Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the financial position of H&E Equipment Services, Inc. and its subsidiaries as of December 31, 2024, and its results of operations for the year ended December 31, 2024, and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form 10-K.
Background
Founded in 1961 through our predecessor companies, we have been in the equipment services business for approximately 63 years and are one of the largest rental equipment companies in the nation. H&E Equipment Services L.L.C. (“ H&E L.L.C.”) was formed in June 2002 through the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide Industries, L.L.C., and ICM Equipment Company L.L.C. In connection with our initial public offering in February 2006, we converted H&E L.L.C. into H&E Equipment Services, Inc., a Delaware corporation (d/b/a “H&E Rentals”).
H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and Mid-Atlantic regions. As of December 31, 2024, we operated 156 branch locations across 31 states throughout the United States.
While focusing primarily on equipment rentals, we additionally engage in sales of rental equipment, sales of new equipment, parts sales and repair and maintenance services. The Company’s construction rental fleet is among the industry’s youngest with an equipment mix comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. We are confident our operating experience and extensive infrastructure developed throughout our history as an integrated equipment services company qualified us to successfully transition to a pure-play rental company. This experience and infrastructure continues to provide us with a competitive advantage enabling us to broaden our industry expansion. Our workforce includes an outside and inside sales force for our rental operations and equipment sales, highly skilled service technicians, transportation drivers and regional and district managers. Our management, from the corporate level down to the branch store level, has extensive industry experience. We believe this allows us to provide specialized equipment knowledge, improve the effectiveness of our sales force and strengthen our customer relationships. In addition, we operate our day-to-day business on a branch basis, which allows us to more closely service our customers, fosters management accountability at local levels and strengthens our local and regional relationships.
Effective October 1, 2021, the Company sold its crane business to a wholly-owned subsidiary of The Manitowoc Company, Inc. (“the Crane Sale”). The Crane Sale met the criteria for discontinued operations presentation.
Effective October 1, 2022, the Company completed the acquisition of One Source Equipment Rentals, Inc. (“OSR”), a privately-held equipment rentals company with 10 branch locations primarily in the Midwest.
Effective December 15, 2022, the Company sold its Komatsu distributorship in Louisiana. The sale included a branch location in Kenner, LA, a branch in Shreveport, LA and accompanying new equipment inventory, parts and supplies.
Effective November 1, 2023, the Company completed the acquisition of Giffin Equipment (“Giffin”), a privately-held equipment rentals company with three branch locations in California.
Effective January 1, 2024, the Company completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado.
Effective May 1, 2024, the Company completed the acquisition of Lewistown Rentals (“Lewistown”), a privately-held equipment rentals company with four branch locations in Montana.
Recent Developments
In January 2025, we entered into an Agreement and Plan of Merger (the “United Merger Agreement”) with United Rentals, Inc., a Delaware Corporation (“United Rentals” or “United”) and UR Merger Sub VII Corporation, a Delaware corporation and wholly owned subsidiary of United (“United Merger Sub”), pursuant to which a cash tender offer (the “United Offer”) was commenced on behalf of United to purchase all of the issued and outstanding shares of our common stock at $92.00 a share, following which United Merger Sub would merge with and into the Company, with the Company surviving as a wholly owned subsidiary of United (the “United Merger and, together with the United Offer, the “United Transactions”).
In February 2025, during the pendency of the United Offer, we received a proposal from Herc Holdings Inc., a Delaware corporation (“Herc”, and such proposal, the “Herc Proposal”) to acquire all of the issued and outstanding shares of our common stock
for a combination of cash and Herc common stock, consisting of (i) $78.75 in cash, and (ii) 0.1287 shares of Herc common stock for each share of our common stock. The combination of the cash and Herc common stock was equal to a total value of approximately $104.89 per share based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025. On February 16, 2025, our Board of Directors unanimously concluded that the Herc Proposal constituted a Superior Proposal (as defined in the United Merger Agreement) and resolved to terminate the United Merger Agreement absent any revision to the terms and conditions of the United Merger Agreement. On February 17, 2025, United delivered a written notice to the Company stating that United did not intend to submit a revised proposal and waiving URI’s four-business day match period under the United Merger Agreement. On February 18, 2025, our Board of Directors unanimously determined to authorize and approve the termination of the United Merger Agreement. The Board of Directors also unanimously determined that it was advisable, fair to and in the best interests of the Company’s stockholders that the Company enter into an Agreement and Plan of Merger (the “Herc Merger Agreement”) with Herc and HR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Herc (“Merger Sub”) and resolved to adopt and approve the Herc Merger Agreement and recommend that the Company’s stockholders tender their shares to Herc.
On February 19, 2025, we terminated the United Merger Agreement and Herc paid United the $63,523,892 termination fee pursuant to the United Merger Agreement on our behalf. That same day, immediately following the termination of the United Merger Agreement, we entered into the Herc Merger Agreement, pursuant to which Merger Sub agreed to commence an exchange offer (the “Offer”), to acquire all of the issued and outstanding shares of our common stock for the Offer Price (as defined below) of (i) $78.75 in cash, and (ii) 0.1287 shares of Herc common stock for each share of our common stock (the “Offer Price”), following which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Herc (the “Merger”) (and collectively, the “Transactions”). The Transactions are expected to close mid-year 2025.
The Transactions are subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Form S-4 to be filed by Herc in connection with the issuance of shares of Herc common stock in the Merger having become effective and not subject to any legal proceedings suspending such effectiveness and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger.
If the Herc Merger is consummated, our common stock will be delisted from The NASDAQ Global market and deregistered under Securities Exchange Act of 1934, as amended, as promptly as practicable following the effective time of the Merger.
The Herc Merger Agreement also contains certain termination rights for Herc and us and further provides that, upon termination of the Herc Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Herc a termination fee of approximately $145 million in addition to refunding Herc for the termination fee pursuant to the United Merger Agreement if the Company enters into a superior proposal based on terms included in the Merger Agreement.
See Item 1A—Risk Factors—Risk Factors Relating to the Pending Transaction with Herc Holdings Inc. and the Company for further discussion of the risks, conditions and potential expenses and fees associated with the pending Offer and Merger.
Business Segments
We have four reportable segments because we derive our revenues from four business activities: (1) equipment rentals; (2) sales of rental equipment; (3) sales of new equipment; (4) parts, service and other revenues. Our primary segment is equipment rentals. These segments are based upon how we allocate resources and assess performance. We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting provided to our Chief Operating Decision Maker. For additional information about our business segments, see Note 16 to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Equipment Rentals. Our rental operation is our principal focus and we primarily rent our core types of construction and industrial equipment (aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines). We have a well-maintained rental fleet and a dedicated sales team. We actively manage the size, quality, age and composition of our rental fleet based on our analysis of key measures such as time utilization (a reflection of equipment usage based on customer demand and calculated as our fleet’s original equipment cost on-rent divided by our fleet’s original equipment cost, averaged over the time period), rental rate trends and targets, rental equipment dollar utilization, and maintenance and repair costs, which we closely monitor. Given the use of these measures by management, we believe that investors’ understanding of our performance is enhanced by the disclosure of the measures as it allows investors to view performance from management’s perspective. Additionally, we maintain fleet quality through quality control inspections and our parts and services operations.
Sales of Rental Equipment. Our rental equipment sales are generated primarily from sales from our rental fleet. Sales of our rental fleet equipment allow us to manage the size, quality, composition and age of our rental fleet, and provide us with a profitable distribution channel for the disposal of rental equipment.
Sales of New Equipment. We sell equipment through a professional sales force. Sales of new equipment may be impacted by the availability of equipment from the manufacturer.
Parts, Service and Other Revenues. Our parts business provides parts to our own rental fleet and sells parts for the equipment we sell. In order to provide timely parts and services support to our rental fleet as well as our customers, we maintain a parts inventory. Our services operation provides maintenance and repair services to our own rental fleet and for our customers’ equipment at our facilities as well as at our customers’ locations. Our other revenues relate to costs primarily related to ancillary charges associated with equipment maintenance and repair services.
Revenue Sources
We generate our total revenues from our four business activities and our other equipment support activities. Equipment rentals accounts for the majority of our total revenues.
The pie charts below illustrate a breakdown of our revenues and gross profit for the year ended December 31, 2024 by source:
The equipment that we rent, sell and service is principally used in the construction industry, as well as by companies for commercial and industrial uses such as plant maintenance and turnarounds, and in the petrochemical and energy sectors. As a result, our total revenues are affected by several factors including, but not limited to, the demand for and availability of rental equipment, rental rates and other competitive factors, the demand for used and new equipment, the level of construction and industrial activities, spending levels by our customers, adverse weather conditions, supply chain disruptions, labor shortages and costs, inflation, the price of oil and other commodities and general economic conditions.
Equipment Rentals. Our rental operation primarily represents revenues from renting owned equipment of our core types of construction and industrial equipment (aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines). We primarily account for these 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. We have a well-maintained rental fleet and we actively manage the size, quality, age and composition of our rental fleet.
Sales of Rental Equipment. We generate the majority of our rental equipment sales revenues by selling equipment from our rental fleet.
Sales of New Equipment . Our sales of new equipment operation sells equipment across all of our core categories of equipment.
Parts, Service and Other. We primarily generate revenues from the sale of parts for equipment that we rent or sell. We primarily derive our services revenues from maintenance and repair services for equipment that we rent or sell and from customers' owned equipment. Our other revenues relate primarily to ancillary charges associated with equipment maintenance and repair services.
Principal Costs and Expenses
Our largest expenses are rental expenses, rental depreciation, rental other expenses, the costs associated with the used equipment we sell, the costs to purchase new equipment and costs associated with parts sales and services, all of which are included in cost of revenues. For the year ended December 31, 2024, our total cost of revenues was approximately $841.4 million. Our operating expenses consist principally of selling, general and administrative expenses (“SG&A”). For year ended December 31, 2024, our SG&A expenses were $455.6 million. In addition, we have interest expense primarily related to our debt instruments. Operating
expenses and all other income and expense items below the gross profit line of our Consolidated Statements of Income are not generally allocated to our reportable segments.
We are also subject to federal and state income taxes. Future income tax examinations by state and federal agencies could result in additional income tax expense based on potential outcomes of such matters.
Cost of Revenues:
Rental Depreciation. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment. Estimated useful lives vary based upon type of equipment. Generally, we depreciate aerial work platforms over a ten year estimated useful life, earthmoving equipment over a five year estimated useful life with a 25% salvage value, and material handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment.
Rental Expense. Rental expense represents the costs associated with rental equipment, including, among other things, the cost of repairing and maintaining our rental equipment, property taxes on our fleet and other miscellaneous costs of owning rental equipment.
Rental Other. Rental other expenses consist primarily of equipment support activities that we provide our customers in connection with renting equipment, such as hauling services, damage waiver policies, environmental fees and other recovery fees.
Sales of Rental Equipment. Cost of rental equipment sold primarily consists of the net book value of rental equipment sold from our rental fleet.
Sales of New Equipment. Cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold.
Parts, Service and Other. Cost of parts sales represents costs attributable to the sale of parts used in the maintenance and repair of equipment on-rent by customers and directly to customers for their owned equipment. Cost of services revenues represents costs attributable to service provided for the maintenance and repair of equipment on-rent by customers and of customer-owned equipment. Our other expenses include costs associated with ancillary charges associated with equipment maintenance and repair services .
Selling, General and Administrative Expenses:
Our SG&A expenses include sales and marketing expenses, payroll and related benefit costs, including stock compensation expense, insurance expenses, professional fees, rent and other occupancy costs, property and other taxes, administrative overhead, acquisition costs, depreciation associated with property and equipment (other than rental equipment) and amortization expense associated with intangible assets. These expenses are not generally allocated to our reportable segments.
Interest Expense:
Interest expense for the periods presented represents the interest on our outstanding debt instruments, including aggregate amounts outstanding under our revolving $750.0 million senior secured credit facility (the “Credit Facility”), our $1.25 billion, 3.875% senior unsecured notes due 2028 (the “Senior Unsecured Notes”) and finance lease obligations. Non-cash interest expense related to the amortization cost of deferred financing costs and the accretion/amortization of note discount/premium are also included in interest expense.
Principal Cash Flows
We generate cash primarily from our operating activities and, historically, we have used cash flows from operating activities and available borrowings under the Credit Facility as the primary sources of funds to purchase new equipment and to fund working capital and capital expenditures, growth and expansion opportunities (see also “Liquidity and Capital Resources” below). The management of our working capital is closely tied to operating cash flows, as working capital can be impacted by, among other things, our accounts receivable activities, the level of equipment inventory, which may increase or decrease in response to current and expected demand, and the size and timing of our trade accounts payable payment cycles.
Rental Fleet
A substantial portion of our total assets is our rental fleet equipment. The net book value of our rental equipment at December 31, 2024 was $1.8 billion, or approximately 65.9% of our total assets. Our rental fleet as of December 31, 2024 consisted of 63,630 units having an original acquisition cost (which we define as the cost originally paid to manufacturers) of approximately $2.9 billion. As of December 31, 2024, our rental fleet composition was as follows (dollars in millions):
Units
Total
Units
Original
Acquisition
Cost
% of Original
Acquisition
Cost
Average
Age in
Months
Aerial Work Platforms
Earthmoving
Material Handling Equipment
Other
Total
Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgments by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand as part of our fleet management strategy. The mix and age of our rental fleet, as well as our cash flows, are impacted by sales of rental equipment, which are influenced by used equipment pricing at the retail and secondary auction market levels, the demand for our rental fleet, the availability of new equipment and the capital expenditures to acquire fleet. In making equipment acquisition decisions, we evaluate current economic and market conditions, competition, manufacturers’ availability, pricing and return on investment over the estimated useful life of the specific equipment, among other things. As a result of our in-house service capabilities and extensive maintenance program, our rental fleet is well-maintained.
The original acquisition cost of our gross rental fleet increased by approximately $153.3 million, or 5.5%, for the year ended December 31, 2024. The average age of our rental fleet equipment increased by approximately 2.0 months for the year ended December 31, 2024. Our average rental rates for the year ended December 31, 2024 were approximately 0.8% higher than the year ended December 31, 2023 (see further discussion on rental rates in “Results of Operations” below).
The rental equipment mix among our core product lines for the year ended December 31, 2024 was largely consistent with that of the prior year as a percentage of total units available for rent and as a percentage of original acquisition cost.
Principal External Factors that Affect our Businesses
We are subject to a number of external factors that may adversely affect our businesses. These factors, and other factors, are discussed below and under the heading “Forward-Looking Statements,” and in Item 1A—Risk Factors in this Annual Report on Form 10-K.
Economic downturns. The demand for our products is dependent on the general economy, which is in turn affected by geopolitical conditions, the stability of the global credit markets, inflationary pressures, increasing interest rates, the conditions of the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and industrial markets, as well as adverse credit market conditions, can cause demand for our products to materially decrease. Our operations are also impacted by global economic conditions, including inflation, increased interest rates and supply chain constraints. We have experienced and may continue to experience inflationary pressures, including but not limited to cost increases related to equipment, fuel, labor costs and hauling expenses that we attempt to mitigate through pricing and productivity initiatives.
Spending levels by customers. Rentals and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our total revenues. As a result, we depend upon customers in these businesses and their ability and willingness to rent or buy equipment. Accordingly, our business is impacted by fluctuations in customers’ spending levels and seasonality, as discussed in Item 1.
Adverse weather. Adverse weather in a geographic region in which we operate may depress demand for equipment in that region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather conditions may prohibit our customers from continuing their work projects. Adverse weather also has a seasonal impact in parts of our Intermountain region, particularly in the winter months.
Regional and Industry-Specific Activity and Trends. Expenditures by our customers may be impacted by the overall level of construction activity in the markets and regions in which they operate, the price of oil and other commodities, the price of materials, supply chain disruptions, labor shortages, interest rates and other general economic trends impacting the industries in which our customers and end users operate. As our customers adjust their activity and spending levels in response to these external factors, our rentals and sales of equipment to those customers will be impacted.
Climate Change and ESG Regulations. As discussed in Item 1—Environmental and Safety Regulations and Item 1A—Risk Factors—"We could be adversely affected by environmental and safety requirements and regulations, including
those regarding climate change, which could subject us to increased operational costs that could materially and adversely impact our liquidity and operating results”, our facilities and operations are subject to comprehensive and frequently changing federal, state and local environmental and occupational health and safety laws. We have made, and will continue to make, capital and other expenditures to comply with environmental requirements. While we do not currently anticipate any material adverse effect on our business, financial condition or competitive position as a result of our efforts to comply with such requirements, new or more stringent laws or regulations regarding in environmental and worker health and safety laws could affect our operations and increase our operational and compliance expenditures. It is also possible that liabilities from newly-discovered non-compliance or contamination could have a material adverse effect on our business, financial condition and results of operations. Finally, it is also possible that the increased regulatory uncertainty could increase the cost of compliance due to tension with conflicting federal, state and local regulations, and could thus have a material adverse effect on our business, financial condition and results of operations.
Regulatory Uncertainty at the Federal Level . Significant changes or developments in U.S. laws and policies, such as laws and policies surrounding international trade, foreign affairs, environmental impact, and diversity and inclusion, among others, could materially adversely affect our business and financial condition.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The application of many accounting principles requires us to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and they and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts first become known. We believe the following critical accounting estimates could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. See also Note 2 to our Consolidated Financial Statements for a summary of our significant accounting policies.
Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives (generally three to ten years), after giving effect to an estimated salvage value ranging from 0% to 25% of cost. The useful life of rental equipment is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We periodically review the assumptions utilized in computing rates of depreciation. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.
The amount of depreciation expense we record is dependent upon the estimated useful lives and the salvage values assigned to each category of rental equipment. Generally, we assign estimated useful lives to our rental fleet ranging from a three-year life, five-year life with a 25% salvage value, seven-year life and a ten-year life. None of the useful lives assumptions have changed during the prior or current period. Depreciation expense on our rental fleet as of December 31, 2024 was approximately $375.3 million. As of December 31, 2024, the estimated depreciation assuming a change in estimated useful lives for each category of equipment by two years was as follows:
Impact of 2-year change in useful life on results of operations as of December 31, 2024
Aerial Work
Platforms
Earth-
moving
Material Handling
Equipment
Other
Total
($ in millions)
Depreciation expense for the year ended December 31, 2024
Increase of 2 years in useful life
Decrease of 2 years in useful life
For purposes of the sensitivity analysis above, we elected not to decrease the useful lives of other equipment, which are primarily three-year estimated useful life assets; rather, we have held the depreciation expense constant at the actual amount of depreciation expense. We believe that decreasing the life of the other equipment by two years is an unreasonable estimate and would potentially lead to the decision to expense, rather than capitalize, that portion of the subject asset class. In general terms, a one-year increase in the estimated life across all classes of our rental equipment will give rise to an approximate decrease in our annual depreciation expense of approximately $68.8 million. Additionally, a one-year decrease in the estimated life across all classes of our rental equipment (with the exception of other equipment as discussed above) will give rise to an approximate increase in our annual depreciation expense of approximately $46.8 million.
Another assumption used in our calculation of depreciation expense is the estimated salvage value assigned to our earthmoving equipment. Based on our historical data and recent experience, we have used a 25% factor of the equipment’s original cost to estimate its salvage value. This factor is subjective and subject to change in the future based upon actual results at the time we dispose of the equipment. A change of 5%, either increase or decrease, in the estimated salvage value would result in a change in our annual depreciation expense of approximately $7.4 million.
Acquisition Accounting . We have made a number of acquisitions in the past and we may continue to make additional acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest component of our acquisitions. Historically, virtually all of the rental equipment that we have acquired through business combinations have been classified as “To be Used,” rather than as “To be Sold.” Rental equipment that we acquire and classify as “To be Used” is recorded at fair value and is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of cost or market data. Goodwill is calculated as the excess of the fair value of consideration transferred over the net of the fair value of the assets acquired and the liabilities assumed. Such fair market value assessments require judgments and estimates that can be affected by various factors over time, which may cause final amounts to differ materially from original estimates. The identification of assets acquired, inputs utilized for determining the fair value of assets acquired and liabilities assumed and applicable fair value methodologies, discussed more below, all include significant judgment. We have not changed our assumption methodologies during the current or prior period.
In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these assets and liabilities generally approximate the carrying values reflected on the acquired entities balance sheets. However, when appropriate, we adjust these carrying values for factors such as collectability and existence. The intangible assets that we have acquired generally consist primarily of the goodwill recognized. Depending upon the applicable purchase agreement and the particular facts and circumstances of the business acquired, we may identify other intangible assets, such as trade names or trademarks, noncompetition agreements and customer-related intangibles (specifically, customer relationships). A trademark has a fair value equal to the present value of the royalty income attributable to it. The royalty income attributable to a trademark represents the hypothetical cost savings that are derived from owning the trademark instead of paying royalties to license the trademark from another owner. When specifically negotiated by the parties in the applicable purchase agreements, we base the value of noncompetition agreements on the amounts assigned to them in the purchase agreements as these amounts represent the amounts negotiated in an arm’s length transaction. When not negotiated by the parties in the applicable purchase agreements, the fair value of noncompetition agreements is estimated based on an income approach since their values are representative of the current and future revenue and profit erosion protection they provide. Customer relationships are generally valued based on an excess earnings or income approach with consideration to projected cash flows.
Evaluation of Goodwill Impairment. We evaluate goodwill for impairment annually or more frequently if triggering events occur or other impairment indicators arise that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A triggering event analysis and identification may include judgments.
Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; determination of the fair value of each reporting unit; fair value methodologies and assumptions, and an assumption as to the form of the transaction in which the reporting unit would be acquired by a market participant (either a taxable or nontaxable transaction). Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment (i.e., a component). We have determined that each of our operating segments (Equipment Rentals, Sales of Rental Equipment, Sales of New Equipment, and Parts, Service and Other) represents a reporting unit, resulting in four total reporting units.
As of December 31, 2024, our goodwill was comprised of the following carrying values (amounts in thousands):
Reporting Unit
Carrying Value at December 31, 2024
Equipment Rentals
Sales of Rental Equipment
Sales of New Equipment
Parts, Service and Other
Total Goodwill
During 2024, we performed, as of October 1, our annual impairment testing date, a Step 0 qualitative assessment and determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative Step 1 goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial
performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.
During 2023, based on our evaluation of our Parts Sales reporting unit and operating segment during the third quarter, we identified a triggering event requiring an interim impairment test. This triggering event related to a sustained parts segment decline in volume and actual revenue and earnings compared with our planned revenue and earnings utilized in our most recent quantitative goodwill impairment analysis following our business’s dispositions and strategic shift to be rental focused. No triggering event was identified related to our Equipment Rental and Sales of Rental Equipment reporting units. We estimated the fair value of our Parts Sales reporting unit by weighting results from the income approach and the market approach and concluded that our Parts Sales reporting unit had a fair value less than its carrying value, resulting in a $5.7 million impairment charge. The impairment was largely due to a current year decrease in parts revenues as a result of our business’s strategic shift and recent dispositions. This revenue decline, combined with our forecasted parts revenues growth rate and operating results assumptions for the forecast period under the income approach, resulted in a fair value determination, that when combined with the weighted fair value of the reporting unit determined under the market approach, was less than the reporting unit’s carrying value.
We performed a qualitative assessment of goodwill impairment as of our annual testing date, October 1, 2023. We determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent interim quantitative assessment.
During 2022, we performed, as of October 1, our annual impairment testing date, a Step 0 qualitative assessment and determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative Step 1 goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.
For purposes of performing the quantitative impairment tests described above, we estimate the fair value of our reporting units by utilizing fair value techniques consistent with the income approach and market approach. When performing the income approach for each reporting unit, we use a discounted cash flow analysis based on our internal projected results of operations, weighted average cost of capital (“WACC”) and terminal value assumptions. Our cash flow projections are based on ten-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth. The WACC is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise and represents the expected cost of new capital likely to be used by market participants. The WACC is used to discount our combined future cash flows. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of a reporting unit’s fair value, and therefore could affect the likelihood and amount of potential impairment. Under the market approach, we compare the reporting units to selected reasonably similar (or “guideline”) publicly-traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies; and (iii) applied to the operating data of our reporting unit to arrive at an indication of value. The application of the market approach results in an estimate of the price reasonably expected to be realized from the sale of the reporting unit.
Income Taxes. The Company files a consolidated federal income tax return with its wholly-owned subsidiaries. The Company is a C-Corporation under the provisions of the Internal Revenue Code. We utilize the asset and liability approach to measure deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date of that tax rate.
The Company recognizes the effect of an income tax position only if it is more likely than not (a likelihood of greater than 50%) that such position will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes both interest and penalties related to uncertain tax positions in net other income (expense).
Our deferred tax calculation requires management to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. These estimates involve judgment. There has been no change to the assumption methodology during the current or prior period.
Our U.S. federal tax returns for 2021 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2020 and subsequent years.
Results of Operations
The tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for the years ended December 31, 2024 and 2023. The period-to-period comparisons of our financial results are not necessarily indicative of future results. All financial results and metrics discussed below are on a continuing operations basis.
Our prior year discussion for the years ended December 31, 2023 and 2022 can be found here , in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated by reference herein.
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Revenues.
For the Year Ended
December 31,
Total Dollar
Total Percentage
Increase (Decrease)
Increase (Decrease)
(in thousands, except percentages)
Revenues:
Equipment rentals
Rentals
Rentals other
Total equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Total Revenues. Our total revenues were $1.5 billion for the year ended December 31, 2024 compared to $1.5 billion for the year ended December 31, 2023, an increase of $47.4 million, or 3.2%. Revenues of our business activities are further discussed below.
Equipment Rental Revenues. Our total revenues from equipment rentals for the year ended December 31, 2024 increased $67.2 million, or 5.7%, to $1.3 billion from $1.2 billion in 2023. The increase in equipment rental revenues was primarily due to our larger fleet compared to the prior year. See Rentals and Rentals Other below for additional information.
Rentals: Rental revenues increased $56.6 million, or 5.4%, to $1.1 billion for the year ended December 31, 2024. Rental revenues from other equipment increased $30.7 million, aerial work platform equipment increased $18.9 million and material handling equipment increased $4.9 million as compared to the prior period. Our average rental rates, based on the American Rental Association’s calculation methodology, for the year ended December 31, 2024 increased 0.8% compared to the year ended December 31, 2023. Our average rental rates do not include the impact of acquisitions completed within the last twelve months. Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the year ended December 31, 2024 decreased 2.0% to 38.3% from 40.3% in 2023. The decrease in comparative rental equipment dollar utilization was the net result of a decrease in rental equipment time utilization and an increase in equipment rental rates. Rental equipment time utilization as a percentage of original equipment cost was approximately 66.0% for the year ended December 31, 2024 compared to 68.8% in the year ended December 31, 2023, a decrease of 2.8%.
Rentals Other: Our rentals other revenues consist primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues for the year ended December 31, 2024 were $145.1 million compared to $134.5 million for the year ended December 31, 2023, an increase of $10.5 million, or 7.8%, primarily due to the increase in equipment rental revenues as described above.
Sales of Rental Equipment Revenues. Our sales of rental equipment for the year ended December 31, 2024 decreased $25.9 million, or 15.7%, to $139.2 million from $165.1 million in 2023. This decrease is reflective of our fleet management strategy. Sales of earthmoving rental equipment decreased $34.8 million. Offsetting this decrease, sales of aerial work platform rental equipment and material handling rental equipment increased $6.8 million and $1.9 million, respectively.
Sales of New Equipment Revenues. Our sales of new equipment increased $16.5 million, or 42.2%, to $55.6 million for the year ended December 31, 2024, from $39.1 million for the same period in 2023. Sales of new material handling equipment increased $17.5 million as we capitalized on improved product line availability. Sales of aerial work platform equipment increased $8.1 million and offsetting these increases, sales of new other equipment decreased $7.3 million.
Parts, Service and Other Revenues. Our parts, service and other revenues decreased $10.4 million, or 13.2%, to $68.5 million for the year ended December 31, 2024 from $78.9 million for the same period in 2023. The decreases are primarily related to a decrease in service revenue.
Gross Profit.
For the Year Ended
December 31,
Total Dollar
Total Percentage
Increase (Decrease)
Increase (Decrease)
(in thousands, except percentages)
Gross Profit:
Equipment rentals
Rentals
Rentals other
Total equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total gross profit
Total Gross Profit. Our total gross profit was $675.2 million for the year ended December 31, 2024 compared to $684.5 million for the year ended December 31, 2023, a decrease of $9.3 million, or 1.4%. Total gross profit margin for the year ended December 31, 2024 was approximately 44.5%, a decrease of 2.1% from the 46.6% gross profit margin for the same period in 2023. Gross profits and gross margins of our business activities are further described below.
Equipment Rentals Gross Profit. Our total gross profit from equipment rentals for the year ended December 31, 2024 increased $8.1 million, or 1.5%, to approximately $561.6 million from $553.4 million in 2023. Total gross profit margin from equipment rentals for the year ended December 31, 2024 was approximately 44.8% compared to 46.7% for the year ended December 31, 2023, a decrease of 1.9%. See Rentals and Rentals Other below for additional information.
Rentals: Rental revenue gross profit increased $11.2 million to $558.9 million for the year ended December 31, 2024 compared to $547.8 million for the year ended December 31, 2023. The increase in rentals gross profit was the result of a $56.6 million increase in rental revenues for the year ended December 31, 2024 compared to last year, which was partially offset by a $28.3 million increase in rental depreciation expense and a $17.2 million increase in rental expenses. The increase in both depreciation expense and rental expense is primarily due to a larger fleet size in 2024 compared to 2023. Gross profit margin on rentals for the year ended December 31, 2024 was approximately 50.4% compared to 52.1% in 2023, a decrease of 1.7%. As a percentage of rental revenues, rental expenses were 15.7% and 14.9% for the years ended December 31, 2024 and 2023, respectively, an increase of 0.8%. Depreciation expense was 33.9% of rental revenues for the year ended December 31, 2024 compared to 33.0% for the same period in 2023, an increase of 0.9%.
Rentals Other: Our rentals other revenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross profit for the year ended December 31, 2024 was $2.6 million compared to $5.6 million for the year ended December 31, 2023, a decrease of $3.0 million. Gross profit margin was 1.8% for the year ended December 31, 2024 compared to 4.2% for the same period last year, a decrease of 2.4%.
Sales of Rental Equipment Gross Profit. Our sales of rental equipment gross profit for the year ended December 31, 2024 decreased $14.4 million, or 14.4%, to $85.5 million compared to $99.9 million in 2023 on decreased sales of rental equipment of $25.9 million. Gross profit margin on sales of rental equipment for the year ended December 31, 2024 was approximately 61.4%, up 0.9% from 60.5% in 2023. Our sales from rental fleet comprised approximately 99.6% and 99.3% of our sales of rental equipment for
the years ended December 31, 2024 and 2023, respectively, and were approximately 260.7% and 255.0% of net book value for the years ended December 31, 2024 and 2023, respectively.
Sales of New Equipment Gross Profit. Our sales of new equipment gross profit for the year ended December 31, 2024 increased approximately $4.5 million, or 80.9%, to $10.0 million from $5.5 million in 2023, on increased sales of new equipment of $16.5 million. Gross profit margin on sales of new equipment for the year ended December 31, 2024 was 18.0% compared to 14.1% for the year ended December 31, 2023, an increase of 3.9%.
Parts, Service and Other Gross Profit. For the year ended December 31, 2024, our parts, service and other revenues gross profit decreased $7.5 million, or 29.3%, to $18.1 million from $25.6 million for the same period in 2023, on $10.4 million decreased parts, service and other revenues. Gross profit margin on parts, service and other revenues for the year ended December 31, 2024 was 26.4%, a decrease of approximately 6.1% from 32.5% in the same period in 2023.
Selling, General and Administrative Expenses. SG&A expenses increased approximately $50.1 million, or 12.4%, to $455.6 million for the year ended December 31, 2024 compared to $405.4 million for the year ended December 31, 2023. The net increase in SG&A expenses was attributable to several factors. Employee salaries, wages, incentive compensation, payroll taxes and related employee benefits increased $17.1 million, primarily as a result of increased wages, commissions and health insurance. Depreciation and amortization, facility expenses, professional fees and liability insurance costs increased $10.0 million, $9.8 million, $7.0 million and $4.5 million, respectively. Approximately $44.5 million of incremental SG&A expenses in 2024 were attributable to branches opened or acquired since January 1, 2023 with less than a full year of comparable operations in either or both of the years ended December 31, 2024 and 2023. As a percentage of total revenues, SG&A expenses were 30.0% and 27.6% for the years ended December 31, 2024 and 2023, respectively.
Gain on Sales of Property and Equipment, Net. During the year ended December 31, 2024, gain on sales of property and equipment, net amounted to $9.7 million for the period, compared to $3.4 million for the year ended December 31, 2023, an increase of approximately $6.3 million. This increase is due to fluctuations in the normal course of business.
Impairment of Goodwill. There was no impairment of goodwill in the year ended December 31, 2024. The prior year $5.7 million impairment related to the Parts Sales reporting unit for the year ended December 31, 2023. See Note 2 to the Consolidated Financial Statements for additional information.
Other Income (Expense). For the year ended December 31, 2024, our net other expenses increased approximately $13.3 million to $66.8 million compared to $53.5 million for the same period in 2023. Interest expense increased approximately $12.1 million to $73.0 million for the year ended December 31, 2024 compared to $60.9 million for the year ended December 31, 2023. The increase in interest expense is largely due to higher borrowings on our Credit Facility.
Income Taxes. We recorded an income tax expense of $39.6 million for the year ended December 31, 2024 compared to an income tax expense of approximately $53.9 million for the year ended December 31, 2023. Our effective income tax rate for the year ended December 31, 2024 was 24.3% compared to 24.2% for the same period last year, an increase of 0.1%.
Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at December 31, 2024 are fully realizable through future reversals of existing taxable temporary differences and future taxable income. For the year ended December 31, 2024, we have a $0.6 million valuation allowance for certain state tax credits that may not be realized.
Liquidity and Capital Resources
Cash Flow from Operating Activities. For the year ended December 31, 2024, the cash provided by our operating activities was $495.6 million. Our reported net income of $123.0 million, when adjusted for non-cash income and expense items, such as depreciation and amortization (including net amortization (accretion) of note discount (premium)), deferred income taxes, non-cash operating lease expense, amortization of finance lease right-of-use assets, provision for losses on accounts receivable, provision for inventory obsolescence, stock-based compensation expense, impairment of goodwill and net gains on the sale of long-lived assets, provided positive cash flows of $532.5 million. These cash flows from operating activities were positively impacted by a $11.9 million decrease in inventories and a $0.2 million increase in accrued expenses and other liabilities. Partially offsetting these positive cash flows were a $42.3 million decrease in accounts payable, a $2.7 million decrease in manufacturing flooring plans payable, a $2.5 million increase in prepaid expenses and other assets and a $1.5 million increase in receivables.
For the year ended December 31, 2023, the cash provided by our operating activities was $405.5 million. Our reported net income of $169.3 million, when adjusted for non-cash income and expense items, such as depreciation and amortization (including net amortization (accretion) of note discount (premium)), deferred income taxes, non-cash operating lease expense, amortization of finance lease right-of-use assets, provision for losses on accounts receivable, provision for inventory obsolescence, stock-based
compensation expense, impairment of goodwill and net gains on the sale of long-lived assets, provided positive cash flows of $544.3 million. These cash flows from operating activities were positively impacted by a $12.7 million decrease in prepaid expenses and other assets and a $2.3 million increase in manufacturing flooring plans payable. Partially offsetting these positive cash flows were a $76.9 million increase in inventories, a $44.0 million decrease in accounts payable, a $26.9 million increase in receivables and a $6.0 million decrease in accrued expenses and other liabilities.
Cash Flow from Investing Activities. For the year ended December 31, 2024, net cash used in our investing activities was approximately $459.0 million. The aggregate cumulative cash consideration paid for the acquisitions of Lewistown and Precision was approximately $157.8 million; see additional information on the acquisition in Note 3 to our Consolidated Financial Statements. The purchases of rental and non-rental equipment totaled approximately $451.3 million and proceeds from the sale of rental and non-rental equipment were approximately $150.0 million.
For the year ended December 31, 2023, net cash used in our investing activities was approximately $608.8 million. The acquisition of Giffin totaled approximately $31.3 million; see additional information on the acquisition in Note 3 to our Consolidated Financial Statements. The purchases of rental and non-rental equipment totaled approximately $745.8 million and proceeds from the sale of rental and non-rental equipment were approximately $168.3 million.
Cash Flow from Financing Activities. For the year ended December 31, 2024, our cash provided by our financing activities was exceeded by our cash used in financing activities, resulting in net cash used in our financing activities of $28.6 million. Borrowings on our Credit Facility amounted to $1.8 billion while payments on the facility also amounted to $1.8 billion for the year ended December 31, 2024. Dividends paid were $40.2 million, or $1.10 per common share, treasury stock purchases were approximately $5.8 million and payments on finance lease obligations were $0.3 million for the year ended December 31, 2024.
For the year ended December 31, 2023, our net cash provided by our financing activities was $130.4 million. Borrowings on our Credit Facility amounted to $1.8 billion while payments on the facility amounted to $1.6 billion for the year ended December 31, 2023. Dividends paid were $40.0 million, or $1.10 per common share, treasury stock purchases were approximately $6.1 million and payments on finance lease obligations were $0.2 million for the year ended December 31, 2023. Payments on deferred financing costs related to the amended and restated Credit Facility totaled $4.9 million.
Senior Unsecured Notes
On December 14, 2020, we completed the offering of our Senior Unsecured Notes of $1.25 billion. No principal payments on the Senior Unsecured Notes are due until their scheduled maturity date of December 15, 2028.
The Senior Unsecured Notes were issued by H&E Equipment Services, Inc. (the parent company) and are guaranteed by GNE Investments, Inc. and its wholly-owned subsidiaries Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc., H&E Equipment Services (Midwest), Inc., H&E Equipment Services (Mid-Atlantic), Inc. and H&E Finance Corp (collectively, the guarantor subsidiaries). The guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan. There are no registration rights associated with the notes or the subsidiary guarantees.
For additional information regarding our senior unsecured notes, see Note 9 to our Consolidated Financial Statements.
Senior Secured Credit Facility
We and our subsidiaries are parties to a $750.0 million senior secured credit facility (our “Credit Facility”) with Wells Fargo Bank, National Association as administrative agent, and the lenders named therein. At December 31, 2024, we had $199.3 million borrowed under the Credit Facility and we could borrow up to $535.9 million, which with cash on hand amounted to a liquidity position of $552.3 million. As of February 13, 2025, we had borrowings of $149.4 million outstanding under our Credit Facility leaving us with borrowing availability of $585.7 million, as a result of $14.8 million of letters of credit outstanding under the facility.
For additional information regarding our senior secured credit facility, see Note 10 to our Consolidated Financial Statements.
Cash Requirements Related to Operations
Our principal sources of liquidity have been from cash provided by operating activities and the revenue from our rental operations and sales of rental fleet and new equipment, proceeds from the issuance of debt, and borrowings available under the Credit Facility. As of December 31, 2024, the Company held balances of cash totaling $16.4 million compared to December 31, 2023, when the Company held balances of cash totaling $8.5 million. Our principal uses of cash historically have been to fund operating activities and
working capital (including equipment inventory), purchases of rental fleet and property and equipment, opening new branch locations, fund payments due under facility operating leases and manufacturer flooring plans payable, and to meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new branch locations.
The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. The consolidated statements of cash flows include the payments for purchases of rental fleet, but does not reflect gross rental fleet capital expenditures which include items such as non-cash components. Our gross rental fleet capital expenditures for the years ended December 31, 2024 and 2023 were approximately $385.5 million and $736.6 million, respectively. This decrease in rental fleet capital expenditures reflects the normalization of fleet purchasing in the current year as compared to the prior year. Our gross property and equipment capital expenditures for the years ended December 31, 2024 and 2023 were $106.6 million and $83.9 million, respectively. The increase in gross property and equipment capital expenditures in the current year as compared to the prior year is attributable to branch expansion.
To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness (including the Credit Facility, the Senior Unsecured Notes and our other indebtedness), will depend upon our future operating performance and the availability of borrowings under the Credit Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the Credit Facility will be adequate to meet our future liquidity needs for the foreseeable future, both in the short-term (over the next 12 months) and beyond. At December 31, 2024, we have cash on hand of approximately $16.4 million. At December 31, 2024, we had available borrowings of $535.9 million, net of $14.8 million of outstanding letters of credit and at December 31, 2023, we had available borrowings of $556.0 million, net of $12.3 million of outstanding letters of credit. At February 13, 2025, we had $585.7 million of available borrowings under the Credit Facility, net of a $14.8 million of outstanding letters of credit.
Our contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness and interest payments. We have no off-balance sheet arrangements. In tabular format below, we have disclosed our analysis of material cash requirements from known contractual and other obligations as of December 31, 2024.
Payments Due by Year
Total
Thereafter
(Amounts in thousands)
Senior unsecured notes (1)
Interest payments on senior unsecured notes (2)
Senior secured credit facility (3)
Interest payments on senior secured credit facility (4)
Operating lease liabilities (5)
Other lease commitments (6)
Finance lease liabilities (7)
Total contractual cash obligations
See Note 9 to our Consolidated Financial Statements for additional information regarding our Senior Notes.
Future interest payments are calculated based on the assumption that all of the senior unsecured notes remain outstanding until maturity.
See Note 10 to our Consolidated Financial Statements for additional information regarding our Credit Facility.
This represents future interest payments calculated based on the assumption that all borrowings remain outstanding until maturity, assumes the interest rate in effect at December 31, 2024 and includes unused commitment fees.
This includes total minimum operating lease rental payments having initial or remaining non-cancelable lease terms longer than one year, including interest.
Represents total minimum operating lease rental payments for leases executed but not commenced as of December 31, 2024.
This includes total minimum finance lease rental payments having initial or remaining non-cancelable lease terms longer than one year, including interest.
As of December 31, 2024, we had standby letters of credit issued under our Credit Facility totaling $14.8 million that expire in May 2025.
Quarterly Dividend
On each of February 9, 2024, May 16, 2024, August 12, 2024 and November 15, 2024, the Company declared a quarterly dividend of $0.275 per share to stockholders of record, which were paid on March 15, 2024, June 14, 2024, September 13, 2024 and December 13, 2024, respectively, totaling approximately $40.2 million. On February 7, 2025, the Company declared a quarterly dividend of $0.275 per share to stockholders of record as of the close of business on February 18, 2025, which is to be paid on February 24, 2025.
The Company intends to continue to pay regular quarterly cash dividends; however, the declaration of any subsequent dividends is discretionary and will be subject to a final determination by the Board of Directors each quarter after its review of, among other things, business and market conditions.
Acquisitions and Start-up Facilities
We periodically engage in evaluations of potential acquisitions and start-up facilities. We intend to continue to evaluate and pursue, on an opportunistic basis, acquisitions that meet our selection criteria, and we are focused on identifying and acquiring rental companies to complement our existing business, broaden our geographic footprint, and increase our density in existing markets.
Effective January 1, 2018, we completed the acquisition of CEC, a privately-held company focused on non-residential construction equipment rentals serving the greater Denver, Colorado area out of three branch locations. Effective April 1, 2018, we completed the acquisition of Rental Inc., an equipment rental and distribution company with five branch locations in Alabama and Florida. Effective February 1, 2019, we completed the acquisition of WRI, an equipment rental company with six branch locations in Central Texas. Effective October 1, 2022, we completed the acquisition of OSR, an equipment rental company with ten branch locations in the Midwest. Effective November 1, 2023, we completed the acquisition of Giffin, an equipment rental company with three branches in California. Effective January 1, 2024, the Company completed the acquisition of Precision Rentals (“Precision”), a privately-held equipment rentals company with a branch location in each of Arizona and Colorado. Effective May 1, 2024, the Company completed the acquisition of Lewistown Rentals (“Lewistown”), a privately-held equipment rentals company with four branch locations in Montana. See Note 3 to our Consolidated Financial Statements for additional information on these acquisitions.
The success of our growth strategy depends, in part, on selecting strategic acquisition candidates at attractive prices and identifying strategic start-up locations. We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and lead to higher acquisition costs. We may not have the financial resources necessary to consummate any acquisitions or to successfully open any new facilities in the future or the ability to obtain the necessary funds on satisfactory terms. For further information regarding our risks related to acquisitions, see Item 1A – Risk Factors of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk
Our earnings may be affected by changes in interest rates since interest expense on the Credit Facility is currently calculated based upon (a) the Base Rate plus an applicable margin of 0.25% to 0.75%, depending on the Average Availability (as defined in the Credit Facility), in the case of index rate revolving loans and (b) SOFR plus a credit spread adjustment and an applicable margin of 1.25% to 1.75%, depending on the Average Availability (as defined in the Credit Facility), in the case of SOFR revolving loans.
At December 31, 2024, we had $199.3 million in borrowings outstanding under the Credit Facility. At February 13, 2025, we had $149.4 million in borrowings outstanding under the Credit Facility with $585.7 million of available borrowings, net of a $14.8 million of outstanding letters of credit. We did not have significant exposure to changing interest rates as of December 31, 2024 on the fixed-rate senior unsecured notes. Historically, we have not engaged in derivatives or other financial instruments for trading, speculative or hedging purposes, though we may do so from time to time if such instruments are available to us on acceptable terms and prevailing market conditions are accommodating.
Item 8. Financial Statemen ts and Supplementary Data
Index to consolidated financial statements of H&E Equipment Services, Inc. and Subsidiaries
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of H&E Equipment Services, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and the schedule appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 21, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition for equipment rental, sales of rental equipment, and sales of new equipment
As described in Note 2 to the consolidated financial statements, the Company’s revenue is generated from renting equipment, as well as the sale of goods or services, to customers. Revenue from equipment rental transactions is generally accounted for under Topic 842 in the period earned based on contractual terms of the rental contract with the customer. A rental contract includes rates for daily, weekly or monthly use, and equipment rental revenues are earned on a daily basis as rental contracts remain outstanding. Revenue from the sale of rental and new equipment is accounted for under Topic 606 and is recognized when control of the promised good is transferred to the customer based on contractual terms with the customer. The Company’s consolidated net revenue from equipment rentals, sale of rental equipment and sale of new equipment was $1.4 billion for the fiscal year ended December 31, 2024.
We identified revenue recognition for equipment rental, sales of rental equipment, and sales of new equipment as a critical audit matter. The principal consideration for our determination was the significant audit effort in performing procedures relating to revenue recognition for equipment rental, sales of rental equipment, and sales of new equipment.
The primary procedures we performed to address this critical audit matter included:
Obtaining an understanding of the nature of the revenue recognition process for equipment rental, sales of rental equipment and sales of new equipment, through walkthrough of individual transactions, and review of contracts with the customers.
Testing the design, implementation, and operating effectiveness of relevant controls relating to the revenue recognition process for equipment rental, sales of rental equipment and sales of new equipment, including IT general controls for the systems used in the revenue recognition process, as well as manual and automated business process controls.
Testing a selection of equipment rental transactions by agreeing the amounts recognized to source documents, such as rental contracts, invoices, and subsequent cash receipts.
Testing a selection of sales of rental equipment and sales of new equipment transactions by agreeing the amounts recognized to source documents, such as sales contracts, auction documents, invoices, delivery documents, and subsequent cash receipts.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2004.
Dallas, Texas
February 21, 2025
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED B ALANCE SHEETS
AS OF DECEMBER 31,
(Amounts in thousands, except
share and per share amounts)
Assets
Cash
Receivables, net of allowance for doubtful accounts of $ 9,435 and $ 7,126 , respectively
Inventories, net of reserves for obsolescence of $ 180 and $ 207 , respectively
Prepaid expenses and other assets
Rental equipment, net of accumulated depreciation of $ 1,112,196 and $ 990,971 , respectively
Property and equipment, net of accumulated depreciation and amortization of $ 211,682 and $ 193,723 , respectively
Operating lease right-of-use assets, net of accumulated amortization of $ 94,892 and $ 71,021 , respectively
Finance lease right-of-use assets, net of accumulated amortization of $ 790 and $ 345 , respectively
Deferred financing costs, net of accumulated amortization of $ 18,735 and $ 17,606 , respectively
Intangible assets, net of accumulated amortization of $ 36,089 and $ 25,824 , respectively
Goodwill
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Senior secured credit facility
Accounts payable
Manufacturer flooring plans payable
Accrued expenses payable and other liabilities
Dividends payable
Senior unsecured notes, net of unaccreted discount of $ 4,635 and $ 5,807 and deferred financing costs of $ 1,070 and $ 1,341 , respectively
Operating lease liabilities
Finance lease liabilities
Deferred income taxes
Total liabilities
Commitments and Contingencies (Note 13)
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; 41,086,358 and 40,823,375 shares issued at December 31, 2024 and December 31, 2023, respectively, and 36,604,864 and 36,449,188 shares outstanding at December 31, 2024 and December 31, 2023, respectively
Additional paid-in capital
Treasury stock at cost, 4,481,494 and 4,374,187 shares of common stock held at December 31, 2024 and December 31, 2023, respectively
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STAT EMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share amounts)
(Amounts in thousands, except per share amounts)
Revenues:
Equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Cost of revenues:
Rental depreciation
Rental expense
Rental other
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total cost of revenues
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Gain from sales of property and equipment, net
Income from operations
Other income (expense):
Interest expense
Other, net
Total other expense, net
Income from operations before provision for income taxes
Provision for income taxes
Net income from continuing operations
Discontinued Operations:
Loss from discontinued operations before benefit for income taxes
Benefit for income taxes
Net loss from discontinued operations
Net income
Net income from continuing operations per common share:
Basic
Diluted
Net loss from discontinued operations per common share:
Basic
Diluted
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022
(Amounts in thousands, except share and per share amounts)
Common Stock
Shares
Issued
Amount
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Total
Stockholders’
Equity
Balances at December 31, 2021
Stock-based compensation
Cash dividends declared on common stock ($ 1.10 per share)
Issuances of non-vested restricted common stock, net of restricted stock forfeitures
Repurchases of 46,923 shares of restricted common stock
Net income
Balances at December 31, 2022
Stock-based compensation
Cash dividends declared on common stock ($ 1.10 per share)
Issuances of non-vested restricted common stock, net of restricted stock forfeitures
Repurchases of 115,632 shares of restricted common stock
Net income
Balances at December 31, 2023
Stock-based compensation
Cash dividends declared on common stock ($ 1.10 per share)
Issuances of non-vested restricted common stock, net of restricted stock forfeitures
Repurchases of 107,307 shares of restricted common stock
Net income
Balances at December 31, 2024
The accompanying notes are an integral part of these consolidated financial statements.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEM ENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment
Depreciation of rental equipment
Amortization of intangible assets
Amortization of deferred financing costs
Accretion of note discount, net of premium amortization
Non-cash operating lease expense
Amortization of finance lease right-of-use assets
Provision for losses on accounts receivable
Provision for inventory obsolescence
Change in deferred income taxes
Stock-based compensation expense
Impairment of goodwill
Loss on sale of discontinued operations
Gain from sales of property and equipment, net
Gain from sales of rental equipment, net
Changes in operating assets and liabilities:
Receivables
Inventories
Prepaid expenses and other assets
Accounts payable
Manufacturer flooring plans payable
Accrued expenses payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of businesses
Closing adjustment on sale of discontinued operations
Purchases of property and equipment
Purchases of rental equipment
Proceeds from sales of property and equipment
Proceeds from sales of rental equipment
Net cash used in investing activities
Cash flows from financing activities:
Purchases of treasury stock
Borrowings on senior secured credit facility
Payments on senior secured credit facility
Payments of deferred financing costs
Dividends paid
Payments of finance lease obligations
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands)
Supplemental schedule of non-cash investing and financing activities:
Accrued acquisition purchase price consideration
Non-cash asset purchases:
Rental fleet in accounts payable and accrued expenses payable and other liabilities
Assets transferred from inventory to rental fleet
Purchases of property and equipment included in accrued expenses payable and other liabilities
Operating lease assets obtained in exchange for new operating lease liabilities
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes paid, net of refunds received
The accompanying notes are an integral part of these consolidated financial statements.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization and Nature of Operations
Founded in 1961, H&E Equipment Services, Inc. (or “the Company”, “we”, “us”, or “our”) is one of the largest rental equipment companies in the nation, serving customers across 31 states. The Company’s fleet is comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and Mid-Atlantic regions.
Recent Developments
On February 19, 2025, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Herc Holdings Inc., a Delaware corporation (“Herc”) and HR Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Herc (“Merger Sub”), pursuant to which Merger Sub agreed to commence an exchange offer (the “Offer”), to purchase all of the issued and outstanding shares of our common stock, following which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Herc (the “Merger”) (and collectively, the “Transactions”).
The price per share of common stock in the Offer is a combination of cash and Herc common stock, consisting of (i) $ 78.75 in cash, without interest, less any applicable withholding of taxes (the “Cash Offer Price”), and (ii) a fixed exchange ratio of 0.1287 shares of Herc common stock, without interest, per share (the “Stock Offer Price”). The combination of the Cash Offer Price and the Stock Offer Price is equal to a total value of approximately $ 104.89 per share (the “Offer Price”) based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025 .
The transaction is expected to close in the first half of 2025. The transaction is subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger. See Note 17, Subsequent Events, for additional information.
Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our 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, H&E Equipment Services (Midwest), Inc. and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we”, “us”, “our” or the “Company” and doing business as “H&E Rentals”.
On October 1, 2021, the Company sold its crane business (the “Crane Sale”) and during June 2022, closing adjustments were finalized. The results of operations of the Crane Sale are reported in discontinued operations in the Consolidated Statements of Income for the year ended December 31, 2022. All results and information in the consolidated financial statements are presented as continuing operations and exclude the Crane Sale unless otherwise noted specifically as discontinued operations. The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3 “Acquisitions and Dispositions”. For additional information, refer to Note 3.
All significant intercompany accounts and transactions have been eliminated in these consolidated financial statements. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.
The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, the accompanying consolidated balance sheets are presented on an unclassified basis.
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 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue 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.
The tables below summarize our revenues as presented in our Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022 by revenue type and by the applicable accounting standard (amounts in thousands).
Year Ended December 31, 2024
Topic 842
Topic 606
Total
Revenues:
Rental Revenues:
Owned equipment rentals
Re-rent revenue
Ancillary and other rental revenues:
Delivery and pick-up
Other
Total ancillary rental revenues
Total equipment rental revenues
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Year Ended December 31, 2023
Topic 842
Topic 606
Total
Revenues:
Rental Revenues:
Owned equipment rentals
Re-rent revenue
Ancillary and other rental revenues:
Delivery and pick-up
Other
Total ancillary rental revenues
Total equipment rental revenues
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Year Ended December 31, 2022
Topic 842
Topic 606
Total
Revenues:
Rental Revenues:
Owned equipment rentals
Re-rent revenue
Ancillary and other rental revenues:
Delivery and pick-up
Other
Total ancillary rental revenues
Total equipment rental revenues
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Revenues by reporting segment are presented in Note 16. We believe that the disaggregation of our revenues from contracts to customers as reflected above, coupled with further discussion below and the reporting segment in Note 16, depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.
Nature of goods and services
Lease revenues
Topic 842
Owned equipment rentals : Owned equipment rentals represent revenues from renting equipment. We account for these 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. Our equipment is generally rented for short periods of time (less than a year). 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. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Lessees do not provide residual value guarantees on rented equipment.
Re-rent revenue : Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.
Other equipment rental revenue : Other equipment rental revenue is primarily comprised of (i) revenue from customers who purchase insurance to protect against potential damages or loss to the equipment they rent, (ii) environmental charges associated with the rental of equipment, and (iii) fuel recovery fees charged to customers. Fuel consumption charges are recognized upon return of the rental equipment when fuel consumption by the customer, if any, can be measured. Income from environmental fees and damage waiver insurance policies are recognized when earned over the period the equipment is rented.
Revenues from contracts with customers (Topic 606)
Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.
Owned equipment rentals: An insignificant portion of our total equipment rental revenues are recognized pursuant to Topic 606 rather than pursuant to Topic 842. These revenues represent services performed by us in connection with the rental of equipment and are comprised of customer training fees on rented equipment and setup and configuration services on rental equipment. Revenues for these services are recognized upon completion of such services. See discussion above regarding rental revenues recognized pursuant to Topic 842.
Delivery and pick-up : Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.
Sales of rental equipment: Revenues from the sales of rental equipment are recognized at the time of delivery to, or pick-up by, the customer, or when the bill-and-hold criteria are satisfied, which is when the customer obtains control of the promised good.
Sales of new equipment: Revenues from the sales of new equipment are recognized at the time of delivery to, or pick-up by, the customer, which is when the customer obtains control of the promised good.
Parts, service, and other: Revenues from the sales of equipment parts are recognized at the time of pick-up by the customer for parts counter sales transactions. For parts that are shipped to a customer, we made an accounting policy election permitted by Topic 606 to treat such shipping activities as fulfillment costs, which results in the fees for shipping activities being included in the parts sales transaction price. Service revenues is derived primarily from maintenance and repair services to customers for equipment that we rent or sell and from customers owned equipment. We recognize services revenues at the time such services are completed, which is when the customer obtains control of the promised service. Other revenues relate to equipment support activities that we provide to customers in connection with sales of rental and new equipment and parts and services revenues.
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 allowances 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 total revenues for any of the three years ended December 31, 2024. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
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 our rental operations, which as discussed above is accounted for under Topic 842. For the year ended December 31, 2024, revenue under ASC 842 represents 77 % of our total revenues and an approximate corresponding percentage of our receivables, net and associated allowance for doubtful accounts. 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. Bad debt expense as a percentage of total revenues for the years ended December 31, 2024, 2023 and 2022 was approximately 0.4 %, 0.3 % and 0.3 %, respectively.
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 years ended December 31, 2024, 2023 or 2022 that was included in the contract liability balance as of the beginning of such periods.
Performance obligations
Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amount of such revenue recognized during the years ended December 31, 2024, 2023 and 2022 was not material.
Payment terms
Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms are typically net 30 days, but can vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.
Sales tax amounts collected from customers are recorded on a net basis.
Contract costs
We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Substantially all of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
Contract estimates and judgments
Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments as the transaction price is generally fixed and stated on our contracts. Our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation. Also, our revenues do not include material amounts of variable consideration. Substantially all of our revenues are recognized at a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, our Topic 606 revenues are generally recognized at the time of delivery to, or pick-up by, the customer.
Discontinued Operations
In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as discontinued operations, the Company analyzes whether the group of assets being disposed of represents a component of the entity. A component typically has historic operations and cash flows that are clearly distinguishable for both operations and financial reporting purposes. In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. This strategic shift could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity.
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of its carrying amount or fair value less cost to sell. When a portion of a reporting unit that constitutes a business is to be disposed of, the goodwill associated with that business is included in the carrying amount of the business based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. See Note 3 for additional information.
Inventories
We measure inventory at the lower of cost or net realizable value; where net realizable value is considered to be estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. For used and new equipment inventories, cost is determined by specific-identification. For inventories of parts and supplies, cost is determined by using average cost.
Rental Equipment
The rental equipment we purchase is recorded in rental equipment on the Consolidated Balance Sheets and is stated at cost. Due to the Company’s shift to operate as a pure-play rental company, as of the quarter ended June 30, 2024 purchases of equipment are now disaggregated between inventory and rental equipment according to classification at the time of purchase as opposed to considering all generally available for sale. Purchases of equipment designated for fleet are now recorded as rental equipment while equipment designated for sale is recorded as inventory. Rental equipment is depreciated over the estimated useful life of the equipment upon placed in service using the straight-line method and is included in rental depreciation within our Consolidated Statements of Income. Estimated useful lives vary based upon type of equipment. Generally, we depreciate aerial work platforms over a ten year estimated useful life, earthmoving equipment over a five year estimated useful life with a 25 % salvage value, and material handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated generally over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives and any salvage value assigned to rental equipment. Depreciation expense on rental equipment is reflected in rental depreciation in cost of revenues on the Consolidated Statements of Income.
Ordinary repair and maintenance costs and property taxes are reflected in rental expenses in cost of revenues on the Consolidated Statements of Income. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. When rental equipment is sold or disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gains or losses are included in gross profit in the Consolidated Statements of Income. We receive individual offers for fleet on a continual basis, at which time we perform an analysis on whether or not to accept the offer. The rental equipment is not transferred to inventory under the held for sale model as the equipment is used to generate revenues until the equipment is sold.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over the assets’ estimated useful lives using the straight-line method. Ordinary repair and maintenance costs are included in selling, general and administrative (“SG&A”) expenses on our Consolidated Statements of Income. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in the Consolidated Statements of Income in gains
from sales of property and equipment, net. We additionally capitalize certain costs associated with internally developed software and cloud computing arrangements.
We periodically evaluate the appropriateness of remaining depreciable lives assigned to property and equipment. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter. Depreciation expense on property and equipment is included in SG&A expenses on our Consolidated Statements of Income . Generally, we assign the following estimated useful lives to these categories:
Category
Estimated
Useful Life
Transportation equipment
5 years
Buildings
39 years
Office equipment
5 years
Computer equipment
3 years
Machinery and equipment
7 years
When events or changes in circumstances indicate that the carrying amount of our rental fleet and property and equipment might not be recoverable, the expected future undiscounted cash flows from the assets are estimated and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying amounts. Fair value is determined based on discounted cash flows or appraised values, as appropriate. In support of our review for indicators of impairment, we perform a review of our long-lived assets at the branch level relative to branch performance and conclude whether indicators of impairment exist. We did no t record any impairment losses related to our rental equipment or property and equipment during the years ended December 31, 2024, 2023 or 2022 .
Acquisition Accounting
We have made a number of acquisitions in the past and we may continue to make additional acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest component of our acquisitions. Historically, virtually all of the rental equipment that we have acquired through business combinations have been classified as “To be Used,” rather than as “To be Sold.” Rental equipment that we acquire and classify as “To be Used” is recorded at fair value and is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of cost or market data. Goodwill is calculated as the excess of the fair value of consideration transferred over the net of the fair value of the assets acquired and the liabilities assumed. Such fair market value assessments require judgments and estimates that can be affected by various factors over time, which may cause final amounts to differ materially from original estimates. The identification of assets acquired, inputs utilized for determining the fair value of assets acquired and liabilities assumed and applicable fair value methodologies all include significant judgment.
In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these assets and liabilities generally approximate the carrying values reflected on the acquired entities balance sheets. However, when appropriate, we adjust these carrying values for factors such as collectability and existence. The intangible assets that we have acquired consist primarily of the goodwill recognized. Depending upon the applicable purchase agreement and the particular facts and circumstances of the business acquired, we may identify other intangible assets, such as trade names or trademarks, noncompetition agreements and customer-related intangibles (specifically, customer relationships). A trademark has a fair value equal to the present value of the royalty income attributable to it. The royalty income attributable to a trademark represents the hypothetical cost savings that are derived from owning the trademark instead of paying royalties to license the trademark from another owner. The fair value of noncompetition agreements is estimated based on an income approach since their values are representative of the current and future revenue and profit erosion protection they provide. Customer relationships are generally valued based on an excess earnings or income approach with consideration to projected cash flows.
Goodwill
Goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.
We evaluate goodwill for impairment at least annually, as of October 1, or more frequently if triggering events occur or other impairment indicators arise that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment of goodwill is evaluated at the reporting unit level. We have identified that our four operating segments (Equipment Rentals, Sales of Rental Equipment, Sales of New Equipment and Parts, Service and Other Revenues) each represent a reporting unit.
Topic 350 consists of a one-step assessment to determine whether goodwill is impaired requiring an entity to compare each reporting unit’s carrying value, including goodwill, with its fair value. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit. An entity also has an option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. Considerable judgment is required by management in performing the qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
We performed a qualitative assessment of goodwill impairment as of our annual testing date, October 1, for years ended December 31, 2024, 2023, and 2022. We determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.
During the third quarter of 2023, based on our evaluation of our Parts Sales reporting unit and operating segment, we identified a triggering event requiring an interim impairment test. This triggering event related to a sustained parts segment decline in volume and actual revenue and earnings compared with our planned revenue and earnings utilized in our most recent quantitative goodwill impairment analysis following our dispositions and strategic shift to be rental focused. Additional information on our dispositions is included in Footnote 3. No triggering event was identified related to our Equipment Rental and Sales of Rental Equipment reporting units. We estimated the fair value of our Parts Sales reporting unit by weighting results from the income approach and the market approach and concluded that our Parts Sales reporting unit had a fair value less than its carrying value, resulting in a $ 5.7 million impairment charge. The impairment was largely due to a current year decrease in parts revenues as a result of our strategic shift and recent dispositions. This revenue decline, combined with our forecasted parts revenues growth rate and operating results assumptions for the forecast period under the income approach, resulted in a fair value determination, that when combined with the weighted fair value of the reporting unit determined under the market approach, was less than the reporting unit’s carrying value.
Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, such as the timing and duration of economic expansion or contraction cycles in our business, interest rates, and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. An adverse change in any of the assumptions used in our impairment testing (e.g., projected revenue and profit, discount rates, industry price multiples, etc.) could affect our fair value measurements and result in future impairments. If we are unable to achieve the financial forecasts used in our impairment analysis, we may also be required to record an impairment charge to our goodwill.
The impairment charge described above is a non-cash item and does not affect our cash flows, liquidity or borrowing capacity under the Credit Facility, and the impairment charge is excluded from our financial results in evaluating our financial covenants under the Credit Facility.
The carrying amount of goodwill for our reporting units for th e years ended December 31, 2024 and 2023 is as follows (amounts in thousands):
Equipment
Rentals
Sales of
Rental Eq.
Parts
Sales
Total
Balance at December 31, 2022 (1)
Increase (2)
Decrease (3)
Decrease (4)
Increase (5)
Balance at December 31, 2023 (1)
Increase (6)
Decrease (7)
Increase (8)
Increase (9)
Increase (10)
Balance at December 31, 2024 (1)
The total carrying amount of goodwill as of December 31, 2022 in the table above is reflected net of $ 92.7 million of accumulated impairment charges. The total carrying amount of goodwill as of December 31, 2024 and 2023 in the table above is reflected net of $ 98.4 million of accumulated impairment charges.
Increase is related to the closing adjustments of the OSR Acquisition during the first quarter of 2023.
Decrease is related to the Parts Sales goodwill impairment calculated during the third quarter of 2023.
Decrease is related to the final closing adjustment of the OSR Acquisition during the third quarter of 2023.
Increase due to the Giffin Equipment (“Giffin”) Acquisition during the fourth quarter of 2023.
Increase due to the Precision Rentals (“Precision”) Acquisition during the first quarter of 2024.
Decrease is related to the final purchase accounting adjustment of the Giffin Acquisition during the first quarter of 2024.
Increase due to Lewistown Rentals (“Lewistown”) Acquisition during the second quarter of 2024.
Increase is related to the final closing adjustment of the Precision Acquisition during the second quarter of 2024.
Increase is related to the final closing adjustment of the Lewistown Acquisition during the third quarter of 2024.
Intangible assets
Our intangible assets include customer relationships, tradenames and leasehold interests that we acquired in recent acquisitions (see Note 3 for further acquisition information). The customer relationships, leasehold interests and noncompetition agreements are amortized on a straight-line basis over estimated useful lives of ten years , ten years and the length of agreement (typically one to five years ), respectively, from the date of acquisition, which approximates the period of economic benefit.
The gross carrying values, accumulated amortization and net carrying amounts of our major classes of intangible assets as of December 31, 2024 and 2023 are as follows (dollar amounts in thousands):
December 31, 2024
December 31, 2023
Gross
Accumulated Amortization
Net
Gross
Accumulated Amortization
Net
Customer relationships
Noncompetition agreements
Leasehold interests
Total
The weighted-average remaining amortization period as of December 31, 2024 was 7 years for customer relationships, 4 years for noncompetition agreements and 3 years for leasehold interests. The weighted-average remaining amortization period as of December 31, 2023 was 8 years for customer relationships, 5 years for noncompetition agreements and 4 years for leasehold interests.
Intangible assets are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The impairment loss to be recorded would be the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis or other valuation technique.
Total amortization expense for the years ended December 31, 2024, 2023 and 2022 totaled $ 10.3 million, $ 6.5 million and $ 4.7 million, respectively, and is included within SG&A expenses on the Consolidated Statements of Income. The following table presents the expected amortization expense for each of the next five years ending December 31 and thereafter for those intangible assets with remaining carrying value as of December 31, 2024 (dollar amounts in thousands):
Amortization Expense
Thereafter
Manufacturer Flooring Plans Payable
Manufacturer flooring plans payable are financing arrangements for inventory and rental equipment. The interest cost incurred on the manufacturer flooring plans ranged from 0 % to the prime rate ( 7.50 % at December 31, 2024) plus an applicable margin. Certain manufacturer flooring plans provide for a one to twelve-month reduced interest rate term or a deferred payment period. We recognize interest expense based on the effective interest method. We make payments in accordance with the original terms of the financing agreements. However, we may sell equipment that is financed under manufacturer flooring plans prior to the original maturity date of the financing agreement. The related manufacturer flooring plan payable is then paid at the time the equipment being financed is sold. The manufacturer flooring plans payable are secured by the equipment being financed.
As of December 31, 2024 , there was no remaining balance on manufacturer flooring plans payable.
Leases
The Company as Lessee
We determine whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to determine if an identified asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the asset.
Our lease portfolio is substantially comprised of operating leases related to leases of real estate and improvements at our branch locations. From time to time, we may also lease various types of small equipment and vehicles.
Operating lease right-of-use (“ROU”) assets represent our right to use an individual asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining the present value of lease payments by assuming the rate for a fully collateralized and amortizing loan with the same term as the lease.
Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when such renewal options and/or termination options are reasonably certain of exercise. We do not separate lease and non-lease components of contracts. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred.
A ROU asset is subject to the same impairment guidance as assets categorized as plant, property, and equipment. As such, any impairment loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets.
A lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease. For example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying assets, or extends or shortens the contractual lease term, is a modification. Depending on facts and circumstances, a lease modification may be accounted as either: (1) the original lease plus the lease of a separate asset(s) or (2) a modified lease. A lease will be remeasured if there are changes to the lease contract that do not give rise to a separate lease.
See Note 11 related to the required lease disclosures.
The Company as Lessor
Our equipment rental business involves rental contracts with customers whereby we are the lessor in the transaction and therefore, such transactions are subject to Topic 842. We account for such 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.
Deferred Financing Costs and Initial Purchasers’ Discounts
Deferred financing costs include legal, accounting and other direct costs incurred in connection with the issuance and amendments thereto, of the Company’s debt. These costs are amortized over the terms of the related debt using the straight-line method which approximates amortization using the effective interest method.
Initial purchasers’ discount and bond premium is the differential between the price paid to an issuer for the new issue and the prices (below and above, respectively) at which the securities are initially offered to the investing public. The amortization expense of deferred financing costs and bond premium and accretion of initial purchasers’ discounts are included in interest expense as an overall cost of the related financings. Such costs are presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount.
Reserves for Claims
We are exposed to various claims relating to our business, including those for which we provide self-insurance. Claims for which we self-insure include: (1) workers compensation claims; (2) general liability claims by third parties for injury or property damage caused by our equipment or personnel; (3) automobile liability claims; and (4) employee health insurance claims. Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies. These types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim, including claims incurred but not reported as of a period-end reporting date, may not be known for an extended period of time. Our methodology for developing self-insurance reserves is based on management estimates. Our estimation process considers, among other matters, the cost of known claims over time, cost inflation and incurred but not reported claims. These estimates may change based on, among other things, changes in our claim history or receipt of additional information relevant to assessing the claims. Further, these estimates may prove to be inaccurate due to factors such as adverse judicial determinations or other claim settlements at higher than estimated amounts. Accordingly, we may be required to increase or decrease our reserve levels. At December 31, 2024 , our claims reserves related to workers compensation, general liability and automobile liability, which are included in “Accrued expenses payable and other liabilities” in our consolidated balance sheets, totaled $ 10.2 million and our health insurance reserves totaled $ 2.6 million. At December 31, 2023 , our claims reserves related to workers compensation, general liability and automobile liability totaled $ 9.9 million and our health insurance reserves totaled $ 2.3 million.
Advertising
Advertising costs are expensed as incurred and totaled $ 0.8 million, $ 1.1 million and $ 1.0 million for the years ended December 31, 2024, 2023 and 2022 , respectively.
Income Taxes
The Company files a consolidated federal income tax return with its wholly-owned subsidiaries. The Company is a C-Corporation under the provisions of the Internal Revenue Code. We utilize the asset and liability approach to measure deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date of that rate.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax provisions are measured at the largest amount that is greater than 50 % likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes both interest and penalties related to uncertain tax positions in net other income (expense).
Our deferred tax calculation requires management to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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 consolidated balance sheets for cash, accounts receivable, Senior Secured Credit Facility (the “Credit Facility”), accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature, maturity or market interest rate of these financial instruments. The Company’s outstanding obligations on its Credit Facility are deemed to be at fair value as the interest rates are variable and consistent with prevailing rates, which are considered Level 2 inputs. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures as of December 31, 2024 and 2023 are presented in the table below (amounts in thousands).
December 31, 2024
Carrying
Amount
Fair
Value
Senior unsecured notes due 2028 with interest computed at 3.875 % (Level 2)
December 31, 2023
Carrying
Amount
Fair
Value
Manufacturer flooring plans payable with interest computed at 8.75 % (Level 3)
Senior unsecured notes due 2028 with interest computed at 3.875 % (Level 2)
At December 31, 2024 and 2023 , the fair value of our senior unsecured notes due 2028 (the “Senior Unsecured Notes”), respectively, were based on quoted bond trading market prices for those notes. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturer flooring plans payable based on the U.S. prime rate plus the applicable margin on our Credit Facility. The discount rate is disclosed in the above table. The assets collateralized against the manufacturer flooring plans payable approximate its carrying value.
During the years ended December 31, 2024 and 2023 , there were no transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets, such as goodwill, intangible assets, rental equipment 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 result of our third quarter 2023 goodwill impairment quantitative test indicated that the fair value of the Parts Sales reporting unit was less than the carrying value of the reporting unit, resulting in a goodwill impairment of $ 5.7 million.
Concentrations of Credit and Supplier Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits and trade accounts receivable. Credit risk can be negatively impacted by adverse changes in the economy or by disruptions in the credit markets.
The Company maintains its cash deposits with established commercial banks. At times, balances may exceed federally insured limits. We have not experienced any losses in such accounts and do not believe that we are exposed to any significant credit risk associated with our cash deposits.
We believe that credit risk with respect to trade accounts receivable is somewhat mitigated by our large number of geographically diverse customers and our credit evaluation procedures. Although generally no collateral is required, when feasible, mechanics’ liens are filed and personal guarantees are signed to protect the Company’s interests. We maintain reserves for potential losses.
We record trade accounts receivables at sales value and establish specific reserves for certain customer accounts identified as known collection problems due to insolvency, disputes or other collection issues. The amounts of the specific reserves estimated by management are determined by a loss rate model based on delinquency, as further described above in receivables and contract assets and liabilities.
We purchase a significant amount of equipment from leading, nationally-known original equipment manufacturers. During the year ended December 31, 2024 , we purchased approximately 48.5 % of our equipment from five manufacturers (Haulotte, Skyjack, JCB, Polaris, and JLG). We believe that while there are alternative sources of supply for the equipment we purchase in each of the principal product categories, termination of one or more of our relationships with any of our major suppliers of equipment could have
a material adverse effect on our business, financial condition or results of operation if we were unable to obtain adequate or timely rental equipment.
Income (loss) per Share
Income (loss) per common share for the years ended December 31, 2024, 2023 and 2022 is based on the weighted average number of common shares outstanding during the period. The effects of potentially dilutive securities that are anti-dilutive are not included in the computation of diluted income (loss) per share. We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.
Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. The number of restricted common shares outstanding during the years ended December 31, 2024, 2023 and 2022 were less than 1 % of total outstanding shares for each of the years ended December 31, 2024, 2023 and 2022 and consequently, were immaterial to the basic and diluted EPS calculations. Therefore, use of the two-class method had no impact on our basic and diluted EPS calculations as presented for the years ended December 31, 2024, 2023 and 2022.
The following table sets forth the computation of basic and diluted net income (loss) per common share for the years ended December 31, (amounts in thousands, except per share amounts):
Net income from continuing operations
Net loss from discontinued operations
Net income
Weighted average number of common shares outstanding:
Basic
Effect of dilutive non-vested restricted stock
Diluted
Income (loss) per share: (1)
Basic:
Continuing operations
Discontinued operations
Net income per share
Diluted:
Continuing operations
Discontinued operations
Net income per share
Common shares excluded from the denominator as anti-dilutive:
Non-vested restricted stock
Dividends declared per common share outstanding
Because of the method used in calculating per share data, the summations may not necessarily total to the per share data computed for the total company due to rounding.
Segment Reporting
We have four reportable segments because we derive our revenues from four business activities: (1) equipment rentals; (2) sales of rental equipment; (3) sales of new equipment; (4) parts, service and other revenues. Our primary segment is equipment rentals. These segments are based upon how we allocate resources and assess performance. We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting
provided to our Chief Operating Decision Maker. See Note 16 to the consolidated financial statements regarding our segment information.
Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
Income Taxes
In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which should improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU requires that public entities on an annual basis disclose specific categories in the rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and the following information about income taxes paid: the amount of income taxes paid disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions. Lastly, the amendments in this ASU require that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. ASU 2023-09 becomes effective January 1, 2025 and is not expected to have an impact on our financial statements, but will result in expanded tax disclosures.
Income Statement Expenses
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to improve expense disclosures, primarily by requiring disclosure of disaggregated information about certain income statement expense line items on an annual and interim basis. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 becomes effective January 1, 2027 and is not expected to have an impact on our financial statements, but will result in expanded expense disclosures.
Recently Adopted Accounting Pronouncements
Segment Reporting
On January 1, 2024 we adopted ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improved the disclosures about a public entity’s reportable segments and addresses requests for additional, more detailed information about a reportable segment’s expenses. The amendments in this ASU required disclosure of incremental segment information on an annual and interim basis for all public entities. The impact of this ASU did not have an impact on our financial statements, but resulted in expanded reportable segment disclosures.
Acquisitions and Dispositions
2024 Acquisitions
Lewistown Rentals
Effective May 1, 2024 , we completed the acquisition of Lewistown Rentals (“Lewistown”), a Lewistown, Montana-based equipment rental business and three of its affiliated rental operations in Havre, Glasgow and Great Falls, Montana. The acquisition expands our presence in the Montana market.
The aggregate cash consideration paid was approximately $ 33.8 million. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the third quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.
$’s in thousands
Accounts receivable
Prepaid expenses and other assets
Rental equipment
Property and equipment
Customer relationships intangible asset (1)
Total identifiable assets acquired
Accounts payable
Accrued expenses payable and other liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill (2)
Net assets acquired
The following table reflects the fair values and useful lives of the acquired intangible assets:
Fair Value
(amounts in
thousands)
Life (years)
Customer relationships
The acquired goodwill has been allocated to the equipment rentals reporting unit.
The level of goodwill that resulted from the Lewistown acquisition is primarily reflective of Lewistown’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.
Acquisition costs for the year ended December 31, 2024 were $ 0.5 million included within SG&A expenses on the Consolidated Statement of Income. Since our acquisition of Lewistown on May 1, 2024, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Lewistown revenues and earnings since the acquisition date.
The assets and liabilities were recorded as of May 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.
Precision Rentals
Effective January 1, 2024 , we completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado. The acquisition expands our presence in both geographic markets.
The aggregate cumulative cash consideration paid was approximately $ 124.0 million, which includes $ 3.5 million of fair value allocated to a noncompete agreement which is accounted for as a separate transaction from the net assets acquired in the business combination. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the second quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.
$’s in thousands
Accounts receivable
Prepaid expenses and other assets
Rental equipment
Property and equipment
Operating lease right-of-use assets
Customer relationships intangible asset (1)
Total identifiable assets acquired
Accounts payable
Accrued expenses payable and other liabilities
Operating lease liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill (2)
Net assets acquired
Noncompetition agreement intangible asset (1)(3)
Total cumulative consideration
The following table reflects the fair values and useful lives of the acquired intangible assets:
Fair Value
(amounts in
thousands)
Weighted-Average Life (years)
Customer relationships
Noncompetition agreements
The acquired goodwill has been allocated to the equipment rentals reporting unit.
The fair value of the noncompetition agreements is considered to be a separate transaction under ASC 805 and as such, has been excluded from the purchase price.
The level of goodwill that resulted from the Precision acquisition is primarily reflective of Precision’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.
Acquisition costs for the year ended December 31, 2024 were $ 0.4 million included within SG&A expenses on the Consolidated Statement of Income. Since our acquisition of Precision on January 1, 2024, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Precision revenues and earnings since the acquisition date.
The assets and liabilities were recorded as of January 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.
2023 Acquisition
Giffin Equipment
Effective November 1, 2023 , we completed the acquisition of Mel Giffin, Inc. (d/b/a Giffin Equipment) (“Giffin”), an equipment rental company with three branches located in California. The acquisition expands our presence in the California market.
The aggregate cash consideration paid was approximately $ 31.3 million. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the third quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.
$’s in thousands
Accounts receivable
Prepaid expenses and other assets
Rental equipment
Property and equipment
Operating lease right-of-use assets
Intangible assets (1)
Total identifiable assets acquired
Accrued expenses payable and other liabilities
Operating lease liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill (2)
Net assets acquired
The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:
Fair Value
(amounts in
thousands)
Weighted-Average Life (years)
Customer relationships
Noncompetition agreements
The acquired goodwill has been allocated to the equipment rentals reporting unit.
The level of goodwill that resulted from the Giffin acquisition is primarily reflective of Giffin’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.
Acquisition costs were $ 0.1 million and $ 0.3 million, respectively, and included within SG&A expenses on the Consolidated Statements of Income during the year ended December 31, 2024 and 2023. Since our acquisition of Giffin on November 1, 2023, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Giffin revenues and earnings since the acquisition date.
The assets and liabilities were recorded as of November 1, 2023 and the results of operations are included in the Company's consolidated results as of that date.
2022 Acquisition
One Source Equipment Rentals, Inc.
Effective October 1, 2022 , we acquired 100 % of the equity of One Source Equipment Rentals, Inc. (“OSR”), an equipment rental company with ten branches located in the Midwest. The acquisition expands our presence in the surrounding market, including initial locations in Illinois, Indiana, and Kentucky.
The aggregate cash consideration paid was approximately $ 136.7 million. The acquisition and related fees and expenses were funded from available cash. Customary closing adjustments were finalized during the first quarter of 2023 and the update of a tax estimate upon filing the final tax returns concluded during the third quarter of 2023. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.
$’s in thousands
Cash
Accounts receivable
Inventory
Prepaid expenses and other assets
Rental equipment
Property and equipment
Operating lease right-of-use assets
Intangible assets (1)
Total identifiable assets acquired
Accounts payable
Tax payable
Operating lease liabilities
Deferred income taxes
Total liabilities assumed
Net identifiable assets acquired
Goodwill (2)
Net assets acquired
The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:
Fair Value
(amounts in
thousands)
Weighted-Average Life (years)
Customer relationships
Noncompetition agreements
The acquired goodwill has been allocated to the equipment rentals reporting unit.
The level of goodwill that resulted from the OSR acquisition is primarily reflective of OSR’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. Goodwill was not deductible for income tax purposes.
Acquisition costs were $ 0.8 million and included within SG&A expenses on the Consolidated Statement of Income during the year ended December 31, 2022. Since our acquisition of OSR on October 1, 2022, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of OSR revenues and earnings since the acquisition date.
The assets and liabilities were recorded as of October 1, 2022 and the results of operations are included in the Company's consolidated results as of that date.
Pro forma financial information (unaudited)
We completed the Giffin acquisition effective November 1, 2023. Therefore, our reported Consolidated Statement of Income for the year ended December 31, 2023 does not include Giffin for the period from January 1, 2023 through October 31, 2023. Additionally, we completed the Precision and Lewistown acquisitions effective January 1, 2024 and May 1, 2024, respectively. Therefore, our reported Consolidated Statement of Income for the year ended December 31, 2024 does not include Lewistown for the period from January 1, 2024 through April 30, 2024.
The unaudited pro forma information in the table below (amounts in thousands) is for informational purposes only and gives effect to the Giffin, Precision and Lewistown acquisitions had all been completed on January 1, 2023 (the “pro forma acquisition date”). The unaudited pro forma information is not necessarily indicative of our results of operations had the acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of our future results. The unaudited pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, nor does it reflect additional revenue opportunities following the acquisition. The unaudited pro forma financial information includes adjustments primarily related to the incremental depreciation and amortization expense of the rental equipment and intangible assets acquired, the elimination of interest expense related to historical debt as well as other expenses that are not part of the combined entity and transaction expenses.
Year Ended December 31,
Total revenues
Net income
2022 Disposition
Komatsu Earthmoving Distributorship
On December 15, 2022, we sold our Komatsu earthmoving distribution business to Houston, Texas based Waukesha-Pearce Industries, LLC (“WPI”) for $ 29.2 million, subject to customary closing adjustments. The WPI sale included the rights to the distribution of Komatsu earthmoving equipment in the state of Louisiana and counties located in southwestern Arkansas, a branch location and its associated property, plant and equipment in Kenner, LA, Komatsu new equipment inventory, assets at a leased facility in Bossier City, LA and certain other equipment, parts and supplies with a net book value of approximately $ 14.7 million. We recorded a gain of $ 12.9 million within gain from sales of property and equipment, net and a gain of $ 2.5 million within other income on the Consolidated Statement of Income for the year ended December 31, 2022. The WPI sale did not qualify for discontinued operations as the divestiture does not meet the definition of a component.
2021 Disposition
Crane Sale
On July 19, 2021, the Company entered into a definitive agreement to sell its crane business to a wholly-owned subsidiary of The Manitowoc Company, Inc. for $ 130.0 million in cash, which was subject to adjustment based on actual amounts of net working capital and crane rental fleet net book value delivered at transaction closing. The Company executed the transaction closing on October 1, 2021 , subject to customary closing conditions, including regulatory approval under the Hart-Scott-Rodino Act, resulting in proceeds of $ 135.9 million, which was subject to finalization of adjustments. Closing adjustments of $ 1.9 million were recorded as a loss from discontinued operations on the Consolidated Statement of Income during the second quarter of 2022.
This disposition represents the Company’s strategic shift to a pure-play rental business. In accordance with ASC 205-20, the Company determined that discontinued operations presentation was met during the third quarter of fiscal year 2021. There is no continuing involvement with the crane business. The crane business’s results are reported separately as discontinued operations in our Consolidated Statements of Income for the year ended December 31, 2022. As permitted, the Company elected not to adjust the Consolidated Statements of Cash Flows to exclude cash flows attributable to discontinued operations. Accordingly, we disclosed the items related to the Crane Sale below.
The following tables (amounts in thousands) present the Crane Sale results as reported in income from discontinued operations within our Consolidated Statements of Income.
Year Ended December 31,
Total revenues
Total cost of revenues
Gross profit
Selling, general and administrative expenses
Loss on sales of property and equipment, net
Loss on sale of discontinued operations
Loss from discontinued operations
Other, net
Loss before benefit for income taxes
Benefit for income taxes
Net loss from discontinued operations
Cash flows from discontinued operations was as follows (amounts in thousands):
Year Ended December 31,
Operating activities of discontinued operations:
Loss on sale of discontinued operations
Receivables
Receivables consisted of the following at December 31, (amounts in thousands):
Trade receivables
Unbilled rental revenue
Income tax receivables
Other
Less allowance for doubtful accounts
Total receivables, net
Inventories
Inventories consisted of the following at December 31, (amounts in thousands):
Used equipment
New equipment
Parts, service and other
Total inventories, net
The above amounts are presented net of reserves for inventory obsolescence at December 31, 2024 and 2023 totaling approximately $ 0.2 million.
Property and Equipment
Net property and equipment consisted of the following at December 31, (amounts in thousands):
Land
Transportation equipment
Building and leasehold improvements
Office and computer equipment
Machinery and equipment
Construction in progress
Less accumulated depreciation and amortization
Total net property and equipment
Total depreciation and amortization on property and equipment was $ 48.0 million, $ 34.7 million and $ 28.8 million for the years ended December 31, 2024, 2023 and 2022 , respectively.
Stock-Based Compensation
The Company issues time-based and performance-based restricted stock units (“RSU”) to certain officers and executives under our stock-based compensation plan. The RSUs automatically convert to shares of common stock on a one -for-one basis as the awards vest. The time-based RSUs typically vest over a three year vesting period beginning 12 months from the grant date and thereafter annually on the anniversary of the grant date. The performance-based RSUs vest based on the achievement of the performance conditions specific to certain financial metrics during the three year performance period. Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, net of an estimated forfeiture rate, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The estimated forfeiture rate is based on historical experience and revised, if necessary, in subsequent periods for actual forfeitures. For performance-based RSUs, compensation expense is recognized to the extent that the satisfaction of the performance condition is considered probable.
Our Amended and Restated 2016 Stock-Based Incentive Compensation Plan (the “2016 Plan”) is administered by the Compensation Committee of our Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions, performance measures, if any, and other provisions of the award. Under the 2016 Plan, we may offer deferred shares or restricted shares of our common stock and grant options, including both incentive stock options and nonqualified stock options, to purchase shares of our common stock. Shares available for future stock-based payment awards under our 2016 Plan were 2,228,894 shares of common stock as of December 31, 2024.
Non-vested RSUs
The following table summarizes our non-vested RSU activity for the years ended December 31, 2024, 2023 and 2022:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Non-vested RSUs at January 1, 2022
Granted
Vested
Forfeited
Non-vested RSUs at December 31, 2022
Granted
Vested
Forfeited
Non-vested RSUs at December 31, 2023
Granted
Vested
Forfeited
Non-vested RSUs at December 31, 2024
As of December 31, 2024 , we had unrecognized compensation expense of approximately $ 12.6 million related to non-vested RSU award payments that we expect to be recognized over a weighted average period of 2.0 years. Stock compensation expense, which is included in SG&A expenses in the accompanying Consolidated Statements of Income, for the years ended December 31, 2024, 2023 and 2022 was $ 11.2 million, $ 10.0 million and $ 7.3 million, respectively. The total recognized tax benefit amounted to $ 0.9 million, $ 0.7 million and $ 0.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. The total fair value of vested stock during the years ended December 31, 2024, 2023 and 2022 was $ 10.2 million, $ 7.1 million and $ 4.4 million, respectively.
Purchases of Company Common Stock
Purchases of our common stock are accounted for as treasury stock in the accompanying consolidated balance sheets using the cost method. Repurchased stock is included in authorized shares, but is not included in shares outstanding.
Accrued Expenses Payable and Other Liabilities
Accrued expenses payable and other liabilities consisted of the following at December 31, (amounts in thousands):
Payroll and related liabilities
Sales, use, property and income taxes
Accrued interest
Accrued insurance
Deferred revenue
Other
Total accrued expenses payable and other liabilities
Senior Unsecured Notes
On December 14, 2020, we completed an offering of $ 1,250 million aggregate principal amount of 3.875 % senior notes due 2028 (the “Senior Notes”). The Senior Notes were sold in a private placement pursuant to a purchase agreement, dated November 30, 2020, by and among the Company, certain subsidiary guarantors and BofA Securities, Inc. There are no registration rights associated with the Senior Notes or the subsidiary guarantees.
The Senior Notes were issued at par and require semiannual interest payments on June 15 th and December 15 th of each year, commencing on June 15, 2021. No principal payments are due until maturity ( December 15, 2028 ).
The Senior Notes were issued under an indenture, dated as of December 14, 2020, by and among the Company, the subsidiary guarantors named therein, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”). Subsequent to December 15, 2023, the Senior Notes may be redeemed pursuant to a declining schedule of redemption prices set forth in the Indenture.
The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment to all of the Company’s existing and future senior indebtedness and rank senior to any of the Company’s subordinated indebtedness. The Senior Notes are unconditionally guaranteed on a senior unsecured basis by all of the Company’s current and future significant domestic subsidiaries (the “Guarantors”). In addition, the Senior Notes are effectively subordinated to all of the Company’s and the guarantors’ existing and future secured indebtedness, including the Company’s existing senior secured credit facility, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the liabilities and preferred stock of any of the Company’s subsidiaries that do not guarantee the Senior Notes. There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.
If we experience a change of control, we will be required to offer to purchase the Senior Notes at a repurchase price equal to 101 % of the principal amount, plus accrued and unpaid interest to the date of repurchase.
The indenture governing the Senior Notes contains certain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) pay dividends or make distributions; (iii) make investments; (iv) repurchase stock; (v) create liens; (vi) enter into transactions with affiliates; (vii) merge or consolidate; and (viii) transfer and sell assets. Each of the covenants is subject to exceptions and qualifications. As of December 31, 2024, we were in compliance with these covenants.
The following table reconciles our Senior Unsecured Notes to our Consolidated Balance Sheets (amounts in thousands):
Balance at December 31, 2022
Accretion of discount through December 31, 2023
Amortization of deferred financing costs through December 31, 2023
Balance at December 31, 2023
Accretion of discount through December 31, 2024
Amortization of deferred financing costs through December 31, 2024
Balance at December 31, 2024
Senior Secured Credit Facility
We and our subsidiaries are parties to a $ 750.0 million asset based revolving Credit Facility with Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named therein (the “Credit Facility”).
On February 2, 2023, we amended, extended and restated the $ 750.0 million Credit Facility by entering into the Sixth Amended and Restated Credit Agreement by and among the Company, Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E Equipment Services (Mid-Atlantic), LLC, H&E Equipment Services (Midwest), LLC, the other credit parties named therein, the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, the other credit parties named therein, the lenders named therein, and the joint lead arrangers, joint book runners, co-syndication agents and documentation agent named therein.
The Sixth Amended and Restated Credit Agreement, among other things, (i) extended the maturity date of the credit facility to February 2, 2028 and (ii) amended the interest rate to SOFR plus a credit spread adjustment plus an applicable margin of 1.25 % to 1.75 %, depending on the Average Availability (as defined in the Amended and Restated Credit Agreement).
As amended, the Amended and Restated Credit Agreement continues to provide for, among other things, a $ 30.0 million letter of credit sub-facility, and a guaranty by certain of the Company’s subsidiaries of the obligations under the Credit Facility. In addition, the Credit Facility remains secured by substantially all of the assets of the Company and certain of its subsidiaries.
At December 31, 2024, we had $ 199.3 million outstanding under the Credit Facility and could borrow up to approximately $ 535.9 million , net of a $ 14.8 million outstanding letter of credit. As of December 31, 2024 , the weighted average interest rate under the Credit Facility was approximately 6.6 %. As of December 31, 2024, we were in compliance with our financial covenant under the Amended and Restated Credit Agreement.
The aggregate amounts outstanding as of December 31, 2024 under both the Credit Facility and our Senior Secured Notes (Note 9) of $ 1,449.3 million mature during 2028.
Leases
We use the rate implicit in the lease to discount lease payments to present value, when available, however, most of our leases do not provide a readily determinable implicit rate. Therefore, we estimate our IBR to discount the lease payments based on information available at lease commencement. Our IBR represents the rate we would expect to pay under a fully collateralized rate and amortizing loan with the same term as the lease.
At December 31, 2024 , the weighted average remaining lease term for operating leases was approximately 7.6 years and for finance leases was approximately 7.8 years. The weighted average discount rate for operating and finance leases was approximately 6.3 % and 6.0 %, respectively, at December 31, 2024. At December 31, 2023 , the weighted average remaining lease term for operating leases was approximately 7.5 years and for finance leases was approximately 8.6 years. The weighted average discount rate for operating and finance leases was approximately 6.4 % and 5.9 %, respectively, at December 31, 2023.
The table below presents certain information related to lease costs, under Topic 842, for our operating and finance leases for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):
Year Ended December 31,
Classification
Operating lease cost
SG&A expenses
Finance lease costs
Amortization of leased assets
SG&A expenses
Interest on lease liabilities
Interest expense
Variable lease cost
SG&A expenses
Sublease income
Other, net
Total lease cost
The table below presents supplemental cash flow information related to leases for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):
Year Ended December 31,
Cash paid for amounts included in the measurements of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Finance cash flows for finance leases
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating and finance lease liabilities recorded on our consolidated balance sheet as of December 31, 2024 (amounts in thousands):
Operating Leases
Finance Leases
Thereafter
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
The future minimum lease payments of operating leases executed but not commenced as of December 31, 2024 are estimated to be $ 2.7 million, $ 4.7 million, $ 4.8 million, $ 5.0 million and $ 5.1 million for the years ending December 31, 2025 , 2026, 2027, 2028 and 2029, respectively, and $ 30.5 million thereafter. It is expected that these leases will primarily commence during 2025 .
Income Taxes
Our income tax provision (benefit) for the years ended December 31, 2024, 2023 and 2022, consists of the following (amounts in thousands):
Current
Deferred
Total
Year Ended December 31, 2024
U.S. Federal
State
Year Ended December 31, 2023
U.S. Federal
State
Year ended December 31, 2022
U.S. Federal
State
Significant components of our deferred income tax assets and liabilities as of December 31 are as follows (amounts in thousands):
Deferred tax assets:
Accounts receivable
Inventories
Net operating losses
Tax credits
Sec 263A costs
Accrued liabilities
Operating lease liabilities
Deferred compensation
Interest expense
Stock-based compensation
Goodwill and intangible assets
Other assets
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Operating lease right-of-use assets
Investments
Goodwill and intangible assets
Total deferred tax liabilities
Net deferred tax liabilities
The reconciliation between income taxes computed using the statutory federal income tax rate of 21 % to the actual income tax expense (benefit) is below for the years ended December 31 (amounts in thousands):
Computed tax at statutory rates
Permanent items – other
Nondeductible executive compensation
Permanent items – impairment of goodwill
State income tax, net of federal tax effect
Change in valuation allowance
Change in uncertain tax positions
Change in state tax rates
At December 31, 2024 , we had available federal net operating loss carry forwards of approximately $ 119.1 million that do not expire and state net operating loss carry forwards of approximately $ 36.8 million, of which $ 23.8 million expire in varying amounts from 2025 to 2043 and $ 13.0 million do not expire. We also had state income tax credits of $ 11.0 million that expire in varying amounts from 2025 to 2039 .
Management has concluded that it is more likely than not that the federal deferred tax assets are fully realizable through future reversals of existing taxable temporary differences and future taxable income. Therefore, a valuation allowance is not required to reduce those deferred tax assets as of December 31, 2024. However, as of December 31, 2024 , we have a valuation allowance of $ 0.6 million for certain state tax credits that are expected to expire prior to utilization. For the year ended December 31, 2024, we recorded a net valuation allowance release of $ 2.4 million based on reassessment of scheduled reversals of deferred tax liabilities, projected future taxable income, and legislative changes that indicate that it is more likely than not that these deferred tax assets will be realized.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits at January 1
Increases in tax positions taken in prior years
Decreases in tax positions taken in prior years
Increases in tax positions taken in current years
Decreases in tax positions taken in current years
Settlements with taxing authorities
Lapse in statute of limitations
Gross unrecognized tax benefits at December 31
The gross amount of unrecognized tax benefits as of December 31, 2024, if recognized, would affect the effective income tax rate. To the extent we incur interest income, interest expense, or penalties related to unrecognized income tax benefits, it will be recorded within net other income (expense) on the Consolidated Statements of Income. The amount of interest and penalties recorded related to unrecognized income tax benefits for the years ended December 31, 2024, 2023 and 2022 is $ 0.2 million, $ 0.1 million and $ 0.1 million, respectively. We do not expect our unrecognized tax benefits to change materially in the next twelve months.
Our U.S. federal tax returns for 2021 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2020 and subsequent years.
Commitments and Contingencies
Legal Matters
From time to time, we are involved in various claims and legal actions arising in the ordinary course of our business, including claims for which we retain portions of the losses through the application of deductibles and self-insured retentions, or self-insurance, and claims arising from the upcoming merger agreement.
Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies. On November 26, 2024, our excess insurance carrier agreed in principle to settle a contingent liability for $ 8.0 million related to a Company automobile liability claim. Pursuant to ASC 450, Contingencies, and other relevant guidance, when the contingency become both probable and estimable, our consolidated balance sheets will reflect a liability for the total amount of estimated claim and an asset
for the portion of the claim recoverable through insurance. Our loss exposure related to this claim is limited to our insurance policy deductible per claim, which is immaterial to our consolidated statement of operations.
Letters of Credit
The Company had outstanding standby letters of credit issued under its Credit Facility totaling $ 14.8 million and $ 12.3 million as of December 31, 2024 and 2023 , respectively. The $ 30.0 million letters of credit sub-facility expires in May 2025 and can be renewed for a similar one-year term.
Employee Retirement Benefit Plans
We offer substantially all of our non-union employees’ participation in a qualified 401(k)/profit-sharing plan in which we match employee contributions up to predetermined limits for qualified employees as defined by the plan. For the years ended December 31, 2024, 2023 and 2022 , we contributed to the plan, net of employee forfeitures, $ 5.8 million, $ 5.4 million and $ 4.6 million, respectively.
We contribute to the Pension Trust Fund Operating Engineers Annuity Plan (EIN: 94-6090764, Plan No. 002), a multi-employer pension plan (“the Plan”), under the terms of a Collective Bargaining Agreement (“CBA”) that expires on October 31, 2025 , and covers our union-represented employees and requires contribution amounts as set forth within the CBA. The Company contributed approximately $ 0.4 million in each of the years ended December 31, 2024, 2023 and 2022 , and the Company has paid no surcharges in any period presented. These contributions represent less than five percent of the Plan’s total contributions in 2023. As of the date that our 2024 consolidated financial statements were issued, the Plan’s Form 5500 was not available for the Plan year ended December 31, 2024.
The risks of participating in a multi-employer pension plan is different from the risks associated with single-employer plans in the following respects.
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
If a participating employer stops contributing to the Plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
If we choose to stop participating in the Plan, we may be required to pay the Plan an amount based on the unfunded status of the plan, referred to as withdrawal liability.
The Plan has a green zone status as of December 31, 2023 , the most recent date for which a status determination has been made. The Pension Protection Act of 2006 ranks the funded status of multi-employer pension plans depending upon a plan’s current and projected funding. A plan is in the Red Zone (Critical) if it has a current funded percentage less than 65 percent. A plan is in the Yellow Zone (Endangered) if it has a current funded percentage of less than 80 percent or projects a credit balance deficit within seven years. A plan is in the Green Zone (Healthy) if it has a current funded percentage greater than 80 percent and does not have a projected credit balance deficit within seven years. The zone status is based on the Plan’s year-end and is based on information that we received from the Plan and is certified by the Plan’s actuary. The Company currently has no intention of withdrawing from the Plan.
Related Party Transactions
Mr. John M. Engquist, who has served as the Company’s Executive Chairman of the Board for the years ended December 31, 2024, 2023 and 2022 , has a 35.0 % ownership interest in Perkins-McKenzie Insurance Agency, Inc. (“Perkins-McKenzie”), an insurance brokerage firm. Mr. Engquist had a 48 % ownership interest in Perkins-McKenzie for the years ended December 31, 2023 and 2022. Perkins-McKenzie brokers a substantial portion of our commercial liability insurance. As the broker, Perkins-McKenzie receives from our insurance provider as a commission a portion of the premiums we pay to the insurance provider. Commissions paid to Perkins-McKenzie on our behalf as insurance broker totaled approximately $ 1.4 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.
We purchase products and services from, and sell products and services to, B-C Equipment Sales, Inc., in which Mr. Engquist has a 50 % ownership interest. In each of the years ended December 31, 2024, 2023 and 2022 , our purchases totaled less than $ 25 thousand, less than $ 20 thousand and less than $ 10 thousand, respectively, and our sales to B-C Equipment Sales, Inc. totaled approximately less than $ 1 thousand, less than $ 10 thousand and $ 0.1 million, respectively.
Segment Information
We have identified four reportable segments: equipment rentals, sales of rental equipment, sales of new equipment, and parts, service and other revenues. These segments are based upon revenue streams and how management of the Company allocates resources and assesses performance.
We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting provided to our Chief Operating Decision Maker (“CODM”). The prior year information has been recast as we previously reported five segments as noted in our Consolidated Financial Statements included as Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The reportable segments have varying revenue generating products and services. Equipment rentals derives revenues from renting owned equipment to customers. Sales of rental equipment derives revenues by selling equipment from our rental fleet to customers. Sales of new equipment derives revenues by selling new equipment from manufacturers to customers. Parts, service and other derives revenues by selling parts to customers, performing maintenance and repair services on rented and owned equipment, and other ancillary charges.
Our Chief Operating Officer is the Company’s CODM in accordance with ASC 280.
Gross profit is the measure of profit or loss utilized to assess segment performance and allocate resources that is provided to and reviewed by the Company’s CODM. Cost of Revenues is the significant expense category for our reportable segments. The CODM uses gross profit to allocate resources (employees, equipment, or capital resources) in operational reviews, forecasting and budgeting processes. SG&A expenses, interest expense, income tax expense, as well as all other income and expense items below gross profit are not allocated to our reportable segments and are not provided to or reviewed by our CODM. Segment gross profit is utilized to assess segment performance while consolidated income from operations and income from operations before provision for income taxes is utilized to assess company-wide performance.
Assets are identified on a segment basis for inventory, fleet and goodwill. No additional asset information is available on a segment basis. The Company and its CODM do not utilize or review full financials on a segment basis as that is not how the Company assesses performance or allocates resources.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies and there are no differences in accounting policy, basis of accounting or method of measurement between the individual segments and the consolidated company. There were no sales or transactions between segments for any of the periods presented.
We do not compile discrete financial information by our segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):
Years Ended December 31,
Segment Revenues:
Equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total revenues
Segment Cost of Revenues:
Rental depreciation
Rental expense
Rental other
Equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total cost of revenues
Segment Gross Profit:
Equipment rentals
Sales of rental equipment
Sales of new equipment
Parts, service and other
Total gross profit
Impairment of goodwill
Parts, service and other
Unallocated reconciling items:
Selling, general and administrative expenses
Gain from sales of property and equipment, net
Interest expense
Other, net
Income from operations before provision for income taxes
December 31,
Segment identified assets:
Inventories, net of reserves for obsolescence
Sales of rental equipment
Sales of new equipment
Parts, service and other
Rental equipment, net of accumulated depreciation
Equipment rentals
Goodwill
Equipment rentals
Sales of rental equipment
Total segment identified assets
Unallocated reconciling assets
Total assets
Years Ended December 31,
Cash flows from investing activities:
Equipment rentals
Purchase of rental equipment
Sales of rental equipment
Proceeds from sales of rental equipment
The Company operates primarily in the United States. Our sales to international customers for each of the three years ended December 31, 2024 was less than 0.3 % of total revenues. No one customer accounted for more than 10% of our total revenues for any of the periods presented.
Subsequent Events
On January 13, 2025, the Company entered into an Agreement and Plan of Merger (the “United Merger Agreement”) with United Rentals, Inc., a Delaware Corporation (“United Rentals” or “United”) and UR Merger Sub VII Corporation, a Delaware corporation and wholly owned subsidiary of United, pursuant to which a cash tender offer was commenced on behalf of United to purchase all of the issued and outstanding shares of our common stock at $ 92.00 a share. Upon receiving a superior proposal from Herc Holdings Inc., described in detail below, the United Merger Agreement was terminated on February 18, 2025 .
On February 19, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Herc Holdings Inc., a Delaware corporation (“Herc”). The Merger Agreement provides for the acquisition of the Company by Herc in a two-step transaction, consisting of an exchange offer, followed by a subsequent back-end merger. Pursuant to the Merger Agreement, Herc will commence an exchange offer on or before March 19, 2025 to acquire any and all of the issued and outstanding shares of the Company’s common stock, par value $ 0.01 per share, for a combination of cash and Herc common stock, consisting of (i) $ 78.75 in cash, without interest, less any applicable withholding of taxes, and (ii) a fixed exchange ratio of 0.1287 shares of Herc common stock, without interest, per share. The combination of cash and stock is equal to a total value of approximately $ 104.89 per share (the “Offer Price”) based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025 . Following completion of the exchange offer, Herc intends to acquire all remaining shares not exchanged in the offer at the same price (combination of cash and stock) as in the exchange offer. The transaction is expected to close in the first half of 2025. The transaction is subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger. The Company and Herc expect to file their Premerger Notification and Report Forms with the FTC and Antitrust Division promptly, which will begin an initial review period of 30 days.
In February 2025, severance agreements were entered into between the Company and each of the Company’s named executive officers (each, an “NEO”) (collectively, the “Executive Severance Agreements”). The Executive Severance Agreements provide for severance payments and benefits in the event that an NEO’s employment is terminated by the Company (or its successor) without “Cause” or an NEO resigns for “Good Reason”, as defined in the agreement, in either case, within two years following a “change in control”.
If the Merger is consummated, our Common Stock will be delisted from The NASDAQ Global market and deregistered under Securities Exchange Act of 1934, as amended, as promptly as practicable following the effective time of the Merger. The Merger Agreement also contains certain termination rights for Herc and us and further provides that, upon termination of the Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Herc a termination fee of approximately $ 145 million, in addition to refunding Herc for the termination fee of $ 63.5 million paid to United Rentals pursuant to the United Merger Agreement, if the Company enters into a superior proposal based on terms included in the Merger Agreement.
On February 7, 2025 , the Company declared a quarterly dividend of $ 0.275 per share to stockholders of record as of the close of business on February 18, 2025 , which is to be paid on February 24, 2025 .
