HERC HOLDINGS INC

Previous wording

Our expenses primarily consist of:

Current wording

Our operating expenses primarily consist of:

Previous wording

On February 19, 2025, we entered into an Agreement and Plan of Merger (the “H&E Merger Agreement”) that provides for our acquisition of H&E Equipment Services Inc. ("H&E"). Pursuant to the H&E Merger Agreement, H&E shareholders will receive $78.75 in cash and 0.1287 shares of Herc common stock for each share they own.

Current wording

Acquisition of H&E Equipment Services, Inc.

Previous wording

H&E provides its customers with a mix of high-quality general rental fleet including aerial work platforms, earthmoving equipment, material handling equipment, and other lines of equipment. H&E serves a diverse mix of customers across both construction and industrial markets through its network of approximately 160 branches in over 30 U.S. states.

Current wording

H&E was a full-service equipment rental company that provided its customers with a mix of high-quality general rental fleet including aerial work platforms, earthmoving equipment, material handling equipment, and other lines of equipment. H&E served a diverse mix of customers across both construction and industrial markets through its network of approximately 160 branches in over 30 U.S. states.

Previous 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.

Current wording

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. Currently, we do not expect any direct impact of tariffs on our procurement costs in 2025 as we source the vast majority of our rental equipment domestically. 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

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.

Current wording

Depreciation of rental equipment increased $30 million, or 18%, during the second quarter of 2025 when compared to the second quarter of 2024 due to an increase in average fleet size primarily as a result of the H&E acquisition. Non-rental depreciation and amortization increased $15 million, or 50%, primarily due to amortization of intangible assets related to the H&E and Otay acquisitions and non-rental asset depreciation resulting from the growth of the business.

Previous 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.

Current wording

Income tax benefit was $11 million during the second quarter of 2025 compared to a provision of $23 million in the same period of 2024. The effective tax rate in the current period was primarily driven by the level of pre-tax loss and non-deductible transaction costs.

Previous 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.

Current wording

Sales of rental equipment increased $77 million, or 57%, during the first half of 2025 when compared to the first half 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 23% in 2025 compared to 32% 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 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.

Current wording

Direct operating expenses in the first half of 2025 increased $73 million, or 12%, when compared to the first half of 2024. Direct operating expenses were 43.9% 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 impact of the ongoing moderation in certain local markets and the H&E acquisition, primarily with respect to facilities expense, maintenance and fuel. Total company facilities expense increased $20 million as we have added more locations through acquisitions and opening greenfield locations, maintenance expense increased $17 million as total fleet size has increased, and fuel increased $7 million.

Previous wording

Transaction expenses increased $71 million during the first quarter of 2025 when compared to the prior year due to costs incurred related to the acquisition of H&E, primarily the one-time termination fee paid to United Rentals on behalf of H&E of $64 million.

Current wording

Transaction expenses increased $141 million during the first half of 2025 when compared to the prior year due to costs incurred related to the acquisition of H&E, primarily the one-time termination fee paid on behalf of H&E of $64 million, advisory fees of $27 million, commitment fees related to the Bridge Facility of $21 million and various other consulting and legal fees.

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 March 31, 2025, we had approximately $4.1 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 June 30, 2025, we had approximately $8.3 billion of total nominal indebtedness outstanding.

Previous 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.

Current wording

Our liquidity as of June 30, 2025 consisted of cash and cash equivalents of $53 million and unused commitments of approximately $1.6 billion under our New ABL Credit Facility and AR Facility (together, the "Facilities"). See "Borrowing Capacity and Availability" below for further discussion. Our practice is to maintain sufficient liquidity through cash from operations and our Facilities 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 Facilities 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.

Previous 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.

Current wording

During the six months ended June 30, 2025, we generated $146 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 $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.

Current wording

Cash used in investing activities increased $3,860 million during the six months ended June 30, 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 $4,251 million were related to the cash portion of the H&E acquisition.

Previous 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.

Current wording

Financing cash flows increased $3,977 million during the six months ended June 30, 2025 when compared with the prior-year period. Financing activities primarily represents our changes in debt. During the current period, we issued $2.75 billion in senior unsecured notes, a $750 million term loan facility and borrowed $3,361 million on our revolving lines of credit and securitization which were used primarily to fund the acquisition of H&E and invest in rental equipment. This was offset by repayments of $2,645 million on the prior revolving line of credit through borrowings on the new revolving line of credit and through operations. Net borrowings in the prior year period were $593 million.

Previous 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.

Current wording

Net capital expenditures for rental equipment decreased $105 million during the six months ended June 30, 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 growth markets as part of our long-term capital expenditure plans.

Previous wording

Our ABL Credit Facility and AR Facility (together, the "Facilities") provide our borrowing capacity and availability. Creditors under the Facilities have a claim on specific pools of assets as collateral as identified in each credit agreement. Our ability to borrow under the Facilities is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "Borrowing Base."

Current wording

Our Facilities provide our borrowing capacity and availability. Creditors under the Facilities have a claim on specific pools of assets as collateral as identified in each credit agreement. Our ability to borrow under the Facilities is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "Borrowing Base."

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

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 New 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, 2024, and Note 9, "Debt" included in Part I, Item 1 "Financial Statements" of this Report for more information.

Previous wording

As of March 31, 2025, $34 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The ABL Credit Facility had $216 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Current wording

As of June 30, 2025, $49 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The New ABL Credit Facility had $201 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Previous wording

Our ABL Credit Facility, our AR Facility and our Notes contain a number of covenants that, among other things, limit or restrict our ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of our business, make capital expenditures, or engage in certain transactions with certain affiliates.

Current wording

Our New ABL Credit Facility, our AR Facility and our Notes contain a number of covenants that, among other things, limit or restrict our ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of our business, make capital expenditures, or engage in certain transactions with certain affiliates.

Previous wording

Under the terms of our ABL Credit Facility, our AR Facility and our Notes, we are not subject to ongoing financial maintenance covenants; however, under the ABL Credit Facility, failure to maintain certain levels of liquidity will subject us to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of March 31, 2025, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.

Current wording

Under the terms of our New ABL Credit Facility, our AR Facility and our Notes, we are not subject to ongoing financial maintenance covenants; however, under the New ABL Credit Facility, failure to maintain certain levels of liquidity will subject us to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of June 30, 2025, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.

Previous 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.

Current wording

At June 30, 2025, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (Notes and New ABL Credit Facility) and certain components of shareholders equity. For the three and six months ended June 30, 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

Additional information on the terms of our Notes, ABL Credit Facility and AR Facility is included in 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, 2024. For a discussion of the risks associated with our indebtedness, see Part I, Item 1A "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

Additional information on the terms of our Notes, Prior ABL Credit Facility, and AR Facility is included in 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, 2024. For a discussion of the risks associated with our indebtedness, see Part I, Item 1A "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2024.