H&E; Equipment Services (HEES) Q2 2019 Earnings Call Transcript

HEES earnings call for the period ending June 30, 2019.

Motley Fool Transcribing
Motley Fool Transcribing
Jul 25, 2019 at 11:24PM
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H&E Equipment Services (NASDAQ:HEES)
Q2 2019 Earnings Call
Jul 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to the H&E Equipment Services second-quarter 2019 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Kevin Inda, vice president of investor relations.

Please go ahead, sir.

Kevin Inda -- Vice President of Investor Relations

Thank you, Bethany, and welcome to H&E Equipment Services conference call to review the company's results for the second quarter ended June 30, 2019, which were released earlier this morning. The format for today's call includes a slide presentation, which is posted on our website at www.he-equipment.com. Please proceed to Slide 2. Conducting the call today will be John Engquist, executive chairman of the board of directors; Brad Barber, chief executive officer and president; and Leslie Magee, chief financial officer and secretary.

Please proceed to Slide 3. During today's call, we'll refer to certain non-GAAP financial measures, and we reconciled these measures to GAAP figures in our earnings release and in the appendix to this presentation, each of which is available on our website. Before we start, let me offer the cautionary note. This call contains forward-looking statements within the meaning of federal securities Laws.

Statements about our beliefs and expectations and statements containing words such as may, could, believe, expect, anticipate and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. A summary of these uncertainties is included in the safe harbor statement contained in the company's slide presentation for today's call and also include the risks described in the Risk Factors in the company's most recent annual reports on Form 10-K and other periodic reports. Investors, potential investors and other listeners are urged not -- urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

The company does not undertake to publicly update or revise any forward-looking statements after the date of this conference call. With that said, I'll now turn the call over to Brad Barber.

Brad Barber -- Chief Executive Officer and President

Thank you, Kevin, and good morning, everyone. Welcome to H&E Equipment Services second-quarter 2019 earnings call. On the call with me today are John Engquist, executive chairman; Leslie Magee, our chief financial officer; and Kevin Inda, our vice president of investor relations. Slide 4, please.

My comments this morning will focus on our second-quarter results, our business and overall market conditions. And then Leslie will review our financial results for the quarter. When Leslie finishes, I will close with a few brief comments. After, we will take your questions.

Slide 6, please. We believe our second-quarter performance is consistent with the strength we continue to see in the construction markets we serve. As expected, demand has increased in our rental business. This demand is broad-based, including all product types we rent, the geographies we serve and across a diverse group of project types.

Our customers remain optimistic, with solid expected activities at the end of this year and into 2020. As a result, total revenues increased approximately 7.5% to $333.6 million in the second quarter. Our rental business continued to perform well, with revenues up 20.9% from a year ago. Our gross margin increased to 37.4% from 34.8% a year ago.

Adjusted EBITDA grew 16% to $118 million, and margins improved to 35.4% from 32.8% a year ago. In the second quarter, net income was $22.6 million or $0.63 per diluted share compared to $20.8 million or $0.58 per diluted share a year ago on an effective tax rate of 28 -- 26.8% in the second quarter of 2019 versus 25.5% a year ago. Slide 7, please. Our rental business continued to deliver solid results, successfully capitalizing on the increased demand in our end-user markets.

We also achieved a 2.2% increase in rental rates from a year ago and high physical utilization of 71.2% on a significantly larger fleet. As a result, rental revenues for the second quarter increased 20.9% from a year ago. In addition, dollar utilization increased to 36.5% compared to 35.4% a year ago. Slide 8, please.

With the July 1 opening of our branch in Prineville, our first store in Oregon, we now have presence in 23 states. Our Prineville branch is representative of our greenfield strategy. Oregon has one of the fastest-growing economies in the nation, and this branch better positions us with upcoming large projects in the area as well as better provides coverage, service and support to existing customers served by other locations in adjacent states. We plan to continue our geographic expansion and increase our location density in existing markets by executing on our growth strategy, which includes both acquisitions and organic expansion.

Slide 9, please. This slide illustrates our mix of revenues and fleet composition, both of which we believe are significant advantages in our business. Demand is solid in all of our end markets, especially nonresidential construction, which drives over 60% of our revenue. We continue to invest in growing our rental fleet, focused on opportunities that allow us to improve the fleet diversification and assist us in achieving improved rental returns.

We continue to have one of the youngest fleets in the industry at 34.6 months compared to an industry average of 46 months. Slide 10, please. As indicated in my earlier remarks, our performance as well as the rental industry as a whole is consistent with the strength in the nonresidential construction markets where we have exposure. The economy is strong, and industrial indicators remain positive.

Our most important indicator, customer sentiment, is solid and currently projected activity -- and current projected activity is robust. And we continue to see new project activity announced and breaking ground, supporting our belief that the cycle is still in a growth phase. I'll now turn the call over to Leslie to discuss our financial results in more detail. Leslie?

Leslie Magee -- Chief Financial Officer and Secretary

Good morning, everyone. Thank you, Brad. As a reminder, due to changes related to the adoption of leases or Topic 842 last quarter, we have again included a table in the appendix of this presentation detailing the components of equipment rentals and related reclassified rental activities. We have preserved our historical reporting of rental revenues and also include income statement data on an as-adjusted basis to reflect the prior period comparisons on a consistent basis.

So now let's look at Slide 12, please. We are pleased with the performance of the business for the second quarter, and our total revenues increased 7.5% or $23.2 million compared to the same period a year ago to $333.6 million, largely driven by the strength in our rental business. As Brad highlighted, rental revenues as previously reported increased 20.9% to $173.8 million. Our physical utilization remained high with average time utilization based on OEC of 71.2% for the quarter compared to 72 point -- 72% a year ago.

We expanded our rental fleet by approximately 15.6% versus a year ago. Our rental rates improved again this quarter, up 2.2% year over year, and rates improved in all product lines. Rates also increased 0.6% sequentially, increasing in all product lines as well. With strong utilization and rate expansion, our dollar returns rose 110 basis points to 36.5% versus last year.

New equipment sales decreased 21.8% or $14.9 million to $53.6 million compared to $68.5 million last year, and the decrease was primarily driven by lower crane and earthmoving sales, which were down 27.7% and 21.3%, respectively. Used equipment sales increased 12.4% or $4 million to $36.1 million, largely as a result of higher used aerial and earthmoving sales. And sales from our rental fleet comprised 92% of total used equipment sales this quarter compared to 89% a year ago. Our parts and service segments delivered $48.6 million in revenue on a combined basis, up 3.2% from a year ago.

And this time, let's move on to gross profit and margins. Our gross profit increased 15.4% to $124.8 million from a year ago. And consolidated margins were 37.4% compared to 34.8% a year ago, an increase of 260 basis points, primarily as a result of a positive mix shift to higher-margin rentals, combined with strong performance in new and used equipment sales and our service business. For gross margin detail by segment, our rental gross margins as previously reported were 49.1% during the quarter, the same as the year ago period.

Margins on new equipment sales increased to 12.2% for the second quarter compared to 10.7% a year ago, largely due to the mix of equipment sold. Used equipment sales gross margins increased to 35.4% compared to 32.3% last year. And margins on pure rental fleet-only sales were 37.8% compared with 35.7% a year ago. Our parts and service gross margins on a combined basis were 41% compared to 41.2% a year ago.

Slide 13, please. Income from operations for the second quarter of 2019 increased 10.6% to $47.7 million or 14.3% of revenues compared to $43.1 million or 13.9% of revenues in the year ago quarter. The net change in margins, a 40 basis point increase, was primarily the result of a shift in revenue mix to higher-margin rentals, combined with solid margins in new and used equipment sales and service revenues. A decline in gain on sales of property and higher SG&A costs partially offset these results compared to a year ago.

Proceed to Slide 14. Net income was $22.6 million or $0.63 per diluted share in the second quarter of 2019 compared to net income of $20.8 million or $0.58 per diluted share in the second quarter of 2018. Our effective income tax rate was 26.8% in the second quarter of 2018 -- '19 versus 25.5% a year ago. Please move to Slide 15.

Adjusted EBITDA was $118 million in the second quarter compared to $101.8 million a year ago, an increase of 16%. EBITDA margins expanded 260 basis points to 35.4% this quarter compared to a year ago. And margins increased for the same reasons previously mentioned on the income from operations margin discussion on Slide 13. Next, Slide 16.

SG&A expenses for the second quarter of 2019 were $77.8 million compared with $69 million in the prior year, an $8.8 million or 12.7% increase. SG&A expenses in the second quarter of 2019 as a percentage of total revenues were 23.3% compared to 22.3% a year ago. Employee salaries, wages, payroll taxes and related employee benefit and other employee-related expenses increased $4.8 million, largely due to our acquisitions since June 30, 2018, a larger workforce and higher incentive compensation related to improved profitability. Facility-related expenses primarily rent expense increased $1.9 million, and depreciation and amortization increased $0.5 million.

Expenses related to greenfield branch expansion increased $0.8 million compared to a year ago. Next on Slide 17, please. Our gross fleet capital expenditures during the second quarter were $138.5 million, including noncash transfers from inventory. And our net rental fleet capital expenditures for the quarter were $105.1 million.

Our gross PP&E capex for the quarter was $11.4 million, and net was $10.1 million. Our average fleet age as of June 30 was 34.6 months. Our free cash flow for the second quarter was a use of $6.9 million, and this compares to a use of free cash flow of $151.3 million a year ago, which was also impacted by an acquisition completed during that period. We've included the GAAP reconciliations to net cash provided by operating activities to free cash flow for the periods presented on this slide in the appendix at the end of this presentation.

Next on Slide 18. At the end of the second quarter, the size of our rental fleet based on OEC was $1.9 million, a 15.6% or $260.3 million increase from a year ago. Average dollar utilization was 36.5% compared to 35.4% a year ago. Proceed to Slide 19, please.

At the end of the second quarter, the outstanding balance under the amended ABL facility was $202.7 million. And we had $459.5 million of availability at quarter end, which was net of $7.7 million of outstanding letters of credit. And at this time, I'm going to turn the call back to Brad.

Brad Barber -- Chief Executive Officer and President

Thank you, Leslie. Please proceed to Slide 21. To conclude, we're pleased with our solid results for the year, and our outlook remains positive. The trends in our rental business are encouraging, and we continue to achieve positive rates and high physical utilization.

We remain focused on improving all areas of our business with a continued emphasis on growing the rental business. Lastly, we continue to pay our full cash dividend payment of $0.275 on July 14. As always, future dividends are subject to Board review and approval each quarter. We'll now take your questions.

Operator, please provide instructions.


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Questions & Answers:


Operator

Absolutely. [Operator instructions] And our first question will come from Seth Weber of RBC Capital Markets.

Seth Weber -- RBC Capital Markets -- Analyst

Hey. Good morning, everybody. Wanted to ask about the time utilization. Just looking into -- looking at the third quarter, I guess, 3Q '18 was a softer quarter.

You took on a lot of fleet last year. So I mean, do you think we're at a setup here where your time utilization could actually start to be flat to up here in 3Q '19 or in the back half of the year?

Brad Barber -- Chief Executive Officer and President

Yes. I do think that's possible. I think kind of that flat look is a good look to take. We've got a much larger fleet.

We have some additional fleet still coming in. We're satisfied with our performance on rates and think that, that will continue. But if we were going to be up or down, I would say we're likely to be slightly up. But I think kind of flattish year over year was a good expectation.

Seth Weber -- RBC Capital Markets -- Analyst

OK. That's helpful. And then anything, Brad, you would highlight for energy markets? There's obviously a lot of -- kind of a lot of angst out there around some of the markets in Texas and whatnot. Is there anything you'd highlight from a fleet on the ground that you're seeing or ton -- utilization in your fleet in Texas, for example?

Brad Barber -- Chief Executive Officer and President

No. It's more of the same. It's very solid, best rates we've got really within our entire footprint. And utilization continues to be solid, and that's our expectation that it will remain so.

Seth Weber -- RBC Capital Markets -- Analyst

OK. And then just maybe flipping over to distribution business. I think you had previously talked about that business being kind of flattish year over year. Is that still the case? Or is there any new -- numbers were a little softer than what we are looking for in the quarter.

Is there -- are you feeling like that could still be flat? Or is there some downside to that number, do you think, on the new equipment sales, sorry?

Brad Barber -- Chief Executive Officer and President

Look, I think we could be flattish. Is there potential downside? There could be. I mean we talked about large crane sales before. They can swing us pretty big in a hurry.

And so they've been a little soft so far year-to-date. I will tell you, we still got some backlog. We had a few machines that we didn't quite make delivery on for the quarter that would have helped our Q2 new retail numbers, particularly in cranes. And I just don't think it's impossible that we get back to that flattish number.

And if the wind blows our direction, maybe we'll do a little better. But to answer your question, we could have some risk and flat year over year new sales.

Seth Weber -- RBC Capital Markets -- Analyst

OK. And that's --

John Engquist -- Executive Chairman

Seth, one comment I'd make, on the last call, we mentioned that if you kind of took the first quarter sales and use that as a run rate, that -- I think that's a pretty good proxy for what we think we're going to do.

Seth Weber -- RBC Capital Markets -- Analyst

OK. That's helpful. I appreciate you, guys. I'll get back in queue.

Operator

And our next question will come from Steven Fisher of UBS.

Steven Fisher -- UBS --Analyst

Thanks. Good morning. Just to follow up on Seth's question there. Can you just give us a little more color within the cranes on the new sales, kind of what -- was there any particular types of cranes where you're seeing relative strength or relative weakness?

Brad Barber -- Chief Executive Officer and President

No. It's really more of the same, Steve, and there's been no real change. All-terrains have been the more popular product, the higher-volume sale product. That remains.

Crawlers have been spotty. That remains. And RT sales have been on the lower end of historical levels, but there is no change. It's really just been more of the same that we've seen and expect more of the same going forward.

Steven Fisher -- UBS --Analyst

OK. And just curious how you would describe sort of the market supply/demand balance out there on the rental fleet. Is it getting tighter, looser overall? And are there any regions where you'd maybe observed something that stands out different than the overall market?

Brad Barber -- Chief Executive Officer and President

So I'll take the last part of the question. No. I mean most of our regions are pretty consistent with relative change or improvement year over year. As we look at supply/demand balance, it's improving in our favor.

I think that's to be expected based on the seasonality we typically get with increased utilization. As we move forward, our utilization is continuing to increase. We see an opportunity to consistently get incremental rate gains that fall within the guidance we've given on our expectation for rate. So it hasn't improved.

It absolutely has improved. Will it continue to improve? I think incrementally, and I think we have a very healthy balance of supply and demand that's going to allow us to perform well.

Steven Fisher -- UBS --Analyst

And so do you have a base case for the direction of rental rate growth over the second half? Do you think that the market conditions can support the steady kind of low 2-plus percent rate growth? Or should we assume some deceleration as sort of the cycle progresses?

Brad Barber -- Chief Executive Officer and President

I would not assume any deceleration. I would assume more of the same.

Steven Fisher -- UBS --Analyst

OK. And just -- obviously, there was a storm that came through a couple of weeks ago. Does that have any noticeable impact? I assume, if it did, you would have called it out, but just want to make sure.

Brad Barber -- Chief Executive Officer and President

No. No impact. We were very fortunate that the timing of the storm and really the magnitude was much lighter. So it was rainy and may have paused us for 0.5 day, but no impact to the business.

Steven Fisher -- UBS --Analyst

Good to hear. Thanks a lot.

Operator

And we'll take a question from Steven Ramsey of Thomas Research Group.

Steven Ramsey -- Thomas Research Group -- Analyst

Good morning. I guess I wanted to think about kind of your areas of density looking at your map locations. There are certain areas where it seems like you have a real concentration of branches like the Denver area, Gulf Coast areas, in Louisiana, certain regions of Texas. Can you discuss if the areas of density are outperforming areas that you only have one branch? And maybe kind of discuss the rates and utilization factors of that.

Brad Barber -- Chief Executive Officer and President

So in some case, generally, yes. I mean we're denser in larger markets. We continue to focus on adding density. That's a really good part of our growth strategy.

That being said, we have some individual markets that we're performing at very high levels. So it's difficult to kind of call out and segregate them in the way the question was asked because the truth is we have both. But generally, the larger markets, you can look at market data and see that they are the hotter, more robust markets, faster growth rates. But we're in markets where we have singular locations that have tremendous growth as well, and we're benefiting the same way.

Steven Ramsey -- Thomas Research Group -- Analyst

Great. And kind of thinking about that theme. I mean as you add locations and add fleets incrementally going forward, is there an intention to open more branches in those densified areas? Or is the investment case better to -- like you did in Oregon, launch new branches and add fleet into areas where you only have one branch?

Brad Barber -- Chief Executive Officer and President

Right. Good question. It's both. In the case of Oregon, we've got a handful of good customers, long-term relationships and some project activity that spurred our interest of moving into that market.

It certainly helps our geographic presence. We find, in many cases, as we add locations, we exponentially grow our revenue, not only with new customers but existing customers who were running in and out of existing -- of our existing footprint. So the answer is both. I will tell you that we like improving the density, if we were to think about our magnitude of priorities.

The density play is outstanding. That being said, we're also going to be smart and opportunistic and look at the new markets where it makes sense.

Steven Ramsey -- Thomas Research Group -- Analyst

Excellent. And then, I guess, how do you balance then the quicker payback of putting fleet and adding branches into those densified areas and then establishing new regions maybe for kind of the longer-term growth? I mean is -- and as you kind of weigh that decision and implement the growth strategy, are you having -- are you transferring much fleet into these branches? Or is it pretty much new fresh fleet going into them?

John Engquist -- Executive Chairman

Let me touch on that. One, it's typically new fleet going into those locations. In some cases, we're always moving assets. But I think as a general rule, when we enter new markets, new geographies where we don't have a presence, that will more likely not be done through an acquisition.

From a warm start standpoint in these big markets where we can increase density, that will be done through new store openings. That's the general rule. There's exceptions to that like Prineville, where we were on some big projects there. We had a customer base there, so we went in there with a greenfield.

But as a general rule, when we enter new markets, it will be done through an acquisition.

Steven Ramsey -- Thomas Research Group -- Analyst

Great.

Operator

And our next question will come from Ross Gilardi of Bank of America.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Morning, guys. I was just curious, relative to the beginning of the year, how do you feel on capital spending and what you're intending to spend this year? Are you lowering? Are you adding to it? Or is it more or less the same?

Brad Barber -- Chief Executive Officer and President

It's the same, Ross. If we were to do anything, maybe we would incrementally add currently. But our view is it's going to be more of the same. We talked about that high single-digit growth plan.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Got it. Do you think United Rentals' sadjustment will further tighten the market? And are you seeing any other larger national or more regional players taking a similar tack here?

Brad Barber -- Chief Executive Officer and President

Look, I'd prefer not to comment on any particular competitor. But I can say that I see our largest competitors acting very responsibly, whether it be adjusting their capital, being focused on rates. And again, that's really what fuels my commentary about we're going to continue to get the incremental gains in physical utilization and my confidence that we continue to incrementally improve our rental rates sequentially. So I hope that's helpful to you.

But I think the dynamics exist for a variety of reasons. And certainly, people's buying habits are part of that equation. But we feel everyone's being pretty disciplined in the view of what we see in the market.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Your gross margins on your used equipment were up like 300 basis points year-on-year. Is that a reflection of strength in used equipment prices? Or is that just differences in mix or depreciation schedule or just general calling of fleet tied to some recent acquisitions or anything like that?

Brad Barber -- Chief Executive Officer and President

It's both. But I will tell you that the used equipment market and our ability to push pricing is a large piece of that improvement, but there's some mix as well.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

And just across the different types of fleet, are you seeing relative strength or weakness in used equipment prices?

Brad Barber -- Chief Executive Officer and President

No change. Really, it's been good for quite some time and remains the same.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

So what do you -- you guys sound, obviously, very bullish on nonresidential construction and the outlook. Why does the -- why don't metrics and numbers like the Architectural Billings Index and some of the other nonres data points that are out there concern you right now? I mean obviously you're seeing a lot -- something much different than what a lot of these numbers are saying.

Brad Barber -- Chief Executive Officer and President

Listen, we certainly watch all of those reports, and they do weigh on how we view the markets and shape our thoughts about how we grow the business. You take the ABI. It's one report that has shown some volatility from time to time and not proven to be accurate in a shorter window of time. So if we were to continue to see more negative-type numbers out of ABI over a period of time, it would weigh on us.

We've got a really good handle with our customers with reporting, with discussing opportunities. And of course, we can look at our current environment. I think another thing we have in our favor is the geographies we serve. Regionally, we can have a location in a region that may show a little more softness in one of the types of reporting you're talking about.

But generally, we're such a small piece of those overall markets that we can perform well within them. And I think we've proven that over multiple cycles now.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Just on that, lastly, Brad, I mean, you've kind of answered this with elements of your other answers. But clearly, right now, markets are worried that we're going into this real soft patch, if not industrial recession, like we did in 2015 and 2016. And if you look out the window from where you sit, do you see any similarities to the way that market conditions are evolving to what you saw a few years ago, in '15 and '16, when, for you guys, rates just kind of flattened out? Maybe you had a couple of down quarters. It wasn't that big of a deal, but you did have a -- maybe a little bit mini -- of a mini correction in the rental market.

Are you able to compare and contrast what you're seeing now to like a few years ago at all in that context?

Brad Barber -- Chief Executive Officer and President

Not really. Listen, I mean obviously we try to pay attention. We want to be critical with our thoughts. But when we stack everything that's available to us, it looks like more of the same.

It's going to continue to be positive. We'll continue to watch what we're seeing in the marketplace, the feedback we get from our customers. And quite frankly, the job starts and the bidding activity do not support what a few of these more recent term reports have had to say and -- but we're going to continue to watch them.

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

OK. Thanks very much.

Operator

[Operator instructions] We will now hear from Stanley Elliott of Stifel.

Stanley Elliott -- Stifel Financial Corp. -- Analyst

Good morning, buddy. Thank you for taking the question. I apologize if you touched on this earlier. Is there a way to talk about utilization kind of has -- how it tracked through the quarter? I'd be curious to see if the weather that we saw at the central parts of the U.S. had much of an impact on the quarter's results.

Brad Barber -- Chief Executive Officer and President

Generally, the utilization as expected and what's typical incrementally improved throughout the quarter. You can have events like holiday or particular -- when a holiday falls that you can get a kind of an anomaly within a trend line. But in general, it's improved incrementally throughout the quarter, and it continues to improve as we sit here today.

Stanley Elliott -- Stifel Financial Corp. -- Analyst

And Brad, you talked about -- there seems to be more discipline in the marketplace in terms of fleet, in terms of rate. Do you have any ideas or thoughts kind of overarching, what may be driving that? I'd just be curious because it does feel like that there's a lot more data and things of that nature, but maybe we're looking at maybe a marginally structurally improved marketplace.

Brad Barber -- Chief Executive Officer and President

Yes. So look, I believe -- I'm not going to talk about the marketplace. I think I've made clear that what we see is good, positive and future opportunity in the market. I would say that ourselves, our larger competitors and other regional players with subs in the fleets all use information to drive their business decisions much more today than they have in previous cycles.

And the discipline that I have confidence in is because there's a lot of smart people out there using good information and making good decisions. And there's not a void of that type of information within the management decisions in our company or other companies that we compete with. And so that's what gives me the highest degree of confidence. I'd also add that I don't see manufacturers building inventory.

In previous cycles, there have been select manufacturers within certain product types specifically who may have been more aggressive and built inventory on speculation and then kind of stuffed the channel through creative financing or extra discount that entice bad behavior. I just don't see any of that happening with any of our manufacturers, in any of the product types. So a lot of discipline within the fundamentals of the folks who are making the equipment as well as the folks who are renting this equipment.

Stanley Elliott -- Stifel Financial Corp. -- Analyst

Perfect. And then last for me, leverage kind of tacking or should be toward the bottom end of your kind of "targeted range". Should we expect that to change? Do you want to run the business at lower leverage? How are you thinking about that? And as a caveat, kind of how that relates to the thoughts around acquisitions?

Brad Barber -- Chief Executive Officer and President

Well, as you say, our leverage is coming down. We expect that it will continue to. As far as us changing our leverage targets that we've traditionally got you, there's no change at this point in time.

Stanley Elliott -- Stifel Financial Corp. -- Analyst

So that would mean that M&A certainly would be a strong opportunity or a possibility for you all in the back half of the year, depending upon kind of market conditions?

Brad Barber -- Chief Executive Officer and President

Absolutely.

Stanley Elliott -- Stifel Financial Corp. -- Analyst

Great. Thanks, guys. Appreciate it. 

Operator

And there are no further questions. I would like to turn the call back over to Mr. Brad Barber for closing remarks.

Brad Barber -- Chief Executive Officer and President

Sure. I'd like to thank everyone for their time and attending the call today, and we look forward to speaking to you on our next quarterly call. Thank you, operator.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Kevin Inda -- Vice President of Investor Relations

Brad Barber -- Chief Executive Officer and President

Leslie Magee -- Chief Financial Officer and Secretary

Seth Weber -- RBC Capital Markets -- Analyst

John Engquist -- Executive Chairman

Steven Fisher -- UBS --Analyst

Steven Ramsey -- Thomas Research Group -- Analyst

Ross Gilardi -- Bank of America Merrill Lynch -- Analyst

Stanley Elliott -- Stifel Financial Corp. -- Analyst

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