Herc Holdings Inc. Q3 FY2025 earnings call

• Integration Progress: Expanded field operating structure from 9 to 10 U.S. regions, reorganized districts, optimized sales territories, completed full systems integration (including enterprise platform consolidation, pricing engine integration, logistics system deployment, and business intelligence suite rollout).
• Safety: All operations achieved at least 97% perfect days in Q3, with total recordable incident rate better than industry benchmark.
• Market Demand: Local market growth limited by high interest rates, while mega projects and specialty solutions show robust activity. Target long-term revenue split of 60% local and 40% national.
• Fleet Management: Rightsizing acquired fleet, investing in specialty equipment, disposing of underutilized equipment, and planning network footprint optimization to consolidate general rental branches into specialty locations, aiming for 50 additional specialty locations by next year.

On a GAAP basis, equipment rental revenue was up approximately 30% year-over-year in the third quarter, driven by the acquisition of H&E, mega projects, and specialty solutions. Adjusted EBITDA increased 24% compared to the prior year's third quarter, benefiting from higher equipment rental revenue and used equipment sales. REBITDA, excluding used equipment sales, was up 22% during the third quarter. Local accounts represented 52% of rental revenue in Q3 on a pro forma basis. For 2025, gross fleet CapEx is expected to be $900 million to $1.1 billion, and disposals at OEC are targeted at $1.1 billion to $1.2 billion, with 75% of that target tracked as of Q3, with the remainder expected in Q4.

• Reiterated 2025 guidance, noting integration progress but still in line with initial view. Fourth quarter likely to have tougher comp due to weather and continued auction channel use for fleet rightsizing.
• Goal to return leverage ratio to 2-3x by end-2027 as revenue and cost synergies drive higher EBITDA flow-through.

• Integration challenges related to acclimating teams and systems.
• Market uncertainties including interest rates impacting local markets.
• Fleet rightsizing and channel shift impacts on proceeds and margins.

Q: Comment on the rightsizing of the fleet, where are they in the process, and magnitude of work?

A: A lot of heavy lifting was done in Q3, with more work in Q4. Higher disposals in Q3 related to fleet rebalancing, and expecting to get back to normal cadence in 2026.

Q: Impact of national accounts on margins?

A: No significant margin dilution as national accounts have minimal equipment movement, and specialty products add opportunities.

Q: Revisiting cost and revenue synergy targets?

A: Ongoing process, with cost synergy buckets evolving and efficiency reviews providing incremental margin and efficiency gains.

Q: Customer attrition and rental rates?

A: Attrition stabilized, with backfilling through PSA program. H&E's pricing was lower than Herc, working to move to Herc's levels over time, with customers expected to return as sales efforts continue.