Earnings Call Transcript - HRI Q1 2026

Operator, Operator

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Inc. First Quarter 2026 Earnings Call and webcast. Operator Instructions: I will now turn the call over to Leslie Hunziker, Head of Investor Relations. Please go ahead.

Leslie Hunziker, Head of Investor Relations

Thank you, operator, and good morning, everyone. Today, we're reviewing our first quarter 2026 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10-Q and in our most recent annual report on Form 10-K as well as other filings with the SEC. In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations of 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 second quarter management meetings at the Bank of America Industrials Conference in New York on May 12, the KeyBanc Industrials and Basic Materials Conference in Boston on May 27 and the Wells Fargo Industrials Conference in Chicago in June. This morning, I'm joined by Larry Silber, Chief Executive Officer; Aaron Birnbaum, President; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Lawrence Silber, Chief Executive Officer

Thank you, Leslie, and good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E Equipment Services, the largest acquisition in our industry, is now complete. Integration was an enormous undertaking, and I could not be prouder of this team. The strength of our culture is what inspires confidence in what comes next. For the third consecutive year, Herc Rentals has earned a Great Place to Work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context. Large acquisitions are disruptive by nature. We brought approximately 2,500 new employees into the Herc family, people facing new systems, new processes and a new way of doing things. Based on the survey feedback, our new colleagues recognized our strong culture through change management support, peer mentoring and the extensive training and tools they received throughout the integration. And now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution. We have a larger platform, a stronger team and a broader set of capabilities than at any point in our history. The work ahead is about unlocking the full potential of our platform, winning more business, serving customers better and delivering stronger returns for our shareholders. Now turning to Slide 5. With a 30% larger branch network, we are optimizing fleet mix by market, driving network density and capturing the operating efficiencies that come with scale. Fleet efficiency, employee productivity and margin improvement are the goals. Second, we are enhancing our fleet mix and Specialty Solutions is a standout area of focus. Double-digit specialty revenue growth in the quarter reflects targeted fleet investments, 25% more specialty locations and strong demand for mega projects, cross-selling and the continued structural shift from equipment ownership to rental. Third, we are advancing our industry-leading digital capability through Control by Herc Rentals. Advanced technology features from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operations give customers the tools to run safer, more efficient job sites. And our e-commerce platform continues to gain traction, delivering a seamless omnichannel experience with 24/7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in the first quarter—a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them. As always, we lead through continuous improvement with our E3 operating systems built on a foundation of standardized processes, superior customer experiences and a relentless focus on execution across our expanded network. And finally, as prudent stewards of capital, we invest responsibly. We took on incremental debt to acquire H&E, a deliberate decision to accelerate our scale and long-term earnings power. We expect to return to the top of our targeted 2 to 3x leverage ratio by year-end 2027. Our path to deleveraging is clear. As we capture the full run rate of our synergy targets, EBITDA growth, free cash flow build and leverage comes down. Now let me turn it over to Aaron to talk about our operational performance. Aaron?

Aaron Birnbaum, President

Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is the moment our team has been working toward. Investments we've made in people, fleet, systems and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work. We are executing with the larger network, a stronger bench and a sharp sense of where the opportunities are. The work ahead is straightforward: win business, serve customers exceptionally well and drive the performance this platform is built to deliver. In everything we do, every efficiency we drive, every customer we serve, every dollar of performance we deliver starts with one nonnegotiable: the safety of our people and our customers. From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day. So let me start there. On Slide 7, our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In the first quarter, on a branch-by-branch measurement, all of our operations achieved over 96% of days as perfect. Also notable, our total reportable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Our safety foundation is what makes everything else possible. On Slide 8, you can see that what we're building on that foundation starts with one of our most important assets, our fleet. At $9.4 billion in original equipment cost, fleet is both our largest investment and our primary revenue growth engine. We entered 2026 with pro forma fleet down nearly 2% by design. The integration priority was alignment—the right equipment in the right markets with the right mix—and we achieved that. By the end of the first quarter, average OEC was down approximately 1% on a pro forma basis versus last year, consistent with our focus on utilization improvement. While fleet expenditures were up 78% on a pro forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025, when we were preparing to bring in the acquired H&E fleet in the second quarter. Our Q1 2026 investments of $183 million are directed toward growth opportunities and supporting our new specialty locations as they ramp up and again contribute to revenue synergies. Fleet disposals at OEC were 20% higher year-over-year, reflecting life cycle rotation and ongoing mix adjustments. For the $281 million of disposals in the first quarter, realized proceeds were 49% of OEC, up from 45% in Q1 2025, reflecting a healthy market across almost every category as well as our focused selling into the higher return wholesale and retail channels. As you know, the first quarter is our seasonally slowest demand period. Having strong fleet alignment right now before the seasonal ramp is critical. Disciplined fleet management and our sales team executing with increasing effectiveness across the combined network drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter. As utilization tightens into the peak season, we expect that discipline to translate directly into revenue growth and further improvement in fleet efficiency in the second half of the year. Turning to Slide 9. We will gain better visibility into seasonal trends over the next month or so, but today, the bifurcated markets remain relatively consistent with what we have seen over the past year. In the local market, conditions remained stable overall. Government, infrastructure, MRO and institutional construction demand are offsetting the still-moderate commercial sector, consistent with what we expected coming into the year. On the national account side, large-scale project funding remains strong. Mega project activity is centered around manufacturing, LNG, renewables and the continued surge in data center development. We are winning our targeted 10% to 15% share of these opportunities with new projects coming online and current projects still in ramp-up phase. Mega project activity was notably strong in the first quarter with project ramp-ups accelerating earlier than is typical for our seasonally slowest period, activity that was built into the full year guidance we provided just two months ago. In the first quarter, local accounts represented 47% of rental revenue compared with 53% of national accounts. As we have said, our long-term target is 60% local and 40% national on a go-forward basis for both growth and resiliency. The national weighting we are seeing today reflects the strength of our national accounts and mega project activity, and we expect the local mix to improve as the seasonal ramp builds and eventually as local demand recovers. Turning to Slide 10. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc diversified into new end markets, geographies and products and services over the last decade, we have reduced our reliance on any single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities from mega project development and the continued surge in data centers to technology advancements that support customer productivity and the secular shift from equipment ownership to rental. With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow. And the opportunity across end markets isn't just broad, it's deep. Turning to Slide 11. Let's look at what the data tells us about the forward pipeline driving demand across our customer base. Here, you can see that despite the uncertainty of broader markets, whether around interest rates, freight policy or general economic sentiment, the fundamental drivers of our business remain intact. Industrial spending and nonresidential construction starts continue to show meaningful opportunity for growth built on a foundation of project development and infrastructure investment. Of course, there is some overlap across these four data sets, but no matter how you look at it, for companies with the safety record, scale, product breadth, technologies and capabilities to serve customers at the local, regional and national level, the opportunity for growth remains significant, and we believe Herc is well positioned to capture it. Turning to Slide 12. This is where we are in our near-term journey, and I want to be clear against our 2026 plan: we are exactly where we expected to be. The integration work is behind us, but we now have a 30% larger business, more fleet, more locations, more specialty capabilities and a larger maturing sales force. That's the foundation. The first half of 2026 is about converting that foundation into performance, tightening utilization as we move into the seasonal peak and sharpening sales effectiveness across the combined network, and we have seen that start to play out. First, fleet efficiency. After working through the integration and fleet optimization process, we saw sequential improvement in Herc supply and demand alignment through the quarter, something we have been building toward since last summer's acquisition. That's not a small thing. And while mega project demand provided a tailwind, even in our seasonally slowest first quarter, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan. It tells us that as we move into the seasonally stronger second quarter, we have the right fleet and the right markets ready to work. Executing all of that improvement in Q2 is what gives us confidence in the utilization trajectory in the back half. Second, our specialty locations. The branch optimization program added 25% more specialty locations opening in Q4 2025 and Q1 2026. These locations are now staffed, fleeted and gaining momentum. New locations take time to mature and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth. If we get the first half right, the second half follows, revenue growth accelerates, our fixed cost base works in our favor and margin improvement becomes increasingly visible. That's the progression we have mapped out. First half builds the foundation, second half delivers the growth. It's also the flywheel into 2027. Higher revenue, expanding margins and increasingly apparent deleveraging as synergy capture compounds. That's the path and we're on it. Now Mark will go through the details. Mark?

W. Humphrey, Senior Vice President & Chief Financial Officer

Thanks, Aaron, and good morning, everyone. I'm starting on Slide 14 with a summary of our key financial metrics. For the first quarter, on a GAAP basis, equipment rental revenue was up approximately 33% year-over-year, driven by the acquisition of H&E. On a pro forma basis, rental revenue declined 3%, representing a meaningful sequential improvement from the fourth quarter. To put that into context, the acquired business was experiencing revenue pressure prior to close, a trend we've been actively working to reverse through fleet optimization, sales force training and network alignment. And while mega project tailwinds and specialty execution benefited us in Q1, the inflection of the combined platform into revenue growth is a second half event consistent with our plan. Adjusted EBITDA increased 33% compared with last year's first quarter, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales. Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was the static demand in the local market and the impact from the lower-margin acquired business. EBITDA, which excludes used equipment sales, was up 30% during the first quarter. EBITDA margin was 40%, impacted year-over-year by the lower-margin acquired business. The path to margin improvement is clear: rental revenue synergy contributions in the second half, a shift toward a higher margin product mix, full realization of cost synergies and improved variable cost management at scale. We expect margins to continue to improve from here, especially as those drivers take hold in Q3 and Q4. Our net loss in the first quarter included $5 million of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $7 million. On Slide 15, you can see we generated $94 million of free cash flow for the first quarter. Our current pro forma leverage ratio is 3.96x, which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing 12-month calculation. The ratio will remain relatively consistent through the year before improving meaningfully at year-end when revenue synergies drive EBITDA growth in Q3 and Q4 and capital expenditures, which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations, begin to provide greater EBITDA contribution. Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect to return to the top of our target range of 2 to 3x by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through. Turning to Slide 16. We are affirming our full year 2026 guidance across all metrics. Q1 came in as expected: rental revenue growth of 33% on an actual basis reflects the contribution of the combined platform. Adjusted EBITDA margin held at 39.3%, consistent with last year despite the integration work that was still underway. The operational proof points Aaron walked you through—sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, sales force momentum—are the leading indicators that give us confidence in the back half acceleration embedded in our guide. On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year-end. Revenue synergies are back-half weighted and the $100 million to $120 million incremental target for 2026 is intact. The guide assumes the business performs, as Aaron described. First half sets the foundation. Second half delivers the growth. Q1 is consistent with that plan. Now let's open it up for questions. Operator?

Operator, Operator

Operator Instructions: Your first question comes from the line of Robert Wertheimer with Melius Research.

Robert Wertheimer, Analyst, Melius Research

Your Slide 11 puts together a bunch of the different ways to look at the end market, and you mentioned there are others that are conflicting. But if you look at the top right, that mega project chart is a lot of money kind of flowing down the pike. What I'd like to ask is whether that step-up in 2025, whether you saw that in customer conversations, et cetera, whether you see it today because actually $300 billion in starts or whatever and a $900 billion market is a lot. I want to ground truth the data that are sometimes ambiguous.

Aaron Birnbaum, President

Yes, Rob, it's Aaron. I'll take that one. So it's really both. When you build relationships with large general contractors, our national accounts, they guide you to what's coming down the pipeline. Often, you bid on a project and they let you know that you've been awarded it and it's going to start, or they've negotiated a contract and they want to bring you in as their trusted supplier. So that's one mechanism. But there's a lot of data around it. Market data provides a lot of preview into what's coming. Now the pipeline of planned projects is pretty deep. I think we mentioned it's in the trillions of dollars. But it really starts when they change from planning to start—that's when the data starts hitting a slide like we showed you. And if you just look at 2026—April, May, June, July, August, September—you can see a lot more starts happening all across the board. So infrastructure, wastewater or bridges rose, but also these big mega projects: a lot of renewables, a lot of data center activity and other projects. So you get it from both ways. You can use both data sets to guide your fleet planning and where your year is going to go.

Robert Wertheimer, Analyst, Melius Research

And to you, that feels like better times ahead in the back half as these things ramp? I mean, the timeline feels great?

Aaron Birnbaum, President

As you can see, there's more starts happening. Now these don't all start when they say they're going to start, right? Sometimes you've heard us talk that sometimes they start six months away. But it is building. And once these projects do start, they last for two or three years, as you know. So they're already in our plan as we go through Q1 into Q2 and then the balance of the year. We like where it is right now, but it's exactly the way we planned out our year.

Operator, Operator

Your next question comes from the line of Mircea Dobre with Baird.

Mircea Dobre, Analyst, Baird

I'd like to start with a spotlight on your dollar utilization. At least to me, this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint. So I'm wondering if you can comment on that. Is it an indication of sort of activity itself and better fleet utilization or just the fact that maybe in Q4 we had a relatively easy comparison? And related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here out?

W. Humphrey, Senior Vice President & Chief Financial Officer

Yes, great question. And I think, quite honestly, Mircea, I would take the revenue conversation, the dollar conversation and the margin conversation all in the same direction. As Aaron mentioned, we saw fleet efficiency gains in the first quarter, which then drove dollar utilization improvement sequentially as we walked through the quarter. We spent the last 10 months optimizing our fleet and optimizing branches, putting new specialty locations in. So I would tell you that the first quarter played the way we thought it would. But as you roll that forward, there's an inflection point inside of Q2. Once we hit that inflection point inside of Q2, then I think you'll see dollar revenue and margin expansion as we work our way through the back half of the year.

Mircea Dobre, Analyst, Baird

And maybe my follow-up: if I'm thinking about normal seasonality, is there reason to think, based on everything you have operationally, that the improvement in dollar utilization can actually exceed normal seasonality? And can you put a finer point on how you think about the time utilization component relative to pricing or rates more broadly in the market?

W. Humphrey, Senior Vice President & Chief Financial Officer

I think that 'normal' isn't really applicable this year. The reality is we had a hole to climb out of entering this year, down as we exited Q4. There's a big efficiency play that we needed to see collectively as a business before investing growth CapEx into the business in the May, June, July time frame. So it's playing out the way we thought it would. May and June will be a much larger tell for how the rest of the year plays out. But we're not necessarily looking at this as normal or abnormal; we just know where we have to go to get the fleet back to a healthy and efficient level.

Operator, Operator

Your next question comes from the line of Jerry Revich with Wells Fargo Securities.

Jerry Revich, Analyst, Wells Fargo Securities

I'm wondering if we could talk about overall pricing that you're seeing in the market. An oversupply of aerials in particular—pricing is pretty tough. Are you optimistic that pricing can outpace inflation this year? And were you positively surprised by the realizations in used values this quarter? It sounds like supply-demand is improving. Can we unpack that, please?

W. Humphrey, Senior Vice President & Chief Financial Officer

I'll unpack it to the level that I can. We don't comment specifically on price, but we are encouraged by the fundamentals we're seeing in the industry. The fleet in/fleet on dynamics are good, particularly as we exit the slower season, and the market is being both rational and constructive. We look forward to taking advantage of that marketplace.

Aaron Birnbaum, President

Regarding legacy H&E branches versus legacy Herc, obviously legacy Herc pricing and time utilization historically has been higher. Has that gap closed at all, where are we in the process of driving the H&E branch performance towards legacy performance today versus 12 months ago versus where we see it 12 to 18 months out? I think thankfully I can't really answer that question in a way that separates H&E and Herc, and that was part of this integration: to integrate the business such that there is no longer an H&E or Herc distinction. If I could still answer that question separately, then we probably haven't done our job. Collectively, Q1 played out the way we planned Q1 to play out, and that's about as deep as I can go in terms of insights between H&E and Herc. On demand cadence over the course of the quarter: from our vantage point we are anticipating an inflection point sometime inside of Q2. From that point forward, you should see growth and improvement depending upon which line item you're looking at—dollar utilization improvement, revenue growth and margin expansion—as you inflect out of Q2 and into the back half of the year.

Operator, Operator

Your next question comes from the line of Kyle Menges with Citigroup.

Kyle Menges, Analyst, Citigroup

You had mentioned that pro forma fleet is down a little bit and by design. I'd love to hear you unpack that a little bit and then how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between general rent and specialty.

W. Humphrey, Senior Vice President & Chief Financial Officer

We walked into the year, as Aaron said, almost 2 points down fleet on a pro forma basis. As you exit Q1, you're still down a point, give or take. That was part of the plan. As we start then taking the guided CapEx from a gross perspective and the guided dispositions, you can play that through. The expectation is we'll probably load that gross CapEx number into the business between the back half of Q2 and Q3. That should give you the meaningful data points you need to model.

Aaron Birnbaum, President

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

Operator, Operator

Your next question comes from the line of Kenneth Newman with KeyBanc Capital Markets.

Kenneth Newman, Analyst, KeyBanc Capital Markets

Mark, maybe—sorry if I missed this—but going back to the cost synergies, I think you said they were running ahead of schedule. Can you help us quantify how much you were able to capture this quarter? And help us think about the revenue synergy capture progress through the rest of the year?

W. Humphrey, Senior Vice President & Chief Financial Officer

The intent of that comment was that the $125 million, and the incremental $90 million in 2026, will lay into 2026 ahead of the originally scheduled cadence. It's relatively ratable; I would say slightly back-half loaded, but it's coming in reasonably ratably over the four quarters.

Kenneth Newman, Analyst, KeyBanc Capital Markets

Understood. And a follow-up: we've been hearing some rumblings on improving oil and gas markets in the U.S. H&E used to play a larger role in those end markets. Could you help us understand what the exposure to oil and gas is today with the H&E fleet? How do you think about that opportunity and whether you're seeing that pop up as potential starts over the next 12 to 24 months?

Aaron Birnbaum, President

A few points on that, Ken. Our oil and gas mix of the business is less than 10%, both before and after the acquisition. When oil prices rise, you will see some surge in upstream and downstream activity. H&E had relationships across the Gulf and had relationships with contractors that worked in multiple facets of the industrial complex, not just oil and gas. So we picked up long-term contracts with the acquisition. Our exposure remains below 10%, but we strengthened relationships with healthy contractors in that space. With higher oil, there will probably be increased activity in the Permian Basin in Texas and down the ship channel, and we're well positioned for that. But our position in oil and gas didn't materially increase because of the acquisition. We like to stay diversified, and we like where we're at.

Operator, Operator

Your next question comes from the line of Tami Zakaria with JPMorgan.

Tami Zakaria, Analyst, JPMorgan

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

Aaron Birnbaum, President

The price of oil rising near $100 is something the business has to focus on. We manage the input cost of fuel three different ways: one, our internal service vehicles we use to conduct our business; two, refueling of rental equipment; and three, the logistics of our delivery apparatus to deliver and pick up equipment. For our assigned vehicles, we manage fuel purchases centrally to get favorable pricing. For equipment refueling, we charge a fee to customers if we have to refill equipment when they rent it; we give them the option to return equipment full or pay a charge if it's returned less than full. For logistics, which is the more complicated piece given the many daily transactions across the network, we recover costs through delivery fees and a surcharge that is indexed to fuel so we can move with the price of oil as it fluctuates through cycles and geopolitical events.

Tami Zakaria, Analyst, JPMorgan

Understood. A similar question regarding freight rates, which have also been rising. Do you hedge that risk, do you have long-term contracts with third-party haulers, or do you pay more real-time rates?

Aaron Birnbaum, President

We have a robust long-haul brokering process when we need to use third-party freight. We built that over the last three years and get favorable price points compared to the market. As the price of oil moves up, you can't avoid those costs completely; you try to pass on as much as possible and anticipate how long it will last.

Operator, Operator

Your next question comes from the line of Steven Ramsey with Thompson Research Group.

Steven Ramsey, Analyst, Thompson Research Group

From a high level, can you parse specialty performance a bit? It was clearly strong. Could you talk about specialty excluding mega projects—is it outpacing the local markets? Maybe specialty on a same-store basis when you exclude the new branches—different ways to gauge the strength of specialty in the quarter and as you look forward?

Aaron Birnbaum, President

We don't break specialty out in that level of detail publicly. Generally, the specialty business has been performing well; we saw double-digit growth in the quarter. We expect that to continue since specialty serves all facets of our business: mega projects, national accounts, big industrial contracts, and local market activity as we penetrate further with increased location count. Specialty will continue to grow, but we won't break out individual areas.

Steven Ramsey, Analyst, Thompson Research Group

On disposals going through retail and wholesale—clearly a good story there. Can you talk about where you expect to be in 2026 versus the prior year and where you hit maturity on that this year? Is maturity something beyond 2026?

W. Humphrey, Senior Vice President & Chief Financial Officer

This has been a multi-year journey to build our retail and wholesale sales channels. Q1 was a good example of that, approaching roughly 70% into the retail/wholesale channel, which is a sweet spot for us. Q1 and Q4 are typically our heavy disposal quarters, with Q2 and Q3 a bit more moderated. I would anticipate we'll remain in or around those levels as we walk through the year.

Operator, Operator

Your final question comes from the line of Neil Tyler with Rothschild & Co. Redburn.

Neil Tyler, Analyst, Rothschild & Co. Redburn

I wanted to ask about the different flow-through dynamics in the second half associated with the ramp-up in mega projects, which might potentially hold margins back a bit, and the specialty growth, which seems higher margin. Those two combined seem like a larger proportion of your anticipated demand upside in the back half. Can you help me think about how you're modeling those factors playing through on margin and flow-through overall?

W. Humphrey, Senior Vice President & Chief Financial Officer

Sure, Neil. We are anticipating margin expansion in Q3 and Q4. If you look back to where margin was last year in Q3 and Q4, rental EBITDA margins were in the mid-40s percent. We expect incremental margin in the back half to be greater than last year's mid-40s. We can't get excessively pointed in guidance beyond that, but we are anticipating margin expansion as these initiatives—revenue synergies, cost synergies, specialty maturation—come together and fuel revenue growth in the back half.

Operator, Operator

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

Leslie Hunziker, Head of Investor Relations

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

Operator, Operator

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