Herc Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 29, 2025

Key Takeaways

  • Positive Sentiment: Successful integration of H&E Equipment Services with minimal disruption, with 45% of acquired locations already on Hertz’s technology platform and an initial $350 million three-year revenue synergy target.
  • Positive Sentiment: Robust national account demand is driving growth, as Herc captures its targeted 10–15% share of mega projects and expands the pipeline through cross-selling specialty solutions and full-service fleet management.
  • Neutral Sentiment: Fleet composition is shifting toward specialty equipment, which now represents 18% of total OEC (16% excluding Cinelese), with plans to reach ~20% by repurposing branches to ProSolutions amid stable used-equipment market pricing.
  • Negative Sentiment: Legacy H&E branch revenue declined ~15% year-over-year in Q2 on a pro forma basis due to workforce turnover and a narrow product mix, with further EBITDA headwinds expected in H2 as the fleet is right-sized.
  • Negative Sentiment: GAAP Q2 results include a net loss driven by $73 million of transaction costs and a $49 million non-cash asset-sale loss, while leverage remains at 3.8× debt/EBITDA and higher interest expense pressures cash flow until de-leveraging by late 2027.
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Earnings Conference Call
Herc Q2 2025
00:00 / 00:00

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Operator

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Second Quarter twenty twenty five Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Leslie Hanzicker, VP of Investor Relations. Please go ahead.

Leslie Hunziker
Leslie Hunziker
SVP, IR & Communications at Herc

Thank you, operator, and good morning, everyone. Today, we're reviewing our second quarter twenty twenty five 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 and 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.

Leslie Hunziker
Leslie Hunziker
SVP, IR & Communications at Herc

These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10 Q and our most recent annual report on Form 10 ks as well as other filings with the SEC. Today, we are reporting financial results on a GAAP basis, which include H and E results for June in each of the three and six month periods for 2025. 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. This morning, I'm joined by Larry Silver, President and Chief Executive Officer Aaron Birnbaum, Senior Vice President and Chief Operating Officer and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Thank you, Leslie, and good morning, everyone. It's been a busy time since our last earnings call. During the second quarter, we successfully completed the acquisition of H and E Equipment Services. Since then, integration activities have been underway to validate financial, operational and cultural assumptions, identify key talent, mitigate risks, and ensure a smooth transition for all stakeholders. One of our early priorities was to set up an integration management office and clearly define roles and responsibilities within the integration process.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

This successfully ensured minimal disruption to the rest of our employees' daily responsibilities and allowed Hertz sales and operations staff to remain focused and productive through the transaction process. In a dynamic environment like the one we operate in today, where underlying local and national demand trends are bifurcated, this was critical. The local markets continue to see pressure as more commercial projects come to completion, while new projects in that sector remain on pause due to prolonged higher interest rates. The good news is that our local sales professionals are experienced, determined hunters using the full suite of Hertz product offering, reputation for service excellence and industry leading technology platforms to create opportunities and win new accounts. On the other side of the coin, national account demand remains strong and we continue to capture our targeted 10% to 15% share of the mega project activity.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

There, we're supporting customer success with differentiated specialty solutions, a large and varied general rental offering and a full service fleet management, including maintenance, logistics, safety training and utilization insights. In the quarter, excluding Cinelese, Herc legacy branches continued to outpace overall market expansion driven by growth in both national and local account revenue. I want to thank all of Team Herc colleagues for bringing their best efforts every day for the collaboration and support you've shown your colleagues, old and new, and for keeping your eye on the ball and embracing the changes that bring opportunity and growth. As you can imagine, Herc's biggest growth opportunity today and over the next three years stems from the scale and synergies we gained through the H and E acquisition. Let's move to Slide five for some perspective on how the integration has progressed.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Since we closed the transaction, our teams have been working tirelessly to successfully bring the two companies together. As reported in the first quarter, H and E's financial performance was impacted in part by disruptions to their employee base during the bidding process and we saw those distractions continue through the close of the deal in early June. Since then, meeting the team and immediately putting in place comprehensive communications that address their most critical questions has gone a long way in stabilizing our acquired workforce. In the field, HERC RBPs and district managers have visited all of the acquired branches multiple times, getting to know the new organization. I personally visited over 40 H and E and HERC locations throughout the West, South, Midwest and Northeast over the last couple of months, and Aaron's covered even more of our network.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Additionally, we've remapped the operating regions and optimized the sales force territories to address our now larger footprint. In doing so, we added two RVP positions, which were filled by H and E field leaders. We're also adding key management positions to our sales organization to drive revenue synergies and develop our mid market capabilities where we know H and E excel. Our new field structure has been cascaded to employees throughout the organization. At the same time, we're managing staffing priorities.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Our fleet team completed its assessment of H and E's assets by market, category class, brand, utilization rates and equipment age. Based on the outcome, updated plans for incremental dispositions as well as the addition of specialty fleet or synergies is considered in our next fleet CapEx guidance, which Mark will take you through in a minute. Most exciting is that the fleet sharing and sales referrals are already taking place. Let me give you just a couple of examples. One of our new sales reps recently was contacted by a customer of his who currently is running a mega project.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

The customer asked his rep if he could provide the fleet needed for this large job now that H and E was part of Herc. This wasn't a project that H and E could have previously supported with its more limited product offering, and Hertz didn't have a relationship with this contractor. It's a clear example of the whole being greater than the sum of its parts. And our national account project pipeline just got a bit bigger. In another example, we hosted joint branch manager sales leader town halls in Dallas and Houston about a week after we closed.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

In each meeting, we asked the room if anyone had a story of renting equipment that they wouldn't have been able to rent just a few days earlier. Almost every hand went up. One person said they were able to fill a request for a special aerial attachment. Another said they were working on a generator deal where H and E previously didn't carry the size of generator the customer needed. It seemed that everyone had a story and there were lots of excitement in the room.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

That's really what this is about and it's one of the reasons we're confident in our revenue synergy target. Behind the scenes, we're checking all the boxes. Training for standardizing processes for things like logistics, maintenance and safety is also underway. And governance policies, including things like the customer and supplier contract approvals have been communicated and controls are in place across the joint organization. Our next major initiative is the technology integration.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

We've got systems cut over planned in geographic phases throughout the third quarter and expect to be done by the September. We've invested significant time and attention in adding capacity to the Herc system, beta testing capabilities, data migration and of course security. And putting together training processes, mentoring structures, on-site extra support, and a dedicated hypercare team. We feel good about the plan. Our initial cutover took place two weeks ago, and it went very well.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Our second phase is next week and we feel very confident that it will be equally successful. At that time, nearly 45% of the acquired locations will be fully integrated onto Hertz industry leading technology platform. The takeaway here is that our new organization is working well and we're off to a great start as a combined company and we're well positioned to capture the synergies of the acquisition while continuing to deliver on our long term growth strategies, which are outlined on Slide six. As we've said, integrating this acquisition will be our primary focus and therefore we are pausing other M and A initiatives for the time being and completing the remaining in flight greenfields. In the first half of the year, we added 11 new facilities, of which eight were opened in the second quarter.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Capitalizing on the secular shift from ownership to rental, particularly in the specialty market and yielding greater value for mega projects through specialty solutions is a key focus for us. Further, cross selling specialty gear is an important component of the revenue synergies with H and E. In line with this strategy, we've continued to over index our gross CapEx plans towards specialty as a percent of our fleet composition long term. We're also planning to repurpose general rental branches into ProSolutions facilities beginning this year to support specialty equipment capacity with 160 plus acquired locations. While we work through the integration of H and E, we'll continue to follow our playbook, leveraging branch network scale, our broad fleet mix, technology leadership and capital and operating discipline to position us to manage across the cycle and generate sustainable growth over the long term.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Now I'll turn the call over to Aaron, who will talk a little bit more about operating trends and then Mark will take you through the second quarter business performance drivers and transaction adjustments. Aaron?

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Thanks, Larry, and good morning, everyone. I also want to thank our team for remaining agile in a very dynamic environment by leveraging our diverse end market capabilities, comprehensive fleet offering, broad geographic coverage and the deep customer relationships we've cultivated, all of which support a resilient business model. As an added bonus, our teams are energized by the unique opportunity that H and E presents. And that energy and excitement already is beginning to translate into an expanded project pipeline. Our combined team is committed to converting opportunities into revenue while prioritizing customer success and a safety first focus.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Safety is at the core of everything we do. And you can see on slide eight, our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In the second quarter, on a branch by branch measurement, all of our operations achieved at least 96% of days as perfect. Equally notable, our total recordable incident rate remains better than the industry benchmark of one point zero, reflecting our high standards and commitment to the safety of our people and our customers. Turning to slide nine.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

As Larry said, we are operating in a disproportionate demand environment where the local market remains affected by interest rate sensitive commercial construction while mega project activity continues to be robust. In the second quarter with one month of H and E results included, local accounts represented 53% of rental revenue compared with 56% a year ago. On a pro form a basis, as if we owned H and E on April 1, our second quarter rental revenue mix would have been 55% local and 45% national. In the local markets, we are expanding in select regions where infrastructure, education, government recreation and facility maintenance and repair projects are active. On the national account side, government and private funding for new large and mega projects is still quite robust.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

The push for reshoring manufacturing along with increases in LNG export capacity and the expansion of artificial intelligence are driving new construction demand. We are continuing to win more of our targeted share of these project opportunities with several new mega projects on deck this year and the twenty twenty four projects still ramping up. We always get questions about cancellations and delays. So I'll address that now. We haven't experienced any cancellations on our mega projects.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

And when it comes to project delays, as we've said before, delays are fairly typical on national accounts as large complex projects deal with design revisions, labor issues and lengthy permitting and regulatory reviews. Case in point, in June, we finally put initial equipment on rent for a substantial mega project that was awarded back in January. This project was delayed due to a rigorous permitting process. In instances like this, our fleet team and operations and sales leaders rely on experience and collaboration to strategically adjust plans to address these timing issues. It's the nature of the business.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

As a combined company, we'll continue to target a 60% local and 40% national revenue split knowing that this diversification provides for growth and resiliency. Moving to slide 10. If you jump ahead in the deck, then you know that we're increasing our gross CapEx forecast to account for incrementally more specialty fleet this year to capture the cross selling synergies in our plan. Despite this, our net fleet CapEx forecast is unchanged at roughly 30% lower year over year at the midpoint of our guide. The offset to the expenditures is incremental disposals as we make adjustments for mix and utilization.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

In the second quarter, we spent roughly 9 percent less on new fleet than in the prior year quarter with a mix of fleet expenditures more heavily weighted towards specialty gear even pre acquisition. Also in the latest quarter, we disposed of 82% more fleet on an OEC basis versus a year earlier in preparation for onboarding the H and E fleet. Realized proceeds were 44% of OEC on those equipment dispositions. While residual values were down year over year, sequentially, we've seen the used equipment market stabilize since the 2024. On the right side of the slide, you can see our fleet composition at OEC.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Total fleet was $9,900,000,000 as of 06/30/2025, with specialty fleet representing about 18% of the total. Excluding the Sinaloese assets, our base fleet is approximately $9,600,000,000 and higher margin specialty fleet would make up about 16% of that. With the acquisition synergies, we expect specialty fleet to return to about 20% of OEC as we continue to prioritize this high margin equipment category. Having a diversified offering that includes specialty fleet is an advantage for us in addressing the comprehensive needs of both local and national account customers and delivering value added expert solutions to meet these customers' critical or emergency requirements provides another degree of operating resilience of our business. Sticking with the topic of resiliency, let's turn to slide 11 where you can see that despite the uncertain sentiment in the general market around interest rates and tariffs, industrial spending and nonresidential construction starts still show plenty of opportunity for growth built on the foundation of mega project development and infrastructure investments.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Taking a look at the updated industrial spending forecast at the top left, Industrial Info Resources is projecting 2025 to be another strong year of capital and maintenance spending at $527,000,000,000 Dodge's forecast for non residential construction starts in 2025 is estimated to increase 7% to $478,000,000,000 Additionally, there's another three sixty billion dollars in infrastructure projects forecasted for 2025. That's a 10% increase over 2024. The dotted line on these charts reflects growth over pre pandemic peak levels. You can see that this year and the next three years are currently projected to be among the strongest periods of activity that this industry has seen. The mega project chart in the upper right quadrant gives you a snapshot of the growth and projected starts over the last two years and for 2025 for U.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

S. Construction projects with a total dollar value exceeding $250,000,000 We estimate we are only in the early to middle innings of this multiyear opportunity. We don't take the chart out beyond this year because visibility is less clear for actual start dates of those projects still in the planning phases. But there is an additional $2,000,000,000,000 in the mega project pipeline that isn't accounted for here. Of course, there's some overlap in projects among these four data sets.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

But no matter how you look at it, for companies with the safety record, product breadth, technologies and capabilities to service customers at the national account level, the opportunities for growth remain significant. Turning to slide 12, I'll continue to state the obvious. 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 secular shift from ownership to rental, especially in the specialty category classes.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

We believe we are well positioned to manage dynamic markets and the acquisition of H and E further bolsters our capacity and therefore our opportunities. With that, I'll pass the call on to Mark.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Thanks, Aaron, and good morning, everyone. I'm starting on slide 14 with a summary of our key metrics for the second quarter. I'll start with our GAAP results, which include both H and E's June results and the Cinelese results. Cinelese, as has been discussed, is classified as assets held for sale. I'll just make a couple of quick points here before turning the focus to the core results.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

The second quarter, rental revenue increased 13.7% and adjusted EBITDA was up 12.8% to $4.00 $6,000,000 We recorded a net loss in the second quarter, which included $73,000,000 of transaction costs, primarily related to H and E and a $49,000,000 loss on assets held for sale. However, on an adjusted basis, net income was $56,000,000 Let's move to slide 15, where we can walk through the revenue breakdown by contributing business. In the second quarter, GAAP equipment rental revenue was up about 14%. But on a pro form a basis, which includes H and E for the full second quarter, rental revenue would have been down 2% year over year, primarily as a result of continued weakness in the film and TV vertical and a double digit decline in the H ago as the studio entertainment industry recovery that started to get traction in the 2024 continues to be pushed out as entertainment companies delay reshoring production. Excluding Senalise rental revenue from Herc legacy branches increased 4% in the quarter reflecting strong mega project activity, moderated growth in the local market as well as positive results in both general rental and specialty product lines year over year.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Shifting to H and E, as you saw in their last several earnings reports, the business has struggled to capitalize on opportunities outside of their local market. Legacy H and E branches exited the quarter with rental revenue declining at roughly 15%. A portion of the decline is attributable to the workforce disruption including turnover caused by two announced transactions. The balance reflects the volume and pricing pressure that results from being limited by a narrow product offering in a moderating local market. As Larry and Aaron mentioned, we feel that the actions we've taken to stabilize and engage the workforce have been effective.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Now rightsizing the fleet and providing the acquired branches with a broader portfolio of equipment and more sophisticated tools with which to manage the business should get things back on track as we move into 2026 and hopefully a better interest rate environment. This is the last time we'll provide a revenue breakdown by business. The fleet is fungible and is already being commingled and customer account sharing and redesigned sales territories are in play. We are now one company. Moving on to slide 16, here we outline our core financial results, which exclude Cinelese from both periods in order to give you a better sense of how the base business performed in the quarter.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

A full reconciliation of quarterly performance metrics can be found beginning on slide 24 in the appendix of our presentation. For the second quarter, equipment rental revenue was up 15.6% year over year. Adjusted EBITDA increased approximately 15.1% compared with last year's second quarter, benefiting from higher equipment rental revenue as well as used equipment sales. Adjusted EBITDA margin primarily was impacted by higher revenue from sales of used equipment which generate a lower margin than rental revenue. REBITDA which excludes used equipment sales was up 14.5% during the second quarter.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

REBITDA margin dipped 30 basis points compared with the prior year due to the one month impact of the lower margin acquired business. Margin improvement will come from cost synergies and a shift over time to a higher margin product mix as we deliver on the revenue synergies from the acquisition. ROIC for the core business is targeted to exceed our cost of capital within three years of closing the acquisition supported by capital efficiencies, economies of scale and a higher margin revenue mix. Shifting to capital management on slide 17, you can see that we generated $270,000,000 of free cash flow net of transaction costs in the first half on higher operating cash flow and disciplined net capital expenditures. In June, we finalized the debt funding for the acquisition raising $4,400,000,000 at a weighted average cost of 6.8%.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

This was done through a combination of unsecured notes, a term loan vehicle and incremental drawdown on our upsized ABL. Our current leverage ratio is 3.8 times as we anticipated. We believe we can bring that back into the top of our target range of two to three times within calendar year 2027 as revenue and cost synergies drive higher EBITDA flow through and less capital will be required to achieve the revenue synergies due to scale benefits on the utilization of existing fleet. The combined entity will be capitalized to maintain financial strength and flexibility. If you flip to slide 18, you'll see that we are introducing combined 2025 guidance.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

As noted, our guidance excludes the performance of Centalise. We are now expecting to generate equipment rental revenue of 3,700,000,000.0 to $3,900,000,000 in 2025, which includes six months of forecasted H and E results. You'll recall that we projected a 10% target over two years in our initial modeling of the acquisition. We believe that all of that came to fruition pre close as a result of the disruptions to the H and E business. The revenue outlook at a high level reflects the previously guided performance expectations for legacy HERC, the anticipated run rate revenue trajectory of legacy H and E, a reduction in greenfield openings and M and A branches year over year for both companies and the phasing in of initial revenue synergies.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Notwithstanding the DISC synergies, which created a new lower base of acquired revenue at closing, our gross revenue synergy target remains the same at approximately $350,000,000 over three years. When it comes to cost synergies, savings from redundant positions, contracts and public company expenses are already being realized. We expect to achieve 50% of our $125,000,000 EBITDA run rate target by year end 2025. We're confident in our ability to achieve both the full revenue and cost synergies and should be able to update you on the cadence of how those synergies come in when we give our guidance for 2026. For 2025, we estimate adjusted EBITDA will be between 1.8 and $1,900,000,000 which implies an adjusted EBITDA margin of 42% to 43%.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

For net CapEx, as Aaron mentioned, we're tracking to our original guide of 400,000,000 to 600,000,000 despite increasing gross CapEx for synergy fleet. As we've stated, we believe we'll be able to generate the revenue synergies with roughly half the typical amount of fleet needed as we optimize utilization of the combined general rental fleets and only add incremental growth CapEx for specialty type fleet to support the acquired customer base. In the second half of the year, we are targeting equipment disposals of 700 to $800,000,000 at OEC as part of the H and E fleet integration to better align our fleet level to the new base of acquired revenue. We forecast adjusted free cash flow for the year to be 400 to $500,000,000 net of transaction costs reflecting an approximate $130,000,000 cash tax benefit from the new legislation around retroactive bonus depreciation and interest deduction limitations, partially offset by higher interest expense. As with any major acquisition, we've got some work to do as we integrate H and E operations.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

But as we gain more insight and intelligence into the acquired business, it's reinforced our view of the significant opportunities ahead and our belief that the combination with H and E will create long term benefits for customers, employees and shareholders. With that operator, we'll take our first question.

Operator

Your first question comes from the line of Rob Wertheimer with Melius Research. Your line is open.

Rob Wertheimer
Founding Partner & Machinery & New Mobility Research Analyst at Melius Research LLC

Hi. Good morning, everybody, and congrats on getting the deal, done and and off to a new era. This first one's gonna be a little bit tricky to answer because it it touches on 26 guide, and I I don't want to go explicit. But I wonder if you could give general comments on how you feel set up for fleet in light of the dollar you to light of having acquired a bunch and what that means for future CapEx. Did you consider tightening it further for this year?

Rob Wertheimer
Founding Partner & Machinery & New Mobility Research Analyst at Melius Research LLC

There's always different categories I know you need. So maybe just talk about your use of capital over the next couple of years.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. I think broadly speaking Rob obviously this is very early innings here right? We have sort of an adjustment to make on the new revenue base which will be sort of rightsizing that H and E fleet into the broader organization. Hopefully, majority of that activity will occur in the back 2025. I think when you then think about that going forward, right, there's a rev synergy component to this.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

As I stated in prepared, there's a $350,000,000 go get over a three year period. So there will take some invested capital light as we've modeled it. But the majority of the increase here in the back half of the year on the growth side is related to rev synergy fleet. That will layer in over the back six months probably ratably throughout. I think it's too early for me to sort of give you guide into 2026.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

I think we need to see the uptake of both the plan to right size how the revenue synergy fleet is laying in and be able to then provide you more clarity as we provide you 2026 guidance in 4Q with 4Q results.

Rob Wertheimer
Founding Partner & Machinery & New Mobility Research Analyst at Melius Research LLC

That's totally fair. Thank you. And then if I can, I wonder if you could just describe, I mean, this is a big transaction, but you expected revenue to dissynergies? There was a little bit of a rush for that in the beginning. I mean, how confident are you that you've gotten past that?

Rob Wertheimer
Founding Partner & Machinery & New Mobility Research Analyst at Melius Research LLC

How does that normally play out? People come after some key employees or some key accounts and maybe that's what you figured. Maybe just any expansion there and I'll stop. Thank you.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Rob, this is Aaron. I'll take the back half of that question for sure. So as we communicated in the prepared remarks and as you're aware, there was a lot of, I guess, anxiety and change going on during the due diligence HSR period. So there was some loss of employees from H and E. Some of them were sales reps.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

But once we closed the transaction, we were able to get in front of the employees, that really settled everybody down. And we haven't had the same issues, since June 2. So it's really it's a different business, as we said. It's one company now, and, we're seeing synergies, occur. And we've really stabilized the force. And I think we're all working together right now.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

I think, Rob, maybe coming at it a little bit differently and to Aaron's point, we've absolutely stabilized the revenue base. That doesn't completely take into account the tough comp that that H and E business would have had on the back half of the year. It was an acquisition for them that was sizable in 2024, obviously didn't recur in 2025. So while the rev base is stabilized, it's not going to necessarily come through from a growth perspective in that same manner. There'll be additional pressures to the rev growth if you will in the back half of the year assumed in that H and E business. Does that make sense?

Operator

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

Alec M
Alec M
Equity Research Associate at JP Morgan

Hi. This is Alec on for Tami. Thanks for taking my questions. So my first one is, are you able to comment on the timing of the I think it was 1,100,000,000.0 to 1,200,000,000.0 overseas sales for the full year in 3Q versus 4Q? And sort of what's the expected recovery rate on that overseas?

Alec M
Alec M
Equity Research Associate at JP Morgan

And any incremental color on the used market since the prior quarter would be great. Thank you.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

I'll take the front half of that and I'll let Aaron sort of comment on the used market as we see it today. But I think just from a dispositions perspective, we're probably looking if you take that guide into its midpoint, you're sort of talking about $750,000,000 of dispositions back half of the year. My our sort of best view of that is probably ratable Q3 and Q4 as we think about it today. And then I'll let Aaron comment on the market.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Yes. Our view on the used markets is that they're healthy. They're steady. They've really stabilized since late last year. Whether you're talking retail, wholesale or the auction channel, they're stable, kind of looking back to like a 2019 level.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

So it's a healthy market. We think the used equipment markets are a good place for us to rebalance as we get through the balance of this back half of the year with the H and E sleeve. So we're encouraged about the stabilization there.

Alec M
Alec M
Equity Research Associate at JP Morgan

Understood. Appreciate it. And just for clarification, I think the slide mentioned accelerated impact of acquisition decision dissynergies get a lower revenue base. Sort of how should we think about, you know, how much the synergies versus the synergies are embedded in the full year revenue and the the EBITDA guide as well?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yeah. Good question. I think if you think about sort of the entry rate of H and E into us, prepared remarks had about a minus 15%. And then my comments, back to Rob is you're probably looking at something a little bit greater than minus 15 in the back half just due to the tough comp. So that's how I would think about it.

Operator

Your next question comes from the line of Kyle Menzel with Citigroup. Your line is open.

Kyle Menges
Kyle Menges
VP - Equity Research Analyst at Citi

Thank you. I had a question on the free cash flow guidance. Just maybe unpacking that a little bit. I mean, I think the back of the envelope math with I think you said $130,000,000 from the big beautiful bill bonus depreciation, and then seems like around 300,000,000 maybe benefit from sales of OEC. So I guess that doesn't, you know, leave much for the implied for the core business from a free cash flow standpoint for the year? And then I guess how should we be thinking about maybe baseline the baseline for free cash flow into next year for the business?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. Good questions one and all. I think I've said that in my mind, the way I would think about the free cash flow capabilities of this business in a normalized environment sort of thinking mid single digit growth is somewhere between 10% to 15% free cash flow generation off of the revenue base. I think what makes the look through here a little bit more difficult, Kyle, is that we're missing five months of free cash flow generation from H and E. And so when you think about that, I think my sort of guide here of 10% to 15% of revs on a free cash flow basis begins to make some sense.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

You know, that aligns to whether you wanted to look at it on a GAAP basis for the year or if you wanted to look at it on a pro form a basis and, you know, evaluate H and E in there. You kind of come to this 500 to $600,000,000 on a pro form a basis for the year, which aligns with where I would have anticipated the business to be.

Kyle Menges
Kyle Menges
VP - Equity Research Analyst at Citi

That's helpful. And then it sounds like still some pricing in your comments, some pricing pressure for H and E in the quarter. So I mean, it would be helpful to hear just pricing for H and E versus legacy. Hurt, is H and E pricing still negative and then Hertz still positive? And then just how to think about price at a high level for the remainder of the year and into next year?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. I mean I think the pricing headwinds that H and E are taking on is sort of already embedded inside of that overall rev guide that I gave you for them. I think on the HERC side of the equation, we don't break apart pricing components. I would tell you that pricing was a contributor to revenue growth in the quarter and leave it at that.

Operator

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

Ken Newman
Ken Newman
VP & Equity Research Analyst at KeyBanc Capital Markets

Hey. Good morning, guys.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Good morning.

Ken Newman
Ken Newman
VP & Equity Research Analyst at KeyBanc Capital Markets

Morning. Mark and Aaron, I think you guys talked about workforce stabilization at the beginning of the call. Can you just remind us how much of the $125,000,000 of cost synergies is headcount related? And maybe just help us clarify, does that assume that the headcount reductions have already kind of taken place here into the back half? Or is there still work to do there as well?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. Great question, Ken. I don't think we ever necessarily publicly disclosed how much of it was workforce related, but I would tell you it's a pretty good chunk. There's other components in their contracts and locations and yada yada yada. But yes, I would tell you we absolutely have identified the people and that sort of gives me the confidence to lay out that number as we sort of get to the end of the year being able to clip off at a run rate basis 50% of that 125,000,000 And we have sort of laid them out in buckets.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

There's a three, six, a nine and a 12 sort of disposition of employees as we sort of work our way through the transition of the business. And so yes, all of that is sort of time lined and bright lined and we have those marching orders.

Ken Newman
Ken Newman
VP & Equity Research Analyst at KeyBanc Capital Markets

Yeah. Okay. And then for the follow-up, obviously, with the dis synergies on the workforce disruptions last quarter, I'm just curious how you think about share gains or share loss in the quarter and your opportunity to kind of recapture that back as we progress through the rest of the year.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Yes. The H and E business, Ken, as you're aware, was really tied to the local markets more heavily than the hurt business. Some of those share issues will get manifested over the course of kind of the marketplace kind of improving, maybe sometime when the cycle shifts again. But as far as the specifically about like the revenue that was assigned to some of the salespeople that left earlier in the year, we know all those customers. We have all the data.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

We're putting in place plans and activities to reach back out to those customers right now and over the rest of the year. Some of those customers, we didn't have a relationship with. Some of them, we did. So, you know, there's gonna be a lot of activity going on with our sales force. And now we got a very large sales force.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

So with our CMs and our our our activities, to get them all engaged there, Our teams are all aligned now and ready to go. So we're we plan on clawing that back.

Operator

Your next question comes from the line of Neil Tyler with Rothschild and Co. Redburn. Your line is open.

Neil Tyler
Director - Partner at Rothschild & Co

Yes. Thanks. Good morning, Good morning, Neil. A couple of questions still, please. Firstly, on the revenue synergy from cross sell specialty, you'd mentioned previously that, that might take a little longer to accrue as the trading measures and sort of education of the sales force would take a little bit of time.

Neil Tyler
Director - Partner at Rothschild & Co

Are you anticipating because obviously, you're talking about bringing the fleet on board this year. It sounds like that's you're reasonably optimistic that you can get through those processes quite quickly and start to accrue those revenue synergies in the 2026. Is that the right way to think about that? And then secondly, just wanted a bit of clarification on the legacy Herc component of the guide. And if you could just sort of walk me back through the different pieces.

Neil Tyler
Director - Partner at Rothschild & Co

You said that there's been no change in the underlying market, I believe, in terms of or markets that Herc serves, but you've removed the anticipation of branch openings. Is that the difference there? Thank you.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

I'll take the first one, Neil. So when you think about specialty, customers really are you can put them in two different buckets. Some customers know what they need for a product in Specialty and some of them need help to technically set up the project to solve a problem. We already are getting early synergy wins with the H and E team. It started immediately, and we're tracking that.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Those are probably the ones that fit in the first bucket, customers that knew what they wanted, but H and E didn't have the product. So we've already started the campaign of softly developing the H and E sales team to understand all the specialty product breadth that we have. But we have to do it in a kind of a measured approach. First thing right now is to get through all of our kind of get them on our systems. But we're getting early wins there.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

When you look at getting into 2026, the beginning of the year, they'll all be trained up on it. And the neat thing about specialty is that if you're a general rental sales professional and you got a customer that needs a technical solution, you don't have to have the technical expertise. You can lean on the sales force that we have and the technical experts we have in the specialty field to help solve that issue with the customer. And that's really how the machine works.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

And then

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Neil on the legacy Hertz side of this and I think I said it in the prepared remarks, but effectively what we did at a high level was flowed the HERC 1H, or first half run rate into the new guide as a starting point and then layered on to that sort of our anticipated growth provided by H and E and then layered on top of that some rep synergies which Aaron just kind of covered off with you.

Neil Tyler
Director - Partner at Rothschild & Co

Okay. Great. Understood. Thank you.

Operator

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

Steven Ramsey
Deputy Director of Research at Thompson Research Group

I wanted to dissect fleet movement impact to the second quarter and the second half maybe from a couple of different ways. Number one, just shifting fleet from lower utilization branches to markets with higher demand. Secondly, fleet disposition with H and E and how that impacts fleet movement maybe within mega projects? And just overall, was fleet movement an incremental headwind to REBITDA margin in the second quarter? Or is it embedded in the second half?

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Yes. Susan, a couple of things about fleet movement I'd mentioned is that the Western United States has more moderated local market than other parts of The U. S. So we've moved fleet kind of that direction. When the H and E business came in, in June, we found that we were able to say yes a lot more frequently and quicker to big projects, mega projects, a lot of examples in that arena.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

And then the last piece is that when you think about logistics, right? So one of the things we noticed right away is that with our greater scale and larger footprint of fleet and locations, we're able to use third party freight to move fleet less frequently than we had previously. And there has been a tremendous amount of kind of inflation in third party freight over the last year or so. So that's really helped us kind of be more efficient, Stephen. And I'll did I answer your questions there?

Steven Ramsey
Deputy Director of Research at Thompson Research Group

The only last part of it would be if there's extra expense headwind embedded in the second quarter result for REBITDA or in the second half.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

No. I think, Stephen, Aaron kind of summed that up. But I think as we sort of get used to our new normal, increased scale, I think you'll even see less of that. I would tell you that repositioning of fleet sort of is what we do. And I think as on the go forward the scale benefits of this to our markets sort of allows us to hopefully do less of that, over time.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Fleet is closer to where we needed to be just because of increased scale.

Steven Ramsey
Deputy Director of Research at Thompson Research Group

Excellent. Okay. Then my follow-up would be dissecting core Kirk rental revenue trends. The 4% growth seems solidly in line with, where large peers were. Just on an order of magnitude, were locals a negative and megas a positive, when you look at that?

Steven Ramsey
Deputy Director of Research at Thompson Research Group

And then thinking about rate and volume, just order of magnitude, how that contributed to the 4%?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. I would tell you that sort of across the board, gen rent, specialty and then if you wanted to roll that up and look a level higher, your national accounts were all sort of contributors to rev growth inside of Q2. As I stated earlier, we're not pulling apart pricing, but it was a contributor to rev growth in the second quarter as well.

Operator

Your next question comes from the line of Sherif El Sabai with Bank of America. Your line is open.

Sherif El-Sabbahy
Sherif El-Sabbahy
VP - Equity Research at Bank of America

Hi, good morning.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Hi, good morning.

Sherif El-Sabbahy
Sherif El-Sabbahy
VP - Equity Research at Bank of America

Just wanted to touch on guidance again. I know we've discussed it quite a bit. But just looking at the EBITDA raise of about $237,000,000 in the back half of last year, H and E did about $350,000,000 EBITDA in Q1 for them was down 19. So this seems to imply EBITDA weakening about down 30% year over year in the back half. So given that you've stabilized the revenue base, why is it that you seem to be implying that EBITDA declines increase?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Well, I mean, I think what you would if you ultimately pulled that apart, effectively there's a at least through the first six months of the year and what we've trended out is effectively 100%, flow through of that revenue dollar, to the negative. So from a percentage perspective, yes, it's going to look like a 30%, but it's effectively dollar for dollar, almost dollar for dollar for the revenue that's coming out of the top. So again, I think that there is a component of this of transition, right? We've got to right size that fleet, right size the business for the new revenue base and that's all part and parcel to the back half transition that we're going through.

Sherif El-Sabbahy
Sherif El-Sabbahy
VP - Equity Research at Bank of America

Understood. And just turning to a different segment of the business. Looking at the breakdown, it seems like expenses at Cinelese have tripled year over year. What's the driver behind that pickup in cost there? And is that something that you expect to recur going forward?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

I think that obviously we've stated center lease is a is struggled. It started to get some footing at the 2024 and then it took a pause again and that's sort of what we're up against until productions, reshor into The U. S. I think the biggest sort of cost difference year over year Sharif, is just an impairment that we took the fair value of the assets. The operational piece of that really is relatively unchanged year over year, but we did take an impairment charge in the second quarter.

Operator

Your next question comes from the line of Mig Dapre with Baird. Your line is open.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

Thank you. Just to follow-up on that last set of questions. So if I understand this correctly, H and E revenue to be down about 15% in the back half and pressure on EBITDA above 30%. How would you sort of frame what's cyclical here relative to some of the issues with employee turnover and like that you talked about earlier? And to that second point, how do you think about what's kind of structural here in nature?

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

And what do you need to do to address this? I understand that you said things have stabilized. But is it that now you need to go and try to replace these people, maybe go on a bit of a hiring spree or recruiting? Or is it that you just need to accelerate some of your cost synergies to sort of reflect that the business is just operating on a lower base?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

Yes. There's a lot there. Let me see if I can unpack that. I think as we work our way through the integration both systemically as well as rightsizing the fleet, We'll run that business and make those decisions. I don't necessarily foresee us.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

We've got a process that we need to run from an integration perspective. And so there won't be necessarily pull forward of cost synergies. We've got to run that plan out and I think that that's sort of aligned into probably the early part of Q1, in terms of the run out of cost synergies. And so I think we'll be able to provide additional clarity as we walk into 2026. We just have this transitionary period that we're going to have to adjust the business to both from a fleet perspective, a people perspective and all of the above.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

Understood. And I'm curious, I guess, my follow-up, how you think about leverage and the path towards delevering? Maybe you can comment on that. If I understood your comments on free cash flow on a more normalized basis, we should be looking somewhere north of $600,000,000 maybe closer to 700,000,000 You've got over $8,000,000,000 in debt. So what's the path here going forward?

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

And given your leverage goals, how long do you think you're going to be maybe on a sideline from an incremental M and A perspective? Thank you.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

All very good questions, Mig. I'll take the last piece of that first. I think that we have stated that we will be inside of our target of two to three times sometime inside of calendar twenty twenty seven. And that really hasn't changed. Obviously, the base of the business here needs adjusting and we'll do that.

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

But that doesn't change sort of the outlook of getting inside of that target range of two to three times inside of calendar twenty twenty seven.

Lawrence Silber
Lawrence Silber
CEO, President & Director at Herc

Yeah. And as far as M and A goes, Mig, as I said in my prepared remarks and we'll continue, we're going to pause any additional M and A activity for the near term until we complete this integration and achieve start on a path of achieving our synergy targets both on a cost and a revenue side. And then as we get this leverage moving in the right direction, we'll see what's available out there. And at that time, we'll determine whether or not there are any appropriate targets for future M and A.

Operator

Your next question comes from the line of Steven Fisher with UBS. Your line is open.

Steven Fisher
Steven Fisher
MD & Equity Research Analyst at UBS Group

For taking the question and good morning. I'm just wondering you see any differences in the profile of large projects over the next, say, to eighteen months relative to what you've seen over the last couple of years in terms of either end markets or geography? Is there going to be more public sector infrastructure big projects versus what's been private sector over the past couple of years? Just curious about that large project mix.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

Yes. Stephen, this is Aaron. So I'll take that one on. Over the next twelve to eighteen months, what you see is robust pipeline. There sure is a lot more data center type activity.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

There's more infrastructure work that was planned and coming online. There's definitely a lot more industrial manufacturing projects that are coming into that large project profile. Whether you're talking about restoring or pharma or industrial chemicals, there's a lot of projects that you're seeing. Another thing you see a lot of as well coming online is things in the line of water treatment, water services. I guess that would fall into the infrastructure, but a really robust pipeline.

Aaron Birnbaum
Aaron Birnbaum
SVP & COO at Herc Holdings Inc

And then, of course, it seems like every city wants a new stadium. Those news releases are pretty frequent. So it's really encouraging. There's a I would say it's accelerated more than anything else.

Steven Fisher
Steven Fisher
MD & Equity Research Analyst at UBS Group

That's really helpful. And then just as a follow-up, I think you gave the 6.8% as the rate on the new debt. Did you give a total interest expense guide for the year?

Mark Humphrey
Mark Humphrey
SVP & CFO at Herc

I didn't, but I think if you think about sort of weighted average cost of debt running somewhere between six point three percent and six point four on your debt projection, you're going to land right in line with where you need to be.

Operator

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

Leslie Hunziker
Leslie Hunziker
SVP, IR & Communications at Herc

Okay. 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. Have a great day.

Operator

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you, and have a great day.

Executives
Analysts
    • Rob Wertheimer
      Founding Partner & Machinery & New Mobility Research Analyst at Melius Research LLC
    • Alec M
      Equity Research Associate at JP Morgan
    • Kyle Menges
      VP - Equity Research Analyst at Citi
    • Ken Newman
      VP & Equity Research Analyst at KeyBanc Capital Markets
    • Neil Tyler
      Director - Partner at Rothschild & Co
    • Steven Ramsey
      Deputy Director of Research at Thompson Research Group
    • Sherif El-Sabbahy
      VP - Equity Research at Bank of America
    • Mircea Dobre
      Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co
    • Steven Fisher
      MD & Equity Research Analyst at UBS Group
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