HERC HOLDINGS INC

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. During the second quarter of 2025, we financed the acquisition of H&E, in part, with a combination of fixed and floating rate debt. The weighted average effective interest rate on our new debt instruments combined is 6.8%. We monitor our exposure to floating rate debt and reevaluate our capital allocation strategy, as necessary.

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 has contributed to the resiliency of our business and we believe the operating environment continues to favor equipment rental companies of scale.

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. 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

Currently, we do not expect any direct impact of current macroeconomic conditions on our procurement costs in 2026, however, 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. We believe we are well-positioned to operate effectively through the present environment.

Previous 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.

Current wording

Equipment rental revenue increased $242 million, or 33%, during the first quarter of 2026 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 3% year-over-year partially resulting from ongoing moderation in certain local markets where H&E's customer base was heavily concentrated.

Previous 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.

Current wording

Sales of rental equipment increased $33 million, or 31%, during the first quarter of 2026 when compared to the first quarter of 2025 as we increased the volume of sales as we continue to improve the equipment mix and utilization. The margin on sales of rental equipment was 21% in 2026 compared to 28% in 2025. The decrease in margin on sale of rental equipment in 2026 was due to the fair value markup of the acquisition fleet sold.

Previous 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.

Current wording

Direct operating expenses in the first quarter of 2026 increased $126 million, or 39%, when compared to the first quarter of 2025. Direct operating expenses were 46.2% of equipment rental revenue in 2026, compared to 44.2% in the prior-year period. The increase as a percent of rental revenue is primarily related to the impact of the H&E acquisition and related greenfields that take more time to mature. Specifically, maintenance expense increased $23 million as average fleet size has increased, facilities expense increased $21 million as we have added more locations through acquisitions and opening greenfield locations, delivery and fuel expenses increased $13 million and $9 million, respectively, due to increased volume of rentals.

Previous 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.

Current wording

Depreciation of rental equipment increased $70 million, or 41%, during the first quarter of 2026 when compared to the first quarter of 2025 due to an increase in average fleet size primarily as a result of the H&E acquisition. Non-rental depreciation and amortization increased $40 million, or 121%, 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

Selling, general and administrative expenses increased $46 million, or 38%, in the third quarter of 2025 when compared to the third quarter of 2024. Selling, general and administrative expenses were 14.8% and 13.9% of equipment rental revenue in 2025 compared to 2024, respectively, as a result of increased stock compensation expense and various other general administrative costs.

Current wording

Selling, general and administrative expenses increased $28 million, or 24%, in the first quarter of 2026 when compared to the first quarter of 2025. Selling, general and administrative expenses were 14.9% and 16.0% of equipment rental revenue in 2026 compared to 2025, respectively, as a result of continued focus on improving operating leverage, including achievement of acquisition cost synergies, while expanding revenues.

Previous 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%.

Current wording

Interest expense, net increased $66 million, or 106%, during the first quarter of 2026 when compared with the first quarter of 2025 due to the new debt issued to fund the H&E acquisition in June 2025.

Previous 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.

Current wording

Income tax provision was $1 million during the first quarter of 2026 compared to $10 million in the same period of 2025. The effective tax rate in the current period was primarily driven by certain non-deductible costs, tax credits and foreign tax assessments.

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, 2025, we had approximately $8.2 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, 2026, we had approximately $8.0 billion of total nominal indebtedness outstanding.

Previous 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.

Current wording

Our liquidity as of March 31, 2026 consisted of cash and cash equivalents of $43 million and unused commitments of approximately $1.9 billion under our ABL Credit Facility. See "Borrowing Capacity and Availability" below for further discussion. Our practice is to maintain sufficient liquidity through cash from operations in combination with our ABL Credit Facility and AR Facility (together, the "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

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.

Current wording

Cash used in investing activities increased $50 million during the three months ended March 31, 2026 when compared with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment and non-rental capital expenditures. 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.

Previous 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.

Current wording

Financing cash flows decreased $30 million during the three months ended March 31, 2026 when compared with the prior-year period. Financing activities primarily represents our changes in debt, which included borrowings of $571 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 $637 million through operations and sales of used equipment. Net repayments in the prior year period were $41 million.

Previous wording

Net capital expenditures for rental equipment decreased $26 million during the nine months ended September 30, 2025 compared to the same period in 2024. Rental equipment expenditures and disposals have increased in the current year to shift the mix of fleet, drive revenue synergies and improve utilization.

Current wording

Net capital expenditures for rental equipment increased $62 million during the three months ended March 31, 2026 compared to the same period in 2025. Rental equipment expenditures and disposals have increased in the current year to shift the mix of fleet, drive revenue synergies and improve utilization.

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 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.

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 Statements" included in our Annual Report on Form 10-K for the year ended December 31, 2025, and Note 8, "Debt" included in Part I, Item 1 "Financial Statements" of this Report for more information.

Previous wording

With respect to the Facilities, we refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the Facilities (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under the Facility. We refer to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the Borrowing Base less the principal amount of debt then-outstanding under the Facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).

Current wording

With respect to the Facilities, we refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the Facilities (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under the Facility. We refer to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the Borrowing Base less the principal amount of debt then-outstanding under the Facilities (i.e., the amount of debt we could borrow given the collateral we possess at such time).

Previous 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.

Current wording

As of March 31, 2026, $47 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The ABL Credit Facility had $203 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Previous 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.

Current wording

Our 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, 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.

Current wording

Under the terms of our 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 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, 2026, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.

Previous 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.

Current wording

Additional information on the terms of our Notes, ABL Credit Facility, Term Loan 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, 2025. 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, 2025.