H&E EQUIPMENT SERVICES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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The following discussion summarizes the financial position of H&E Equipment
Services, Inc. and its subsidiaries as of March 31, 2022, and its results of
operations for the three months ended March 31, 2022, and should be read in
conjunction with (i) the unaudited condensed consolidated financial statements
and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and
(ii) the audited consolidated financial statements and accompanying notes to our
Annual Report on Form 10-K for the year ended December 31, 2021. 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 Quarterly Report on Form
10-Q). 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 our Annual Report on Form
10-K for the year ended December 31, 2021.

The outbreak of the COVID-19 pandemic, first identified in late 2019, continues
to affect the United States of America and the world. In response to the onset
of the COVID-19 pandemic, we proactively implemented certain measures to
strengthen cash flow, manage costs, strengthen liquidity and enhance employee
safety. As the impact of COVID-19 became more widespread, our equipment rental
utilization and sales volumes began to decline from February through mid-April
2020, where utilization and sales levels began to improve and stabilize for the
remainder of 2020. We continued to see improvements with utilization levels
beginning in March 2021 returning to approximate pre-COVID utilization levels.
The timing and the extent of any subsequent contraction due to COVID-19 will
depend on a number of factors, including widespread resurgence in COVID-19
infections, the rate of vaccinations, vaccine efficacy, a global supply chain
disruption, the impact to capital and financial markets and the related impact
on our customers. We remain focused on the safety and well-being of our
employees, customers and communities as we maintain a high-level of service to
our customers. For a discussion of liquidity, see Liquidity and Capital
Resources below.

Overview

Background

Founded in 1961, H&E Equipment Services, Inc. is one of the largest rental
equipment companies in the nation. The Company's fleet is among the industry's
youngest and most versatile with a superior equipment mix 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 States, Southeast, and Mid-Atlantic regions.

As of March 31, 2022, we operated 104 branch locations across 25 states
throughout the United States. Our work force includes, among others, a
professional sales force, drivers, and regional, district and branch managers.
We believe this allows us to provide specialized equipment knowledge, improve
the effectiveness of our rental and sales force and strengthen our customer
relationships. In addition, our branch managers of each location are responsible
for managing their assets and financial results. We believe this fosters
accountability in our business and strengthens our local and regional
relationships.

Through our predecessor companies, we have been in the equipment services
business for approximately 60 years. H&E L.L.C. was formed in June 2002 through
the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf
Wide, and ICM. Head & Engquist, founded in 1961, and ICM, founded in 1971, were
two leading regional, integrated equipment service companies operating in
contiguous geographic markets. In connection with our initial public offering in
February 2006, we converted H&E LLC into H&E Equipment Services, Inc., a
Delaware corporation.

Effective October 1, 2021, the Company sold its crane business to a wholly-owned
subsidiary of The Manitowoc Company, Inc. for $130 million in cash ("the Crane
Sale"), subject to finalization of closing adjustments. The Crane Sale met the
criteria for discontinued operations presentation and as such, the results of
operations of the Crane Sale are reported in discontinued operations in the
Consolidated Statements of Income for all periods presented. The financial
results and information below are presented on a continuing operations basis and
exclude the Crane Sale, unless otherwise noted specifically as discontinued
operations.

Critical accounting policies


Item 7, included in Part II of our Annual Report on Form 10-K for the year ended
December 31, 2021, presents the accounting policies and related estimates that
we believe are the most critical to understanding our consolidated financial
statements, financial condition, and results of operations and cash flows, and
which require complex management judgment and assumptions, or involve
uncertainties. There have been no significant changes to these critical
accounting policies and estimates during the three months ended March 31, 2022.
Our critical accounting policies include, among others, useful lives of rental
equipment and property and equipment, acquisition accounting, goodwill,
long-lived assets and income taxes.

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Information regarding our other significant accounting policies is included in
Note 2 to our Consolidated Financial Statements in Item 8 of Part II of our
Annual Report on Form 10-K for the year ended December 31, 2021 and in Note 2 to
the Condensed Consolidated Financial Statements in this Quarterly Report on Form
10-Q.

Business Segments

We have five reportable segments because we derive our revenues from five
principal business activities: (1) equipment rentals; (2) used equipment sales;
(3) new equipment sales; (4) parts sales; and (5) repair and maintenance
services. These segments are based upon how we allocate resources and assess
performance. In addition, we also have non-segmented revenues and costs that
relate to equipment support activities.

Equipment Rentals. Our rental operation primarily rents our core types of
construction and industrial equipment. We have a well-maintained rental fleet
and our own dedicated sales force, focused by equipment type. We actively manage
the size, quality, age and composition of our rental fleet based on our analysis
of key measures such as time utilization (which we analyze as equipment usage
based on: (1) a percentage of original equipment cost; and (2) the number of
rental equipment units available for rent), rental rate trends and targets,
rental equipment dollar utilization, and maintenance and repair costs, which we
closely monitor. We maintain fleet quality through regional quality control
managers and our parts and services operations.

Used Equipment Sales. Our used equipment sales are generated primarily from
sales of used equipment from our rental fleet, as well as from sales of
inventoried equipment that we acquire through trade-ins from our equipment
customers. Used equipment is sold by our retail sales force. 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.

New Equipment Sales. We seek to optimize revenues from new equipment sales by
selling equipment through a professional in-house retail sales force. While
sales of new equipment are impacted by the availability of equipment from the
manufacturer, we believe our status as a leading distributor for some of our key
suppliers improves our ability to obtain equipment.

Parts Sales. 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.

Services. 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. In addition to repair and maintenance on an
as-needed or scheduled basis, we also provide ongoing preventative maintenance
services to industrial customers.

Our non-segment revenues and costs relate primarily to incidental costs associated with equipment maintenance and repair services and are generally not allocated to reportable segments.

For more information about our business segments, see Note 11 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.


Revenue Sources

We generate all of our total revenues from our five business segments and our
non-segmented equipment support activities. Equipment rentals account for more
than half of our total revenues. For the three months ended March 31, 2022, of
our total revenues, approximately 73% were attributable to equipment rentals, 8%
were attributable to used equipment sales, 10% were attributable to new
equipment sales, 6% were attributable to parts sales and 3% were attributable to
our services revenues.

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
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.

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Used Equipment Sales. We generate the majority of our used equipment sales
revenues by selling equipment from our rental fleet. The remainder of our used
equipment sales revenues comes from the sale of inventoried equipment that we
acquire through trade-ins from our equipment customers.

Sale of new equipment. Our new equipment sales business sells new equipment in all of our major equipment categories, primarily in our earth moving products category.

Parts sales. We primarily generate revenue from the sale of pieces of equipment that we rent or sell.

Services. Our services revenue is derived primarily from maintenance and repair services for equipment that we lease or sell and customer-owned equipment.


Our non-segmented revenues for the periods presented in this Quarterly Report on
Form 10-Q relate primarily to ancillary charges associated with equipment
maintenance and repair services, and are not generally allocated to reportable
segments.

Principal Costs and Expenses

Our largest expenses are rental expenses, rental depreciation, the costs
associated with the used equipment we sell, the costs to purchase new equipment
we sell, and costs associated with parts sales and services, all of which are
included in cost of revenues. For the three months ended March 31, 2022, our
total cost of revenues was $160.9 million. Our operating expenses consist
principally of selling, general and administrative ("SG&A") expenses. For the
three months ended March 31, 2022, our SG&A expenses were $78.3 million. In
addition, we have interest expense 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 audits by state and federal agencies could result in additional income tax expense depending on the potential outcome of these matters.

Revenue cost


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.

Used Equipment Sales. Cost of used equipment sold consists of the net book value
of rental equipment for used equipment sold from our rental fleet, the equipment
costs for used equipment we purchase for sale or the trade-in value of used
equipment that we obtain from customers in equipment sales transactions.

Sale of new equipment. The cost of new equipment sold primarily comprises the equipment cost of new equipment sold, net of any credit given to the customer for the trade-in equipment.


Parts Sales. 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.

Service Support. Service cost revenue represents costs attributable to service provided for the maintenance and repair of customer-leased and customer-owned equipment.

Our other non-segment expenses include costs associated with incidental costs 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, legal
and professional fees, rent and other occupancy costs, property and other taxes,
administrative overhead, 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.

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Interest charges


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, if applicable. Interest expense also
includes interest on our outstanding manufacturer flooring plans payable, which
are used to finance inventory and rental equipment purchases. 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, manufacturer floor plan
financings and available borrowings under the Credit Facility as the primary
sources of funds to purchase inventory and to fund working capital and capital
expenditures, growth and expansion opportunities (see also "Liquidity and
Capital Resources" below). Our management of our working capital is closely tied
to operating cash flows, as working capital can be significantly impacted by,
among other things, our accounts receivable activities, the level of used and
new equipment inventories, 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 overall value is in our rental fleet equipment. The
net book value of our rental equipment at March 31, 2022 was $1.1 billion, or
approximately 52.8% of our total assets. Our rental fleet as of March 31, 2022
consisted of 43,532 units having an original acquisition cost (which we define
as the cost originally paid to manufacturers) of approximately $1.9 billion. As
of March 31, 2022, our rental fleet composition was as follows (dollars in
millions):

                                                                                      % of
                                                     % of         Original          Original         Average
                                                    Total       

Age of acquisition in

                                       Units        Units           Cost              Cost            Months
Hi-Lift or Aerial Work Platforms        22,014         50.6 %   $       714.1              37.6 %         52.6
Earthmoving                              5,789         13.3 %           508.5              26.7 %         23.8
Material Handling                        6,868         15.8 %           525.2              27.6 %         41.4
Other                                    8,861         20.3 %           153.4               8.1 %         25.6
Total                                   43,532        100.0 %   $     1,901.2             100.0 %         41.5


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. The mix and age of our rental fleet, as well as our cash flows, are
impacted by sales of equipment from the rental fleet, which are influenced by
used equipment pricing at the retail and secondary auction market levels, the
demand for our rental fleet and the capital expenditures to acquire new rental
fleet equipment. 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 $41.3 million, or 2.2%, for the three months ended March 31, 2022.
The average age of our rental fleet equipment increased by approximately 1.2
months for the three months ended March 31, 2022. Our average rental rates for
the three months ended March 31, 2022 were approximately 6.5% higher than last
year (see further discussion on rental rates in "Results of Operations" below).

With the exception of the Crane Sale and our crane product line, the rental
equipment mix among our core product lines for the three months ended March 31,
2022 was largely consistent with that of the prior year comparable period as a
percentage of total units available for rent and as a percentage of original
acquisition cost.

Main external factors affecting our business


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 our Annual
Report on Form 10-K for the year ended December 31, 2021.

Economic downturns. The demand for our products is dependent on the general
economy, the stability of the global credit markets, the industries in which our
customers operate or serve, and other factors. Downturns in the general economy
or

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in the construction and industrial markets, as well as adverse credit market conditions, may cause a significant decline in demand for our products.

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 make capital expenditures to rent or buy
specialized equipment. Accordingly, our business is impacted by fluctuations in
customers' spending levels on capital expenditures and by the availability of
credit to those customers.

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 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.

Operating results


The tables included in the period-to-period comparisons below provide summaries
of our revenues and gross profits for our business segments and non-segmented
revenues for the three months ended March 31, 2022 and 2021. 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.

As discussed further in Note 1 and Note 3 to our Condensed Consolidated
Financial Statements, on October 1, 2021, the Company sold its crane business.
The results of operations of the Crane Sale are reported in discontinued
operations in the Condensed Consolidated Statements of Income for all periods
presented. The Condensed 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".

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31,
2021

Revenues.

                                 Three Months Ended           Total            Total
                                      March 31,               Dollar         Percentage
                                                             Increase         Increase
                                 2022          2021         (Decrease)       (Decrease)
                                          (in thousands, except percentages)
Segment Revenues:
Equipment rentals
Rentals                        $ 177,182     $ 137,146     $     40,036             29.2 %
Rentals other                     22,043        16,073            5,970             37.1 %
Total equipment rentals          199,225       153,219           46,006             30.0 %
Used equipment sales              21,526        38,854          (17,328 )          (44.6 )%
New equipment sales               26,036        23,173            2,863             12.4 %
Parts sales                       16,059        15,556              503              3.2 %
Services revenues                  8,134         8,011              123              1.5 %
Non-Segmented other revenues       1,470         1,619             (149 )           (9.2 )%
Total revenues                 $ 272,450     $ 240,432     $     32,018             13.3 %




Total Revenues. Our total revenues were approximately $272.5 million for the
three months ended March 31, 2022 compared to $240.4 million for the three
months ended March 31, 2021, an increase of $32.0 million, or 13.3%. Revenues
for all reportable segments and non-segmented other revenues are further
discussed below.

Equipment Rental Revenues. Our total revenues from equipment rentals for the
three months ended March 31, 2022 increased approximately $46.0 million, or
30.0%, to $199.2 million from $153.2 million in the three months ended March 31,
2021. The increase in equipment rental revenues was largely due to increased
demand and our larger fleet as compared to the prior year. See Rentals and
Rentals Other below for additional information.

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Rentals: Rental revenues increased $40.0 million, or 29.2%, to $177.2 million
for the three months ended March 31, 2022 compared to $137.1 million for the
three months ended March 31, 2021. Rental revenues from earthmoving equipment
increased $15.0 million, material handling equipment increased $10.5 million and
aerial work platform equipment increased $9.6 million. Rental revenues on other
equipment increased $5.0 million.

Our average rental rates for the three months ended March 31, 2022 increased
6.5% compared to the same three months last year and increased approximately
1.6% from the three months ended December 31, 2021. Rental equipment dollar
utilization (annual rental revenues divided by the average original rental fleet
equipment costs) for the three months ended March 31, 2022 was 37.6% compared to
32.6% in the three months ended March 31, 2021, an increase of 5.0%. The
increase in comparative rental equipment dollar utilization was the result of
the increase in equipment rental rates as noted above and an increase in rental
equipment time utilization. Rental equipment time utilization as a percentage of
original equipment cost was approximately 70.4% for the three months ended March
31, 2022 compared to 64.1% in the three months ended March 31, 2021, an increase
of 6.3%. The increase in rental equipment time utilization as a percentage of
original equipment cost was largely due to increased demand in the current year.

Rentals Other: Our rentals other revenues 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 for the three months ended March 31,
2022 were $22.0 million compared to $16.1 million for the three months ended
March 31, 2021, an increase of approximately $6.0 million, or 37.1%.

Used Equipment Sales Revenues. Our used equipment sales decreased $17.3 million,
or 44.6%, to $21.5 million for the three months ended March 31, 2022, from
approximately $38.9 million for the same three months in 2021. This decrease is
reflective of the increased rental demand and our decision to capitalize on high
equipment utilization during the quarter. Sales of used material handling
equipment, used earthmoving equipment and used aerial work platform equipment
decreased $7.9 million, $4.9 million and $4.3 million, respectively.

New Equipment Sales Revenues. Our new equipment sales for the three months ended
March 31, 2022 increased $2.9 million, or 12.4%, to $26.0 million from $23.2
million for the three months ended March 31, 2021. Sales of new other equipment
and new material handling equipment increased $2.9 million and $1.4 million,
respectively. Partially offsetting these new equipment sales increases was a
$1.2 million decrease in new aerial work platform equipment sales.

Parts Sales Revenues. Our parts sales revenues for the three months ended March
31, 2022 increased $0.5 million, or 3.2%, to $16.1 million from approximately
$15.6 million for the same three months last year.

Services Revenues. Our services revenues for the three months ended March 31,
2022 increased $0.1 million, or 1.5%, to approximately $8.1 million from $8.0
million for the same three months last year.

Non-Segmented Other Revenues. Our non-segmented other revenues relate to
equipment support activities that we provide to customers in connection with new
and used equipment sales and parts and services revenues and are not generally
allocated to reportable segments. For the three months ended March 31, 2022, our
other revenues were approximately $1.5 million, a decrease of $0.1 million, or
9.2%, from approximately $1.6 million in the same three months in 2021.

Gross Profit.

                                                Three Months Ended           Total            Total
                                                    March 31,                Dollar         Percentage
                                                                            Increase         Increase
                                                2022          2021         (Decrease)       (Decrease)
                                                         (in thousands, except percentages)
Segment Gross Profit (Loss):
Equipment rentals
Rentals                                      $   88,402     $  58,628           29,774             50.8 %
Rentals other                                     1,130          (421 )          1,551            368.4 %
Total equipment rentals                          89,532        58,207           31,325             53.8 %
Used equipment sales                              8,978        12,494           (3,516 )          (28.1 )%
New equipment sales                               3,707         2,774              933             33.6 %
Parts sales                                       4,355         4,403              (48 )           (1.1 )%
Services revenues                                 5,320         5,396              (76 )           (1.4 )%

Gross profit (loss) from non-segment revenue (312 ) 138

      (450 )         (326.1 )%
Total gross profit                           $  111,580     $  83,412     $     28,168             33.8 %




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Total Gross Profit. Our total gross profit was $111.6 million for the three
months ended March 31, 2022 compared to $83.4 million for the same three months
in 2021, an increase of $28.2 million, or 33.8%. Total gross profit margin for
the three months ended March 31, 2022 was approximately 41.0%, an increase of
6.3% from the 34.7% gross profit margin for the same three months in 2021. Gross
profit and gross margin for all reportable segments and non-segmented other
revenues are further described below.

Equipment Rentals Gross Profit. Our total gross profit from equipment rentals
for the three months ended March 31, 2022 increased approximately $31.3 million,
or 53.8%, to $89.5 million from $58.2 million in the same three months in 2021.
Total gross profit margin from equipment rentals for the three months ended
March 31, 2022 was approximately 44.9% compared to 38.0% for the same period in
2021, an increase of approximately 6.9%. See Rentals and Rentals Other below for
additional information.

Rentals: Rental revenues gross profit increased $29.8 million, or 50.8%, to
$88.4 million for the three months ended March 31, 2022 compared to $58.6
million for the same three months in 2021. The gross profit increase was the
result of a $40.0 million increase in rental revenues for the three months ended
March 31, 2022 compared to the same period last year, partially offset by a $6.6
million increase in rental equipment depreciation expense and a $3.7 million
increase in rental expenses. The increase in depreciation expense is primarily
due to a larger fleet size in the current year as compared to the prior year.
Our fleet size, based on original equipment cost, at March 31, 2022 was $218.8
million, or 13.0%, larger than our fleet size at March 31, 2021.

Gross profit margin on equipment rentals for the three months ended March 31,
2022 was approximately 49.9% compared to 42.7% for the same period in 2021, an
increase of 7.2%. Depreciation expense was 33.9% of equipment rental revenues
for the three months ended March 31, 2022 compared to 39.0% for the same period
in 2021, a decrease of approximately 5.1%, resulting primarily from the increase
in rental revenues. As a percentage of revenues, rental expenses were 16.2% for
the three months ended March 31, 2022 compared to 18.3% for the same period last
year, a decrease of 2.0%, resulting primarily from the increase in rental
revenues.

Rentals Other: Our rentals other revenues 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 three months
ended March 31, 2022 was $1.1 million compared to a gross loss of $0.4 million
for the same period in 2021, an increase of $1.6 million. The gross margin was
5.1% for the three months ended March 31, 2022 compared to a gross loss margin
of 2.6% for the same period last year.

Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the
three months ended March 31, 2022 decreased $3.5 million, or 28.1%, to $9.0
million from $12.5 million in the same period in 2021, as used equipment sales
revenues decreased $17.3 million. Gross profit margin on used equipment sales
for the three months ended March 31, 2022 was approximately 41.7%, up 9.5% from
32.2% for the same three months in 2021, primarily as a result of higher gross
margins across all product lines. Our used equipment sales from the rental
fleet, which comprised 91.6% and 94.5% of our used equipment sales for the three
months ended March 31, 2022 and 2021, respectively, were approximately 182.3%
and 150.9% of net book value for the three months ended March 31, 2022 and 2021,
respectively.

New Equipment Sales Gross Profit. Our new equipment sales gross profit for the
three months ended March 31, 2022 increased $0.9 million, or 33.6%, to $3.7
million compared to $2.8 million for the same three months in 2021 on new
equipment sales that increased $2.9 million. Gross profit margin on new
equipment sales was 14.2% for the three months ended March 31, 2022, compared to
12.0% for the same period last year, an increase of 2.2%. The increase in gross
profit was primarily due to increased gross profit in other equipment and
earthmoving equipment sales.

Parts Sales Gross Profit. Our parts sales gross profit for the three months
ended March 31, 2022 was approximately $4.4 million, a decrease of 1.1%, from
gross profit of $4.4 million for the same period last year on parts sales that
increased $0.5 million. Gross profit margin for the three months ended March 31,
2022 was 27.1% compared to 28.3% for the same three months last year, a decrease
of 1.2%, resulting from the mix of parts sold.

Services Revenues Gross Profit. For the three months ended March 31, 2022, our
services revenues gross profit decreased $0.1 million, or 1.4%, to $5.3 million
from $5.4 million for the same three months in 2021 on service revenues that
increased $0.1 million. Gross profit margin for the three months ended March 31,
2022 was 65.4%, a decrease of 2.0% from approximately 67.4% in the same three
months in 2021, as a result of services revenues mix.

Non-Segmented Other Revenues Gross Profit (Loss). Our non-segmented other
revenues relate to equipment support activities that we provide to customers in
connection with new and used equipment sales and parts and services revenues and
are not generally allocated to reportable segments. For the three months ended
March 31, 2022, our other revenues gross loss was $0.3 million compared to a
gross profit of $0.1 million, in the same period in 2021, a decrease of $0.5
million.

Selling, General and Administrative Expenses. SG&A expenses increased $10.1
million, or 14.9%, to $78.3 million for the three months ended March 31, 2022
compared to $68.1 million for the three months ended March 31, 2021. Employee
salaries, wages, payroll taxes and other employee related expenses increased
$6.1 million due to increased commissions, wages, headcount and

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overtime and incentive pay. Facility expenses increased $1.4 million, legal and
professional fees increased $0.9 million and liability insurance costs increased
$0.5 million. Approximately $3.6 million of comparative incremental SG&A
expenses in the three months ended March 31, 2022 was attributable to branches
opened since January 1, 2021 with less than three months of comparable
operations in either or both of the three months ended March 31, 2022 and 2021.
SG&A expenses as a percentage of total revenues for the three months ended March
31, 2022 and 2021 were 28.7% and 28.3%, respectively, an increase of 0.4%.

Gain on Sales of Property & Equipment (Net). We had net gains on sales of
property and equipment of $1.4 million compared to $0.2 million for the same
period last year, an increase of $1.2 million. This increase is due to gains on
the sale of property and equipment in the normal course of business.

Other Income (Expense). For the three months ended March 31, 2022, our net other
expenses decreased approximately $0.2 million to $12.6 million compared to $12.8
million for the same three months in 2021. Interest expense was $13.4 million
for both of the three months ended March 31, 2022 and 2021.

Income Taxes. We recorded income tax expense of $5.8 million for the three
months ended March 31, 2022 compared to an income tax expense of $0.7 million
for the three months ended March 31, 2021. Our effective income tax rate for the
three months ended March 31, 2022 was 26.3% compared to 26.9% for the same
period in 2021. Based on available evidence, both positive and negative, we
believe it is more likely than not that our federal deferred tax assets at March
31, 2022 are fully realizable through future reversals of existing taxable
temporary differences and future taxable income.

Cash and capital resources


Cash Flow from Operating Activities. For the three months ended March 31, 2022,
the cash provided by our operating activities was $38.5 million. Our reported
net income of $16.3 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, provision for losses on accounts receivable, provision
for inventory obsolescence, stock-based compensation expense and net gains on
the sale of long-lived assets, provided positive cash flows of $85.6 million.
These cash flows from operating activities were also positively impacted by a
$17.3 million increase in accounts payable and a $6.6 million increase in
accrued expenses payable and other liabilities. Partially offsetting these
positive cash flows were a $59.7 million increase in inventories due to
increases in equipment purchases, a $4.5 million increase in receivables, a $5.4
million increase in prepaid expenses and other assets and a $1.4 million
decrease in manufacturing flooring plans payable.

For both continuing and discontinued operations for the three months ended March
31, 2021, the cash provided by our operating activities was $46.9 million. Our
reported net income for both continuing and discontinued operations of $4.2
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, gain on sale of discontinued operations and net gains on
the sale of long-lived assets, provided positive cash flows of $61.0 million.
These cash flows from operating activities were also positively impacted by a
$22.7 million decrease in receivables, a $62.4 million increase in accounts
payable, a $6.2 million increase in accrued expenses payable and other
liabilities and a $0.9 million increase in manufacturing flooring plans payable.
Partially offsetting these positive cash flows were a $99.0 million increase in
inventories, due to increases in capital expenditures for new equipment
inventory, and a $7.2 million increase in prepaid expenses and other assets.

Cash Flow from Investing Activities. For the three months ended March 31, 2022,
our net cash used in our investing activities was approximately $33.7 million.
Purchases of rental and non-rental equipment were $55.0 million and proceeds
from the sale of rental and non-rental equipment were $21.3 million.

For both continuing and discontinued operations for the three months ended March
31, 2021, our net cash used in our investing activities was approximately $24.7
million. Purchases of rental and non-rental equipment were $63.6 million and
proceeds from the sale of rental and non-rental equipment were $39.0 million.

Cash Flow from Financing Activities. For the three months ended March 31, 2022,
net cash used in our financing activities was $10.3 million. Dividends paid
totaled $9.9 million, or $0.275 per common share, and treasury stock purchases
totaled $0.3 million.

For both continuing and discontinued operations for the three months ended March
31, 2021, net cash used in our financing activities was $10.6 million. Dividends
paid totaled $9.9 million, or $0.275 per common share. Treasury stock purchases
totaled $0.4 million, payments of deferred financing costs were $0.1 million and
finance lease principal payments were $0.1 million.

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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
(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.

Senior Secured Credit Facility


We and our subsidiaries are parties to a $750.0 million Credit Facility with
Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named
therein. At March 31, 2022, we had no outstanding borrowings under the Credit
Facility and we could borrow up to $740.3 million, which with cash on hand
amounted to a liquidity position of $1.1 billion. On October 1, 2021, we sold
our crane business and the disposition had no impact on our borrowing
availability. For further information on the Crane Sale, see Note 3 to our
Condensed Consolidated Financial Statements. We did not have any negative
impacts to our liquidity position under the Credit Facility as a result of
discontinued operations or the COVID-19 pandemic, nor do we have any covenant
violations related to the Credit Facility. At April 20, 2022, we had $740.3
million of available borrowings under our Credit Facility, net of a $9.7 million
outstanding letter of credit.

Cash requirements related to operations


Our principal sources of liquidity have been from cash provided by operating
activities and the sales of used, new and rental fleet equipment, proceeds from
the issuance of debt, and borrowings available under the Credit Facility. Our
principal uses of cash historically have been to fund operating activities and
working capital (including used and new equipment inventories), purchases of
rental fleet equipment and property and equipment, open 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.

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. Our gross rental fleet capital expenditures for the three months
ended March 31, 2022 and for both continuing and discontinued operations for the
three months ended March 31, 2021 were approximately $76.0 million and $71.7
million, respectively, including $31.6 million and $15.4 million, respectively,
of non-cash transfers from used and new equipment to rental fleet inventory.
This increase in rental fleet capital expenditures reflects our response to
improved rental demand. Our gross property and equipment capital expenditures
for the three months ended March 31, 2022 and for both continuing and
discontinued operations for the three months ended March 31, 2021 were $10.7
million and $7.3 million, respectively.

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. At March 31, 2022, we had cash on
hand of approximately $351.8 million. At March 31, 2022, we had available
borrowings of $740.3 million, net of $9.7 million of outstanding letters of
credit, compared to $741.3 million at March 31, 2021, net of $8.7 million of
outstanding letters of credit. At April 20, 2022, we had $740.3 million of
available borrowings under the Credit Facility, net of a $9.7 million of
outstanding letters of credit. We do not expect our liquidity to be materially
negatively impacted by the ongoing effects of the COVID-19 pandemic.

Quarterly dividend

On February 11, 2022the Company announced a quarterly dividend of $0.275 per share to registered shareholders, which was paid on March 18, 2022totaling approximately $9.9 million. The Company intends to continue to pay regular quarterly cash payments

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dividends; however, the declaration of any subsequent dividend is discretionary and will be subject to a final decision by the Board of Directors each quarter after its review of, among other things, business and market conditions.

Contractual and commercial commitments

There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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