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

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. We have completed the integration of H&E and continue to focus on realizing the anticipated operational synergies from the acquisition.

Previous wording

We actively monitor the impact of the dynamic macroeconomic environment and manage our business to adjust to such conditions, including the impact of inflation, potential tariffs, interest rate fluctuations or supply chain disruptions, including:

Current wording

We actively monitor the impact of the dynamic macroeconomic environment and manage our business to adjust to such conditions, including the impact of inflation, fuel prices due to the conflict in Iran, potential tariffs, interest rate fluctuations or supply chain disruptions, including:

Previous 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.

Current wording

Currently, we do not expect any direct impact of current macroeconomic conditions on our fleet procurement costs in 2026, though we do anticipate higher fuel costs in the short term which could have a negative impact on our results of operations. However, we believe we are well-positioned to operate effectively through the present environment.

Previous wording

Our business is seasonal, with demand for our rental equipment tending to be lower in the winter months, particularly in the northern United States and Canada. Our equipment rental business, especially in the construction industry, has historically experienced decreased levels of business from December until late spring and heightened activity during our third and fourth quarters until December. We have the ability to manage certain costs to meet market demand, such as fleet capacity, the most significant portion of our cost structure. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. A number of our other major operating costs vary directly with revenues or transaction volumes; however, certain operating expenses, including rent, insurance and administrative overhead, remain fixed and cannot be adjusted for seasonal demand, typically resulting in higher profitability in periods when our revenues are higher, and lower profitability in periods when our revenues are lower. To reduce the impact of seasonality, we are focused on expanding our customer base through products that serve different industries with less seasonality and different business cycles.

Current wording

Our business is seasonal, with demand for our rental equipment tending to be lower in the winter months, particularly in the northern United States and Canada. Our equipment rental business, especially in the construction industry, has historically experienced decreased levels of business from December until late spring and heightened activity during our third and fourth quarters until December. We have the ability to manage certain costs to meet market demand, such as fleet capacity, the most significant portion of our cost structure. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. A number of our other major operating costs vary directly with revenues or transaction volumes; however, certain operating expenses, including rent, insurance and administrative overhead, remain fixed and cannot be adjusted for seasonal demand, typically resulting in higher profitability in periods when our revenues are higher, and lower profitability in periods when our revenues are lower. To reduce the impact of seasonality, we are focused on expanding our customer base through products that serve different industries with less seasonality and different business cycles. Accordingly, results for interim periods are not necessarily indicative of a full year operating performance.

Previous 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.

Current wording

Selling, general and administrative expenses increased $28 million, or 22%, in the second quarter of 2026 when compared to the second quarter of 2025. Selling, general and administrative expenses were 14.5% of equipment rental revenue in 2026, compared to 14.6% in 2025 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 $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.

Current wording

Interest expense, net increased $40 million, or 47%, during the second quarter of 2026 when compared with the second quarter of 2025 due to the new debt issued to fund the H&E acquisition in June 2025.

Previous 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.

Current wording

Equipment rental revenue increased $444 million, or 28%, during the first half of 2026, primarily reflecting the additional contribution from the H&E acquisition completed on June 2, 2025 and growth in average OEC on rent particularly on mega projects. On a pro forma basis including the standalone, pre-acquisition results of H&E, equipment rental revenue was flat year-over-year primarily reflecting growth in average OEC on rent, partially offset by ongoing moderation in certain local markets where H&E's customer base had historically been more concentrated.

Previous 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.

Current wording

Sales of rental equipment increased $37 million, or 18%, during the first half of 2026 when compared to the first half of 2025 as we increased the volume of sales in order to continue improving the equipment mix and utilization. The margin on sales of rental equipment was 21% in 2026 compared to 23% in 2025. The decrease in margin on sale of rental equipment in 2026 primarily due to the fair value markup of the H&E acquisition fleet sold, a significant portion of which occurred during the first quarter of 2026, partially offset by favorable sales channel mix.

Previous 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.

Current wording

Direct operating expenses in the first half of 2026 increased $238 million, or 34%, when compared to the first half of 2025. Direct operating expenses were 46.0% of equipment rental revenue in 2026, compared to 43.9% 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. In addition, certain operating expenses were elevated during the quarter, including increased maintenance expense of $36 million on our larger average fleet size, increased facilities expense of $33 million as we have added more locations through acquisitions and opening greenfield locations, and increased delivery and fuel expenses of $32 million and $27 million, respectively, due to increased volume of rentals and higher fuel prices throughout the second quarter.

Previous 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.

Current wording

Depreciation of rental equipment increased $117 million, or 32%, during the first half of 2026 when compared to the first half 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 $70 million, or 90%, 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

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.

Current wording

Income tax provision was $6 million during the first half of 2026 compared to a benefit of $1 million in the same period of 2025. The effective tax rate in the current period was primarily driven by the level of pre-tax income, certain non-deductible costs and foreign tax assessments, partially offset by tax credits.

Previous 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.

Current wording

Our liquidity as of June 30, 2026 consisted of cash and cash equivalents of $43 million and unused commitments of approximately $2.0 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

During the three months ended March 31, 2026, we generated $106 million more cash from operating activities compared with the same period in 2025. The increase was primarily related to increased collections on receivables and working capital due to the increase in revenues.

Current wording

During the six months ended June 30, 2026, we generated $179 million more cash from operating activities compared with the same period in 2025. The increase was primarily driven by higher revenues, the corresponding increase in collections on accounts receivable and the significant decrease in cash paid for transaction costs year-over-year, partially offset by an increase in cash paid for interest and the timing of payment on accrued expenses.

Previous 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.

Current wording

Cash used in investing activities decreased $4.2 billion during the six months ended June 30, 2026 when compared with the prior-year period primarily due to the acquisition of H&E in 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 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.

Current wording

Financing cash flows decreased $4.3 billion during the six months ended June 30, 2026 when compared with the prior-year period. Financing activities during the current-year period primarily reflected borrowings of $1,026 million on our revolving lines of credit and securitization, offset by repayments of $1,170 million funded through cash generated from operations and proceeds from the sales of used equipment. The prior-year period included $3.5 billion of proceeds from the issuance of long-term debt to fund the H&E acquisition, as well as net borrowings of $716 million under our revolving lines of credit and securitization.

Previous 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.

Current wording

Net capital expenditures for rental equipment increased $89 million during the six months ended June 30, 2026 compared to the same period in 2025. The increase primarily reflects higher investment in rental equipment to optimize the mix of our fleet following the H&E acquisition and to support customer demand and generate revenue synergies, partially offset by higher proceeds from the disposal of rental equipment.

Previous 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.

Current wording

As of June 30, 2026, $33 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The ABL Credit Facility had $217 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Previous 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.

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 June 30, 2026, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable. Accordingly, we were in compliance with all applicable debt covenants as of June 30, 2026.

Previous wording

At March 31, 2026, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (Notes, Term Loan Facility and ABL Credit Facility) and certain components of shareholders equity. For the three months ended March 31, 2026 and 2025, 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, 2026, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (Notes, Term Loan Facility and ABL Credit Facility) and certain components of shareholders equity. For the three and six months ended June 30, 2026 and 2025, 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.