H&E Equipment Services' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 3.13 | About: H&E Equipment (HEES)

H&E Equipment Services, Inc. (NASDAQ:HEES)

Q1 2013 Earnings Call

May 2, 2013 10:00 am ET

Executives

Kevin Inda – Corporate Communications

John M. Engquist – Chief Executive Officer, Director

Leslie S. Magee – Chief Financial Officer, Secretary

Bradley W. Barber – President, Chief Operating Officer

Analysts

Nick Coppola – Thompson Research Group

Joe G. Box – KeyBanc Capital Markets

Eric Crawford – UBS

Seth Weber – RBC Capital Markets

Sean Wandrak – Deutsche Bank

Matthew Dodson – JWest LLC.

Joe Box – KeyBanc Capital Markets

Operator

Good day everyone and welcome to today’s H&E Equipment Services First Quarter 2013 Conference. As a reminder today’s call is being recorded. At this time I would like to turn the conference over to your host for today Mr. Kevin Inda. Please go ahead, sir.

Kevin Inda

Thank you, Sara and welcome to H&E Equipment Services conference call to review the company’s results for the first quarter of 2013, which were released earlier this morning. The format for today’s call includes PowerPoint presentation which is posted on our website at www.he-equipment.com.

Please proceed to slide 1; conducting the call today will be John Engquist, Chief Executive Officer; Brad Barber, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Secretary.

Please proceed to slide two. During today’s call we will refer to certain non-GAAP financial measures and we’ve reconciled these measures to GAAP figures in our earnings release which is available on our website.

Before we start, let me offer the cautionary note, this call contains forward-looking statements within the meaning of the Federal Securities laws. Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate 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 statements. These risk factors are included in the Company’s most recent annual report on Form 10-K.

Investors, potential investors and other listeners 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. The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

With that stated, I will now turn the call over to John Engquist.

John M. Engquist

Thank you, Kevin and good morning everyone. Welcome to H&E Equipment Services first quarter 2013 earnings call. On the call with me today is Leslie Magee, our Chief Financial Office; and Brad Barber, our President and Chief Operating Officer.

Proceed to slide three, please. This morning I’ll give an overview of our first quarter performance including an update on the regions we serve in current market conditions. Leslie will then discuss our first quarter financial results in more detail. When Leslie concludes, I’ll provide our thoughts on the remainder of 2013 and we’ll then take your questions.

Proceed to slide five, please. In summary, our business is off to a strong start in 2013 as we continue to capitalize on improving market conditions. Our first performance was strong as all of our business segments delivered solid growth from a year ago. I believe it’s important to note that we delivered these improvements despite challenging weather conditions. Several of our regions were impacted by more severe winter weather conditions than a year ago. Lastly, we believe our results and those of the industry indicate the early stages of the multi-year expansion cycle.

In terms of the financial highlights, total revenues increased 22.3% to $212.4 million this quarter on a year-over-year basis with significant growth of 26.4% in our rental business. EBITDA increased 32.6% to $51.3 million. Net income for the quarter was $4.8 million or $0.14 per diluted share compared to net income of approximately $4 million or $0.11 per diluted share in the first quarter of 2012. Our utilization levels remain high as well at 67.9% based on all we see versus 69.5% a year ago. Keep in mind that our fleet size a year ago was significantly smaller and certain of the markets we serve were meaningfully impacted by severe weather. So matching utilization from the first quarter of 2012 was difficult, the rental revenues grew 26.4% while rental gross margins improved to 44.6%, rental rates increased 10.2% from a year ago and 2.1% from the fourth quarter of 2012, dollar utilization also increased to 33.9% from 32.3% over the same period last year.

Move to slide 6 please, our Gulf Coast and Intermountain regions where there’s substantial oil and gas and petrochemical activity continue to be our most productive markets accounting for 67% of our revenues and 66% of our gross profits. Also we’re encouraged by the performance of our West Coast region which is performing at exceptionally higher levels compared to a year ago and compared to the fourth quarter, sequential improvements such as this is unusual in the first quarter which should indicate further opportunity in these markets.

As these markets are less industrial in nature and were significantly impacted during the recession we believe this is an indication at the overall construction markets are improving. Proceed to slide 7, market indicators and conditions remain positive which we believe signifies the early stages of multi-year expansion cycle, settlement in our end user market remains upbeat and the industrial markets we serve continue to have very high levels of activity.

The U.S. Commerce Department recently announced for the first time since 2008, housing starts for March came in north of $1 million, the ABI’s has been above 50 for eight consecutive months. Overall, we believe the business conditions are robust and we believe 2013 will be a year of growth for our industry and our business.

At this time, I’ll turn the call over to Leslie for her financial results.

Leslie S. Magee

Thank you, John, and good morning. I’ll begin on slide 9. As you can see by the numbers released this morning, we delivered strong results which we believe our representative of the opportunity that exists in 2013. First, from a high level, our first quarter total revenues were $212.4 million an increase of 22.3% and gross profit was $64.5 million an increase of 22.5% compared to the same period last year.

Digging into the numbers at a more detailed level, I’ll begin with our rental business and provide more color behind the results. First on the revenue basis and then I’ll provide gross profit highlight by segments.

Rental revenues were $75.4 million for the quarter a 26.4% increase over the same period a year ago. We’ve talked about our continued investment in our rental fleet based on demand and as a result we’ve increased our total fleet $551.9 million or 20.4% based on original equipment cost or OEC over the last 12 months.

Average time utilization based on OEC was 67.9% for the quarter compared to 69.5% a year ago. Based on number of units available for rent, average time utilization was 63.6% compared to 65.8% last year.

It was difficult to match our utilization numbers from the first quarter of last year given that only our significantly large fleet compared to a year ago, but also the more challenging weather that we experienced this year as compared to last year.

In addition, rental revenues were higher as a result of a 10.2% increase in average rental rates over a year ago and a 2.1% increase compared to the fourth quarter of last year. The improvements are broad based across all product lines.

Our dollar returns improved to 33.9% compared to 32.3% a year ago, this improvement was driven primarily by higher average rental rate. New equipment sales were $53.3 million, a 30.1% increase over $41 million a year ago. Cranes, earthmoving, and aerial, aerials delivered strong increases over the prior-year. Used equipment sales, was $32.1 million, a $5.6 million or 21.2% increase over the first quarter of 2012. The increase was primarily due to strong crane and aerial sale. Business activity in our parts and service segments improved as revenues increased 7.7% on a combined basis to $39.5 million with both segments up from a year ago.

Let’s move to a discussion of gross profit by segment, total gross profit for the quarter was $64.5 million, compared to $52.7 million a year ago, an increase of 22.5% on a 22.3% increase in revenue. From a gross margin perspective consolidated margins were 30.4% compared to 30.3% a year ago. Improved margins on rental and improved margins on other revenues offset the negative effect of revenue mix in other segments.

Our rental business delivered margins of 44.6%, compared to 42.4% a year ago, strong demand on a much larger fleet is driving higher volume and rates, which combined with control of rental expenses continues to result in rental gross margin expansion.

Margins on new equipment sales were 10.5% compared to 12.3% in the same period last year due to the mix of cranes sold. Gross margins on used equipment sales were 29.2% compared 29.8% in the same period last year due to lower margins on used crane, however, it’s worth noting that the margins on used cranes were lower due to primarily to the mix of equipment sold, and the impact of some past-due crane sales on customer trade-ins was [little] to the gross profit.

Margins on the sales from our rental fleet alone were 38%, compared to 31.7% in the same period last year, which reflects a continued strong used equipment market. Parts gross margins were 26.6% compared to 27.6% a year ago and service gross margins were 60.5% versus 61.5% a year ago. Margins on other revenues were 3.4% compared to negative 2% in the first quarter of last year, this improvement is largely the result of improved freight recovery and increased damage waiver income, which has a higher return.

Slide 10 please, once again we delivered results reflecting significant operating cost leverage, the improvement in profitability is reflected in a 52.5% increase in income from operations for the first quarter of 2013 to $18.7 million, or an 8.8% margins compared to $12.3 million or 7.1% margin a year ago.

Proceed to slide 11. Net income was $4.8 million or $0.14 per diluted share compared to $4 million or $0.11 per diluted share in the same period a year ago. Our effective tax rate was 31.3% in both periods. Please move to slide 12. EBITDA was $51.3 million or 32.6% increase over the same period last year, which again outpaced our revenue growth of 22.3%, EBITDA margins were 24.2% compared to 22.3% in the same period a year ago.

Next, slide 13. SG&A was $46.3 million a 13.7% increase over the same period last year, yet SG&A as a percentage of revenue declined 21.8% this quarter compared to 23.4% a year ago. To speak to the increase in SG&A dollars our Greenfield initiatives added approximately $1 million or nearly 20% of the year-over-year spend.

In addition, commission and incentive pay increased based on volume, we’ve also increased our workforce over the last year and as a result we have more healthcare plan participants leading to more claims while at the same time we experienced a general increase in healthcare cost this quarter.

Slides 14 and 15 include our rental fleet statistics. Our fleet based on original equipment cost at the end of the first quarter was $897.6 million versus $745.7 million a year ago, an increase of 20.4% or $151.9 million. During the first quarter we increased the size roughly about $14.6 million based on original equipment costs. Our gross fleet capital expenditures for the quarter were $53.9 million including non-cash transfers from inventory.

Net rental fleet capital expenditures for the quarter were $31.5 million. For the quarter our gross PP&E CapEx was $6.3 million and net was $5.8 million. Our average fleet age as of March 31, 2013 was 37.6 months. Next slide 16, at the end of the first quarter, our outstanding balance under the ABL facility was $53.8 million and accordingly we had $342.2 million of availability at quarter end under our ABL facility, net of $6.5 million of outstanding letters of credit. Let me conclude by saying that we’re very pleased with our first quarter results and the current trends in our business and industry.

I’ll now turn the call back over to John for further discussion about our 2013 outlook and we’ll open the call for questions.

John M. Engquist

Thank you, Leslie. Please proceed to slide 18, in summary the first quarter was positive from many viewpoints as all of our business segments delivered year-over-year topline growth. All market indicators point toward continuing growth and improving results as the year progresses. We expect further fleet investments as rental volume continues to accelerate to ramp the balance of this year and continuing strengthen the segment.

Our distribution business also performed well in the first quarter and demand for equipment has increased significantly, we are expanding our geographic footprint to leverage additional high growth margins. The industrial markets we serve remain very strong and our less industrial markets were showing significantly improved activity, lastly, our balance sheet is strong and provides a necessary liquidity to leverage growth and expansion opportunities. In closing we are committed to our goals we’re focused on solid execution, operating leverage and capitalizing our marketplace trends which we believe will deliver strong results and enhance shareholder value.

At this time, we will take your questions, operator please provide instructions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We’ll go first to Nick Coppola of Thompson Research Group.

Nick Coppola – Thompson Research Group

Hey good morning.

John M. Engquist

Good morning

Nick Coppola – Thompson Research Group

First question on the mix of new sales, kind of drilling in on cranes, was there any increase in crawler sales, or is there really more on the hydraulic side?

John M. Engquist

On the mix of new sales it was two things, we sold a couple of large mining machines in the Earthmoving category to carry low margin, and we also had a very large crawler crane sale in the quarter, which carried around a 5% margin. So it was the mix in new product, which drove the margin down.

Nick Coppola – Thompson Research Group

Okay. And has your expectation for crawler sales for the year changed at all, say, over the last quarter?

John M. Engquist

I think it’s the same thing we stated on the last quarter, our expectation we are seeing a lot more inquires right now, we are more activity. We sold 18,000 in the first quarter, we very recently sold the 2250 Manitowoc, both very large crawler crane. So we’re seeing increased enquiries and our expectation is that the second half will be better for crawler crane silos.

Nick Coppola – Thompson Research Group

Okay. And last question on SG&A. How should we think about a run rate there and I certainly understand a couple of components that you guys talked about, but should we, what kind of impacts are you expecting from branch additions throughout the year and then those higher costs from increased revenue and should we expect to see increased cost going forward?

Bradley W. Barber

Look, I think as a percentage of revenue we’re going to be flat to down a little bit compared to last year. I think in absolute dollars that’s a reasonable run rate to you, which you saw in the first quarter. I mean it’s going to be a top line issue for us, but we’re encouraged by what we’re seeing on the distribution side of our business.

Nick Coppola – Thompson Research Group

Okay. That makes sense. Thank you.

Bradley W. Barber

Thank you.

Operator

(Operator Instructions) Next from KeyBanc Capital Markets we’ll go to Joe Box.

Joe G. Box – KeyBanc Capital Markets

Good morning, guys.

Bradley W. Barber

Hi, Joe. Good morning. Just a question for the fleet growth. On your last call, I think you guys alluded to a moderation in the overall fleet growth from 2012 levels. Obviously good growth this year, but this quarter fleet growth was up about 20%. So I’m just kind of curious, is this a timing of orders kind of coming in and maybe we’ll see the growth rates moderate throughout the course of the year or are you actually seeing something in the market right now that suggests maybe you need some more equipment.

John M. Engquist

You know, Joe, there is a reason we don’t give CapEx guidance. And again I’ve said many times in the past, we try to make very short-term decisions on our spending and we have recently upped our spending, particularly on the crane side, based on demand. I mean, we’re running at exceedingly high utilization levels of demand there, so we’ve ordered some additional cranes. So, yes we have increased our capital spending forecast a little bit and we’ll continue to look at it as the year progresses, but the demand there is very strong.

Leslie S. Magee

And Joe, let me just clarify. The 20% was a year-over-year comparison for the quarter. We only grow our fleet on OEC basis. It was slightly less than 2%.

Joe Box – KeyBanc Capital Markets

Understood. Thanks for the clarification. Question for you then on the rental incremental gross profit margins. My model has it at about 53%. I guess, given it's the seasonally slowest quarter and there was probably some weather impact, how should we be thinking about that incremental margin kind of going through the rest of the year. Is it kind of a 50% number, or should we see it back into the 60% to 70% range, where it's been?

John M. Engquist

No, Joe probably more, close to that 50% number I think a year ago we were getting a lot of our revenue increase through utilization improvement as opposed to fleet growth and obviously that drives a huge incremental margin, right now the, more of the revenue growth is coming from more investment in the fleet. So, I think you are going to see our incremental margin moderate a little bit, but still remain at very strong levels.

Joe Box – KeyBanc Capital Markets

Okay. Last question, and then I'll turn it over. You guys mentioned kind of the mix changing a little bit for your used equipment sales, obviously, moving a little bit more through trade-ins. How should we be thinking about the margin in that business with new equipment kind of picking up and potentially more trade-in activity, should we think about it in a high 20s now or we are going to see a pick up as we go?

John M. Engquist

Well, I think you need to separate fleet sales, and used equipment sales, then we report them in a combined manner, but, margins on fleet sales in the first quarter were 38%, very, very strong, we did take some trade-ins during the quarter that we just flushed down, I mean it was pass through, was little to know margin, that’s not something that’s necessarily typical it’s a case-by-case basis, so you won’t necessarily see that going forward.

Joe Box – KeyBanc Capital Markets

Okay, yes, it'd be great if you could put it in your presentation or something just to kind of net it out so we could see the difference.

John M. Engquist

Okay, we will look at it.

Joe Box – KeyBanc Capital Markets

Thank you, guys.

John M. Engquist

Sure.

Operator

We’ll go to Eric Crawford next with UBS.

Eric Crawford – UBS

Hi, good morning.

John M. Engquist

Good morning.

Eric Crawford – UBS

First off, my line dropped during the call, so apologies if I touch on an item you may have covered. The improvement in dollar utilization was particularly encouraging, but optically, the tick-down in time utilization, even with the growth in fleet size, I think, may get some people nervous. So could you just talk a bit about how you see utilization levels trending, the time utilization you'd be comfortable achieving given the fleet given the growth in fleet and improvement in end market conditions you envision?

John M. Engquist

Yeah, while I mean I absolutely would not be nervous about that tick down, one we’ve got a very significantly larger fleet, 20% larger fleet, and we had a lot of weather impact this year, last year we had no winter, the first quarter was warm, it was dry, it was a great construction environment, we had a winter weather this year in certain markets, unbelievable rainfall and other markets it was ice and snow. So we had a material impact and our utilization has come back today, we’re running around 71% it’s tracking where we think it should be we peaked out last year at probably around 74% or 75%, which tells me that we need to add equipment, so I would not be concerned about what we are and if anything compares to our competitors, we’re still running significantly higher utilization rates than our competitors are.

Eric Crawford – UBS

That’s great. I appreciate that. And then I guess staying on dollar utilization, saw a slight tick-down at cranes. Is that weather? Could you just speak to what led to the decline there and how we should think about the year-on-year comparison going forward?

Bradley W. Barber

So, this is Brad Barber. Yeah, I’d be happy to reply to that. I think you should expect to see similar dollar returns throughout the year in 2013 as compared to 2012. Cranes likewise were impacted, not as heavily as Earthmoving products for maybe some of that obvious reasons because the types and the nature of the project that they participate on, but nonetheless they were impacted and physical utilization suffered a little bit more than typical, but our utilization again is increasing, we’ve recently purchased, purchase orders for about $20 million in additional cranes that just a month ago we were considering, but we see plenty of opportunity particularly in industrial sector and cranes will perform at similar dollar utilizations in 2013.

Eric Crawford – UBS

That’s great, thank you. And, lastly, on the prior call, you mentioned that the sequential progression in rates that you are seeing thus far this year was a very strong indicator. Could you just quantify for us how rates trended in the quarter and what the year-on-year comp with 2012 would be if rates just stayed flat with where they are today?

Bradley W. Barber

Yeah…

John M. Engquist

Yeah, I think, I stated on the last quarter freights just stayed flat we probably be looking at the 2% to 3% increase in rates if we did nothing.

Eric Crawford – UBS

Right.

John M. Engquist

Look, we are going to continue to get solid year-over-year rate increases, I would not want you to expect double-digit rate increases, that’s not reasonable,

Eric Crawford – UBS

Sure.

John M. Engquist

Our competitors are getting anywhere near that, and we got it in the first quarter, but that’s got a moderate somewhat so still we will have very solid rate increases this year, I think Brad does a great job of focusing his people in that area, and we are in a very good environment.

Eric Crawford – UBS

No, that's great. Thanks a lot. Good quarter.

John M. Engquist

Thank you.

Bradley W. Barber

Thank you.

Operator

We’ll move on to Seth Weber of RBC.

Seth Weber – RBC Capital Markets

Hey, good morning, it’s Seth Weber.

John M. Engquist

Hey, Seth, how are you doing?

Seth Weber – RBC Capital Markets

Hey, doing well, thanks. How are you guys?

John M. Engquist

Great.

Seth Weber – RBC Capital Markets

I apology, my phone line dropped, as well, so I apologies if some of this might be redundant but, well, so let's start. I mean you've mentioned weather a couple times here in the Q&A. Is it possible to quantify what do you think that impact might have been to the quarter, either on a utilization level or just a dollar revenue number?

John M. Engquist

Seth, I mean, I would be guessing, Brad, do you…

Bradley W. Barber

Seth, I don’t think so, I mean, I think while it’s anecdotal, we can certainly speak to, we can look at annual rainfall that we received in the southeast, we can look at the snowfall, so certainly from a climate standpoint, we can look at those things, but when we look at the individual markets, then we look at the individual product types, and we talk more importantly to our customers and our sales force, it’s crystal clear that we were impacted not on the rates, but on the physical utilization.

Seth Weber – RBC Capital Markets

Right.

Bradley W. Barber

So that’s, the good news is by and large that’s behind us. As John just stated, we’re around 71% utilized today. We're significantly higher on that aerial work platforms and cranes, in earthmoving certainly moving forward and again, I reference earthmoving because it’s the product type as it’s working in the dirt that’s most impacted by those inclement weather conditions. So, we can’t quantify, but we feel like we’ve got a really strong basis for those comments.

Seth Weber – RBC Capital Markets

Okay. Can you give us the dollar utilization by type, I don't think that's, I see the, and I'm just sorry, the time utilization by type, by the categories for the quarter. Is that something that's available?

John M. Engquist

Hang on, just Leslie, Leslie has that.

Seth Weber – RBC Capital Markets

And maybe the comparable versus the prior year?

John M. Engquist

I don’t know that we typically give that information on, Seth, but we’ll take a look and see if we can get that for you.

Seth Weber – RBC Capital Markets

Well, I mean it sounds like your signal, so it sounds like aerials and cranes are 70s or so, and is earthmoving in, say, the 50s, 55, something like that, is that the right way to think about it?

John M. Engquist

Well, look, yeah, I guess the point, I was trying to make is that earthmoving, it’s a product that mostly likely impacted by weather and it certainly proved out to be that way and as far as where we are today I don’t have that information in front me, but cranes, typically we’re running north of 80% and our aerials are running in the mid-70s right now, and I apologize, I don’t have the earthmoving utilization in front me, but it’s probably in that 55% to 60% range.

Seth Weber – RBC Capital Markets

Okay. I'm just trying to get a sense for what's doing better, what's accelerating and decelerating?

John M. Engquist

Aerials and cranes are running at significantly higher utilization levels than dirt and again some of that is weather related too, because dirt just gets impacted a lot more by weather than those other two products do.

Seth Weber – RBC Capital Markets

Right, Okay, understood. And you called out particular strength, I think, on the West Coast. I mean can you give us a sense of how far down that business, how far down did that business fall relative to, I mean how much more runway do you have there to kind of just get back to par, I guess, is what I'm trying to figure out? Could that region continue to put up outsized growth, I guess?

John M. Engquist

I think we’ve got runway in front of us in that region, and I think they have probably surpassed prior levels of performance at this point.

Bradley W. Barber

That they have Seth. Look we’ve got an outstanding management team in that region, they’ve been together for many years now, they have improved internally that region has improved substantially for us for the past three years and as John just stated they continue to do see, we are also encouraged that not only our management is doing a good job, but that we’re seeing commercial activity pick up, and that’s going to continue to give those capable people opportunity to improve.

Seth Weber – RBC Capital Markets

Okay, thank you. And I guess just one last one. If it's possible, can you give us the rate increase for April since we’re (inaudible) May?

John M. Engquist

I don’t have that in front me, and I’d tell you our preference is to, get quarterly numbers just because we think it’s more meaningful, but we will have that number, here shortly I do not have it in front of me.

Seth Weber – RBC Capital Markets

Okay. Do you think it was up? I mean it sounds like the first quarter was fairly flat sequentially. I mean month on month, it was fairly consistent.

Bradley W. Barber

Yeah, so sequentially it was up 2.1% and I believe that every month of the quarter improved at some level.

Seth Weber – RBC Capital Markets

Okay. And do you think that that would have continued into April then?

John M. Engquist

I wouldn’t expect that level of increase, more reasonable expectation would probably be somewhere around flat, but we’ll have those numbers shortly.

Seth Weber – RBC Capital Markets

Okay, thank you very much.

Operator

From Deutsche Bank, we’ll hear from Philip Volpicelli.

Sean Wandrak – Deutsche Bank

Good morning John and Leslie. This is Sean Wandrak on for Phil.

John M. Engquist

How are you doing?

Sean Wandrak – Deutsche Bank

Very good, thank you, just a couple of questions for you here. I know you talked about weather a couple of times here, I guess my questions are little different. Do you think that there is potentially some pent up demand that will see come out in the second quarter just due to weather being so terrible during the first quarter?

John M. Engquist

I would defer to Brad on that.

Bradley W. Barber

I think it’s difficult to try to qualify pent up demand with earthmoving projects, there are certain amount of contracts to do an amount of work within a given region. So, when it dries up and it quits raining, those folks go to work quickly and we certainly see some immediate improvement particularly with the earthmoving products, as I’ve tried to characterize, because of the nature of what the type of work they are doing. But is it going to be material to the extent we would speak to and I don’t believe so, is it going to be positive to our utilization? Absolutely.

Sean Wandrak – Deutsche Bank

Okay, great. And then, with non-res picking up a little bit, you are seeing more jobs on the West Coast. Can you talk about what kind of jobs you are seeing what you think is driving that, revenue upwards there?

John M. Engquist

It’s really broad-based on the non-res construction, I mean it’s from medical facilities to schools to, I mean, it’s pretty broad-based retail, it’s come back a little bit, it’s I don’t know that I can say any, one category is a lot stronger than another I don’t think it’s fairly broad based.

Sean Wandrak – Deutsche Bank

It’s seems like it’s more private investments than versus publics.

John M. Engquist

Much more private investments than we’ve seen, until last few years there have been no private investment and that is improving and I think one of the reasons is the banks are starting to lend in that area again and that was shut off for some time.

Sean Wandrak – Deutsche Bank

Okay, great. And are you seeing any kind of a slowdown in the industrial activity or is that being pretty stable year-over-year?

John M. Engquist

No, I’ll let Brad speak to that, but it’s, there is no slowdown.

Bradley W. Barber

Yeah, we were, we review information like [peck reporting] and reviewing the 180 days kickoff report for the territories we cover, we’ve seen that the industrial projected spend, these are projects slated in the start in the next 180 days go from, the April number was $31 billion to $42 billion in May that’s a substantial jump. On the previous call, we talked about a number L&G plans that are slated that’d be right in our backyard, both in Southwest Louisiana and South Texas. So while industrial’s been strong we see plenty of additional projects coming and we’ll continue to do so.

Sean Wandrak – Deutsche Bank

Okay, great, thank you for that. And then just a quick housekeeping item, can you give the balance in your floor plan receivables during the quarter?

Leslie S. Magee

The floor plan payables are $67.7 million.

Sean Wandrak – Deutsche Bank

$67.7 million, sorry about that. And then you had also talked about when you think about growth in the business less of an acquirer, more towards greenfields. Can you just talk about what your plans for greenfields were this year John?

John M. Engquist

Sure, we, what we say is we anticipate doing six starts this year, we’ve opened the Mesquite and Forth Worth and we are opening right now Union City California in the Bay area, so we will be active within the next month there, and we should have no trouble, accomplishing, excuse me we also opened Seattle in January, and it will no trouble accomplishing the other couple location to round out the six that we had projected.

Sean Wandrak – Deutsche Bank

Okay, excellent, thank you very much for your color, good luck in this quarter.

John M. Engquist

Thank you.

Operator

(Operator Instructions). Next we will hear from Matthew Dodson of JWEST LLC.

Matthew Dodson – JWest LLC.

Can you just talk a little bit or I guess I was trying to understand you. You're adding equipment on the crane side. Is this the first time that you've added equipment on the crane side? And can you also help us understand the ramifications to that? I would assume that it's a bigger dollar rental and in fact it’s the better EBITDA margins or is (inaudible) EBITDA margin?

John M. Engquist

Matthew, the answer is we are the largest (inaudible) crane distributor in the world we have a substantial crane rental presence and that’s an ongoing piece of business and has been a long period of time, my reference that I made to recent purchase, that’s really just in addition to because we see considerable opportunity particularly in the industrial sector, where we rental lot of these raptor in cranes, so maybe that will be helpful to you.

Matthew Dodson – JWest LLC.

Yes, so I mean, basically, what you're seeing, though, is that you're seeing an acceleration then in your rental of cranes? Is that correct?

Bradley W. Barber

Yes, we’ll see more opportunity, yes.

John M. Engquist

Yeah, we just see a lot of opportunity there, there is about $30 billion worth of work industrial work, new construction coming to South Louisiana., similar numbers for South Texas, so it’s just a lot of industrial expansion coming over the next five years and we feel like we’re a little bit under fleeted for that opportunity on the crane side right now, so we’re investing some money there.

Matthew Dodson – JWest LLC.

Got it. And then just may I ask you a follow-up to that? So, if I look at renting a crane, as opposed to renting a scissor lift or et cetera, does a crane have inherently, I assume it has a longer duration, so that would help your utilization because of the dollars are bigger? Is that…?

John M. Engquist

What it does, typically what you see your gross margin on crane rentals is very strong, I mean it’s north a 50% which your dollar returns are less than other products, it’s a very long life to ask that and your dollar returns are less, were you really make a lot of money in the crane business is on the lifecycle that have residual values that are second to, anything that I know, I mean we can typically rent a crane for three or four years and sell it for very near what we paid for it, right.

Bradley W. Barber

Yeah, so Matthew, the only thing I would add in addition to that is cranes drive a substantial opportunity for parts and service sales. So, as John spoke, when we think about the crane business not a greatest dollar returns certainly among the best gross profit from a rental standpoint, really nice margin, higher residual long life assets and then we get to provide a lot of parts and service to the customers that we sell these used cranes to at some point down the road.

Matthew Dodson – JWest, LLC

And, I'm sorry, but does that affect your utilization over time, because I assume if I rent a crane from you, I'm going to keep it for 6 or 9 or 12 months, as opposed to an aerial platform. So, does it affect your utilization if cranes are getting better, or is that not something to focus on?

John M. Engquist

It probably, it’s positive to our physical utilization, but not so much to our dollar utilization, that’s two different characterizations there.

Matthew Dodson – JWest, LLC

Okay, right, okay. Hey, thank you. I'm sorry for the silly questions.

John M. Engquist

Not a silly question at all, thank you.

Operator

(Operator Instructions). KeyBanc Capital Markets, Joe Box, has a follow-up question.

Joe Box – KeyBanc Capital Markets

Just a few quick follow-ups for you. I think last quarter you talked about potentially bringing on some ancillary products to kind of supplement some of your general rental products. I'm just curious if you could give us some color here. Maybe if you look at it on an average location basis, are you talking about adding $0.5 million worth of additional equipment, and a $1 million worth of equipment? I mean what's kind of your timeframe to actually bring this on?

Bradley W. Barber

Joe, there is not lot of an update from the previous quarter, we’re still, it’s about 5% of our overall investment and I think over time that will probably move into the 9% to 12% range and I am speaking of the next couple of years, right. And to take an average I mean, we could almost just do the math in calculate 66 locations. But the truth is just depending on the size of the individual market, the value of those products range fairly wide. So we are 5% today in our overall OEC, and we will continue to incremental improve or grow the piece over a period of a time. And we expect to see it moving to the 9% to 12% range as we mature into that business.

So it sounds like alternately the pace of which you're bringing it on is very slow so that it's not going to potentially detract from your utilization rates if you just bring on a lot of equipment on the front end just to have it in stock?

Joe Box – KeyBanc Capital Markets

So it sounds like alternately the pace of which you're bringing it on is very slow so that it's not going to potentially detract from your utilization rates if you just bring on a lot of equipment on the front end just to have it in stock?

Bradley W. Barber

That’s correct.

John M. Engquist

That is correct.

Bradley W. Barber

Yeah, we want to be fairly conservative with our approach.

Joe Box – KeyBanc Capital Markets

Okay, great, and then just a question on your new locations. I know, obviously, you guys have an integrated model and sometimes you have dealer capabilities along with your rental capabilities. The six new locations you're adding, are they primarily rental?

Bradley W. Barber

They are, they are primarily rental locations, no distribution.

Joe Box – KeyBanc Capital Markets

Understood, thank you.

Bradley W. Barber

Thank you.

John M. Engquist

Thank you

Operator

And it appears we have no further questions at this time. I would like to turn the conference back over to our presenters, for any additional or closing remarks.

John M. Engquist

I appreciate everybody joining us this morning. And we look forward to speaking to you on the next call. Thank you.

Operator

And that does conclude today’s conference. And we thank you all for joining us.

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H&E Equipment Srvs (HEES): Q1 EPS of $0.14 in-line. Revenue of $212.4M (+22.3% Y/Y) beats by $16.06M. (PR)