Q4 2023 H&E Equipment Services Inc Earnings Call

Operator: Good morning, and welcome to H&E Equipment Services' fourth quarter 2023 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jeff Chastain, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to H any equipment services fourth quarter 2023 earnings conference call.

Today's call is being recorded.

At this time I would like to turn the call over to Mr. Jeff testing Vice President of Investor Relations. Please go ahead.

Jeffrey L. Chastain: Good morning and welcome to a review of our financial performance for the fourth quarter and full year of 2023. Your participation on today's call is appreciated, and we thank you for your interest in H&E. A press release was issued earlier today providing a detailed review of our results and can be found, along with all supporting statements and schedules, on the H&E website, www.he-equipment.com. A slide presentation will accompany today's discussion and is also posted on our website under the Investor Relations tab in Events and Presentations. Joining me this morning are Brad Barber, Chief Executive Officer; John Inquist, President and Chief Operating Officer; and Leslie Magee, Chief Financial Officer and Corporate Secretary. Brad will begin this morning's review, but before I turn the call over to him, please proceed to slide 3, as I remind you that today's 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.

Good morning, and welcome to a review of our financial performance over the fourth quarter and full year of 2023.

Your participation on today's call is appreciated when we thank you for your interest in <unk>.

Our press release was issued earlier today, providing a detailed review of our results and can be found along with all supporting statements and schedules on the <unk> website, www dot HD dash equipment Dot com.

Slide presentation will accompany today's discussion and is also posted on our website under the Investor relations tab events and presentations.

Joining me. This morning are Brad Barber, Chief Executive Officer, John Engquist, President and Chief operating Officer, and Leslie Magee, Chief Financial Officer, and corporate Secretary.

Brad will begin this morning, as we review, but before I turn the call over to him. Please proceed to slide three as I remind you that today's call contains forward looking statements within the meaning of the federal securities laws statements about our beliefs and expectations and statements containing words such as May.

Could believe expect anticipate and similar expressions constitute forward looking statements forward looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward looking statements are summer.

Jeffrey L. Chastain: Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. A summary of these uncertainties is included in the Safe Harbor Statement contained in the company's slide presentation for today's call and includes the risks described in the risk factors in the company's 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. Also, we are referencing non-GAAP financial measures during today's call. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation as supporting schedules to our press release and in the accompanying materials to today's presentation materials. That completes our preliminary details, so I'll now turn the call over to Brad Barber, Chief Executive Officer of H&E Equipment Services. Thank you, Jeff.

Any of these uncertainties is included in the Safe Harbor statement contained in the company's slide presentation for today's call and include the risks described in the risk factors in the company's annual report on Form 10-K, and other periodic reports investors potential investors and other listeners are.

Urge to consider these factors carefully in evaluating the forward looking statements.

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.

Also we are referencing non-GAAP financial measures during today's call you will find a required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation supporting schedules to our press release and in the attendance.

Today's presentation materials.

That completes our preliminary detail. So I'll now turn the call over to Brad Barber, Chief Executive Officer of <unk> equipment services.

Bradley W. Barber: Good morning and welcome to our review of fourth quarter and full year 2023 financial results. We appreciate your participation on today's call. Proceed to slide four.

Thank you Jeff Good morning, welcome to our review of fourth quarter and full year 2023 financial results. We appreciate your participation on today's call.

Proceed to slide four.

Bradley W. Barber: We close 2023 in strong fashion with results in the fourth quarter supported by an active construction market and sound industry fundamentals, which included further rental rate appreciation. We recognize outstanding execution in our equipment rental segment and achieve record margins on the sale of rental equipment. At a strategic level, we demonstrated further progress towards fleet growth and branch expansion objectives, resulting in record achievement in 2023. I'll provide more details on these important elements of our fourth quarter performance, beginning with a review of key financial metrics, followed by a review of rental operations, and our strategic accomplishments for the quarter and the year. Before I close, I'll review some industry developments that are expected to provide fundamental support in 2024, contributing to our optimistic outlook. 5-6, please.

We closed 2023 in strong fashion with results in the fourth quarter supported by active construction market and some industry fundamentals, which included further rental rate appreciation, we recognize outstanding execution and our equipment rental segment and achieved record margins on the sale of our own equipment.

At a strategic level, we demonstrated further progress towards fleet growth and branch expansion objectives, resulting in record achievement in 2023.

I'll provide more details on these important elements of our fourth quarter performance beginning with a review of key financial metrics, followed by a review of rental operations and our strategic accomplishments for the quarter and the year before I close I'll review some industry developments that are expected to provide fundamental support in 2024.

Contributing to our optimistic outlook.

Slide six please.

Yeah.

Bradley W. Barber: When compared to the year-ago quarter, total revenues in the fourth quarter of 2023 increased 9.3%, with strong support from total equipment rental revenues and sales of rental equipment. Revenues from our equipment rental business segment improved 14.9% in the quarter, with the increase due partly to further gains in rental rates, which demonstrated sequential quarterly improvement throughout the year and continued to build on an average rental rate decrease of 9.3% achieved in 2022. Also, we recognize an 18.3% year-over-year increase in our original fleet equipment costs, representing another important catalyst for growth in rental equipment revenues in the quarter and for the year. I have more to say on that quarterly rate improvement and our fleet growth in a moment. Revenues from the sale of rental equipment increased 34.3% in the quarter as we continue to execute an effective fleet management strategy while capitalizing on persistent strength in the market for used rental equipment.

When compared to the year ago quarter total revenues in the fourth quarter of 2023 increased nine 3% with strong support from total equipment rental revenues and sales of rental equipment.

Revenues from our equipment rental business segment improved 14, 9% in the quarter with the increase due partly to further gains in rental rates, which demonstrates sequential quarterly improvement throughout the year and contributed and continued to build on average rental rate accretion of nine 3% achieved in 2022.

Also we recognized an 18, 3% year over year increase in our original fleet equipment cost representing another important catalyst for growth for rental equipment revenues in the quarter and for the year.

Have more to say on that quarterly rate improvement in our fleet growth in a moment.

Revenues from the sale of rental equipment increased 34, 3% in the core as we continue to execute an effective fleet management strategy, while capitalizing on persistent stress in the market for used rental equipment.

Bradley W. Barber: Our sale of real equipment achieved a record margin of 66% in the quarter. Finally, adjusted EBITDA for the quarter was up 6.5% with margins of 48%. Your re-improvement of the quarterly measures was partially concealed by a $15.4 million pre-tax gain included in the year-ago results. The gain followed the sale of our Komatsu Earthmoving distribution business, which was the final step in completing our exit from distribution activity. Leslie will provide greater clarity on this matter during her review. 573.

Our sale of a real equipment achieved a record margin of 66% in the quarter.

Finally, adjusted EBITDA before was up six 5% with margins of 48%.

Year over year improvement in the quarterly managers were partially conceal about $15 4 million pre tax gain included in the year ago results.

The gain following the sale of our commodity earthmoving distribution business, which was the final step in completing our exit from distribution activities. Lastly, we'll provide greater clarity on this matter during her review.

Slide seven please.

Bradley W. Barber: Turning now to our rental performance, revenues in the quarter improved 14.5% compared to the year-ago quarter, while gross margins increased 110 basis points to 54.2% over the same period of comparison. Our performance was supported by the favorable rental rate environment, with consistent annual cumulative improvement continuing to serve as a meaningful component for growth. Rates in the quarter were 3.8% ahead of the fourth quarter in 2022 and 0.8% better on a sequential quarterly basis. For the year, rental rates posted a year-over-year average improvement of 5.6%, adding to an average improvement of 9.3% in 2022.

Turning now to our rail performance revenues in the quarter improved 14, 5% compared to the year ago quarter, while gross margins increased 110 basis points to 54, 2% over the same period of comparison.

Our performance was supported by the favorable rental rate environment with consistent annual cumulative improvement continuing to serve as a meaningful component for growth.

In the quarter were three 8% ahead of the fourth quarter in 2022.

8% better on a sequential quarterly basis.

For the year rental rates posted a year over year average improvement of five 6%, adding to the average improvement of nine 3% in 2022.

Bradley W. Barber: Strong revenue support was also realized through growth and expansion efforts. As I mentioned earlier, we grew our rental fleet by 18.3%, or $432.6 million, on a year-over-year basis. Also, we added a record number of new branch locations through the combination of our Warm Start program and a strategic acquisition. I'll expand my discussion on strategic accomplishments in a moment. Physical fleet utilization averaged 68.4% in the quarter, with the 360 basis point decline largely a function of further normalization of utilization in 2023 compared to the unsustainable measures during 2022.

Strong revenue support was also realized through growth and expansion efforts.

As I mentioned earlier, we grew our rental fleet 18, 3% or $432 6 million on a year over year basis.

Also we added a record number of new branch locations through the combination of our warm start program and a strategic acquisition.

Expand my discussion of our strategic accomplishments in a moment.

Physical fleet utilization averaged 68, 4% in the quarter with 360 basis point decline largely a function of further normalization of utilization in 2023 compared to the sustainable measured during 2022.

Bradley W. Barber: Finally, dollar utilization in the fourth quarter was 40.3% compared to 41.9% in the fourth quarter of 2022. Support from higher rental rates in the quarter was offset by a decline in physical utilization and a modest headwind from our record expansion. I now want to provide a more in-depth review of our strategic achievements in 2023. For the third consecutive year, H&E achieved significant fleet growth and branch expansion against our targeted initiatives. These important strategic objectives support our broader plan of transitioning to a pure play rental focus, which began in 2021 and has been completed. Our growth in the rental fleet and the addition of new branches have contributed to greater scale and increased customer engagement for our company, advancing our competitive position in the industry.

Finally dollar utilization in the fourth quarter was 43% compared to the 41, 9% in the fourth quarter of 2022.

So for from higher rental rates in the quarter was offset by the decline in physical utilization and a modest headwind from a record expansion efforts.

I now want to provide a more depth in depth review of our strategic achievements in 2023.

For the third consecutive year <unk> realized significant fleet growth in branch expansion against our targeted initiatives.

These important strategic objectives to support our broader plan of transition to a pure play real focus which began in 2021 and has been completed.

Our growth of rental fleet and the addition of new branches have contributed to greater scale and increased customer engagement for our company.

Advancing our competitive position in the industry.

Slide eight please.

Bradley W. Barber: We invested $737 million in our rental fleet during the year, exceeding the up-rent of our revised range of $650 million to $700 million. The record investment, which included $141 million in gross expenditures in the fourth quarter, resulted in the Fleet Original Equipment Cost, or OEC, of a record $2.8 billion a year, exceeding the previous year's record OEC by 18.3%.

We invested $737 million in our rental fleet during the year exceeding the upper end of our revised range of $650 million to $700 million.

The record investment, which included $141 million in gross expenditures in the fourth quarter resulted in a fleet original equipment cost or OFC of a record $2 8 billion at year end exceeded the previous year's record OECD by 18, 3%.

Bradley W. Barber: Following our investment in 2023, we have grown our fleet an estimated 58% over the trailing 36 months. During this time, we have worked to achieve an optimal fleet mix that complements our geographic and customer expansion, while maintaining one of the industry's youngest rental fleets... At the close of 2023, our average fleet age was 39.7 months, compared to an industry average of 49 months and 43.6 months at the conclusion of 2022. Also, our pace of branch expansion in 2023 was impressive. Our Accelerated Branch Expansion Program was responsible for a record 14 branch additions in the year, including three new locations in the fourth quarter. The branch additions establish greater density throughout our geographic footprint with increased emphasis on the Gulf Coast, Mid-Atlantic, Southeast, and Midwest regions.

Following our investment in 2023, we have grown our fleet an estimated 58% over the trailing 36 months.

During this time, we've worked to achieve an optimal fleet mix that complement our geographic and customer expansion, while maintaining one of the industry's youngest rental fleets at.

At the close of 2023, our average fleet age was $39 seven months compared to an industry average of 49 months and $43 six months at the conclusion of 2022.

Also our pace of branch expansion in 2023 was impressive.

Accelerated branch expansion program was responsible for a record 14 branch additions in the year, including three new locations in the fourth quarter the branch.

<unk> established greater density throughout our geographic footprint with increased emphasis on the Gulf Coast mid Atlantic Southeast and Midwest regions. As a result, we have increased our exposure to a growing number of construction projects.

Bradley W. Barber: As a result, we have increased our exposure to a growing number of construction projects. In addition to our branch expansion program, we accomplished further growth and improved positioning through the acquisition of an attractive and well-managed business with operations in four metropolitan statistical areas of the U.S. One transaction was closed in the fourth quarter at three locations in California, increasing the number of branches in 2023 to 17, or a 14% increase across our branch network when compared to the branch count at the end of 2022, and an impressive 41% since the beginning of 2021. Our focus on growth initiatives will be maintained in 2024, as indicated by our new growth objectives for the year, which I will turn to now. We plan to moderate our 2024 gross fleet expenditures to a range of $450 million to $500 million.

In addition to our branch expansion program, we accomplished further growth and improve positioning through the acquisition of an attractive and well managed business with operations in core Metropolitan statistical areas of the U S.

One transaction was closed in the fourth quarter at three locations in California, increasing the number of branches in 2023% to 17 or 14% increase across our branch network when compared to the branch count at the end of 2022 and impressive and an impressive 41% since the beginning of 2021.

Our focus on growth initiatives will be maintained in 2024 as indicated by our new growth objectives for the year, which I'll turn to now.

We plan to moderate our 2024 gross fleet expenditures to a range of $450 million 500 million.

Bradley W. Barber: The reduction follows our accelerated capital spending over the second half of 2023 when we elected to capitalize on improvements in equipment availability. We believe our record fleet expenditures in 2023 and young fleet age advantageously position the company to benefit from the ongoing growth in construction markets throughout 2024. Regarding our branch network, our strategic plans in 2024 will again include 12 to 15 new location openings for our branch expansion program. We've already begun our 2024 expansion with a new location in Texas added in January. In addition, branch growth could be enhanced through attractive acquisition opportunities that offer access to vibrant construction markets in the U.S., as demonstrated by our latest acquisition, which closed last month, adding one location in each Phoenix and Denver. As of today, our branch network consists of 140 branches across 30 states, including our first quarter 2024 additions from the Warm Start program and our latest acquisition. Before I turn the call over to Leslie, I want to close with some thoughts on the outlook for 2024 and why we remain optimistic about industry fundamentals. 5-9, please.

The reduction follows our accelerated capital spending over the second half of 2023, when we elected to capitalize on improvements in the equipment availability.

We believe our record fleet expenditures in 2023, and young fleet age advantageously positioned the company to benefit from the ongoing growth in construction markets throughout 2024.

Regarding our branch network, our strategic plans in 2024 will again include 12 to 15, new location openings for all of our branch expansion program.

We have already begun our 2020 for expansion with a new location in Texas added in January in addition, RASK growth could be enhanced through attractive acquisition opportunities that offer access to fiber construction markets in the U S. As demonstrated by our latest acquisition, which closed last month, adding one location in each Phoenix.

Denver.

As of today, our branch network consists of 140 branches across 30 states, including our first quarter of 2024 additions from the warm start program and our latest acquisition.

Before I turn the call over to Leslie I wanted to close with some thoughts on the outlook for 2024, and while we remain optimistic on industry fundamentals.

Slide nine please.

We believe equipment rental industry fundamentals in 2024, or so far but supported by several appealing factors. These factors include a forecast by Das construction network four 7% year over year improvement in construction starts also.

Bradley W. Barber: We believe the Equipment Rental Industry Fundamentals in 2024 are supported by several appealing facts. These factors include a forecast by Dodd's Construction Network for 7% year-over-year improvement in construction stock. Also, the continuation of healthy non-residential and industrial project backlogs as conveyed by our customers. These backlogs are expected to support our view of higher equipment demand as the year progresses. In addition, megaprojects are increasingly responsible for the expected progression of demand in 2024 and beyond. These active and planned projects represent a significant catalyst for construction across our large, expansive geography and underscore the importance of our branch expansion efforts. H&E has excellent exposure across its 30-state geographic footprint, with many of these projects residing in our Gulf Coast, Mid-Atlantic, Midwest, and Southeast regions.

I should have healthy nonresidential and industrial pipe project backlogs as conveyed by our customer base. These backlogs are expected to support our view of higher equipment demand as the year progresses.

In addition, mega projects are increasingly responsible for the expected progression of demand in 2024 and beyond these active and planned projects represent a significant catalyst of construction across our large expansive geography and underscores the importance of our branch expansion effort.

<unk> has excellent exposure across its 30 stage geographic footprint with many of these projects residing in our Gulf Coast mid Atlantic Midwest and southeast regions.

Bradley W. Barber: These four regions collectively account for 71% of our branch network. As we have noted previously, MAGA projects typically require multiple years to complete and consume large quantities of equipment for extended periods of time. Finally, we remain confident that growing rental penetration will be a steady and meaningful catalyst for increased industry growth as the attractiveness of equipment rental over ownership continues to evolve. Recently, the American Rental Association announced rental penetration will improve to 56.4% in 2023, up from 53.5% in 2022. The measure is now a mere 30 basis points below the previous pandemic high.

These four regions collectively account for 71% of our branch network.

As we have noted previously mega projects typically require multiple years to complete and consume large quantities of equipment for extended periods of time.

Finally, we remain confident that growing rental penetration will be a steady and meaningful catalyst for it increase the industry growth as the attractiveness of equipment rental over ownership continues to evolve.

Recently, the American rental Association announced we don't penetration improved to 56, 4% in 2023 up from 53, 5% in 2022, the measures now a mere 30 basis points below the previous pandemic.

Bradley W. Barber: To conclude, 2023 was another year characterized by strong and steady achievement throughout the coming year. We've set new highs across many of our key financial metrics, with the record results supported by strong pricing disadvantages. Since the end of 2020, we have achieved cumulative price improvements of 15.8%, including 5.6% in 2023. We believe our performance is best in class.

To conclude 2023 was another year characterized by strong and steady achievement throughout the company.

We set new highs across many of our key financial metrics with the record results supported by strong pricing discipline.

Since the end of 2020, we have achieved cumulative price improvements of 15, 8%, including five 6% in 2023.

We believe our performance is best in class.

Bradley W. Barber: Over the trailing 36-month period, we have successfully expanded our branch location count by an impressive 41 percent, including 17 locations added in 2023. With the start of 2024, we have demonstrated further expansion, including an acquisition that adds two locations in large and growing markets and our first warm start of the year, a new location in Texas that represents the 26th H&E branch in the state. We have reaffirmed our commitment in 2024 to further branch expansion with a target of 12 to 15 new locations during the year. Also, over the last 36 months, we've effectively demonstrated our operational capabilities as evidenced by our nearly 60% growth in our rental fleet OEC, while at the same time achieving steady growth in our margins and profitability. These accomplishments demonstrate our commitment to robust financial performance, disciplined growth, and operational excellence while leading to a stronger competitive base. 510, please.

Over the trailing 36 month period, we have successfully expanded our branch location count by an impressive 41%, including 17 locations added in 2023.

With the start of 2024, we have demonstrated further expansion included an acquisition that adds two locations in large and growing markets and our first warm start of the year, a new location in Texas that represents the 26th <unk> branch in the state we have reaffirmed our commitment in 2020 forward to further branch expansion with a target of 12.

The 15, new locations during the year.

Also over the last 36 months, we have effectively demonstrated our operational capabilities as evidenced by our nearly 60% growth of our rental fleet OCC, while at the same time, achieving steady growth in our margins and profitability.

These accomplishments demonstrate our commitment to robust financial performance disciplined growth and operational excellence, while leading to a stronger competitive base.

Slide 10, please I will now turn the call over to Leslie who will provide a review of our fourth quarter financial performance Lastly.

Leslie S. Magee: I'll now turn the call over to Leslie, who will provide a review of our fourth quarter financial performance. Thank you, Brad. Good morning, and welcome, everyone.

Thank you Brad good morning, and welcome everyone before I begin my Randy I wanted to remind you that results for the fourth quarter at 2022 included a $15 $4 million pre tax gain resulting from the Taliban Marseille earthmoving distribution density.

Leslie S. Magee: Before I begin my review, I wanted to remind you that results for the fourth quarter of 2022 included a $15.4 million pre-tax gain resulting from the sale of our Komatsu Earthmoving Distribution business. Since the transaction was consistent with our strategy to completely exit distribution activities, results for the fourth quarter of 2022 are presented with no adjustment for the gain on sale. My occasional reference to the prior year gain is intended to facilitate a more accurate basis when making a year-over-year comparison of financial performance. Let's continue, beginning with slide 11 and a review of fourth-quarter revenues, gross profit, and gross margin. 511, please.

Since the transaction was consistent with our strategy to completely exit distribution activities results for the fourth quarter of 2022 are presented with no adjustment for the gain on sale.

Hey, Jim I'll reference to the prior year and is intended to facilitate a more accurate basis, we maybe in a year over year comparison financial performance.

Let's continue beginning with slide 11, and then review our fourth quarter revenues gross profit margin final laughing.

Leslie S. Magee: Total revenues in the fourth quarter were $385.8 million, an improvement of $32.7 million, or 9.3% compared to the fourth quarter of 2022. The improvement was due largely to higher revenues from rentals and sales of rental equipment. Revenues from rentals increased 14.5% to $280.6 million compared to $245 million in the year-ago quarter.

Total revenues in the fourth quarter were $385 8 million, an improvement of $32 7 million or nine 3% compared to the fourth quarter of 2018.

And then within largely to higher revenues from rentals and sales of rental equipment.

Revenues from rentals increased 14, 5% to 286 million compared to 245 million in the year that corner.

Leslie S. Magee: We experienced another quarter of impressive fleet growth and room rate appreciation, with these two factors contributing to the record outcome. As Brad reported, our rental plaintiff measure by OEC concluded the quarter at approximately $2.8 billion, or 18.3% ahead of the year-ago measure. Rental rates displayed further improvement in the quarter of 3.8% compared to the fourth quarter of 2022, and 0.8% sequentially. For the year, our average rental rate improvement was 5.6%. Sales of rental equipment in the fourth quarter reached $40.6 million, up 34.3% from the year-ago quarter. The increase was indicative of the continued strength of the used equipment market, combined with the success of our fleet management strategy. New equipment sales were $9.8 million, declining 54.5% in the quarter, compared to $21.5 million in the fourth quarter of 2022. The year-over-year comparison continued to demonstrate the absence of the Komatsu Earthmoving Distribution business, which was sold in December 2022.

We experienced another quarter of impressive played red and rental rate appreciation with these two factors contributing to the record outcome.

Brad was appointed our rental fleet as measured by every team concluded the quarter at approximately $2 8 million.

18, 3% had at the year again measure.

Rental rates display Friday, I'm crazy in the quarter up three 8% compared to the fourth quarter of 2022, and <unk>, 8% sequentially.

The year, our average rental rate in trade that was five 6%.

Sales of rental equipment in the fourth quarter reached 46 million up 34, 3% in the year in that quarter.

The increase was indicative I think continued street at the used equipment market combined with the success of our fleet management strategy.

New equipment sales were $9 8 million declining 54, 5% in the quarter compared to 21 5 million in the fourth quarter of 2022.

The year over year comparison continue to demonstrate the absence of this mine to our leading distribution.

Followed in December 2022.

Leslie S. Magee: Gross profit totaled $186.3 million in the fourth quarter, up $27 million or 16.9% compared to the year-ago quarter. Gross margins in the quarter improved 320 basis points to 48.3% compared to the prior year quarter, with the improvement attributable to a favorable revenue mix and higher margins on rentals and sales of rental equipment. Total equipment rental margins were 48.2% in the fourth quarter, up from 47.9% in the year-ago quarter, with rental margins improving to 54.2% compared to 53.1% over the same period of comparison. Margins on sales of rental equipment reached a record 66% compared to 51.2% in the year-ago quarter, and margins on new equipment sales were 15.3% compared to 13.6% in the year-ago quarter. Slide 12, please.

Gross profit totaled $186 3 million in the fourth quarter of 27 million or 16, 9% compared to the year ago quarter gross margins in the quarter and 320 basis points to 48, 3% compared to the prior year quarter with the improvement attributable to favorable.

Revenue mix and higher margins on rental and sales of rental equipment.

And it'll look quite neat rental margins were 48, 2% in the fourth quarter up from 47, 9% in the year ago quarter with rental margin and crazy to think a four 2% compared to 53, 1% over the same period comparison.

Margins on sales of rental equipment reached a record 66% compared to 51, 2% in the year ago quarter, while margins on new equipment sales were 15, 8% compared to 13, 6% in the year.

And Florida.

Slide 12 please.

Leslie S. Magee: Income from operations in the fourth quarter totaled $81.2 million compared to $78.8 million in the fourth quarter of 2022. A margin of 21.1% was achieved in the fourth quarter of 2023 compared to 22.3% in the fourth quarter of 2022. The year-ago results included the previously noted gain from the sale of the Komatsu Earth Moving Distribution business, with $12.9 million recorded as a gain on the sale of property and equipment, contributing 360 basis points to the prior year margin. Proceed to slide 13, please.

Income from operations in the fourth quarter totaled $81 2 million compared to $78 8 million in the fourth quarter of 2020 to a margin of 21, 1% was achieved in the fourth quarter of 2023 compared to 22, 3% in the fourth quarter of 2018.

A year ago with all included the previously noted gain on the sale of the Komatsu Earthmoving distribution business with $12 9 million recorded as a gain on the sale of property and equipment contributing 360 basis points in the prior year margin.

Proceed to slide 13 please.

Leslie S. Magee: Net income from continuing operations in the fourth quarter totaled $53.5 million compared to $51.2 million in the fourth quarter of 2022. Results for the prior year include a $15.4 million gain from the sale of the Komatsu Earthmoving Business. Diluted net income per share in the fourth quarter was $1.47 per share, compared to diluted net income per share of $1.41 in the year-ago quarter. Certain discrete items in the fourth quarter reduced the effective income tax rate to 19.4% compared to 26.1% for the same quarter in 2022.

Net income from continuing operations in the fourth quarter totaled $53 5 million and paid $1 2 million in the fourth quarter of 2022.

Results in the prior year included a $15 $4 million gain from the Mark to Earth moving business.

Net income per share in the fourth quarter was $1 27 per share compared to diluted net income per share of $1 41 in the year ago quarter.

Certain discrete items in the fourth quarter reduced the effective income tax rate to 19, 4% compared to 26, 1% for the same quarter in 2022.

Leslie S. Magee: Please proceed to slide 14, please. Adjusted EBITDA improved to $185.2 million in the fourth quarter compared to $173.9 million in the fourth quarter of 2022, which included $15.4 million resulting from the gain on the sale of the Komatsu Earthmoving Distribution Business. The adjusted EBITDA margin in the fourth quarter was 48%, compared to 49.2% in the fourth quarter of 2022, with a modest year-over-year decline due entirely to the gain on the sale in the prior year quarter, which contributed 440 basis points to the prior year margin. Next on slide 15, please. SG&A expense in the fourth quarter increased $12.1 million to $106.6 million compared to $94.5 million in the year-ago quarter. The higher expenses were largely due to employee salaries, wages, payroll taxes, and other benefits, as well as an increase in facilities, promotional, and depreciation expenses.

Proceed to slide 14 please.

Adjusted EBITDA improved to $185 2 million in the fourth quarter compared to $173 9 million in the fourth quarter of 2028.

Which included a $15 $4 million, resulting from the gain on the sale of the Komatsu earthmoving distribution business.

<unk> EBITDA margin in the fourth quarter was 48% compared to 49, 2% in the fourth quarter of 2020 team, but the modest year over year decline due entirely to the gain on the sale in the prior year quarter, which contributed 440 basis points to the prior year margin.

Yeah.

Next on slide 15 please.

SG&A expense in the fourth quarter increased $12 1 million to $106 6 million compared to $94 5 million in the year ago quarter.

The higher expenses were largely due to employee salaries wages payroll taxes and other benefits as well as an increase in facilities promotional and depreciation expenses SG.

Leslie S. Magee: SG&A expense in the quarter included $6.3 million of expansion and acquisition costs compared to the same quarter in 2022. Fourth quarter 2023 expenses were 27.6% of revenues compared to 26.8% in the year-ago quarter. Slide 16, please.

SG&A expense in the quarter.

Included $6 3 million of expansion and acquisition cost compared to the same quarter in 2022.

Fourth quarter 2023 expenses were 27, 6% of revenues compared to 26, 8% in the year ago quarter.

Slide 16 plate.

Leslie S. Magee: Gross rental fleet capital expenditures in the fourth quarter, including non-cash transfers from inventory, totaled $141.4 million. Net rental fleet capital expenditures were $101 million. Gregg's PP&E capital expenditures in the quarter were $28.5 million, or $26.5 million net of sales of PP&E. Net cash provided by operating activities totaled $129 million in the fourth quarter compared to $102 million in the year-ago quarter. And free cash flow used in the fourth quarter was $27.7 million compared to free cash flow used of $128 million over the same period of comparison.

Great its rental fleet capital expenditures in the fourth quarter, including non cash transfers from inventory totaled 141 4 million net rental fleet capital expenditures were $101 million.

<unk> P P any capital expenditures in the quarter were $28 5 million or $26 5 million net of sales of PP&E.

Net cash provided by operating activities totaled $129 million in the fourth quarter compared to $110 million in the year ago quarter.

Free cash flow used in the fourth quarter was $27 7 million compared to free cash flow use of $128 million over the same period of comparison.

Leslie S. Magee: The company's rental fleet remained among the youngest in the industry with an average age of 39.7 months compared to an industry average age of 49 months. The fourth quarter measure continued a trend of steady improvement in 2023 and compared to an average age of 41.1 months in the third quarter and 43.6 months on December 31st, 2022. Slide 17, please.

The company's relatively remain among the youngest in the industry with an average age of $39 seven months compared to an industry average age at 49.

The fourth quarter measure continued a trend of steady improvement in 2023 and compared to an average age of 41, one months in that area.

Quarter and 43 six months.

On December 31st 2022.

Slide 17 please.

Leslie S. Magee: Based on our original equipment costs on December 31, 2023, our rental fleet totaled approximately $2.8 billion, an increase of $432.6 million, or year-over-year growth of 18.33%. Average dollar utilization in the fourth quarter was 40.3% compared to 41.9% in the prior year quarter. Normalized physical fleet utilization, record fleet growth, and branch expansion over the year contributed to the modest decline in the mesh. What a team.

Based on original equipment cost on December 31, 2023, our rental fleets have totaled approximately $2 8 billion, an increase of $432 6 million a year over year growth of 18, 3%.

Average selling utilization in the fourth quarter was 43% compared to 41, 9% in the prior year quarter.

Normalized hopefully utilization record fleet and branch expansion every year contributed to the modest decline in the measure.

Slide 18 please.

Leslie S. Magee: We maintain strong balance sheet metrics throughout 2023, closing the year with net debt of approximately $1.4 billion. Our net leverage measure of 2.1 times remains at the low end of our target range, and our interest coverage ratio of 11.3 times continues to improve, up from 10 times at the end of 2022. With no maturities before December 2028 on our 1.25 billion of senior unsecured notes, our capital structure remains robust. Moving on to slide 19. Finally, our liquidity position on December 31, 2023 totaled $564.5 million, while excess availability under the ABL facility displayed steady improvement throughout 2023, closing the year at approximately $1.8 billion, up from $1.5 billion on December 31, 2022. Our minimum availability, as defined by the ABL agreement, remains $75 million.

We maintained strong balance sheet metrics throughout 2023 closing the year with net debt of approximately $1 4 billion. Our net leverage measure of two one times remains at the low end of our target range and our interest coverage ratio of 11, three times continues to and Craig.

10 times at the end of 2022.

With no maturities before December 2028 on our 125 billion of senior unsecured note our capital structure remains robust.

Moving on to slide 19, please.

Finally, our liquidity position on December 31, 2023 totaled $564 5 million, while excess availability under the ABL facility display steady improvement throughout 2023 closing the year and approximately $1 8 billion up from $1 5 billion on December 30 <unk>.

<unk> 2000 2018.

Our minimum availability as defined by the ABL agreement remains 75 million and no debt excess availability internationally east to determine whether our screening fixed charge is applicable with excess availability of $1 8 billion. We continue to have no covenant concerns.

Leslie S. Magee: And note that excess availability is the measurement used to determine whether our screening fixed charge is applicable. With excess availability of $1.8 billion, we continue to have no Covenant confirmed. Finally, we paid our regular quarterly dividend of $0.275 per share of common stock in the fourth quarter of 2023. And while dividends are subject to board approval, it is our intent to continue to pay the dividend. Slide 20, please.

And finally, we paid our regular quarterly dividend of 2007, and a half cents per share of common stock in the fourth quarter of 2023, and while dividends are subject to board approval. It is our intent to continue to pay the dividend.

Slide 20 planes.

Leslie S. Magee: Throughout 2023, H&E continued to redefine its improving financial potential while strengthening its competitive position in the equipment rental industry. With persistent and sound industry fundamentals in place, we proceeded with a steady approach to growth and expansion, resulting in another year of record financial achievement. Our improved financial execution in 2023 was seen throughout numerous performance measures with records established for total revenues of $1.5 billion, consolidated gross profit of approximately $685 million, gross profit margin of 46.6%, and adjusted EBITDA of $688 million. Also, revenues from equipment rentals exceeded $1 billion for the first time in our 62-year history, representing 24% growth over the previous year, while gross margins in the segment remained at better than 50%.

Throughout 2023, <unk> continued to redefine its improving financial potential while strengthening its competitive position in the equipment rental industry with persistent and found industry fundamentals in place we are proceeding with a steady approach to brands and expansion, resulting in another year.

And financial achievement.

Our improved financial execution in 2023 was seen throughout numerous performance measures with records established for total revenues of $1 5 billion consolidated gross profit of approximately $685 million gross profit margin of 46, 6% and adjusted EBITDA of 688 million.

Yeah.

I will say that revenues from equipment rentals exceeded 1 billion for the first time in our 62 year history, representing 24% as the previous year, while gross margins in this segment remained at or do you think 8%.

Leslie S. Magee: As Brad noted earlier, cleave growth and branch expansion initiatives played a key role in our financial achievements by reinforcing our competitive position across much of our geographic footprint. With 18.3% growth in our fleet, original equipment costs, and 14% year-over-year expansion across our branch network, we concluded 2023 with the fleet size and mix and the branch density to better address an expected rise in construction activity. Our exit from distribution activities and transition to a pure rental focus has been a winning strategy for H&E, resulting in higher and more stable revenues and impressive margin appreciation.

As Brad noted earlier clay bread and branch expansion initiatives played a key role in our financial achievements by reinforcing our competitive position across much matchup, our geographic footprint with $18 eight 3% growth in our fleet.

General equipment costs, and 14% year over year expansion across our branch network. We concluded 2023 with the fleets have Nx anabranch density to better address unexpected rise in construction activity.

Our exit from distribution activity and transition to a pure rental side. This has been a winning strategy for <unk>, resulting in higher and more stable revenues and impressive margin appreciation.

Operator: As we transition to 2024, we will maintain our focus on greater branch debt and measured fleet growth. We possess the financial resources needed to pursue further growth objectives, including a conservative capital structure with no debt maturities before 2028, improving debt metrics that remain at the low end of our target range, and ample liquidity. Significant opportunities for growth are a reality in the equipment rental industry, and we expect our more robust position in the industry to drive further financial achievement and expansion. We are now ready to begin the Q&A period. Operator, would you please provide instructions to our call participants in order? We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.

As we transition to 2024, we will maintain our focus on brining our branch staff and measured fleet, Greg we possess the financial resources needed to pursue further growth objectives, including a conservative capital structure with no debt maturities before 2020, and improving debt metrics that remain at the low end of our target range.

<unk> and ample liquidity.

Significant opportunities for growth are a reality of the equipment rental industry and we expect a more robust position in the industry to drive further financial achievements and expansions.

Speaker Change: We are now ready to begin the Q&A period, operator would you. Please provide instructions to our call participants and assemble the queue.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our rocket. The first question today comes from Seth Weber with Wells Fargo. Please go ahead. Hey, guys. Good morning.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Yeah.

Speaker Change: The first question today comes from Seth Weber with Wells Fargo. Please go ahead.

Seth Weber: Oh, Hey, guys. Good morning, Thanks for taking my question.

Seth Weber: Thanks for taking the question. Brad, I wanted to, I guess, dig in a little bit more on the CapEx guide for 2024, just really try to unpack that a little bit and try to understand. You know how much of that is really a reflection of a pull forward that you just added more fleet in 2023 versus any kind of change that you're seeing and from an end market demand perspective, and whether you think this lower capex level for 2024 can support, you know, kind of more of a flattish fleet utilization level in 2024 and maybe a flattish dollar utilization level. Thanks. Seth, good morning.

Seth Weber: Brad I wanted to.

Seth Weber: I guess dig in a little bit more on the Capex guide for 2024, and just really try to unpack that a little bit and trying to understand.

Seth Weber: How much of that is really a reflection of a pull forward that you just added more fleet in 2023.

Seth Weber: Versus any kind of change that you're seeing from an end market demand perspective, and whether you think this lower capex level for 2024.

Speaker Change: Can support.

Speaker Change: More of a flattish fleet utilization level for 'twenty, 'twenty, four and maybe a flattish dollar utilization level. Thanks.

Bradley W. Barber: I think there are a few things to consider. You started off by asking, "You know, is any of it a pull forward?" We clearly brought in more capital in Q4, including late Q4, than we would traditionally. Partly, those were assets that were currently highly utilized throughout the majority of the fourth quarter. They're assets that are historically highly utilized throughout the year.

Speaker Change: Sure Seth good morning.

Speaker Change: I think there are a few things to consider you started off by asking you know it was any of it or pull forward. We clearly brought in more capital in Q4, and including late Q4 than we would traditionally.

Speaker Change: Partly those were assets that were currently highly utilized throughout the majority of the fourth quarter.

Speaker Change: There are assets that are historically highly utilized throughout the year and it's and it kind of thinks a picture of our view of the market in front of US here in 2024 so.

Bradley W. Barber: And it kind of paints a picture of the market in front of us here in 2024. So, I think it's fair to think, you know, we pulled a little CapEx forward in that respect. Otherwise, we didn't need all of that, you know, in late November and December, but we're looking forward to that. So that's that piece of it.

Speaker Change: It's fair to think we pulled a little capex forward in that respect otherwise we didn't need all of that.

Speaker Change: Late November and December, but we're looking forward in that respect so that's that piece of it.

Bradley W. Barber: Secondarily, you know, supply is certainly catching up with demand, and we're starting to see a more normalized environment in many respects. I think the crux of the whole question is, where is our utilization going to be for the year? You know, we're really disciplined on rates.

Speaker Change: Secondarily supply certainly catching up with demand and we're starting to see a more normalized environment in many regards.

Speaker Change: I think across the whole question is where does that utilization going to be for the year. You know, we're really disciplined on rates, we're going to remain disciplined on our rates. We know this adverse evolution of mega projects could weigh on rates a little bit as we continue to do more of that type of work and less of our spot rate work.

Bradley W. Barber: We're going to remain disciplined on rates. We know this advent and evolution of megaprojects could weigh on rates a little bit as we continue to do more of that type of work and less of our spot rate work. All of those things come into a combination where we had a, you know, a harsher than expected January with weather.

Speaker Change: All of those things come in through a combination where we had a.

Speaker Change: A harsher than expected January with weather there were a few days, we had about 25% to 30% of our locations closed in the last few weeks that weather seemingly is past us we've seen incremental utilization increases.

Bradley W. Barber: There were a few days we had about 25 to 30 percent of our locations closed. In the last few weeks, that weather seemingly is past us. We've seen incremental utilization increases each week and almost every day of each week. So we're headed in the right direction. I think our utilization is going to be slightly pressured here in the first half of the year. On a year-over-year basis, keeping in mind coming out of 22 and early 23, we were still up against really difficult comps. We're still up against some difficult comps.

Speaker Change: Each week and almost every day of each week. So we're headed the right direction I think our utilization is going to be slightly pressured here in the first half of the year on a year over year, keeping in mind coming out of 'twenty. Two in early 'twenty. Three we were still up against really difficult, we're still up against some difficult comps in the back half of the year, we are managing and we.

Bradley W. Barber: In the back half of the year, we are managing, and we expect to show some leverage, and it was stated differently to show positive year-over-year physical utilization improvements in the back half of this year. And so I've said a lot to say, you know, we're moderating our capital spend. We can get what we need from manufacturers on a much more reasonable timeline with good predictability, and we're managing for a normal environment that's going to allow for nice growth, particularly in rental revenues, while we continue to increase returns. Okay, um, and so what do you think the rental rate would be then? I think it was in the high threes here in the fourth quarter.

Speaker Change: Back to show some leverage.

Speaker Change: Stated differently to show positive year over year physical utilization improvements in the back half of this year.

Speaker Change: And so I'll say it a lot to say yeah, we're moderating our capital spend we can get what we need for manufacturers in a much more reasonable timeline with good predictability and we are managing for a normal environment, that's going to allow for nice growth, particularly in rental revenues, while we continued to increase returns.

Speaker Change: Okay.

Speaker Change: So do you think so rental rate then.

I think it was high threes here in the fourth quarter do you think it settles in I don't know two two and a half range two to three is that a good way to think about it for the year.

Bradley W. Barber: Do you think it settles in, I don't know, two and a half, two to three? Is that a good way to think about it for the year? Can you talk about, does that offset, you know, inflation costs for you guys? Yeah, I'm going to let John speak more about rental rates broadly. I can tell you we're expecting no inflation in pricing in 2024 compared to 2023. So that's one part of that conversation. I think it's too difficult.

Speaker Change: Can you talk about what does that does that offset.

Speaker Change: Inflation cost for you guys.

Yeah, I'm going to let.

Speaker Change: John speak more to the rental rates broadly I can tell you.

John: We're expecting no no inflation and pricing at <unk> 24 compared to 23.

John: That's one part of that conversation.

John: It's difficult I mean, Q1 is always the most difficult quarter due to our seasonality to predict where we're going with rates. We feel very good about rig rates are stable rates are likely to improve at some level to the extent, we get pressure on rates, it's going to be around mega projects and again, if you look at it right.

Bradley W. Barber: I mean, Q1 is always the most difficult quarter due to our seasonality to predict where we're going with rates. But we feel very good about rates. Rates are stable, and rates are likely to improve at some level. To the extent we get pressure on rates, it's going to be around megaprojects. And again, if you look at rates in isolation without understanding the weighting of the mix, it can, I think, be a little misleading because I would not want you or anyone else on this call to believe that we expect declining returns as we participate more in megaprojects. Quite the contrary,

John: In isolation without understanding the weighting of the mix.

John: I think it'd be a little misleading because I would not want you or anyone else on this call to believe that we expect declining returns as we participate more Mega project quite the contrary John do you want to add anything else, yes, Seth just just to add on to what Brad said going back to his opening comments 15, 8% rate improved.

Bradley W. Barber: John, do you want to add anything else on that? Yeah, Seth, just to add to what Brad said, going back to his opening comments, 15.8% rate improvement cumulative over the last three years. That's exceptionally strong.

John: <unk> cumulative over the last three years.

John: Exceptionally strong.

John Inquist: Looking forward, we don't expect to have rate increases at that same pace. We think rates are going to moderate. But we do expect rates to be positive for the year. Now, what does that mean?

John: Looking forward, we don't expect to have rate increases at that same pace. We think rates are going to moderate we do expect rates to be positive for the year now what does that mean, we expect incremental improvement.

John Inquist: We expect incremental improvement. I don't want to put a number out there today. As Brad stated, these megaprojects are going to have an impact on our rental rates, but there is a tradeoff: large volumes of equipment on rent for extended periods of time. So, as we get further into the year, I think we'll have a better view of that, but we are expecting positive rates for the year. Okay, and then maybe just Leslie, just a quick follow-up. With the lower CapEx, is it fair to assume that pre-cash flow should be positive for 2024? Good morning, Seth.

John: I don't want to put a number out there today as Brian stated. These mega projects are going to have an impact on our rental rates, but there is a trade off large volumes of equipment on rent for extended periods of time so.

John: We get further into the year I think we'll have a better view of that but we are expecting positive rates for the year.

Speaker Change: Okay, and then maybe just lastly, just a quick follow up with a lower capex.

Speaker Change: Fair to assume that free cash flow should be positive for 2024.

Speaker Change: Yeah, Good morning, Seth I.

Leslie S. Magee: I think that's a good assumption, you know, with the normalized environment, normalized cathetics thing that we've talked about and guided to. Great. Okay. I'll pass it on.

Speaker Change: I think that's a good assumption you know with a normalized environment normalized capex spending that we've talked about and guided teams, we expect to be free cash flow positive.

Speaker Change: Great. Okay I'll pass it on thank you guys.

Seth Weber: Thank you, guys. Thank you. The next question comes from Steven Fisher with UBS. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Steven Fisher with UBS. Please go ahead.

Steven Fisher: Steven, your line is open. You may ask your question. Sorry, I was on mute there.

Steven Fisher: Steven Your line is open you may ask your question.

Steven Fisher: Sorry, you're on mute there.

Steven Fisher: Good morning, and Gretchen, and nice finish to the year. I know you tend to keep your formal guidance fairly focused, but maybe just to follow up on some of Seth's questions, just trying to discern whether you think this is a year where EBITDA can grow. So, perhaps, to start, you know, with your lower gross capex, is your overall fleet expected to grow, stay steady, or shrink? I think you said rental revenues you expect to grow, but there's also some, it sounds like maybe flat to lower utilization, but also slightly higher rates. So John, just put all those pieces together to see if. You know, there's a picture of EBITDA direction that we can put together. Yes, Steven, good morning.

Steven Fisher: Good morning, and congrats on a nice finish to the year I know you tend to keep your your formal guidance fairly focus, but maybe just a follow up on some questions.

Steven Fisher: Trying to discern whether you think this is a year, where EBITDA can grow maybe to start with.

Steven Fisher: When you lower gross Capex is your overall fleet expected to grow.

Steven Fisher: Stay steady or shrink I think you said rental revenue do you expect to grow but there was also some it sounded like maybe flat to lower utilization.

Steven Fisher: But also slightly higher rates, so I'm trying to just put all those pieces together to see it.

Steven Fisher: Okay.

Steven Fisher: The picture on EBITDA direction, where we can put together.

Yes, David good morning.

Bradley W. Barber: Our EBITDA is absolutely going to grow. Our rental revenue is absolutely going to grow, and our fleet is absolutely going to grow. You know, what's changing is, and I like the way Seth asked the question, we pulled a little capex forward in Q4. We still have a healthy number in front of us, although it's not a record number.

Speaker Change: Our EBITDA is absolutely going to grow our rental revenue is absolutely going to grow on our fleets absolutely going to grow.

David: What's changing is I like the way SAP asked the question, we've pulled a little capex forward in Q4.

David: We still have a healthy number in front of us, although it's not a record number of our rental fleet sitting at 39 seven months, we're going to sell a little bit less this year, we just have less need.

Bradley W. Barber: Our rental fleet's sitting at 39.7 months. We're going to sell a little bit less this year because we just have less need.

Bradley W. Barber: We've really caught up on our fleet rotation that was stifled during 2022 due to lack of manufacturer availability. So you're going to see growth capital. We're going to open 12 to 15 locations. Rates, if they go anywhere other than solidly up, will only be tampered by high utilization and large volumes of equipment on megaprojects. And then we're gonna get the benefit, of course, this year, as we do in any year, of our fleet growth. I think 18.3%, you know, some of that came in the back half of the year.

David: We have really caught up on our fleet rotation that will cycle. During 2022 due to lack of manufacturer availability. So youre going to see growth capital, we're going to open 12 to 15 locations.

David: Rates if they go anywhere other than solidly up will only be tampered by high utilization large volumes of equipment on Mega projects and then we're going to get the benefit of course this year as we do in any year of our fleet grew up in the 18, 3%. Some of that came in the back half of the year will get just to characterize it a full year better.

Bradley W. Barber: We'll get, just to characterize it, a full year benefit. So, yeah, expect our rental revenue and the associated EBITDA of the overall business to continue to grow. We'll have a little bit less contribution from fleet sales, but otherwise, we're going to have a really nice year with continued growth and increased profitability. That's very helpful.

David: So, yes, I expect our rental revenue and associated EBITDA on the overall business to continue to grow we will have a little bit less contribution from fleet sales, but otherwise we're going to have a really nice year with continued growth and increased profitability.

Speaker Change: That's very helpful. And then in terms of how you see the year playing out on the nonresidential construction markets.

Bradley W. Barber: And then in terms of how you see the year playing out in the non-residential construction markets, how are you thinking about what's happening in the first half of the year on a year-over-year basis versus the second half of the year, year-over-year? A number of times about perhaps an increased focus on megaprojects; just curious about the cadence and timing. Are these things that you expect to really be a big factor in the first half, or is that more of a second half halfway down?

Speaker Change: How are you thinking about what's happening in the first half of the year on a year over year basis versus the second half of the year year over year. I mean, you mentioned a number of times about perhaps increased.

Speaker Change: Focus on on Mega projects.

Speaker Change: Just curious about the cadence and timing or are these things that you expect to really be a big factor in the first half or is that more second half weighted.

Bradley W. Barber: Well, they're a factor currently, but they're a growing factor, and that factor will only increase with every passing month and every passing quarter. So they will have a bigger impact in the back half of the year than they have this year. You know, from a seasonality standpoint, we always see, you know, again, some folks have been, and I know you're not one of them, you know the business very well, but some people have been focused on the, you know, the unsustainable level of utilization we ran at 22. With almost 30 years in the business, we've never seen an environment like that. What we're in today is a normalized environment, where we're And as I stated to the previous questioner, we fully expect to show some leverage in our physical utilization in the back half of this year, while we're growing our rental fleet and improving our retirement. Thank you very much.

Speaker Change: Well there are factor currently but there are growing factor in that factor will only increase with every passing month and every passing quarter. So they will be a bigger impact in the back half of the year than they are this year.

Speaker Change: You know from a seasonality standpoint, we always see again.

Speaker Change: Some folks have been and I know you are not one of them you know the business very well, but some people have been focused on.

Speaker Change: Yeah.

Speaker Change: The unsustainable levels of utilization, we ran in 'twenty two with almost 30 years in the business, we've never seen an environment like that what we're in today with a normalized environment, where we're going to continue to get incremental gains on physical utilization and as I stated to the previous questioner.

Speaker Change: We fully expect this show some leverage in our physical utilization on the back half of this year, while we're growing our rental fleet and improving our returns.

Speaker Change: Perfect. Thank you very much.

Steven Fisher: Thank you. The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead. Hi, good morning.

Speaker Change: Thank you.

Speaker Change: The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Steven Fisher: Hi, Good morning wanted to continue that conversation on the demand outlook.

Bradley W. Barber: I wanted to continue that conversation on the demand outlook. First of all, on the local markets, do you expect basically non-megaproject demand to grow? And then thinking about megaprojects, appreciating the cadence for this year, it looks like megaproject attributable revenue will be higher this year than last. Could you maybe talk by order of magnitude about the year-over-year increase that could come from megaprojects? The first part of the question is that we do expect to see the non-megaproject activity continue to grow. All the construction data for the 30-state geography we cover points to that, feedback from our customers points to it, and our activity on a daily basis is substantiating it literally as we speak. As far as the cadence of megaprojects is concerned, I know we're fairly vague, and that's not intended to be that way.

Steven Fisher: First of all on the local markets do you expect.

Steven Fisher: Basically non Mega project demand to grow.

Steven Fisher: And then thinking about Mega projects I appreciate the cadence for this year it looks like Mega project attributable revenue will be higher this year than last could you maybe talk order of magnitude.

Steven Fisher: The year over year increase.

Steven Fisher: Come from Mega projects.

Speaker Change: The first part of the question is we do expect to see the non Mega project activity continued to grow all of the construction data for the 30 state geography, we cover points to that.

Speaker Change: Feedback from our customers points to it and our activity on a daily basis is substantiated it literally as we speak.

Speaker Change: As far as the cadence of Mega projects I know, we're fairly vague and that's not intended to be that way, but.

Bradley W. Barber: In our last quarterly update, you know, I talked about some of these projects we lead on. While we're the fourth largest rental company in the U.S. or fifth largest, depending on what ranking you look at, we can be hyper-competitive on any of these particular projects that are within our geography with, you know, the more than 60,000 machines we have in our rental fleet. That being stated, there are times we dominate or lead the project, there are times we take a secondary position, and there are times we slide in, you know, in a tertiary or third or fourth position, depending on the opportunity. It's difficult to paint the picture.

Speaker Change: In our last quarterly update I talked about some of these projects we lead on.

Speaker Change: While we are the fourth largest rental company in the U S or fifth largest depending on what ranking you look at.

Speaker Change: We can be hyper competitive on any of these particular projects that are within our geography with more than 60000 machines. We have in our rental fleet that'd be stated their paths, we dominate our lead on the project yourself, who take a secondary position and there's sometimes we slot in a tertiary or third or fourth position depending on the opera.

Speaker Change: <unk>.

Speaker Change: It's difficult to paint the picture of what we know is there a large volumes of equipment.

Bradley W. Barber: What we know is there are large volumes of equipment being sent out every day from us and our competitors. I feel like we're in an incredibly disciplined environment with how we're all viewing our opportunities going forward. And megaprojects will be a bigger part each quarter going forward of our revenue. That's great stability.

Speaker Change: Being sent out every day from us and our competitors I feel like we're in an incredibly disciplined environment with how we're all viewing our opportunities going forward.

Speaker Change: Mega projects will be a bigger part each quarter going forward of our revenue that's great stability it'll be great yield as John talked about what the rental rate trade off and we will try to give you more clarity as we go forward.

Bradley W. Barber: It'll be great yield, as John talked about, with the rental rate trade-off. And we'll try to give you more clarity as we go forward. Okay, great.

Speaker Change: Okay, great. Thank you and then on the acquired companies had a very disciplined history in doing M&A, maybe talk to why now with these companies and the considerations and opportunities for pricing general margin improvement and strengthening geographic.

Steven Fisher: And then on the acquired companies, you had a very disciplined history of doing M&A. Maybe talk to them about why now with these companies and the considerations and opportunities for pricing generally, margin improvement, and strengthening geographic positioning in these areas. Our team's just done a nice job of finding the right types of opportunities that better align with us. You know, if we go back just a year, a year and a half ago, I've stated publicly, if there was anything we were disappointed or very frustrated with, it was our inability to do more acquisitions. We've got the balance sheet. We've got the systems in place.

Speaker Change: Positioning in these areas.

Speaker Change: Our team has just done a nice job of finding the right types of opportunities that better align with us.

Speaker Change: We'd go back just a year year and a half ago. I've stated publicly there was anything we were disappointed are very frustrated with was our inability to do more acquisitions. We've got the balance sheet. We've got the systems. We've got the teams to integrate them. We've got a great track record of buying these businesses integrating them efficiently and for those businesses to produce.

Bradley W. Barber: We've got the teams to integrate them. We've got a great track record of buying these businesses, integrating them efficiently, and getting those businesses to produce to our expectations. And it's been nice to see, you know, two or three acquisitions here in the last 18, 24 months. The good news is that our funnel is full of more quality, small acquisitions. You can never, you know, perfectly handicap what your ratio of closes will be on these deals.

Speaker Change: To our expectations and it's been nice to see you know two or three acquisitions here in the last 18 24 months.

Speaker Change: The good news is as our funnel is full of more quality small acquisitions you can never.

Speaker Change: Perfectly handicap, what's your ratio of closes will be on these deals, but I will tell you. We're very pleased that more of these deals are Jack in the box for us they fit our profile, we can deploy more capital. They have good teams are in great markets and.

Bradley W. Barber: But I will tell you, we're very pleased that more of these deals are checking the box for us. They fit our profile. We can deploy more capital. They have good teams.

Bradley W. Barber: They're in great markets, and we look forward to more acquisitions like that. Okay, helpful. And then on specialty equipment, you've clearly done very well without that being a large part of your equipment portfolio, but I assume it's maybe still on the strategic radar. Could you update us on how you're thinking about specialty equipment as part of the H&E fleet over time? I'm going to let John respond to that. Yes, Steven.

Speaker Change: We look forward to more acquisitions like that going forward.

Speaker Change: Okay helpful and then on specialty equipment, you've clearly done very well without that being a large part of your equipment portfolio.

Speaker Change: Assume it's maybe still on the strategic radar could you update us on how youre thinking about specialty equipment as part of the <unk> fleet over time.

Speaker Change: Sure, Let me I'll, let John respond to that.

Yeah, Stephen So obviously specialty is on our radar and as part of our plan.

John Inquist: So, obviously, specialty is on our radar and is part of our plan. You know, we're currently executing a strategy to roll out a pump and power division. As we sit here today, we ended the year with 10 locations.

John: We're currently executing today, a strategy to rollout a pump and power Division you know as we.

John: We sit here today, we ended the year with 10 locations most.

John Inquist: Most of these are shared facilities with existing operations, but we have grown that fleet from essentially nothing to a meaningful piece of the business in a relatively short amount of time. As we look forward, we're going to continue to add locations on an annual basis, and we think there's a really nice opportunity for specialty in our future. Yes, Steven, let me add, you know, the 10 locations John's referring to are not embedded in the 12 to 15 guidance or in the 14 that we opened last year. He also stated that we're just taking this really practical approach. We're using shared facilities, separate teams, and separate assets. It's a branch within a branch, if you will.

John: Most of these are shared facilities with existing operations, but we have grown that fleet from essentially nothing to a meaningful piece of the business in a relatively short amount of time as we looking forward, we're going to continue to add locations on an annual basis.

John: We think there's a really nice opportunity for our specialty and our future.

Speaker Change: Yes, Steven let me, let me add.

Speaker Change: Pillowcases John referred to this is not embedded in the 12 to 15 guidance over the 2014 that we opened last year.

Speaker Change: He also stated that we're just taking this really practical approach we're using shared facilities separate team separate asset at the branch within branch if you will.

Bradley W. Barber: So it's nice. We're bringing in assets and high-quality people and deploying them. This organic growth is not the fastest way to grow your business, but it's certainly safe and it's certainly profitable. And it's no different with specialty than it is with the, you know, the 14 warm starts or the 34 I think we've opened in the last couple. Okay, that's helpful.

Speaker Change: So it's nice we bring on assets and high quality people and deploying them. This organic growth is not the fastest way to grow your business, but it's certainly safe and it's certainly profitable and it's no different with specialty than it is with the 14 warm starts or the 34 I think we've opened in the last couple of years.

Speaker Change: Okay. That's helpful. Thank you guys.

Steven Fisher: Thank you, guys. Thank you. The next question comes from Jamie Weiland with Weiland Management. Please go ahead.

Thank you.

Speaker Change: The next question comes from Jamie Wilen with Wilen management. Please go ahead.

Jamie Weiland: It's good to see that your demand is growing both for national accounts and local markets. Can you tell us what percentage of your business is national accounts? What was it in 2023, and what would you expect it to be in 2024? Thank you for the question.

Jamie Wilen: Yes, good to see that your demand is growing both for national accounts and local markets could you.

Jamie Wilen: Tell us what percentage of your business is national accounts, what was it 2023, and what would you expect it to be in 2024.

Jamie Wilen: Thank you for the question, we do not disclose our ratios of a national account or or large account or a single source, but the thing I'm very comfortable giving.

Bradley W. Barber: We do not disclose our ratios of a national account or a large account or single source, but the thing I'm very comfortable giving you is that our large customer base continues to grow, and we're happy about that. Those larger customers generally characterize greater stability, larger volumes of equipment for longer periods of time, notwithstanding mega projects, right? So aside from mega projects, that's been a focus of ours. But unfortunately, we do not disclose those ratios.

Jamie Wilen: Do you have in use at our large customer base continues to grow and we're happy about that those larger customers generally characterize greater stability larger volumes of equipment for longer periods of time, notwithstanding megaproject right. So aside from Mega projects, that's been a focus of ours.

Jamie Wilen: But unfortunately, we just we do not disclose those ratios.

Jamie Weiland: Given the free cash flow you expect to achieve in the current fiscal year, what are your thoughts on a stock buyback moving forward? A stock buyback is always a possibility. We've talked about capital allocation. We consistently meet with both our finance committee and, of course, our full board and make these considerations.

Jamie Wilen: Okay, given the free cash flow you expect to achieve.

Jamie Wilen: The fiscal year, what are your thoughts on the stock buyback moving forward.

Jamie Wilen: Our stock buyback is always a potential.

Jamie Wilen: We've talked about capital allocation consistent with both our Finance Committee to force our full board. It makes these considerations, but what we're focused on is looking for acquisition opportunities in further growing HDD equipment services. So I wouldn't want to lead anyone to a likelihood of a stock buyback, what's a 100% likely as we can.

Bradley W. Barber: But what we're focused on is looking for acquisition opportunities and further growing H&E Equipment Services. So I wouldn't want to lead anyone to the likelihood of a stock buyback. What's 100% likely is we continue to pay our dividend, and we continue to stamp out these 15-ish locations a year. We continue to see same-store growth as we deploy capital to the existing, previously matured locations, and we are aggressively looking for acquisitions that fit the profile we need. Those are where you're going to more likely see us deploy capital.

Jamie Wilen: You need to pay our dividend we continue to step out these 15 ish locations a year.

Jamie Wilen: Continue to see same store growth as we deploy capital to the existing previously matured locations and we are aggressively looking for acquisitions that fit the profile. We need those are those are where you're going to more likely see us deploy capital never going to rule out a stock buyback, but right now we're in growth mode.

Jamie Weiland: I'm never going to rule out a stock buyback, but right now, we're in growth. Excellent. And lastly, your fleet age is obviously the youngest in the industry, but what is your target level for what your fleet age should be to optimize the profitability of the business? Of course, we have levels within fleet management with the product mix.

Jamie Wilen: Excellent.

Lastly, your fleet age was obviously the youngest in the industry, but what is your target level from what your fleet age would be to optimize.

Jamie Wilen: The profitability of the business.

Jamie Wilen: We of course, we have levels within fleet management with product mix, what I can tell you is our our fleet ages.

Bradley W. Barber: What I can tell you is our fleet age is well below an optimum age if we were just managing a steady state of business. You've got your numerator and denominator, and when you grow at the levels we have been growing in our rental fleet, it pushes your fleet age down, so we're happy about that. That's just pent-up opportunity for us to age it further if we need to or elect to, but if you were asking in a normal cycle, when we've matured in scale, where we would be, it certainly could be much older than where we are today, as Leslie and I both pointed out.

Jamie Wilen: Below an optimum age if we were just managing a steady state of business, you've got your numerator and denominator when you grow at the levels, we have been growing our rental fleet.

Jamie Wilen: It pushes your fleet age now so we're happy about that that's just pent up opportunity for us to agent further if we need to or you like to.

Jamie Wilen: You know if you were asking in a normal cycle, when we've matured and scale, where we would view it certainly could be much older than where we are today is leslie not both pointed out like the industry average is close to 50 margin. We're under 40. So we're in a great position there.

Bradley W. Barber: I think the industry average is close to 50 months, and we're under 40, so we're in a great position. Is part of the decline the number of new branches you're opening up? The decline in fleet age, or what decline are we speaking of? Fleet age.

Jamie Wilen: As part of the decline.

Jamie Wilen: Of new branches you are opening up.

Jamie Wilen: The decline in fleet age or the what's the client actually yes.

Jamie Wilen: Fleet age.

Jamie Weiland: That's a part of it. It's fleet rotation. It's fleet replacement. It's growth at the same stores. And certainly, we deploy primarily brand new product to these locations. I mean, we may move some existing assets, but when your utilization is running as high as ours does on an annual basis, we're deploying primarily new capital to these locations.

Jamie Wilen: Okay. That's a part of it its fleet rotation is fleet replacement as growth as same stores and certainly we've deployed primarily brand new product to these locations.

Jamie Wilen: We may move some existing assets, but when your utilization is running as high as ours does.

Jamie Wilen: Annual basis, we're deploying primarily new capital to these locations.

Bradley W. Barber: Excellent. Nice job, fellas. Thanks. As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue. The next question comes from Seth Weber with Wells Fargo. Please go ahead.

Speaker Change: Excellent nice job fellows.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to enter the question queue.

Speaker Change: The next question comes from Seth Weber with Wells Fargo. Please go ahead.

Seth Weber: Hi, thanks for taking the follow-up. Just, Brad, on used equipment pricing, used equipment margins were, you know, surprisingly high here in the fourth quarter. Any guidance on how we should be thinking about used sale margins for 2024 and just what you're seeing in the market? Yes, Seth, we're going to stick with our 50% plus growth margin expectation for the year. At some point in time, we expect to see moderation. It's been interesting as we've deployed technology to help us isolate the assets to sell, the pricing to sell them, and the markets to sell them through. We've exceeded our own initial expectations, and we've recalibrated those expectations. I suspect that Q1 will probably be closer to 60%, but our view for the full year is 50% plus.

Seth Weber: Hi, Thanks for taking the follow up just on Brad on used equipment pricing used equipment margins were surprisingly high here in the fourth quarter.

Seth Weber: Any guidance on how we should be thinking about mark used sale margins for 2024, and just what youre seeing in the market.

Seth Weber: <unk>.

Seth Weber: Yes, yes, we're going to stick with our 50% plus gross margin expectation on a year.

Seth Weber: <unk>.

Seth Weber: At some point in time, we expect to see moderation, it's been interesting as we deploy technology to help us isolate the assets to sell the pricing to sell them in the markets to sell them through.

Seth Weber: We are somewhat at some level exceeded our own initial expectations and we've recalibrated those expectations.

Seth Weber: I suspect that Q1 will probably be closer to 60%, but our view for the full year is your 50% plus.

Bradley W. Barber: Got it. Okay. Thank you, guys. I appreciate it.

Seth Weber: Yes.

Speaker Change: Got it okay. Thank you guys appreciate it.

Jeffrey L. Chastain: Thank you. This concludes the question and answer session. I would like to turn the conference back over to Jeff Chastain for any closing remarks. Okay, then, with that, we'll conclude today's call. We do appreciate everyone taking the time to join us today and for your continued interest in H&E. We look forward to speaking with you again, and Betsy, thank you for your assistance on today's call. Good day, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021

Speaker Change: Thank you.

Jeff: This concludes our question and answer session I would like to turn the conference back over to Jeff casting for any closing remarks.

Okay, then with that we'll conclude today's call. We do appreciate everyone, taking the time to join US today and for your continued interest in H E.

Jeffrey L. Chastain: Look forward to speaking with you again and thank you for your assistance on today's call Good day everyone.

Jeff: Okay.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: [music].