H&E Equipment Services, Inc.

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Thank you, Chris. And welcome to H&E Equipment Services’ conference call to review the company’s results for the second quarter ended June 30, 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 1.

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 2.

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, 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 all cause actual results to differ materially from those contained in any forward-looking statement. These risk factors are included in the company’s most recent annual report on Form 10-K.

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

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

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services second quarter 2012 earnings call.

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

Please proceed to Slide 3. This morning, I’ll give an overview of our second quarter performance, including an update on the specific regions we serve and current market conditions.

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

Slide 5, please. In summary our second quarter performance was very strong as demand in our end-user markets continued to increase particularly along the Gulf Coast where energy related activity remains high.

A modest recovery in commercial construction activity is also helping drive significant improvements in our rental business. Our rental results were once again very strong and we generated impressive year-over-year gains driven by higher demand and better pricing.

The operating leverage in our business model was evident this quarter as we delivered a nearly 300% bottom line improvement on a 13.4% growth in revenue.

In terms of the financial highlights total revenues increased 13.4% to $209 million this quarter on a year-over-year basis. EBITDA increased an impressive 46.8% or $16.5 million to $51.7 million compared to $35.2 million a year ago.

Our bottom line improved significantly as well with net income of approximately $ 10.5 million or $0.30 per share compared to net income of approximately $2.7 million or $0.08 per share in the second quarter of 2011. Again our bottom line gains demonstrate the leverage in our business model and our ability to take advantage of improvements in the business cycle.

Let me conclude with a few comments regarding our rental fleet and business. As a result of the strong demand for rental equipment we are approaching record utilization levels at 73.5% based on OEC versus 70% a year ago.

Rental revenue grew 26.4% while rental gross margins grew to 47.5% compared to 40.7% a year ago. Rental rates improved 11% from a year ago and 5% from the first quarter of this year.

Dollar utilization also increased to 35.6% from 31% over the same period last year. As a result of these strong metrics and trends in our rental business, we are continuing to increase our fleet size, which has surpassed previous peak OEC levels as of June 30.

Proceed to Slide 6. As I mentioned previously the strong demand related to the oil patch and other energy related sectors continues to benefit our Gulf Coast and Intermountain regions, which generate the majority of our revenues and gross profit.

Activity in our other less industrial focused regions is also beginning to materially improve as a result of a modest increase in commercial construction activity.

Slide 7, please. I've already touched on most of these points in my previous comments, so to summarize we are extremely pleased with the current market environment and believe this can be seen from our performance this quarter that the cycle is improving and our business is certainly benefiting from these improvements.

At this time I am going to turn the call over to Leslie for the financial review.

Thank you, John, and good morning. I’ll begin on Slide 9.

We continue to be encouraged and pleased with our financial results.

From a summary viewpoint, second quarter total revenues were $209 million, an increase of 13.4%, and gross profit was $64.2 million, an increase of 34.4%, in each case compared to the same period last year.

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 highlights on gross profit by segment. Rental revenues were $70.5 million for the quarter, a 26.4% increase over the same period 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 second quarter of 2011. Compared to a year ago, we have increased our total fleet by approximately $84.4 million or 11.6% based on original equipment cost or OEC.

Average time utilization, based on OEC, increased 350 basis points to an average of 73.5% for the quarter. Based on units, average time utilization increased 160 basis points to 68.7% and demand was higher in all product lines.

In addition, rental revenues were higher, as a result of an 11% increase in average rental rates in comparison to the second quarter a year ago, and 5% compared to the first quarter of this year. The improvements have also been broad-based across all product line.

Our dollar returns improved to 35.6% compared to 31% a year ago. This 406 basis point improvement was due to the strength in both time utilization and rental pricing.

New equipment sales were $64.7 million, a $6.8 million or 11.7% increase over the prior year period. This increase was due primarily to higher crane and aerial work platform sales.

Used equipment sales were $23.6 million, a $500,000 or 2.3% increase over the second quarter of 2011. Business activity in our parts and service segments improved as revenues increased to 1.1% on a combined basis to $38.6 million, with parts slightly down and service up from a year ago.

Moving on to gross profit by segment. Total gross profit for the quarter was $64.2 million compared to $47.8 million a year ago, an increase of 34.4% on a 13.4% increase in revenue.

From a gross margin perspective, consolidated margins were 30.7% compared to 25.9% 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 margins.

Our rental business delivered margins of 47.5% compared to 40.7% last year. Higher demand resulting in increased volume and rental rates continue to result in expansion of rental gross margins.

Margins on new equipment sales were 10.9%, slightly down from the 11.7% last year based on the mix of new cranes sold. Gross margins on used equipment sales increased to 30.5% from 21.7% in the same period last year.

Parts gross margins were 28% compared to 26.8% a year ago and service gross margins were 62.8% versus 61.2% a year ago. Margins on other revenues such as equipment hauling and parts freight revenues were a 7.4% compared to a negative 15.9% in the second quarter of 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 financial results have been covered at this point.

Our results again reflect strong operating cost leverage with significant improvement in profitability as reflected in an increase in income from operations for the second quarter of 2012 to $23.5 million or an 11.2% margin compared to $10.3 million or a 5.6% margin a year ago.

Proceed to Slide 11. As a result our bottom-line also improved significantly as net income was $10.5 million or $0.30 per share compared to $2.7 million or $0.08 per share in the same period a year ago.

Please move to Slide 12. EBITDA was $51.7 million or a 46.8% increase over the same period last year, which again outpaced our revenue growth of 13.4%.

EBITDA margins were 24.7% compared to 19.1% in the same period a year ago an expansion of 560 basis points.

Next on Slide 13. SG&A was $41.4 million, a 10.4% over the same period last year.

However, SG&A declined as a percentage of revenue to 19.8% this quarter compared to 20.4% a year ago.

Slides 14 and 15 include our rental fleet statistics. Our fleet based on original equipment cost at the end of the second quarter was $809.3 million versus $724.9 million a year ago.

During the second quarter we increased the size of our fleet by $63.6 million based on original equipment costs. Our gross fleet capital expenditures for the quarter were $97.5 million including non-cash transfers from inventory.

Net rental fleet capital expenditures for the quarter were $76.6 million. For the quarter gross PP&E CapEx was $10 million and net was $9.2 million.

Our average fleet age at the end of June was 40.4 months which had been declining as a result of our fleet spending.

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 $71.3 million.

We had $242.2 million of availability at quarter end under our $320 million ABL facility. In summary, our business delivered strong results during the second quarter and we’re focused on continuing to capitalize on the market improvement.

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

Thank you, Leslie. Everyone please proceed to Slide 18.

Our outlook for the balance of this year remains positive based on our view of the current trends in our business. Even though the macro environment is difficult to predict, we continue to believe we are in the early stages of an expansion cycle with the construction market starting to show modest improvement.

Demand for rental equipment remains strong and rates are continuing to increase into the third quarter. We are approaching record levels of time utilization and our dollar returns will allow us to continue to increase our fleet size throughout the balance of this year.

As we have previously noted our fleet size remains dynamic and is tied to demand. If the demand continues to increase we expect to continue to increase our fleet size accordingly.

We are also preparing two new stores for opening in Texas this year, Midland and Mesquite to serve increased demand in those areas. Our focus on the energy sector, especially the oil and gas and petrochemical sectors continues to be a tremendous benefit to our business.

Activity in the energy sector remains elevated and many industries that use natural gas as a feed stock are benefiting from low gas prices.

Our distribution business remains strong but difficult to predict. We’re seeing increased quoting activity for hydraulic cranes primarily used in energy related activity.

In closing, we’re very pleased with the second quarter performance, the ongoing improvements in market conditions, and our ability to execute in the current environment.

Once again, I congratulate our employees for their excellent execution and we remain focused on profitable growth opportunities.

At this time we would like to take your question. Operator would you please provide instructions.

Adam on for Seth here. Just wondering if you could provide any color on the cadence of rates and utilizations through the quarter and hopefully through July?

Yes, I can speak to July, I don’t know if Leslie has anything on the cadence or not. But rates were up again solidly year-over-year in July, double-digit year-over-year growth and we saw a solid sequential improvement again.

And then utilization?

Utilization remains solid. I mean, we’re running on average in that 73.5%, 74% range.

So it remains very solid.

Without giving specific number, I would just say that the progression throughout the quarter was very positive, both sequentially and year-over-year.

Great. Thanks and just as a follow-up, the break-up between all-terrain and crawlers as far as what you’re seeing in "ordering activity"?

Yes, it’s the same story I told on the last call. The hydraulic crane market is solid.

It’s - we’ve got a lot of activity on rough-terrain cranes, truck cranes and all-terrain cranes, the crawler crane markets are still pretty mushy. As I’ve said in the past, crawler crane activity generally lags the hydraulics side by 6 to 8 months.

So we're hopeful to start seeing some increased activity there but strong on the hydraulics side, still a little soft on the crawler crane side.

Without giving CapEx guidance, has your thoughts on CapEx changed at all over the last few months for 2012. In other words do you plan to spend more than you thought 3 months ago?

Probably so. The only thing limiting our CapEx right now is our ability to get equipment.

When we can get availability on stuff that fits our fleet mix, we’re going to buy it right now and that'll continue certainly through the third quarter. And then I think you’ll see some slowdown in our spending in the fourth quarter just because we’ll be facing seasonality issues.

Okay. And are you bigger rental competitors still exercising discipline with regards to rental rates and do you anticipate rental rates to continue to move higher this year from current levels?

We do, I mean I think everybody is running at high utilization levels right now and it’s a great environment to push rates and yes, we are seeing discipline from our larger competitors, particularly United. They’ve been disciplined in their approach to rates and I think it’s benefiting everybody.

Great. And then last one, are there any signs of deterioration in the rental or distribution businesses that may be creeping in given the downward movement we’ve seen in the ABI over the last couple of months or is your visibility pretty good and everything still going strong?

Look, I think, our visibility on the rental side is good and it’s very strong. We have less visibility on the distribution side, it's much more difficult for us to forecast.

But we’re certainly seeing no softening on the rental side. As I speak to our operations people, our divisional managers and branch managers, I mean, it’s, the demand is very, very strong there.

On the growth in the fleet, how much of that is to support the new Texas locations and how much for additional demand elsewhere? And then maybe with that is there any focus at this point to de-aging the fleet or does that just fall out from the higher fleet CapEx?

Yes, I mean the de-aging of the fleet and obviously I think we’ve got the lowest fleet age in the sector, so we have no need to de-age our fleet necessarily. That’s just a function of our capital spending and selling off the backside of our fleet.

So that’s -- and I expect our fleet age to come down some more. Those two stores in year one will probably absorb $20 million worth of fleet somewhere around there and some additional investment in the second year.

But -- so we’re spending CapEx across the board throughout our footprint right now and some of it is going to those two new stores.

That’s helpful. And you mentioned growth opportunities, can you talk about what you're really thinking there, is it mostly cold starts or is M&A on the table?

No, I think our focus right now is going to be cold starts. I think we can -- here recently as we’ve looked at multiple expectations and fleet issues, we have to deal with through an acquisition, I think it makes a lot of sense for us to approach this from a greenfield standpoint.

We can get our fleet mix right going in. It’s all brand new equipment.

So, we’re pretty comfortable with that approach right now.

So, if you look at the rough data, which I believe came out yesterday, it shows a little bit of a leveling off in used equipment prices, I guess one, does that change the way that you think about bringing your used equipments to market and two, what you think it’s telling us about the broader end markets?

Well, I mean I think that there has been such aggressive growth in residual values that it just, I mean, at some point it has to level off. So, that doesn’t concern me at all.

It does not change our approach on how we bring our fully used fleet to market. We’re going to continue to sell our fleet through our retail outlets through the distribution side of our business.

So, nothing changes there. But the fact that these prices have leveled off a little bit is not concerning to me, I mean they have to at some point.

Okay. And can you just talk to your capacity levels on the equipment rental side.

I mean, you're back to your prior peak fleet levels and can you just give us a sense on where you’re sitting in terms of personnel and overall infrastructure? Do you need to make some new investments here or is there still plenty of capacity?

We’re adding some people as we speak, technicians and people to support this larger fleet but I think you will continue to see our SG&A, although the dollars will go up somewhat, as a percentage of revenues that will be very flat. So we’re watching our head count closely and you won’t see us go back to anywhere near prior peak levels of head count.

I can tell you that and so I think we’re doing a good job of controlling that. What was the rest of your question, Joe?

I apologize.

Yes. It was just thinking about how much leverage you had and I think you pretty much touched on it but, I guess, a follow-up to that.

If you look at incremental rental gross profit margins over the last 6 quarters they’ve been in the 70% plus range. Given some of the investments you’re making and the 2 new stores, how should we think about the incremental margins?

Is there not really enough to move the needle? Should we still kind of expect them in that range or will they be lower?

No. I would expect similar incremental margins in our rental businesses as we’ve been delivering.

First question, I was just wondering if you could address the used equipment margins. Over the last two quarters they've been quite high compared to your historic margins.

Is that just pricing or what is that or how sustainable is that?

I think it’s primarily pricing and it’s also probably a function of the age of what we’ve been selling. We’ve been selling older stuff in our fleet, which been carrying a strong margin.

So, I think it’s some of both but you know for -- certainly for the foreseeable future, we think those margins are sustainable.

Okay, and then in the back-half of the year, sort what is -- I guess you sort of touched on it earlier but again just given the environment, your expectations for new equipments in the back-half of the year compared to, I guess, the second quarter run-rate?

For new equipment sales?

Yes. That’s correct.

Well, one thing I will tell you is as we move farther into the year, we're going to go up against some pretty stiff comps there. Some - a lot tougher comps and again we’re in -- somewhat in an environment of uncertainty and I think that’s one of the things that is driving this super strong growth in our rental business and so I do not have as much visibility on the new equipment sales as I do on the rentals.

We expect continued really strong year-over-year growth in rentals and on the sales side not as much visibility and we’ll be certainly be going up against some tougher comps particularly in the fourth quarter.

Okay and then last question, just regarding the balance sheet. First of all, what was the manufacturing tables line at the end of the quarter?

And also just given the -- it looks like your debt to GDP is around 2.5 times or so, if I'm doing my calculation right. What is your, sort of, feeling on that, and your, sort of, expectations on managing the balance sheet?

The [indiscernible] payables is $64.1 million at June 30. And we tend to look at it on a debt -- our leverage on a debt to EBITDA basis which was just under two times at June 30.

So I’m not sure what your measurement is.

Okay. I must have done something wrong there.

But what is your - is that a comfortable level? Or what is sort of your ceiling?

What is your thought process on that?

Look I mean, obviously that’s extremely low leverage in this sector, super conservative balance sheet. If our leverage through some type of transaction went to 3.5x that wouldn’t concern me at all.

So we have very, very conservative leverage on our balance sheet.

Looking at Slide 6 where you break out revenue and gross profit by region, if you were to parse out just the rental business, is there any areas of strength or weakness just within rental?

We’re getting to that slide. If you were to ask your question again.

I apologize.

Just were there any areas of strength or weakness in specifically rental, is really the question.

Yes, I mean, it’s -- there's no question that any area with heavy exposure to the oil patch is exceptionally strong right now. If you get into South Texas around that Eagle Ford Shale I mean our utilization is running north of 80% in those markets and markets like San Antonio and Corpus Christi.

The same thing goes for the Gulf Coast area. You get up into the Dakotas into Montana and to Utah same thing.

Exceptionally high utilization and it’s primarily driven by oil and gas exposure. But with that said, we’re seeing nice year-over-year improvement in our less industrial markets like Florida and Arizona, Southern California.

Arizona has been a real, real surprise for us, I mean, that market has turned around just dramatically from where it was. So, our improvement is very broad based but the real strength is in the oil and gas fields.

Okay, that’s helpful. And then looking at used equipment sales, is one of those segments that's more modest of your revenue growth.

Is that entirely a function of wanting to hold on to more rail equipment or is there another piece of the puzzle there that’s maybe more demand driven or what’s your take on that?

I’m not sure I understand -- understood your question. I think Leslie got it.

He’s talking about our used equipment sales. How there’s not been a lot of growth there which is only a function of, yes --

Absolutely, yes.

It’s about rental equipment.

Yes, absolutely. I mean we’re trying to grow our fleet not shrink it.

And it’s one of the reasons you’re seeing such strong margins on our fleet sales, we’re not selling anything unless we get a very strong price for it.

My first question is with regards to CapEx. Can you give us any kind of parameters in terms of maybe gross spend that you would consider going up to this year or possibly if we look at it the other way, would you consider going free cash-flow negative as you spend on the fleet?

Yes, absolutely we would go free cash-flow negative. That wouldn’t be an issue for us at all and with our level of spending, we would expect to have a use of cash this year.

It’s not going to be a big number but we would absolutely expect to use some cash this year and have no issue with that whatsoever.

And I guess the parameter you would consider, John, would be nothing more than to get you up to that 3.5x leverage. I guess that would be a lot of spending, but can you give us a sense of how much free cash-flow negative you would consider -?

We could not spend enough on fleet to get that level of leverage.

Yes, okay. But there's -- you wouldn’t say less than $50 million or less than $100 million for cash-flow negative?

Yes, I mean if we were -- if we burn $50 million or $75 million in cash that would not bother me at all.

Okay, okay, that’s great. And then you’re rate performance was better than all of your peers, is that because of the type of equipment that you're renting or the locations you rent?

Could you just give us some color there as to - I think URI was somewhere in the 6%, NES [ph] was in the 9% and you guys are here at 11% rate growth?

Probably, all of the above maybe it's -- it could be a fleet mix issue. Our fleet mix is a little different than those guys.

Some of it could be geography-related. We’ve got some expose - heavy exposure in some real strong areas.

So, I think it’s probably a little bit of everything and frankly, I think our management team is doing a really good job of pushing rates hard. I mean we're -- that's something we’re very, very focused and spend a lot of time on.

So, probably all of the above.

Last one for me, with regard to cold starts and the potential for acquisitions. Are you going to stay within your contiguous markets, or are you looking to expand the footprint geographically?

You're two Texas locations are obviously within the footprint?

Yes, those are within the footprint and I think as we expand we would like to keep that expansion as contiguous as possible. It doesn't have to be totally contiguous but as much as possible because we do like the ability to move fleet around and we really wouldn’t want to have an island out there that was difficult to move fleet to and from.

Okay, and sorry, just going back to rates. I think if my memory serves, that rates got stronger in the second half of last year, so your comparisons get a little bit more difficult.

Can you give us any guidance as to what think rates could be in the second half of the year, are they going to be up double digits is it high single digits you’re expecting?

Well, look we’re going to continue to get real solid rate increases, I think as we move through the year, the expect -- the expectation should be that they start to moderate some. I mean they’re going to have to.

But part of its tougher comps and just we’re going to be getting back to peak rate levels and I would expect them to moderate somewhat.

A couple of follow-ups for you guys. URI's pretty well into its branch consolidation program.

I guess number one, are you guys seeing any business opportunities in terms of showing up on an approved vendor list? And number two, are you seeing any interesting properties or employees become available?

I mean that’s something that we've got a team of people looking at and we’re certainly looking for opportunities and it’s guaranteed that -- I think the last I heard they’re going to show down 180 stores. I mean there's going to be some facilities come available and certainly some people come available and we’ve got a team here that is keeping a very close eye on that looking for opportunities for us.

Okay. And I guess more specifically John, have you been approached by any customers yet or is it still too early?

Look, there is going to be some fallout there, I mean there is going to be some opportunities for us and other people I mean that’s a massive integration, and it'll create some opportunities for us.

Okay. Last question for you, just on the new cold starts, could there be any potential impact to either time utilization or even rates by entering those new markets?

That’s a good question. I don’t think so, I think that we picked 2 really good markets there.

Midland obviously has heavy oil field exposure. We’re already sending fleet in there in advance of opening the store.

That store is close, I mean it’s a couple of weeks out, but I’ve got fleet in there and it's going on rent and staying on rent. So, I don’t really see any negative implication to our utilization in either one of those stores.

Adam again on for Seth. I just wanted to get a sense of where rates are versus past peak?

We’re still below past peak. That’s a little bit hard to quantify, but I would say 5% to 8% below past peak, somewhere in that range.

Just a quick question. Do you anticipate that rates this cycle will exceed past peaks?

I think that’s possible but my expectation is they will get back to prior peaks and it is possible they could exceed prior peak.

I appreciate everybody being on the call. We had a great quarter, feel good about our end markets and we’re going to keep working hard and generate positive results.

Thanks for being on the call.