HERC HOLDINGS INC

Previous 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.

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. 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

The total purchase price was $4.8 billion including cash payment of $2.9 billion and the issuance of approximately 4.7 million shares of our common stock to H&E's shareholders, valued at $584 million. Additionally, we paid cash to extinguish $1.4 billion of outstanding H&E debt that was not assumed as part of the acquisition. The acquisition was funded by issuance of new debt consisting of $2.75 billion in Senior Notes, a $750 million Term Loan Facility and $2.5 billion of borrowings on the New ABL Credit Facility, of which approximately $1.6 billion was used to repay borrowings on the Prior ABL Credit Facility.

Current wording

On June 2, 2025, we completed the acquisition of H&E by acquiring all of the outstanding common stock of H&E in exchange for $78.75 in cash and 0.1287 shares of our common stock on a per-H&E share basis for a total purchase price of $4.8 billion The acquisition was funded by issuance of new debt consisting of $2.75 billion in Senior Notes, a $750 million Term Loan Facility and $2.5 billion of borrowings on the New ABL Credit Facility, of which approximately $1.6 billion was used to repay borrowings on the Prior ABL Credit Facility.

Previous wording

Equipment rental revenue increased $125 million, or 8%, during the first half of 2025 reflecting an increase in average OEC on rent, which includes the impact of second half 2024 acquisitions and the June 2025 acquisition of H&E. On a pro forma basis including the standalone, pre-acquisition results of Otay and H&E, equipment rental revenue decreased 3.0% year-over-year. Acquisition disruption prior to closing with respect to H&E's operations contributed to the decline in addition to ongoing moderation in certain local markets where H&E's customer base was heavily concentrated.

Current wording

Equipment rental revenue increased $256 million, or 30%, during the third quarter of 2025 reflecting an increase in average OEC on rent, which includes the impact of the June 2025 acquisition of H&E. On a pro forma basis including the standalone, pre-acquisition results of H&E, equipment rental revenue decreased 6% year-over-year partially resulting from ongoing moderation in certain local markets where H&E's customer base was heavily concentrated. In addition, acquisition disruption at H&E, particularly within the salesforce, prior to the close of the acquisition has contributed to the year-over-year decline, however, through initiatives post-close, this has stabilized in the third quarter. The divestiture of Cinelease on July 31, 2025 also contributed to the year-over-year decline.

Previous 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.

Current wording

Sales of rental equipment increased $70 million, or 86%, during the third quarter of 2025 when compared to the third quarter of 2024 as we increased the volume of sales to improve the equipment mix and utilization focusing on acquisition fleet during the third quarter of 2025. The margin on sales of rental equipment was 11% in 2025 compared to 19% in 2024. The decrease in margin on sale of rental equipment in 2025 was due to the fair value markup of the acquisition fleet sold and a larger proportion of overall volume of sales through the lower margin auction channel.

Previous wording

Direct operating expenses in the second quarter of 2025 increased $53 million, or 16%, when compared to the second quarter of 2024. Direct operating expenses were 43.6% of equipment rental revenue in 2025, compared to 42.6% in the prior-year period. The increase as a percent of rental revenue related to lower fixed cost absorption due to the ongoing moderation of certain local markets and the impact of the H&E acquisition, primarily with respect to facilities expense, maintenance and fuel. Total company maintenance expense increased $16 million as total fleet size has increased, facilities expense increased $13 million as we have added more locations through acquisitions and opening greenfield locations and fuel increased $4 million.

Current wording

Direct operating expenses in the third quarter of 2025 increased $133 million, or 40%, when compared to the third quarter of 2024. Direct operating expenses were 41.6% of equipment rental revenue in 2025, compared to 38.6% in the prior-year period. The increase as a percent of rental revenue related to lower fixed cost absorption due to the ongoing moderation of certain local markets and the impact of the H&E acquisition, primarily with respect to facilities expense, maintenance, delivery and fuel. Total company maintenance expense increased $26 million as total fleet size has increased, facilities expense increased $20 million as we have added more locations through acquisitions and opening greenfield locations, delivery expense increased $13 million and fuel increased $8 million on increased volume of rentals.

Previous 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.

Current wording

Depreciation of rental equipment increased $72 million, or 41%, during the third quarter of 2025 when compared to the third 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 $37 million, or 112%, primarily due to amortization of intangible assets related to the H&E acquisition and non-rental asset depreciation resulting from the growth of the business.

Previous wording

Transaction expenses increased $70 million during the second quarter of 2025 when compared to the prior year due to costs incurred related to the acquisition of H&E, primarily advisory fees of $27 million, commitment fees related to the Bridge Facility of $21 million and various other consulting and legal fees.

Current wording

Transaction expenses were $35 million during the third quarter of 2025 compared to $3 million in the prior year due to costs incurred related to the acquisition of H&E, primarily registration fees for acquired fleet, consulting and professional fees.

Previous wording

Interest expense, net increased $23 million, or 37%, during the second quarter of 2025 when compared with the second quarter of 2024 due to increased borrowings of approximately $4.4 billion to fund the H&E acquisition at a weighted average effective interest rate of 6.8%.

Current wording

Interest expense, net increased $65 million, or 94%, during the third quarter of 2025 when compared with the third quarter of 2024 due to the new debt facilities issued to fund the H&E acquisition at a weighted average effective interest rate of 6.8%.

Previous wording

Income tax benefit was $1 million during the first half of 2025 compared to a provision of $39 million in the same period of 2024. The effective tax benefit in the current period was primarily driven the level of pre-tax loss and non-deductible transaction costs.

Current wording

Income tax provision was $8 million, with an effective tax rate of 21% during the third quarter of 2025 compared to $38 million and 24% in the same period of 2024. The effective tax rate in the current period was primarily driven by certain non-deductible costs and tax credits.

Previous wording

Equipment rental revenue increased $105 million, or 14%, during the second quarter of 2025 reflecting an increase in average OEC on rent, which includes the impact of second half 2024 acquisitions and the June 2025 acquisition of H&E. On a pro forma basis including the standalone, pre-aquisition results of Otay and H&E, equipment rental revenue decreased 4% year-over-year. Acquisition disruption prior to closing with respect to H&E's operations contributed to the decline in addition to ongoing moderation in certain local markets where H&E's customer base was heavily concentrated.

Current wording

Equipment rental revenue increased $381 million, or 16%, during the nine months ended of 2025 reflecting an increase in average OEC on rent, which includes the impact of the June 2025 acquisition of H&E. On a pro forma basis including the standalone, pre-acquisition results of Otay and H&E, equipment rental revenue decreased 4.1% year-over-year partially resulting from ongoing moderation in certain local markets where H&E's customer base was heavily concentrated. In addition, acquisition disruption at H&E, particularly within the salesforce, prior to the close of the acquisition has contributed to the year-over-year decline, however, through initiatives post-close, this has stabilized in the third quarter. The divestiture of Cinelease on July 31, 2025 also contributed to the year-over-year decline.

Previous wording

Sales of rental equipment increased $41 million, or 63%, during the second quarter of 2025 when compared to the second 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 focusing on acquisition fleet during the second quarter of 2025. The margin on sales of rental equipment was 19% in 2025 compared to 31% 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 $147 million, or 68%, during the nine months ended of 2025 when compared to the nine months ended of 2024 as we increased the volume of sales to improve the equipment mix and utilization focusing on acquisition fleet. The margin on sales of rental equipment was 18% in 2025 compared to 27% in 2024. The decrease in margin on sale of rental equipment in 2025 resulted from the fair value markup of the acquisition fleet sold, a larger volume of sales through the lower margin auction channel and continued normalization of used equipment pricing in the market.

Previous 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.

Current wording

Direct operating expenses in the nine months ended of 2025 increased $206 million, or 21%, when compared to the nine months ended of 2024. Direct operating expenses were 43.0% of equipment rental revenue in 2025, compared to 41.1% 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 $40 million as we have added more locations through acquisitions and opening greenfield locations, maintenance expense increased $43 million as total fleet size has increased, and fuel increased $15 million.

Previous wording

Depreciation of rental equipment increased $42 million, or 13%, during the first half of 2025 when compared to the first half of 2024 due to an increase in average fleet size primarily the result of the H&E acquisition. Non-rental depreciation and amortization increased $19 million, or 32%, primarily due to amortization of intangible assets related to the H&E and Otay acquisitions and an increase in non-rental asset depreciation resulting from the growth of the business.

Current wording

Depreciation of rental equipment increased $114 million, or 23%, during the nine months ended of 2025 when compared to the nine months ended of 2024 due to an increase in average fleet size primarily the result of the H&E acquisition. Non-rental depreciation and amortization increased $56 million, or 61%, primarily due to amortization of intangible assets related to the H&E and Otay acquisitions and an increase in non-rental asset depreciation resulting from the growth of the business.

Previous wording

Selling, general and administrative expenses increased $16 million, or 7%, in the first half of 2025 when compared to the first half of 2024. Selling, general and administrative expenses were 15.2% and 15.4% of equipment rental revenue in 2025 compared to 2024, respectively. The improvement as a percent of equipment rental revenue was primarily related to initial cost synergies obtained through reduction of H&E corporate overhead as well as overall cost control measures introduced to mitigate the impact of ongoing moderation in certain local markets.

Current wording

Selling, general and administrative expenses increased $62 million, or 18%, in the nine months ended of 2025 when compared to the nine months ended of 2024. Selling, general and administrative expenses were 15.0% and 14.9% of equipment rental revenue in 2025 compared to 2024, respectively. The slight increase as a percent of equipment rental revenue was primarily related to an increase in stock compensation expense and other general administrative costs, partially offset by initial cost synergies related to reduction of H&E corporate overhead as well as overall cost control measures introduced to mitigate the impact of ongoing moderation in certain local markets.

Previous 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.

Current wording

Transaction expenses were $185 million during the nine months ended of 2025 compared to $9 million in 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

Interest expense, net increased $24 million, or 19%, during the first half of 2025 when compared with the first half of 2024 due to increased borrowings of approximately $4.4 billion to fund the H&E acquisition at a weighted average effective interest rate of 6.8%.

Current wording

Interest expense, net increased $89 million, or 46%, during the nine months ended of 2025 when compared with the nine months ended of 2024 due to the new debt facilities issued to fund the H&E acquisition at a weighted average effective interest rate of 6.8%.

Previous wording

Loss on assets held for sale was $49 million during the second quarter of 2025 to adjust the carrying value of Cinelease net assets to its fair value less estimated costs to sell.

Current wording

Loss on assets held for sale was $48 million during the nine months ended of 2025 to adjust the carrying value of Cinelease net assets to its fair value less estimated costs to sell prior to its divestiture on July 31, 2025.

Previous 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.

Current wording

Income tax provision was $7 million, with an effective tax rate of 44% during the nine months ended of 2025 compared to $77 million and 23% in the same period of 2024. The effective tax rate in the current period was primarily driven the level of pre-tax loss, offset by non-deductible transaction costs, tax credits and a benefit related to stock-based compensation.

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 June 30, 2025, we had approximately $8.3 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 September 30, 2025, we had approximately $8.2 billion of total nominal indebtedness outstanding.

Previous 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.

Current wording

Our liquidity as of September 30, 2025 consisted of cash and cash equivalents of $61 million and unused commitments of approximately $1.7 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 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.

Current wording

During the nine months ended September 30, 2025, we generated $124 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 additional interest expense payments related to additional borrowings for the acquisition of H&E.

Previous 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.

Current wording

Cash used in investing activities increased $3,551 million during the nine months ended September 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 $4,256 million were related to the cash portion of the H&E acquisition.

Previous 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.

Current wording

Financing cash flows increased $3,582 million during the nine months ended September 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 $3,928 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 $3,299 million through borrowings on the new revolving line of credit to extinguish the prior revolving line of credit, the proceeds from the Cinelease divestiture and through operations. Net repayments in the prior year period were $291 million.

Previous 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.

Current wording

As of September 30, 2025, $53 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The New ABL Credit Facility had $197 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Previous 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.

Current wording

Our New ABL Credit Facility, our AR Facility, our Term Loan 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 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.

Current wording

Under the terms of our New ABL Credit Facility, our AR Facility, our Term Loan 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 September 30, 2025, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.