HERC HOLDINGS INC Q1 FY2025 earnings call

• The company's diversified business model and best-in-class talent demonstrated strength and resiliency in a macro environment with divergent trends. Team Herc navigated demand volatility due to cold weather and leveraged capabilities to capture opportunities. - Executed a merger agreement to acquire H&E Equipment Services to expand scale, geographic coverage, and long-term opportunities, pausing other M&A initiatives for now. - Continues to increase specialty fleet CapEx to cross-sell expert solutions, support mega projects, and capture share of wallet. - Advances technology for pricing, fleet management, etc., and is a disciplined steward of capital. - Achieved at least 96% perfect days per branch in the first quarter with a total reportable incident rate better than industry benchmark. - Local accounts are expanding in select regions with infrastructure, etc., while national account mega projects are robust with several new ones on deck. - Net fleet CapEx plan for 2025 is roughly 35% lower year-over-year, spent 55% less on new fleet in Q1, disposed of 56% more fleet, and shifted sales to higher return channels.

In the first quarter, equipment rental revenue excluding the Cinelease business (held for sale) grew approximately 5%. Local accounts represented 53% of total revenue in the first quarter, compared to 55% a year ago. National account business, fueled by federal and private funding for large construction projects, is growing. The base fleet was about $6.7 billion as of March 31, 2025, and specialty fleet represented about 24% of the total fleet of $6.9 billion (excluding Cinelease assets).

• 2025 guidance remains unchanged, excluding Cinelease performance. March utilization rebounded nicely, April is meeting growth expectations. Acquisitions and mega projects launched in the back half of 2024 will provide incremental upside in Q2 2025. Net CapEx is tracking to the guide, expecting to execute on approximately 45% of gross CapEx plan by mid-year. - Confident in achieving revenue synergies from H&E acquisition over three-year integration period, with 20% captured in year one, ramping up to 60% in year two and balance in year three. - Expect to be back inside 2 to 3 times leverage profile within 24 months post H&E acquisition close.

• Macro environment uncertainty with divergent trends between national accounts and local markets. Prolonged elevated interest rates impacting local market. - Potential indirect impact of tariffs on customers' projects and CapEx, though too early to tell. - Risks associated with integrating the H&E acquisition, including cultural integration and change management challenges, and regulatory review process delays.

Q: Jerry Revich asked about April results being in line with full year guide and dollar utilization.

A: Mark Humphrey said dollar utilization improved in March to levels comping against prior year, and April is meeting expectations.

Q: Jerry Revich asked about pricing discipline in the industry.

A: Larry Silber said the company feels there is discipline in the industry with stable pricing.

Q: Rob Wertheimer asked about expense lead through the year and CapEx outlook.

A: Mark Humphrey said the margin detriment in Q1 is due to it being the lowest revenue quarter, 1 less calendar day in 2025 Q1 vs 2024 Q1, and no signaling in CapEx outlook other than reacting to the quarter.

Q: Tami Zakaria asked if the guide embeds a recession scenario and about customer churn in H&E acquisition synergy target.

A: Mark Humphrey said the guide doesn't embed a recession scenario, and there was a 10% customer churn baked into the synergy target which is above normal attrition rate.

Q: Steven Ramsey asked about megaprojects supporting sustained growth.

A: Aaron Birnbaum said the pipeline is enough to keep the enterprise in the 5% growth guide range.

Q: Kyle Menges asked about core end markets and margins.

A: Aaron Birnbaum said larger national accounts have plenty of work, Mark Humphrey said margin lightness in Q1 was due to factors like used equipment market and fixed cost absorption.

Q: Ken Newman asked about flow-through normalization and local account activity stability.

A: Mark Humphrey said flow-through normalized in March, Larry Silber said confidence in local account stability comes from business diversification.

Q: Mig Dobre asked about pro forma leverage profile post H&E acquisition and bringing leverage down.

A: Mark Humphrey said pro forma leverage is just north of 3.5 range, expect to be back in 2 to 3 times within 24 months, and would run the playbook in a downside scenario if macro changes.