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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to        

Commission file number: 000-51759

 

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

81-0553291

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

7500 Pecue Lane,

 

70809

Baton Rouge, Louisiana

 

(ZIP Code)

(Address of Principal Executive Offices)

 

 

Registrant’s Telephone Number, Including Area Code: (225) 298-5200

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

HEES

Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

                         Accelerated Filer                  

Non-Accelerated Filer

 

 

 

 

 

Smaller Reporting Company  

                         Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 20, 2021, there were 36,125,059 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

 

 

 


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

March 31, 2021

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

4

 

 

 

Item 1. Financial Statements:

 

4

Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020

 

4

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2021 and 2020

 

5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021 and 2020

 

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4. Controls and Procedures

 

26

 

 

 

PART II.  OTHER INFORMATION

 

27

 

 

 

Item 1. Legal Proceedings

 

27

Item 1A. Risk Factors

 

27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

Item 3. Defaults upon Senior Securities

 

27

Item 4. Mine Safety Disclosures

 

27

Item 5. Other Information

 

27

Item 6. Exhibits

 

28

 

 

 

Signatures

 

29

 

 

2


 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

 

risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of construction or infrastructure projects, supply chain disruptions and other impacts to the business;

 

general economic conditions and construction and industrial activity in the markets where we operate in North America;

 

our ability to forecast trends in our business accurately, and the impact of economic downturns and economic uncertainty on the markets we serve (including as a result of current uncertainty due to COVID-19);

 

the impact of conditions in the global credit and commodity markets (including as a result of current volatility and uncertainty in credit and commodity markets due to COVID-19) and their effect on construction spending and the economy in general;

 

trends in oil and natural gas could adversely affect the demand for our services and products;

 

relationships with equipment suppliers;

 

increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;

 

our indebtedness;

 

risks associated with the expansion of our business and any potential acquisitions we may make, including any related capital expenditures, or our ability to consummate such acquisitions;

 

our possible inability to integrate any businesses we acquire;

 

competitive pressures;

 

security breaches and other disruptions in our information technology systems;

 

adverse weather events or natural disasters;

 

compliance with laws and regulations, including those relating to environmental matters, corporate governance matters and tax matters, as well as any future changes to such laws and regulations; and

 

other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward‑looking statements and are cautioned not to place undue reliance on such forward‑looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. All of our annual, quarterly and current reports, and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

 

 

 

 

Balances at

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash

 

$

322,545

 

 

$

310,882

 

Receivables, net of allowance for doubtful accounts of $4,926 and $4,741, respectively

 

 

155,835

 

 

 

178,858

 

Inventories, net of reserves for obsolescence of $272 and $350, respectively

 

 

156,115

 

 

 

72,488

 

Prepaid expenses and other assets

 

 

17,562

 

 

 

10,379

 

Rental equipment, net of accumulated depreciation of $703,178 and $701,588, respectively

 

 

1,019,462

 

 

 

1,028,745

 

Property and equipment, net of accumulated depreciation and amortization of $165,405 and

    $158,803, respectively

 

 

117,005

 

 

 

116,740

 

Operating lease right-of-use assets, net of accumulated amortization of $27,500 and $23,920,

    respectively

 

 

166,995

 

 

 

162,220

 

Finance lease right-of-use assets, net of accumulated amortization of $2,254 and $2,213,

    respectively

 

 

162

 

 

 

203

 

Deferred financing costs, net of accumulated amortization of $15,294 and $15,119,

    respectively

 

 

1,983

 

 

 

2,157

 

Intangible assets, net of accumulated amortization of $11,732 and $10,939, respectively

 

 

27,968

 

 

 

28,961

 

Goodwill

 

 

68,851

 

 

 

68,851

 

Total assets

 

$

2,054,483

 

 

$

1,980,484

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

151,713

 

 

$

89,295

 

Manufacturer flooring plans payable

 

 

10,524

 

 

 

9,615

 

Accrued expenses payable and other liabilities

 

 

76,720

 

 

 

67,290

 

Dividends payable

 

 

77

 

 

 

155

 

Senior unsecured notes, net of unaccreted discount of $9,030 and $9,323 and

    deferred financing costs of $2,085 and $2,017, respectively

 

 

1,238,885

 

 

 

1,238,660

 

Operating lease right-of-use liabilities

 

 

170,827

 

 

 

165,921

 

Finance lease right-of-use liabilities

 

 

242

 

 

 

305

 

Deferred income taxes

 

 

171,799

 

 

 

171,010

 

Total liabilities

 

 

1,820,787

 

 

 

1,742,251

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 40,288,138 and 40,242,711

    shares issued at March 31, 2021 and December 31, 2020, respectively, and 36,125,358 and

    36,092,555 shares outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

401

 

 

 

401

 

Additional paid-in capital

 

 

241,807

 

 

 

240,206

 

Treasury stock at cost, 4,162,780 and 4,150,156 shares of common stock

    held at March 31, 2021 and December 31, 2020, respectively

 

 

(66,623

)

 

 

(66,188

)

Retained earnings

 

 

58,111

 

 

 

63,814

 

Total stockholders’ equity

 

 

233,696

 

 

 

238,233

 

Total liabilities and stockholders’ equity

 

$

2,054,483

 

 

$

1,980,484

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Equipment rentals

 

$

156,224

 

 

$

174,519

 

New equipment sales

 

 

37,745

 

 

 

30,873

 

Used equipment sales

 

 

41,766

 

 

 

31,218

 

Parts sales

 

 

25,612

 

 

 

29,769

 

Services revenues

 

 

14,510

 

 

 

16,822

 

Other

 

 

2,588

 

 

 

2,721

 

Total revenues

 

 

278,445

 

 

 

285,922

 

Cost of revenues:

 

 

 

 

 

 

 

 

Rental depreciation

 

 

55,349

 

 

 

59,986

 

Rental expense

 

 

25,688

 

 

 

25,569

 

Rental other

 

 

16,723

 

 

 

16,805

 

 

 

 

97,760

 

 

 

102,360

 

New equipment sales

 

 

33,442

 

 

 

27,426

 

Used equipment sales

 

 

28,365

 

 

 

20,438

 

Parts sales

 

 

18,747

 

 

 

21,903

 

Services revenues

 

 

4,697

 

 

 

5,540

 

Other

 

 

2,431

 

 

 

2,772

 

Total cost of revenues

 

 

185,442

 

 

 

180,439

 

Gross profit

 

 

93,003

 

 

 

105,483

 

Selling, general and administrative expenses

 

 

73,953

 

 

 

79,624

 

Impairment of goodwill

 

 

 

 

 

61,994

 

Merger and other

 

 

737

 

 

 

40

 

Gain on sales of property and equipment, net

 

 

154

 

 

 

4,264

 

Income (loss) from operations

 

 

18,467

 

 

 

(31,911

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(13,443

)

 

 

(16,030

)

Other, net

 

 

667

 

 

 

630

 

Total other expense, net

 

 

(12,776

)

 

 

(15,400

)

Income (loss) before provision (benefit) for income taxes

 

 

5,691

 

 

 

(47,311

)

Provision (benefit) for income taxes

 

 

1,540

 

 

 

(10,343

)

Net income (loss)

 

$

4,151

 

 

$

(36,968

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

(1.03

)

Diluted

 

$

0.11

 

 

$

(1.03

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

36,185

 

 

 

35,965

 

Diluted

 

 

36,387

 

 

 

35,965

 

Dividends declared per common share outstanding

 

$

0.275

 

 

$

0.275

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

`H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,151

 

 

$

(36,968

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

6,904

 

 

 

7,398

 

Depreciation of rental equipment

 

 

55,349

 

 

 

59,986

 

Amortization of finance lease right-of-use assets

 

 

41

 

 

 

40

 

Amortization of intangible assets

 

 

993

 

 

 

1,010

 

Amortization of deferred financing costs

 

 

242

 

 

 

251

 

Accretion of note discount, net of premium amortization

 

 

293

 

 

 

120

 

Non-cash operating lease expense

 

 

3,580

 

 

 

2,821

 

Provision for losses on accounts receivable

 

 

331

 

 

 

1,673

 

Provision for inventory obsolescence

 

 

26

 

 

 

12

 

Change in deferred income taxes

 

 

789

 

 

 

(9,798

)

Stock-based compensation expense

 

 

1,601

 

 

 

1,652

 

Impairment of goodwill

 

 

 

 

 

61,994

 

Gain from sales of property and equipment, net

 

 

(154

)

 

 

(4,264

)

Gain from sales of rental equipment, net

 

 

(13,194

)

 

 

(10,567

)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Receivables

 

 

22,692

 

 

 

21,116

 

Inventories

 

 

(99,013

)

 

 

(33,371

)

Prepaid expenses and other assets

 

 

(7,249

)

 

 

(7,118

)

Accounts payable

 

 

62,418

 

 

 

9,533

 

Manufacturer flooring plans payable

 

 

909

 

 

 

(7,440

)

Accrued expenses payable and other liabilities

 

 

6,206

 

 

 

(23,643

)

Deferred compensation payable

 

 

 

 

 

25

 

Net cash provided by operating activities

 

 

46,915

 

 

 

34,462

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,329

)

 

 

(10,069

)

Purchases of rental equipment

 

 

(56,313

)

 

 

(19,785

)

Proceeds from sales of property and equipment

 

 

156

 

 

 

6,880

 

Proceeds from sales of rental equipment

 

 

38,801

 

 

 

29,056

 

    Net cash provided by (used in) investing activities

 

 

(24,685

)

 

 

6,082

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on senior secured credit facility

 

 

307,341

 

 

 

299,524

 

Payments on senior secured credit facility

 

 

(307,341

)

 

 

(331,482

)

Dividends paid

 

 

(9,933

)

 

 

(9,863

)

Purchases of treasury stock

 

 

(435

)

 

 

(470

)

Payments of deferred financing costs

 

 

(136

)

 

 

 

Payments of finance lease obligations

 

 

(63

)

 

 

(60

)

    Net cash used in financing activities

 

 

(10,567

)

 

 

(42,351

)

Net increase (decrease) in cash

 

 

11,663

 

 

 

(1,807

)

Cash, beginning of period

 

 

310,882

 

 

 

14,247

 

Cash, end of period

 

$

322,545

 

 

$

12,440

 

 

6


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Noncash asset purchases:

 

 

 

 

 

 

 

 

Assets transferred from new and used inventory to rental fleet

 

$

15,360

 

 

$

12,680

 

Purchases of property and equipment included in accrued expenses

   payable and other liabilities

 

$

158

 

 

$

5

 

Operating lease assets obtained in exchange for new

   operating lease liabilities

 

$

8,355

 

 

$

15,906

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

807

 

 

$

29,305

 

Income taxes paid (net of refunds received)

 

$

(60

)

 

$

(99

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

(1) Organization and Nature of Operations

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2020, from which the consolidated balance sheet amounts as of December 31, 2020 were derived. All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements.

The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, and consistent with industry practice, the accompanying condensed consolidated balance sheets are presented on an unclassified basis.

Nature of Operations

As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and services support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) material handling equipment. We offer a full-service approach by providing equipment rental, sales, on-site parts, repair and maintenance functions under one roof for our customers’ varied equipment needs. This full service approach provides us with multiple points of customer contact, enables us to maintain our rental fleet, as well as a distribution channel for fleet disposal, and provides cross‑selling opportunities among our new and used equipment sales, rental, parts sales and services operations.

 

COVID-19

The novel coronavirus (“COVID-19”) was first identified in late 2019. COVID-19 spread rapidly throughout the world and, in March 2020, the World Health Organization characterized COVID-19 as a pandemic and recommended containment and mitigation measures worldwide. COVID-19 is a pandemic of respiratory disease spreading from person-to-person that poses a serious public health risk. The subsequent spread of COVID-19 during 2020 and the resulting economic contraction resulted in increased business uncertainty in our industry.  As the impact of COVID-19 became more widespread in March 2020, our equipment rental utilization and sales volumes began to decline from February 2020 levels and this decline continued through mid-April 2020, where we began to see utilization and sales levels stabilize and improve for the remainder of 2020. We continued to see overall improvements during the first quarter of 2021 with utilization levels in March 2021 surpassing 2020 pre-COVID utilization levels.  The impact of COVID-19 on our future financial results and liquidity will depend largely on any subsequent developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the speed and effectiveness of vaccine and treatment deployment, the impact on capital and financial markets, and the related impact on our customers.  

 

 

(2) Significant Accounting Policies

We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.  During the three month period ended March 31, 2021, there were no significant changes to those accounting policies.

8


Use of Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Revenue Recognition

We recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 842.

Under Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

Under Topic 842, Leases, we account for equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.

For additional information related to our revenue recognition policies pursuant to Topic 606 and Topic 842, please see Significant Accounting Policies in note 2 to our Form 10-K for the year ended December 31, 2020. In the table below, revenues as presented in our condensed consolidated statements of operations for the three month period ended March 31, 2021 and 2020 are summarized by type and by the applicable accounting standard.

 

 

 

Three Month Period Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

 

Topic 842

 

 

Topic 606

 

 

Total

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned equipment rentals

 

$

132,060

 

 

$

187

 

 

$

132,247

 

 

$

153,670

 

 

$

258

 

 

$

153,928

 

Re-rent revenue

 

 

7,694

 

 

 

 

 

 

7,694

 

 

 

4,690

 

 

 

 

 

 

4,690

 

Ancillary and other rental revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delivery and pick-up

 

 

 

 

 

8,396

 

 

 

8,396

 

 

 

 

 

 

9,126

 

 

 

9,126

 

Other

 

 

7,887

 

 

 

 

 

 

7,887

 

 

 

6,775

 

 

 

 

 

 

6,775

 

Total ancillary rental revenues

 

 

7,887

 

 

 

8,396

 

 

 

16,283

 

 

 

6,775

 

 

 

9,126

 

 

 

15,901

 

Total equipment rental revenues

 

 

147,641

 

 

 

8,583

 

 

 

156,224

 

 

 

165,135

 

 

 

9,384

 

 

 

174,519

 

New equipment sales

 

 

 

 

 

37,745

 

 

 

37,745

 

 

 

 

 

 

30,873

 

 

 

30,873

 

Used equipment sales

 

 

 

 

 

41,766

 

 

 

41,766

 

 

 

 

 

 

31,218

 

 

 

31,218

 

Parts sales

 

 

 

 

 

25,612

 

 

 

25,612

 

 

 

 

 

 

29,769

 

 

 

29,769

 

Service revenues

 

 

 

 

 

14,510

 

 

 

14,510

 

 

 

 

 

 

16,822

 

 

 

16,822

 

Other

 

 

 

 

 

2,588

 

 

 

2,588

 

 

 

 

 

 

2,721

 

 

 

2,721

 

Total revenues

 

$

147,641

 

 

$

130,804

 

 

$

278,445

 

 

$

165,135

 

 

$

120,787

 

 

$

285,922

 

 

9


 

Revenues by reporting segment are presented in note 10 of our condensed consolidated financial statements, using the revenue captions reflected in our consolidated statements of operations. We believe that the disaggregation of our revenues from contracts to customers as reflected above, coupled with further discussion below and the reporting segments in note 10, depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. For further information related to our accounting for revenues pursuant to Topic 606 and Topic 842, see Significant Accounting Policies in note 2 to our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Receivables and contract assets and liabilities

 

We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowance for doubtful accounts address our total revenues from Topic 606 and Topic 842.

 

We believe concentration of credit risk with respect to our receivables is limited because our customer base is comprised of a large number of geographically diverse customers. No single customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented in this Quarterly Report on Form 10-Q. We manage credit risk through credit approvals, credit limits and other monitoring procedures.

 

Pursuant to Topic 842 and Topic 326 for rental and non-rental receivables, respectively, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. Our largest exposure to doubtful accounts is in our rental operations. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts.

 

We do not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenues during the three month periods ended March 31, 2021 or 2020 that was included in the contract liability balance as of the beginning of such periods.

 

Goodwill

 

Based on our evaluation of the impact to our business in the first quarter of 2020 from the COVID-19 pandemic, we identified triggering events requiring an interim impairment test as of March 31, 2020, resulting in a $62.0 million impairment charge to our Equipment Rental Component 2 reporting unit. For additional information related to our goodwill impairment charge in the first quarter of 2020, please see footnote 2 to the Company’s consolidated financial statements included as Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.   

     

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition. However, we can provide no assurances regarding the impact of the discontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. Our exposure related to the expected cessation of LIBOR is limited to the interest expense we incur on balances outstanding under our Senior Secured Credit Facility (the “Credit Facility”). The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU 2020-04, is not currently estimable.

10


Pronouncements Adopted in 2021

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a material impact on our condensed consolidated financial statements presented herein.

 

(3) Fair Value of Financial Instruments

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

The carrying value of financial instruments reported in the accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures as of March 31, 2021 and December 31, 2020 are presented in the table below (amounts in thousands).

 

 

 

March 31, 2021

 

 

 

Carrying

Amount

 

 

Fair

Value

 

Manufacturer flooring plans payable with interest computed at 3.5% (Level 3)

 

$

10,524

 

 

$

9,492

 

Senior unsecured notes due 2028 with interest computed at 3.875% (Level 2)

 

 

1,238,885

 

 

 

1,216,188

 

 

 

 

December 31, 2020

 

 

 

Carrying

Amount

 

 

Fair

Value

 

Manufacturer flooring plans payable with interest computed at 3.5% (Level 3)

 

$

9,615

 

 

$

8,976

 

Senior unsecured notes due 2028 with interest computed at 3.875% (Level 2)

 

 

1,238,660

 

 

 

1,259,413

 

 

At March 31, 2021 and December 31, 2020, the fair value of our senior unsecured notes due 2028 was based on quoted bond trading market prices for those notes. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturing floor plans payable based on the U.S. prime rate plus the applicable margin on our Senior Secured Credit Facility. The discount rate is disclosed in the above table.

 

During the three month periods ended March 31, 2021 and 2020, there were no transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy.

 

11


 

Fair Value Measurements on a Nonrecurring Basis

 

Our non-financial assets, such as goodwill, intangible assets and property and equipment, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. The results of our Q1 2020 goodwill impairment quantitative test indicated that the respective fair values of the Equipment Rental Component 2 reporting unit is less than the carrying value of the reporting unit, resulting in a goodwill impairment of $62.0 million. See footnote 2 to these unaudited condensed consolidated financial statements for additional information.

(4) Stockholders’ Equity

The following table summarizes the activity in Stockholders’ Equity for the three month periods ended March 31, 2021 and 2020, respectively (amounts in thousands, except share data):

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Shares

Issued

 

 

Amount

 

 

Paid-in

Capital

 

 

Treasury

Stock

 

 

Retained Earnings

 

 

Stockholders’

Equity

 

Balances at December 31, 2020

 

 

40,242,711

 

 

$

401

 

 

$

240,206

 

 

$

(66,188

)

 

$

63,814

 

 

$

238,233

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,601

 

 

 

 

 

 

 

 

 

1,601

 

Cash dividends declared on common stock ($0.275 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,854

)

 

 

(9,854

)

Issuance of common stock, net of forfeitures

 

 

45,427