Leslie Hunziker: Thank you, operator, and good morning, everyone. Today, we're reviewing our Q3 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 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.
Leslie Hunziker: Reconciliations for 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 management meetings at BNP Paribas' virtual global group call on 3 November 2026, the Baird Global Industrial Conference in Chicago on 10 November 2026, Rothschild & Co Redburn's Virtual CEO Conference on 1 December 2026, and the Melius Research Conference in New York on 9 December 2026. This morning, I am joined by Larry Silber, Chief Executive Officer, Aaron Birnbaum, President, and Mark Humphrey, Senior Vice President and Chief Financial Officer. I will now turn the call over to Larry.
Larry Silber: Thank you, Leslie, and good morning, everyone. Before we turn to the quarter, I want to take a moment to address the announcement we made yesterday. Leading this company has been an honor and a highlight of my career. After more than a decade as CEO, I have decided the time is right to transition to Executive Chairman at the start of next year. I am thrilled that Aaron Birnbaum will step in as Herc Rentals' next Chief Executive Officer on 1 January 2027. This transition reflects the strength of our succession planning and my complete confidence in Aaron and the entire leadership team.
Larry Silber: Aaron has been with HERC for more than 35 years. Over that time, he has served in key roles across branch operations, sales, regional field management, and executive leadership, and he understands this business as well as anyone in the industry.
Larry Silber: As our Chief Operating Officer, and most recently as President, Aaron has been instrumental in shaping our strategy and driving our operational excellence. There is no one better prepared to lead HERC into its next chapter. In my role as Executive Chairman, I will remain actively engaged, working closely with Aaron and the board on strategy, capital allocation, and continuing to build on the strong foundation we have established together. I could not be prouder of what this team has accomplished or more excited about where it is headed. This quarter is a great example of why. The Q3 was an outstanding period for Herc Rentals, and it reflects the strategic positioning we have built over the past year.
Larry Silber: As a reminder, in 2025, we closed the largest acquisition in our industry's history, and just nine months later, we completed the integration of H&E Equipment Services, which Aaron quarterbacked from start to finish. That work is now firmly behind us, and it has positioned us with a stronger and larger sales force, expanded scale, and increased fleet availability to capture a greater share of wallet across the robust mega-project pipeline. The Q3 is our first full quarter of comparable year-over-year combined results, and the underlying performance is clear. Equipment rental revenue increased nearly 12% on an average OEC fleet growth of less than 2%. That relationship, strong revenue growth on modest fleet growth, is the direct result of being good stewards of capital.
Larry Silber: We've managed our fleet assets tightly, aligned the right equipment to the right markets, and driven meaningful improvement in fleet efficiency with dollar utilization up 360 basis points in the quarter. This is exactly the kind of disciplined execution that defines Team HERC. Now turning to slide 5. We continue to follow our proven playbook, executing against our long-term growth strategies. First, we are growing the core. Our top-line growth continues to be led by national accounts, fueled by robust mega-project activity across data centers, infrastructure, manufacturing, and energy.
Larry Silber: Our increased scale and broader fleet capacity allow us to take on more of these large, complex projects and elevate our role with major contractors. Second, we are expanding specialty. Specialty revenues grew double digits year-over-year in the quarter, and specialty, once again, represents 20% of our total fleet at OEC, up from 17% a year ago.
Larry Silber: Specialty is a higher margin, higher return category, and we continue to disproportionately invest here to support mega-projects, our new specialty branches, and the cross-selling opportunities our larger customer base provides. Third, we are elevating technology. As an industry leader, our proprietary ProControl platform remains a true differentiator, giving customers the insights and controls they need to track, measure, and manage their fleet for a safer, more efficient job site. Finally, we continue to invest responsibly in our fleet to support highly visible customer demand while maintaining capital discipline and managing our balance sheet for the long term.
Larry Silber: Now moving on to slide 6. Our performance also reflects a culture built on accountability, collaboration, and shared commitment to our customers. As our organization has grown, that culture has kept our teams aligned and focused on consistent execution. Above all, safety remains our first priority.
Larry Silber: Our responsibility is to ensure our people have the training, tools, and well-maintained equipment to work safely and help our customers do the same. That commitment underpins everything we accomplish. With that, let me turn it over to Aaron to walk you through our fleet performance and our operating initiatives. Aaron?
Aaron Birnbaum: Thank you, Larry, for your leadership and mentorship over the years. I'm honored to step into the CEO role in January, and I look forward to continuing the great work we started together. I'm also excited to have the privilege of leading the best team in the industry. The expertise, resilience, and dedication Team HERC brings to our branches and our customers' job sites every day are truly what sets us apart. In the Q3, that dedication showed up in our results. Our expanded network, maturing specialty branches, broader fleet access, and stronger sales force are working together to serve more customer needs. The investments and integration work of the past year are translating into more effective execution across the organization and contributing to the H2 momentum we anticipated. Turning to slide 8.
Aaron Birnbaum: Our fleet management approach is about more than deciding what to buy and what to sell. It is about understanding customer requirements, coordinating equipment across our network, and getting the most productive use from the capital we already have invested. Our larger footprint gives us more flexibility to meet those requirements. We can draw on our broader equipment base, coordinate fleet across nearby branches, and support large projects without treating every new opportunity as a separate fleet purchase. That expert fleet management is central to the efficiency Larry highlighted. At the same time, we are making targeted investments where customer demand supports attractive returns. We added approximately $580 million of fleet at original equipment cost in Q3 or about $1.2 billion year to date, supporting lifecycle replacement, mega-project demand, and our expanding specialty offering.
Aaron Birnbaum: We also disposed of approximately $200 million of fleet at OEC versus $375 million in last year's Q3. The lower level of dispositions reflect a different operating priority. In Q3 2025, we were actively rightsizing and aligning the acquired fleets. Today, our focus is ongoing lifecycle management and refining the mix to match demand. A key part of refining that mix is our specialty offering. As Larry noted, specialty equipment now represents 20% of our total fleet at OEC. That matches our pre-acquisition mix. When we acquired H&E, which was weighted towards general rental equipment, our specialty share initially declined to 17%. Returning to 20% this quickly reflects our targeted investment in specialty equipment to meet customer demand and intentional cross-selling activities to achieve our revenue synergy goals. These assets generate higher dollar utilization and higher margins.
Aaron Birnbaum: But the value we bring goes beyond the equipment itself. Our specialty teams provide the expertise to help customers solve complex job site challenges, enabling us to address more of their needs and deepen those relationships. We continue to direct investment towards specialty and mega-project requirements while carefully managing general rental capacity in stable local markets. Ultimately, the goal is not simply a larger fleet. It is the right fleet deployed productively with returns guiding our decisions. On slide 9, the demand environment continues to be bifurcated and our diversification continues to serve us well. Local market activity remains stable overall. Infrastructure, government, and maintenance-related demand continue to help offset softness in interest rate sensitive commercial construction. National accounts, meanwhile, continue to lead our expansion. Our increased scale matters here.
Aaron Birnbaum: With greater branch density and a broader specialty offering, our sales teams can serve more of the customer's requirements across multiple projects and locations and strengthen relationships with major contractors. Our long-term diversification strategy remains focused on a balance of local and national accounts. The current strength of national account demand is an opportunity we are equipped to serve while maintaining the local presence and customer relationships that support resilience across the cycle. Slide 10 shows the breadth of that customer base. We serve contractors, industrial customers, infrastructure and government agencies, commercial facilities, and customers with event-driven requirements.
Aaron Birnbaum: Those end markets have different demand cycles, equipment needs, and service expectations. Our advantage is combining that breadth with sector expertise. A manufacturing facility, a utility project, and a data center may all need general rental equipment, but their special requirements and operating schedules can be very different.
Aaron Birnbaum: Our sales professionals and product specialists work together to build the right solution for each customer. The larger specialty network gives those teams more to offer. It also creates opportunities to introduce specialty solutions to customers who previously rented only general rental equipment from us. That is how diversification translates into business development, more ways to serve existing customers and more entry points into new accounts and less dependence on any single market. Turning to slide 11, the external forecasts provide context for the opportunities our teams are pursuing. Dodge's updated projection is for nearly $723 billion of US mega-project starts in 2026, well above the level we saw in 2025. For 2027, Dodge is currently reporting about $770 billion of mega-project starts with trillions of dollars more still working through the planning stages.
Aaron Birnbaum: As we discussed last quarter, we are targeting a 20% share of the mega-project rental opportunity over time, counting only our revenue from projects where HERC is a designated primary or secondary supplier. The pipeline we are pursuing continues to expand across project types and end markets. Our focus is converting those opportunities into rental activity through strategic project selection, coordinated fleet deployment, and reliable execution for customers. Turning to slide 12, this is the progression we outlined at the beginning of the year.
Aaron Birnbaum: The Q3 demonstrates how that preparation is translating into performance. Revenue synergies were an increasing contributor in the quarter, consistent with the H2 weighting we previously outlined. That momentum is the direct result of our operational progress. Our newer specialty locations are maturing. Our sales teams are successfully cross-selling the broader offering, and our larger network is enabling deeper penetration into national accounts.
Aaron Birnbaum: Beyond the acquisition synergies, we continue to focus on operating efficiencies at our larger scale. The logistics transformation initiative we discussed last quarter is a multi-year effort to improve routing, process rigor, cost recovery, and consistency across the network. Those priorities remain important, especially in an environment of elevated fuel and freight costs. As we move through the Q4, our operating agenda is straightforward. Serve the expanding project pipeline, maintain efficient fleet deployment, and keep improving execution across the network. The team has done the work to build this platform. Now we're putting it to work for our customers and shareholders. Mark will now take you through the financial results and our updated outlook. Mark?
Mark Humphrey: Thanks, Aaron, and good morning, everyone. I'm on slide 14 with a summary of our key financial metrics. Equipment rental revenue increased approximately 12% in the Q3, reflecting growth in both our general rental and specialty solutions offerings, driven by higher mega-project volume, pricing improvement, and improved fleet mix. This is our first full quarter with H&E included in both reporting periods. Last year's Q3 was still an active integration period, including fleet realignment, sales territory reallocation, and systems migration.
Mark Humphrey: So this quarter's results reflect the operating benefits of that early work. Total revenue increased approximately 5% in the quarter. The difference between rental revenue growth and total revenue growth primarily reflects lower revenue from equipment sales following the elevated dispositions associated with fleet optimization last year. Adjusted EBITDA increased about 9%, and adjusted EBITDA margin expanded 190 basis points to 44.2%.
Mark Humphrey: I want to distinguish the consolidated margin result from the performance of the rental business itself. With equipment sales lower year over year, rental revenue represented a larger proportion of total revenue, which benefited the adjusted EBITDA margin. REBITDA, which measures contribution from our core rental business, excluding equipment sales, increased roughly 10%, and REBITDA margin was 45.2%. While this was down 70 basis points year over year, the headline understates the underlying strength of the rental business. Higher rental volume, pricing improvement, and H&E revenue and cost synergies all benefited margin.
Mark Humphrey: However, this quarter, those benefits were more than offset by core operating cost inflation, higher field incentive compensation tied to operational outperformance, particularly in fleet efficiency, and fuel and freight inflation. On fuel and freight, specifically, these pressures, including the related ancillary revenue mix effect, accounted for approximately 100 basis points of year-over-year REBITDA margin pressure.
Mark Humphrey: That compares with 170 basis points of pressure in the Q2. So even with diesel costs higher sequentially, we delivered significantly improved recovery quarter over quarter. While we continue to focus on improving delivery economics and transportation efficiency across our network, including through the logistics transformation initiative Aaron discussed. Adjusted net income was $131 million, or $3.91 per diluted share. Turning to slide 15, we generated $133 million of free cash flow through the first 9 months of the year.
Mark Humphrey: We ended the quarter with ample liquidity of $2.1 billion and net leverage of 3.9 times, down from 3.95 times at the end of June. We also paid our regular quarterly dividend of $0.70 per share. Our capital allocation priorities remain consistent. Invest where we see attractive returns, maintain financial flexibility, and reduce leverage as the earnings contribution from our larger platform builds.
Mark Humphrey: That brings me to our updated outlook on slide 16, which reflects the expanding mega-project portfolio in front of us. You can see the new guidance ranges here. At the midpoint, we now expect full-year equipment rental revenue of $4.513 billion and adjusted EBITDA of $2.13 billion, up about 2% from the previous guidance. We are also increasing our net fleet CapEx to approximately $1.05 billion at the midpoint, driven by an increase in gross purchases that will be partially funded by higher fleet dispositions. This additional investment is primarily for specialty equipment to support newly won or expanded mega-project assignments in the Q4. It is tied to identified customer requirements, not a speculative fleet build or an assumption of a broader market recovery.
Mark Humphrey: These are multiyear projects and the equipment we add in the Q4 will be in place to serve customers for the entirety of 2027 and beyond. Because of this, we view this roughly $150 million of incremental net fleet CapEx as effectively being pulled forward from our 2027 fleet budget. These assets also help us maintain manageable time utilization and availability needed to deliver reliable service. We are balancing the productive use of our fleet with a capacity to respond to customers rather than maximizing utilization at the expense of availability. Importantly, the updated guidance continues to reflect substantial fleet efficiencies. At the new midpoint, we expect H2 equipment rental revenue growth of approximately 14% on average OEC fleet growth of approximately 4%, culminating in full-year pro forma rental revenue growth of about 8% on roughly 2% average OEC growth.
Mark Humphrey: We're generating meaningfully more revenue from our asset base while selectively adding equipment where customer demand supports attractive returns. What does this CapEx increase mean for our free cash flow and deleveraging path? First, our 2026 free cash flow guidance remains unchanged at $250 million to $350 million.
Mark Humphrey: Second, and more importantly, because this equipment is tied to immediate mega-project demand, it will go on rent and begin contributing to EBITDA right away in Q4. But the real power of the investment is in 2027 and beyond when we capture the full-year EBITDA benefit of these high-margin specialty assets. As a reminder, growing EBITDA is the single most powerful lever we have for reducing our leverage ratio. By securing this fleet now for committed projects, we are rapidly growing the denominator of that ratio. This investment doesn't delay our deleveraging path, it actively supports it.
Mark Humphrey: It gives us a higher EBITDA baseline entering next year and will be evaluated as 2027 capital as we build out next year's fleet plan. Deleveraging is a top priority and we remain focused on returning to the top of our targeted leverage range by the end of 2027. The bottom line, demand continues to exceed our expectations and our team is capturing that opportunity through active asset management and targeted deployment. As a result, we're raising our earnings outlook and strengthening the setup for 2027. Now, let's open it up for questions. Operator?
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Rob Wertheimer with Melius Research. Your line is open.
Rob Wertheimer: Thank you.
Operator: Please go ahead.
Rob Wertheimer: Sorry. Thank you. Good morning, and congratulations, Larry.
Larry Silber: Thank you.
Aaron Birnbaum: Morning, Rob.
Rob Wertheimer: I think you kind of touched on some of the headwinds to margin in the quarter. You have, obviously, the fuel and some other things. Do you think that you are getting as much rate as you need to offset natural inflation? Do you think that we see higher incrementals as you kind of roll through the next quarter with the full kind of entity operating as a unified whole?
Mark Humphrey: Yeah. It's a great question. I think that, obviously, rate is always a focus. I think when we evaluated Q3, it performed about where we thought it would. But at the same time, I would say that from a 1-year view, rate is not at the same level as inflation, particularly in mind of the fuel and the freight impacts. That's always a focus for us, and we'll continue to focus on that as we round into 2027.
Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is open. Please go ahead.
Tami Zakaria: Hi. Good morning. Thank you so much. Very nice quarter. I know it's probably a little too early, but as you think about next year, any preliminary thoughts on whether rental revenue growth can outpace OEC growth to the same degree we saw in Q3, and what you're expecting for Q4?
Mark Humphrey: Yeah. I think, if you look at Q3, that was a 12 over a 2. I think if you look at the midpoints, as I said, you're kind of looking at a 16 at the midpoint, rev growth on fleet growth of 5. I think some of that continues into the front half of next year, Tammy, but begins to normalize a bit more as you get into Q3 and Q4 of 2027. I think I would say, fleet efficiency is always our mantra. It will continue to be something that we focus on.
Mark Humphrey: I think that, in this environment, the good news is that the fleet adds aren't necessarily speculative. We know what we're buying, and we know that fleet is going on rent, which certainly helps this fleet efficiency. I think we'll continue to do that as we walk into 2027.
Tami Zakaria: Understood. That is very helpful. Then quickly, could you remind us how much incremental synergies in terms of revenues and cost you have left or you are expecting in 2027?
Mark Humphrey: Yeah. We said we were going to get 90 incremental on the cost side and 110 to 120 incremental on the rev side. I would say, as we sit here today, both of those are on track. I have said that we will give sort of a full report out come February of sort of how both of those things performed. But I think the message today is both are on track.
Operator: Your next question comes from the line of Mig Dobre with Baird. Your line is open. Please go ahead.
Mig Dobre: All right. Thank you for the time, and Aaron and Larry, congrats to both of you. My first question is on dollar utilization. That looked quite good this quarter, and unless I am wrong in my model here, I got to go back to 2022 to find a Q3 that looks similar to this one. So I guess my question, as we sort of think about especially the forward outlook, Q4, but even into 2027, how should we think about dollar utilization, maybe relative to a strong year like 2022? Is it possible that we are going to see, on a seasonally adjusted basis, obviously, but similar performance as to what we have there?
Mig Dobre: And what are some of the moving pieces that you would encourage us to consider here in terms of what you can physically get in terms of physical utilization from the equipment relative to rental rates or mix or anything else?
Aaron Birnbaum: Hey, Mig. Thank you. I will take that question. The inputs to dollar use for us in the quarter were definitely our specialty business getting back to 20% of our fleet. With the premium nature of that type of fleet and the returns you get, that really helped us get that dollar use to that level in Q3. Timing was strong. That is the other input. I would not call it a record, and we still have work to do on certain categories as we invest in Q4 and going into next year. But those are the two inputs. Pricing was starting to improve as we went through the rest of the year. We really had to get through the integration and start to harmonize our business in a lot of ways. So those are the three inputs.
Aaron Birnbaum: When we look at where do we go from here, we are happy with where we were in Q3 with that dollar use. We think that our first goal is to get back to where we were pre-acquisition, which is like a 42% annual run rate, and then we will continue to build annually on top of that. The more you can get your specialty business as a part of your business, it is going to give some fuel to that overall dollar, and that is our mission as we go out beyond just 2027.
Mig Dobre: All right. That is helpful. My follow-up, since you brought up the mix and that specialty is now 20% of the overall OEC, I also heard you say that some of the increased CapEx is almost like a pull forward relative to 2027. I understand you are not providing guidance today, but I am curious as to what the right general framework is to think about CapEx, and frankly, to think about free cash flow here as well, as we think about the path for de-levering hopefully by year-end 2027. Thank you.
Mark Humphrey: No, it is certainly a fair question, Mig. I think it will be a combination of those two. I think my prepared remarks, I think in order to de-lever coming out of 2027 to the top end of that, EBITDA growth will be paramount in that. It does not mean we are turning our back on free cash flow. But we will provide the growth capital necessary to continue to support our customers. And with that, I think it is first and foremost EBITDA growth, free cash flow, in terms of the mix, to get you to the top end of that guide as we walk out of 2027.
Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.
Jerry Revich: Hi, good morning, everybody, and Larry and Aaron, congratulations. Larry, I was just looking back when you took over the business was about EPS breakeven, dollar ute was about 10 points lower. So, congratulations on the fantastic improvement in the profile of the operations. I wanted to ask on the outlook for pricing that Aaron and Mark, you spoke to. Typically, time ute leads pricing, and it sounds like pricing for you folks improved over the course of the quarter. Is it fair to think about pricing accelerating into year two of the recovery as we typically see for your business, or is there anything we need to keep in mind compared to that normal cyclical pattern where you folks have a time ute acceleration this year and pricing acceleration should hopefully follow?
Larry Silber: Yeah. Hey, Jerry. Thanks for the kind words. Much appreciated. As you know, pricing has always been top of mind for me and for Herc since I got here, and we are focused on it. We are operating in a very rational and constructive pricing environment right now. Supply dynamics are healthy. Cost inflation, including fuel and freight, is an incremental incentive to raise rate. However, the magnitude of the inflection will depend on the spot market recovery going forward.
Jerry Revich: Okay. Thank you, Larry. Can I ask, in terms of where you folks are delivering more equipment, the semi fab CapEx outlook is for roughly a doubling 2027 versus 2026. Can you just talk about the magnitude of deliveries that you have already made to these sites? They are well-positioned relative to your footprint. Just curious what you folks are seeing in the planned delivery onto those sites over the next couple of quarters based on what your visibility looks like.
Aaron Birnbaum: Jerry, it sounds like you are specifically asking about chip plants. Is that right?
Jerry Revich: That is right. That is right, Aaron. Yeah, that is right. Given your footprint, that is exactly right.
Aaron Birnbaum: Yeah. We feel like we are well-positioned there. There was an initial wave, I guess maybe it was 2021, 2022, with a lot of chip plant activity, and we did not have the footprint we have today then. But we were able to secure a fair amount of activity from those plants that came online at that time. And now there is another wave, if that is what you are referring to.
Aaron Birnbaum: So yeah, that is something we are monitoring. We feel like we are well-positioned. Those are great projects. They have very long project timelines. They last several years. And some of the ones we have seen in the news are extremely large projects. So we are excited about that, and I think it is helpful just for your overall diversification of the mega landscape, that those big projects are coming out again in different parts of the US. So, we feel like we are well-positioned for that.
Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is open. Please go ahead.
Ken Newman: Hey, thanks. Good morning, guys. Larry, congrats on the transition and looking forward to working with you more, Aaron, going forward.
Aaron Birnbaum: Thank you.
Ken Newman: First question from me. The operating leverage this quarter was a lot more impressive than I would have expected. I know you are not ready to talk about 2027 guidance yet, but from a high-level perspective, is there a way to think about baseline EBITDA flow through if the market dynamics continue to be this strong? I know there are lots of puts and takes on the synergy capture and what the mix of the fleet is doing, but 90% EBITDA flow through, I think is maybe the strongest I have ever seen. It seems like the next quarter is going to be even stronger, potentially. Just trying to level set the expectations for next year in terms of how that could flow through.
Mark Humphrey: Yeah. From a prepared remarks perspective, Ken, I tried to touch on that a little bit, right? The sort of benefit to the quarter was sort of a decrease in dispositions of fleet in that comp, right? I think that certainly begins to normalize as we work our way through 2027 into a more normalized comp as well. I think the way high level 2027 plays out is front half comps are much more favorable than the back half comps. Then I think you think about the growth coming. Aaron talked about tighter time utilization in Q3 and anticipated into Q4. I think that carries through into the front half of the year, and then the back half of the year is supported by incremental fleet growth as we work our way through 2027.
Mark Humphrey: So that kind of 5,000 foot view, Ken, is sort of how I would think about the overall sort of activity of 2027.
Ken Newman: Understood. Then maybe just a quick one here. Solid work in offsetting the headwinds from higher transportation costs. I think you said it was about 100 basis points of headwind. If I remember correctly, I think you guys were looking for about 150 this quarter. Sorry if I missed this. Are you still expecting 100 basis points of margin headwind for the full year from delivering in ancillary costs?
Mark Humphrey: You are probably not too far off if Q4 behaves the way Q3 behaved, right? We have done yeoman's work on sort of the recovery on the refuel side of this, and that came through this quarter. The reality of that, though, is you have got more fuel revenue, which is sort of not necessarily accretive to your overall business margins, right? So you got a little bit of overhang there as this elevation of fuel comes through. We have recovered sort of the margin to pre-inflation, so yeoman's work there. The pieces of this that remain problematic are really the sales and service vehicles and sort of that inter-branch transfer component, which has sort of got all of that same fuel increase running through it. So we will continue to focus on all of those.
Mark Humphrey: Quite honestly, the biggest sort of go get is incremental price and overall efficiency of the freight operation to sort of mitigate those factors. I think the other thing I would say, right, if this continues into 2027, you do get a comp break when you get to Q2 of 2027 because that is when this first elevated fuel started coming through. So even in the event of it continuing, we will get sort of the benefit of the work we have done as we comp into next year.
Operator: Your next question comes from the line of Kyle Menges of Citigroup. Your line is open. Please go ahead.
Kyle Menges: Thank you, and congrats, Larry and Aaron. I wanted to touch more on mega projects. Last quarter, you did up your target market share on mega projects. I am curious how you are seeing that track as we progress through 2026. You had a good slide on the pipeline of projects for 2027. I am sure you are already having conversations with those customers now. Based on how those customer conversations are progressing, I am curious if you would anticipate your mega project share to be higher next year versus this year.
Aaron Birnbaum: Yeah, Kyle, thank you. Regarding our position in megas, it has been a good tailwind for us this year. I think as we got through the middle of the year, it got stronger and stronger. With that visibility and kind of fully integrating the H&E acquisition, we thought that we had hit the top end of our 15% share in the mega arena, and we wanted to move the needle, right?
Aaron Birnbaum: Because we thought we had more capabilities capacity. So we moved it to 20%. That will take us some time to get there. It will not happen in 2027. We view it as a kind of a few year kind of journey. But our capabilities will help us get there. When we look at the setup, now we are in the Q4, the setup for next year, the pipeline is strong.
Aaron Birnbaum: We are getting more wins, and it is partly the reason why we had to take the CapEx up in the Q4 to get some of that fleet in place for the beginning of the year start. We view next year as robust and solid in the mega space as 2026. I think our capabilities, our new scale are really the reasons that we are able to kind of move our position and strengthen it and ultimately, like you mentioned, get to 20% share in the mega project arena.
Kyle Menges: That is helpful, Aaron. A follow-up on that. It looks like just from your slide deck, you are sticking to that long term target of 60% local mix. In light of the strength in mega projects, and today you are below that mix, I guess I would like to hear your thoughts on why that 60% local mix is still the right mix long term.
Aaron Birnbaum: Yeah. In our opinion, we've always had, since Larry became the CEO, we've had an urban market strategy. That's how we've built out our network to get scale in the largest. Initially, it was the largest 50 markets, now it's the largest 100 markets. There's parts of the local market that are attractive. The price point for rental is stronger than on the large customer side. We're just in a cycle right now where the big projects are swinging up and the local market is stable, as we've been saying for the last few quarters, and we know that cycle will change again, so we want to be prepared for when that happens. The H&E acquisition was a local market play.
Aaron Birnbaum: It gave us the scale, and that's a big part of this rental industry, and not something we want to take our eyes off of, because diversification is the key. We want to make sure we're in all those situations where we can be successful.
Operator: Your next question comes from the line of Neil Tyler with Rothschild & Co Redburn. Your line is open. Please go ahead.
Neil Tyler: Yeah, thank you. Good morning. Just wanted to come back to the topic of synergies, actually. The component of the revenue synergies that you have targeted that relates to evening up the rate at the H&E customers. Can you talk a little bit around how that is progressing in what is an improving rate environment, whether that actually makes that more achievable or even potentially more difficult? Then Mark, if you'd just remind us, in terms of the flow-through on those revenue synergies, how you're thinking about that currently.
Aaron Birnbaum: All right, Neil, it's Aaron. I'll take the first part of that. As it relates to the synergies and rate and the acquisition, we're really happy where our synergies have landed for the first year and a half since we closed on the transaction. Our teams have worked very hard and it's been a great story. One piece is we're able to expand our specialty network, and the other piece is we're able to drive revenues with customers that typically wouldn't have rented those equipments from H&E at the time.
Aaron Birnbaum: We really drove that synergy. Now we're going on into the subsequent year. It's kind of a 3-year play, revenue synergies is for us. When we purchased the business, the price point was lower than the Herc Rentals price point. We view that in 2 pieces. One is the spot market.
Aaron Birnbaum: Which is the local market, it's the transaction market that happens every day. We bolted that business on to our algorithm pricing tools within a few months. That started to kind of match up with what Herc was typically charging for those type of transactions. I think we got the benefit of the scale of the business, but also the market dynamics of a tightening utilization going out there. That built some momentum for pricing opportunity. The second piece that we mentioned, and I'll remind, is that H&E did have some contract customers. Call it 30% of their business was contract customers. We said it would take us 3 years to match those rates with those customers that Herc expected. We weren't going to go get it all at the same time.
Aaron Birnbaum: What was most important is holding on to those customers and driving our synergies and our part of diversification to them and building strong relationships. We viewed it as taking one-third of price lift over a 3-year period, and at 3 years, we would get there. We've been doing that. The first year, we took that one-third piece, and it might not have been exactly the price we want on existing Herc customer, but we did move the needle. Now we're going into the second year. I think that the time utilization, the health of the market is our tailwinds to helping us achieve that goal. We look toward next year as another year of turning the needle a bit, and becoming more sticky with the customers so we have more opportunities to do that.
Aaron Birnbaum: We have some work to do to harmonize that piece of the business. We started doing that in the back half of this year. As we roll into next year, our pricing harmonization will improve, we believe.
Mark Humphrey: Neil, the second part of your question. The original assumption as the guide was laid out, was somewhere in that 65% to 70% flow-through on revenue synergies. I think that you are probably at the low end of that as we are sort of walking through 2026. I think as the branch optimization and all of those underlying branches mature, I think you get to something that is closer to 70% in the out year.
Neil Tyler: Great. Thanks, guys. That is really helpful.
Mark Humphrey: Thanks, Neil.
Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group. Your line is open. Please go ahead.
Steven Ramsey: Good morning, and my congratulations to everyone. I wanted to hear a bit more on your positioning on mega projects. Do you find yourself more and more being a prime supplier versus a secondary as you move through this year or what you are bidding on that will hit next year? Are there any intentional strategic moves you are making on how you are positioned on these projects?
Aaron Birnbaum: Steven, it is a good question. As we mentioned in the prepared remarks, when we talk about our position in megaprojects, it is always about, hey, do we have a secondary or a primary position? Are we the first or second supplier with an agreement with the customer? We do not really measure the tertiary activity that is going on. As we have gone through the last 12 months, our positioning has strengthened. I would say those are related to two issues. One is our strengthening position and relationship with large GCs.
Aaron Birnbaum: Those are the ones that are doing most of the projects. The H&E acquisition gave us the scale to build the confidence and the fleet to go move in quicker and the confidence that we can execute on those jobs. General contractors on megaprojects, and people in the industry know this, they want to make sure you can execute right.
Aaron Birnbaum: They are not taking too many chances on an entity that cannot provide the safety, cannot provide the high-quality equipment, and the technology and the response to the service that is required. So the more we position as a one or two, the more we expect that we will win more new opportunities. Having a strong national account team is really critical to that. Then you have to have the operational acumen to mobilize. When you are mobilizing this kind of fleet, it is an exercise. The fleet planning, the demand planning of what is going to be needed on the job, and then the forward operating view on what needs to happen out there. We have teams that we have put together over the last several years, that that is what they do.
Aaron Birnbaum: It is not something we had five years ago, but we have dedicated operations sales teams that focus in this arena because it is the opportunity where we have the capabilities, and that is where we want to go find revenue opportunities for the company.
Steven Ramsey: Okay. That is helpful. On the specialty locations gaining momentum, are they at a point where you need more fleet on them to keep growing, or is it more get operations more in line before adding fleet to those new locations?
Larry Silber: Yeah, good question, Steve. This is Larry. Look, these specialty locations are ramping. These new 50 locations are ramping as we would expect. But just like any business, as they mature, you continue to give them the ability to ramp and acquire fleet as they show that they have matured in terms of technical knowledge, in terms of customer reach and ability to achieve fleet efficiency. So we are not there yet in the vast majority of them, and there is ample opportunity in the future as they continue to mature in those markets to add more capital as they grow and they grow efficiently.
Operator: Your next question comes from the line of Seth Weber with BNP Paribas. Your line is open. Please go ahead.
Seth Weber: Hey, guys. Good morning. Sorry if I missed this, but Mark, in your prepared comments, you used the phrase, "pull forward on CapEx." Sorry if I missed this, but should we assume that CapEx for 2027 is going to be up at this point? I am just trying to think about what that phrase pull forward means for next year. Thanks.
Mark Humphrey: Yeah, no. Fair question. I think what that really means is that we are viewing that, call it $150 million at the midpoint, as part of the 2027 CapEx. The beauty of that fleet is it now works for us the entirety of the year. Generally speaking, you think about fleet adds and you divide by 2 to think about the benefit you are getting from those fleet adds in any given year. So we are contemplating that fleet as part of the 2027 plan. Not ready to publicize the overall gross fleet CapEx yet for 2027. We are still working through all of that, as you would imagine. But come February, we will provide that guide.
Seth Weber: Okay, thanks. And then just local markets being stable, I think that has been your message for a while now. Are you still thinking that we need a decline in interest rates for that to turn more positive? I am just trying to think through what could get the local markets to be better here in the intermediate term.
Larry Silber: Yeah, Seth, look, absolutely. We believe that is a big key to what I would call continued development and growth above a stable market. Really requires that commercial market to accelerate, and that commercial market is not going to accelerate unless there is an appropriate interest rate environment for that. You got to look at the 10-year Treasury and what is happening there, and that will impact where that market goes. But look, we are firmly positioned in the local markets, particularly in the large, more densely populated areas. And once that turns around, we will participate certainly in an outsized way to retrieve results and capture share in those markets.
Operator: We have reached the end of the Q&A session. I will now turn the call back to Leslie Hunziker for closing remarks.
Leslie Hunziker: Thank you for joining us on the call today. We certainly look forward to updating you on our progress in the quarters to come. Of course, if you have any further questions, please don't hesitate to reach out. Have a great day.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
