Herc Holdings Inc (HRI) May 12, 2026 Conference Transcript

Hi, good morning, everyone. Thanks for joining us here today. I'm Sharif El-Sabahi from the machinery team here at B of A. I'm happy to have with us Mark Rentals, Larry Silver, CEO, and Mark Humphries, CFO, today. So with that, I'm going to pass it off to Larry and Mark to introduce themselves and give a few opening remarks.

Great. Thank you, and good afternoon, Good afternoon, everybody. Thanks for joining us. I'm Larry Silber. I'm the CEO of Herc Reynolds. Mark Humphrey is to my left here, and he is our senior VP and CFO. And Leslie Hunziker is right in front of me, who's our investor relations person. Before we get started, of course, I want to talk about our Safe Harbor Statement, about information around non-GAAP information that we might be discussing today. So I wanted to make sure we covered that and have all the legalities covered before we begin. A little bit about Herc Rentals on this slide. For those of you that are either new to our company or remembered, we're one of the leading full-line equipment rental companies in North America. And we have a mission, vision, values that we've not deviated from for the last 11 years that have been associated with the company. and we support a purpose-driven company where we pledge to service our customers and communities to build a brighter future. A little bit about our company. We've been in business for over 60 years. Today, we have approximately 10,000 team members that work for Herc Rentals across North America. We're in the five western Canadian provinces and 46 states in the lower 48 and Hawaii. We service an addressable market, equipment rental market, that's about $90 billion with significant long-term growth opportunities, particularly as you're hearing around mega projects and certainly the local markets that we expect to continue to serve, where we're focused on the top 100 MSAs in North America. From an investment standpoint, we operate around five key areas that really differentiate us in a highly fragmented market in which we operate in. We're an industry leader, and we've generated above-market growth over the last 10 years that we've been functioning as an independent public company through fleet investments. greenfield store openings as well as M&A activity we've been very disciplined in terms of our capital and really consistent around being a steward of capital input into the business and we're investing to in the industry we're really scale matters in this industry and we've been driving that growth over the last five or six years through a combination of M&A as well as Greenfield strategies. We've continued to make investments in technology over the last 10 years. We believe we are market leaders in technology, and technology is really, you know, sort of table stakes today in the industry, and we've been able to leverage our platform for our customers to create stickiness and connectivity to our customer base that's helping us win more and more projects in the marketplace. We're executing on a multifaceted diversification strategy to improve operating results and ensure resiliency across all markets and all kinds of conditions that we operate in. No one industry represents more than 10 percent of our business, so we're well diversified across our business. And finally, we are a market consolidator, having completed more than 50 acquisitions over the past six years in our business. And we intend to continue to do that, which leads us to our most recent acquisition, which was H&E that we acquired June 2nd of last year, was the single largest acquisition in the history of the industry and was the fourth largest rental company at the time in North America. It had 162 locations that gave us significant market presence in 11 of the top 20 markets. And if you think about where were they strong, if you drew a smile around the United States, starting in the Carolinas, came down across the southern coast and up through southern California, that would kind of be where they were, as you can see depicted in this map here. The combination increases our network, our customer reach, and certainly the efficiencies that come with scale. And the transaction accelerated our growth by about a five to maybe six year time frame over that period. So we now, if you look at what it's done for us, we now have a 30% larger business than what we had a year ago. more fleet, more locations, more specialty capabilities, and a larger maturing sales force, and that's really the foundation. And the first half of this year is really about converting that foundation into performance, and we've seen that really take hold, and we're really happy with the progress that we've made and what we've seen to play out over the last nine months or ten months that we've owned the business, which is driving accelerated growth into the back half of this year. The progress that we've mapped out in the first half is really building the foundation that'll flow into the back half and create the flywheel for 2027 and beyond. So it's really about higher revenue, expanding our margins, and increasing our capability to deleverage and capture the synergy that we said we would capture. So the path that we've laid out, we're on, and we're very happy with the progress that we've made and to deliver the full value of the acquisition that we committed to our stakeholders in the business. From a strategy standpoint, we really are focused around these core areas. So it's really growing the core, our branch network of scale, our broad fleet mix including a growing and expanding specialty business our technology leadership we believe we have a leading edge technology platform that we operate from and our capital and spending discipline that we've incorporated in our business and we differentiate ourselves by superior customer service that allows us to manage across the life cycle generate sustainable growth over the long term. And with that, we are committed to becoming the supplier, the employer, and the investment of choice in our industry. So with that, I'll turn it over to Sharif.

Thank you very much for that. Just to start us off, the biggest topic at the front of investors' minds has, of course, been the H&E deal. You've given kind of an overview of the integration and the process that you expect to see with it.

But just to begin, can you sort of outline some of the the bright spots what's gone better than you expected uh what maybe some of the challenges and you know how you've addressed some of those yeah great great question so you know what's gone maybe as well as could be expected and perhaps even better than what we expected was certainly the technology stack integration of the business um really a flawless integration of the technology stack within a 90-day period. I'm really pleased with that progress. I think the other thing that we're really pleased with is the people and the culture acceptance of the business. We were just named for the third year in a row, great places to work in America, and that's from incorporating 2,500 new people, or about 30 percent of our total population, into the surveys that were independently made and we had over 87 percent of the people respond and we we passed with flying colors which tells us that the culture has been accepted the people are enjoying the work environment that they're in and we're really we're really happy about that i'd say you know additionally we've uh we found ourselves positioned in you know 11 of the top 20 markets where we're marketplace leaders, we have incremental fleet capability, and certainly we're really pleased with the footprint of the properties that we acquired, the 162 locations, really all purposely built, or for the most part, purposely built locations that give us ample opportunity for growth and expansion and incorporation of our specialty business without adding any additional overhead. So the overhead was already existing in the business, and now we're able to just put new businesses into those facilities and leverage that existing overhead. So really, those are the things that we're real happy about.

And one thing you've spoken about with H&E is just the opportunity to leverage specialty rental. I believe H&E only had about 500 CAD classes of equipment versus the 6,000 or so classes that Herc has. but you've talked about sort of assimilating the sales force and then maturing it in the second half of the year you know my understanding is the sales process for specialty and a lot of support network for that is very unique versus general rental so with that sort of cross training how has that looked like you know what is the support network been built how has that been built in and you know how long does it take for those sales people to truly mature and be able to kind of leverage a lot of the equipment that you're layering in.

Yeah, great question. You want to take it?

Go ahead. Yeah, I mean, I think, you know, just taking a quick step back, right, Larry mentioned we purchased 162 branches with this acquisition, and I think that, you know, what we were able to do through branch optimization is sort of convert, call it 50 of those 160 into specialty locations, which is sort of the ramp and the guide for the synergy lift over this next three-year period. I think as it relates to the sales force, the sales force doesn't need to understand or know how to sell specialty. And I think that's an important point. You know, the way that we've layered these specialty branches into the markets, there is existing subject matter experts inside these markets. So when we when we've set up these 50 new locations, they're already they're fleeted and we have the employees for the specialty side. So it's really just having the understanding and the wherewithal to tap your subject matter expert on the shoulder and bring them with you to that sales call. you don't need to be the expert in order to sell that specialty solution.

So, you know, you mentioned 50 of the 162 are specialty. So is it fair to say it's kind of taken like a hub-and-spoke model where specialty locations can kind of see throughout the broader footprint? And, you know, my understanding is that mechanics for generators, for example, are more specific versus maybe some of the general rental. So having that sort of centralized support network to be part of the synergies that you're realizing about, Janine?

We haven't really converted 50 of the 162 to specialty only. What we've done is we've put specialty into those locations. So those locations were already general rental. In some cases, we might have consolidated their general rental with our general rental and then taken our location and turned that into a specialty. But for the most part, the vast majority of the 50 were branch within a branch. So they had a facility that was very large. You know, our typical branches are about two and a half to three acres. Their branches were anywhere from five to seven, in some cases more. Big facilities, lots of capability. We were able, because of the size of that, we were able to put a specialty facility within to that location and able to grow it using that existing structure of mechanics and, you know, and overhead around that. so you know it wasn't necessarily sort of starting from scratch you're starting with an existing workforce there understood and just as we think about the broader focus on specialty you know I think Herc's known for having a really good power business in particular for specialty what other product categories are you kind of focusing on as you look to layer it in across the H&E footprint yeah I mean earlier focus yeah I mean really we took a market approach

to where and how we set up these specialty locations. So we evaluated a mark and said, what else do our customers need inside of this marketplace? And so where we have specialty, new specialty into these marketplaces, right? It's full suite of specialty product, but I would tell you that, you know, by and large, it's pump power and HVAC primarily.

Understood. Just, you know, the H&E deal, I feel like, has taken up a lot of the focus. Outside of H&E, what do you think shifted for Herc that investors might not be fully appreciating or considering?

Well, you know, look, Herc, since becoming an independent public company, we've remained, you know, really focused on increasing our scale and geographic reach through both greenfield development and strategic acquisitions. So this acquisition really accelerates our strategy, call it five years, six years, seven years, depending upon how you look at it, and it enables us to continue to develop market-leading growth and superior value creation as we go forward. So we've been able to expand that increased density, you know, in economies of scale, in geographic areas, as well as customer diversification with a much larger fleet. You know, now that the integration really is complete, we're really focused on branch optimization, continued training and development, systems transfer is all complete. And we're looking at how we take that to all of the H&E customers now. So that's something that we've been really focused on, and we're really pleased with the progress that we've made. So it's really around, you know, execution. So we're going to continue to execute the playbook that we've played in the past, focusing on, you know, customers and growth opportunities that present themselves. Right now, obviously, you know, we're seeing a lot of mega project opportunity. You know, Herc's been in business for over 60 years, has, you know, relationships with these large national contractors that go back 30 years. So they have confidence in us. They know we can do this, and they're taking us to new areas. So, you know, we're capitalizing on preferred access with customer relationships to mega projects. And, you know, right now in 2026, there's about $800 billion of megaprojects that are in the pipeline with, you know, several trillion more that are, you know, yet to be announced that have been talked about that we'll see in the future. And we're really targeting about 10% to 15% of that opportunity. And H&E has given us the capability to move towards the upper end of that range. And we're really looking at this incremental scale and capability to bring us to the top end of our target there.

And on the top end of your target there, you mentioned H&E has kind of driven you to be able to do that. Is that the scale that H&E brings, or is it also just opening up geographies with existing customers to be able to address more of the footprint of projects that they're taking on?

You know, I would say both. I would say, you know, certainly brought us scale in terms of size, in terms of people. You know, you bring 2,500 more people. The vast majority of those are mechanics and drivers, right, because that's what we brought into the business. And so that gives you greater capability and greater scale. And that's what's put us. Also, obviously, they were very strong. And that map was still up there in what I would call the smile part of the map, which increased our capability in some of those markets that we weren't in. And in some markets gave us capability. We had no presence at all.

So, yeah, that's what I would say both. thank you and you know mega projects of course have been an ongoing source of growth amid the downturn in local markets and i know your approach has been to be more targeted that 10 to 15 as you say but you know herx focus has been to serve top msa's a lot of these projects are typically maybe out out you know somewhere more distant from population centers has that changed the demographics of the projects you target or you know have you changed the way you operate to kind And if they'll address some of these larger projects outside of these population centers?

No, I wouldn't say so, not necessarily. I mean, I think when you think about sort of the breadth and depth of the mega project activity today, I think when you think about, you know, the manufacturing, the LNGs type projects, those are generally located in or around your top 100 MSAs, give or take. I think where the data center activity has certainly been more rural. And so you get stretched there a little bit because you generally don't have branches in the middle of cornfields, as an example, right? And so really what happens there is they're providing you on sites and you're looking for either, you know, temporary lay-down yards or other sort of temporary locations where you can sort of have your fleet housed before it's going to those on-site locations.

Understood. You know, obviously with the growth in megas, a lot of that has been driven by data centers. Would you say that's sort of the bulk of the opportunities in front of you? Is that sort of where a lot of this growth is that we see kind of going forward? And again, does that mean you kind of have to shift to some of those more temporary sort of bases to be able to serve some of these projects?

I wouldn't say it's, you know, the vast majority of the opportunity. I would say it's a, you know, it's certainly a significant amount and something that we're going to pay attention to and we're going to address in whatever way we need to when a customer gives us that privilege and we're asked to, you know, fulfill that need. But there's a lot of other mega project opportunity you know around lng opportunity stadium opportunity um bigger bigger markets where you know you're seeing you know hospitals built uh things um you know that we would consider remember our size of a mega project is really something that's about 250 million dollars and bigger so you know a lot of that is really happening around uh these top 100 MSAs in North America. And so, you know, I would say it's something that exclusively is focused to data centers. Certainly, you know, it is, but there's a lot of others in these other areas. You know, chip plants are still being built, not necessarily in rural areas. The only thing you're really seeing in these rural areas is data centers. I understand.

And just with the type of megaprojects can be allowing, you know, some of these larger ones, does that change the way you've approached seeding the specialty you know is power for example something that these types of projects demand early on and kind of gets your foot in the door how should we think about that evolution yeah i mean i think um you know as you develop um you know your relationships with these large gcs and you prove yourself right you become more of a solutions provider as opposed to just a gear provider right and so as we've been able to do that um you know the front sides of these projects now we're providing solutions for them um you know primarily in this in this power um sort of realm and so you're then providing them cost savings they're not running diesel um in some cases right we're powering that with battery um and so yeah i mean that has been a focus uh of ours and it's also a it's an incredible opportunity to be able to get to the front side of these larger projects and power them, you know, sometimes over a two to maybe even three year sort of timeframe until they're attached to a grid.

And, you know, you've touched on attaching to a grid, you know, utilities, renewable energy, a lot of these other fields have also been growing just with the demand for How do you serve the energy infrastructure and power markets outside of LNG and, you know, sort of the end uses like data centers? are you doing work with the utilities and the build out of energy infrastructure well you know how we service them is through temporary power right and uh we provide either a combination of of diesel power and or battery power or a combination of both together depending upon where that project is located and what the requirements you know you get into if there's a project that's happening you know in a in a community or nearby a community as we've seen you know recently sometimes you need to have quiet power so you're not allowed to run your diesel generators at night so we provide battery technology we charge them during the day they run and power those facilities at night because they're working 24 hours around the clock building these data centers and getting them ready so you know we put in long-term power capability for as long as it takes to get the grid to these locations and then obviously in you know In the more densely populated markets, power might be available, but not in the certain capacity levels that they need. So you might have the grid working part of the time, and we're providing backup or temporary power when the grid can't supply what they need, mostly through diesel capability, but also, in some cases, through battery power.

And then changing gears a little bit, you reported earnings a little over two weeks ago. And on the call, you sort of noted that May and June would be the key ones, Q2, sort of the defining period for driving that growth that you expect, the ramp in the back half. I understand we're very early into May here, just about mid-May. But have the signs you've seen so far kind of been in place to see that ramp, everything moving as expected?

Yeah, I mean, I think, you know, what we said a couple of weeks ago is that we were anticipating an inflection point on a pro forma basis at some point in time inside of Q2. And I think, you know, that's still the anticipation. Obviously, it's still early. And we just, you know, gave this, you know, update a couple of weeks ago. And so I'll leave that there, you know, given the fact we're in the middle of a quarter.

Understood. I'm pulling back a bit you know rental has been a really fragmented industry for a long time that said there's been a few new public entrants and a few sort of existing entrants that are put a focus on rental and growing in rental have you seen a shift in the last five years when it comes to competition you know a bit more consolidation among some of the maybe not top three but you know other players in the space kind of coming in and in a larger way yeah look we're still operating in a very fragmented business even the top three players have only about a third of the market so there's a plenty of market opportunity out there that said the industry has really

professionalized over the last 10 years with professional management IT and you know systems systems capability, platforms that improve that capability. And, you know, there have been some, I wouldn't call them new entrants. There've been some growing entrants. You know, there've been folks that have been out there for 10 or more years that, you know, seem to want to get on the growth track. No different than we have for the last 10 years. I mean, you know, 10 years ago or 11 years ago when I got to Herc, we had about 230 locations. We shed a number of those and then built back up to now we're over 600 locations across North America. So we've been on a growth track. But look, there will continue to be consolidation in this industry because it's still fragmented. And you have a whole area that's really what I would call in the embryonic stages of consolidation, which is the specialty businesses. You know, what happened on the general rental side, you know, has been moving into the specialty rental side, and you'll continue to see that. You might have some specialty players that decide to add general rental into their mix. But, you know, that's kind of been the change, and you'll continue to see movement towards rental as the secular change keeps moving. You know, I don't think it'll ever get to be where the U.K. or Japan is to where, you know, the whole market is rental first. But there is a significant amount of movement towards rental.

Understood. And the local markets have stabilized. I think there's been a lot of focus on that and, you know, how they have shifted. Within that, have there been some areas that have been growing a bit, offset by weakness in others? Has it been more broadly stable across the board? Any areas of strength or weakness?

Yeah, I mean, I don't think there's necessarily anything I would call out. I think that muted and stable has sort of been our descriptor now for several quarters, and I don't think that, at least as we sit here today, we're experiencing anything too different from that, right? I think that our tailwinds remain, you know, the mega project growth, the synergistic opportunity of the cross-sell from the acquisition. And then I think, you know, that would be sort of layered into that is this very stable and muted sort of local market.

And are you seeing some of your end customers on the local side sort of pivot to some of these larger projects, attempt to help serve some of that build out where possible? And then, you know, just as we think about it, when local markets start to come back, is that something where they kind of shift and you think re-pivot to their traditional businesses?

Yeah, you know, I don't think we've seen folks that, you know, operate in a local market decide to pick up and move to, you know, to where, you know, these other larger projects are. I think they're focused on, you know, what's going on in this market. If you go look around New York City, it's a stable local market environment that they're serving. you know i don't i don't really see a big shift what you really have the folks serving these big projects are the big name national contractors that you're aware of and they tend to pick up subs that are around that local market you know that they're in not necessarily you know asking somebody from new york city to come to iowa and help them build a data center you know they're not they're not sort of that transient or that capable of moving so i don't see a lot of that happening I think they're just dealing with whatever is in their local market. They've scaled back. They're trying to survive this period until interest rates are such that investment is going to have in the local market and go from there. The folks servicing these megaprojects are really the big players. You know, the top 50 contractors in North America are the primaries, and they have the big subs that are servicing them because they know how to handle that. It takes a certain level of expertise. It takes a level, you know, of scale. It takes a level of safety and operating in those environments. So you just can't sort of call on a local contractor to come and move and do something for you when they don't have that experience level.

And turning to technology, Herc and other professionally managed rental companies have for a long time been investing in technology that differentiates you from the mom and pops. With AI, with some of the development out there, how are you utilizing this? And does it sort of level the playing field to a degree where smaller operators are able to maybe access some of the technology that they wouldn't have been able to beforehand?

Yeah, I mean, I actually think it's more of a separator for the top three or four sort of big players in the industry. I think that, you know, looking at H&E as an example, you know, they were the fourth largest player in the industry at the time of acquisition. And yet their technology platform was really non-existent. And so I think that you do have a separator there where, and Larry mentioned it earlier, but this technology platform has almost become table stakes. Like, if you want to play in this large, mega project arena, your technology platform has to come along. It has to be sort of front and center, and I think that that's where and why you have sort of three guys playing in this large project space, and the more local or regional guys don't have those capabilities from a technology perspective, And therefore, they're not a primary or generally a secondary in those larger projects.

Understood. And just as we close out, you know, pulling back for a moment, you know, there's been a lot of larger peers, Sunbelt, United, you know, with Herc and its shifting footprint, how do you think it fits into the industry? You know, what are you doing similar to others in the space? How are you differentiating yourselves or kind of paving your own way?

Yeah, no, look, I think we have a lot of similarities in terms of scale. They might both have a little larger scale, but, you know, our scale is around capability and the products and, you know, and solutions that we offer in our specialty business. And we have, you know, a tremendous amount of experience in handling large customers and large projects of this nature. So, you know, similarly, you know, our footprint is pretty good. And relative to them, we are certainly focused on the top 100 MSAs where we have every bit as good a capability as our two peers. We have the scope in terms of products and portfolios, and we have the experience. You know, where we differ is they might be in some broader ranges of specialty that we're not in, but we have partnered with other companies. An example might be scaffolding or tents. We're not in either of those businesses, but we have partners in those businesses. They happen to be in them. They're just not areas that we feel are, at this point, part of something that we want to invest in. We'd rather partner with somebody who we're not competing with to handle that broader scope of products. But outside of that, there really is no difference in capability. The other area that, you know, we're like I said, we're focused on the top 100 MSAs where we're not focused on rural areas. So we really don't want to be in rural markets. I believe that, you know, high density, high, high, you know, concentration market areas give you a greater resistance to, you know, any kind of an economic period that you go through because there's always going to be activity in a high concentrated market. Whereas rural communities are more dependent upon and more susceptible to recession than perhaps the highly populated dense urban markets. So I think while there's a difference there, I think our strategy plays better over an extended period of time.

Well, thank you so much for joining us here today. Thank you everyone here.