Q1 2026 Herc Holdings Inc Earnings Call

April 28, 2026

Operator 2: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Inc. Q1 2026 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I will now turn the call over to Leslie Hunziker, Head of Investor Relations. Please go ahead.

Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Inc. Q1 2026 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Leslie Hunziker, Head of Investor Relations. Please go ahead.

Speaker #2: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad, if you would like to withdraw your question, press star one again.

Speaker #2: I will now turn the call over to Leslie Hunziker, Head of Investor Relations, please go ahead. Thank you, Operator, and good morning, everyone. Today we're reviewing our first quarter 2026 results.

Leslie Hunziker: Thank you, operator, and good morning, everyone. Today, we're reviewing our Q1 2026 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10-Q, and in our most recent annual report on Form 10-K, as well as other filings with the SEC. In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.

Speaker #2: With comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by Q&A.

Speaker #2: Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Speaker #2: These risks and uncertainties include, but are not limited to, the factors identified in the press release, our form 10-Q, and in our most recent annual report on form 10-K, as well as other filings with the SEC.

Speaker #2: In addition, we'll be discussing non-gap information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-gap measures to the closest gap equivalent can be found in the conference call materials.

Leslie Hunziker: Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our Q2 management meeting at the Bank of America Industrials Conference in New York on 12 May, the KeyBanc Industrials and Basic Materials Conference in Boston on 27 May, and the Wells Fargo Industrials Conference in Chicago on 9 June. This morning, I'm joined by Larry Silber, Chief Executive Officer, Aaron Birnbaum, President, and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Speaker #2: Finally, please mark your calendars to join our second quarter management meetings at the Bank of America Industrials Conference in New York on May 12th, the Key Bank Industrials and Basic Materials Conference in Boston on May 27th, and the Wells Fargo Industrials Conference in Chicago on June 9th.

Speaker #2: This morning I'm joined by Larry Silber, Chief Executive Officer; Aaron Birnbaum, President; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Speaker #3: Thank you, Leslie, and good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E equipment services, the largest acquisition in our industry, is now complete.

Larry Silber: Thank you, Leslie. Good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E Equipment Services, the largest acquisition in our industry, is now complete. Integration was an enormous undertaking. I cannot be prouder of this team. The strength of our culture is what gives me confidence in what comes next. For the third consecutive year, Herc Rentals has earned the Great Place to Work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context. Large acquisitions are disruptive by nature. We brought approximately 2,500 new employees into the Herc family, people facing new systems, new processes, and a new way of doing things.

Speaker #3: Integration was an enormous undertaking, and I could not be prouder of this team. And the strength of our culture is what gives me confidence in what comes next.

Speaker #3: For the third consecutive year, HERC Reynolds has earned the great place to work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context.

Speaker #3: Large acquisitions are disruptive by nature. We brought approximately 2,500 new employees into the HERC family—people facing new systems, new processes, and a new way of doing things.

Speaker #3: Based on the survey's feedback, our new colleagues recognized our strong culture through change management support, peer mentoring, and the extensive training and tools they received throughout the integration.

Larry Silber: Based on the survey's feedback, our new colleagues recognized our strong culture through change management support, peer mentoring, and the extensive training and tools they received throughout the integration. Now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution. We have a larger platform, a stronger team, and a broader set of capabilities than at any point in our history. The work ahead is about unlocking the full potential of our platform, winning more business, serving customers better, and delivering stronger returns for our shareholders. Now, turning to slide number five. With a 30% larger branch network, we are optimizing fleet mixed by market, driving network density, and capturing the operating efficiencies that come with scale. Fleet efficiency, employee productivity, and margin improvement are the goals.

Speaker #3: And now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution.

Speaker #3: We have a larger platform, a stronger team, and a broader set of capabilities than at any point in our history. The work ahead is about unlocking the full potential of our platform.

Speaker #3: Winning more business, serving customers better, and delivering stronger returns for our shareholders. Now, turning to slide number five: with a 30% larger branch network, we are optimizing fleet mix by market, driving network density, and capturing the operating efficiencies that come with scale.

Speaker #3: Fleet efficiency, y, employee productivity, and margin improvement are the goals. Second, we are enhancing our fleet mix and specialty solutions is a standout area of focus.

Larry Silber: Second, we are enhancing our fleet mix, and specialty solutions is a standout area of focus. Double-digit specialty revenue growth in Q1 reflects targeted fleet investments, 25% more specialty locations, and strong demand from mega projects, cross-selling, and the continued structural shift from equipment ownership to rental. Third, we are advancing our industry-leading digital capabilities through ProControl by Herc Rentals. Advanced technology features from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operation gives customers the tools to run safer, more efficient job sites. Our e-commerce platform continues to gain traction, delivering a seamless omni-channel experience with 24/7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in Q1, a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them.

Speaker #3: Double-digit specialty revenue growth in the quarter reflects targeted fleet investments, 25% more specialty locations, and strong demand from megaprojects, cross-selling, and the continued structural shift from equipment ownership to rental.

Speaker #3: Third, we are advancing our industry-leading digital capabilities through pro-control by HERC Reynolds. Advanced technology features, from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operation, give customers the tools to run safer, more efficient job sites.

Speaker #3: And our e-commerce platform continues to gain traction, delivering a seamless omnichannel experience with 24/7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in the first quarter, a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them.

Speaker #3: As always, we lead through continuous improvement with our E3 operating systems, built on a foundation of standardized processes, superior customer experiences, and a relentless focus on execution across our expanded network.

Larry Silber: As always, we lead through continuous improvement with our E3OS operating systems built on a foundation of standardized processes, superior customer experiences, and a relentless focus on execution across our expanded network. Finally, as prudent stewards of capital, we invest responsibly. We took on incremental debt to acquire H&E, a deliberate decision to accelerate our scale and long-term earnings power. We expect to return to the top of our targeted 2 to 3 times leverage ratio by year-end 2027. Our path to deleveraging is clear. As we capture the full run rate of our synergy targets, EBITDA grows, free cash flow builds, and leverage comes down. Now, let me turn it over to Aaron to talk about our operational performance. Aaron?

Speaker #3: And finally, as prudent stewards of capital, we invest responsibly. We took on incremental debt to acquire H&E. A deliberate decision to accelerate our scale and long-term earnings power.

Speaker #3: We expect to return to the top of our targeted 2 to 3 times leverage ratio by year-end 2027. Our path to deleveraging is clear.

Speaker #3: As we capture the full run rate of our synergy target, EBITDA grows, free cash flow builds, and leverage comes down. Now, let me turn it over to Aaron to talk about our operational performance.

Speaker #3: Aaron?

Speaker #4: Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is the moment our team has been working toward.

Aaron Birnbaum: Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is a moment our team has been working toward. Investments we've made in people, fleet, systems, and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work. We are executing with a larger network, a stronger bench, and a sharper sense of where the opportunities are. The work ahead is straightforward. Win business, serve customers exceptionally well, and drive the performance this platform is built to deliver. In everything we do, every efficiency we drive, every customer we serve, and every dollar of performance we deliver starts with one non-negotiable, the safety of our people and our customers.

Speaker #4: Investments we've made in people, fleet, systems, and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work.

Speaker #4: We are executing with a larger network, a stronger bench, and a sharper sense of where the opportunities are. The work ahead is straightforward. Win business, serve customers exceptionally well, and drive the performance this platform has built to deliver.

Speaker #4: And everything we do, every efficiency we drive, every customer we serve, every dollar of performance we deliver starts with one non-negotiable: the safety of our people and our customers.

Speaker #4: From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day.

Aaron Birnbaum: From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day. Let me start there. On slide 7, our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In Q1, on a branch-by-branch measurement, all of our operations achieved over 96% of days as perfect. Also notable, our total reportable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Our safety foundation is what makes everything else possible. On slide 8, you can see that what we're building on that foundation starts with one of our most important assets, our fleet.

Speaker #4: So let me start there. On slide seven, our major internal safety program focuses on perfect days. And we strive for 100% perfect days throughout the organization.

Speaker #4: In the first quarter, on our branch-by-branch measurement, all of our operations achieved over 96% of days as perfect. Also notable, our total recordable incident rate remains better than the industry's benchmark of 1.0.

Speaker #4: Reflecting our high standards and commitment to the safety of our people and our customers. Our safety foundation is what makes everything else possible. On slide eight, you can see that what we're building on that foundation starts with one of our most important assets, our fleet.

Speaker #4: At $9.4 billion in original equipment costs, fleet is both our largest investment and our primary revenue growth engine. We enter 2026 with pro forma fleet down nearly 2% by design.

Aaron Birnbaum: At $9.4 billion in original equipment cost, fleet is both our largest investment and our primary revenue growth engine. We entered 2026 with pro forma fleet down nearly 2% by design. The integration priority was alignment, the right equipment in the right markets with the right mix, and we achieved that. By the end of Q1, average OEC was down approximately 1% on a pro forma basis versus last year, consistent with our focus on utilization improvement. While fleet expenditures were up 78% on a pro forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025 when we were preparing to bring in the acquired H&E fleet in Q2.

Speaker #4: The integration priority was alignment—the right equipment in the right markets, with the right mix. And we achieved that. By the end of the first quarter, average OEC was down approximately 1% on our pro forma basis versus last year.

Speaker #4: Consistent with our focus on utilization improvement, while fleet expenditures were up 78% on a pro forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025.

Speaker #4: When we were preparing to bring in the acquired H&E fleet in the second quarter. Our Q1, 26 investments of 183 million are directed toward growth opportunities and supporting our new specialty locations as they ramp up and begin contributing to revenue synergies.

Aaron Birnbaum: Our Q1 2026 investments of $183 million are directed toward growth opportunities and supporting our new specialty locations as they ramp up and begin contributing to revenue synergies. Fleet disposals at OEC were 20% higher year-over-year, reflecting lifecycle rotation and ongoing mix adjustments. Of the $281 million of disposals in Q1, realized proceeds were 49% of OEC, up from 45% in Q1 2025, reflecting a healthy used equipment market across almost every category, as well as our focus selling into the higher return wholesale and retail channels. As you know, Q1 is our seasonally slowest demand period. Having strong fleet alignment right now before the seasonal ramp is critical.

Speaker #4: Fleet disposals at OEC were 20% higher year over year, reflecting lifecycle rotation and ongoing mix adjustments. Of the 281 million of disposals in the first quarter, realized proceeds were 49% of OEC, up from 45% in Q1, 2025.

Speaker #4: Reflecting a healthy, used equipment market across almost every category as well as our focused selling into the higher return wholesale and retail channels. As you know, the first quarter is our seasonally slowest demand period.

Speaker #4: Covering strong fleet alignment right now before the seasonal ramp is critical. Disciplined fleet management and our sales team's executing with increasing effectiveness across the combined network drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter.

Aaron Birnbaum: Disciplined fleet management and our sales teams executing with increasing effectiveness across the combined network drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter. As utilization tightens into the peak season, we expect that discipline to translate directly into revenue growth and further improvement in fleet efficiency in H2 of the year. Turning to slide nine. Today, the bifurcated markets remain relatively consistent with what we have seen over the past year. In the local market, conditions remain stable overall. Government, infrastructure, MRO, and institutional construction demand are offsetting the still moderate commercial sector, consistent with what we expected coming into the year. On the national account side, large scale project funding remains strong.

Speaker #4: As utilization tightens into the peak season, we expect that disciplined to translate directly into revenue growth and further improvement in fleet efficiency in the second half of the year.

Speaker #4: Turning to slide nine, we will gain better visibility into seasonal trends over the next month or so. But today, the bifurcated markets remain relatively consistent with what we have seen over the past year.

Speaker #4: In the local market, conditions remain stable overall. Government, infrastructure, MRO, and institutional construction demand are offsetting the still moderate commercial sector, consistent with what we expected coming into the year.

Speaker #4: On the national account side, large-scale project funding remains strong. Megaproject activity is centered around manufacturing, LNG, renewables, and the continued surge in data center development.

Aaron Birnbaum: Megaproject activity is centered around manufacturing, LNG, renewables, and the continued surge in data center development. We are winning our targeted 10% to 15% share of these opportunities with new projects coming online and current projects still in ramp-up phase. Megaproject activity was notably strong in Q1, with project ramp-ups accelerating earlier than is typical for our seasonally slowest period. Activity that was built into the full year guidance we provided just 2 months ago. In Q1, local accounts represented 47% of rental revenue, compared with 53% for national accounts. As we have said, our long-term target is 60% local and 40% national. A mix that provides for both growth and resiliency.

Speaker #4: We are winning our targeted 10 to 15 percent share of these opportunities with new projects coming online and current projects still in ramp-up phase.

Speaker #4: Megaproject activity was notably strong in the first quarter, with project ramp-ups accelerating earlier than is typical for our seasonally slowest period, activity that was built into the full-year guidance we provided just two months ago.

Speaker #4: In the first quarter, local accounts represented 47% of rental revenue compared with 53% for national accounts. As we have said, our long-term target is 60% local and 40% national, a mix that provides for both growth and resiliency.

Speaker #4: The national weighing we are seeing today reflects the strength of our national accounts and megaproject activity. And we expect the local mix to improve as the seasonal ramp builds and eventually as local demand recovers.

Aaron Birnbaum: The national wing we are seeing today reflects the strength of our national accounts and megaproject activity. We expect the local mix to improve as the seasonal ramp builds and eventually as local demand recovers. Turning to slide 10. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc diversified into new end markets, geographies, and products and services over the last decade, we have reduced our reliance on any single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities from megaproject development and the continued surge in data centers to technology advancements that support customer productivity and the secular shift from equipment ownership to rental.

Speaker #4: Turning to slide 10, diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As HERC has diversified into new in-markets, geographies, and products and services over the last decade, we have reduced our reliance on any single industry or customer.

Speaker #4: We have become more resilient to downturns and more adaptable to emerging opportunities from megaproject development and the continued surge in data centers to technology advancements that support customer productivity and the secular shift from equipment ownership to rental.

Speaker #4: With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow.

Aaron Birnbaum: With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow. The opportunity across end markets isn't just broad, it's deep. Turning to slide 11, let's look at what the data tells us about the forward pipeline driving demand across our customer base. Here you can see that despite the uncertainty in the broader market, whether around interest rates, trade policy, or general economic sentiment, the fundamental drivers of our business remain intact. Industrial spending and non-residential construction starts continue to show meaningful opportunity for growth, built on a foundation of megaproject development and infrastructure investment.

Speaker #4: And the opportunity across in-markets isn't just broad. It's deep. Turning to slide 11, let's look at what the data tells us about the forward pipeline driving demand across our customer base.

Speaker #4: Here you can see that despite the uncertainty in the broader market, whether around interest rates, trade policy, or general economic sentiment, the fundamental drivers of our business remain intact.

Speaker #4: Industrial spending and non-residential construction starts continue to show meaningful opportunity for growth, built on a foundation of megaproject development and infrastructure investment. Of course, there is some overlap across these four data sets, but no matter how you look at it, for companies with the safety record, scale, product breadth, technologies, and capabilities to serve customers at the local, regional, and national level, the opportunity for growth remains significant.

Aaron Birnbaum: Of course, there is some overlap across these four data sets, but no matter how you look at it, for companies with the safety record, scale, product breadth, technologies, and capabilities to serve customers at the local, regional, and national level, the opportunity for growth remains significant, and we believe Herc is well-positioned to capture it. Turning to slide 12. This is where we are in our near-term journey, and I want to be clear, against our 2026 plan, we are exactly where we expected to be. The integration work is behind us. What we have now is a 30% larger business, more fleet, more locations, more specialty capabilities, and a larger maturing sales force. That's the foundation.

Speaker #4: And we believe HERC is well positioned to capture it. Turning to slide 12, this is where we are in our near-term journey. And I want to be clear against our 2026 plan.

Speaker #4: We are exactly where we expect it to be. The integration work is behind us, but we have now is a 30% larger business, more fleet, more locations, more specialty capabilities, and a larger maturing sales force.

Speaker #4: That's the foundation. And the first half of 2026 is about converting that foundation into performance, tightening utilization as we move into the seasonal peak, and sharpening sales effectiveness across the combined network.

Aaron Birnbaum: The H1 of 2026 is about converting that foundation into performance, tightening utilization as we move into the seasonal peak, and sharpening sales effectiveness across the combined network. We have seen that start to play out. First, fleet efficiency. After working through the integration and fleet optimization process, we saw sequential improvement of Herc supply and demand alignment through the quarter, something we have been building towards since last summer's acquisition. That's not a small thing. While megaproject demand provided a tailwind, even in our seasonally slowest Q1, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan. It tells us that we move into the seasonally stronger Q2, we have the right fleet and the right markets ready to work.

Speaker #4: And we have seen that start to play out. First, fleet efficiency. After working through the integration and fleet optimization process, we saw sequential improvement of HERC's supply and demand alignment through the quarter, something we have been building towards since last summer's acquisition.

Speaker #4: That's not a small thing. And while megaproject demand provided a tailwind, even in our seasonally slowest first quarter, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan.

Speaker #4: It tells us that we move into the seasonally stronger second quarter, we have the right fleet and the right markets ready to work. And continuing on that improvement plan in Q2 is what gives us confidence in the utilization trajectory in the back half.

Aaron Birnbaum: Continuing on that improvement plan in Q2 is what gives us confidence in the utilization trajectory in H2. Second, our specialty locations. The branch optimization program added 25% more specialty locations opening Q4 2025 and Q1 2026. These locations are now staffed, fleeted, and gaining momentum. New locations take time to mature, and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth. If we get H1 right, then H2 follows. Revenue growth accelerates, our fixed cost base works in our favor, and margin improvement becomes increasingly visible. That's the progression we have mapped out. H1 builds the foundation, H2 delivers the growth. It's also the flywheel into 2027. Higher revenue, expanding margins, and increasingly apparent deleveraging as synergy capture compounds.

Speaker #4: Second, our specialty locations. The branch optimization program added 25% more specialty locations opened in Q4, 2025, and Q1, 2026. These locations are now staffed, fleeted, and gaining momentum.

Speaker #4: New locations take time to mature, and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth.

Speaker #4: If we get the first half right, then the second half follows. Revenue growth accelerates, our fixed cost base works in our favor, and margin improvement becomes increasingly visible.

Speaker #4: That's the progression we have mapped out. First half builds the foundation, second half delivers the growth. It's also the flywheel into 2027. Higher revenue, expanding margins, and increasingly apparently leveraging as synergy capture compounds.

Speaker #4: That's the path, and we're on it. Now, Mark will walk you through the details. Mark?

Aaron Birnbaum: That's the path, and we're on it. Now Mark will walk you through the details. Mark?

Speaker #5: Thanks, Aaron, and good morning, everyone. I'm starting on slide 14 with a summary of our key financial metrics. For the first quarter on a GAAP basis, equipment rental revenue was up approximately 33% year over year.

Mark Humphrey: Thanks, Aaron, good morning, everyone. I'm starting on slide 14 with a summary of our key financial metrics. For Q1 on a GAAP basis, equipment rental revenue was up approximately 33% year over year, driven by the acquisition of H&E. On a pro forma basis, rental revenue declined 3% representing a meaningful sequential improvement from Q4. To put that into context, the acquired business was experiencing revenue pressure prior to close, a trend we've been actively working to reverse through fleet optimization, sales force training, and network alignment. While mega project tailwinds and specialty execution benefited us in Q1, the inflection of the combined platform into revenue growth is a H2 event consistent with our plan.

Speaker #5: Driven by the acquisition of H&E. On a pro forma basis, rental revenue declined 3%, 3% representing a meaningful sequential improvement from the fourth quarter.

Speaker #5: To put that into context, the acquired business was experiencing revenue pressure prior to close. A trend we've been actively working to reverse through fleet optimization, sales force training, and network alignment.

Speaker #5: And while megaproject tailwinds and specialty execution benefited us in Q1, the inflection of the combined platform into revenue growth is the second half event, consistent with our plan.

Speaker #5: Adjusted EBITDA increased 33% compared with last year's first quarter, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales.

Mark Humphrey: Adjusted EBITDA increased 33% compared with last year's Q1, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales. Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was the static demand in the local market and the impact from the lower margin acquired business. REBITDA, which excludes used equipment sales, was up 30% during the Q1. REBITDA margin was 40% impacted year over year by the lower margin acquired business. The path to margin improvement is clear. Rental revenue synergy contributions in the H2, a shift toward a higher margin product mix, full realization of cost synergies, and improved variable cost management at scale.

Speaker #5: Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin.

Speaker #5: Also affecting margin was the static demand in the local market and the impact from the lower margin acquired business. EBITDA, which excludes used equipment sales, was up 30% during the first quarter.

Speaker #5: EBITDA margin was 40%, impacted year over year by the lower margin acquired business. The path to margin improvement is clear. Rental revenue synergy contributions in the second half, a shift toward a higher margin product mix, full realization of cost synergies, and improved variable cost management at scale.

Speaker #5: We expect margins to continue to improve from here especially as those drivers take hold in Q3 and Q4. Our net loss in the first quarter included $5 million of transaction costs, primarily related to the H&E acquisition.

Mark Humphrey: We expect margins to continue to improve from here, especially as those drivers take hold in Q3 and Q4. Our net loss in Q1 included $5 million of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $7 million. On slide 15, you can see we generated $94 million of free cash flow for Q1. Our current pro forma leverage ratio is 3.96x, which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing twelve-month calculation. The ratio will remain relatively consistent through the year before improving meaningfully at year-end, when revenue synergies drive EBITDA growth in Q3 and Q4 and CapEx, which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations begin to provide greater EBITDA contribution.

Speaker #5: On an adjusted basis, net income was $7 million. On slide 15, you can see we generated 94 million of free cash flow for the first quarter.

Speaker #5: Our current pro forma leverage ratio is 3.96 times. Which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing 12-month calculation.

Speaker #5: The ratio will remain relatively consistent through the year before improving meaningfully at year-end when revenue synergies drive EBITDA growth in Q3 and Q4 and capital expenditures which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations begin to provide greater EBITDA contribution.

Speaker #5: Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect a return to the top of our target range of 2 to 3 times by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through.

Mark Humphrey: Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect to return to the top of our target range of 2 to 3 times by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through. Turning to slide 16, we are affirming our full year 2026 guidance across all metrics. Q1 came in as expected. Rental revenue growth of 33% on an actual basis reflects the contribution of the combined platform. Adjusted EBITDA margin held at 39.3% consistent with last year despite the integration work that was still underway. The operational proof points Aaron walked you through, sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, sales force momentum are the leading indicators that give us confidence in the H2 acceleration embedded in our guide.

Speaker #5: Turning to slide 16, we are affirming our full-year 2026 guidance across all metrics. Q1 came in as expected. Rental revenue growth of 33% on an actual basis reflects the contribution of the combined platform.

Speaker #5: Adjusted EBITDA margin held at 39.3%, consistent with last year despite the integration work that was still underway. The operational proof points Aaron walked you through—sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, and sales force momentum—are the leading indicators that give us confidence in the back half acceleration embedded in our guide.

Speaker #5: On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year-end.

Mark Humphrey: On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year-end. Revenue synergies are H2 weighted and the $100 to $120 million incremental target for 2026 is intact. The guide assumes the business performs as Aaron described. H1 sets the foundation, H2 delivers the growth. Q1 is consistent with that plan. Let's open it up for questions. Operator?

Speaker #5: Revenue synergies are back half-weighted and the 100 to 120 million incremental target for 2026 is intact. The guide assumes the business performs as Aaron described.

Speaker #5: First half sets the foundation; second half delivers the growth. Q1 is consistent with that plan. Now, let's open it up for questions. Operator?

Speaker #6: At this time, I would like to remind everyone that in order to ask a question, please press star, then the number 1 on your telephone keypad.

Operator 2: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rob Wertheimer with Melius Research. Your line is open.

Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rob Wertheimer with Melius Research. Your line is open.

Speaker #6: We'll pause for just a moment to compile the Q&A roster. Your first question, comes from the line of Rob Werthimmer with Mellis Research. Your line is open.

Speaker #7: Hi, thanks. Good morning, everybody.

Rob Wertheimer: Hi. Thanks. Good morning, everybody.

Speaker #8: Good morning, Rob.

Mark Humphrey: Morning, Rob.

Rob Wertheimer: I like your slide 11 puts together a bunch of the different kinda ways to look at the end market. You mentioned, you know, and there's others that are

Speaker #7: Your slide 11 puts together a bunch of the different kind of ways to look at the end market. And you mentioned and there's others that are conflicting, let's say.

Rob Wertheimer: You know, conflicting, let's say. If you look at the top right, that mega projects chart is a lot of money kind of flowing down the pike. What I'd like to ask is whether, you know, that step up in 25, whether you saw that in, you know, customer conversations, et cetera, whether you see it today because, you know, an extra $300 billion starts or whatever in a $900 billion market is a lot. I want to ground truth, you know, the data that are sometimes ambiguous.

Speaker #7: But if you look at the top right, that megaproject chart is a lot of money kind of flowing down the pike. And what I'd like to ask is whether that step up in '25, whether you saw that in customer conversations, etc., whether you see it today.

Speaker #7: Because an extra $300 billion it starts or whatever, and a $900 billion market's a lot. So I want to ground truth the data that are sometimes ambiguous.

Speaker #8: Yeah, Rob. It's Aaron. I'll take that one. So it's really both. When you build relationships with large general contractors, our national accounts, they guide you to what's coming down the pipeline.

Aaron Birnbaum: Yeah, Rob, it's Aaron. I'll take that one. It's really both. You know, when you build relationships with large general contractors or national accounts, they guide you to what's coming down the pipeline. Often, you know, you bid on a project, and they let you know that you've been awarded it, and it's gonna start, or they've negotiated a contract, and they want to bring you in as their trusted supplier. That's one mechanism, but there's a lot of data around it. Dodge provides a lot of preview into what's coming. Now, the pipeline of plan projects is pretty deep. I think we've mentioned, you know, it's in the trillions of dollars.

Speaker #8: And often, you bid on a project and they let you know that you've been awarded it and it's going to start. Or they've negotiated a contract and they want to bring you in as their trusted supplier.

Speaker #8: So that's one mechanism. But there's a lot of data around it. Dodge provides a lot of preview into what's coming. Now, the pipeline of planned projects is pretty deep.

Speaker #8: I think we've mentioned it's in the trillions of dollars. But it's really when the starts—when they change from planning to starts—is when that data starts hitting a slide that we showed you there.

Aaron Birnbaum: It's really when this starts, when they change from planning to starts is when that data starts hitting the slide that we showed you there. If you just look at 2026, April, May, June, July, August, September, you can see a lot more starts happening all across the board. Infrastructure, you know, wastewater or bridges, roads, also these big mega projects that you see coming out, a lot of renewables. You see, obviously a lot of data center activity and other projects. You have to, you know, you get it from both ways. You can use both datasets to kind of guide your fleet planning and where your year is gonna go.

Speaker #8: And if you just look at 2026, April, May, June, July, August, September, you can see a lot more starts happening. All across the board.

Speaker #8: So infrastructure, wastewater, or bridges, roads, but also these big megaprojects that you see coming out. A lot of renewables you see obviously a lot of data center activity and other projects.

Speaker #8: So you have to you get it from both ways. So you can use both data sets to kind of guide your fleet planning and where your year is going to go.

Speaker #7: And to you, that feels like better times ahead in the back half as these things ramp? I mean, that timeline feels right?

Rob Wertheimer: To you, that feels like better times ahead in the, in the H2 as these things ramp. I mean, that timeline.

Aaron Birnbaum: Yeah.

Rob Wertheimer: feels right.

Speaker #8: Yeah. As you can see, there's more starts happening. Now, they don't always start when they say they're going to start, right? Sometimes you've heard us talk that sometimes they start six months late.

Aaron Birnbaum: As you can see, there's more starts happening. Now, they don't always start when they say they're gonna start, right? Sometimes you've heard us talk that sometimes they start 6 months late. It is building. Once these projects do start, these last for 2 to 3 years, as you know. They're already in our plan as we go through Q1 into Q2, and the balance of the year. We like where it is right now, but it's exactly the way we kinda planned out our year.

Speaker #8: But it is building. And once these projects do start, they usually last for two or three years, as you know. So they're already in our plan for the as we go through Q1 into Q2.

Speaker #8: And then the balance of the year. So we like where it is right now, but it's exactly the way we kind of planned out our year.

Speaker #7: Thank you.

Rob Wertheimer: Thank you.

Speaker #6: Your next question, comes from the line of Mick Dobry with Byrd. Your line is open.

Operator 2: Your next question comes from the line of Mig Dobre with Baird. Your line is open.

Operator: Your next question comes from the line of Mig Dobre with Baird. Your line is open.

Speaker #8: Yeah, thank you. Good morning, and thanks for taking my question. I guess, good morning. Where I would like to start is with maybe a bit of a spotlight on your dollar utilization.

Mig Dobre: Thank you. Good morning. Thanks for taking my question. I guess where I would like to start is with maybe a bit of a spotlight on your dollar utilization. At least to me, it's looking like this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint. I'm wondering if you can comment on that. Is it an indication of sort of activity itself and, you know, better fleet utilization or just, you know, the fact that maybe in Q4 we had a relatively easy comparison? Related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here on out?

Speaker #8: And, at least to me, it's looking like this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint.

Speaker #8: So I'm wondering if you can comment on that. Is it an indication of activity itself and better fleet utilization, or just the fact that maybe in Q4 we had a relatively easy comparison?

Speaker #8: And related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here on out?

Speaker #7: Yeah, great question. And I think, quite honestly, Mick, I would take the revenue conversation, the dollar yield conversation, and the margin conversation all in the same direction.

Mark Humphrey: Yeah. Great, great question. I think quite honestly, Mig, I would take the revenue conversation, the dollar yield conversation, and the margin conversation all in the same direction. You know, as Aaron mentioned, right, we saw fleet efficiency gains in Q1, which then sort of built through the dollar utilization. It improved sequentially as we walked our way through the quarter. You know, we spent the last 10 months, you know, optimizing our fleet and optimizing branches, putting new specialty locations in. You know, I would tell you that Q1 sort of played the way that we thought it was going to play. As you roll that forward, there's an inflection point inside of Q2.

Speaker #7: As Aaron mentioned, right, we saw fleet efficiency gains in the first quarter, which then sort of built through the dollar utilization. It improved sequentially as we walked our way through the quarter.

Speaker #7: We've spent the last 10 months optimizing our fleet, and optimizing branches, putting new specialty locations in. And so I would tell you that first quarter sort of played the way that we thought it was going to play.

Speaker #7: But as you roll that forward, there's an inflection point inside of Q2. And once we hit that inflection point inside of Q2, then I think you'll see dollar yield, revenue, and margin expansion as we work our way through the back half of the year.

Mark Humphrey: Once we hit that inflection point inside of Q2, then I think you'll see dollar yield, revenue, and margin expansion as we work our way through the back half of the year.

Speaker #8: And maybe my follow-up on this. And I appreciate the sort of directional commentary. But if I'm thinking about normal seasonality here, right, is there reason to think, based on everything that you have, that your going on operationally, that the improvement in dollar utilization can actually exceed that normal seasonality?

Mig Dobre: Maybe my follow-up on this, and I appreciate the sort of directional commentary, if I am thinking about normal seasonality here.

Mark Humphrey: Yeah.

Mig Dobre: Is there reason to think, based on everything that you have, that you're going on operationally, that the improvement in dollar utilization can actually exceed that normal seasonality? You know, maybe you can put a finer point on how you think about, you know, the time utilization component of it, right, you know, the efficiency, in your asset base relative to what's happening with maybe pricing or rates more broadly in the market.

Speaker #8: And maybe you can put a finer point on how you think about the time utilization component of it, right? Efficiency in your asset base relative to what's happening with maybe pricing or rates more broadly in the market.

Speaker #8: Yeah. I think that sort of normal isn't really this year. The reality is that we had a hole to climb out of entering this year, sort of down nine as we exited 4Q.

Mark Humphrey: I think that, you know, sorta normal isn't really this year. You know, the reality is that we had a hole to climb out of, you know, entering this year, sort of down nine as we exited Q4. There's a big efficiency play that we needed to see collectively as a business before investing growth CapEx into the business in the May, June, July timeframe. I would tell you it's playing out the way that we thought it would. Now, granted, it's early. You know, May and June will be a much larger tell to sort of how the rest and the balance of the year plays out. I think we're not, you know, we're not necessarily looking at this as normal or abnormal.

Speaker #8: And so there's a big efficiency play that we needed to see collectively as a growth capex into the business in the May, June, July timeframe.

Speaker #8: And so I would tell you it's playing out the way that we thought it would. Now, granted, it's early. May and June will be a much larger tell to sort of how the rest and the balance of the year plays out.

Speaker #8: But I think we're not necessarily looking at this as normal or abnormal. We just know where we have to go to get the fleet back to a healthy and efficient level.

Mark Humphrey: We just know where we have to go, to get the fleet, back to a healthy, and efficient level.

Speaker #8: Great. Thank you.

Mig Dobre: Great. Thank you.

Speaker #6: Your next question, comes from the line of Jerry Rivick with Wells Fargo Securities. Your line is open.

Operator 2: Your next question comes from the line of Jerry Revich with Wells Fargo Securities. Your line is open.

Operator: Your next question comes from the line of Jerry Revich with Wells Fargo Securities. Your line is open.

Speaker #9: Yes, hi. Good morning, everyone. Hey, Larry. Morning. I'm wondering who you just talked about overall pricing that you're seeing in the market? So you've had oversupply of aerials in particular, pricing has been pretty tough.

Jerry Revich: Yes. Hi. Good morning, everyone.

Mark Humphrey: Morning, Jerry.

Jerry Revich: Hey, Larry. morning. I'm wondering if you could just talk about overall pricing that you're seeing in the market?

Mark Humphrey: Um-

Jerry Revich: Since we've had oversupply of aerials.

Mark Humphrey: Yeah

Jerry Revich: In particular, pricing is pretty tough. Can we just talk about are we optimistic that pricing can outpace inflation this year? As, positively surprised by the realization and use values for you folks this quarter. It sounds like supply-demand is improving. Can we just unpack that, please?

Speaker #9: Can we just talk about are we optimistic that pricing can outpace inflation this year? And as positively surprised by the realization and use values for you folks this quarter, it sounds like supply-demand is improving.

Speaker #9: Can we just unpack that, please?

Speaker #8: Yeah. I mean, I'll unpack it to the level that I can. You know we don't comment specifically on price. But I would say that we are encouraged by the fundamentals that we're seeing in the industry.

Mark Humphrey: Yeah. I mean, I'll unpack it to the level that I can. You know, you know, we don't comment specifically on price. I would say that we are encouraged by the fundamentals that we're seeing in the industry. The fleet in and fleet on dynamics are good, you know, particularly as we sort of exit Q1, I think that the market is being both rational and constructive. We look forward to taking advantage of such marketplace.

Speaker #8: The fleet-in and fleet-on dynamics are good. Particularly as we sort of exit Q1. And I think that the market is being both rational and constructive.

Speaker #8: And so we look forward to taking advantage of such a marketplace.

Speaker #9: Okay. Super. I appreciate it. And then just to shift gears, a little bit here. In terms of the performance of legacy H&E branches versus HERC, obviously, the legacy HERC pricing and time yield based on historical stats has been significantly higher.

Jerry Revich: Okay. Super. I appreciate it. Just to shift gears, a little bit here. In terms of the performance of legacy H&E branches versus Herc, obviously the legacy Herc, pricing and time you based on historical stats has been significantly higher. Has that gap closed at all? Where are we in the process of driving the H&E branch performance towards legacy Herc performance, today versus 12 months ago versus where we see it 12 to 18 months out?

Speaker #9: Has that gap closed at all? Where are we in the process of driving the H&E branch performance towards legacy HERC performance today versus 12 months ago, versus where we see it 12 to 18 months out?

Speaker #8: Yeah, I mean, I think thankfully, Jerry, I can't really answer that question for you. And that was part of this integration, was to integrate this business in such that there is no longer an H&E or HERC, right?

Mark Humphrey: Yeah. I mean, I think thankfully, Jerry, I can't really answer that question for you. That was part of, you know, this integration was to integrate this business in such that there is no longer an H&E or Herc, right? You know, I think if I could still answer that question, then I would say we probably haven't done our job. You know, I think collectively, Q1 sort of played out the way that we planned Q1 to play out, and that's probably about as deep as I can go in terms of insights between H&E and Herc.

Speaker #8: And so, I think if I could still answer that question, then I would say we probably haven't done our job. And so, I think collectively, Q1 sort of played out the way that we planned Q1 to play out.

Speaker #8: And that's probably about as deep as I can go in terms of insights between H&E and HERC.

Speaker #9: Okay, super. And lastly, I know you said in your prepared remarks that the quarter dollar yield was in line with your expectations. It was better than I think a lot of us had modeled.

Jerry Revich: Yeah. Super. Lastly, I know you said in your prepared remarks that the quarter, dollar was in line with your expectations. It was.

Mark Humphrey: Mm-hmm

Jerry Revich: ... better than I think a lot of us had modeled. When we saw the industry data, it looked like pricing accelerated in March, and it looks like time you inflected as well. I know you don't wanna provide a ton of color.

Speaker #9: When we saw the industry data, it looked like pricing accelerated in March. And it looks like time yield inflected as well. I know you don't want to provide a ton of color, but can you just comment on demand cadence over the course of the quarter and any other color you're willing to share on that point?

Mark Humphrey: Mm-hmm

Jerry Revich: Can you just comment on demand cadence over the course of the quarter and any other color you're willing to share on that point?

Mark Humphrey: Yeah. I think, you know, from our vantage point, right? I mean, we are anticipating, Jerry, an inflection point, you know, sometime inside of Q2. Then I think from that point forward, you should see growth/improvement depending upon which line item you're looking at, dollar utilization improvement, revenue growth and margin expansion as you sort of inflect out of Q2 and into the back half of the year.

Speaker #8: Yeah, I think from our vantage point, right, I mean, we are anticipating, Jerry, an inflection point sometime inside of Q2. And then I think from that point forward, you should see growth or improvement, depending upon which line item you're looking at—dollar utilization improvement, revenue growth, and margin expansion—as you sort of inflect out of Q2 and into the back half of the year.

Jerry Revich: Yep. Thank you.

Speaker #9: Okay. Thank you.

Mark Humphrey: Welcome.

Speaker #8: Welcome.

Operator 2: Your next question comes from the line of Kyle Menges with Citigroup. Your line is open.

Operator: Your next question comes from the line of Kyle Menges with Citigroup. Your line is open.

Speaker #6: Your next question, comes from the line of Kyle Mix with Citigroup. Your line is open.

Kyle Menges: Great. Thank you. You had mentioned-

Speaker #9: Great. Thank you. You had mentioned that pro forma fleet is down a little bit. And by design, would love to hear you unpack that a little bit and then just how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between gen rent and specialty.

Kyle Menges: Go ahead.

Kyle Menges: That pro forma fleet is down a little bit, and by design. Would love to hear you unpack that a little bit, just how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between gen rent and specialty.

Mark Humphrey: Yeah. I mean, you know, we walked into, we walked into the year, as Aaron said, almost 2 points down, fleet on a pro forma basis. I think as you exit Q1, you're still down 1 point, give or take. You know, that again, was part of the plan. I think as you start then taking sort of the guided CapEx from a growth perspective and the, and the guided sort of dispositions, you can sort of play that through. I would tell you that, you know, the expectation is we'll probably load 65% of that gross CapEx number into the business in between the back half of Q2 and Q3. You know, that should give you sort of the meaningful data points that you need to model.

Speaker #8: Yeah. I mean, we walked into the year as Aaron said almost two points down fleet on a pro forma basis. I think as you exit Q1, you're still down a point, give or take.

Speaker #8: And so that, again, was part of the plan. And so I think as you start then taking sort of the guided CapEx from a gross perspective and the guided sort of dispositions, you can sort of play that through. I would tell you that the expectation is we'll probably load 65% of that gross CapEx number into the business between the back half of Q2 and Q3.

Speaker #8: So that should give you sort of the meaningful data points that you need to model.

Aaron Birnbaum: I would add too, Mark, that, as CapEx goes through the year, we'll be over-indexed to our specialty fleet to feed our branch optimization, our shift to grow the specialty side, get it back closer to what it was pre-acquisition.

Speaker #9: I would add too, Mark, that as capex goes through the year, they'll be over-indexed to our specialty fleet to feed our branch optimization, our shift to grow the specialty side, get it back closer to what it was pre-acquisition.

Kyle Menges: Helpful. Thank you. I know you've expanded the specialty locations quite a bit and working on cross-selling, which understandably, the cross-sell is expected to be a bit back half weighted. It'd just be helpful to hear about what the learning curve has been as you roll out specialty and more SKUs across the H&E network and just the visibility you feel like you have to actually hitting the revenue synergy targets as you get into the H2.

Speaker #9: Helpful. Thank you. And I know you've expanded the specialty locations quite a bit and working on cross-selling, which understandably, the cross-sell is expected to be a bit back half-weighted.

Speaker #9: So it'd just be helpful to hear about what the learning curve has been as you roll out specialty and more SKUs across the H&E network and just the visibility you feel like you have to actually hitting the revenue synergy targets as you get into the second half.

Aaron Birnbaum: Yeah. I would say that our revenue synergy for 2026, we're on the plan where we need to be as we execute Q1, and as we look towards the rest of the year, where we expected to be for all of our revenue synergies as it relates to, you know, cross-selling. It's cross-selling with the specialty business is really a two front exercise. You got a bigger sales force. You got to make them comfortable with asking those types of questions of their customers. They don't have to be experts at the specialty products. We have experts on the sales side that support them, and that's where the cross-selling goes hand-in-hand. When you have the large customer base, and we did a large acquisition, and those customers weren't used to specialty products to the extent that, you know, Herc Rentals had.

Speaker #5: Yeah. I would say that our revenue synergy for 2026, we're on the plan where we need to be as we exit Q1 and as we look towards the rest of the year where we expected to be for all of our revenue synergies as it relates to cross-selling.

Speaker #5: It's cross-selling with the specialty business is really a two-front exercise. You got a bigger salesforce. You got to make them comfortable with asking those types of questions with their customers.

Speaker #5: They don't have to be experts at the specialty products. We have experts on the sales side that support them. And that's where the cross-selling goes hand in hand.

Speaker #5: But when you have a large customer base and we did a large acquisition and those customers weren't used to specialty products to the extent that HERC Reynolds had.

Aaron Birnbaum: That's where the cross-selling goes on. Those tens of thousands of customers introducing specialty solutions to them with the sales force that we onboarded from the H&E acquisition. It's really two parts, but a lot of relationship building internally. You know, we've been doing it for 9 months, and we like where we are right now, and we feel real comfortable about what we're gonna get done in this arena Q2, Q3 and Q4.

Speaker #5: So that's where the cross-selling goes on. Those tens of thousands of customers introducing specialty solutions to them with the salesforce that we onboarded from the H&E acquisition.

Speaker #5: So it's really two parts. But a lot of relationship building internally and we've been doing it for nine months. And we like where we are right now.

Speaker #5: And we feel real comfortable about what we're going to get done in this arena Q2, 3, and 4.

Kyle Menges: Great. Thank you.

Speaker #9: Great. Thank you.

Aaron Birnbaum: Thank you.

Aaron Birnbaum: Thanks, Kyle.

Mark Humphrey: Thanks, Kyle.

Speaker #5: Thank you.

Speaker #8: Thanks, Kyle.

Operator 2: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is open.

Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is open.

Speaker #6: Your next question comes from the line of Ken Newman with KeyBank Capital Markets. Your line is open.

Ken Newman: Hey, good morning, guys.

Speaker #10: Hey. Good morning, guys.

Mark Humphrey: Morning.

Aaron Birnbaum: Morning.

Speaker #8: Good morning.

Ken Newman: Morning. Mark, maybe, sorry if I missed this, but, you know, just going back to the cost synergies, I think you said that it was running ahead of schedule. Can you just maybe help us quantify how much were able to capture this quarter and just help us think about the revenue synergy capture progress through the rest of the year?

Speaker #9: Good morning.

Speaker #10: Morning. Mark, maybe sorry if I missed this, but just going back to the cost synergies, I think you said that it was running ahead of schedule.

Speaker #10: Can you just maybe help us quantify how much you've were able to capture this quarter and just help us think about the revenue synergy capture progress through the rest of the year?

Mark Humphrey: The intent of that comment was is that the $125 million or the incremental $90 million will lay into 2026, which was ahead of the originally scheduled sort of synergy lay that was supposed to come in over 2 years. That was the intent there, and I appreciate you asking that question. It's relatively ratable. I would say it's slightly back half loaded, but it's coming in reasonably ratably over the 4 quarters, Ken.

Speaker #8: Yeah. The intent of that comment was that the 125 million or the incremental 90 million will lay into 2026, which was ahead of the original scheduled sort of synergy lay.

Speaker #8: That was supposed to come in over a couple of years. So that was the intent there. And I appreciate you asking that question. It's relatively radical.

Speaker #8: I would say it's slightly, slightly back half-loaded. But it's coming in reasonably over the four quarters, Ken.

Ken Newman: Understood.

Mark Humphrey: So.

Ken Newman: Okay, that's helpful. For the follow-up, you know, I think we've been hearing some rumblings on improving oil and gas markets here in the States. I know H&E used to play a much larger role in those end markets. Curious if you could just maybe help us understand what the exposure to oil and gas is today with the H&E fleet and how you think about that opportunity and whether you're seeing that kind of pop up as potential starts opportunities in the next, you know, call it 12 to 24 months?

Speaker #10: Understood. Okay. That's helpful. And then for the follow-up, I think we've been hearing some rumblings on improving oil and gas markets here in the States.

Speaker #10: I know H&E used to play a much larger role in those end markets. Curious if you could just maybe help us understand what the exposure to oil and gas is today with the H&E fleet and how you think about that opportunity and whether you're seeing that kind of pop up as potential starts opportunities in the next call it 12 to 24 months.

Aaron Birnbaum: Yeah, a few points on that, Ken. First, our oil and gas mix of our business is less than 10%, all right? Before the acquisition and after. When you got $90 barrel oil, you're gonna have some surge in the upstream and some surge in the downstream. The downstream guys actually produce and make more margin. H&E had relationships with, since they had a big footprint along the Gulf, they had a lot of relationships with contractors that were industrial contractors. They might have worked in all facets of the industrial complex, not just oil and gas, but might have been the chemical complex. They didn't really have on-site downstream contracts, there weren't long-term contracts that we picked up with the acquisition.

Speaker #5: Yeah. A few points on that, Ken. First, our oil and gas mix of our business is less than 10%, all right? Before the acquisition and after.

Speaker #5: When you got $90 barrel oil, you're going to have some surge in the upstream and some surge in the downstream. The downstream guys actually produce and make more margin.

Speaker #5: H&E had relationships with since they had a big footprint along the Gulf, they had a lot of relationships with contractors that were industrial contractors they might have worked in all facets of the industrial complex, not just oil and gas, but might have been the chemical complex.

Speaker #5: They didn't really have on-site downstream contracts. So there weren't long-term contracts that we picked up with the acquisition. So our part of our business is still below 10%.

Aaron Birnbaum: Our part of our business is still below 10%. However, we made relationships with a lot of healthy H&E contractors that work in that space, as I mentioned. With $90 oil, you know, there's probably gonna be a, you know, increased activity in the Permian Basin and Texas and down the ship channel. You know, we're well-positioned for that. Our position in oil and gas didn't increase because of the acquisition. We like to keep everything diversified, so we like where we're at.

Speaker #5: However, we made relationships with a lot of healthy H&E contractors that work in that space, as I mentioned. So with $90 oil, there's probably going to be a increased activity in the Permian Basin in Texas and down the ship channel.

Speaker #5: So we're well positioned for that. But our position in oil and gas didn't increase because of the acquisition. We like to keep everything diversified.

Speaker #5: So we like where we're at.

Ken Newman: Got it. Thanks, guys.

Speaker #10: Got it. Thanks, guys.

Aaron Birnbaum: Thank you.

Speaker #5: Thank you.

Operator 2: Your next question comes from the line of Tami Zakaria with J.P. Morgan. Your line is open.

Operator: Your next question comes from the line of Tami Zakaria with J.P. Morgan. Your line is open.

Speaker #6: Your next question, comes from the line of Tammy Zakira with JPMorgan. Your line is open.

Tami Zakaria: Hi. Good morning. Thank you so much.

Speaker #11: Hi, good morning. Thank you so much, and congrats on the wonderful results. First question on fuel costs—that has been rising nationwide. Could you just remind us how you manage that risk in terms of your own costs, and how you pass it on to customers, and whether there's any lag?

Mark Humphrey: Morning, Tami.

Tami Zakaria: Congrats on the wonderful results. First question on fuel costs that have been rising nationwide. Could you just remind us how you manage that risk in terms of your own costs and how you pass it on to customers and whether there's any lag? Also, was the hedging different for legacy Herc versus H&E? Any color would be helpful.

Speaker #11: And also, was the hedging different for legacy HERC versus H&E? So any color would be helpful.

Aaron Birnbaum: Yeah. The price of oil, you know, rising nearly $100, that's something that the business has to really focus on. We take the input of the price of fuel, 3 different ways. 1, into our internal vehicles, service vehicles that we use to conduct our business. 2nd way is refueling of rental equipment. 3rd way is the logistics of our delivery apparatus to deliver equipment and pick up equipment all day long. you know, the 1st way, just our own assigned vehicles, there's not much we can do except buy better, right?

Speaker #5: Yeah. The price of oil rising nearly 100 bucks, that's something that the business has to really focus on. We take the input of the price of fuel of three different ways.

Speaker #5: One, into our internal vehicles service vehicles that we use to conduct our business. Second way is refueling of rental equipment. And then third way is the logistics of our delivery apparatus to deliver equipment and pick up equipment all day long.

Speaker #5: So the first wave, just our own assigned vehicles, there's not much we could do except buy better, right? Buy the gasoline at a favorable price point.

Aaron Birnbaum: Buy the gasoline at a favorable price point. The second piece is we do charge a fee to our customers if we have to refill the equipment when they rent it. We give them the option, Hey, you know, bring it back full, you know, no charge. Bring it back less than full, there is a charge. We have a fee for that. The logistics piece is the more complicated one because you have a lot of transactions happening every day across the entire network. We recover that by the delivery fee we charge for picking up and delivering. There's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events, macro geopolitically.

Speaker #5: The second piece is we do charge a fee to our customers if we have to refill the equipment when they rent it. So we give them the option: 'Hey, bring it back full.'

Speaker #5: No charge—bring it back less than full, there is a charge. So, we have a fee for that. And then the logistics piece is the more complicated one, because you have a lot of transactions happening every day across the entire network.

Speaker #5: And we recover that by the delivery fee we charge for picking up and delivering. And also, there's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events macro, geopolitically.

Tami Zakaria: Understood. That's very helpful. A similar question regarding freight rates, which have also been rising. Again, could you remind us if that is a risk you hedge, if you have long-term contracts with third-party haulers or more real-time rates that you pay?

Speaker #11: Understood. That's very helpful. A similar question regarding freight rates, which have also been rising. Again, could you remind us if that is a risk you hedge if you have long-term contracts with third-party haulers or more real-time rates that you pay?

Aaron Birnbaum: Yeah, we have a robust long-haul process when we have to broker third party freight. We have a robust process there, and we built that over the last 3 years. We know that we get a favorable price point compared to the market any day of the week. Whether the price of oil is at 60 or $100 per barrel, you know, we're getting a favorable price point. As the price per barrel goes up, you just can't avoid those costs. You try to, you know, pass on as much as you possibly can and try to anticipate how long it'll last for.

Speaker #5: Yeah. We have a robust long-haul process when we have to broker third-party freight. So we have a robust process there. And we built that over the last three years and we know that we get a favorable price point compared to the market any day of the week.

Speaker #5: So, whether the price of oil is at $60 or $100 per barrel, we're getting a favorable price point. As the price per barrel goes up, you just can't avoid those costs.

Speaker #5: You try to pass on as much as you possibly can. And try to anticipate how long it'll last for.

Tami Zakaria: Understood. Thank you.

Speaker #11: Understood. Thank you.

Aaron Birnbaum: Thank you.

Speaker #5: Thank you.

Operator 2: Your next question comes to the line of Steven Ramsey with Thompson Research Group. Your line is open.

Operator: Your next question comes to the line of Steven Ramsey with Thompson Research Group. Your line is open.

Speaker #6: Your next question, comes from the line of Stephen Ramsey with Thomson Research Group. Your line is open.

Steven Ramsey: Good morning, everyone.

Speaker #12: Morning, everyone.

Mark Humphrey: Morning.

Larry Silber: Morning, Steven.

Speaker #13: Morning.

Speaker #14: Morning, Stephen.

Steven Ramsey: From a high level, I was wondering if you could parse the specialty performance a bit. Clearly, it was strong. Maybe if you could talk about specialty excluding mega projects and if it's outpacing the local markets and maybe specialty on a same store basis when you exclude the new branches. Just different ways of the strength of specialty in the quarter and as you look forward.

Speaker #12: From a high level, I was wondering if you could parse the specialty performance a bit. Clearly, it was strong. Maybe if you could talk about specialty excluding mega projects and if it's outpacing the local markets and maybe specialty on a same-store basis when you exclude the new branches.

Speaker #12: Just different ways of the strength of specialty in the quarter and as you look forward.

Aaron Birnbaum: Yeah, Steven. You know, we don't break it out in that kind of detail, nor would we. You know, because it's, then you get into sort of segmentation, and we don't do that. Generally, the specialty business has been performing well. We saw double-digit growth in the quarter. We expect to continue to see that as it services all facets of our business. The mega-project business, our national account and big industrial contracts, as well as the local market activity, where we're penetrating on a greater basis as a result of our increased location count into that. Specialty will continue to grow. We're excited about it, but we can't and won't break out individual areas.

Larry Silber: Yeah, Steven. You know, we don't break it out in that kind of detail, nor would we. You know, because it's, then you get into sort of segmentation, and we don't do that. Generally, the specialty business has been performing well. We saw double-digit growth in the quarter. We expect to continue to see that as it services all facets of our business. The mega-project business, our national account and big industrial contracts, as well as the local market activity, where we're penetrating on a greater basis as a result of our increased location count into that. Specialty will continue to grow. We're excited about it, but we can't and won't break out individual areas.

Speaker #5: Yeah, Stephen. We don't break it out in that kind of detail, nor would we, just because then you get into sort of segmentation, and we don't do that.

Speaker #5: But generally, the specialty business has been performing well. We saw double-digit growth in the quarter. We expect to continue to see that as it services all facets of our business.

Speaker #5: The mega project business, our national account, and big industrial contracts as well as the local market activity where we're penetrating on a greater basis as a result of our increased location count into that.

Speaker #5: So specialty will continue to grow. We're excited about it, but we can't and won't break out individual areas.

Steven Ramsey: Okay. Understood. Been helpful. Then on disposals going through retail and wholesale, clearly a good story there. Can you talk about maybe on an innings basis or, however it makes sense, where you expect to be in 2026 versus the prior year? Do you hit maturity on that this year, or is that something beyond?

Speaker #12: Okay. Understood. Been helpful. And then on disposals going through retail and wholesale, clearly a good story there. Can you talk about maybe on an innings basis or however it makes sense where you expect to be in '26 versus the prior year and where you do you hit maturity on that this year?

Speaker #12: Or is that something beyond?

Mark Humphrey: Maturity related to what, Steven? Just in terms of where the fleet sits as we exit the year?

Speaker #5: Maturity-related to what, Stephen? Just in terms of where the fleet sits as we exit the year?

Steven Ramsey: More the fleet disposals that go through the higher margin channels.

Speaker #12: Yeah. More the fleet disposals that go through the higher margin channels.

Steven Ramsey: More the fleet disposals that go through the higher margin channels.

Mark Humphrey: I got you. I got you. Yeah. I mean, you know, this has been a couple-year journey, right? Like, we've been, you know, trying to flex, you know, these retail wholesale muscles. Q1 was a really good example of that. I mean, it was approaching sort of 70% into the retail wholesale channel. You know, that's the sweet spot for us. That's where we'd like to be. I think, you know, Q1, Q4 will be your heavy disposal quarters. Q2 and Q3 will be a little more moderated. I would anticipate that, you know, that's in our control, and we'll probably sort of remain in or around there as we sort of walk through the year.

Speaker #5: Oh, I got you. I got you. Yeah. I mean, we've been this has been a couple of year journey, right? We've been trying to flex these retail wholesale muscles and Q1 was a really good example of that.

Speaker #5: And it was approaching sort of 70% into the retail wholesale channel. That's the sweet spot for us. That's where we'd like to be. And I think Q1, Q4 will be your heavy disposal quarters.

Speaker #5: Q2 and Q3 will be a little more moderated. So I would anticipate that that's in our control, and we'll probably sort of remain in or around there as we sort of walk through the year.

Steven Ramsey: All righty. Thank you.

Speaker #12: All righty. Thank you.

Mark Humphrey: Thank you.

Speaker #5: Thank you.

Operator 2: Your final question comes to the line of Neil Tyler with Rothschild & Co Redburn. Your line is open.

Operator: Your final question comes to the line of Neil Tyler with Rothschild & Co Redburn. Your line is open.

Speaker #6: Your final question comes from the line of Neil Tyler with Rothschild & Company Redburn. Your line is open.

Neil Tyler: Yeah, good morning. Thank you. Just wanted to ask you guys about the sort of different flow-through dynamics in the H2 associated with things like, you know, the ramp-up in mega projects, which might potentially, I guess, hold margins back a bit and the specialty growth. Those two in combination seem to be contributing a larger proportion of your anticipated sort of demand upside in the H2. You know, can you sort of maybe help me think about how you're thinking about those factors playing through on, you know, margin overall and flow-through, you know, and, you know, underlying that.

Speaker #15: Hey, good morning. Thank you. Just wanted to ask you guys about the sort of different sort of flow-through dynamics in the second half associated with things like the ramp-up in mega projects, which might potentially, I guess, hold margins back a bit.

Speaker #15: And the specialty growth because those two in combination seem to be contributing a larger proportion of your anticipated sort of demand. Upside in the back half.

Speaker #15: So can you sort of maybe help me think about how your thinking about those factors playing through on margin overall and flow-through and underlying that?

Mark Humphrey: Yeah

Mark Humphrey: you know, what's happening? Thank you.

Neil Tyler: you know, what's happening? Thank you.

Speaker #15: What's happening? Thank you.

Mark Humphrey: Yeah. Sure, sure, Neil. I think, you know, as I said earlier, right, we are anticipating margin expansion inside of Q3 and Q4. If you sort of look back to, you know, where margin was last year, Q3 and Q4, you know, it was in this 45, 46 sort of range from a rental EBITDA perspective.

Speaker #5: Yeah. Sure. Sure, Neil. I think as I said earlier, right, we are anticipating margin expansion inside of Q3 and Q4. And so if you sort of look back to where margin was last year, Q3 and Q4, it was in this 45, 46 sort of range from a rental EBITDA perspective.

Mark Humphrey: You know, therefore, if I'm anticipating margin expansion, then that incremental margin, will certainly be greater than last year's 45 or 46. Can't get too terribly pointed there, but we are anticipating, margin expansion as sort of all of these initiatives come together and fuel revenue growth in the back half.

Speaker #5: And so, therefore, if I'm anticipating margin expansion, then that incremental margin will certainly be greater than last year's 45 or 46. And so, can't get too terribly pointed there, but we are anticipating margin expansion as all of these initiatives come together and fuel revenue growth in the back half.

Neil Tyler: That's great. Thanks a lot.

Speaker #15: That's great. Thanks, Mark.

Operator 2: I will now turn the call back over to Leslie Hunziker for closing remarks.

Operator: I will now turn the call back over to Leslie Hunziker for closing remarks.

Speaker #6: I will now turn the call back over to Leslie Hunziker for closing remarks.

Leslie Hunziker: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any questions, please don't hesitate to reach out to us. Have a great day.

Speaker #16: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any questions, please don't hesitate to reach out to us.

Speaker #16: Have a great day.

Operator 2: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Q1 2026 Herc Holdings Inc Earnings Call

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