017 rental rates
increased 0.2% compared to 2016. In 2017, time utilization (based on
original equipment cost) was 72.1% compared to 69.7% a year ago. Time
utilization (based on units available for rent) was 69.6% in 2017
compared to 67.0% the prior year.

Gross margins on new equipment sales increased to 11.1% from 10.7% a
year ago. Gross margins on used equipment sales decreased to 30.9%
compared to 31.1%. Gross margins on parts sales were 27.6% compared to
27.7%. Gross margins on service revenues were 66.4% compared to 66.2% in
2016.

Selling, General and Administrative Expenses

SG&A expenses for 2017 were $232.8 million compared with $228.1 million
in 2016, an increase of $4.7 million, or 2.0%. The net increase in SG&A
was primarily the result of increased salaries, wages, payroll taxes,
related employee costs and facility costs. Of the $4.7 million increase,
$3.6 million was attributable to new branch expansion compared to the
prior year. In 2017, SG&A expenses as a percentage of total revenues
decreased to 22.6% compared to 23.3% in 2016.

Income from Operations

Income from operations in 2017 increased 24.5% to $137.9 million, or
13.4% of revenues, compared to $110.8 million, or 11.3% of revenues, a
year ago, but included $5.8 million of merger breakup fee proceeds, net
of merger costs. Excluding the net merger breakup fee, income from
operations increased 19.3% to $132.1 million compared to a year ago, or
12.8% of revenues.

Interest Expense

Interest expense in 2017 was $55.0 million, a $1.4 million increase from
$53.6 million a year ago, reflecting the issuance of our new 8-year
5.625% senior unsecured notes. The increase in interest expense is
primarily due to the timing of the issuance of the new 8-year 5.625%
senior unsecured notes in relation to the redemption of our previously
outstanding 7% senior unsecured notes. $750 million of 5.625% notes were
issued on August 24, 2017, while approximately $300.3 million of
principal amount of the old 7.0% notes remained outstanding until
September 25, 2017. Additionally, the Company issued $200 million of
add-on 5.625% notes on November 22, 2017, increasing the total principal
amount of outstanding 8-year 5.625% of senior unsecured notes to $950
million.

Net Income and Adjusted Net Income

Net income was $109.7 million, or $3.07 per diluted share, compared to
net income of $37.2 million, or $1.05 per diluted share, in 2016. We
recorded an income tax benefit of $50.3 million in 2017 compared to
income tax expense of $21.9 million in 2016 from a one-time
re-measurement of our deferred tax assets and liabilities resulting from
the decrease in the corporate federal income tax rate from 35% to 21%.
The effective income tax rate decreased to (84.8%) in 2017 compared to
37.0% in 2016. Adjusted net income was $124.4 million, or $3.48 per
diluted share.

Adjusted EBITDA

Adjusted EBITDA for 2017 increased 8.2% to $327.1 million from $302.3
million in 2016. Adjusted EBITDA as a percentage of revenues was 31.8%
compared with 30.9% in 2016.

Non-GAAP Financial Measures

This press release contains certain Non-GAAP measures (EBITDA, Adjusted
EBITDA and Adjusted net income). Please refer to our Current Report on
Form 8-K for a description of these measures and of our use of these
measures. These measures as calculated by the Company are not
necessarily comparable to similarly titled measures reported by other
companies. Additionally, these Non-GAAP measures are not a measurement
of financial performance or liquidity under GAAP and should not be
considered as alternatives to the Company's other financial information
determined under GAAP.

Conference Call

The Company’s management will hold a conference call to discuss fourth
quarter results today, February 22, 2018 at 10:00 a.m. (Eastern Time).
To listen to the call, participants should dial 719-325-2312
approximately 10 minutes prior to the start of the call. A telephonic
replay will become available after 1:00 p.m. (Eastern Time) on February
22, 2018, and will continue through March 3, 2018, by dialing
719-457-0820 and entering the confirmation code 8902491.

The live broadcast of the Company’s quarterly conference call will be
available online at www.he-equipment.com
on February 22, 2018, beginning at 10:00 a.m. (Eastern Time) and will
continue to be available for 30 days. Related presentation materials
will be posted to the “Investor Relations” section of the Company’s web
site at www.he-equipment.com
prior to the call. The presentation materials will be in Adobe Acrobat
format.

About H&E Equipment Services, Inc.

The Company is one of the largest integrated equipment services
companies in the United States with 83 full-service facilities
throughout the West Coast, Intermountain, Southwest, Gulf Coast,
Mid-Atlantic and Southeast regions. The Company is focused on heavy
construction and industrial equipment and rents, sells and provides
parts and services support for four core categories of specialized
equipment: (1) hi-lift or aerial platform equipment; (2) cranes; (3)
earthmoving equipment; and (4) industrial lift trucks. By providing
equipment rental, sales, on-site parts, repair and maintenance functions
under one roof, the Company is a one-stop provider for its customers'
varied equipment needs. This full service approach provides the Company
with multiple points of customer contact, enabling it to maintain a high
quality rental fleet, as well as an effective distribution channel for
fleet disposal and provides cross-selling opportunities among its new
and used equipment sales, rental, parts sales and services operations.

Forward-Looking Statements

Statements contained in this press release that are not historical
facts, including statements about H&E’s beliefs and expectations, are
“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. Statements containing the words “may”, “could”, “would”,
“should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”,
“target”, “project”, “intend”, “foresee” and similar expressions
constitute forward-looking statements. Forward-looking statements
involve known and unknown risks and uncertainties, which could cause
actual results to differ materially from those contained in any
forward-looking statement. Such factors include, but are not limited to,
the following: (1) general economic conditions and construction and
industrial activity in the markets where we operate in North America;
(2) our ability to forecast trends in our business accurately, and the
impact of economic downturns and economic uncertainty in the markets we
serve; (3) the impact of conditions in the global credit and commodity
markets and their effect on construction spending and the economy in
general; (4) relationships with equipment suppliers; (5) increased
maintenance and repair costs as we age our fleet and decreases in our
equipment’s residual value; (6) our indebtedness; (7) risks associated
with the expansion of our business and any potential acquisitions we may
make, including any related capital expenditures, or our inability to
consummate such acquisitions; (8) our possible inability to integrate
any businesses we acquire; (9) competitive pressures; (10) security
breaches and other disruptions in our information technology systems;
(11) adverse weather events or natural disasters; (12) compliance with
laws and regulations, including those relating to environmental matters
and corporate governance matters; and (13) other factors discussed in
our public filings, including the risk factors included in the Company’s
most recent Annual Report on Form 10-K. Investors, potential investors
and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements. 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, we
are under no obligation to publicly update or revise any forward-looking
statements after the date of this release. These statements are based on
the current beliefs and assumptions of H&E’s management, which in turn
are based on currently available information and important, underlying
assumptions. H&E is under no obligation to publicly update or revise any
forward-looking statements after this press release, whether as a result
of any new information, future events or otherwise. Investors, potential
investors, security holders 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.

Contacts

H&E Equipment Services, Inc.
Leslie S. Magee, 225-298-5261
Chief
Financial Officer
[email protected]
or
Kevin
S. Inda, 225-298-5318
Vice President of Investor Relations
[email protected]