Herc Holdings (HRI) Q4 2025 Earnings Transcript

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DATE

Tuesday, February 17, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Lawrence H. Silber
• President — Aaron D. Birnbaum
• Senior Vice President and Chief Financial Officer — W. Mark Humphrey
• Vice President, Investor Relations and Communications — Leslie Hunziker

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TAKEAWAYS

• Equipment Rental Revenue -- Increased 24% year over year, driven by the H&E acquisition, mega project contributions, and specialty solutions sales.
• Adjusted EBITDA -- Rose 19% year over year, supported by equipment rental growth and a 53% increase in used equipment sales.
• Used Equipment Sales -- Grew 53% year over year, contributing to lower adjusted EBITDA margin due to lower average margin.
• REBITDA (Excluding Used Sales) -- Up 17% with a 45% margin, reflecting the lower-margin profile of the acquired business.
• Transaction Costs -- Net income included $14,000,000 in charges mainly tied to the H&E acquisition.
• Adjusted Net Income -- Reached $69,000,000, or $2.07 per share for the quarter.
• Fleet Expenditures -- Up roughly 22% in the second half compared to the prior period; annual fleet spending was flat year over year.
• Fleet Disposals -- Disposals rose 67% year over year, totaling $342,000,000 for the quarter; realized proceeds were 44% of original equipment cost, compared with 41% in the prior quarter.
• Free Cash Flow -- Generated $521,000,000 after transaction costs for the year ended December 31, 2025.
• Leverage Ratio -- Pro forma leverage stands at 3.95x, with an ongoing target range of 2x to 3x by the end of 2027.
• Net Capital Expenditures Guidance -- Projected at approximately $650,000,000 for 2026 at the midpoint, with gross CapEx expected to be $950,000,000 and significantly lower dispositions planned.
• 2026 Rental Revenue Growth Guidance -- Forecast of 13%-17%, with GAAP growth rate slowing by Q2 as the H&E acquisition laps the prior year base.
• 2026 Adjusted EBITDA Guidance -- Anticipated range of $2,000,000,000 to $2,100,000,000, representing projected growth of 10%-16%.
• 2026 Free Cash Flow Guidance -- Targeted between $400,000,000 and $600,000,000.
• Cost Synergies -- Tracking ahead of plan; $125,000,000 expected in 2026, supporting margin improvement.
• Revenue Synergies -- Forecast incremental $100,000,000 to $120,000,000 in 2026, with total synergy goal of $390,000,000 by 2028.
• Specialty Network Expansion -- Opening 50-plus new specialty branch locations in early 2026, increasing the network by 25%; 80% of these completed by the end of the quarter.
• Digital Revenue Growth -- Exceeded 50% growth in 2025, driven by digital platform adoption and enhanced product access.
• Telematics Penetration -- Approximately 80% of eligible fleet is equipped for data-driven utilization and efficiency strategies.
• Safety Metrics -- 97% of days classified as "perfect days" in 2025, and the total recordable incident rate remains below the industry benchmark of 1.0.

SUMMARY

Herc Holdings (NYSE:HRI) reported significant revenue and EBITDA growth driven by its transformational H&E acquisition, aggressive synergy actions, and expansion in specialty solutions. Management provided clear guidance on targets for cost and revenue synergies, capital allocation, and a timeline for achieving foundational integration milestones, with 80% of branch optimization completed and specialty expansion in progress. The company detailed operational improvements, digital adoption, and safety achievements, while offering specific medium-term outlooks for fleet efficiency, leverage targets, and free cash flow.

• Management is prioritizing full integration completion by the end of the first quarter, supporting further growth in the peak activity season.
• The salesforce has been realigned and upskilled to drive both general and specialty solution cross-sell, with early proficiency gains reported.
• Proceeds from used fleet disposals are improving as a higher share now sells through retail and wholesale channels.
• Company focus has shifted to extending fleet age and utilization improvements over additional fleet rightsizing.
• Guidance contemplates a return to sequential and year-over-year growth after a seasonally weaker first quarter, with back-half acceleration linked to synergy realization and maturing specialized operations.
• Local market rental revenue contributed 51% compared with 49% for national accounts in 2025, with a long-term target mix of 60% local and 40% national.

INDUSTRY GLOSSARY

• OEC (Original Equipment Cost): The historical purchase price of rental equipment, used as a reference point for disposal proceeds and fleet metrics.
• REBITDA: Rental EBITDA, reflecting adjusted EBITDA excluding income from used equipment sales to provide a clearer view of core rental profitability.
• Perfect Day: A company metric representing a day with no recordable safety incidents at a branch location.
• Shoulder Period: A seasonally slower period between peak activity cycles impacting rental revenue and utilization metrics.
• Mega Project: Large-scale, high-value construction or industrial projects that represent significant rental opportunities due to their scale and complexity.

Full Conference Call Transcript

Today, we are reporting financial results on a GAAP basis which includes the H&E results for June through December 2025. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our first quarter management meetings. And last, we will be attending the JPMorgan Industrials Conference in Washington, D.C., on March 17.

Then we will be back in Miami on March 3 for the JPMorgan Leverage Finance Conference, at the Barclays 43rd Annual Industrial Select Conference, and Citi's Global Industrial Tech and Mobility Conference in Miami tomorrow and Thursday. This morning, I am joined by Lawrence H. Silber, Chief Executive Officer, Aaron D. Birnbaum, President, and W. Mark Humphrey, Senior Vice President and Chief Financial Officer. I will now turn the call over to Lawrence H. Silber.

Lawrence H. Silber: Thank you, Leslie, and good morning, everyone.

Lawrence H. Silber: 2025 was a truly transformational year for our company. In June, we completed the largest acquisition in our industry's history, a milestone that expands our scale, strengthens our capabilities, and accelerates our long-term growth strategy. From day one, our focus has been on thoughtful integration, moving with urgency where it matters while remaining disciplined in preserving the strengths of both organizations. I am extremely pleased with how well the collective Team Herc has executed against our integration priorities in the eight months since closing. Employees across the company stepped up with extraordinary effort and commitment.

Successfully integrating a transaction of this size while continuing to serve customers at the highest levels requires focus, collaboration, and execution, and our teams have delivered. The integration action taken in the fourth quarter further bolstered the critical work done in the third quarter where we expanded our field operating structure to 10 U.S. regions, adding key leadership roles to ensure operating continuity and scalability, completed a comprehensive sales territory optimization exercise to restructure coverage, and transitioned the acquired branches under Herc’s technology stack in record time. As you can see on slide five, during the fourth and first quarter seasonal shoulder periods, we have continued our focus on four key priorities to complete the integration of the acquired assets.

This work positions us to ramp into peak season from a new, stronger foundation allowing us to execute more effectively and drive accelerated growth in the back half of the year. First, the branch network optimization. One of our core integration priorities is expanding specialty solutions capabilities across a combined network to support the cross-selling opportunities created by the acquisition. We have made great progress selectively consolidating general rental equipment within facilities in the same market to open up space for stand-alone specialty branches. While in other general rental locations, we are adding specialty fleet to expand branch capabilities. Through these actions, we will increase the number of stand-alone or co-located branches by approximately 25%.

As of the fourth quarter, we have completed 80% of the planned branch optimization which will be finished next month. Integrating the fleet was another critical milestone following the acquisition. Right out of the gate, we began a comprehensive restructuring of the combined assets addressing size, age, category classes, and brands to ensure alignment with customer demand and market opportunities. By year-end, the fleet was realigned, the right equipment in the right locations. This positions us well as we move through 2026 with a stronger product portfolio and enhanced flexibility while setting us up to be able to improve time utilization as we scale our sales force and as demand evolves seasonally across regions and end markets.

Along that vein, salesforce assimilation is showing good progress. Integrating the sales organization has been a major focus since the transaction closed. We have been scaling the sales team to align with larger market opportunity while investing in training, leadership support, and deeper adoption of our CRM systems, sales models, and our broader fleet offering. We are now seeing improvement in proficiency across the go-to-market strategy and pricing systems which is beginning to translate into more consistent execution, better customer engagement, and early cross-selling success. Productivity improvement and cost efficiencies across the entire organization are the fourth area of focus. By operating from unified systems and aligning to standardized processes, we are already recognizing meaningful results.

On a pro forma basis, employee productivity increased year over year in 2025. New team members across the organization are becoming more adept on our logistics and operating systems resulting in more consistent execution. And we are leveraging Herc’s broader fleet offering to capture synergies by reducing external sourcing and bringing rerent activity back in line with our historical levels. As a result of these actions and the progress we have made in eliminating redundant costs, optimizing procurement, and streamlining corporate functions, cost synergies are now tracking ahead of plan. On slide six, equally important to our integration success is our unwavering commitment to safety across the combined organization.

Safety is at the core of everything we do, and as an immediate priority, we onboarded 2,500 new Herc team members into our health and safety program in the second half of last year. Our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In 2025, on a branch-by-branch measurement, all of our operations achieved over 97% of days as perfect. Also notable, our total recordable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to safety of our people and our customers.

As we continue to work through the integration of H&E, we are following the same playbook that has served us well over time, positioning the business to perform across the cycle and generate sustainable long-term growth. While there is still work to do, the progress we have made to date gives us confidence that the combined company is on track to deliver the operational and financial benefits of a large-scale acquisition while accelerating our strategic growth plan which is summarized on slide seven. Over the course of the last year, we made meaningful progress expanding our footprint through the acquisition and strategic greenfield openings, adding scale, and gaining share in key geographies.

We also continued to direct a greater portion of our gross capital investment toward higher-return specialty fleet supporting revenue synergies and advancing our goal of increasing specialty as a percentage of our total fleet. At the same time, we strengthened our digital capabilities to maintain our market leadership in innovation and support of our customers' productivity. Our digital revenue grew by more than 50% last year with hercrentals.com giving our customers an easy way to reserve gear 24/7. Our acquired customer base has full access to ProControl and is already using it to order equipment, manage fleet, and handle account activities.

And when it comes to telematics, today, approximately 80% of eligible gear is equipped, providing utilization and performance metrics to help reduce downtime and drive job site efficiency, all visible within our ProControl system. Further, our E3OS business operating system continues maturing, helping to drive greater consistency and efficiency across the organization for our customers. Throughout all of this, capital discipline remains a management imperative. We are investing responsibly, prioritizing returns, and strengthening the foundation of the business while integrating a transformational acquisition and sharpening our strategic focus. I will now turn the call over to W.

Mark Humphrey, who will take you through the recent financial performance and 2026 guidance, and then Aaron will talk about macro trends and operating initiatives supporting our growth plans for this year. Mark?

W. Mark Humphrey: Thanks, Larry, and good morning, everyone. I am starting on slide nine with a summary of our key financial metrics. For the fourth quarter, on a GAAP basis, equipment rental revenue was up 24% year over year, driven by the acquisition of H&E, strong contributions from mega projects, and sales of specialty solutions. Adjusted EBITDA increased 19% compared with last year's fourth quarter, benefiting from the higher equipment rental revenue as well as 53% more used equipment sales. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin.

Also affecting margin was lower fixed cost absorption as a result of the ongoing moderation in demand in certain local markets where H&E was overweighted, as well as the acquisition-related redundant costs preceding the full impact of cost synergies. REBITDA, which excludes used equipment sales, was up 17% during the fourth quarter. The REBITDA margin was 45%, impacted year over year by the lower-margin acquired business. Margin improvement will come from equipment rental revenue growth, a shift over time to a higher-margin product mix, and a return to selling used fleet through the more profitable retail and wholesale channels as well as delivery of the full cost synergies and improved variable cost management from the increased scale.

Our net income in the fourth quarter included $14,000,000 of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $69,000,000, or $2.07 per share. For the full year, our results were reasonably aligned to our early expectations. In any large-scale acquisition, integrating the acquired and acclimating new team members is a phase-in ongoing effort. It takes time to get a clear read on the pace and effectiveness of change. But after six months, we have better clarity and I like where we sit.

W. Mark Humphrey: Using a baseball analogy, in addition to many singles the teams delivered in a short period of time, there have been some home runs in key areas like cost management, systems transfer, and fleet optimization. Let me take a minute to walk you through how our fleet optimization plan has evolved and what that means moving into 2026. If you turn to slide 10, in just six months, we rebalanced our combined fleet by market to drive capital efficiency and set the stage for improving fleet productivity. At the same time, we made initial targeted investments in specialty equipment to unlock revenue synergies, ensuring we are not just leaner, but also more capable and better aligned with high-value opportunities.

In 2025, fleet expenditures were roughly 22% higher than the second half 2024, and fleet disposals at OEC were 65% higher. Overall, for the full year, 2025 expenditures were flat year over year, while full-year disposals increased 67% reflecting the acquisition fleet realignment. Of the $342,000,000 of disposals in the fourth quarter, realized proceeds were 44% of OEC, up from 41% in Q3 2025 as more equipment was sold through the higher-return wholesale and retail outlets in the last quarter of the year compared with the third quarter.

With the enormous amount of work done last year to optimize the fleet, including significant investments in synergy fleet, this year we shift our focus from rightsizing fleet to extending the average age of the younger acquired fleet and improving utilization. We expect to be able to address the growing demand in national and regional accounts and specialty solutions while meeting our 2026 revenue synergy goals with increased capital efficiency. On that topic, let me quickly run through capital management on slide 11. Here, you can see that we generated $521,000,000 of free cash flow net of the transaction costs for the year ended 12/31/2025.

Our current pro forma leverage ratio is 3.95x, which is in line with our expectation as H&E's 2024 quarters roll out for the trailing twelve months calculation. We still expect to return to the top of our target range of 2x to 3x by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through. On slide 12, you can see our initial 2026 guidance. Our plan is to invest roughly $950,000,000 of gross at the midpoint of that guide. That, combined with a significantly lower level of dispositions this year, would bring net CapEx to approximately $650,000,000 at the midpoint, relatively flat with last year.

Our fleet plan is aligned to generate rental revenue growth of 13% to 17% this year. As you would assume, given the significance of the H&E acquisition in June 2025, the rate of growth slows on a GAAP basis from Q1 to Q2, as the second quarter has one month of the H&E acquisition in its base.

Lawrence H. Silber: On a pro forma basis,

W. Mark Humphrey: quarterly revenue and fleet metrics improved sequentially from negative to positive growth from first half to second half, driven by higher fleet efficiency and utilization as we work through the seasonal shoulder period and build into the peak season. After we cross over the acquisition anniversary, results in the third and fourth quarters will be measured against comparable periods in the prior year. While our business sustained front-loaded revenue dis-synergies in 2025 versus the original plan, our goal for generating roughly $390,000,000 of gross revenue synergies through 2028 has not changed.

Capturing the revenue synergies will happen over time, as fleet investments take hold, the new specialty branches mature, annual contracts renew at higher values, and the local market recovery supports increased customer demand and improving spot rates. For 2026, we are forecasting incremental revenue synergies of approximately $100,000,000 to $120,000,000. Cost synergies are running ahead of expectation, and we expect to recognize a total of $125,000,000 of cost synergies in 2026 supporting REBITDA margin improvement across the rental revenue guide.

We estimate adjusted EBITDA will be between $2,000,000,000 and $2,100,000,000, representing profitable growth ranging from 10% to 16% as cost synergies are delivered and fleet productivity improves throughout the year, and the higher-return specialty revenue gains momentum in the back half. This is partially offset by the lower sales of used fleet year over year. And finally, we are guiding to another year of free cash flow in the range of $400,000,000 to $600,000,000. With that, I will turn the call over to Aaron, who is going to walk through the macro and operational drivers behind our outlook.

Aaron D. Birnbaum: Thanks, Mark, and good morning, everyone. We entered 2026 as one team,

Operator: one company, and one of the leading equipment rental businesses in North America. The hard work of bringing our companies together is largely behind us. The work ahead is about fully realizing the value of our integrated team, capturing synergies, optimizing our new stronger foundation, and translating scale and capability into consistent performance and results.

Aaron D. Birnbaum: Turning to slide 14. This year, our priorities are clear. First, we plan to complete the integration by the end of the first quarter. The execution on the branch network optimization plan has been best-in-class, so I am confident all the 50-plus additional specialty locations will be staffed,

Operator: fleeted, and open for business as we move into the peak season.

Aaron D. Birnbaum: We are starting to see stronger contributions from the new sales professionals and we will continue supporting their efforts so they are on a good trajectory as demand picks up. At the same time, scaling our salesforce for our larger company is a priority

Operator: to ensure we have the resources we need to execute our plan. And execution remains the top focus. We have a defined go-to-market strategy that all of our sales professionals have been trained on.

Aaron D. Birnbaum: We measure progress against that weekly. As you know, what gets measured drives performance. We are tracking data on revenue synergies, customer recovery programs, and cost synergies around maintenance and transportation among other things.

Operator: In addition to weekly meetings at the regional and district level, Mark and I have been on the road getting in front of the teams for synergy report-outs, and helping to prioritize solutions for any pain points. Engagement level in the field is really strong, which gives me confidence in the next phase of value creation. Last year, we invested over $100,000,000 of capital specifically to capture the early revenue synergies from this transaction, with a significant portion directed toward expanding our specialty fleet. That investment is now being put to work across a larger customer base,

Steven Ramsey: and provides a full-year run rate benefit as we move through 2026 and into 2027. As we deploy specialty fleet into our larger specialty location network and continue to expand the salesforce’s offerings,

Aaron D. Birnbaum: we expect to drive incremental revenue synergies.

Steven Ramsey: Our specialty lines generated double-digit rental revenue growth in December, so we are seeing the progress, and it is clear that the product training, team-selling approach, and shift to solution selling are starting to pay off. We believe we are well positioned as we move from integration into the acceleration phase. The fundamentals of the combined company are stronger. The team is executing with increasing focus and urgency. Our markets are stable. Turning to slide 15, the resiliency of our business model remains supportive as mega project activity continues to be robust and the shift from equipment ownership to rental offers plenty of opportunity for specialties penetration.

In the local market, we expect 2026 will be relatively neutral to 2025 with government infrastructure, MRO, and institutional construction demand offsetting the still moderate commercial sector. On the national account side, funding for new large-scale projects is still robust. Mega project activity in 2025 centered around manufacturing, LNG, renewables, and data center growth. We are winning our targeted 10% to 15% share of these project opportunities with even more new mega projects on deck and current projects still ramping up. In 2025, local accounts represented 51% of rental revenue compared with 49% for national accounts.

As a combined company, we will continue to target a 60% local and 40% national revenue split long term, knowing that this diversification provides for growth and resiliency. The scale we have gained through the acquisition bolsters our ability to respond to near-term trends in local markets, while also leveraging efficiencies to prepare for the start of the cyclical recovery. But it is important to remember that a pickup in local demand typically lags interest rate reductions. With that in mind, for 2026, we are being thoughtful and disciplined in our planning, balancing our short-term responsiveness with long-term readiness. Turning to slide 16.

In a disproportionate demand environment like the one we are operating in today, diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc has diversified into new end markets, geographies, and products and services over the last nine years, we have reduced our reliance on a single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities like the mega project developments, technology advancements that support customer productivity, and the sector shift from ownership to rental. We believe we are well positioned to manage dynamic markets and the acquired scale further bolsters our capacity and therefore our opportunities.

Sticking with the topic of resiliency, let us turn to slide 17, where you can see that despite the uncertain sentiment in the general market around interest rates, industrial spending and nonresidential construction starts still show plenty of opportunity built on a foundation of mega project development and infrastructure investments. Taking a look at the updated industrial spending forecast in the top left, strong capital and maintenance spending is projected through the end of the decade with a 4% increase in 2026. Dodge's forecast for nonresidential construction starts in 2026 is estimated at $473,000,000,000, a 1% increase year over year, with 5% to 7% growth continuing in successive years.

Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in U.S. construction project starts over the last three years and an early projection for 2026 that reflects another $573,000,000,000 of investment. I expect that number to grow as more projects get assigned a start date, as there is a trillion-dollar pipeline that is working through the planning stages. As a result, we estimate we are only in the early to middle innings of this multiyear opportunity. Finally, there is another $369,000,000,000 in infrastructure projects estimated for 2026 after a record year in 2025.

That is down slightly year over year because of some very large project starts last year, as well as some volatility around funding. But infrastructure construction activity is expected to remain steady at strong levels through the end of the decade. Of course, there is some overlap in projects among these four data sets. No matter how you look at it, for companies with the safety record, scale, product breadth, technologies, and capabilities to service customers at the local, regional, and national account level, the opportunities for growth remain significant. In closing, I want to thank our team for their extraordinary efforts during this transition, our customers and shareholders for their continued trust and support.

We are confident that the steps we are taking today will enable us to deliver sustainable long-term value as we move forward together. With that, Operator, we will take our first question.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press 1 on your telephone. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. And finally, we do ask for today's session that you please limit yourself to one and one follow-up. Your first question comes from the line of Mircea Dobre of Baird. Your line is open.

Mircea Dobre: Good morning, thank you for taking the question. My first question is a bit of a clarification on the guidance. So

W. Mark Humphrey: we have got $235,000,000, I believe, in additional EBITDA

Kenneth Newman: relative to 2025. Is there a way to maybe give us a little bit of a bridge here in terms of how this additional $235,000,000 is being generated? How much of this is from incremental savings that you have from synergies integrating the businesses? Maybe, obviously, there is a little bit of a carryover from H&E for five months of the year that business was not in your P&L in 2025. And I am sure there are some other moving pieces there too.

Steven Ramsey: Yeah. So

W. Mark Humphrey: a few things, Mircea. So if you think about my prepared remarks, I said that we expect the cost synergies to be in, in their entirety, for 2026. So that is a cost synergy increase, or EBITDA, of about $125,000,000. Then you sort of take the other piece of that, which is the revenue synergies, which I said was going to be in the neighborhood of $100,000,000 to $120,000,000.

Operator: And

W. Mark Humphrey: that would then have an EBITDA flow-through in the 60% to 70% range. So you are sort of talking about incremental EBITDA of $60,000,000 to $70,000,000 from a revenue synergy perspective. So those are the two big bridge components between the two years. And then, obviously, if you are looking at this on a GAAP basis, you are going to have five months of EBITDA contribution from a comp perspective as you work your way into June of 2026 as well.

Kenneth Newman: And would you be able to help me with that last component in terms of what is incremental for those five months? The EBITDA?

W. Mark Humphrey: Well, I mean, I think if you are talking about it from a GAAP perspective, right, you are going to have an increase of

Lawrence H. Silber: point of

Leslie Hunziker: you know, between $2,000,000,000 and $2,100,000,000. So

W. Mark Humphrey: sort of the run rate coming out, the incremental, without getting too pointed, I think you just have, as I said, on a pro forma basis, and then it is going to work its way, Q4 is going to be negative,

Steven Ramsey: sequentially

W. Mark Humphrey: and year over year improve as you work your way through the year.

Operator: Your next question comes

Kenneth Newman: from

Steven Ramsey: from Mark, I just wanted to touch on how we should

Operator: think about the cadence of dollar utilization as we move through the year. For the first quarter in particular, maybe just some help given some of that color you gave on the

Steven Ramsey: pro forma

Kenneth Newman: performance. I mean, should we assume

Steven Ramsey: something more than normal seasonality quarter to quarter from Q4 to Q1? And then

Operator: maybe at the midpoint of that guide, would you expect LRU to be,

Kenneth Newman: could it get over 40% in the second half of this year?

W. Mark Humphrey: Alright. Let me pull that apart a little bit. I think, and I will answer this from a pro forma perspective. And so from a pro forma perspective, you would anticipate negative pro forma Q1 year over year from a dollar utilization perspective. And then the rate of that decline improves as you work your way out of the shoulder period, Ken. And then you would look for improvement sequentially and year over year as we work ourselves through the peak season and back half, 2H in totality. So, with that, our top-end performance from a dollar utilization perspective in 2025 was 40 points in the third quarter.

Based on what I just said, the anticipation is you would be above that 40

Operator: seasonally

W. Mark Humphrey: in the back half.

Kenneth Newman: Yep. Okay.

Operator: That helps. And then

Steven Ramsey: maybe I know you are expecting the fleet disposals should be lower versus last year. I guess

Operator: give or take $700,000,000 of disposals. So, you know, a pretty significant decrease year over year. With the intent of sort of aging the fleet out to something that looks more like a historical average age for Herc Rentals. And with that, I think you will see mid-40s from a disposal to proceeds to OEC, which would probably run you into the 30s, give or take, from a margin perspective on that used equipment activity, Ken? Your next question comes from the line of Kyle David Menges of Citigroup. Your line is open.

Leslie Hunziker: Your line is open. Thanks, guys. Maybe we can start, and I would love to hear a little bit more color on the revenue synergies, that $100,000,000 to $120,000,000 you are targeting for 2026 and what is embedded in there and just your visibility to achieving that as well?

Operator: Yeah, Kyle. This is Aaron. Well, there are several areas in there. I will take you back in time a little bit. We have got a broader breadth of fleet that we are pushing into the acquired branches. That is part of the revenue synergy. If you recall, we had roughly 6,000 more cat classes that we are pushing into that network so that our sales teams can go generate

Leslie Hunziker: revenues off of those. And then, of course, we have got our specialty businesses. And as you heard in the remarks, we are opening up 50 new specialty locations. Those will be up and running, 80% of them are done now. The rest of them will be up and running over the next month. And that grows our network of specialty locations by 25%. So those are two big components. We need the, there is a pricing component in there too. We have our own, you know, prior, our own pricing tool that we use for salesforce, and we have assimilated that into our new sales team. And that is going to help move the needle on that over time.

We are not expecting that to be a 2026 big move, but over time, over three years of our synergy run, that is where we are going to get that. So those are the big components that are in the revenue synergy go-get for us.

Operator: That is helpful. Thanks, Aaron. And then just on the mega projects,

Aaron D. Birnbaum: it would be helpful to hear what you are seeing as far as competitiveness to get on these projects and how you are winning. And then you talked about getting that 10% to 15% share that you have targeted. I am curious just if there could be some upside to that as you are integrating H&E.

Leslie Hunziker: Right now, we have, as we said, 10% to 15% share on the mega projects. We are right at that midpoint. Our goal is to move that to the upper end. The activity on the mega project landscape is very robust. So you asked about competitiveness. You know, it really comes down, these are mission-critical jobs that the contractors are operating in, and they need to have a trusted supplier to make sure that these mission-critical pieces are functioning the way they are supposed to. We measure our position kind of as a primary or secondary player, not just measuring how many pieces we have on the landscape overall on the mega projects.

But the competitiveness has really been very stable, I would say. When I mentioned the word mission critical, what I am talking about is the ability to execute the safety protocols they need, the technology that is required for the project. There is a big specialty component that goes into these projects. You have to have the capabilities and solution selling to provide the right solutions and provide it in a mean and economic fashion that the customer can realize to the benefit of the project. So, it is a complex landscape, but it is not more competitive, and we feel like we are in a really good position.

And then the expanded network of our H&E locations really allows us to scale that even further to our customers. And we have seen benefits from the new scale all through 2025, and it really makes us even more competitive as a solutions provider as we roll into 2026. Next question comes from the line of Neil Christopher Tyler of Rothschild & Co. Redburn. Your line is open.

W. Mark Humphrey: Good morning, guys. Just wanted to actually, first of all, follow up on that question and maybe ask you, Aaron, to talk a little bit about the softer factors that you need to put into place to realize those synergies in terms of training around extended cat classes, the specialty business, and how you are confident that the employees can appropriately push those into customers in order for the new specialty locations to reach maturity, for example. And then the second question, I wonder if you could talk a little bit, Mark, about the assumptions aside from the synergy component of rate, the other assumptions or expectations around rate progress this year and also anything within the sales mix?

I am thinking in my mind about a sales bridge within the mix that might contribute to the 2026 on 2025 moves. Thank you.

Leslie Hunziker: Okay, Neil. I will take the first part. To lean in on the softer side of achieving those synergies, a few components. One is expanding our footprint. You know, 50 new locations certainly helps get it into markets where we might not have been as dense that H&E helped us. So that is a big piece of it. And leaning into providing the capital to deploy in those new 50-plus markets as well as our existing specialty network that we already have. We started that last year, as I said, to get to the early beginnings of the synergy story, and we will do that again as we roll through 2026.

I think what is interesting, and I want to underscore, is that we have a very large sales team now. We do not need our new sales professionals to be experts at specialty. We need them to know how to ask the right questions to their customers, and then they can bring in one of our subject matter experts in specialty to help kind of solution-sell that. And that is really what we are teaching our new team to do. Of course, we are taking them through product knowledge awareness and bringing them into our locations to show them different offerings they have now.

Then, of course, we also highlight the compensation piece of this and how they can yield up on their compensation by selling into the specialty business. So we have grown our specialty team by these 50-plus locations, but we also already expanded our SMEs that are out there and our specialty sales reps that are out there to help get this all done. We have seen some early success

Operator: with

Leslie Hunziker: some of the general rental fleet that we introduced. Right? Because this is some of the stuff that H&E did not have in their portfolio, and a lot of those new salespeople, they really were able to grab that pretty quickly and put that on rent. The specialty piece is just an element of this, and it is kind of the soft side, so it takes a lot of forethought and planning. But we do not need our new salespeople to be experts. That is the key thing. They can lean into the operational excellence and our sales teams on the specialty side to get that done.

W. Mark Humphrey: And then, Neil, in terms of forming a bridge, if you will, from a revenue guidance perspective, I think if you are sitting at the top of the guide, you would think about that as sort of revenue synergies on target, continued mega growth, pricing slightly positive year over year, and local market stable, meaning sort of low single-digit growth. I think as you walk off of the top of that guide down, the biggest swing factors in that would be market demand and price.

Leslie Hunziker: Your next question comes from the line of Tami Zakaria of JPMorgan. Your line is open.

Aaron D. Birnbaum: Hey, good morning. Thank you so much. I wanted to ask a follow-up question on specialty.

Steven Ramsey: I think you increased the footprint by 25%. That is very impressive. I wanted to understand what is the go-to-market strategy for specialty with the existing general rental customers. Can you offer some examples of such stories where you saw a quantifiable uptick in total rental volume from a particular customer once they began taking specialty from you but were not taking in the past? So any quantification would be helpful, unless it is too early to comment on this.

Leslie Hunziker: Oh, no. So as I mentioned, if you just take a look at the past six months of 2025, we already had roughly 150 specialty locations in our network in Herc. And so we quickly connected with the sales team on the H&E side to identify opportunities. And with human nature, sometimes there are early adopters that lean into it and are excited that there is a new opportunity to go rent something they could not rent before. So there were a lot of opportunities in Q3, Q4 that came in for our power generation business that is under our ProSolutions umbrella as well as our pump business. The trench opportunities are starting to escalate now.

That is a little bit of a different sales cycle. But we had a lot of those happen in the third and fourth quarter, which really helped us absorb some of that capital that we deployed early on because we knew that was going to be something we want to get the wheels turning on fast. So as we roll into 2026, now we go from roughly 150 specialty locations to 200.

W. Mark Humphrey: And

Leslie Hunziker: a bigger sales force and some more fleets being deployed, a larger specialty subject matter expert team. We really like where we are positioned here at the beginning of 2026. And I think the specialty story for Herc Rentals is going to be a solid one as we progress through the year and these other 50 locations get up and running as we get into the second half of the year.

Steven Ramsey: Understood. That is helpful to know. And a question on the CapEx guide. Can you give some color on how to think about growth versus net CapEx as the year progresses, the four quarters versus the four quarters last year?

Operator: Yeah. Tami, this is Mark. So I think really you have got two components here. Right? You sort of have $700,000,000, give or take, of fleet that needs to be rotated out, will be rotated out. And then on the flip side of that, if you are just sort of running down the middle, you have got about $1,000,000,000, give or take, of gross CapEx spend. I do not necessarily view it as maintenance versus growth because there is probably mix shift, there will be mix shift, in the disposed items as we bring it back on board.

So really, we are thinking about being more capital efficient with the next $1,000,000,000 fleet that we are bringing in across the gen rent landscape as well as the specialty landscape as we work our way through Q2 and Q3, which will hold about 65% to 70% of those fleet adds as we walk through the year.

Leslie Hunziker: Next question comes from the line of Jerry Revich of Wells Fargo. Your line is open.

Aaron D. Birnbaum: Morning, guys. This is Evan on for Jeremy. Jerry Revich. Just had a question on

Leslie Hunziker: general rental. We are seeing really strong demand for earthmoving equipment, but aerials are lagging. Are you seeing that disconnect? And is that a function of large projects and data centers being less aerials-intensive? No. I would say in earthmoving there are two categories. One is excavators and one is compact earth. And then aerial. As you go through the winter period, it is pretty much what we thought it would be. Of course, we did a lot of fleet optimization in the back half of the year.

But one area you do see it is in the used equipment market where the excavator or earthmoving product had bottomed out and the values are starting to go north a bit again from the trough, whereas aerial has not really maybe troughed out, or I should say has not turned back up. It has kind of been bouncing along this trough period. So, but what is interesting is, right after the business came back after the pandemic, the excavators were the ones that went down the hardest in the used equipment market. So I think you are just seeing a natural balancing of fleet and demand in the used equipment.

But on the rental market, it is all pretty much where we think it should be for this time of year, and with your question about big projects, the civil part of that typically takes very, very large equipment, some of it not equipment that we carry in our earthmoving fleet, but the aerial demand in a mega project is pretty large.

Operator: Got it. Understood. And then on Q4 dollar utilization down quarter over quarter, how do we think about the moving pieces, rate, mix, time utilization, and how do we think about that into Q1? Well, I think, reasonably speaking, the back half collectively sort of met our expectations from a dollar utilization perspective. I do not think that the fall-off from Q3 to Q4 was anything that we did not necessarily anticipate.

I think as you take that and you are looking at that on a year-on-year basis, I do believe that into Q1, from a pro forma perspective, your dollar utilization will be down Q1 to Q1 and then build, and the rate of decline improves as you work your way out of the shoulder period. And the other piece of that just is Q4 2024 had a hurricane in it, which was worth about three points of growth to us. And, obviously, that mix of gear to service an emergency or hurricane need is very specialty intensive, which also drives dollar utilization.

Operator: Your next question comes from the line of Robert Cameron Wertheimer of Melius Research. Your line is open.

W. Mark Humphrey: Yeah, thanks. Good morning. My question is around mega project profitability. And you

Aaron D. Birnbaum: hit on this earlier, obviously, in the discussion around competitiveness. But you are winning in out market share versus your traditional market share. Capabilities, as you touched on, are different for large projects. You add more value. Are margins higher or lower there? Because it looks like from industry results that margins are not higher as the mix goes up in mega projects and margins do not go up. Thanks.

Leslie Hunziker: Rob, typically, when you get started on a mega project, it depends what is going in first. Right? Is it a bunch of specialty equipment or is it a bunch of general rental equipment? If it starts with general rental equipment, yes, as we have said before, you are getting the benefit of volume, but the rental rate is a little bit more competitive. And so you want a project that allows you to get the special equipment in at the midpoint all the way through the rest of the project. And then it becomes a very typical margin business for us. That has been our history in the past and it currently is as well.

Now, if you start the project with a lot of specialty equipment, your margin can move up pretty quickly depending at what point you inflect and get some general rental equipment. And these projects for us, at least, they have started these two different ways. Right? Sometimes our specialty solutions is kind of our entry point and sometimes our location, our relationship, and our general rental scale is our entry point. One thing is for sure is that all projects typically use a big chunk of general rental and a big chunk of specialty. It depends what comes first.

But the margin always ends up, if you are talking about a three-year project, always ends up like the rest of our business.

W. Mark Humphrey: Perfect. Okay. Thank you. And then just on the kind of sequential from Q3 to Q4 move, fleet growth is still ahead of rental revenue growth by about the same amount. You used that phrase shoulder period where you have lower seasonality, I guess,

Kenneth Newman: in Q1 especially a couple of times. Is there anything with the mix that was kind of hurting you as you move into Q4 and Q1? Or are you just sort of saying, when you get more volume back overall, you will be able to sort of see the effects of the management you have done?

Operator: Do get

W. Mark Humphrey: No. That is a good question. There is certainly an element of

Operator: time utilization in that ultimate dollar utilization, right? Stabilizing that acquired fleet as we worked our way through the back half of the year, the fleet actions that we took. I think, Rob, as you think about 2026, you will have improving fleet efficiency as you work your way through the year, and the intent would be that your revenue growth would outpace your fleet growth

Aaron D. Birnbaum: as you get into the seasonal component

Operator: of 2026.

Leslie Hunziker: Your last question comes from the line of Sherif El-Sabbahy of Bank of America. Your line is open. Hi. Good morning.

Kenneth Newman: Just wanted to put a bit of a finer point

Aaron D. Birnbaum: on outlook.

Leslie Hunziker: You have outlined about $230,000,000 of EBITDA expansion. There is about $190,000,000 of synergies contributing to that. And you have mentioned positive pricing, stable local markets,

Aaron D. Birnbaum: a bit of growth in mega projects.

Leslie Hunziker: If we think about the lapping of H&E in Q1, it seems to account for the remainder of that $40,000,000 expansion. So can you help me kind of reconcile some of that commentary on markets

Aaron D. Birnbaum: with the EBITDA guidance?

Operator: I mean, I think if you are looking at it from a pro forma perspective, Sherif, you will be down Q1 year over year. Right? We are sort of walking into the year, if you want to adjust the hurricane out of Q4 2026, you are walking into the year down minus six.

And so the forecast is you are going to be down Q1 and then begin to come out of that as you exit the shoulder period of Q2 and then ramping into growth in the back half of the year, which sort of coincides with all of the incremental synergy fleet, etc., rolling into these optimized branches as you work your way through and out of the second quarter.

Leslie Hunziker: Thank you. I would like to now pass it back over to Leslie for closing remarks. With no further questions, that concludes our Q&A session.

Steven Ramsey: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any further questions, please do not hesitate to reach out to us. Have a great day.

W. Mark Humphrey: This concludes today's conference call. You may now disconnect.

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