Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

H&E Equipment Services (NASDAQ:HEES)

Q2 2013 Earnings Call

August 01, 2013 10:00 am ET

Executives

Kevin Inda

John M. Engquist - Chief Executive Officer, Director and Member of Finance Committee

Leslie S. Magee - Chief Financial Officer, Principal Accounting Officer and Secretary

Bradley W. Barber - President and Chief Operating Officer

Analysts

Neil Frohnapple - Northcoast Research

Nicholas A. Coppola - Thompson Research Group, LLC

Seth Weber - RBC Capital Markets, LLC, Research Division

Joe Box - KeyBanc Capital Markets Inc., Research Division

Eric Crawford - UBS Investment Bank, Research Division

Sean Wondrack

Operator

Good day, and welcome to today's H&E Equipment Services Second Quarter 2013 Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Kevin Inda. Please go ahead, sir.

Kevin Inda

Thank you, Marquita, and welcome to H&E Equipment Services conference call to review the company's results for the second quarter 2013, which were released earlier this morning. The format for today’s call includes a 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 2. During today’s call, we will refer to certain non-GAAP financial measures. We've reconciled these measures to GAAP figures on 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 statement. 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'll now turn the call over to John Engquist.

John M. Engquist

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

Proceed to Slide 3 please. This morning, I will give an overview of our second quarter performance, discuss activity within our regions and current market conditions. Leslie will then review our second quarter financial results in more detail. When Leslie concludes, I'll provide our thoughts on the balance of 2013, and we'll then be happy to take your questions.

Slide 5, please. To summarize, I'm extremely pleased with our second quarter results as the momentum in our business continues, and we opportunistically took advantage of improving trends in the marketplace. Our financial highlights for the quarter were solid, and we believe validates the trends we're experiencing in our end markets.

Total revenues increased 17.4% to $245.3 million this quarter on a year-over-year basis. It's significant to point out that we delivered double-digit revenue growth in our rental and combined new and used equipment sales, which grew 18.8% and 22.4%, respectively. The strong top line growth resulted in a 22.3% increase on a year-over-year basis in EBITDA to $63.3 million.

Net income for the quarter was $10.8 million or $0.31 per diluted share compared to net income of approximately $10.5 million or $0.30 per diluted share in the second quarter of 2012. Our utilization levels, at 71% based on OEC versus 73.5% a year ago, continue to be strong despite a substantially larger rental fleet compared to a year ago. To put the growth of our fleet into perspective, our OEC has increased $145 million or nearly 18% from a year ago, representing over 2,500 additional units of equipment. The momentum in our rental business continues as revenue grew 18.8% and gross margins were strong at 47.1%. Rental rates increased 7.3% from a year ago and 2.1% from the first quarter of this year. All in all, it was a very solid quarter for our business.

Please proceed to Slide 6. Let me just make a few brief but important comments regarding this slide. Given our ongoing strength in oil patch and petrochemical sectors, our Gulf Coast and Intermountain regions continue to be our most productive markets in terms of revenue and gross profit. We also see a tremendous amount of activity and capital investment incurring in our Gulf Coast region, and I'll elaborate about this opportunity in more detail on the next slide.

Since the last call, we opened new stores in Fort Worth and San Francisco, and we plan on opening a third location in Houston very soon. We are very pleased with the performance of our greenfield locations, and our less industrial regions are continuing to deliver meaningful improvements, which we believe validate improved confidence in the economy and cycle expansion.

Slide 7, please. As you can see from this slide, market indicators are improving across the board and the trends in our business continue to strengthen. In particular, I want to highlight several significant events occurring in our Gulf Coast region, where we have our highest concentration and penetration in the industrial sector.

Higher oil prices and strong demand for natural gas were resulting in capital investment. In Louisiana alone, we expect that an aggregate of approximately $50 billion will be spent by national and international firms over the next 3 to 4 years to construct 2 manufacturing facilities and petrochemical plants. Many of these are slated to be built in our backyard at Baton Rouge, New Orleans, Lake Charles and along the Mississippi River.

Reports indicate that 7 projects alone have price tags of more than $1 billion, and a proposed natural gas processing plant by Sasol has been publicly projected to cost $21 billion. We also anticipate capital spending in Texas growing to support its strong oil patch and petrochemical industries. We expect that these projects and the resulting impacts on our economy will be very beneficial to our business in the years to come.

At this time, I'm going to turn the call over to Leslie for the financial results.

Leslie S. Magee

Thank you, John, and good morning. I'll begin on Slide 9. We are again very pleased with this quarter's results. In terms of the top line, our second quarter total revenues were $245.3 million, an increase of 17.4% and gross profit was $75.4 million, also an increase of 17.4% compared with the same period last year.

Generally speaking, the strength of our business continues to be driven by rentals and equipment sales, and these segments are showing the strongest demand compared to a year ago. As we dig deeper, I'll begin with our rental business, first talking about revenues, and then I'll provide gross profit highlights for each segment.

Rental revenues were $83.7 million for the quarter, an 18.8% increase over the same period a year ago. To meet end-user demand, we continue to invest in our fleet which, based on original equipment cost or OEC, increased approximately $145 million or 17.9% from a year ago. Although our fleet size has grown significantly, we still maintain solid utilization levels with average time utilization based on OEC of 71% for the quarter compared to 73.5% a year ago. In addition, based on number of units available for rent, average time utilization was 66.3% compared to 68.7% last year.

Also, rental revenues were higher as a result of the 7.3% increase in average rental rates over a year ago and a 2.1% increase compared to first quarter of this year. Rental rate improvements were seen across all product lines. As a result our dollar returns were 35.8% compared to 35.6% a year ago.

New equipment sales were $73.4 million, a 13.5% increase over $64.7 million a year ago. Demand for crane, which increased 21.7%, continue to show strength. Used equipment sales were $34.7 million, an $11.1 million or 46.9% increase over the second quarter of 2012. The increase was primarily due to strong crane and aerial sales. Business activity in our parts and service segments improved as revenues increased 4.2% on a combined basis to $40.2 million.

Let's move to a discussion of gross profit by segment. Our total gross profit for the quarter was $75.4 million compared to $64.2 million a year ago, an increase of 17.4% on a 17.4% increase in revenue. Therefore, consolidated margins were 30.7%, the same with a year ago and with no impact from revenue mix when comparing periods.

Our rental business delivered margins of 47.1% compared to 47.5% a year ago. Depreciation expense increased as a percentage of comparative rental revenues due to the investment in our fleet. We continue to tightly manage other cost components of our rental business, such as repairs and maintenance expense.

Margins on new equipment sales were 11.4% compared to 10.9% in the same period last year. Gross margins on used equipment sales were 30.3% compared to 30.5% in the same period last year due to the mix of used equipment sold. As a reminder, used equipment sales is comprised of the sale of used inventory, such as trade-ins, and the sale of used equipment from our rental fleet. In the second quarter, equipment sales from the rental fleet were 80% of total used equipment sales at a 35% gross margin compared to rental fleet equipment sales of 89% of total used equipment sales and a 32.8% gross margin a year ago. The key takeaway is that residual values of used equipment remain strong.

Parts gross margins were 27.3% compared to 28% a year ago, and service gross margins were 63.3% versus 62.8% a year ago due to revenue mix.

Margins on other revenues were 8.7% compared to 7.4% in the second quarter of last year. This improvement is largely the results of improved freight recovery and increased damage waiver income.

Slide 10, please. Income from operations for the second quarter increased 23.2% to $28.9 million or an 11.8% margin compared to $23.5 million or an 11.2% margin a year ago.

Proceed to Slide 11. Net income was $10.8 million or $0.31 per diluted share compared to $10.5 million or $0.30 per diluted share in the same period a year ago. Our effective tax rate was 32.6% compared to 37.2% a year ago.

Please move to Slide 12. EBITDA was $63.3 million or a 22.3% increase over the same period last year, which again outpaced our revenue growth of 17.4%. EBITDA margins were 25.8% compared to 24.7% in the same period a year ago.

Next, Slide 13. SG&A was $47.1 million, a 13.8% increase over the same period last year, yet SG&A as a percentage of revenue declined to 19.2% this quarter compared to 19.8% a year ago. Our greenfield initiatives added $1.1 million or nearly 20% of the total $5.7 million increase in SG&A this quarter compared to a year ago. Further, we incurred increased wages, incentive pay and health care costs largely due to the growth of the business.

Slide 14 and 15 include our rental fleet statistics. Our fleet based on original equipment cost at the end of the second quarter was $954.3 million versus $809.3 million a year ago, an increase of 17.9% or $145 million. During the second quarter, we increased the size of our fleet by $56.7 million based on the original equipment costs.

Our gross fleet capital expenditures for the quarter were $99.4 million, including noncash transfers from inventory. Net rental fleet capital expenditures for the quarter were $71.8 million. For the quarter, gross PPE CapEx was $6 million and net of $5.4 million. Our average fleet age as of June 30, 2013, was 35.9 months.

Next, Slide 16. At the end of the second quarter, our outstanding balance under the ABL facility was $100.5 million, and accordingly, we had $295.5 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, we are pleased with our financial performance during the second quarter. It's been a strong first half of this year for our business, and we're encouraged by the positive trends.

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

John M. Engquist

Thank you, Leslie. Please proceed to Slide 18. I think I've covered most of these points in my earlier comment, so I will quickly close by stating that our second quarter performance was solid, with significant improvements from rentals and equipment sales compared to a year ago. Our expectations and outlook remain positive for the balance of this year based on the trends in our business, especially what we believe is the continued strength in the industrial markets we serve. Lastly, our capital structure continues to afford us the ability to leverage growth and expansion opportunities in the market.

At this time, we'd like to take questions. Operator, please provide instructions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Neil Frohnapple with Northcoast Research.

Neil Frohnapple - Northcoast Research

Nice rental performance in the quarter, particularly on the top line with rate. Can you comment on trends that you guys have experienced in the month of July?

John M. Engquist

From a utilization standpoint?

Neil Frohnapple - Northcoast Research

Yes and rental rate as well. Just trying to get a sense if the strength that you saw on the second quarter has carried over into the month of July.

John M. Engquist

Look, throughout the second quarter, we saw steady improvement in utilization, throughout the quarter. We're seeing the same in July. We were 71% utilization on average for the second quarter. We're bumping between 72.5% and 73% today, so continued improvement. I prefer not to give monthly rate information because it's just misleading. We like to report that on a quarterly basis. But we're continuing to see year-over-year rate improvement, and we expect to do so for the remainder of the year. We do believe rate improvement will moderate somewhat, it has to. I mean, we've been producing year-over-year double-digit increases for a long time. And our expectation was that it would moderate and it is. But we will still be getting solid rate increases.

Neil Frohnapple - Northcoast Research

Great, that's very helpful. And then with the rates moderating, do you anticipate exceeding prior peak levels whether it's later this year or in 2014? And just talking about with the industry consolidation, just kind of your outlook for rental rates longer-term and how high you think the industry can take them.

John M. Engquist

I do expect to exceed prior peak levels. I don't want to give you a -- pinpoint a time frame on that, but the performance we're driving today is really driven by the industrial sector, with still historically weak construction markets. We're starting to see some improvement in the construction markets, but it's very modest. And I think when we start getting some real improvement in those markets, yes, we expect to exceed prior peaks.

Neil Frohnapple - Northcoast Research

Great. And then just one last one, John. Your commentary around cranes this quarter seem to be a little bit more optimistic across the board. Have you seen a pickup in demand or quoted activity for the large crawler cranes? That hadn't been -- that had been a drag the last few years on the business.

John M. Engquist

We are getting more inquiries across the board on crawler cranes. Most of that activity we're seeing is on what I would call midsized crawlers as opposed to the really big stuff, and I'm speaking to 2250, 14000s, 16000s. That's where we're seeing most of the activities, but our inquiries have increased across the board, and our expectation is for improved results the second half of the year. Brad, you got any...

Bradley W. Barber

I would second that and just say that most of the inquiries on the midsized crawlers John is speaking to are coming from our larger customers and still some oilfield activities. So it remains positive, and we expect we'll finish the year strong in cranes.

Operator

We'll take our next question from Nick Coppola with Thompson Research Group.

Nicholas A. Coppola - Thompson Research Group, LLC

Just kind of a -- filling out that last question and talking about the utilization trends in Q2. I guess how did utilization trend relative to what your expectations were? I mean, we certainly know that you've got tough comps here, a lot of additional fleet add. Does that -- is that really the components of the story here? Is range kind of readthrough on demand?

John M. Engquist

Look, a couple of comments there. And first,I want to point out that 71% average time utilization is still very strong, and it's significantly better than our peer group. So we are running at a high level. A year ago, we were running at very unusually high utilization levels. We had some markets, some regions and some specific large branches that we're running north of 90% utilization, which is not a reasonable level. I mean, that tells me we're under-serving the market. We brought a lot of fleet in. Those markets today are, instead of 90%, they're running 80% utilization, which is still exceptionally strong, but it has impacted our year-over-year results. So to answer your question, we're running pretty much where we thought we would be. We've had some weather impact in the first half of this year that we did not have last year. Last year was as good a construction environment as you could dream of, and this year has been somewhat challenging from a weather standpoint. But generally, we're running about where we expected to be. And again, we're seeing increases in utilization. Today, we're bumping in that 72.5%, 73% range. So -- but it would not have been reasonable to expect to maintain the tight utilization we did a year ago. So we're happy with where we are.

Nicholas A. Coppola - Thompson Research Group, LLC

Right, sure, and I certainly appreciate that. And then talking about new equipment sales, we all know that it's a lumpy business. But having several quarters or more, really, in a row of nice year-over-year improvement, are you starting to get a sense that really just in-market improvement is the driver here and you're going to -- you're more confident on new equipment sales growth going forward?

John M. Engquist

Yes, I'm going to let Brad give you color on this. From my perspective, we are seeing increased confidence in the economy and in our end users. And their business view is optimistic, and we do expect the second half of this year to continue to see improved results. Brad?

Bradley W. Barber

Yes, Nick. So what I would add to that is our key manufacturers, as you know, Komatsu, Gebr, Manitowoc. These folks have certainly adapted. As we see the markets continue to improve, their pricing, their strategies, their inventory, the proper inventory, in-time inventory is really going to allow us to be competitive. And we expect, because of the drivers in the marketplace, as well as the approach in the programs with these key manufacturers that we represent in the distribution portion of our business, that we will continue to benefit and we'll continue to see the growth that you're asking about.

Operator

We'll take our next question from Seth Weber with RBC Capital Markets.

Seth Weber - RBC Capital Markets, LLC, Research Division

Just going back to the utilization question one last time. I think last year's third quarter was around 70 -- the high-72s, around 73. It sounds like that's starting to -- you're starting to get up around those levels. So do you think utilization could be flattish this -- in the third quarter year-over-year then?

Bradley W. Barber

Seth, again, we typically don't guide this, but let me make these comments. On the last call, I spoke about the additional investment, and I think I referenced $20 million in cranes, primarily for the rental fleet. So we've continued to invest. That had a short term -- 2 things that had, I believe, a shorter-term impact are fleet growth in cranes and then some of our investment in our coal [ph] stocks on the greenfield locations, right? The greenfields are operating ahead of our internal expectations, and our cranes will be rebounding to more normalized utilizations. And subsequently, I think we will get close to those types of levels. But as John said, I think everyone should bear in mind, we're probably running about 300 basis points ahead of our competition on utilization. To date, we've outpaced our competitors in rate increases. And we want to make sure we have a good healthy balance, but I don't think it's unreasonable that we'll approach those types of levels again.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. I mean, it sounds like you're there -- you're pretty much there if you're at 72.5% to 73% today versus just 72.0% to --

Bradley W. Barber

Yes, that's [indiscernible]

Seth Weber - RBC Capital Markets, LLC, Research Division

What's that?

Bradley W. Barber

Yes, that's correct.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. With respect to the fleet adds, I think we started the year thinking CapEx -- fleet CapEx, this year would be down -- the growth rate will be down year-over-year. It looks like you're running pretty close to the same rate you were running last year so far through the first half. I mean, is there a -- I know you don't -- I know this is sort of a fluid discussion with you. But I mean if you're handicapping, do you think that your fleet adds are going to slow down here in the second half of the year relative to the first half?

Bradley W. Barber

Absolutely. I mean, we're -- our spending is front-end loaded, and our spending will certainly moderate. We're going to have some modest growth remaining through the seasonally busiest time of the year. But yes, our second half growth will be nothing like the first half. It's very front loaded.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. So you think, for the full year, the fleet adds will be below what you added in 2012?

Bradley W. Barber

The growth rate will be the [indiscernible].

Seth Weber - RBC Capital Markets, LLC, Research Division

The growth rate, yes.

Bradley W. Barber

Absolutely, no question.

Seth Weber - RBC Capital Markets, LLC, Research Division

And are you continuing to add cranes to the fleet? Or can you give us a sense for what your fleet add mixes is skewed to?

Bradley W. Barber

It's not really skewed. It's been a fairly blended mix. Maybe the last couple of months, we've been a little heavy on cranes and we had -- if you want to look at ratios. But it's going to continue to be very similar to our overall fleet profile.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. And then just a separate question, the rental margin, the pull -- if we look at pull-through margin or incremental margin, it has been a little bit softer than we would have expected for the last couple of quarters, given the strong rate increases. I know that depreciation has been a little higher. Was that something you think will start to come back? Or is this kind of 50% pull-through margin about the right level to think about?

Bradley W. Barber

I expect -- I think we're going to be in that 50% range is what our expectation is.

Operator

We'll go next to Joe Box with KeyBanc Capital Markets.

Joe Box - KeyBanc Capital Markets Inc., Research Division

A follow-up on the new equipment sales component. I definitely get that it's going to be lumpy, but can you just help us frame the cadence of new equipment sales this year? Now it looks like the last couple of years, 3Q has been a bit softer than 2Q and then you get your big end of the year tax buyers that show up. Are you thinking that, that's going to be a similar cadence this year? Or could we actually see a better 3Q?

John M. Engquist

I'm going to let -- Brad would have more color on that than I would.

Bradley W. Barber

So I think, Joe, I think there's a reasonable possibility that we'd see a better Q3 than the trend you're speaking of historically. And I also think it's reasonable that we'll see a Q4 that is more typical of the trend you see historically. So that's our view of it.

John M. Engquist

We've got a lot of activity right now.

Joe Box - KeyBanc Capital Markets Inc., Research Division

I mean, any way you could frame up the inquiries that you're seeing? Any commentary on that will be helpful.

John M. Engquist

Well, I think from the crane side -- and Brad can give color as needed. But from the crane side, we're seeing significant increase in rough terrain activity, midsized crawlers and all-terrain cranes. We've got some specific truck crane models that have actually softened year-over-year just because of the amount of sales we had last year. An example would be 90-ton trucks cranes, where we've sold a tremendous number of them to rig movers. And those guys are just fleeted up. They just don't need more, but rough terrain crane demand is increasing, midsized crawler crane demand is increasing. The European ATs, that demand is increasing. So we're really pleased with what we're seeing. And then on the earthmoving side, it's pretty broad-based on the inquiry side. We're seeing just improved demand there.

Joe Box - KeyBanc Capital Markets Inc., Research Division

Great. It's been a long time coming, right?

John M. Engquist

Yes, you're right about that.

Joe Box - KeyBanc Capital Markets Inc., Research Division

Can you just give an idea of what the new locations did in terms of revenue? And maybe just how much cost is baked in from those new locations? What I want to do is basically just give an understanding of where the incremental rental gross profit margins are shaking out x those locations.

John M. Engquist

Okay. That may be a discussion for later, but we probably invested $50 million in fleet in those greenfields, and I'm a little bit pulling that out there. I mean, I don't have an exact number. But Joe, you may be better off getting on that offline, where we'll give you more information. We don't have it in front of us right now.

Joe Box - KeyBanc Capital Markets Inc., Research Division

Okay, great. I'll circle up then after the call. Maybe one last question and I'll turn it over. Can you just give us a flavor of how much your legacy Gulf Coast region is driving better rental rates and volume of equipment on rent as opposed to, say, maybe your West Coast region and Southeast that has lagged and now just appears to be coming back?

John M. Engquist

Well, again, that might be a question for Brad. He can give color. My -- I think that our legacy region, specifically the Gulf Coast, probably never fell off in rates as much as the other regions did. So I think we'll probably see stronger rate improvement scenario like California just because they fell off more than the Gulf Coast did. Brad?

Bradley W. Barber

Yes, Joe, that certainly is the case. In the legacy regions, you're speaking of -- we're a Komatsu distributor. We've talked about in the first quarter call the impact of the weather, that rain specifically had and the earthmoving products being the most impacted product because of the nature of their performance at the job site. So yes, rate increases are coming across the board, probably not as great in the legacy region you speak of, although the physical utilization has improved tremendously because the weather has moderated and we're back to more normal conditions.

Joe Box - KeyBanc Capital Markets Inc., Research Division

Okay. And speaking of weather, I know you guys have a location in Oklahoma City. Just any impact from the tornadoes in 2Q?

Bradley W. Barber

Very minimal. Obviously, it's tremendous devastation, we've got see it firsthand. But maybe some positive impact, but very minimal.

Operator

[Operator Instructions] And we'll go next to Eric Crawford with UBS.

Eric Crawford - UBS Investment Bank, Research Division

Just looking at the dollar utilization by equipment type relative to a year ago. You saw the small tick-down in crane and a large decline in other. It sounds like the increase in fleet may have -- is what may have led to the decline in crane. But could you speak to what you experienced in those 2 categories?

Bradley W. Barber

I will speak to the crane piece. It's primarily the reinvestment, the timing of the investment and getting this new larger fleet up and running at typical time utilizations. So we expect that to return to the more typical levels as the utilization continues to improve today. With the other products -- that's a large mix of products. And as I spoke about before, it's about 5% of our inventory. It remains at that ratio today as everything is growing at a nice pace. And so that should shake out and level out over a period of time, but we've been very much in a growth mode and that's, I believe, more of a mix issue in general.

Eric Crawford - UBS Investment Bank, Research Division

Understood. That's helpful. And then on rental rates, can you speak at all to how those trended sequentially through the quarter? Did you see any softness or sequential declines?

Bradley W. Barber

Again, we just prefer not to give any type of feedback on a month-to-month basis. And as John stated, we're starting to see rates improvement moderate, but we think it will continue to be positive. Now we did see a 2% sequential increase in the second quarter from the first quarter, and even that sequential increase has moderated. I mean, a year ago, first quarter, second quarter, we saw 5% sequential increase. And the second quarter is always when we get the largest sequential increase because that's the time period that your utilization is ramping up the most and you're able to really push rates. So I hope that color helps.

Operator

And we'll go next to Sean Wondrack with Deutsche Bank.

Sean Wondrack

I was curious -- my first couple of questions just have to do, more generally speaking, to your end markets. Could you give me a favor, can you remind us of your exposure to commercial construction, percentage?

John M. Engquist

I mean, it's very significant. I mean, particularly in our less industrial markets, you get into California and Arizona...

Bradley W. Barber

Las Vegas.

John M. Engquist

Yes, Las Vegas. I mean, we got very -- and Dallas, Houston, I mean, has big commercial. Yes, we got big exposure there, drives half of our revenue, I guess.

Sean Wondrack

Okay. So say, around 50%?

John M. Engquist

Yes.

Sean Wondrack

And where are we going here? I mean, you mentioned that on the last call a bit, that you're starting to see improvement. In Texas, in particular, you're starting to hear that commercial construction is picking up a little bit in certain sectors. Can you comment on that a little bit between those different markets? If you can just give a little color there on what you're seeing.

John M. Engquist

Well, yes, and I do think we're seeing some increased non-res activity in markets like Dallas. I mean, we've had a lot of activity there; same thing in Houston; probably, San Antonio, to a lesser degree, but improvement in those markets. But I want to be clear, by historical standards, the construction markets are still very weak. They're not anywhere near close to the '06, '07 time frame. But they are improving, and I think it shows in our results in our less industrial markets. I mean, we've -- it is starting to prove -- improve. I think it shows in the billings index -- the Architectural Billings Index. So we're starting to see some improvement.

Sean Wondrack

Right. And Texas is kind of an anomaly, having such a low unemployment rate and seeing so much strength. But when you talk about like California or Florida, for example, what kind of jobs are you seeing strength going to? What are the companies spending on exactly? What sectors?

Bradley W. Barber

It's really broad-based. It's just at lower levels than historical levels, as John mentioned. So hospitals, it's schools, it's some residential, office. Very, very, very broad-based. The good news is that the market that was most impacted, housing, have, by and large, correcting their housing situation. And I don't want you to lead you to believe that our business is heavily driven by housing. However, that's an indicator of some of the commercial and office-space-type activity that we're beginning to see. But there is no -- if we've backed up to 1.5 year, 2 years ago, we saw a lot of the municipal spin that was augmented by governmental support. And, so it's more private-sector money. It's probably the thing I could tell you today we're seeing. It's just at much lower levels than historical.

Sean Wondrack

Okay, that's very helpful. And quick housekeeping question. What was your floor plan balance on this quarter, please?

Leslie S. Magee

$56.4 million.

Sean Wondrack

$56.4 million. And then switching over to the rental category. If you were just to take where rates are at right now, can you let us know where -- what the rate carryover would be 3Q '13 versus last year, without any improvement next quarter?

John M. Engquist

I don't have that in front of me. I mean, certainly, there would be a carryover. I mean, we have not calculated that. We can certainly do that and find out what the implied rate carryover would be, but I don't have that in front of me.

Sean Wondrack

Okay, fair enough. And then last question has to do with new equipment sales. I noticed when you're speaking about the equipment sales, you're selling more cranes, it sounds like. I know cranes carry a little bit of a weaker margin than your other equipment, yet you're starting to see that the spread increased in terms of profitability there. Can you talk about the different dynamics affecting that? Are you raising prices more or you're selling more cranes that are kind of offsetting a bit? Or what's going on there?

John M. Engquist

It's a -- I think, the fluctuations you typically see in margin, it can be mix related. I don't know if this quarter...

Leslie S. Magee

This quarter was really not mix related. It was just better performance on earthmoving sales. Earthmoving sales have better margins than the prior year.

John M. Engquist

Yes, so that would be the case, as Leslie just said. But if you want some color pertaining to how it can impact, even though it did not this quarter, the large crawlers that we're seeing are still more spotty. Typically, holding 5% to 6%, 7% margin possibly; medium-sized crawler, 7% to 9%, maybe 10%; hydraulic cranes are in the same range; and then when you get to the RT, which are also to be considered hydraulic, they can be in the 9% to 12% range. So it can be an impact, and that may be what you're thinking of. However, it was not this quarter.

Operator

[Operator Instructions] And it appears we have no questions at this time.

John M. Engquist

Okay. I'll conclude. Thanks, everybody. I appreciate you being on the call, and we look forward to the next call. We are very encouraged by what we're seeing, and we think we're going to have a strong second half. Thank you.

Operator

That does conclude today's conference. We appreciate your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: H&E Equipment Services Management Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts