Q2 2020 H&E Equipment Services Inc Earnings Call
[music].
Good morning.
Welcome to engineered equipment services second quarter 2020 earnings conference call.
Today's call is being recorded.
At this time I would like to turn the call over to Mr., Kevin into Vice President of Investor Relations. Please go ahead Sir.
Thank you Gary and welcome to engineered equipment Services Conference call to review the company, whose results for the second quarter ended June Thirtyth.
2020, which were released earlier this morning the format for todays call includes a slide presentation, which is posted on our website at www <unk> AG dash equipment Dot com.
Please proceed to slide two conducting the call date will be John Engquist Executive Chairman of board of directors.
Brad Barber, Chief Executive Officer, Unprecedent, mostly Magee, Chief Financial Officer and Secretary.
Oh. Please proceed to slide three during today's call will refer to certain non-GAAP financial measures.
We reconciled these measures to GAAP figures in our earnings release and in the appendix to this presentation each of which is available on our website.
Before we start off with 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 most contained in any forward looking statement.
Some of these uncertainties as included in the Safe Harbor statement contained in the company slide presentation for today's call.
And also includes the risks described in the risk factors in the company's most recent annual report on form 10-K, and other periodic reports 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.
We undertake to publicly update or revise any forward looking statements. After the date of this conference call I would that stated on I'll turn the call over to Brad Barb.
Kevin and good morning, everyone welcome to actually equipment services second quarter 2020 earnings call.
On the call me today or John at West Executive Chairman, Leslie Magee, our Chief Financial Officer, and Kevin and our Vice President of Investor Relations.
Slide four please.
I will briefly discuss our second quarter performance and Leslie will review our financial results for the quarter in more detail. After we will take your questions.
Slide six please.
Beginning in March we incurred a significant impact in our business due to cobot 19. This said I'm pleased with the results of the actions. We took during the quarter. These include at Rightsizing all areas of our business, most specifically with inventory and head count reductions. These focus areas will assist us in continuing to maximize our performance throughout the balance.
The year, our utilization and the rental business bottomed in April, which subsequently improved and stabilized in the following months.
Recent trends in our rental business are encouraging as physical utilization is currently running approximately 600 basis points above the trough in April.
We're focused on managing our balance sheet and maintaining the appropriate size rental fleet and inventories in the current environment. We plan to continue with Rightsizing, our rental fleet by focusing on our oldest and lease productive assets for removal.
On a year to date basis, the size, our rental fleet is down 2.9% or 55.7 million and the inventories are down 7% or 6 million.
We continue to main solid liquidity further strengthening our balance sheet and generated 121.1 million in free cash flow during the second quarter.
Lastly will detail asking in a further but we successfully reduced our operating cost with headcount reductions year to date of approximately 9%. We've also undergoing an organizational restructuring that has been in our future plans, which provide at wage and salary savings scalability and a reduction the amount of required travel for regional and senior.
Management teams given the current environment, we accelerated such plan for restructuring and already reaping some of expected cost savings.
In terms of our second quarter financial results total revenues declined 16.6% from a year ago.
While work continued in our end user rental market. Some projects were paused delayed or canceled demand for rental equipment decline and rental revenues decreased 19% compared to last year as expected we experienced pressure on both physical utilization and rates utilization was 59.5% down from 70.
1.2% a year ago.
And and based on the air a guidelines our rental rates decreased by 2.8% from a year ago. Beginning this quarter, we're reporting our rental rate changes in accordance with a already guidelines for consistency.
New equipment sales were down 18% for the balance of this year. We expect this continued we expect continued unpredictability for this segment.
Given the ongoing turmoil in the energy markets, let me remind everyone that our exposure to oil and gas remains low at 5% of our total revenues on a last 12 month basis.
We opened one new branch this quarter and lock in the Los Angeles Metropolitan area.
While the trends while the current trends are encouraging compared to what we experienced during the second quarter. We believe headwinds related to cobot 19 will persist through the balance of this year there is still tremendous uncertainty.
Regarding the cadence of economic recovery, including the outlook for non residential construction markets.
Despite these headwinds and ongoing uncertainty, we're working very hard to generate returns for our shareholders in this evolving environment.
I'll now turn the call over to lastly to discuss our second quarter financial results in more detail lastly.
Good morning, everyone and thank you Brad Let's proceed to slide Aladdin for more details about our financial results.
Our total revenue decreased 16.6% or 55.3 million to 278.3 million compared to the same period, a year ago, you get a challenging market conditions as Brad Scott.
Rental revenue decreased 19% 148.9 billion EUR 173.8 million a year again, our average time utilization based on elysee decreased to 59.5% for the quarter compared to 71.2% a year ago inside the Barclay decreased by 2.3.
Percent 43.8 million compared with the prior year comparable period.
Rental rates this quarter declined 2.8% year over year end rates also decreased 2.8% sequentially.
As a result of lower physical utilization IRI dollar returns declined 690 basis points to 29.6% versus last year.
New equipment sales exceeded our expectations during the second quarter, all day decreased 18%, our 9.6 million to 43.9 million compared to 53.6 million last year. The decline was primarily the result of 44% or 11.29 decline in Ukraine.
Okay and declines in all other categories, except our meeting, which increased 42.4% or 6.4 million.
Easy question, it sounds decreased 5.9% EUR 2.1 million to 34 million decreasing in all product lines, except our meeting, which increased 1.8 million or 13.4% unused other equipment, which increased 1 million.
Sales from our rental fleet comprised 90.3% actively used equipment sales this quarter compared to 92.4% a year again.
Our parts and service segments generated 41.99, the revenue on a combined basis down 13.8% from year ago.
Let's now move on to gross profit and margin.
Gross profit decreased 26.2% to 92.1 million from a year ago, and our consolidated margins were 33.1% compared to 37.4% a year ago, primarily because that is significantly lower rental gross margin and lowering used equipment margins.
For gross margin detail by segment, our rental gross margins were 41.5% during the quarter compared to 49.1% a year ago and were impacted by pressure on rate and account and a decline in time utilization to 59.5% this quarter and 71.2% a year ago.
Margins on new equipment sales decreased to 10.7% during the second quarter compared to 12.2%.
A year ago, largely due to decreased nice product line.
He used equipment sales gross margin decreased to 31.6% from 35.4% last year, primarily due to mix as well as lower margin in all product line.
Margins on pure rental fleet, only sales were 34.7% compared to 37.8% a year ago.
Parts and service gross margins on a combined basis increased to 41.4% compared to 41% a year ago.
Slide 12 please.
Income from operations for the second quarter. After 2020 decreased 43.4% to 27 million or 9.7% of revenues compared to 47.79 or 14.3% of revenues in the prior year period. These declines in income from operations in margin or primarily.
Result, at a 16.6% declining revenues lower gross margins and our primary business segment and higher SDMA as a percentage of revenue I'll discuss SDMA in more detail on a few slides, but it is worth noting here the FCC Nate cough declined 12.8% year over year, However, with ran.
Revenues declining more sharply at 16.6% in this challenging environment as you know increased as a percentage of revenues in the second quarter in comparison to year guide.
Partially offsetting these negative impacts to income from operations will have more higher gains on sales of property and equipment.
Proceed to slide 13.
Net income was 8.8 million or 24 cents per diluted share the second quarter of 2020 compared to net income of 22.69 or 63 cents per diluted share in the second quarter 2019 effective income tax rate was 26.9% in the second quarter of 2020 compared to 26.8%.
A year ago.
Please move to slide 14.
Adjusted EBITDA was 95.3 million in second quarter compared to 118, nine a year ago, a decrease of 19.3% adjusted EBITDA margin decline 120 basis points to 34.2% this quarter compared to a year ago, primarily due to lower margins and they didn't segment hiring.
DNA costs as a percentage of revenue.
And revenue net.
Partially offsetting these results were higher gains on sales of property and equipment.
Next on slide 15.
S. DNA expenses for the second quarter of 2020 were 67.9 million compared with 77.8 million for the prior year and 9.9 million or 12.8% decrease SDMA expenses in the second quarter of 2020, as a percentage or total revenues were 24.4% compared to 23 point.
3%, a year ago employee salaries wages payroll taxes employee benefit costs and other employee related expenses decreased 9.9 million, primarily as a result of lower commissions and incentive pay combined with head count reductions and reduced employee hours in response to kind of a 19 impact our business.
Promotional expenses decreased 1 million and supplies decreased 800000.
Offsetting this decrease was a 2 million dollar increase in excess liability insurance.
Expenses related to Greenfield branch expansion increased 1 million compared to a year ago.
Next on slide 16.
On this slide you'll find fleet capex and cash flow for the six month period, ending June Thirtyth and our growth fleet Capex in the second quarter was 41.4 million, including non cash transfers from inventory our gross capex was down approximately 70.1% compared to second quarter, a year ago net rental fleet.
Capex for the quarter was only 10.7 million grasp any capex for the quarter was 3.4 million a net was a negative point 1 million. Our average fleet age as of June Thirtyth was 39.1 month.
Our free cash flow for the second quarter of 2020 was 121.1 million compared to the use of 6.99, a year ago. The increase in free cash flow was largely due to lower net fleet investment this year.
Next on slide 17.
We ended the second quarter the size of our rental fleet based on Elysee was 1.9 billion at 2.3% or 43.8 million decrease from a year ago average dollar utilization was 29.6% compared to 36.5% a year ago, reflecting lower time utilization and rate.
Proceed to slide 19 please.
Lastly, we have a strong balance sheet with ample liquidity and no near term maturities at ended the second quarter that outstanding balance under the amended ABL facility was 67.6 million and is down 149.3 million since December 31st of last year, We had 674.7 million.
One of cash borrowing availability at quarter end, which is net of 7.7 million outstanding letters of credit our excess availability exceeded 1 billion and is the measurement used to determine if our springing fixed charge, having as applicable.
Our senior secured credit agreement requires 75 million of excess availability before this covenant with spraying therefore with excess availability at June thirtyth of more than $1 billion. We're in a very strong liquidity position and we have no covenant concerns.
The company paid its 24th consecutive quarterly cash dividend and while dividends are always subject to approval by the board of directors. It is our intent to continue the dividend policy.
Let's now going into questions operator, please provide instructions for queuing section.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Ross Gilardi with Bank of America. Please go ahead.
Good morning, guys.
Morning.
Oh I just want to ask you about that.
Numbers.
Remember correctly.
When you have the call last quarter I think the bottom was you'd said with was 56%.
Well not at the time of the call you are out around it. So you ended up averaging.
59 for the.
For the quarter. So just trying to understand at the time, you just sort of stall out in May and June with.
The tickup in co bid or something else or just project uncertainty and then.
600 basis points.
Points above the top I can add but just want to make sure to them.
Using the right, Dave and ER, which would be 62% do you think that's a good run rate for the for the third quarter.
Yeah, Ross you you've got the absolute you have the you got the right context on the numbers.
You know as we sit here today, we're at approximately 63% utilized and.
Our view is that it's likely to maintain at that level going forward. It could go plus or minus.
Incrementally but.
Yes, you are thinking about it correctly.
[noise] sort of is it that you just sort of move sideways since the last call and then you've you've seen more recently a bit more of an incremental pick up a brad.
That's that's absolutely what we've seen its.
Really been in the last month, we seen some of that incremental improvement that appears at this point to kind of its stabilized and a good yes that you're spot on.
Okay, and then just on on rate either do you feel like it.
So we're still on a seasonally stronger part of the year I'm trying to put the that down 3%.
In the context, and really just trying to get out does does it get worse before it gets better and.
When you say that you're reporting now in line with some already guidelines I guess I'll admit I I didnt realize that you weren't before what is.
The main difference in how you.
[noise] quantify the rate changed versus what you used to do it if it's something that could be explained on a call like this without going into a lot of ownership.
Yes, sure I think I can give a brief explanation that would be helpful.
You know historically, we have always measured newly opened contract within their respective period of time.
In this with a entre and we've been tracking both metrics for quite some time internally and just trying to make a decision of when we converted to a already right now I think there's only one other reporting company I'm aware of who reports their rates specifically and they use they are a methodology. So we thought it was important for us to to go ahead do so.
It would be a fair comparison.
In a already methodology.
Measures the rates on contract within their respective periods. So theres a lot more within their respective calculations and we can get your data to understand it but that's the that's the broader context I think would be helpful to you.
As it pertains to rental rates going forward.
You know, we're always measured year over year. So there's some dynamics within that math, but it would appear rental rates have stabilized our larger competitors and most of our competitors.
Our remaining to be disciplined with both their rental rates and.
And there and the buying habits, so it's our view that rates.
Likely have stabilized at this point going forward, we don't have any granted expectations of big improvements, but we also don't expect any additional sharp decreases from the level we're at today.
Okay is that more of a quarterly comment broadly what do you think happens once you go into the seasonally weaker part of the year and you know what's the risk with with time, you sort of the Pico season still in the low sixtys that.
You see crushers intensify.
Once you get later into the fall.
Yeah, I think it's going to be typical pressure as we said we think visibility is limited Q3's clear a tourist in Q4 and certainly we're not in a position even talk about next year, Oh, I think there's typical pressure.
I will say I think the offset is the discipline that you see within the other sophisticated operators within the space.
Generally speaking no one's buying inventory and they're selling off and tried to rightsize their fleet for the environment that we're all participating in and I think that those underlying behaviors will lead to additional stability, but we are in a seasonal business and generally Q4's little more difficult than Q3 in.
You know we saw some slight declines in rates in Q4, I wouldn't be surprised but I don't expect any material.
Degradation and rates going forward I think that we're in an environment, where everyone understands we just like focused and be discipline and we'll all benefit from that.
Okay, great. Thanks, very much goes up that's not.
Thank you.
Your next question is from Seth Weber with RBC capital markets. Please go ahead.
Hey, guys good morning.
Hi, guys doing well.
Right.
Maybe for lastly, just you know as generic came in well below what we are looking for can you just talk to.
The permanent so some of these cuts if it volume if and when volume comes back you know will the majority of those cuts come back I mean, I understand some of its commissions. So there's some some portion of that but.
How much of these cuts or how would you say structural it sounds like you've been working on some.
You know some programs and stuff. So you know as the cost structure does.
Better going forward. Thanks.
Right, So hey, SASSA something to the cuts we I mentioned in my prepared comments, where head count related so you know.
Our expectation with me on day count.
Reductions would not return as business returns.
Said that would be one one thing that I would point to yeah. We have seen some kobe related reductions that I would point to that like let's just say our benefits for example, a health claim those were lower in the quarter some of those would be related to.
Delayed procedures, and we would expect potentially that timing to come back and it's difficult to project that timing as to when print procedures return to normal and claims may.
Pick back up but.
That's just one of those I now hand.
So if you know bonuses and commissions they sort of things are going to ebb and flow with revenues, obviously the topline as you referred to that the head count reductions as I stated.
Our reductions that we don't expect a return at this time.
Yes, I'd also add that that cost like travel right. I mean, our focus is generally are not traveling if they're not getting in a car and driving to a location. We're not putting people on airplanes were not staying in hotel rooms.
We're not renting cars.
In my prepared statements I talked about we did a restructure right. This has been plan for quite sometime.
You know our company exception, where you've seen us fill in our geography.
Really over the last decade, and it was time for us to kind of restructure our management to cover tighter areas with districts within our regions and so we've done. So so a piece of that travel expense reduction is absolutely going to stick, we're gonna be more efficient and more effective.
Yeah, some of its going to come back I don't think we're prepared to.
Really context, what percent, but I can tell you every time, we face a recessionary or more difficult period of time, we've come out the other side healthier smarter and better in the same will hold true here and it will be reflected in our history nay going forward at some level.
Right. Okay. Thanks that makes sense and then you know Brad just a follow up.
Your Capex fleet size do you think or thinking about the fleet being down a couple of percent couple 3% or so this year is the right way to think about it I mean, you referenced sort of industry, capex discipline, which which we agree with so.
Is that a fair kind of Directionally way to think about the fleet size for this year down low to mid single digits.
I think I think thinking about the full year, it's probably more mid to upper single digit.
Fleet decline for us, we're going to we're going to err on the more conservative side hope to push utilization maybe get some some more positive impact from right given the opportunity, but I think were more in the mid to upper single digit.
<unk> decreased for the years, how we're thinking about right now.
Okay. I appreciate guys. Thank you very much.
All right. So thank you.
Your next question is from Stanley Elliott with Stifel. Please go ahead.
Hi, Good morning, everybody. Thank you for taking the question and a nice to hear of one forces.
In terms of the fleet piece I thought it was interesting the move to open the branch how youre thinking about Greenfielding <unk> in this environment. It seems like it would be a pretty cost effective way to to ideally bring up utilization of the fleet sense, Yeah, we're kind of it in some some uncertain times right now.
Yes, good question and.
Generally we would agree.
That that said.
You know we slowed our pace somewhat I mean, we opened a location in the metropolitan Los Angeles marketplace tremendous marketplace, we're going to do very well even under the current circumstances I really believe that.
Our anticipation is that will be one or two more a warm starts this year Greenfield war starts this year, a and then we'll make an evaluation of how aggressive we want to be a I think there's a lot of truth to what you just implied and our our anticipation will be more around the timing of capitalizing on that and so as we.
I want to get more clarity, we will likely become more aggressive with with starts but we've got the one we've announced got another on deck and likely a third will occur before there's the year.
Perfect. Yeah, I think that's a great move, especially given your.
Fleet age.
On the new equipment sales I mean, the numbers are were pretty big it was there anything that happened within the crane business being down 44% like a difficult comp or is that just the environment and people concerned about larger capital purchases.
It's it's the difficult environment, you know cranes are broadly driven by energy energy is certainly dominated by oil all aspects of oil upstream midstream and downstream or really difficult right now the industrial sector is certainly being more impacted in the commercial nonres that were heavily weighted to.
And that's having a direct impact on growing sales and will likely continue to for.
The balance of the year at least.
And lastly from me you any your discussions around larger project cancellations or do you think most of these are being more deferred right now I'd be curious to see if there's anything a what's your customers are saying about backlogs of opportunities going forward, even though I'd you know the timing of all this is completely fluid.
<unk>.
Yeah.
So it's there's a mixed bag I mean, we've had absolute from cancellations.
Kind of column indefinite postponements I'm sure. Some of these projects will occur, but they're not months at this point in time, there they're more long dated we've certainly seen more positive than we have cancellations, but I would tell you we seen both and the largest cancellations we've seen have been in the industrial sector.
Not not so much again in that commercial nonres sector.
Perfect guys. Thank you very much appreciate the time.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Steven Fisher with you Yes. Please go ahead.
Thanks, Good morning, guys I've just wanted to a follow up on that last question wondering Brad if you could.
Well elaborate on some of the encouraging signs that you're seeing you did say stabilizing utilization and rates, but sort of curious that the flow of business. What are the other if there are any other encouraging signs that you're seeing it did talk about bad it just to kind of juxtapose that with.
Some of the deferrals and causing cancellations you're seeing.
Sure well.
Stephen I tell you the optimism of our average branch locations is is really amazing in the face of where we are I mean, there are certain geography certain regions that are more positive and more bullish.
Now we've actually got a could you know we've got a couple of years the company their utilizations every bit as strong as it was a year ago, and then and then isolated cases slightly better than a year ago. If you could believe that but it's true and so for those folks they've had less generally speaking they've had less impacted rates and they see a lot of opportunity coming.
Now as it I think there to other elements that they that caused us to be optimistic in one of them. We've hit on it we've all talked about it and unfortunately the manufacturers are taken many orders right now because there's a lot of discipline, where people focused on achieving solid returns before they're going to invest and grow their fleets that that's a positive for our business.
Secondarily, I think there some smaller operators out there who likely won't whether these conditions very well and within that last some opportunity for us to grow our positions within these respective markets and we're paying attention and looking for those opportunities on a go forward basis, but you know our average sales rep. Our average branch manager would tell you.
That their business today is not reflective of what they believe their future opportunity is and it's nice to hear that those positive sentiment that being said, we're going to continue as we always do to manage our business in a conservative when appropriate way, but there is some shiny spots out there.
What are the better geography, but you're seeing.
Hi.
I would prefer not to get into what those geographies, our I will say that I.
I can tell you that the Gulf coast has been a little bit more impacted primarily because of oil and industrial.
And some of our other geographies or meaningfully better than where they're not performance in those in those geographies today.
Okay, and just a couple of quick clarifications did I hear you say that earthmoving sales were up over 40%.
That's correct. They were yeah, I think it was six or $7 million.
So I think $6.5 million up year over year, 42.4%.
A bear in mind you know.
The vast majority of our earthmoving sales come from a few states where were komatsu distributor there earthmoving sales in other areas as well, but thats been where we've had a more positive impact with the komatsu quality their marketing campaigns and the resilience of our Salesforce.
Okay. So sounds like some lumpiness there and then was there any particular mix change that you've seen recently in terms of daily or weekly or monthly that maybe affecting any of the trends.
No no not nothing noteworthy.
Okay. Thanks, a lot.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brad Barbara for any closing remarks.
Sure I'd like to thank everyone for participating on today's second quarter earnings call. We look forward to updating this group again.
After the end of the third quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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[music].
Good morning, and welcome to each of the equipment services second quarter 2020 earnings Conference call.
Today's call is being recorded.
At this time I would like to turn the call over to Mr. cabin and Vice President of Investor Relations. Please go ahead Sir.
Thank you Gary and welcome to each new equipment services Conference call to review the company whose results.
Second quarter ended June Thirtyth.
2020, which were released earlier this morning.
The format for todays call include the slide presentation, which is posted on our website at www Dot Eightci dash equipment Dot com.
Please proceed to slide two conducting the call date will be John Engquist Executive Chairman of board of directors.
Brad Barber, Chief Executive Officer, <unk>, Muslim Magee, Chief Financial Officer and Secretary.
So please proceed to slide three during today's call will for certain non-GAAP financial measures and we reconciled these measures to GAAP figures in our earnings release and in the appendix to this presentation each of which is available on our website.
Are we start off with 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 make could believe expect anticipate.
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 most contained and they were looking statements.
Some of these uncertainties as included in the Safe Harbor statement contained in the company slide presentation for today's call.
And also includes the risks described in the risk factors in the company's most recent annual report on form 10-K, and other periodic reports 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 I would that stated on I'll turn the call over to Brad Barb.
Thank you Kevin and good morning, everyone welcome to actually equipment services second quarter 2020 earnings call.
On the call me today or John at West Executive Chairman, Leslie Magee, our Chief Financial Officer, and Kevin and our Vice President Investor Relations.
Slide four please.
I will briefly discuss our second quarter performance and Leslie will review our financial results for the quarter in more detail. After we will take your questions.
Slide six please.
Beginning in March we incurred a significant impact in our business due to cope with 19. This said I'm pleased with the results of the actions. We took during the quarter. These include at Rightsizing all areas of our business, most specifically with inventory and head count reductions.
These focus areas will assist us a continuing to maximize our performance throughout the balance of the year our utilization on the rental business bottomed in April which subsequently improved its stabilized in the following months.
Recent trends in our rental business are encouraging as physical utilization is currently running approximately 600 basis points above the trough in April.
We're focused on managing our balance sheet and maintaining the appropriate site rental fleet and inventories in the current environment. We plan to continue with Rightsizing, our rental fleet by focusing on our oldest and lease productive assets for removal.
On a year to date basis, Besides our rental fleet was down 2.9% or 55.7 million in the inventories are down 7% or sixmillion.
We continue to remain solid liquidity further strengthening our balance sheet and generated 121.1 million in free cash flow during the second quarter.
Lastly will detail asking in a further but we successfully reduced our operating cost with headcount reductions year to date of approximately 9%. We've also undergoing an organizational restructuring that has been in our future plans, which provide at wage and salary savings scalability and a reduction in the amount of required travel for regional and senior.
Management teams given the current environment, we accelerated such plan for restructuring and already reaping some of the expected cost save.
In terms of our second quarter financial results total revenues declined 16.6% from a year ago.
Well work continued in our end user rental market. Some projects were paused delayed or canceled demand for rental equipment decline and rental revenues decreased 19% compared to last year as expected we experienced pressure all both physical utilization and rates utilization was 59.5% down from 70.
1.2% a year ago.
And based on the air a guidelines our rental rates decreased by 2.8% from a year ago. Beginning this quarter, we're reporting our rental rate changes in accordance with a already guidelines for consistency.
New equipment sales were down 18% for the balance of this year. We expect this continued we expect continued unpredictability for this segment.
Given the ongoing turmoil in the energy markets, let me remind everyone that our exposure to oil and gas remains low at 5% of our total revenues on a last 12 month basis.
We opened one new branch this quarter and lock in the Los Angeles Metropolitan area.
While the trends while the current trends are encouraging compared to what we experienced during the second quarter. We believe headwinds related to cobot 19 will persist through the balance of this year there is still tremendous uncertainty.
Regarding the cadence of economic recovery, including the outlook for non residential construction markets.
Despite these headwinds and ongoing uncertainty, we're working very hard to generate returns for our shareholders and this evolving environment.
I'll now turn the call over the last week to discuss our second quarter financial results in more detail lastly.
Good morning, everyone and thank you Brad Let's proceed to slide 11 for more details of our financial results.
Our total revenue decreased 16.6% or 55.3 million to 278.3 million compared to the same period a year ago. He had a challenging market conditions as Brad Scott.
Rental revenues decreased 19% 148.9 billion EUR 173.8 million a year ago, our average time utilization based on elysee decreased to 59.5% for the quarter compared to 71.2% a year ago aside the barclay decreased by 2.3.
Percent 43.8 million compared with the prior year comparable period.
Rental rates this quarter declined 2.8% year over year and rates also decreased 2.8% sequentially.
As a result of lower physical utilization IRI dollar returns declined 690 basis point, 29.6% versus last year.
New equipment sales exceeded our expectations during the second quarter, all day decrease in 18% or 9.6 million to 43.9 million compared to 53.6 million last year. The decline was primarily the result of a 44% or 11.29 decline in Ukraine.
Okay and declines in all other categories, except our navy, which increased 42.4% or 6.4 million.
Used equipment sales decreased 5.9% EUR 2.1 million to 34 million decreasing in all product lines, except Earth meeting, which increased 1.8 million or 13.4% and used other equipment, which increased 1 million.
Sales from our rental fleet comprised 90.3% of total used equipment sales this quarter compared to 92.4% year again.
Our parts and service segments generated 41.99 revenue on a combined basis down 13.8% from year ago.
Let's now move on to gross profit and margin.
Gross profit decreased 26.2% to 92.1 million from a year ago, and our consolidated margins were 33.1% compared to 37.4% a year ago, primarily because of its significantly lower rental gross margin and lower used equipment margins.
For gross margin detail by segment, our rental gross margins were 41.5% during the quarter compared to 49.1% a year ago were impacted by pressure on rates and account and a decline in time utilization to 59.5% this quarter I'm, 71.2% a year ago.
Margins on new equipment sales decreased to 10.7% during the second quarter compared to 12.2%.
A year ago, largely due to decreased nice product line.
Used equipment sales gross margin decreased to 31.6% from 35.4% last year, primarily due to mix as well as lower margin in all product lines.
Margins on pure rental play down we sales were 34.7% compared to 37.8% a year ago in parts and service gross margins on a combined basis increased to 41.4% compared to 41% a year ago.
Slide 12 please.
Income from operations for the second quarter of 2020 decreased 43.4% to 27 million or 9.7% of revenues compared to 47.79 of 14.3% of revenues in the prior year period. These declines in income from operations in margin or primarily.
Result, at a 16.6% declining revenues lower gross margins and our primary business segment and higher SDMA as a percentage of revenue.
Discussed FC Nay in more detail on a few spot, but it is worth noting here the FCC nay cost declined 12.8% year over year, However, with revenues declining more sharply at 16.6% in this challenging environment.
DNA increased as a percentage of revenues in the second quarter in comparison to a year ago.
Partially offsetting these negative impacts to income from operations will have more higher gains on sales of property and equipment.
Proceed to slide 13.
Net income was 8.8 million or 24 cents per diluted share the second quarter of 2020 compared to net income of 22.6 million or 63 cents per diluted share in the second quarter 2019 effective income tax rate was 26.9% in the second quarter of 2020 compared to 26.8.
A year ago.
Please move to slide 14.
Adjusted EBITDA with 95.39 in second quarter compared to 118, nine a year ago, a decrease of 19.3% adjusted EBITDA margins declined 120 basis points to 34.2% this quarter compared to a year ago, primarily due to lower margins. It may business segment higher.
DNA costs as a percentage of revenue.
And revenue mix.
Partially offsetting these results were higher gains on sales of property and equipment.
Next on slide 15.
As DNA expenses for the second quarter of 2020 were 67.9 million compared with 77.8 million for the prior year and 9.9 million or 12.8% decrease SDMA expenses in the second quarter of 2020, as a percentage or total revenues were 24.4% compared to 23 point.
3%, a year ago employee salaries wages payroll taxes employee benefit costs and other employee related expenses decreased 9.9 million, primarily as a result of lower commissions and incentive pay combined with head count reductions and reduced employee hours in response to kind of a 19 impact our business.
Promotional expenses decreased 1 million and supply decreased 800000.
Offsetting this decrease was at 2 million dollar increase in excess liability insurance.
Expenses related to Greenfield branch expansion increased 1 million compared to a year ago.
Next on slide 16.
On this slide you'll find fleet capex and cash flow for the six month period, ending June Thirtyth and our growth fleet Capex in the second quarter was 41.4 million, including non cash transfers from inventory our gross capex was down approximately 70.1% compared to second quarter, a year ago net rental fleet.
Capex for the quarter was only 10.7 million grasp any capex for the quarter was 3.4 million a net was and negative point 1 million. Our average fleet age as of June Thirtyth was 39.1 month.
Our free cash flow for the second quarter of 2020, with 121.1 million compared to use a 6.9 million a year ago. The increase in free cash flow was largely due to lower net fleet investment this year.
Next on slide 17.
We ended the second quarter the size of our rental fleet based on a we see with 1.9 billion at 2.3% of $43.8 million decrease from a year ago average dollar utilization was 29.6% compared to 36.5% a year ago, reflecting lower timing realization and rate.
Proceed to slide 19 please.
Lastly, we have a strong balance sheet with ample liquidity and no near term maturities at ended the second quarter that outstanding balance under the amended ABL facility was 67.6 million and is down 149.3 million since December 31st of last year, We had 674.7 million.
One of cash borrowing availability at quarter end, which is net of 7.7 million outstanding letters of credit our excess availability exceeded 1 billion and is the measurement used to determine if our spring fixed charge coverage.
Clickable.
Our senior secured credit agreement requires $75 million of excess availability before this covenant with spraying therefore with excess availability at June thirtyth of more than $1 billion. We're in a very strong liquidity position and we have no covenant concerns.
The company paid its 24th consecutive quarterly cash dividend and while dividends are always subject to approval by the board of directors. It is our intent to continue the dividend policy.
Let's now going into questions operator, please provide instructions for queuing section.
We'll now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Ross Gilardi with Bank of America. Please go ahead.
Good morning, guys.
Good morning.
I just wanted to ask you about that.
Numbers.
Remember correctly.
When you have the call last quarter I gave the bottom was you'd said with was at 56%.
On that at the time of the call you are at around.
So you ended up averaging.
59 for the.
The quarter. So just trying to understand at the time, you just sort of stall out in May and June with.
The tickup in co bid or something else or just project uncertainty and then.
The 600 basis.
Points above the top I can add but just want to make sure to them.
Using the right base and.
Which would be 62% do you think thats a good run rate for the for the third quarter.
Yeah, Ross you you've got the absolutely you have to you got the right context on the numbers.
As we sit here today, where at approximately 63% utilized in our view is that it's likely to maintain at that level going forward. It could go plus or minus.
Incrementally but.
Yes, you are thinking about it correctly.
So is it that you just sort of move sideways from the last call and then you've seen more recently a bit more of an incremental pick up Brad.
That's absolutely what we've seen its.
Really been in the last month, we've seen some of that incremental improvement that appears at this point to kind of its stabilized and.
But yes that you're spot on.
Okay, and then just on on rate do you feel like it.
We're still on a seasonally stronger part of the year I'm trying to put the that down 3%.
In the context, and really just trying to get out does does it get worse before it gets better and.
When you say that you're reporting now in line with.
Alright guidelines like I guess I'll admit I I didn't realize that you weren't before what is the the main difference in how you.
Quantified the rate change versus what you used to do it if it's something that could be explained on the call like this without going into a lot of minutia.
Yes, sure I think I can give a brief explanation that was helpful.
Historically, we have always measured newly opened contract within their respective period of time.
And this with a entre and we've been tracking both metrics for quite some time internally and just trying to make a decision when we converted to alright right now I think there's only one other reporting company I'm aware of who reports their rates specifically and they use a are a methodology. So we thought it was important for us to to go ahead and do so.
It would be a fair comparison.
In a already methodology.
Measures the rates on contract within their respective periods. So theres a lot more within their respective calculations and we can get your data to understand it but that's the that's the broader context I think would be helpful too.
As it pertains to rental rates going forward.
We're always measured year over year. So there's some dynamics within that math, but it would appear rental rates have stabilized our larger competitors and most of our competitors.
The remaining to be disciplined with both their rental rates.
And the buying habits, so it's our view that rates.
Likely have stabilized at this point going forward, we don't have any grand expectations of big improvements, but we also don't expect any additional sharp decreases from the level we're at today.
Okay is that more of a quarterly comment broadly what do you think happens once you go into the seasonally weaker part of the year and what's the risk with with time, you sort of the peak season still in the low sixtys that.
You see crushers intensify.
Once you get later into the fall.
Yeah, I think it's going to be typical pressure as we said we think visibility is limited.
Q3's, Clara tourists than Q4, and certainly we're not in a position even talk about next year.
I think this typical pressure.
I will say I think to offset is the discipline that you see within the other sophisticated operators within the space.
Generally speaking no one's buying inventory and they're selling off and tried to rightsize their fleet for the environment that we're all participating in and I think those underlying behaviors will lead to additional stability, but we are in a seasonal business and generally Q4's little more difficult than Q3 and.
We saw some slight declines in rates in Q4, I wouldn't be surprised but I don't expect any material.
Degradation and rates going forward I think that we're in an environment, where everyone understands we just like focused than be discipline and will also benefit from that.
Okay, great. Thanks, very much guys I'll pass not.
Thank you.
The next question is from Seth Weber with RBC capital markets. Please go ahead.
Hey, guys. Good morning, I Hope you guys doing well.
Maybe for lastly, just.
SJ came in well below what we are looking for can you just talk too.
The permanent so some of these cuts if volume if and when volume comes back.
Will the majority of those cuts come back I mean, I understand some of its commissions. So there's some some portion of that but.
How much of the cuts or how would you say structural it sounds like you've been working on some.
You know some programs and stuff. So you know as the cost structure does.
Better going forward. Thanks.
Right, So hey faster some of the because we had mentioned in my prepared comments, where head count related so you know.
Our expectation with naval head count.
Reductions would not return as business returns.
So with that would be one one thing that I would point to.
We have seen.
Kobe related reductions that I would point to that like let's just say our benefits for example, a health claim those were lower in the quarter.
Some of those would be related to.
Delayed procedures, and we would expect potentially that timing to come back and it's difficult to project that timing as to when print procedures returned to normal and claims may.
Pick back up but.
That's just one of those I NAND.
[music].
So if you know bonuses and commissions, so sort of things are going to ebb and flow with revenues, obviously the topline as you referred to that the head count reductions as I stated.
Our reductions that we don't expect to return at this time so.
Yes, I'd also add that that cost like travel right I mean, our folks just generally are not traveling and they're not getting in the current driving to a location, we're not putting people on airplanes were not staying in hotel rooms.
We're not renting cars.
In my prepared statements I talked about we did a restructure right. This has been plan for quite sometime.
You know our company et cetera, well, you've seen us fill in our geography.
Really over the last decade, and it was time for us to kind of restructure our management to cover tighter areas with districts within our regions and so we've done. So so a piece of that travel expense reduction is absolutely going to stick, we're going to be more efficient and more effective.
Some of its going to come back I don't think we're prepared to.
Really context, what per se, but I can tell you every time, we face a recessionary or more difficult period of time, we've come out the other side healthier smarter and better in the same will hold true here and it will be reflected in our history nay going forward at some level.
Right. Okay. Thanks that makes sense and then you know Brad just a follow up.
Your Capex fleet size do you think thinking about the fleet being down a couple of percent couple 3% or so this year is the right way to think about it I mean, you referenced sort of industry, capex discipline, which which we agree with it.
Is that a fair kind of Directionally way to think about the fleet size for this year down low to mid single digits.
I think I think thinking about the full year, it's probably more.
Mid to upper single digit.
Fleet decline for us, we're going to we're going to err on the more conservative side hope to push utilization maybe get some some more positive impact from right given the opportunity, but I think were more in the mid to upper single digit.
Fleet decrease for the years, how we're thinking about right now.
Okay. I appreciate guys. Thank you very much.
Thank you.
The next question is from Stanley Elliott with Stifel. Please go ahead.
Hey, good morning, everybody. Thank you for taking the question and nice to hear of once voices.
In terms of the fleet piece I thought it was interesting the move to open the branch how youre thinking about greenfielding cut in this environment. It seems like it would be a pretty cost effective way to to ideally bring up utilization of the fleet sense.
We're kind of it and some some uncertain times right now.
Yes, good good question and.
Generally we would agree.
That that said.
You know we slowed our pace somewhat I mean, we opened a location in the metropolitan Los Angeles marketplace tremendous marketplace, we're going to do very well even under the current circumstances I really believe that.
Our anticipation is that will be one or two more a warm starts this year Greenfield war starts this year.
And then we'll make an evaluation of how aggressive we want to be.
I think there's a lot of true to what you just implied and our our anticipation will be more around the timing of capitalizing on that and so as we start to get more clarity, we will likely become more aggressive with with starts but we've got the one we've announced got another on deck and likely a third will occur before there was a year.
Perfect. Yeah, I think that's a great move, especially given your.
Young fleet age.
On the new equipment sales I mean, the numbers are were pretty big it was there anything that happened within the crane business being down 44% like a difficult comp or is that just the environment and people concerned about larger capital purchases.
It's the difficult environment.
Cranes are broadly driven by energy energy is certainly dominated by oil all aspects of oil upstream midstream and downstream or really difficult right now the industrial sector is certainly being more impacted in the commercial nonres that were heavily weighted to and that's having a direct impact on growing sales.
And will likely continue to for.
The balance of the year at least.
And lastly from me you any.
Your discussions around larger project cancellations or do you think most of these are being more deferred right now I'd be curious to see if theres anything what's your customers are saying about backlogs of opportunities going forward, even though.
The timing of all this is completely fluid.
Yes.
So it's there's a mixed bag I mean, we've had absolute from cancellations.
Kind of column indefinite postponements I'm sure. Some of these projects will occur, but they're not months at this point in time, there they're more long dated.
We've certainly seen more positive than we have cancellations, but I would tell you we seen both and the largest cancellations we've seen have been in the industrial sector.
Not not so much again in that commercial nonres sector.
Perfect guys. Thank you very much appreciate the time.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Steven Fisher with you Yes. Please go ahead.
Thanks, Good morning, guys I've just wanted to a follow up on that last question wondering Brad if you could.
Elaborate on some of the encouraging signs that you're seeing you did say stabilizing utilization and rates, but sort of curious that.
The flow of business what are the other if there are any other encouraging signs that you're seeing it did talk about that is just to kind of juxtapose that with some of the deferrals and causes and cancellations you're seeing.
Sure well.
Stephen I tell you the optimism of our average branch locations is.
Is really amazing in the face of where we are I mean, there are certain geographies certain regions that are more positive and more bullish.
We've actually got.
We've got a couple of years the company there the utilizations every bit as strong as it was a year ago in and then isolated cases slightly better than a year ago. If you can believe that but it's true and so for those folks they've had less generally speaking they've had less impacted rate and they see a lot of opportunity coming now as I think there to other elements.
That that caused us to be optimistic and one of them. We've hit on it we've all talked about it and unfortunately the manufacturers are taken many orders right now because there's a lot of disciplined where people focused on achieving solid returns before they're going to invest in grow their fleets that that's a positive for our business.
Secondarily, I think theres, some smaller operators out there who likely won't whether these conditions very well and within that last some opportunity for us to grow our positions within these respective markets and we're paying attention and looking for those opportunities on a go forward basis, but.
Our average sales Rep. Our average branch manager would tell you that their business today is not reflective of what they believe their future opportunity is and it's nice to hear that those positive sentiment that being said, we're going to continue as we always do to manage our business in a conservative an appropriate way, but there is some shaddix.
Thats out there.
What are the better geographies that you're seeing.
Hi.
Yes.
I would prefer not to get into what those geographies, our I will say that.
I can tell you that the Gulf coast has been a little bit more impacted primarily because of oil and industrial.
And some of our other geographies or meaningfully better than we're not performance in those in those geographies today.
Okay, and just a couple of quick clarifications.
Did I hear you say that.
Moving sales were up over 40%.
Thats correct they were I.
I think it was six or $7 million.
So I think $6.5 million up year over year, 42.4%.
Bear in mind.
The vast majority of our earthmoving sales come from a few states where were komatsu distributor there earthmoving sales and other areas as well, but thats been where we've had a more positive impact with the komatsu quality their marketing campaigns and the resilience of our Salesforce.
Okay. So sounds like some lumpiness there and then was there any particular mix change that you've seen recently in terms of daily weekly or monthly that may be affecting any of the trends.
No no not nothing noteworthy.
Okay. Thanks, a lot.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brad Barbara for any closing remarks.
I'd like to thank everyone for participating on today's second quarter earnings call look forward to.
Updating this group again.
After then third quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.