Q4 2025 Herc Holdings Inc Earnings Call

February 17, 2026

Speaker #2: 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 * followed by the number 1 on your telephone keypad.

Speaker #2: If you would like to withdraw your question, simply press * 1 again. I would now like to turn the conference over to Leslie Hunzeker, Head of Investor Relations, you may begin.

Speaker #4: Thank you, operator, and good morning, everyone. Today we're reviewing our fourth quarter and full year 2025 results with comments on operations and our financials, including our view of the industry and our strategic outlook.

Leslie Hunziker: Thank you, operator, and good morning, everyone. Today, we're reviewing our Q4 and full year 2025 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 an open 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, and our annual report on Form 10-K, as well as other filings with the SEC. Today, we are reporting financial results on a GAAP basis, which includes H&E results for June through December of 2025.

Speaker #4: The prepared remarks will be followed by an open 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.

Speaker #4: These risks and uncertainties include, but are not limited to, the factors identified in the press release and our annual report on Form 10-K, as well as other filings with the SEC.

Leslie Hunziker: These risks and uncertainties include, but are not limited to, the factors identified in the press release, and our annual report on Form 10-K, as well as other filings with the SEC. Today, we are reporting financial results on a GAAP basis, which includes H&E results for June through December of 2025.

Speaker #4: Today we are reporting financial results on a gap basis, which includes H&E results for June through December of 2025. In addition, we'll be discussing non-gap information that we believe is useful in evaluating the company's operating performance.

Leslie Hunziker: In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. 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 Q1 management meetings at the Barclays 43rd Annual Industrial Select Conference and Citi's Global Industrial Tech and Mobility Conference in Miami tomorrow and Thursday. Then we'll be back in Miami on 3 March for the JP Morgan Leveraged Finance Conference. Last, we'll be attending the JP Morgan Industrials Conference in Washington, DC on 17 March. 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 #4: Reconciliations for these non-gap measures to the closest gap equivalent can be found in the conference call materials. Finally, please mark your calendars to join our first quarter management meetings at the Barclays 43rd Annual Industrial Select Conference and Citi's Global Industrial Tech and Mobility Conference in Miami tomorrow and Thursday.

Speaker #4: Then we'll be back in Miami on March 3rd for the JPMorgan Leveraged Finance Conference. And last, we'll be attending the JPMorgan Industrials Conference in Washington, DC, on March 17th.

Leslie Hunziker: Then we'll be back in Miami on 3 March for the JP Morgan Leveraged Finance Conference. Last, we'll be attending the JP Morgan Industrials Conference in Washington, DC on 17 March. 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 #4: This morning, I'm joined by Lawrence 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 #5: Thank you, Leslie, and good morning, everyone. 2025 was a truly transformational year for our company. In June, we completed the largest acquisition in our industry's history, a milestone that expands our scale, strengthens our capabilities, and accelerates our long-term growth strategy.

Larry Silber: Thank you, Leslie, and good morning, everyone. 2025 was a truly transformational year for our company. In June, we completed the largest acquisition in our industry's history, a milestone that expands our scale, strengthens our capabilities, and accelerates our long-term growth strategy. From day one, our focus has been on thoughtful integration, moving with urgency where it matters, while remaining disciplined in preserving the strengths of both organizations. I'm extremely pleased with how well the collective team Herc has executed against our integration priorities in the eight months since closing. Employees across the company stepped up with extraordinary effort and commitment. Successfully integrating a transaction of this size while continuing to serve customers at the highest levels requires focus, collaboration, and execution, and our teams have delivered.

Speaker #5: From day one, our focus has been on thoughtful integration, moving with urgency where it matters, while remaining disciplined in preserving the strengths of both organizations.

Speaker #5: I'm extremely pleased with how well the collective team HERC has executed against our integration priorities in the eight months since closing. Employees across the company stepped up with extraordinary effort and commitment, successfully integrating a transaction of this size while continuing to serve customers at the highest levels requires focus, collaboration, and execution.

Larry Silber: I'm extremely pleased with how well the collective team Herc has executed against our integration priorities in the eight months since closing. Employees across the company stepped up with extraordinary effort and commitment. Successfully integrating a transaction of this size while continuing to serve customers at the highest levels requires focus, collaboration, and execution, and our teams have delivered.

Speaker #5: And our teams have delivered. The integration action taken in the fourth quarter further bolstered the critical work done in the third quarter where we expanded our field operating structure to 10 U.S.

Larry Silber: The integration action taken in the Q4 further bolstered the critical work done in the Q3, where we expanded our field operating structure to 10 US regions, adding key leadership roles to ensuring operating continuity and scalability, completed a comprehensive sales territory optimization exercise to restructure coverage and transition the acquired branches under Herc technology stack in record time. As you can see on slide 5, during the Q4 and Q1 seasonal shoulder periods, we've continued our focus on 4 key priorities to complete the integration of the acquired assets. This work positions us to ramp into peak season from a new, stronger foundation, allowing us to execute more effectively and drive accelerated growth in the back half of the year. First, the branch network optimization.

Speaker #5: regions, adding key leadership roles to ensuring operating, continuity, and scalability, completed a comprehensive sales territory optimization exercise to restructure coverage, and transitioned the acquired branches onto HERC's technology stack in record time.

Speaker #5: As you can see on slide 5, during the fourth and first quarter seasonal shoulder periods, we've continued our focus on four key priorities to complete the integration of the acquired assets.

Larry Silber: As you can see on slide 5, during the Q4 and Q1 seasonal shoulder periods, we've continued our focus on 4 key priorities to complete the integration of the acquired assets. This work positions us to ramp into peak season from a new, stronger foundation, allowing us to execute more effectively and drive accelerated growth in the back half of the year. First, the branch network optimization.

Speaker #5: This work positions us to ramp into peak season from a new, stronger foundation, allowing us to execute more effectively and drive accelerated growth in the back half of the year.

Speaker #5: First, the branch network optimization. One of our core integration priorities is expanding specialty solutions capabilities across a combined network to support the cross-selling opportunities created by the acquisition.

Larry Silber: One of our core integration priorities is expanding specialty solutions capabilities across a combined network to support the cross-selling opportunities created by the acquisition. We've made great progress selectively consolidating general or rental equipment within facilities in the same market to open up space for standalone specialty branches, while in other general rental locations, we're adding specialty fleet to expand branch capabilities. Through these actions, we'll increase the number of standalone or co-located specialty branches by approximately 25%. As of Q4, we've completed 80% of the planned branch optimization, which will be finished next month. Integrating the fleet was another critical milestone following the acquisition. Right out of the gate, we began a comprehensive restructuring of the combined assets, addressing size, age, category, classes, and brands to ensure alignment with customer demand and market opportunities.

Speaker #5: We've made great progress selectively consolidating general rental equipment within facilities in the same market to open up space for standalone specialty branches. In other general rental locations, we're adding specialty fleet to expand branch capabilities.

Speaker #5: Through these actions, we'll increase the number of standalone or co-located specialty branches by approximately 25%. As of the fourth quarter, we've completed 80% of the planned branch optimization which will be finished next month.

Larry Silber: Through these actions, we'll increase the number of standalone or co-located specialty branches by approximately 25%. As of Q4, we've completed 80% of the planned branch optimization, which will be finished next month. Integrating the fleet was another critical milestone following the acquisition. Right out of the gate, we began a comprehensive restructuring of the combined assets, addressing size, age, category, classes, and brands to ensure alignment with customer demand and market opportunities.

Speaker #5: Integrating the fleet was another critical milestone following the acquisition. Right out of the gate, we began a comprehensive restructuring of the combined assets—addressing size, age, category classes, and brands—to ensure alignment with customer demand and market opportunities.

Speaker #5: By year-end, the fleet was realigned with the right equipment in the right locations. This positions us well as we move through 2026 with a stronger product portfolio and enhanced flexibility while setting us up to be able to improve time utilization as we scale our sales force and as demand evolves seasonally across regions and markets.

Larry Silber: By year-end, the fleet was realigned with the right equipment in the right locations... This positions us well as we move through 2026, with a stronger product portfolio and enhanced flexibility, while setting us up to be able to improve time utilization as we scale our sales force and as demand evolves seasonally across regions and end markets. Along that vein, sales force assimilation is showing good progress. Integrating the sales organization has been a major focus since the transaction closed. We've been scaling the sales team to align with larger market opportunity while investing in training, leadership support, and deeper adoption of our CRM systems, sales models, and our broader fleet offering. We're now seeing improvement in proficiency across the go-to-market strategy and pricing systems, which is beginning to translate into more consistent execution, better customer engagement, and early cross-selling success.

Speaker #5: Along that vein, Salesforce Assimilation is showing good progress. Integrating the sales organization has been a major focus since the transaction closed. We've been scaling the sales team to align with larger market opportunity while investing in training, leadership support, and deeper adoption of our CRM systems, sales models, and our broader fleet offering.

Larry Silber: We've been scaling the sales team to align with larger market opportunity while investing in training, leadership support, and deeper adoption of our CRM systems, sales models, and our broader fleet offering. We're now seeing improvement in proficiency across the go-to-market strategy and pricing systems, which is beginning to translate into more consistent execution, better customer engagement, and early cross-selling success.

Speaker #5: We're now seeing improvement in proficiency across the go-to-market strategy and pricing systems, which is beginning to translate into more consistent execution that our customer engagement and early cross-selling success.

Larry Silber: Productivity improvement and cost efficiencies across the entire organization are the fourth area of focus. By operating from unified systems and aligning to standardized processes, we're already recognizing meaningful results. On a pro forma basis, employee productivity increased year over year in 2025. New team members across the organization are becoming more adept on our logistics and operating systems, resulting in more consistent execution. We're leveraging Herc's broader fleet offering to capture synergies by reducing external sourcing and bringing re-rent activity back in line with our historical levels. As a result of these actions and the progress we've made in eliminating redundant costs, optimizing procurement, and streamlining corporate functions, cost synergies are now tracking ahead of plan. On slide 6, equally important to our integration success is our unwavering commitment to safety across the combined organization.

Speaker #5: Productivity improvement and cost efficiencies across the entire organization are the fourth area of focus. By operating from unified systems and aligning to standardized processes, we're already recognizing meaningful results.

Speaker #5: On a pro forma basis, employee productivity increased year over year in 2025. New team members across the organization are becoming more adept on our logistics and operating systems, resulting in more consistent execution.

Larry Silber: We're leveraging Herc's broader fleet offering to capture synergies by reducing external sourcing and bringing re-rent activity back in line with our historical levels. As a result of these actions and the progress we've made in eliminating redundant costs, optimizing procurement, and streamlining corporate functions, cost synergies are now tracking ahead of plan. On slide 6, equally important to our integration success is our unwavering commitment to safety across the combined organization.

Speaker #5: And we're leveraging HERC's broader fleet offering to capture synergies by reducing external sourcing and bringing re-rent activity back in line with our historical levels.

Speaker #5: As a result of these actions and the progress we've made in eliminating redundant costs, optimizing procurement, and streamlining corporate functions, cost synergies are now tracking ahead of plan.

Speaker #5: On slide 6, equally important to our integration success is our unwavering commitment to safety across the combined organization. Safety is at the core of everything we do, and as an immediate priority, we onboarded 2,500 new HERC team members into our health and safety program in the second half of last year.

Larry Silber: Safety is at the core of everything we do, and as an immediate priority, we onboarded 2,500 new Herc team members into our health and safety program in the second half of last year. Our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In 2025, on a branch-by-branch measurement, all of our operations achieved over 97% of days as perfect. Also notable, our total recordable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to safety of our people and our customers. As we continue to work through the integration of H&E, we are following the same playbook that has served us well over time, positioning the business to perform across the cycle and generate sustainable long-term growth.

Speaker #5: Our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In 2025, on a branch-by-branch measurement, all of our operations achieved over 97% of days as perfect.

Larry Silber: Also notable, our total recordable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to safety of our people and our customers. As we continue to work through the integration of H&E, we are following the same playbook that has served us well over time, positioning the business to perform across the cycle and generate sustainable long-term growth.

Speaker #5: Also notable, our total recordable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to safety of our people and our customers.

Speaker #5: As we continue to work through the integration of H&E, we are following the same playbook that has served us well over time, positioning the business to perform across the cycle and generate sustainable long-term growth.

Speaker #5: While there's still work to do, the progress we've made to date gives us confidence that the combined company is on track to deliver the operational and financial benefits of a large-scale acquisition while accelerating our strategic growth plan, which is summarized on slide 7.

Larry Silber: While there's still work to do, the progress we've made to date gives us confidence that the combined company is on track to deliver the operational and financial benefits of a large-scale acquisition, while accelerating our strategic growth plan, which is summarized on slide 7. Over the course of the last year, we made meaningful progress expanding our footprint through the acquisition and strategic Greenfield openings, adding scale and gaining share in key geographies. We also continued to direct a greater portion of our gross capital investment toward higher-return specialty fleet, supporting revenue synergies and advancing our goal of increasing specialty as a percentage of our total fleet. At the same time, we strengthened our digital capabilities to maintain our market leadership in innovation and support of our customers' productivity.

Speaker #5: Over the course of the last year, we made meaningful progress expanding our footprint through acquisitions and strategic greenfield openings, adding scale and gaining share in key geographies.

Speaker #5: We also continued to direct a greater portion of our gross capital investment toward higher-return specialty fleet, supporting revenue synergies and advancing our goal of increasing specialty as a percentage of our total fleet.

Larry Silber: We also continued to direct a greater portion of our gross capital investment toward higher-return specialty fleet, supporting revenue synergies and advancing our goal of increasing specialty as a percentage of our total fleet. At the same time, we strengthened our digital capabilities to maintain our market leadership in innovation and support of our customers' productivity.

Speaker #5: At the same time, we strengthened our digital capabilities to maintain our market leadership in innovation and support of our customers' productivity. Our digital revenue grew by more than 50% last year, with HERC-Reynolds.com giving our customers an easy way to reserve gear 24/7.

Larry Silber: Our digital revenue grew by more than 50% last year, with hercrentals.com giving our customers an easy way to reserve gear 24/7. Our acquired customer base has full access to ProControl and is already using it to order equipment, manage fleet, and handle account activities. And when it comes to telematics, today, approximately 80% of eligible gear is equipped, providing utilization and performance metrics to help reduce downtime and drive job site efficiency, all visible within our ProControl system. Further, our E3 OS business operating system continues maturing, helping to drive greater consistency and efficiency across the organization for our customers. Throughout all of this, capital discipline remains a management imperative. We are investing responsibly, prioritizing returns, and strengthening the foundation of the business while integrating a transformational acquisition and sharpening our strategic focus.

Speaker #5: Our acquired customer base has full access to Pro Control and is already using it to order equipment, manage fleet, and handle account activities. And when it comes to telematics, today approximately 80% of eligible gear is equipped providing utilization and performance metrics to help reduce downtime and drive job site efficiency.

Speaker #5: All visible within our ProControl system. Further, our E3OS business operating system continues maturing, helping to drive greater consistency and efficiency across the organization for our customers.

Larry Silber: Further, our E3 OS business operating system continues maturing, helping to drive greater consistency and efficiency across the organization for our customers. Throughout all of this, capital discipline remains a management imperative. We are investing responsibly, prioritizing returns, and strengthening the foundation of the business while integrating a transformational acquisition and sharpening our strategic focus.

Speaker #5: Throughout all of this, capital discipline remains a management imperative. We are investing responsibly, prioritizing returns, and strengthening the foundation of the business while integrating a transformational acquisition and sharpening our strategic focus.

Speaker #5: Now, I'll turn the call over to Mark. We'll take you through the recent financial performance and 2026 guidance, and then Aaron will talk about macro trends and operating initiatives supporting our growth plans for this year.

Larry Silber: Now, I'll turn the call over to Mark, who will take you through the recent financial performance and 2026 guidance. And then Aaron will talk about macro trends and operating initiatives supporting our growth plans for this year. Mark?

Speaker #5: Mark?

Speaker #6: Thanks, Larry, and good morning, everyone. I'm starting on slide 9 with a summary of our key financial metrics. For the fourth quarter, on a GAAP basis, equipment rental revenue was up approximately 24% year over year.

Mark Humphrey: Thanks, Larry, and good morning, everyone. I'm starting on slide nine with a summary of our key financial metrics. For Q4, on a GAAP basis, equipment rental revenue was up approximately 24% year-over-year, driven by the acquisition of H&E, strong contributions from mega projects, and sales of specialty solutions. Adjusted EBITDA increased 19% compared with last year's Q4, benefiting from the higher equipment rental revenue, as well as 53% more used equipment sales. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was lower fixed cost absorption as a result of the ongoing moderation in demand in certain local markets where H&E was overweighted, as well as acquisition-related redundant costs preceding the full impact of cost synergies.

Speaker #6: Driven by the acquisition of H&E, strong contributions from megaprojects, and sales of specialty solutions. Adjusted EBITDA increased 19% compared with last year's fourth quarter, benefiting from the higher equipment rental revenue as well as 53% more used equipment sales.

Speaker #6: The increase in used equipment sales which have a lower margin than the rental business impacted the adjusted EBITDA margin. Also affecting margin was lower fixed cost absorption as a result of the ongoing moderation in demand in certain local markets where H&E was overweighted as well as acquisition-related redundant costs preceding the full impact of cost synergies.

Speaker #6: REBITDA, which excludes used equipment sales, was up 17% during the fourth quarter. REBITDA margin was 45%, impacted year over year by the lower margin acquired business.

Mark Humphrey: EBITDA, which excludes used equipment sales, was up 17% during Q4. EBITDA margin was 45%, impacted year-over-year by the lower margin acquired business. Margin improvement will come from equipment rental revenue growth, a shift over time to a higher margin product mix, and a return to selling used fleet through the more profitable retail and wholesale channels, as well as delivery of the full cost synergies and improved variable cost management from the increased scale. Our net income in Q4 included $14 million of transaction costs, primarily related to the H&E acquisition. On an adjusted basis, net income was $69 million, or $2.07 per share. For the full year, our results were reasonably aligned to our early expectations. In any large-scale acquisition, integrating the acquired operations and acclimating new team members is a phase and ongoing effort.

Speaker #6: Margin improvement will come from equipment rental revenue growth, a shift over time to a higher margin product mix, and a return to selling used fleet through the more profitable retail and wholesale channels, as well as delivery of the full cost synergies and improved variable cost management from the increased scale.

Speaker #6: Our net income in the fourth quarter included $14 million of transaction costs, primarily related to the H&E acquisition. On an adjusted basis, net income was $69 million, or $2.07 per share.

Mark Humphrey: Our net income in Q4 included $14 million of transaction costs, primarily related to the H&E acquisition. On an adjusted basis, net income was $69 million, or $2.07 per share. For the full year, our results were reasonably aligned to our early expectations. In any large-scale acquisition, integrating the acquired operations and acclimating new team members is a phase and ongoing effort.

Speaker #6: For the full year, our results were reasonably aligned to our early expectations. In any large-scale acquisition, integrating the acquired operations and acclimating new team members is a phase-in ongoing effort.

Speaker #6: It takes time to get a clear read on the pace and effectiveness of change. But after six months, we have better clarity and I like where we sit.

Mark Humphrey: It takes time to get a clear read on the pace and effectiveness of change. But after six months, we have better clarity, and I like where we sit. Using a baseball analogy, in addition to many singles and doubles, the teams delivered in a short period of time, there have been some home runs in key areas like cost management, systems transfer, and fleet optimization. Let me take a minute to walk you through how our fleet optimization plan has evolved and what that means moving into 2026. If you turn to slide 10, in just six months, we rebalanced our combined fleet by market to drive capital efficiency and set the stage for improving fleet productivity. At the same time, we made initial targeted investments in specialty equipment to unlock revenue synergies, ensuring we're not just leaner, but also more capable and better aligned with high-value opportunities.

Speaker #6: Using a baseball analogy, in addition to the many singles and doubles the teams delivered in a short period of time, there have been some home runs in key areas like cost management, systems transfer, and fleet optimization.

Speaker #6: Let me take a minute to walk you through how our fleet optimization plan has evolved and what that means moving into 2026. If you turn to slide 10, in just six months, we rebalanced our combined fleet by market to drive capital efficiency and set the stage for improving fleet productivity.

Mark Humphrey: If you turn to slide 10, in just six months, we rebalanced our combined fleet by market to drive capital efficiency and set the stage for improving fleet productivity. At the same time, we made initial targeted investments in specialty equipment to unlock revenue synergies, ensuring we're not just leaner, but also more capable and better aligned with high-value opportunities.

Speaker #6: At the same time, we made initial targeted investments in specialty equipment to unlock revenue synergies, ensuring we're not just leaner but also more capable and better aligned with high-value opportunities.

Speaker #6: In the second half of 2025, fleet expenditures were roughly $22% higher than the second half of 2024 in fleet disposals at OEC, where 65% higher.

Mark Humphrey: In the second half of 2025, fleet expenditures were roughly 22% higher than the second half of 2024, and fleet disposals at OEC were 65% higher. Overall, for the full year 2025 expenditures were flat year-over-year, while full year disposals increased 67%, reflecting the acquisition fleet realignment. Of the $342 million of disposals in Q4, realized proceeds were 44% of OEC, up from 41% in Q3 2025, as more equipment was sold through the higher return wholesale and retail outlets in the last quarter of the year compared with Q3. With the enormous amount of work done last year to optimize the fleet, including significant investments in synergy fleet, this year we shift our focus from right-sizing fleet to extending the average age of the younger acquired fleet and improving utilization.

Speaker #6: Overall, for the full year, 2025 expenditures were flat year over year, while full-year disposals increased 67%, reflecting the acquisition fleet realignment. Of the $342 million of disposals in the fourth quarter, realized proceeds were 44% of OEC, up from 41% in Q3 2025, as more equipment was sold through the higher return wholesale and retail outlets in the last quarter of the year, compared with the third quarter.

Speaker #6: With the enormous amount of work done last year to optimize the fleet, including significant investments in synergy fleet, this year we shift our focus from right-sizing fleet to extending the average age of the younger acquired fleet and improving utilization.

Speaker #6: We expect to be able to address the growing demand in national and regional accounts and specialty solutions, while meeting our 2026 revenue synergy goals with increased capital efficiency.

Mark Humphrey: We expect to be able to address the growing demand in national and regional accounts and specialty solutions while meeting our 2026 revenue synergy goals with increased capital efficiency. On that topic, let me quickly run through capital management on slide 11. Here you can see that we generated $521 million of free cash flow net of the transaction costs for the year ended 31 December 2025. Our current pro forma leverage ratio is 3.9 times - 3.95 times, which is in line with our expectation as H&E's 2024 quarters roll out for the trailing twelve months calculation. 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.

Speaker #6: On that topic, let me quickly run through capital management on slide 11. Here you can see that we generated $521 million of free cash flow, net of the transaction costs, for the year ended December 31, 2025.

Speaker #6: Our current pro forma leverage ratio is 3.9 times, 3.95 times, which is in line with our expectation as H&E's 2024 quarters roll out of the trailing 12-month calculation.

Mark Humphrey: Our current pro forma leverage ratio is 3.9 times - 3.95 times, which is in line with our expectation as H&E's 2024 quarters roll out for the trailing twelve months calculation. 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.

Speaker #6: 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.

Speaker #6: On slide 12, you can see our initial 2026 guidance. Our plan is to invest roughly $950 million of gross capex at the midpoint of that guide.

Mark Humphrey: On slide 12, you can see our initial 2026 guidance. Our plan is to invest roughly $950 million of gross CapEx at the midpoint of that guide. That, combined with a significantly lower level of dispositions this year, would bring net CapEx to approximately $650 million at the midpoint, relatively flat with last year. Our fleet plan is aligned to generate rental revenue growth of 13% to 17% this year. As you would assume, given the significance of the H&E acquisition in June 2025, the rate of growth slows on a GAAP basis from Q1 to Q2, as the second quarter has one month of the H&E acquisition in its base.

Speaker #6: That, combined with the significantly lower level of dispositions this year, would bring net capex to approximately $650 million at the midpoint—relatively flat with last year.

Speaker #6: Our fleet plan is aligned to generate rental revenue growth of 13 to 17 percent this year. As you would assume, given the significance of the H&E acquisition in June 2025, the rate of growth slows on a GAAP basis from one Q to two Q, as the second quarter has one month of the H&E acquisition in its base.

Speaker #6: On a pro forma basis, quarterly revenue and fleet metrics improve sequentially from negative to positive growth from the first half to the second half. This is driven by higher fleet efficiency and utilization as we work through the seasonal shoulder period and build into the peak season.

Mark Humphrey: On a pro forma basis, quarterly revenue and fleet metrics improve sequentially from negative to positive growth from first half to second half, driven by higher fleet efficiency and utilization as we work through the seasonal shoulder period and build into the peak season. After we cross over the acquisition anniversary, results in Q3 and Q4 will be measured against comparable periods in the prior year. While our business sustained front-loaded revenue dyssynergies in 2025 versus the original plan, our goal for generating roughly $390 million of gross revenue synergies through 2028 hasn't changed. Capturing the revenue synergies will happen over time as fleet investments take hold, the new specialty branches mature, annual contracts renew at higher values, and the local market recovery supports increased customer demand and improving spot rates.

Speaker #6: After we cross over the acquisition anniversary, results in the third and fourth quarters will be measured against comparable periods in the prior year. While our business sustained front-loaded revenue disynergies in 2025 versus the original plan, our goal for generating roughly $390 million of gross revenue synergies through 2028 hasn't changed.

Speaker #6: Capturing the revenue synergies will happen over time as fleet investments take hold, the new specialty branches mature, annual contracts renew at higher values, and the local market recovery supports increased customer demand and improving spot rates.

Mark Humphrey: Capturing the revenue synergies will happen over time as fleet investments take hold, the new specialty branches mature, annual contracts renew at higher values, and the local market recovery supports increased customer demand and improving spot rates.

Speaker #6: For 2026, we're forecasting incremental revenue synergies of approximately $100 to $120 million. Cost synergies are running ahead of expectation, and we expect to recognize a total of $125 million of cost synergies in 2026, supporting REBITDA margin improvement across the rental revenue guide.

Mark Humphrey: For 2026, we're forecasting incremental revenue synergies of approximately $100 to $120 million. Cost synergies are running ahead of expectation, and we expect to recognize the total of $125 million of cost synergies in 2026, supporting EBITDA margin improvement across the rental revenue guide. We estimate adjusted EBITDA will be between $2.0 and $2.1 billion, representing profitable growth ranging from 10% to 16% as cost synergies are delivered and fleet productivity improves throughout the year, and the higher return specialty revenue gains momentum in the back half. This is partially offset by the lower sales of used fleet year-over-year.... And finally, we're guiding to another year of free cash flow in the range of $400 to $600 million.

Mark Humphrey: For 2026, we're forecasting incremental revenue synergies of approximately $100 to $120 million. Cost synergies are running ahead of expectation, and we expect to recognize the total of $125 million of cost synergies in 2026, supporting EBITDA margin improvement across the rental revenue guide. We estimate adjusted EBITDA will be between $2.0 and $2.1 billion, representing profitable growth ranging from 10% to 16% as cost synergies are delivered and fleet productivity improves throughout the year, and the higher return specialty revenue gains momentum in the back half. This is partially offset by the lower sales of used fleet year-over-year. And finally, we're guiding to another year of free cash flow in the range of $400 to $600 million.

Speaker #6: We estimate adjusted EBITDA will be between $2.0 and $2.1 billion, representing profitable growth ranging from 10 to 16 percent as cost synergies are delivered and fleet productivity improves throughout the year.

Speaker #6: And the higher return specialty revenue gains momentum in the back half. This is partially offset by the lower sales of used fleet year over year.

Speaker #6: And finally, we're guiding to another year of free cash flow in the range of $4 to $600 million. With that, I'll turn the call over to Aaron, who is going to walk through the macro and operational drivers behind our outlook.

Mark Humphrey: With that, I'll turn the call over to Aaron, who is going to walk through the macro and operational drivers behind our outlook.

Speaker #1: Thanks, Mark. And good morning, everyone. We enter 2026 as one team and one company, and one of the leading equipment rental businesses in North America.

Aaron Birnbaum: Thanks, Mark, and good morning, everyone. We entered 2026 as one team, one company, and one of the leading equipment rental businesses in North America. The hard work of bringing our companies together is largely behind us. The work ahead is about fully realizing the value of our integrated team, capturing synergies, optimizing our new, stronger foundation, and translating scale and capability into consistent performance and results. Turning to slide 14, this year, our priorities are clear. First, we plan to complete the integration by the end of Q1. The execution on the branch network optimization plan has been best in class, so I'm confident all the 50-plus additional specialty locations will be staffed, fleeted, and open for business as we move into the peak season.

Speaker #1: The hard work of bringing our companies together is largely behind us. The work ahead is about fully realizing the value of our integrated team, capturing synergies, optimizing our new, stronger foundation, and translating scale and capability into consistent performance and results.

Aaron Birnbaum: Turning to slide 14, this year, our priorities are clear. First, we plan to complete the integration by the end of Q1. The execution on the branch network optimization plan has been best in class, so I'm confident all the 50-plus additional specialty locations will be staffed, fleeted, and open for business as we move into the peak season.

Speaker #1: Turning to slide 14, this year our priorities are clear. First, we plan to complete the integration by the end of the first quarter. The execution on the branch network optimization plan has been best in class.

Speaker #1: So I'm confident all the 50-plus additional specialty locations will be staffed fleeted and open for business as we move into the peak season. We're starting to see stronger contributions from the new sales professionals, and we'll continue supporting their efforts so they're on a good trajectory as demand picks up.

Aaron Birnbaum: We're starting to see stronger contributions from the new sales professionals, and we'll continue supporting their efforts, so they're on a good trajectory as demand picks up. At the same time, scaling our sales force for our larger company is a priority to ensure we've got the resources we need to execute our plan, and execution remains the top focus. We have a defined go-to-market strategy that all of our sales professionals have been trained on. We measure progress against that weekly. As you know, what gets measured drives performance. We're tracking data on a revenue synergies, customer recovery programs, and cost synergies around maintenance and transportation, among other things. In addition to weekly meetings at the regional and district level, Mark and I have been on the road, getting in front of the teams for synergy report-outs and helping to prioritize solutions for any pain points.

Speaker #1: At the same time, scaling our sales force for our larger company is a priority to ensure we've got the resources we need to execute our plan.

Speaker #1: And execution remains the top focus. We have a defined go-to-market strategy that all of our sales professionals have been trained on. We measure progress against that weekly.

Speaker #1: As you know, what gets measured drives performance. We're tracking data on revenue synergies, customer recovery programs, and cost synergies around maintenance and transportation, among other things.

Aaron Birnbaum: We're tracking data on a revenue synergies, customer recovery programs, and cost synergies around maintenance and transportation, among other things. In addition to weekly meetings at the regional and district level, Mark and I have been on the road, getting in front of the teams for synergy report-outs and helping to prioritize solutions for any pain points.

Speaker #1: In addition to weekly meetings at the regional and district level, Mark and I have been on the road getting in front of the teams for synergy report outs and helping to prioritize solutions for any pain points.

Speaker #1: The engagement level in the field is really strong. Which gives me confidence in the next phase of value creation. Last year, we invested over $100 million of capital specifically to capture the early revenue synergies from this transaction.

Aaron Birnbaum: The engagement level in the field is really strong, which gives me confidence in the next phase of value creation. Last year, we invested over $100 million of capital specifically to capture the early revenue synergies from this transaction, with a significant portion directed toward expanding our specialty fleet. That investment is now being put to work across a larger customer base and provides a full-year run rate benefit as we move through 2026 and into 2027. As we deploy specialty fleet into our larger specialty location network and continue to expand the sales force's offerings, we expect to drive incremental revenue synergies. Our specialty lines generated double-digit rental revenue growth in December, so we're seeing the progress, and it's clear that the product training, team selling approach, and shift to solution selling are starting to pay off.

Speaker #1: With a significant portion directed toward expanding our specialty fleet, that investment is now being put to work across a larger customer base, and provides a full-year run-rate benefit as we move through 2026 and into 2027.

Speaker #1: As we deploy specialty fleet into our larger specialty location network, and continue to expand the sales force's offerings, we expect to drive incremental revenue synergies.

Aaron Birnbaum: As we deploy specialty fleet into our larger specialty location network and continue to expand the sales force's offerings, we expect to drive incremental revenue synergies. Our specialty lines generated double-digit rental revenue growth in December, so we're seeing the progress, and it's clear that the product training, team selling approach, and shift to solution selling are starting to pay off.

Speaker #1: Our specialty lines generated double-digit rental revenue growth in December. So we're seeing the progress, and it's clear that the product training, team selling approach, and shift to solution selling are starting to pay off.

Speaker #1: We believe we are well positioned as we move from integration into the acceleration phase. The fundamentals of the combined company are stronger. The team is executing with increasing focus and urgency, and our markets are stable.

Aaron Birnbaum: We believe we are well-positioned as we move from integration into the acceleration phase. The fundamentals of the combined company are stronger. The team is executing with increasing focus and urgency, and our markets are stable. Turning to slide 15, the resiliency of our business model remains supportive as mega-project activity continues to be robust, and the shift from equipment ownership to rental offers plenty of opportunity for specialties penetration. In the local market, we expect 2026 will be relatively neutral to 2025, with government, infrastructure, MRO, and institutional construction demand offsetting the still moderate commercial sector. On the national account side, funding for new large-scale projects is still robust. Mega-project activity in 2025 was centered around manufacturing, LNG, renewables, and data center growth.

Speaker #1: Turning to slide 15, the resiliency of our business model remains supportive as mega project activity continues to be robust, and the shift from equipment ownership to rental offers plenty of opportunity for specialties penetration.

Speaker #1: In the local market, we expect 2026 will be relatively neutral to 2025, with government, infrastructure, MRO, and institutional construction demand offsetting the still moderate commercial sector.

Aaron Birnbaum: In the local market, we expect 2026 will be relatively neutral to 2025, with government, infrastructure, MRO, and institutional construction demand offsetting the still moderate commercial sector. On the national account side, funding for new large-scale projects is still robust. Mega-project activity in 2025 was centered around manufacturing, LNG, renewables, and data center growth.

Speaker #1: On the national account side, funding for new, large-scale projects is still robust. Mega project activity in 2025 was centered around manufacturing, LNG, renewables, and data center growth.

Speaker #1: We're winning our targeted 10% to 15% share of these project opportunities, with even more new mega projects on deck and current projects still ramping up.

Aaron Birnbaum: We're winning our targeted 10 to 15% share of these project opportunities, with even more new mega projects on deck and current projects still ramping up. In 2025, local accounts represented 51% of rental revenue, compared with 49% for national accounts. As a combined company, we'll continue to target a 60% local and 40% national revenue split long term, knowing that this diversification provides for growth and resiliency. The scale we've gained through the acquisition bolsters our ability to respond to near-term trends in local markets, while also leveraging efficiencies to prepare for the start of a cyclical recovery. But it's important to remember that a pickup in local demand typically lags interest rate reductions. With that in mind, for 2026, we're being thoughtful and disciplined in our planning, balancing our short-term responsiveness with long-term readiness.

Speaker #1: In 2025, local accounts represented 51% of rental revenue, compared with 49% for national accounts. As a combined company, we'll continue to target a 60% local and 40% national revenue split long-term, knowing that this diversification provides for growth and resiliency.

Speaker #1: The scale we've gained through the acquisition bolsters our ability to respond to near-term trends in local markets, while also leveraging efficiencies to prepare for the start of a cyclical recovery.

Aaron Birnbaum: The scale we've gained through the acquisition bolsters our ability to respond to near-term trends in local markets, while also leveraging efficiencies to prepare for the start of a cyclical recovery. But it's important to remember that a pickup in local demand typically lags interest rate reductions. With that in mind, for 2026, we're being thoughtful and disciplined in our planning, balancing our short-term responsiveness with long-term readiness.

Speaker #1: But it's important to remember that a pickup in local demand typically lags interest rate reductions. With that in mind, for 2026, we're being thoughtful and disciplined in our planning, balancing our short-term responsiveness with long-term readiness.

Speaker #1: Turning to slide 16, in a disproportionate demand environment like the one we're operating in today, diversification is an important strategy for fostering sustainable growth and navigating economic cycles.

Aaron Birnbaum: Turning to slide 16, in a disproportionate demand environment like the one we're operating in today, diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc has diversified into new end markets, geographies, and products and services over the last nine years, we have reduced our reliance on a single industry or customer. We've become more resilient to downturns and more adaptable to emerging opportunities, like the mega-project developments, technology advancements that support customer productivity, and the sector shift from ownership to rental. We believe we are well-positioned to manage dynamic markets, and the acquired scale further bolsters our capacity and therefore our opportunities.

Speaker #1: As HERC has diversified into new end markets, geographies, and products and services, over the last nine years, we have reduced our reliance on a single industry or customer.

Speaker #1: We've become more resilient to downturns and more adaptable to emerging opportunities, like the mega project developments, technology advancements that support customer productivity, and the sector shift from ownership to rental.

Aaron Birnbaum: We've become more resilient to downturns and more adaptable to emerging opportunities, like the mega-project developments, technology advancements that support customer productivity, and the sector shift from ownership to rental. We believe we are well-positioned to manage dynamic markets, and the acquired scale further bolsters our capacity and therefore our opportunities.

Speaker #1: We believe we are well positioned to manage dynamic markets, and the acquired scale further bolsters our capacity and therefore our opportunities. Sticking with the topic of resiliency, let's turn to slide 17, where you can see that, despite the uncertain sentiment in the general market around interest rates, industrial spending and non-residential construction starts still show plenty of opportunity built on a foundation of mega project development and infrastructure investments.

Aaron Birnbaum: Sticking with the topic of resiliency, let's turn to slide 17, where you can see that despite the uncertain sentiment in the general market around interest rates, industrial spending and non-residential construction starts still show plenty of opportunity built on a foundation of mega-project development and infrastructure investments. Taking a look at the updated industrial spending forecast at the top left, strong capital and maintenance spending is projected through the end of the decade, with a 4% increase in 2026.

Speaker #1: Taking a look at the updated industrial spending forecast at the top left, strong capital and maintenance spending is projected through the end of the decade, with a 4% increase in 2026.

Mark Humphrey: ... Dodge's forecast for non-residential construction starts in 2026 is estimated at $473 billion, a 1% increase year-over-year, with 5% to 7% growth continuing in successive years. Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in US construction project starts over the last three years, and an early projection for 2026 that reflects another $573 billion of investment. I expect that number to grow as more projects get assigned a start date, as there is a $1 trillion-dollar pipeline that is working through the planning stages. As a result, we estimate we're only in the early to middle innings of this multi-year opportunity.

Speaker #1: Dodge's forecast for non-residential construction starts in 2026 is estimated at $473 billion, a 1% increase year over year with 5% to 7% growth continuing in successive years.

Aaron Birnbaum: Dodge's forecast for non-residential construction starts in 2026 is estimated at $473 billion, a 1% increase year-over-year, with 5% to 7% growth continuing in successive years. Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in US construction project starts over the last three years, and an early projection for 2026 that reflects another $573 billion of investment.

Speaker #1: Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in US construction project starts over the last three years, and an early projection for 2026 that reflects another $573 billion of investment.

Speaker #1: I expect that number to grow as more projects get assigned a start date, as there is a trillion-dollar pipeline that is working through the planning stages.

Aaron Birnbaum: I expect that number to grow as more projects get assigned a start date, as there is a $1 trillion-dollar pipeline that is working through the planning stages. As a result, we estimate we're only in the early to middle innings of this multi-year opportunity.

Speaker #1: As a result, we estimate we're only in the early to middle innings of this multi-year opportunity. Finally, there's another $369 billion in infrastructure projects estimated for 2026, after a record year in 2025.

Mark Humphrey: Finally, there's another $369 billion in infrastructure projects estimated for 2026, after a record year in 2025. That's down slightly year-over-year because of some very large project starts last year, as well as some volatility around funding. But infrastructure construction activity is expected to remain steady at strong levels through the end of the decade. Of course, there's some overlap in projects among 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 service customers at the local, regional, and national account level, the opportunities for growth remain significant. In closing, I want to thank our team for their extraordinary efforts during this transition, and our customers and shareholders for their continued trust and support.

Aaron Birnbaum: Finally, there's another $369 billion in infrastructure projects estimated for 2026, after a record year in 2025. That's down slightly year-over-year because of some very large project starts last year, as well as some volatility around funding. But infrastructure construction activity is expected to remain steady at strong levels through the end of the decade.

Speaker #1: That's down slightly year over year because of some very large project starts last year, as well as some volatility around funding. But infrastructure construction activity is expected to remain steady at strong levels through the end of the decade.

Aaron Birnbaum: Of course, there's some overlap in projects among 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 service customers at the local, regional, and national account level, the opportunities for growth remain significant. In closing, I want to thank our team for their extraordinary efforts during this transition, and our customers and shareholders for their continued trust and support.

Speaker #1: Of course, there is some overlap in projects among 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 service customers at the local, regional, and national account level, the opportunities for growth remain significant.

Speaker #1: In closing, I want to thank our team for their extraordinary efforts during this transition, and our customers and shareholders for their continued trust and support.

Speaker #1: We are confident that the steps we are taking today will enable us to deliver sustainable, long-term value as we move forward together. With that, operator, we'll take our first question.

Mark Humphrey: We are confident that the steps we are taking today will enable us to deliver sustainable long-term value as we move forward together. With that, operator, we'll take our first question.

Aaron Birnbaum: We are confident that the steps we are taking today will enable us to deliver sustainable long-term value as we move forward together. With that, operator, we'll take our first question.

Speaker #2: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. And finally, we do ask for today's session that you please limit yourself to one question and one follow-up. Your first call-- Your first question comes from the line of Mig Dobre of Baird. Your line is open.

Speaker #2: If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question, and you're listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question.

Speaker #2: And finally, we do ask for today's session that you please limit yourself to one question and one follow-up. Your first question comes from a line of Mick Dobry of Baird.

Speaker #2: Your line is open.

Speaker #3: Hey, good morning, everyone. Thank you for the good morning. Thanks for asking the question. My first question is a bit of a clarification on the guidance.

Mig Dobre: Hey, good morning, everyone. Thank you for-

Mark Humphrey: Good morning.

Mig Dobre: Good morning.

Mark Humphrey: Good morning, Mig.

Mig Dobre: Taking the question. My first question is a bit of a clarification on the guidance. So we've got $235 million, I believe, in additional EBITDA relative to 2025. Is there a way to maybe give us a little bit of a bridge here in terms of how this additional 235 is being generated? How much of this is from incremental savings that you have from synergies integrating the businesses? Maybe, obviously, there's a little bit of a carryover from H&E for 5 months of the year that business wasn't in your P&L in 2025.

Speaker #3: So we've got 235 million dollars, I believe, in additional EBITDA relative to 2025. Is there a way to maybe give us a little bit of a bridge here in terms of how this additional 235 is being generated?

Speaker #3: How much of this is from incremental savings that you have from synergies integrating the businesses? Maybe obviously, there's a little bit of a carryover from H&E for five months of the year that that business wasn't in your P&L in 2025.

Speaker #3: And I'm sure there's some other moving pieces there too.

Mark Humphrey: Yeah.

Mig Dobre: And I'm sure there are some other moving pieces there, too.

Speaker #4: Yeah. So, a few things, Mick. If you think about my prepared remarks, I said that we expect the cost synergies to be in their entirety.

Mark Humphrey: Yeah. So a few things, Mig. So if you think about, you know, my prepared remarks, I said that we expect the cost synergies to be in their entirety, for 2026. So you know, that's a cost synergy increase, or EBITDA increase of about $125 million. Then you sort of take the other piece of that, which is the revenue synergies, which I said was going to be in the neighborhood of $100 to $120 million. And that would then have an EBITDA flow-through in the 60% to 70% range. So you're sort of talking about incremental EBITDA of $60 to $70 million from a revenue synergy perspective. So those are the two big bridge components between the two years.

Speaker #4: For 2026, so that’s a cost synergy increase or EBITDA increase of about $125 million. Then you sort of take the other piece of that, which is the revenue synergies, which I said was going to be in the neighborhood of $100 to $120 million.

Speaker #4: And that would then have an EBITDA flow-through in the 60% to 70% range. So you're sort of talking about incremental EBITDA of $60 million to $70 million from a revenue synergy perspective.

Speaker #4: So those are the two big bridge components between the two years. And then, obviously, if you're looking at this on a gap basis, you're going to have five months of EBITDA contribution from a comp perspective as you work your way into June of 2026 as well.

Mark Humphrey: And then obviously, if you're looking at this on a GAAP basis, you're gonna have five months of EBITDA contribution from a comp perspective as you work your way into June of 2026 as well.

Speaker #3: And would you be able to help me with that last component in terms of what's incremental for those five months? The EBITDA?

Mig Dobre: And would you be able to help me with that last component in terms of what's incremental for those five months, the EBITDA?

Mark Humphrey: Well, I mean, I think if you're talking about it from a GAAP perspective, right, you're going to have an increase of something more like EBITDA would go from about 180 to a midpoint of, you know, between 200 and 210. So the incremental, without getting too pointed, I think you just have sort of the run rate coming out of Q4 is going to be negative, as I said, on a pro forma basis, and then it's going to work its way sequentially and year-over-year improvement as you work your way through the year.

Speaker #4: Well, I mean, I think if you're talking about it from a GAAP perspective, right, you're going to have an increase of something—more like EBITDA would go from about $1.8 billion to a midpoint of between $2.0 and $2.1 billion.

Speaker #4: So the incremental, without getting to pointed, I think you just have sort of the run rate coming out of 4Q is going to be negative as I said on a pro forma basis.

Speaker #4: And then it's going to work its way sequentially, and you'll see year-over-year improvement as you work your way through the year.

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

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

Speaker #4: Hey, good morning, guys. Thanks for taking the question.

Ken Newman: Hey, good morning, guys. Thanks for taking the question.

Mark Humphrey: Hi, Ken.

Speaker #3: Hi, Ken.

Speaker #2: Mark, morning. Mark, I just wanted to touch on how we should think about the cadence of dollar utilization as we move through the year.

Ken Newman: Morning, Mark. I just wanted to touch on how we should think about the cadence of dollar utilization as we move through the year.

Mark Humphrey: Yeah.

Speaker #2: For the first quarter in particular, maybe just some help, just given some of that color you gave on this pro forma performance. I mean, should we assume something more than normal seasonality quarter to quarter from 4Q to 1Q, and then maybe at the midpoint of that guide, would you expect dollar yield to be could it get over 40% in the second half of this year?

Ken Newman: For the first quarter in particular, maybe just some help, just given some of that color you gave on this, this pro forma-

Mark Humphrey: Yeah

Ken Newman: ... performance. I mean, should we assume something more than normal seasonality quarter to quarter, from Q4 to Q1? And then maybe at the midpoint of that guide, would you expect dollar U to be, could it, could it get over 40% in the second half of this year?

Speaker #4: All right. Let me pull that apart a little bit. I think, and I'll answer this from a pro forma perspective. And so, from a pro forma perspective basis, you would anticipate negative pro forma Q1 year over year from a dollar yield perspective.

Mark Humphrey: All right, let me pull that apart a little bit. I think, and I'll answer this from a pro forma perspective. And so from a pro forma perspective basis, you would anticipate negative pro forma Q1 year over year from a dollar U perspective. And then the rate of that decline improves as you work your way out of the shoulder period, Ken. And then you would look for improvement sequentially and year over year as we work ourselves through the peak season, and back half, two H in totality. So, you know, with that, you know, our top-end performance from a dollar U perspective in 2025 was 40 points in the third quarter. Based on what I just said, the anticipation is you would be above that 40, seasonally, in the back half.

Speaker #4: And then the rate of that decline improves as you work your way out of the shoulder period, Ken. And then you would look for improvement sequentially and year over year as we work ourselves through the peak season and back half to H in that, our top end performance from a dollar yield perspective in 2025 was 40 points in the third quarter.

Speaker #4: Based on what I just said, the anticipation is you would be above that 40 seasonally in the back half.

Speaker #2: Yep. Okay, that helps. And then, maybe—I know you're expecting the fleet disposals should be lower versus last year. I guess maybe the question here is: can you help us think about what fleet sales could look like this year, or maybe if there's a way to help us think about what the midpoint kind of implies for total OEC exiting the year at the midpoint?

Ken Newman: Yep. Okay. That, that helps. And then, maybe I know you're expecting the fleet disposals should be lower versus last year. I guess, maybe the question here is, help us think about what fleet sales could look like this year, or maybe if there's a way to help us think about what the midpoint kind of implies for total OEC aging the year at the midpoint.

Speaker #4: So let's stick with the disposal side of it. I think that we've got line of sight to give or take 700 million dollars of disposals.

Mark Humphrey: So let's stick with the disposal side of it. I think that we've got, you know, line of sight to, you know, give or take $700 million of disposals. So, you know, pretty significant decrease year-over-year, with the intent of sort of aging the fleet out to something that looks more, like a historical average age for Herc Rentals. And with that, I think you'll see, you know, mid-40s, from a disposal, to, proceeds to OEC, which would probably run you into the 30s, give or take, from a margin perspective on that used equipment, activity, Ken.

Speaker #4: So pretty significant decrease year over year. With the intent of sort of aging the fleet out to something that looks more like a historical average age for Herc Rentals, and with that, I think you'll see mid-40s from a disposal to proceeds to OEC.

Speaker #4: Which would probably run you into the 30s, give or take, from a margin perspective on that used equipment activity, Ken.

Speaker #2: Thank you. Your next question comes from the line of Kyle Menges of Citigroup. Your line is open.

Operator: Thank you. Your next question comes from the line of Kyle Menghas of Citigroup. Your line is open.

Speaker #5: Thanks, guys. Maybe we could start and just I'd love to hear a little bit more, Kyle, on the revenue synergies at 100 to 120 million you're targeting for 2026 and what's embedded in there and just your visibility to achieving that as well.

Kyle Menges: Thanks, guys. Maybe we could start and just, I'd love to hear a little bit more color on the revenue synergies, that $100 to 120 million you're targeting for 2026, and what's embedded in there, and just your visibility to achieving that as well.

Speaker #3: Yeah, Kyle, this is Aaron. Well, there's several areas in there. I'll take you back and time a little bit. We've got a broader breadth of fleet that we're pushing into the acquired branches.

Aaron Birnbaum: Yeah, Kyle, this is Aaron. Well, there's several areas in there. I'll take you back in time a little bit. We've got a broader breadth of fleet that we're pushing into the acquired branches. That's part of the revenue synergy. If you recall, we had roughly 6,000 more cat classes that we're pushing into that network so that our sales teams can go generate revenues off of those. And then, of course, we've got our specialty businesses. And as you heard in the remarks, you know, we're opening up 50 new specialty locations. Those will be up and running... 80% of them are done now. The rest of them will be up and running over the next month. And that grows our network of specialty locations by 25%. So those are two big components.

Speaker #3: That's part of the revenue synergy. If you recall, we had roughly 6,000 more CAC classes that we're pushing into that network. So there are sales teams can go generate revenues off of those.

Speaker #3: And then, of course, you've got our specialty businesses. And as you heard in the remarks, we're opening up 50 new specialty locations. Those will be up and running—80% of them are done now.

Speaker #3: The rest of them will be up and running over the next month. And that grows our network, especially locations, by 25%. So those are two big components.

Aaron Birnbaum: We need the, there's a pricing component in there, too. We've our own, you know, our own pricing tool that we use for our sales force, and we've assimilated that into our new sales team, and that's gonna help kind of move the needle on that over time. We're not expecting that to be like a 2026 big move, but over time, over 3 years of our synergy run, that's where we're gonna get that. So those are the big components that are in the revenue synergy go get for us.

Speaker #3: We need the there's a pricing component in there too. We've our own pricing tool that we use for our sales force. And we've assimilated that into our new sales team.

Speaker #3: And that's going to help kind of move the needle on that over time. We're not expecting that to be like a big move in 2026, but over time, over three years of our synergy run, that's where we're going to get that.

Speaker #3: So those are the big components that are in the revenue synergy go-get for us.

Speaker #5: That's helpful. Thanks, Aaron. And then just on the mega projects, it'd be helpful to hear what you're seeing as far as competitiveness to get on these projects, and how you are winning.

Kyle Menges: That's helpful. Thanks, Aaron. And then just on the mega projects, it'd be helpful to hear what you're seeing as far as competitiveness to get on these projects and how you are winning. And then you talked about getting that 10 to 15% share that you've targeted. I'm curious just if there could be some upside to that as you're integrating H&E.

Speaker #5: And then you talked about getting that 10% to 15% share that you've targeted. I'm curious if there could be some upside to that as you're integrating H&E.

Speaker #3: Yeah, right now, as we said, we have a 10% to 15% share on the mega projects. We're right at that midpoint. Our goal is to kind of move that to the upper end.

Aaron Birnbaum: Yeah. Right now, we've, as we said, 10 to 15% share on the mega projects. We're right at that midpoint. Our goal is to kind of move that to the upper end. The activity on the mega project landscape is very robust. So you asked about competitiveness. You know, it really comes down; these are mission-critical jobs that the contractors are operating in, and they need to have a trusted supplier to make sure that these mission-critical pieces are functioning the way they're supposed to. We measure our position kind of as a primary or secondary player, not just measuring how many pieces we have on the landscape overall on the mega projects. But the competitiveness has really been very stable, I would say.

Speaker #3: The activity on the mega project landscape is very robust. So you asked about competitiveness. It really comes down these are mission-critical jobs that the contractors are operating in.

Speaker #3: And they need to have a trusted supplier to make sure that these mission-critical pieces or function the way they're supposed to. We measure our position kind of as a primary or secondary player, not just measuring how many pieces we have on the landscape overall on the mega.

Speaker #3: Projects. But the competitiveness has really been very stable, I would say. When I mentioned the word 'mission-critical,' what I'm talking about is the ability to execute the safety protocols they need, the technology that's required for the project.

Aaron Birnbaum: When I mentioned the word mission-critical, what I'm talking is about the ability to execute, you know, the safety protocols they need, the technology that's required for the project. There's a big specialty component that goes into these projects. You have to have the capabilities and solution selling to, you know, to provide the right solutions and provide it in an economic fashion that the customer can realize to the benefit of the project. So it's a complex landscape, but it's a lot more competitive, and we feel like we're in a really good position. And then the expanded network of our H&E locations really allows us to scale that even further to our customers.

Speaker #3: There's a big specialty component that goes into these projects, so you have to have the capabilities and solution selling to provide the right solutions.

Speaker #3: And provide it in a economic fashion that the customer can realize to the benefit of the project. So it's a complex landscape, but it's not more competitive and we feel like we're in a really good position.

Speaker #3: And then the expanded network of our H&E locations really allows us to scale that even further to our customers. And we've seen benefits from the new scale all through the back half of 2025.

Aaron Birnbaum: We've seen benefits from the new scale, all through the back half of 2025, and it really makes us even more competitive as a ProSolutions provider as we roll into 2026.

Speaker #3: And it really makes us even more competitive as a player, solution provider, as we roll into '26.

Speaker #2: Your next question comes from a line of Neil Tyler of Rothschild & Co. Redburn. Your line is open.

Operator: Your next question comes from the line of Neil Tyler of Redburn, Rothschild & Co. Your line is open.

Speaker #6: Hey, good morning, guys. Just wanted to actually first of all, follow up on that question and maybe ask you, Aaron, to talk a little bit about the sort of softer factors that you need to put into place to realize those synergies in terms of training around extended CAC classes, the specialty business, and how you're confident that the employees can appropriately push those into customers.

Neil Tyler: Hey, good morning, guys. Actually, first of all, follow up on that question and maybe ask you, Aaron, to talk a little bit about the sort of softer factors that you need to put into place to, you know, to realize those synergies, in terms of, you know, training around extended cat classes, the specialty business, and how you're confident that the employees can appropriately push those into customers, in order to, for the, you know, the new specialty locations to reach maturity, for example. And then the second question, I wonder if you could talk a little bit, Mark, about the assumptions, aside from the synergy component of rate, you know, the other assumptions or expectations around rate progress this year, and also anything within the sales mix.

Speaker #6: In order for the new specialty locations to reach maturity, for example. And then the second question, I wonder if you could talk a little bit about the assumptions, aside from the synergy component of rate.

Speaker #6: The other assumptions or expectations around rate progress this year and also anything within the sales mix I'm thinking in my mind about a sales bridge within the mix that might contribute to the '26 on '25 moves.

Neil Tyler: You know, I'm thinking in my mind about a sales bridge within the mix, that might contribute to the 26 on 25 moves. Thank you.

Speaker #6: Thank you.

Speaker #3: Okay, Neil. I'll take the first part. To lean in on the softer side of achieving those synergies. It's a few components. One is expanding our footprint.

Aaron Birnbaum: Okay, Neil, I'll take the first part. To lean in on the softer side of achieving those synergies, it's a few components. One is expanding our footprint. You know, 50 new locations certainly helps kind of get it into markets where we might not have been as dense, that H&E helped us. So that's a big piece of it. And leaning into providing the capital to deploy in those new 50-plus markets, as well as our existing specialty network that we already have. We started that last year, as I said, to get to kind of the early beginnings of the synergy story, and we'll do that again as we roll through 2026. I think what's interesting, and I want to, you know, kind of underscore, is that we have a very large sales team now.

Speaker #3: 50 new locations certainly helps kind of get it into markets where we might not have been as dense that H&E helped us. So that's a big piece of it.

Speaker #3: And leaning into providing the capital to deploy in those new 50-plus markets as well as our existing. Especially network that we already have. We started that last year, as I said, to get kind of the early beginnings of the synergy story.

Speaker #3: And we'll do that again as we roll through 2026. I think what is interesting, and I want to kind of underscore, is that we have a very large sales team now.

Speaker #3: We don't need our new sales professionals to be experts at specialty. We need them to know how to ask the right questions of their customers and then they can bring in one of our subject matter experts in specialty to help kind of solution sell that.

Aaron Birnbaum: We don't need our new sales professionals to be experts at specialty. We need them to know how to ask the right questions of their customers, and then they can bring in one of our subject matter experts in specialty to help kind of solution sell that. And that's really what we're teaching our new team to do. Of course, we're taking them through product knowledge, awareness, and bringing them into our locations to show them the different offerings they have now. And then, of course, you know, we also highlight the compensation piece of this and how they can kind of yield up on their compensation by selling in to the specialty business.

Speaker #3: And that's really what we're teaching our new team to do. Of course, we're taking them through product knowledge awareness and bringing them into our locations to show them the different offerings they have now.

Speaker #3: And then, of course, we also highlight the compensation piece of this, and how they can kind of yield up on their compensation by selling into the specialty business.

Speaker #3: So we have grown our specialty team by these 50-plus locations. But we've also already expanded our SMEs. That are out there. And our specialty sales reps that are out there.

Aaron Birnbaum: So, we have grown our specialty team by, you know, these 50-plus locations, but we've also already expanded our SMEs that are out there and our specialty sales reps that are out there to help get this all done. We've seen some early, early success with some of the general rental fleet that we introduced, right? Because this is some of the stuff that H&E didn't have in their portfolio, and a lot of those new salespeople, they really were able to grab that pretty quickly and put that on rent. The specialty piece is just another element of this, and it is kind of the softer side, so it takes a lot of forethought and planning, but we don't need our new salespeople to be experts. That's the key thing.

Speaker #3: To help get this all done, we've seen some early success with some of the general rental fleet that we introduced, right? Because this is some of the stuff that H&E didn't have in their portfolio.

Speaker #3: And a lot of those new salespeople, they really were able to grab that pretty quickly and put that on rent. The specialty piece is just another element of this.

Speaker #3: And it is kind of the softer side. So, it takes a lot of forethought and planning. But we don't need our new salespeople to be experts.

Speaker #3: That's the key thing. They can lean into the operational excellence in our sales teams on the specialty side to get that done.

Aaron Birnbaum: They can lean into the operational excellence and our sales teams on the specialty side to get that done.

Speaker #4: And then, Neil, in terms of sort of forming a bridge, if you will, from a revenue guidance perspective, I think if you're sitting at the top of the guide, you would think about that as sort of rev synergies on target.

Mark Humphrey: And then, Neil, in terms of sort of forming a bridge, if you will, from a revenue guidance perspective, I think if you're sitting at the top of the guide, you would think about that as sort of rev synergies on target, continued mega growth, pricing slightly positive year-over-year, and local markets stable, meaning sort of low single-digit growth. I think as you walk off of the top of that guide, down, the biggest swing factors in that would be market demand and price.

Speaker #4: Continued mega growth. Pricing slightly positive, year over year. And local markets stable, meaning sort of low single-digit growth. I think as you walk off of the top of that guide, down, the biggest swing factors in that would be market demand and price.

Speaker #2: Your next question comes from the line of Tammy Zakaria of JPMorgan. Your line is open.

Operator: Your next question comes from the line of Tammy Zakaria of JP Morgan. Your line is open.

Tami Zakaria: Hey, good morning. Thank you so much.

Speaker #5: Hey, good morning. Thank you so much. I wanted to ask a follow-up question on specialty. I think you increased the footprint by 25%. That's very impressive.

Mark Humphrey: Good morning, Tammy.

Tami Zakaria: I wanted to ask a follow-up question on specialty. I think you increased the footprint by 25%. That's very impressive. I wanted to understand, what's the go-to-market strategy for specialty with existing general rental customers? Can you offer some examples of, you know, success stories where you saw quantifiable uptick in total rental volume from a particular customer once they began taking specialty from you, but were not taking in the past? Any quantification would be helpful, unless it's too early to comment on this.

Speaker #5: I wanted to understand what's the go-to strategy, go-to-market strategy for specialty with existing general rental customers. Can you offer some examples of success stories where you saw a quantifiable uptick in total rental volume from a particular customer once they began taking specialty from you, but were not taking it in the past?

Speaker #5: So any quantification would be helpful unless it's too early to comment on this.

Speaker #3: Oh, no. So, as I mentioned, if you just take a look at the past six months of 2025, we already had roughly 150 specialty locations.

Aaron Birnbaum: Oh, no. So as I mentioned, if you just take a look at the past six months of 2025, we already had roughly 150 specialty locations in our network, in HERC, and so we quickly connected with the sales team on the H&E side to identify opportunities. And with, you know, it's human nature, there's sometimes early adopters that kind of lean into it, and they're excited that there's a new opportunity to go rent something they couldn't rent before. So there was a lot of opportunities in Q3, Q4 that came in for our power generation business that's under our ProSolutions umbrella, as well as our pump business. The trench opportunities are starting to escalate now. That's a little bit of a different sales cycle.

Speaker #3: In our network in HERC. And so we quickly connected with the sales team on the H&E side. To identify opportunities. And with human nature, there's sometimes there's early adopters that kind of lean into it.

Speaker #3: And they're excited that there's a new opportunity to go rent something they couldn't rent before. So there were a lot of opportunities in Q3 and Q4 that came in for our power generation business that's under our ProSolutions umbrella, as well as our pump business.

Speaker #3: The trench opportunities are starting to escalate now. That's a little bit of a different sales cycle. But we had a lot of those happen in the third and fourth quarter, which really helped us kind of absorb some of that capital that we deployed.

Aaron Birnbaum: But we had a lot of those happen in the third and fourth quarter, which really helped us kind of absorb some of that capital that we deployed early on, because we knew that that was gonna be something we wanted to get the wheels turning on fast. So as we roll into 2026, now we go from 150, roughly, specialty locations to 200, and a bigger sales force and some more fleet being deployed, a larger specialty subject matter expert team. We really like where we are positioned here at the beginning of 2026, and I think the specialty story for Herc Rentals is gonna be a solid one as we progress through the year and these other 50 locations kinda get up and running as we get into the second half of the year.

Speaker #3: Early on, because we knew that that was going to be something we wanted to get the wheels turning on fast. So as we roll into 2026, now we go from 150 roughly specialty locations to 200.

Speaker #3: And a bigger sales force and some more fleet being deployed. A larger specialty subject matter expert team. We really like where we are positioned here at the beginning of '26.

Speaker #3: And I think the specialty story for HERC Rentals is going to be a solid one. As we progress through the year and these other 50 locations kind of get up and run.

Speaker #3: And as we get into the second half of the year.

Rob Wertheimer: Understood. That's helpful to know. And, a question on the CapEx guide. Can you give some color on how to think about growth versus net CapEx, as the year progresses, the four quarters versus the four quarters last year?

Speaker #5: Understood. That's helpful to know. And a question on the CapEx guide: Can you give some color on how to think about growth versus net CapEx?

Speaker #5: As the year progresses, the four quarters versus the four quarters last year.

Speaker #4: Yeah, Tammy, this is Mark. So I think, really, you got two components here, right? You sort of have $700 million, give or take, of fleet that will be disposed of, needs to be rotated out, will be rotated out.

Mark Humphrey: Yeah. Tammy, this is Mark. So I think, really, you got two components here, right? You sort of have $700 million, give or take, of fleet that will be disposed of, needs to be rotated out, will be rotated out. And then on the flip side of that, if you're just sort of running this down the middle, you've got about $1 billion, give or take, of gross CapEx spend. I don't necessarily view it as maintenance versus growth, 'cause there's probably mix shift, there will be mix shift, in the disposed items, as we bring it back on board.

Speaker #4: And then on the flip side of that, if you just sort of running this down the middle, you've got about a billion dollars, give or take, of gross CapEx spend.

Speaker #4: I don't necessarily view it as maintenance versus growth, because there's probably makeshift. There will be makeshift. In the disposed items, as we bring it back on board.

Speaker #4: So really, we're thinking about sort of being more capital efficient with the next billion dollars of fleet that we're bringing in, sort of across the gen rent landscape as well as the specialty landscape, as we work our way through Q2 and Q3, which will hold about 65, 70 percent of those fleet ads as we walk through the year.

Mark Humphrey: So really, we're thinking about sort of being more capital efficient with the next $1 billion of fleet that we're bringing in, sort of across, the gen rent landscape as well as the specialty landscape, as we work our way through, you know, Q2 and Q3, which will hold about 65 to 70% of those fleet adds as we walk through the year.

Speaker #2: Your next question comes from the line of Jerry Riddick of Wells Fargo. Your line is open.

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

Speaker #6: Morning, guys. This is Kevin Ahn for Jerry Ravage. Just had a question on general rental. We're seeing really strong demand for earthmoving equipment, but aerials are lagging.

Jerry Revich: Morning, guys. This is-

Seth Weber: Morning, guys. This is-

Mark Humphrey: Morning.

Jerry Revich: Kevin on for Jerry Redick. Just had a question on general rental. We're seeing really strong demand for earthmoving equipment, but aerials are lagging. Are you seeing that disconnect? And is that a function of large projects and data centers being less aerials intensive?

Seth Weber: Kevin on for Jerry Redick. Just had a question on general rental. We're seeing really strong demand for earthmoving equipment, but aerials are lagging. Are you seeing that disconnect? And is that a function of large projects and data centers being less aerials intensive?

Speaker #6: Are you seeing that disconnect? And is that a function of large projects and data centers being less aerials-intensive?

Speaker #3: No, I would say with earth moving, there's two categories in earth moving. One is kind of excavators, and one is compact earth. And then aerial—those are all, as you go through the winter period, it's pretty much what we thought it would be.

Aaron Birnbaum: No, I would say the earthmoving... There's two categories in earthmoving. One is kind of excavators, and one is compact earth, and then, you know, aerial. Those, those are all, you know, as you go through the winter period, you know, it's pretty much what we thought it would be. Of course, we did a lot of kind of fleet optimization in the back half of the year. But one area you do see it is in the used equipment market, where the excavator, earthmoving product kind of had bottomed out, and the values are starting to go north a bit again from the trough. Whereas aerial has, you know, hasn't really maybe troughed out, or I should say, hasn't firmed back up. It's kind of been bouncing along this trough period.

Speaker #3: Of course, we did a lot of kind of fleet optimization in the back half of the year. But one area you do see it is in the used equipment market, where the excavator earth-moving product kind of had bottomed out, and the values are starting to go north a bit again.

Speaker #3: From the trough, whereas aerial hasn't really maybe troughed out or I should say hasn't turned back up. It's kind of been bouncing along this trough period.

Speaker #3: So what's interesting is right after the business came back after the pandemic, the excavators were the ones that went down the hardest in the used equipment market.

Aaron Birnbaum: But what's interesting is, you know, right after the business came back after the pandemic, you know, the excavators were the ones that went down the hardest in the used equipment market. So I think you're just seeing a natural kind of balancing of fleet and demand in the used equipment market. But on the rental market, it's all, you know, pretty much where we think it should be for this time of year. And when your question about, you know, big projects, you know, those, the civil part of that typically takes very, very large equipment. Some of it, not equipment that we carry in our earthmoving fleet, but the aerial demand in a mega project is pretty large.

Speaker #3: So, I think you're just seeing a natural kind of balancing of fleet and demand in the used equipment market. But on the rental market, it's all pretty much where we think it should be for this time of year.

Speaker #3: And your question about big projects—the simple part of that typically takes very, very large equipment. Some of it's not equipment that we carry in our earthmoving fleet.

Speaker #3: But the aerial demand in a mega project is pretty large.

Speaker #6: Got it. Understood. And then on Q4 dollar utilization, down quarter over quarter, how do we think about the moving pieces—rate, mix, time utilization—and how do we think about that into Q1?

Jerry Revich: Got it. Understood. And then on Q4, dollar utilization down quarter-over-quarter, how do we think about the moving pieces, rate, mix, time utilization, and how do we think about that into Q1?

Seth Weber: Got it. Understood. And then on Q4, dollar utilization down quarter-over-quarter, how do we think about the moving pieces, rate, mix, time utilization, and how do we think about that into Q1?

Speaker #4: Well, I think I would say reasonably speaking, the back half collectively sort of met our expectations from a dollar yield perspective. I don't think that the sort of fall off from 3 to 4 was anything that we didn't necessarily anticipate.

Mark Humphrey: Well, I think, you know, I, I would say reasonably speaking, you know, the back half collectively sort of met our expectations from a dollar view perspective. I don't think that the sort of fall off from 3 to 4 was anything that we didn't necessarily anticipate. I think as you take that into Q1, and you're looking at that on a year-on-year basis, I do believe that, from a pro forma perspective, your dollar utilization will be down Q1 to Q1, and then build, and the rate of decline improves as you work your way out of the shoulder period. The other piece of that, the other piece of that just, is, you know, Q4 2024 had a hurricane in it, which was worth about 3 points of growth to us.

Speaker #4: I think as you take that into Q1 and you're looking at that on a year-on-year basis, I do believe that from a pro forma perspective, your dollar utilization will be down Q1 to Q1.

Speaker #4: And then build, and the rate of decline improves as you work your way out of the shoulder period. And you got the other piece of that—the other piece of that just is, Q4 2024 had a hurricane in it, which was worth about three points of growth to us.

Speaker #4: And obviously, that mix of gear to sort of service an emergency, a hurricane need, is very specialty intensive, which also drives dollar utilization.

Mark Humphrey: And obviously, that mix of gear to sort of service, you know, an emergency or hurricane need, is very specialty intensive, which also drives Dollar Utilization.

Speaker #2: Your next question comes from a line of Rob Wertheimer of Melius Research. Your line is open.

Operator: Your next question comes from the line of Rob Wertheimer of Melius Research. Your line is open.

Speaker #7: Yeah, thanks. Good morning. My question is around mega project profitability, and you touched on this earlier, obviously, in the discussion around competitiveness. But you're winning an outsized market share versus your traditional market share.

Rob Wertheimer: Yeah, thanks. Good morning. My question is around mega project profitability, and you touched on this earlier, obviously, in a discussion around competitiveness, but you're winning an outsized market share versus your traditional market share.

Speaker #7: Capabilities, as you touched on, are different for large projects. You add more value. Are margins higher or lower there? Because it looks like, from industry results, that margins aren't higher.

[Analyst]: ... capabilities, as you touched on, are different for large projects, you add more value. Are margins higher or lower there? Because it looks like from, you know, industry results, that margins aren't higher, as the mix goes up in mega projects and margins don't go up. Thanks.

Rob Wertheimer: ... capabilities, as you touched on, are different for large projects, you add more value. Are margins higher or lower there? Because it looks like from, you know, industry results, that margins aren't higher, as the mix goes up in mega projects and margins don't go up. Thanks.

Speaker #7: Is the mix goes up in mega projects and margins don't go up. Thanks.

Aaron Birnbaum: Rob, typically, when you get started on a mega project, it depends what's going in first, right? Is it a bunch of specialty equipment or is a bunch of general rental equipment? If it starts with general rental equipment, yes, you're as we've said before, you know, you're getting the benefit of volume, but you're, you know, the rental rate is a little bit more competitive. And so you want a project that allows you to get the specialty equipment in at the, at the midpoint, all the way through the rest of the project. And then it becomes a very, a typical margin business for us. That's been our history in the past, and it currently is as well.

Speaker #3: Rob, typically, when you get started on a mega project, it depends what's going in first, right? Is it a bunch of specialty equipment, or is it a bunch of general rental equipment?

Speaker #3: If it's a bunch of—if it starts with general rental equipment, yes, as we've said before, you're getting the benefit of volume, but your rental rate is a little bit more competitive.

Speaker #3: And so you want a project that allows you to get the specialty equipment in at the midpoint, all the way through the rest of the project.

Speaker #3: And then it becomes a very typical margin business for us. That's been our history in the past, and it currently is as well.

Speaker #3: Now, if you start the project with a lot of specialty equipment, your margin can move up pretty quickly depending on at what point you inflect and get some general rental equipment.

Aaron Birnbaum: Now, if you start the project with a lot of specialty equipment, your margin can move up pretty quickly, depending at what point you influx and get some general rental equipment. And these projects, for us at least, they've, they've started these two different ways, right? Sometimes our specialty solutions is kind of our entry point, and sometimes our location, our relationship, and our general rental scale is our entry point. But one thing's for sure, is that all projects typically use a big chunk as general rental and a big chunk as specialty. It just depends what comes first. But the margin always ends up... You know, if you're talking about a three-year project, always ends up like the rest of our business.

Speaker #3: And these projects for us, at least, save they've started these two different ways, right? Sometimes our specialty solutions is kind of our entry point.

Speaker #3: And sometimes our location, our relationship, and our general rental scale is our entry point. But one thing's for sure is that all projects typically use a big chunk of general rental and a big chunk of specialty dispense.

Speaker #3: What comes first? But the margin always ends up if you're talking about a three-year project, always ends up like the rest of our business.

Speaker #7: Perfect. Okay, thank you. And then just on the kind of sequential move from Q3 to Q4, fleet growth is still ahead of rental revenue growth by about the same amount.

[Analyst]: Perfect. Okay, thank you. Then just on the kind of sequential from Q3 to Q4 move, fleet growth is still ahead of rental revenue growth by about the same amount. You used that phrase, shoulder period, where you have kinda lower seasonality, I guess, in Q1, especially a couple of times. Is there anything with the mix that was kinda hurting you as you move into Q4 and Q1? Or are you just sort of saying, when you get more volume back overall, you'll be able to sort of see the effects of the management you've done to get?

Rob Wertheimer: Perfect. Okay, thank you. Then just on the kind of sequential from Q3 to Q4 move, fleet growth is still ahead of rental revenue growth by about the same amount. You used that phrase, shoulder period, where you have kinda lower seasonality, I guess, in Q1, especially a couple of times. Is there anything with the mix that was kinda hurting you as you move into Q4 and Q1? Or are you just sort of saying, when you get more volume back overall, you'll be able to sort of see the effects of the management you've done to get?

Speaker #7: You used that phrase shoulder period where you have kind of lower seasonality, I guess, in 1Q especially, a couple of times. Is there anything with the mix that was kind of hurting you as you move into 4Q and 1Q, or are you just sort of saying when you get more volume back overall, you'll be able to sort of see the effects of the management you've done?

Mark Humphrey: No, that's a good question. There's certainly an element of time utilization in that ultimate dollar use, right? You know, stabilizing that acquired fleet as we worked our way through the back half of the year, the fleet actions that we took. I think, Rob, as you think about 2026, you will have improving fleet efficiency as you work your way through the year, and the intent would be that your rev growth would outpace your fleet growth as you get into the seasonal component of 2026.

Speaker #4: No, that's a good question. There's certainly an element of time utilization in that ultimate dollar yield, right? Stabilizing that acquired fleet as we worked our way through the back half of the year, the fleet actions that we took, I think, Rob, as you think about 2026, you will have improving fleet efficiency as you work your way through the year and the intent would be that your rev growth would outpace your fleet growth as you get into the seasonal component of 2026.

Operator: Your last question comes from the line of Sharif El-Sabahi of Bank of America. Your line is open.

Speaker #2: Your last question comes from a line of Sharif El-Sabahi of Bank of America. Your line is open.

Speaker #7: Hi. Good morning. I just wanted to. A bit of a finer point on Outlook. You've outlined about 230 million of EBITDA expansion within that.

Sherif El-Sabbahy: Hi, good morning.

Mark Humphrey: Hi, Shariff.

Sherif El-Sabbahy: I just wanted to point a bit of a finer point on outlook. You've outlined about $230 million of EBITDA expansion. Within that, there's about $190 million of synergies contributing to that. And you've mentioned positive pricing, stable local markets, a bit of growth in mega projects. You know, if we think about the lapping of H&E in Q1, it seems to account for the remainder of that $40 million expansion. So can you help me kind of reconcile some of that commentary on markets with the EBITDA guidance?

Speaker #7: There's about $190 million of synergies contributing to that. And you've mentioned positive pricing, stable local markets, and a bit of growth in mega projects. If we think about the lapping of H&E in Q1, it seems to account for the remainder of that $40 million expansion.

Speaker #7: So can you help me kind of reconcile some of that commentary on markets with the EBITDA guidance?

Speaker #4: Well, I mean, I think if you're looking at it from a pro forma perspective, Sharif, you will be down Q1, year over year. Right?

Mark Humphrey: Well, I mean, I think if you're, if you're looking at it from a pro forma perspective, Sharif, you will be down Q1 year over year, right? We're sort of walking into the year, if you wanna adjust the hurricane out of 4Q 2026, you're walking into the year down minus 6. And so the sort of forecast is you're going to be down Q1, and then begin to come out of that as you exit the shoulder period of Q2, and then ramping into sort of growth in the back half of the year, which sort of coincides with all of the incremental synergy fleet, et cetera, rolling into these optimized branches as you work your way through and out of the second quarter.

Speaker #4: We're sort of walking into the year; if you want to adjust the hurricane out of Q4 2026, you're walking into the year down minus 6.

Speaker #4: And so the sort of forecast is you're going to be down Q1, and then begin to come out of that as you exit the shoulder period of Q2, and then ramping into sort of growth in the back half of the year, which sort of coincides with all of the incremental synergy fleet, etc., rolling into these optimized branches as you work your way through and out of the second quarter.

Speaker #2: Thank you. With no further questions, that concludes our Q&A session. I'd like to now pass it back over to Leslie for closing remarks.

Sherif El-Sabbahy: Thank you.

Operator: With no further questions, that concludes our Q&A session. I'd like to now pass it back over to Leslie for closing remarks.

Speaker #1: Thank you for joining us on the call today. We look forward to updating you on our progress and the quarters to come. Of course, if you have any further questions, please don't hesitate to reach out to us.

Aaron Birnbaum: 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 further questions, please don't hesitate to reach out to us. Have a great day.

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 further questions, please don't hesitate to reach out to us. Have a great day.

Speaker #1: Have a great day.

Operator: This concludes today's conference call. You may now disconnect.

Q4 2025 Herc Holdings Inc Earnings Call

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