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

Q1 2008 Earnings Call Transcript

May 8, 2008 10:00 am ET

Executives

Kevin Inda – SVP, Corporate Communications

John Engquist – President and CEO

Leslie Magee – CFO and Secretary

Analysts

Brandt Sakakeeny – Deutsche Bank

Philip Volpicelli [ph] – Goldman Sachs

Chris Daugherty – Oppenheimer & Co.

Chase Becker – Credit Suisse

Phil Gresh – JPMorgan

Operator

Good day and welcome to today's H&E Equipment Services first quarter 2008 conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Kevin Inda. Please go ahead, sir.

Kevin Inda

Thank you, Shewan, and welcome to H&E Equipment Service's conference call to review the company's results for the first quarter of March 31, 2008, which were released earlier this morning. The format for today's call includes PowerPoint presentation which is posted on our Web site at www.he-equipment.com.

Please proceed to slide one. Conducting the call today will be John Engquist, President and Chief Executive 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 reconcile these measures to GAAP figures in our earnings release, which is also available on our Web site.

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 the words may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend 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 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. Except as required by applicable law including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation 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 John Engquist.

John Engquist

Thank you, Kevin, and good morning everyone. Welcome to H&E Equipment Service's first quarter 2008 earnings call. On the call with me today is Leslie Magee, our Chief Financial Officer.

Would you please proceed to slide three? I'm going to go over the highlights of the first quarter, discuss our markets by region, and speak about the key drivers of our business that again generated strong financial results for our company. Leslie will then go over our financials in more detail. When Leslie concludes, I will discuss our outlook for '08 and we will then take questions.

If you would please proceed to slide five, despite the uncertain economic conditions across the country and significant softness in several of our major markets, our company continued to produce strong year-over-year results. Our total revenue increased 17.2% or 4% on an organic basis and EBITDA increased 7.8% or 5.1% on an organic basis. We believe this is impressive growth when you consider the weakness in the Southern California and Florida markets. It also demonstrates the strength of our business in the Gulf Coast and Intermountain region.

Income from operations decreased 9.3% primarily due to rental depreciation. Also, the results from our Mid-Atlantic, Southern California and Florida markets negatively impacted income from operations by $3.3 million. Net income decreased 15.6% due to these same factors, combined with higher interest expense resulting from increased borrowings on our senior secured credit facility for the Mid-Atlantic acquisition and share repurchases.

Please proceed to slide six. I want to emphasize that the overall drivers of our business remained strong due to our presence in high growth regions and our exposure to the high growth industrial sector. We are experiencing exceptionally strong demand in our Gulf Coast and Intermountain regions as a result of our focus on the petrochemical, oil patch, energy and mining sectors. We expect continued growth in these industries well into the future as prices for oil, coal, precious metals and other commodities remain at record levels.

Our Gulf Coast region will also reap long-term benefits as monies budgeted for storm protection and rebuilding work begin to be spent. Some estimates place the construction costs on these projects at as much as $10 billion. We believe our first quarter results demonstrate the effectiveness of our integrated business model and that our geographic diversity has insulated our business from regional pockets of weakness. The key drivers of our business remain non-residential construction and the industrial sector.

As I've stated before, the Southern California and Florida markets remain challenging. We have adapted to the softness in these markets primarily through aggressive fleet management and expect the financial performance of these operations to steadily improve. We are also making significant progress on the transition of the Mid-Atlantic operations to our integrated business model, and are completing the transition from Hitachi to Link-Belt. Although the Mid-Atlantic market is very challenging today, we are confident that the acquisition will be a strong contributor to our performance in the long term.

Please proceed to slide seven. In conclusion, we believe we delivered strong results in the first quarter despite the ongoing challenges in several of our major markets. Our overall business environment remains strong as our geographic diversity gives us a great deal of exposure to high growth regions and high growth industries. The industrial sectors we serve are seeing unprecedented activity that we expect to continue well into the future. We also continue to see high levels of activity in non-residential construction.

We believe we are taking the appropriate steps in our softer markets to improve the financial performance in those regions. We remain excited about our expansion into the Mid-Atlantic and we believe the region will be a strong contributor to our performance in the future.

Our confidence in our business remains high and we are reconfirming our 2008 guidance, which I will review towards the end of the presentation. We will continue to evaluate opportunities to enhance shareholder value, including stock buybacks under our current stock repurchase program. In addition we will continue to explore opportunities to grow our business through the expansion of manufacturing relationships, improving our Mid-Atlantic operations and growing our high margin parts and service business. We believe our prospects for the remainder of the year are bright.

I'm now going to turn the call over to Leslie for a more detailed review of our financial results.

Leslie Magee

Thank you, John, and good morning. I would like to go through our financials providing some more detail on our first quarter results beginning on slide nine. Our total revenue increased to $245.8 million or 17.2% year-over-year, with $27.6 million of revenue from the Mid-Atlantic region resulting in a 4% top line revenue growth exclusive of the revenues from this recent acquisition.

For the first quarter of 2008 on a segment basis, rental revenues increased 12.7% over the prior year on a larger fleet and with growth across all product lines. Rental revenue from the Mid-Atlantic was $2.7 million for the first quarter, resulting in an 8.4% increase in rental revenues on an organic basis. As John mentioned, our challenging markets are the Mid-Atlantic, Southern California and Florida regions. Rental revenues outside of these areas grew 17.7% in the first quarter, which demonstrates the strength of our business in other areas of our footprint.

Overall, dollar return was 35.5% for the first quarter of 2008 as compared to 38.8% for the same period in 2007. Excluding the previously described pockets of weakness, our dollar returns for the first quarter were 38.4%. As we stated on our last call, our dollar returns are lowered by the Mid-Atlantic region as they still operate primarily as a distributor with lower dollar utilization than our instrument operations and are also dealing with a challenging market. The Mid-Atlantic's performance alone accounted for approximately 190 basis points of the decline in our dollar returns. The balance of the decline is related to the deterioration in the southern California and Florida markets since the first quarter of last year.

Our average time utilization for the quarter was 64.5% as compared to 64.4% a year ago. The strength in our business is apparent by the increase in time utilization of our entire aerial fleet of 180 basis points over the prior year despite the continued softness in two of our large aerial markets. Earthmoving time utilization was negatively impacted by our Mid-Atlantic region and growth of our utility line in the West and Northwest. We believe the softness in time utilization in these two regions to be typical seasonality.

Cranes remain highly utilized but were impacted by lower time utilization in the Mid-Atlantic stores due primarily to their rent-to-sell approach and also a decline in bin truck utilization. Rates on average and excluding any impact from the Mid-Atlantic declined 1.8% over the prior year. Crane rental rate increases of 4.7% were offset by a 2.5% average decline in AWP rates due primarily to continued weakness in the Florida and southern California markets and a 0.9% average decline in earthmoving rental rates.

New equipment sales grew 12.7% over the prior period, including $12.5 million of new sales from the Mid-Atlantic region. The increase in new sales is largely due to the demand for new cranes. New sales of aerial equipment also increased and were partially offset by a decline in new earthmoving sales and new lift truck sales year-over-year.

Used equipment sales increased approximately $10.4 million or 33.8% including $5.2 million of used equipment sales from the Mid-Atlantic. All product lines increased year-over-year even before considering the $5.2 million contribution from the Mid-Atlantic region.

Our parts and service business continues to show solid growth at 20.3% or $7.7 million on a combined basis due to increased demand and revenues from Burress of $6.5 million for the quarter.

Our total gross profit margin decreased to 29.6% as compared to 31.3%. The margin decline is due to a 14% gross margin on $27.6 million of revenues from the Mid-Atlantic operation. Our gross profit margin exclusive of the Mid-Atlantic operations increased to 31.6% in the first quarter as compared to 31.3%. I'll discuss the Mid-Atlantic margin in more detail but in summary, it's primarily a result of business mix and a lower margin rental segment.

Next, I would like to discuss gross margin by each segment to better explain the changes. Our margins on new equipment sales increased to 14.2% from 13% a year ago. Margins on new equipment improved again due to the strength in cranes and the mix of equipment sold in the quarter. Margins on new sales of $12.5 million in the Mid-Atlantic were 12.2%. Margins on both parts and service revenues remained strong and had little impact to our overall gross margin. Revenue mix within our service segment and increasing cost of our technicians resulted in a decline in service gross margins to 63.2% from 64.8%.

We experienced decline in rental gross margins to 46.3% from 49.2% in the prior year. Depreciation expense has increased $5.1 million or 24% resulting from growth of the fleet and higher replacement costs due to the aging fleet. Depreciation expense was 37.1% of rental revenues in the current quarter as compared to 33.8% in the prior year.

As we've mentioned, our rental business has been impacted by the Mid-Atlantic region's focus on distribution versus rentals and the continued weakness in Florida, southern California and Mid-Atlantic markets. Partially offsetting these declines, our maintenance and repair expenses improved as a percentage of rental revenues by approximately 50 basis points to 12.6% of revenue.

Our overall gross margin was also impacted by a decline in used equipment gross margins to 25.3% from 27.2%. Used equipment margins declined due to lower margins on fleet sales in the Mid-Atlantic due to fair value adjustments required by purchase accounting at the time of the acquisition. Gross margins on other revenues, which is primarily related to equipment support activities such as hauling, freight and damage waiver, decreased to a loss of 5.6% from a gross margin of 10.7% in the prior year. The decline relates to increased fuel costs and increased hauling costs associated with de-fleeting our softer markets. The Mid-Atlantic region accounted for $400,000 of the $600,000 loss.

Slide ten please. Income from operations decreased 9.3% to $26.2 million from $28.9 million. The decline is primarily due to increased rental depreciation of $5.1 million. We also experienced an increase in non-rental fleet depreciation and amortization of intangibles of $1.6 million over the prior year's quarter.

Our weaker markets have certainly impacted our year-over-year performance. The Mid-Atlantic operations alone accounted for $800,000 of the $2.7 million decrease in income from operations or 170 basis points of the total 310 basis point margin decline. In addition, the EBIT contribution from our southern California and Florida operations declined by approximately $2.5 million in comparison to the first quarter of 2007.

Proceed to slide 11. Net income was $10.2 million in the current period as compared to $12.1 million in the prior year on a lower effective tax rate of 37.1% versus 40.2% in the prior year. Net income decreased due to the factors discussed on the previous slide in addition to increased interest expense of $1.5 million.

Interest expense increased as a result of maintaining higher average borrowings under our senior secured credit facility, Burress acquisition and our share repurchases. We have repurchased a total of 1.9 million shares in the open markets since the initiation of our buyback program. Our $0.28 diluted per share for the first quarter includes a $0.01 benefit resulting from our stock repurchases.

Slide 12 please. EBITDA increased 7.8% as compared to the first quarter of 2007, with margins decreasing to 22.9% from 24.9%. The Mid-Atlantic contributed 1.4 of EBITDA in the first quarter or a 5.1% margin. These results reduced our consolidated margins by 230 basis points. Our EBITDA margin was 25.2% for the first quarter, excluding the Mid-Atlantic results. This margin expansion is primarily the result of revenue mix and increased margins on new sales. We are pleased with this margin expansion achieved in spite of the weakness in the Florida and southern California markets in comparison to the prior year.

Next, slide 13. Our SG&A costs increased as a percent of revenue to 19% compared to 17.7%. SG&A dollars increased $9.5 million with the Mid-Atlantic contributing $4.6 million of this increase and an additional $700,000 amortization of intangible assets acquired in acquisitions. The remaining increase exclusive of the Mid-Atlantic is primarily related to an increase in employee salaries and wages, other employee expenses and facility related expenses, which are all costs associated with the growth of the company. We expect SG&A as a percentage of revenues to normalize as we move into the seasonally stronger quarters of the year.

And last, slide 14. Our gross fleet capital expenditures for the quarter were $48 million and net fleet capital expenditures were $13.7 million. We reduced our fleet by $4.3 million in the first quarter. Gross PP&E CapEx for the quarter was $3.2 million and net PP&E spending was $2.9 million. Our fleet age at the end of March was 31.4 months as compared to 38.4 months a year ago.

Finally, we have used the cash on cash return in our business for many years to measure the efficiency of the business and cash return on each dollar invested. We calculate this metric as EBITDA divided by gross PP&E, plus net working capital. And on an LTM basis, our cash on cash return was 32.5%, a number that we consider an excellent return on the cash invested in the business.

With that overview of our financial results, I would like to turn the call back to John, so that he can discuss our 2008 outlook.

John Engquist

Thank you, Leslie. We are reconfirming our annual guidance for 2008, with the exception of a revision to our estimated effective tax rate. Our guidance is as follows. We expect revenues in the range of $1.134 billion to $1.161 billion. We expect 2008 EBITDA in the range of $264 million to $279 million, and we expect EPS in the range of $1.74 to $1.99 based on an estimated 36.3 million diluted common shares outstanding, which reflect our stock repurchases through the end of April and a revised estimated effective income tax rate of 37.5%.

Operator, at this time, we'd like to take questions. Would you please provide instructions?

Question-and-Answer Session

Operator

(Operator instructions) We'll have our first question from Brandt Sakakeeny with Deutsche Bank.

Brandt Sakakeeny – Deutsche Bank

Thanks. Hi, John and Leslie, a couple of questions. First, can you talk about the softer markets? Do you feel like business is stabilized in those markets or sort of bumping along the bottom or have you yet to see the bottom in those markets?

John Engquist

I think in Florida and southern California that those markets have stabilized or bottomed out, whatever term you want to use. I don't see any big recovery there. I mean, we are not seeing our own rents go up a lot or anything like that, but we have seen the markets stabilize. What we have done is significantly de-fleet those markets and right size our fleets there which I do believe will improve our financial performance going forward. So, not a lot of recovery, but we don't see further deterioration there right now.

Brandt Sakakeeny – Deutsche Bank

Okay, great. And just with respect to the Burress business, can you talk to perhaps the growth rate that you would expect out of that business in the next 12 months?

John Engquist

I don't know that we can guide you to the growth rate. They're in a difficult environment. Their market has softened considerably particularly on the earthmoving side of their business, which is a significant component of their business. So, some of those markets are off 30%, 40%, 50%. So it's a challenging environment from a market standpoint. And to be going through an integration and everything we're throwing at them, it's tough right now; it's a challenging market. I can tell you we are making steady progress. We're putting the rental infrastructure in place, we're creating a rental culture and we're going to start benefiting from that. And I think that's where we have a lot of upside in that acquisition is on the rental side. So, we're making steady progress.

Brandt Sakakeeny – Deutsche Bank

Okay. I guess, Leslie, I've talked to a couple of other folks in the business and I think there was some benefit from some of the tax provisions in the stimulus package. Are you going to benefit from those same incentives on your ability to expedite I guess the depreciation of equipment and the impact on your free cash flow for this year?

Leslie Magee

Yes. We definitely expect a benefit on our cash taxes this year. We expect some savings over – a little bit of savings over our 2007 cash tax level. But definitely some savings in comparison to our original forecast before the federal stimulus package was put in place.

Brandt Sakakeeny – Deutsche Bank

Great, okay. So your effective tax rate goes up by a couple of hundred BPs, but your cash tax rate is actually going to come down then?

Leslie Magee

Right, and the federal stimulus package actually shifted our expectation of when we're going to fully utilize our NOLs from 2008 to 2009. We expect a minor one time benefit when we fully use those NOLs and that shifted from '08 to '09, which is why you see the revision in the effective tax rate for '08.

Brandt Sakakeeny – Deutsche Bank

Okay, great. Thank you.

Leslie Magee

Sure.

Operator

We'll have our next question from Philip Volpicelli [ph] with Goldman Sachs.

Philip Volpicelli – Goldman Sachs

Thank you very much. Good morning.

John Engquist

Good morning.

Philip Volpicelli – Goldman Sachs

The floor plan financing at the end of the first quarter of '08, could you give us that balance, and then if you could, the balance from the first quarter of '07?

Leslie Magee

Sure. The balance of floor plans at the end of '08 is $141 million. Give me one second, let me get '07 for you, '07 was $143 million of floor plan.

Philip Volpicelli – Goldman Sachs

Okay, relatively flat. And then when we look at the new equipment business, can you break out the different equipment types as a percentage of the total? I know cranes is a larger piece there, but are you willing to do that; aerials, cranes, forks, trucks?

Leslie Magee

Sure. Cranes account for about 65% of our new equipment sales. Earthmoving for the first quarter is about 17%.

Philip Volpicelli – Goldman Sachs

Okay.

Leslie Magee

Aerial's 10%, lift trucks 3%, the balance being other.

Philip Volpicelli – Goldman Sachs

Great, okay. And in the quarter, we saw weakness in lift and earthmoving, but we saw pretty good performance in aerials and cranes. Are we seeing any kind of pressure from buyers there in terms of pricing? Are they being more aggressive with the market slowing in North America or are you still able to get good prices on those businesses?

John Engquist

And you're talking earthmoving and lift trucks?

Philip Volpicelli – Goldman Sachs

I guess all of them if you're willing to give us that color?

John Engquist

Well, on our cranes side of our business, we are improving our margins there. The pricing is getting better and it's just a supply and demand situation. I mean, the demand is as strong as I've ever seen it. The aerial demand is good particularly if you get outside or if you get west of Florida and east of Southern California, our aerial business is exceptionally strong. High utilization demand is good. The earthmoving business is off, there's no question about it. I think it's off all over the country and if you listened to some of Caterpillar's call, I mean they are saying the same thing. Earthmoving component of our business has some ties to the residential sector which has impacted it. That's the bad news. The good news is if you look at earthmoving, new sales, used sales and rentals, that's only 15% of our total revenue. So it's not a major driver of our business. And lift trucks, the same thing, some ties to the residential sector on the warehousing side. But the big drivers of our business, cranes and aerials, which push 55% of our revenue in new sales, used sales and rentals has little to no ties to the residential sector and heavy ties to the high growth industrial sector. So I think our business is postured very well right now.

Philip Volpicelli – Goldman Sachs

That's great. Thank you for all that color. And then in terms of the markets, Florida and California, what percent of the total do those two states make up?

John Engquist

Leslie, you have that number?

Leslie Magee

It's approximately 15% of our rental business.

Philip Volpicelli – Goldman Sachs

Okay. Alright, and then last question from me before I pass it on. The used equipment market pricing for most has remained very strong. Can you give us any color on what you're seeing there? Are you seeing any weakening in the offshore market?

John Engquist

We're really not. If there's any softness in used equipment pricing, it would be in the earthmoving equipment. Cranes just continue to increase their residual values. Aerial side has held up extremely well. If there's any softness, it's on the earthmoving side and frankly, our earthmoving business in Louisiana and Arkansas, the pricing has been very stable.

Philip Volpicelli – Goldman Sachs

Great, thank you very much. Good luck.

Operator

We'll have our next question from Chris Daugherty with Oppenheimer.

Chris Daugherty – Oppenheimer & Co.

Hi, John and Leslie. John, can you just talk about I guess your fleet mix or your size affair? I know it's down year-over-year, but I guess between Florida and California, you're sort of jiggering it there, but the other areas, are you growing the fleet?

John Engquist

We have grown our crane fleet some and will continue to do so. As I have stated earlier, we have de-fleeted Florida and southern California fairly significantly. We have added some fleet to our aerial business outside of Florida and Southern California. Our utilization's extremely strong, our returns are good. We are very, very pleased with that business, so growing that portion of that aerial business and we have added some crane fleet, and we'll continue to do so. We're somewhat limited in growing our crane fleet by availability. It's tough to get product right now.

Chris Daugherty – Oppenheimer & Co.

Right, and that's what I was going to sort of add on to that is, can you talk about the supply/demand there? I mean last week we spoke, I think you said that allocations were going out at least until '09 and maybe into 2010. Is that still the case?

John Engquist

That's still the case. The supply has not improved at all. The crane manufacturers are having a lot of trouble meeting the demand.

Chris Daugherty – Oppenheimer & Co.

And does it – I mean if you look at sort of Q4 versus Q1, is that a seasonality adjustment there, do a lot of people buy their new equipment in the fourth quarter?

John Engquist

Absolutely. I mean it's – don't ever try and compare our fourth quarter to our first quarter, because you're comparing the strongest quarter of the year, or one of the strongest quarters of the year, to the absolute weakest quarters. So that's just seasonality.

Chris Daugherty – Oppenheimer & Co.

And then, you also talked about non-res being strong as we see it now. Can you talk about sort of new trends? I know there were some figures thrown out for Q1 in terms of starts for non-res being down. I mean what are your customers saying in terms of projects going forward?

John Engquist

Well there's still a lot of work out there. Now there's no question that the growth rates have flattened out and most of the projections we see are the 1% or 2% range. And some people are calling for flat growth, no growth at all. But, there's still a lot of work out there. There's still a lot of work online. And is it slowing down on the non-residential side outside of the industrial sector? Yes. Is there still opportunity there for our sector? Absolutely.

Chris Daugherty – Oppenheimer & Co.

I'll go back in the queue. Thank you.

John Engquist

Thank you.

Operator

(Operator instructions) We'll go next to Chase Becker, Credit Suisse.

Chase Becker – Credit Suisse

Hi, good morning. My question is primarily relating to the new equipment. It looks like on an organic basis, the sales were actually down and I know that cranes constitute a large portion of that. So can you kind of walk me through what you're seeing in that and what your expectations are for the balance of the year?

John Engquist

Well, crane sales are up on an organic basis and that's strictly a function of when we get product. If I had received twice as much crane product, we would have sold twice as much. So the demand is strong as ever, but crane sales are up about 20% on an organic basis. Now, earthmoving sales are down significantly, aerial sales are up slightly and lift trucks are down. So that's the components of that.

Chase Becker – Credit Suisse

So, is it mostly a timing issue that kind of alleviates in the back half of the year? I'm just trying to understand because since cranes are up so much and it is such a significant portion of that part of the business, is there any reason to believe that that doesn't improve throughout the balance of the year?

John Engquist

We believe it will improve through the balance of the year, yes. I mean we're seeing increased demand on the sales side. In our earthmoving products, aerials has been up, and I think demand on lift trucks will pick up as the year goes on. So, it is somewhat a timing issue. With that said, our earthmoving markets are off year-over-year. No question about it. That is having some impact.

Chase Becker – Credit Suisse

Sure. And then on the Burress side, I know that obviously it's a challenging market in the mid-Atlantic, but can you talk about – assuming that market were to level and you're able to actually extract some value out of this from a margin standpoint, for your internal targets, where do you see margins in that business? Where do you see that business going? Obviously, this year, I would imagine it's going to be challenging, but your long-term goals, 14 to what?

John Engquist

They're generating 14% gross margins now, which is – a lot of that is a function of their business model and a very distressed market. Over time, we will replicate our margins in that business. As we increased their rental component and really get them to understand the rental business and focus on the right thing there, that's not going to happen in the short term. Can we grow their gross margin 200 or 300 basis points fairly quickly? Yes, we can. And we'll continue to make steady progress there.

Chase Becker – Credit Suisse

Okay, thank you.

Operator

(Operator instructions) We'll go next to Phil Gresh, JPMorgan.

Phil Gresh – JPMorgan

Hey there, guys.

John Engquist

Hey, Phil.

Phil Gresh – JPMorgan

Before you kind of – last quarter, you talked about rates kind of being flattish for the year. Can you give us an update on your thoughts as we progress through the year, it is [ph] down in the first quarter?

John Engquist

Phil, I would be glad to. I haven't been real good at forecasting rates; I haven't done a real good job there. With what's transpired in the last two or three quarters, we anticipate some deterioration in rates. Maybe on the earthmoving side, a little bit further deterioration there. Crane rates are going to increase, there's not going to be any softness there. Maybe overall, we see another point or so decline in rates through the course of the year. I don't think – hopefully it will be better than that. I don't think it will be any worse than that.

Phil Gresh – JPMorgan

Okay. In the Gulf Coast, were rates up in the first quarter or are we kind of down everywhere?

John Engquist

Depends on what product line you're talking about. Our crane rates are up, no question about it. Our aerial rates are down about 2.5 points but, again, that's a function of our weaker markets. We're not seeing that if you get outside of Florida and California.

Phil Gresh – JPMorgan

Okay.

John Engquist

Our earthmoving rates were about – they were down less than a point, so not real significant there.

Phil Gresh – JPMorgan

Okay. And then just on the de-fleeting in the other segments, you guys were impacted by the haulage costs and things like that. Is that mostly done at this point or is there more to go? Where are you at with that?

John Engquist

I think the bulk of the de-fleeting in Florida and Southern California is probably done. We'll continue to focus on selling off the lower end of our aerial fleet. We've got some real good markets, Asian markets, that we've been delivering equipment to. Their appetite is for the older stuff in our fleet, which is not real attractive in the U.S. markets, so we'll continue to sell off the older stuff.

Phil Gresh – JPMorgan

Okay. And then I think Leslie focused also on the mid-Atlantic. I mean, there's de-fleeting there. Is that de-fleeting of new equipment then?

John Engquist

It's not so much new equipment. It's cleaning up their rental fleet and getting their mix right. I made the comment on our last call that they had some mix issues. They had more big excavators than they need and not enough smaller excavators. So, I think more than de-fleeting them, we will be improving their mix.

Phil Gresh – JPMorgan

Okay. All right, that's helpful. Thanks.

John Engquist

Thank you.

Operator

We'll have a follow-up from Philip Volpicelli with Goldman Sachs.

Philip Volpicelli – Goldman Sachs

With regard to the Floorplan financing last year, it started at 143 and ended the year at roughly 163. Should we expect to see the same kind of progression this year, or will it stay closer to the 141 you had at the end of the first quarter?

Leslie Magee

I'd expect some level of growth there throughout the course of the year, as we get into some of the stronger quarters. But, maybe not to quite the same level as last year.

Philip Volpicelli – Goldman Sachs

Great. And then in terms of Maxim Crane agreed to be acquired by Platinum Equity, and a couple of months ago Essex Crane was acquired by another private equity sponsor. I know you guys are a public company. Any thoughts to, with the enterprise multiple where it is now, taking the company back private again, making acquisitions? Any kind of discussions with your Board along those lines?

John Engquist

There's really nothing I can comment on there. I mean, we're not out actively seeking acquisitions. We're going to get our arms around what we've done. With that said, would we look at an opportunity? Sure, we would. I mean, we've got a strong balance sheet and if something presented itself that made a lot of sense, we'd look at it. We're always weighing our options to enhance shareholder value, but there's really nothing I can guide you on there.

Philip Volpicelli – Goldman Sachs

Great. Appreciate it, thank you.

Operator

We have no further questions in the queue at this time. I'll turn the conference back over to our speakers for additional or closing remarks.

John Engquist

Now, I appreciate everybody being on the call. Obviously, we're in a tougher environment than we've been in the last few years. I think when you look at our business model and our business mix, our exposure to this industrial sector was such a big driver of our business. I think our business is positioned very well to continue to perform well, even in a more difficult environment. Thanks for being on the call and we look forward to talking to you on our next call. Thank you.

Operator

That concludes today's conference. You may disconnect at this time. We do appreciate your participation.

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Source: H&E Equipment Services, Inc. Q1 2008 Earnings Call Transcript
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