HERC HOLDINGS INC

Previous wording

Despite continued economic uncertainty, elevated interest rates, potential labor disruptions, and inflation, the equipment rental industry remains resilient, as demonstrated by the increase in volume on rent in the current quarter. We actively monitor the impact of the dynamic macroeconomic environment and manage our business to adjust to such conditions. Interest rates on our debt instruments remain elevated; most notably, the weighted average interest rate on our floating rate debt is currently at 6.35%, a decline from 6.81% in the third quarter of 2023, reflecting movement from interest rate cuts in the third quarter of 2024. We monitor our exposure to floating rate debt and reevaluate our capital allocation strategy, as necessary. In response to supply chain disruptions easing in certain categories of equipment, we have returned to a more normalized cadence of rental equipment expenditures and disposals, remaining mindful of the possibility we may experience more severe supply chain disruptions in the future. Although inflation appears to have stabilized, we have experienced and expect to continue to experience inflationary pressures, a portion of which, such as for fuel and delivery, is passed on to customers. There are other costs for which the pass through to customers is less direct, such as repairs and maintenance, and labor. We cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted by these ongoing economic conditions, however, we believe we are well-positioned to operate effectively through the present environment.

Current wording

Local markets continue to be impacted by the elevated interest rate environment and continued economic uncertainty. Our diversification across industries and project types have contributed to the resiliency of our business and we believe the operating environment continues to favor equipment rental companies of scale. We actively monitor the impact of the dynamic macroeconomic environment and manage our business to adjust to such conditions. Interest rates on our debt instruments remain elevated, however, the weighted average interest rate on our floating rate debt in the first quarter of 2025 has declined to 5.55% from 6.82% in the first quarter of 2024, reflecting movement from interest rate cuts in the second half of 2024. We monitor our exposure to floating rate debt and reevaluate our capital allocation strategy, as necessary. We have returned to a more normalized cadence of rental equipment expenditures and disposals, remaining mindful of the possibility we may experience supply chain disruptions in the future. Although inflation appears to have stabilized, we have experienced and expect to continue to experience inflationary pressures, potentially as a result of tariffs imposed, a portion of which may be passed on to customers. There are also costs for which the pass through to customers is less direct, such as repairs and maintenance, and labor. We cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted by these ongoing economic conditions, however, we believe we are well-positioned to operate effectively through the present environment.

Previous wording

Sales of rental equipment decreased $43 million, or 35%, during the third quarter of 2024 when compared to the third quarter of 2023. We continue to sell equipment in line with our fleet rotation planning to improve the equipment mix and manage fleet age. Fleet rotation in the prior year period was accelerated due to easing of supply chain disruptions in certain categories of equipment. The margin on sales of rental equipment was 19% in 2024 compared to 20% in 2023. The slight decrease in margin on sale of rental equipment in 2024 resulted from continued normalization of used equipment pricing in the market off peak pricing in prior years, partially offset by improvement in the mix of equipment sold in the higher margin retail and wholesale channels.

Current wording

Sales of rental equipment increased $36 million, or 52%, during the first quarter of 2025 when compared to the first quarter of 2024 as we increased the volume of sales in line with our fleet rotation planning to improve the equipment mix and manage fleet age. The margin on sales of rental equipment was 28% in 2025 compared to 33% in 2024. The decrease in margin on sale of rental equipment in 2025 resulted from continued normalization of used equipment pricing in the market.

Previous wording

Direct operating expenses in the third quarter of 2024 increased $46 million, or 16%, when compared to the third quarter of 2023. Direct operating expenses were 38.6% of equipment rental revenue in 2024, compared to 37.6% in the prior-year period, reflecting increases in (i) personnel-related expenses of $20 million resulting from increased headcount in support of growth initiatives, including greenfields and acquisitions, (ii) maintenance expense of $6 million related to our increased fleet size in 2024, (iii) self insurance reserve increase of $6 million due to claims development attributable to unsettled cases, (iv) facilities expense of $5 million as we have added more locations through acquisitions and opening greenfield locations, and (v) re-rent expense of $4 million due to corresponding increase in re-rent revenue.

Current wording

Direct operating expenses in the first quarter of 2025 increased $20 million, or 7%, when compared to the first quarter of 2024. Direct operating expenses were 44.2% of equipment rental revenue in 2025, compared to 42.7% in the prior-year period. The increase as a percent of rental revenue related to lower fixed cost absorption due to the normal seasonality associated with the first quarter. Primary drivers of the increase include (i) facilities expense of $7 million as we have added more locations through acquisitions and opening greenfield locations, (ii) self insurance reserve increase of $5 million due to claims development attributable to unsettled cases, and (v) re-rent expense of $3 million due to corresponding increase in re-rent revenue.

Previous wording

Depreciation of rental equipment increased $7 million, or 4%, during the third quarter of 2024 when compared to the third quarter of 2023 due to an increase in average fleet size. Non-rental depreciation and amortization increased $4 million, or 14%, primarily due to amortization of intangible assets related to acquisitions.

Current wording

Depreciation of rental equipment increased $12 million, or 8%, during the first quarter of 2025 when compared to the first quarter of 2024 due to an increase in average fleet size. Non-rental depreciation and amortization increased $4 million, or 14%, primarily due to amortization of intangible assets related to acquisitions.

Previous wording

Interest expense, net increased $9 million, or 15%, during the third quarter of 2024 when compared with the third quarter of 2023 due to increased borrowings primarily to fund acquisition growth and invest in rental equipment.

Current wording

Interest expense, net increased $1 million, or 2%, during the first quarter of 2025 when compared with the first quarter of 2024 due to increased borrowings primarily to invest in rental equipment offset by lower interest rates on floating rate debt.

Previous wording

Income tax provision was $38 million, with an effective tax rate of 24%, during the third quarter of 2024 compared to $33 million and 23% in the same period of 2023. The rate increase was driven by certain non-deductible expenses and return to provision adjustments.

Current wording

Income tax provision was $10 million during the first quarter of 2025 compared to $16 million in the same period of 2024. The effective tax rate in the current period was primarily driven by non-deductible transaction costs.

Previous wording

Our primary uses of liquidity include the payment of operating expenses, purchases of rental equipment to be used in our operations, servicing of debt, funding acquisitions, payment of dividends, and share repurchases. Our primary sources of funding are operating cash flows, cash received from the disposal of equipment and borrowings under our debt arrangements. As of September 30, 2024, we had approximately $4.2 billion of total nominal indebtedness outstanding.

Current wording

Our primary uses of liquidity include the payment of operating expenses, purchases of rental equipment to be used in our operations, servicing of debt, funding acquisitions, payment of dividends, and share repurchases. Our primary sources of funding are operating cash flows, cash received from the disposal of equipment and borrowings under our debt arrangements. As of March 31, 2025, we had approximately $4.1 billion of total nominal indebtedness outstanding.

Previous wording

Our liquidity as of September 30, 2024 consisted of cash and cash equivalents of $142 million and unused commitments of approximately $1.7 billion under our ABL Credit Facility and AR Facility. See "Borrowing Capacity and Availability" below for further discussion. Our practice is to maintain sufficient liquidity through cash from operations, our ABL Credit Facility and our AR Facility to mitigate the impacts of any adverse financial market conditions on our operations. We believe that cash generated from operations and cash received from the disposal of equipment, together with amounts available under the ABL Credit Facility and the AR Facility or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures, and other strategic uses of cash, if any, and debt payments, if any, over the next twelve months.

Current wording

Our liquidity as of March 31, 2025 consisted of cash and cash equivalents of $48 million and unused commitments of approximately $1.9 billion under our ABL Credit Facility and AR Facility. See "Borrowing Capacity and Availability" below for further discussion. Our practice is to maintain sufficient liquidity through cash from operations, our ABL Credit Facility and our AR Facility to mitigate the impacts of any adverse financial market conditions on our operations. We believe that cash generated from operations and cash received from the disposal of equipment, together with amounts available under the ABL Credit Facility and the AR Facility or other financing arrangements will be sufficient to meet working capital requirements, anticipated capital expenditures, payment of dividends, and debt payments, if any, over the next twelve months. We intend to finance the cash portion of the H&E acquisition through a combination of issuance of new debt instruments and potentially increasing the aggregate maximum borrowing limit under our ABL Credit Facility, subject to borrowing base limitations.

Previous wording

During the nine months ended September 30, 2024, we generated $98 million more cash from operating activities compared with the same period in 2023. The increase was primarily related to the timing of payments on accounts payable and accrued liabilities.

Current wording

During the three months ended March 31, 2025, we generated $69 million less cash from operating activities compared with the same period in 2024. The decrease was primarily related to decreased profitability driven by transaction expenses incurred and the timing of payments on accounts payable and accrued liabilities.

Previous wording

Cash used in investing activities decreased $81 million during the nine months ended September 30, 2024 when compared with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment, non-rental capital expenditures and acquisitions. Generally, we rotate our equipment and manage our fleet of rental equipment in line with customer demand and continue to invest in our information technology, service vehicles and facilities. Changes in our net capital expenditures are described in more detail in the "Capital Expenditures" section below. Additionally, we closed on eight acquisitions during the nine months ended September 30, 2024 for a net cash outflow of $567 million.

Current wording

Cash used in investing activities decreased $163 million during the three months ended March 31, 2025 when compared with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment, non-rental capital expenditures and acquisitions. Generally, we rotate our equipment and manage our fleet of rental equipment in line with customer demand and continue to invest in our information technology, service vehicles and facilities. Changes in our net capital expenditures are described in more detail in the "Capital Expenditures" section below. Acquisition expenditures of $11 million were related to holdback payments on prior year acquisitions.

Previous wording

Cash provided by financing activities decreased $125 million during the nine months ended September 30, 2024 when compared with the prior-year period. Financing activities primarily represents our changes in debt, which included borrowings of $1.5 billion on our revolving lines of credit and securitization which were used primarily to fund acquisitions and invest in rental equipment during the period. This was offset by repayments of $1.8 billion through operations and the proceeds from the issuance of our 2029 Notes. Net borrowings in the prior year period were $739 million.

Current wording

Financing cash flows decreased $121 million during the three months ended March 31, 2025 when compared with the prior-year period. Financing activities primarily represents our changes in debt, which included borrowings of $520 million on our revolving lines of credit and securitization which were used primarily to invest in rental equipment during the period. This was offset by repayments of $561 million through operations. Net borrowings in the prior year period were $83 million.

Previous wording

Net capital expenditures for rental equipment decreased $314 million during the nine months ended September 30, 2024 compared to the same period in 2023. As the supply chain constraints have eased, our rental equipment expenditures have returned to taking deliveries and disposing of equipment in line with our normal seasonal cadence, while we continue to optimize our fleet by investing in high growth markets as part of our long-term capital expenditure plans.

Current wording

Net capital expenditures for rental equipment decreased $27 million during the three months ended March 31, 2025 compared to the same period in 2024. As the supply chain constraints have eased, our rental equipment expenditures have returned to taking deliveries and disposing of equipment in line with our normal seasonal cadence, while we continue to optimize our fleet by investing in high growth markets as part of our long-term capital expenditure plans.

Previous wording

In connection with the AR Facility, we sell accounts receivable on an ongoing basis to a wholly-owned special-purpose entity (the "SPE"). The accounts receivable and other assets of the SPE are encumbered in favor of the lenders under our AR Facility. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Substantially all of the remaining assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of our lenders under our ABL Credit Facility. None of such assets are available to satisfy the claims of our general creditors. See Note 11, "Debt" to the notes to our consolidated financial statements included in Part II, Item 8 "Financial Statements" included in our Annual Report on Form 10-K for the year ended December 31, 2023, and Note 9, "Debt" included in Part I, Item 1 "Financial Statements" of this Report for more information.

Current wording

In connection with the AR Facility, we sell accounts receivable on an ongoing basis to a wholly-owned special-purpose entity (the "SPE"). The accounts receivable and other assets of the SPE are encumbered in favor of the lenders under our AR Facility. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Substantially all of the remaining assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of our lenders under our ABL Credit Facility. None of such assets are available to satisfy the claims of our general creditors. See Note 11, "Debt" to the notes to our consolidated financial statements included in Part II, Item 8 "Financial

Previous wording

At September 30, 2024, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (Notes and ABL Credit Facility) and certain components of shareholders equity. For the three and nine months ended September 30, 2024 and 2023, the statements of operations of Herc Holdings and Herc were identical with the exception of interest expense on the debt held at Herc Holdings that is not reflected in the statement of operations of Herc.

Current wording

At March 31, 2025, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (Notes and ABL Credit Facility) and certain components of shareholders equity. For the three months ended March 31, 2025 and 2024, the statements of operations of Herc Holdings and Herc were identical with the exception of interest expense on the debt held at Herc Holdings that is not reflected in the statement of operations of Herc.

Previous wording

On August 9, 2024, we declared a quarterly dividend of $0.665 per share to record holders as of August 23, 2024, with payment date of September 6, 2024. The declaration of dividends on our common stock is discretionary and will be determined by our board of directors in its sole discretion and will depend on our business conditions, financial condition, earnings, liquidity and capital requirements, contractual restrictions and other factors. The amounts available to pay cash dividends are restricted by our debt agreements.

Current wording

On February 4, 2025, we declared a quarterly dividend of $0.70 per share to record holders as of February 18, 2025, with payment date of March 4, 2025. The declaration of dividends on our common stock is discretionary and will be determined by our board of directors in its sole discretion and will depend on our business conditions, financial condition, earnings, liquidity and capital requirements, contractual restrictions and other factors. The amounts available to pay cash dividends are restricted by our debt agreements.