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

Current wording

Local markets continue to remain stable despite the impact of 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, fuel prices due to the conflict in Iran, 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 global conflicts, 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 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.

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 and transportation 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. Accordingly, results for interim periods are not necessarily indicative of a full year operating performance.

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 increased 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

Sales of rental equipment increased $4 million, or 4%, during the second quarter of 2026 when compared to the second quarter of 2025 as we continue to improve the equipment mix and utilization. The margin on sales of rental equipment was 22% in 2026 compared to 19% in 2025. The increase in margin on sale of rental equipment in 2026 primarily reflected a favorable sales channel mix, as well as reduced volume of sales of H&E fleet and the associated impact from the fair value markup following acquisition.

Current wording

Sales of rental equipment decreased $66 million, or 44%, during the third quarter of 2026 when compared to the third quarter of 2025 as disposal volume was elevated in the prior year to optimize the equipment mix and utilization after the H&E acquisition. The margin on sales of rental equipment was 20% in 2026 compared to 11% in 2025. The increase in margin on sale of rental equipment in 2026 primarily reflected a favorable sales channel mix, as well as reduced volume of sales of H&E fleet and the associated impact from the fair value markup following acquisition.

Previous wording

Direct operating expenses in the second quarter of 2026 increased $112 million, or 30%, when compared to the second quarter of 2025. Direct operating expenses were 45.8% of equipment rental revenue in 2026, compared to 43.6% 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 increases in delivery and fuel expenses of $19 million and $18 million, respectively, due to increased volume of rentals and higher fuel prices throughout the quarter. Maintenance expense increased $13 million with an increased average fleet size and facilities expense increased $12 million as we have added more locations through acquisitions and opening greenfield locations.

Current wording

Direct operating expenses in the third quarter of 2026 increased $65 million, or 14%, when compared to the third quarter of 2025. Direct operating expenses were 42.4% of equipment rental revenue in 2026, compared to 41.6% in the prior-year period. The increase as a percent of rental revenue primarily reflected higher fuel and delivery expenses of $21 million and $10 million, respectively, due to increased volume of rentals and higher fuel prices throughout the quarter. In addition, field incentive compensation driven by outperformance, especially in fleet efficiency, increased $7 million and facilities expense increased $6 million as we have added more locations through greenfield openings.

Previous 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.

Current wording

Depreciation of rental equipment increased $9 million, or 4%, during the third quarter of 2026 when compared to the third quarter of 2025 due to an increase in average fleet size. Non-rental depreciation and amortization increased $4 million, or 6%, primarily due to non-rental asset depreciation resulting from the growth of the business and amortization of acquisition related intangible assets.

Previous 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.

Current wording

Selling, general and administrative expenses increased $12 million, or 7%, in the third quarter of 2026 when compared to the third quarter of 2025. Selling, general and administrative expenses were 14.2% of equipment rental revenue in 2026, compared to 14.8% in 2025, the decrease is a result of continued focus on improving operating leverage, including achievement of acquisition cost synergies, while expanding revenues.

Previous wording

Income tax provision was $5 million during the second quarter of 2026 compared to a benefit of $11 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 (loss), certain non-deductible costs and foreign tax assessments, partially offset by tax credits.

Current wording

Income tax provision was $16 million during the third quarter of 2026 compared to $8 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 return-to-provision adjustments.

Previous wording

Equipment rental revenue increased $202 million, or 23%, during the second quarter 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 increased 2% 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.

Current wording

Equipment rental revenue increased $576 million, or 21%, during the nine months ended September 30, 2026, primarily reflecting the additional contribution from the H&E acquisition completed on June 2, 2025 and growth in average fleet on rent particularly on mega projects. On a pro forma basis including the standalone, pre-acquisition results of H&E, equipment rental revenue increased 4% year-over-year, primarily reflecting higher rental volume and revenue synergies.

Previous 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.

Current wording

Sales of rental equipment decreased $29 million, or 8%, during the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025 as disposal volume was elevated in the prior year to optimize the equipment mix and utilization after the H&E acquisition. The margin on sales of rental equipment was 21% in 2026 compared to 18% in 2025. The increase in margin on sale of rental equipment in 2026 primarily reflected a favorable sales channel mix, as well as reduced volume of sales of H&E fleet and the associated impact from the fair value markup following acquisition.

Previous 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.

Current wording

Direct operating expenses in the nine months ended September 30, 2026 increased $303 million, or 26%, when compared to the nine months ended September 30, 2025. Direct operating expenses were 44.6% of equipment rental revenue in 2026, compared to 43% 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 period, including fuel and delivery expenses of $48 million and $42 million, respectively, due to increased volume of rentals and higher fuel prices throughout the second and third quarters. Maintenance expense increased $43 million on our larger average fleet size, facilities expense increased $39 million as we have added more locations through acquisitions, including new specialty locations from branch optimization, and opening greenfield locations. Field incentive compensation driven by outperformance, especially in fleet efficiency, increased $17 million.

Previous wording

Depreciation of rental equipment increased $47 million, or 24%, during the second quarter of 2026 when compared to the second 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 $30 million, or 67%, 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 $126 million, or 21%, during the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025 due to an increase in average fleet size primarily as a result of the H&E acquisition. Non-rental depreciation and amortization increased $74 million, or 50%, 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 $56 million, or 23%, in the first half of 2026 when compared to the first half of 2025. Selling, general and administrative expenses were 14.7% of equipment rental revenue in 2026, compared to 15.2% in the first half of 2025 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 $68 million, or 17%, in the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025. Selling, general and administrative expenses were 14.5% of equipment rental revenue in 2026, compared to 15.0% in the nine months ended September 30, 2025, the decrease is a result of continued focus on improving operating leverage, including achievement of acquisition cost synergies, while expanding revenues.

Previous 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.

Current wording

Interest expense, net increased $98 million, or 35%, during the nine months ended September 30, 2026 when compared with the nine months ended September 30, 2025 due to the new debt issued to fund the H&E acquisition in June 2025, partially offset by lower interest rates on floating-rate debt.

Previous 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.

Current wording

Income tax provision was $22 million during the nine months ended September 30, 2026 compared to $7 million in the same period of 2025. The income tax provision 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 and return-to-provision adjustments.

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, 2026, we had approximately $8.0 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, 2026, we had approximately $8.1 billion of total nominal indebtedness outstanding.

Previous 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.

Current wording

Our liquidity as of September 30, 2026 consisted of cash and cash equivalents of $66 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 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.

Current wording

During the nine months ended September 30, 2026, we generated $181 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 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.

Current wording

Cash used in investing activities decreased $4.0 billion during the nine months ended September 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 $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.

Current wording

Financing cash flows decreased $4.1 billion during the nine months ended September 30, 2026 when compared with the prior-year period. Financing activities during the current-year period primarily reflected borrowings of $1,688 million on our revolving lines of credit and securitization, offset by repayments of $1,709 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 $629 million under our revolving lines of credit and securitization.

Previous 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.

Current wording

Net capital expenditures for rental equipment increased $208 million during the nine months ended September 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

During the second quarter of 2026, we replaced certain insurance related bank letters of credit with surety backed letters of credit as part of our ongoing liquidity strategy, increasing available borrowing capacity under the ABL Credit Facility by approximately $14 million as of June 30, 2026.

Current wording

During the third quarter of 2026, we replaced certain insurance related bank letters of credit with surety-backed letters of credit as part of our ongoing liquidity strategy, increasing available borrowing capacity under the ABL Credit Facility by approximately $25 million.

Previous 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.

Current wording

As of September 30, 2026, $16 million of standby letters of credit were issued and outstanding, none of which have been drawn upon. The ABL Credit Facility had $234 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

Previous 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.

Current wording

At September 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 nine months ended September 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.