H&E Equipment Services, Inc.

Thank you, James, and welcome to H&E Equipment Services’ conference call to review the company’s results for the first quarter ended March 31, 2012, which were released earlier this morning. The format for today’s call includes a PowerPoint presentation, which is posted on our website at www.he-equipment.com.

Please proceed to slide one.

Conducting the call today will be John Engquist, President and Chief Executive Officer; and Leslie Magee, Chief Financial Officer and Secretary. Please proceed to slide two.

During today’s call, we’ll refer to certain non-GAAP financial measures, and we reconcile these measures to GAAP figures in our earnings release, which is available on our website. Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of the Federal Securities Laws.

Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties which could cause actual results to differ materially from those contained in any forward-looking statement. These risk factors are included in the company’s most recent annual report on Form 10-K.

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call.

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

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services’ First Quarter 2012 Earnings Call.

On the call with me today is Leslie Magee, our Chief Financial Officer.

Slide three please. This morning, I will give an overview of our first quarter performance, including an update on the specific regions we serve and current market conditions.

Leslie will then summarize our first quarter financial results. When Leslie concludes, I’ll provide our thoughts on the second quarter of 2012 and will then be happy to take your questions.

Slide five, please. The first quarter proved to be another strong period for our business for growth and every operating segment.

I’m especially proud of our performance given the first quarters typically almost challenging quarter. Our rental results were very strong and this was a seventh consecutive quarter where our business generated impressive year-over-year gains driven by improving demand and better pricing.

Equipment sales and parts and service also produce solid year-over-year gains. Our performance clearly validates our ability to capitalize on cycle improvements and reflects the significant operating leverage in our business model.

Overall market conditions continue to improve as specifically construction activities gaining traction.

Our solid results this quarter were also a result of our industrial focus. Demand in the oil patch and other energy related sectors where we are heavily embedded in our Gulf Coast and Intermountain regions, has been high primarily due to increase in oil prices and expanding capacity.

In terms of the financial highlights, we delivered across the board improvements. Total revenues increased 28.7% to $173.7 million this quarter on a year-over-year basis with all segments delivering solid increases.

EBITDA increased an impressive 82% to $38.7 million compared to $21.3 million a year ago. Our bottom line showed significant improvement as well with net income of approximately $4 million or $0.11 per share compared to a net loss of approximately $6.5 million or a loss of $0.19 per share in the first quarter of 2011.

Let me just provide a few comments on our rental business.

Again this quarter our rental revenues grew more than 20% on a year-over-year basis. We are very pleased to capture double digit rental rate gain this quarter and solid sequential rate gain from the fourth quarter, one of our historically strongest quarters.

Utilization remains strong and as a result our rental performance such as rental growth margins and dollar utilization continue to improve.

Slide six please. Our Gulf Coast and Intermountain regions still continue to generate the majority of our revenues and gross profit especially given the elevated demand related to all patch and other energy related factors.

The key point I want to make on this slide is that we’re now beginning to see increased demand in our other regions, which are less industrial focused.

Slide seven. Our overall view of the market remains very positive.

Our performance as well as that of our peer group, which continues to report improving results supports this view. The rental sector as a whole is focused on driving rates and expects to add fleet based upon equipment demand.

Customers are committing to large capital purchases again. Forecasts for construction in general are more positive than they have been in years, it is important that the strength not only in our rental business, but also the improvements we’ve seen in our distribution business, which we feel is very encouraging.

We believe the cycle is improving and that we are well positioned to benefit from these improvements. At this time I’m going to turn the call over to Leslie for more detailed financial review.

Thank you, John, and good morning. I’ll begin on slide nine.

As John stated, we are pleased with our performance this quarter. The improvements in profitability once again outpaced our top-line revenue growth rate.

From a summary viewpoint, the first quarter total revenues were $173.7 million, an increase of 28.7%, and gross profit was $52.7 million, an increase of 49.9%, in each case compared to the same period last year. All segments increased over the first quarter of 2011 on a revenue, gross profit, and gross margin basis.

I’ll begin with our rental business and provide more details behind the numbers, first on a revenue basis and then I’ll provide some highlight on gross profit by segment. Rental revenues were $59.6 million for the quarter, a 23% increase over a year ago.

We have a larger rental fleet available for rent, and our rental fleet is also in much higher demand relative to the first quarter of 2011. Compared to a year ago, we have increased our total fleet by approximately $46 million or 7% based on original equipment costs or OEC.

Average time utilization, based on OEC, increased 460 basis points, to an average of 69.5% for the quarter. Based on units, average time utilization increased 480 basis points to 65.8% and demand was higher in all product lines.

In addition, rental revenues were higher as a result of a 10.1% increase in average rental rates in comparison to the first quarter a year ago, and the improvements have also been broad based across all product lines.

Our dollar returns improved to 32.3% compared to 27.9% a year ago. This is a 440 basis point improvement due to the strength in both time utilization and rental pricing.

New equipment sales were $41 million, and a $11.8 million or 40.5% increase over the prior year period. The increase was due to higher crane sales.

Used equipment sales were $26.5 million, and $11.1 million or 72% increase over the first quarter of 2011 primarily due to higher demand for used earthmoving and crane. Business activity in our parts and service segments improved as revenues increased to 7.2% on a combined basis to $36.7 million with both segments generating increases from a year ago.

Moving on to gross profit by segment. Total gross profit for the quarter was $52.7 million compared to $35.1 million a year ago, an increase of 49.9% on a 28.7% increase in revenue.

From a gross margin perspective, consolidated margins were 30.3%, compared to 26% a year ago. Expansion of our consolidated gross margins was largely driven by improved performance from our rental business, better recovery rates on other revenues and higher used equipment margin.

Our rental business delivered margins of 42.4% compared to 35.4% last year. Higher demand resulting in increased volume and rental rates continued to result in expansion of our rental gross margin.

Margins on new equipment sales were 12.3%, up from 10.8% last year. New crane margins were the main driver of this improvement.

Gross margins on used equipment sales increased to 29.8% from 25% in the same period last year. Parts gross margins were 27.6% compared to 26.6% a year ago; and service gross margins were 61.5% versus 61.1% a year ago.

Margins on other revenues such as equipment hauling and parts freight revenues were a negative 2% compared to a negative 33.1% in the first quarter last year.

Slide 10 please, I’ll make just a few brief comments on the next couple of slides since the key drivers of our financials have really been covered at this point. Income from operations for first quarter of 2012 was $12.3 million or 7.1% margin compared to a loss from operations at $2.9 million were negative 2.1% margin a year ago.

The significant improvement and profitability as a result of the improved performance of our business segment combined with operating cost leverage in our business as the sectors in which we operate have improved. Let’s go to slide 11 please.

Our bottom line has also improved significantly as net income was approximately $4 million or a $0.11 per share compared to net loss of approximately $6.5 million or a loss of $0.19 per share a year ago.

Please move to slide 12. EBITDA was $438.7 million or an impressive 82% increase over the same period last year, which again outpaced our revenue growth of 28.7%.

EBITDA margins were 22.3% compare to 15.8% in the same period a year ago and expansion of 650 basis points.

Next to slide 13. SG&A was $40.7 million, a 6.9% increase over the same period last year or over SG&A declined as a percentage of revenue to 23.4% this quarter compared to 28.2% a year ago.

Slide 14 and 15 include our rental fleet statistics. Our fleet based on original incremental cost at the end of the first quarter was $745.7 million versus $699.7 million a year ago.

During the first quarter, we increased the size of our fleet by $9.1 million based on original equipment cost. Our gross fleet capital expenditures for the quarter were $47.9 million including non-cash transfers from inventory.

Net rental fleet capital expenditures were $24.2 million.

For the quarter, gross PP&E CapEx was $9.4 million and net was $8.9 million. Our average fleet age at the end of March was 42.8 months.

On slide 16, you’ll find the usual information regarding our current capital structure and credit statistics. At the end of the quarter, our outstanding balance under the ABL was $22.4 million.

This left us with $291 million of availability at the quarter end under the $320 million ABL facility.

In summary, our business delivered strong results during the first quarter and we're focused on continuing to capitalize on the market improvement.

I will now turn the call over to John to discuss our current outlook and then we will open the call for questions.

Thank you, Leslie. Please proceed to slide 18.

Let me just conclude by stating that our first quarter performance increases our confidence that we are in the early stages of an expansion cycle. We believe that the construction markets are improving and our current outlook remains positive based on the current trends and market conditions.

In addition, we feel that all indications are that rental demand and rates are continuing to increase as we move into the second quarter.

Based on the increased activity levels we are experiencing across all regions, we expect continued fleet growth through the third quarter this year. Our exposure to the industrial sector especially the oil and gas and petrochemical sectors, continues to be a tremendous benefit to our business given the elevated levels of activity in the energy sector.

We’re also pleased to see solid improvement in our distribution business, which we believe indicates that our end users are gaining confidence in the recovery.

As we move further into 2012, our position in the market remains strong and we’re well poised to benefit from increased demand in our markets. Once again, I want to congratulate our employees for their excellent execution and we remain focused on profitable growth opportunities.

We’ll now take your questions. Operator, please provide instructions.

There is a lot that can change as we’re going in 2012, but do you think that you can maintain the year-on-year strength in new and used equipment for the year and maybe a little color on how April looked?

Look, we’ve got really, really strong demand for hydraulic cranes, rough trains, and all terrain cranes right now, heavily tied to the energy sector. Crawler crane demand is still weak, that typically lags the recovery in the hydraulic cranes about 6 to 8 months and we’re still seeing a weak crawler crane market.

What I will tell you is that as we move towards the end of the year we’re going to go up of against very tough comp in the fourth quarter where we had $80 million some odd of new equipment sales in that quarter. So, that’s going to be a difficult comp and we’ll see how this plays out if we see any recovery in the crawler crane markets.

But that’s the toughest comp we’re going go up against and I think people should keep that in mind, but we are seeing strong new equipment demand right now, particularly on hydraulic cranes.

It’s helpful. And how does the strength in the first quarter impact your CapEx plans for the year?

Henry, as you know we don’t give CapEx guidance because our spending is dynamic and we try to make shorter-term decisions as possible based on demand. I can tell you we’re going to continue to invest in our fleet.

We’ve got very strong demand. I think our utilization is right around 74% of our dollars of ROC on rent right now and a debt level we’re going to continue to invest.

I think we’ll continue to grow our fleet certainly through the third quarter, again depending on demand. But we will invest more in our fleet this year than we did last year.

Just as a follow-up to Henry’s question. Can you comment on rental rates in April and any other rental metrics you can share with us at this point?

Well, as you know we showed a 10% increase year-over-year in the first quarter and we had a nice sequential increase about 2% of fourth quarter to first quarter, which I think is very strong. We are seeing the same trends.

We are continuing to get rate increases and as I just stated, we are running around 74% of our fleet on rent based on what we see right now, and when we are at that level of utilization, we can push rates hard and I can tell you we are seeing our competitors do the same thing particularly - our biggest competitor, United. They are showing a lot of rate disciplines.

So, we’re in a really strong environment to get rate gains and I’m very confident we will continue to do so.

Great. That’s helpful.

And with regard to the new equipment sales gross margin in the quarter, there is a nice uptick both sequentially and year-over-year. I know you guys have mentioned that it was new crane margins drove the increase.

So, was there - I guess a smaller mix of crawler crane sold in the quarter versus the fourth quarter that was part of that increase?

Yes. There is no question about it, but some of that was a mix issue or sales were related to hydraulic cranes, which carry a better margin than the crawler cranes do.

Okay. And then lastly, you indicated last quarter that you are seeing a definite increase in small to medium sized projects.

Is this is - is this still the case and has the trend accelerated at all?

It’s still the case and we’re just really pleased to be seeing improvement in the construction markets and I think we are going to continue to see that. You can look at what the architectural building index has done for the last seven months or so.

It’s been in positive territory and I think - I think this bodes well for the construction markets moving forward. We’re not expecting them to sky rocket, but we expect to see continued modest improvement.

That’s very encouraging for us.

Couple of questions for you on the used equipment market. I think, Leslie, you referenced earlier that there was a benefit there from higher crane and dirt moving.

Can you just tell us how much of that came from fleet sales versus sales of customers’ equipment?

Sales, the used equipment line about 90% of it came out of the fleet.

Okay, that’s helpful. And then typically it’s been weaker in 1Q, so can you just help us understand, was some of the equipment just pushed out from 4Q or are we potentially looking at a more robust used equipment figure for the full year?

Well, I think we’re going to kind of be in control of that. There’s tremendous demand right now for good used equipment.

But we’re going kind of control our sales. We’ll continue to sell off the backend of our fleet, the oldest products in our fleet and from there we’re going to control fleet sales through pricing.

So the demand is there. I think we have the ability to sell as much as we want to, but that doesn’t mean we necessarily will sell as much as we can.

We’re going to control that through pricing.

So is it fair then to say John that there wasn’t a one-time bump this quarter from something that got pushed out from 4Q?

No, I don’t think it has anything to do being pushed out from 4Q. I think that we’ve got a segment of our earth moving fleet that it is in - is of an age and it’s very attractive in the secondary markets and crane demand on the hydraulic side is very strong.

So I don’t think there is anything unusual there.

Okay. And just moving over to rental rates, with respect to some of your longer-term contracts, can you maybe just talk about the type of gains that you are seeing there among those customers versus maybe what you are seeing from some of your shorter duration business?

Well, I think the comment I would - I’m not sure I understand your question Joe. Longer-term, rephrase your question if you could I’m not sure I understand it.

Sure. I know you guys have a lot of long-term contracts.

Right.

I’m just trying to differentiate the type of rental rate gains that you are seeing for those long-term contracts maybe versus what you are seeing for a two-week or a one-month long rental.

I got you, I got you. I think it’s probably easier to push rates on shorter-term contracts than it is long-term contracts, but our rate gains are broad based.

I mean they are very broad based. Obviously, if you tie a piece of equipment up for a year, you can take less rate because you’ve got such good utilization you handle it less.

There is some real benefit to the long-term rental, but our rate gains are broad based.

Okay, that’s fair. Then just one last kind of high-level question for you, I’m just trying to think about H&E over the next couple of years.

Where do you think the big opportunity is for H&E? Is it to grow the rental fleet and maybe get some additional penetration at your existing locations?

Is it organic geographic expansion or are you looking at some deals to expand your geographic profile? Any color there would be helpful.

Yes, I think it’s all of the above. We certainly intend to grow our rental business as a percentage of our overall revenue.

We’re going to be doing some greenfields. We are doing market studies as we speak.

We are in the process of opening a store in Midland and Texas and a store in Mesquite, Texas. So, Joe, I think it’s a little bit of all of the above and we got a really strong balance sheet and lot of liquidity and if the right opportunity comes along from an acquisition standpoint, we are going to take a look at it.

So, I wouldn’t exclude any of those. I think it’s all of the above.

So I heard you guys talk about I guess the environment being strong to push pricing in rental. We see all the releases out of the large crawler competitors, but do you have any kind of sense for what’s going on with smaller rental companies?

Let’s say that - the mom and pops, are they having a harder time pushing along pricing as - do you have any sense for that?

I think there is tremendous variance there. I think we see some smaller local players that are in good shape financially and I think they are pushing rates like everybody else.

And then we see some smaller players that are financially stressed and have leverage issues and issues with accessing capital and they can be a lot more aggressive on the pricing side. So, I don’t think you can make one statement there.

I think it’s a mixed bag.

Okay. And then if you have any update for I guess how far prior PQR in terms of rental rate?

I can’t tell you exactly, but I would think we’re probably 10% off of peak rates.

Okay. And is there any update on, I guess, adopting [indiscernible] definitions for rental metrics.

That is something we’re looking at. That involves an IT initiative and a project on our part and as we sit here, we got some bigger fish to fry, but that is something we’ll be looking at.

I’m supportive of that of developing the common platform, so we’ll be looking at that downstream.

Okay. I think this is probably a difficult question to answer as well, but it sounds like - I guess across the business, there’s been - obviously the energy market is strong, so you’re doing on the industrials and non-res is kind of coming back a little bit as well.

But how much do you attribute to, I guess non-res market improvement verses industrial improvement in terms of I guess your performance in the quarter and going forward?

Well, I think that there is no question we are seeing improvement in the construction markets, because you can see what we’re doing in some markets like Florida and Georgia where we have minimal industrial exposure. And those businesses are growing their top line strong double-digits.

Their bottom line a lot more than that. They are getting rate improvement.

So we’re comfortable that the construction markets are improving and we’re certainly seeing that in our less industrial markets.

First question is the easy one, the [indiscernible] please?

Sure. $59.9 million.

Okay. And John, as you mentioned possibly looking at acquisitions as you guys look to capitalize on the growth and the industry, can you give us any kind of metrics of how big of an acquisition you would consider and what - kind of leverage will be considered going up to?

I mean I don’t know that I could give a good answer, we would - it just depends on opportunity, their fleet mix, their geographic, I mean there is a lot of things we’ve got look at. I think we’ve got the capacity to do a sizeable acquisition.

If all of those things fit together and it makes sense for us. From a leverage standpoint if we did an acquisition- I don’t think I would want to take our leverage much beyond 3x.

Okay, okay. And then just the last question with regard to the bonds they are becoming callable later this year.

Any updated thoughts on what you might do you might keep those bonds outstanding and wait a couple more year or would you look to try to refinance them given the good credit markets?

Well, obviously the credit markets are exceptionally good right now and so our management and our finance committee are studying that situation right now and we’ll be making the decision there shortly, but it is something we are looking at as we speak.

Thanks, everybody. Appreciate you being on the call.

As I stated, we are in a strong environment. I feel good about our business, and we think we are going to have a strong year here.

We look forward to talking to you on our next call. Thank you.