Herc Holdings Reports Strong Second Quarter 2023 Results and Reaffirms Full-Year 2023 Guidance

Second Quarter Highlights

– Record equipment rental revenue of $702 million, an increase of 16%

– Record total revenues of $802 million, an increase of 25%

– Net income increased to $76 million, or $2.66 per diluted share, an increase of 12%

– Adjusted EBITDA of $352 million increased 24%; adjusted EBITDA margin at 43.9%

– Rental pricing increased 7.8% year-over-year

– Common stock repurchases of approximately 520,000 shares

Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended June 30, 2023. Equipment rental revenue was $702 million and total revenues were $802 million in the second quarter of 2023, compared to $605 million and $640 million, respectively, for the same period last year. In the second quarter of 2023, the Company reported net income of $76 million, or $2.66 per diluted share, an increase of 12% compared to $73 million, or $2.38 per diluted share, in the same 2022 period.

“We continue to generate strong, double-digit growth as a result of sound strategies and an unmatched team of product and logistics experts that embody a customer-first mindset,” said Larry Silber, president and chief executive officer. “In the second quarter, Team Herc increased equipment rental revenue by 16% on 7.8% higher pricing, despite continued supply chain inefficiencies and labor disruptions in the film and television industry, which has all but halted our studio entertainment business. Growth in national account revenue and local market expansion through acquisitions and greenfield locations drove rental revenue higher, while strong returns on fleet sales represented an incremental benefit to total revenue. This, coupled with cost efficiencies, supported a 24% increase in Adjusted EBITDA year over year.

“Our non-residential and industrial markets are healthy and growing with outsized opportunities coming from federally funded, large-scale infrastructure and mega projects. The favorable market environment coupled with our expanding branch network, broad selection of premium equipment, leading customer experiences, comprehensive fleet management services and advanced technologies position us to continue to capture above-market growth in 2023 and over the long-term,” said Silber.

2023 Second Quarter Financial Results

• Total revenues increased 25% to $802 million compared to $640 million in the prior-year period. The year-over-year increase of $162 million primarily related to an increase in equipment rental revenue of $97 million, reflecting positive pricing of 7.8% and increased volume of 17.3%. Sales of rental equipment increased by $64 million during the period.
• Dollar utilization was 40.3% compared to 42.5% in the prior-year period. The change is primarily due to a slowdown in the studio entertainment business as a result of labor disruptions in the film and television industry, as well as the continued supply chain challenges that have disrupted the normal cadence of deliveries.
• Direct operating expenses of $282 million increased 14% compared to the prior-year period. The increase was primarily related to strong rental activity and associated additional headcount, in addition to higher maintenance and facilities expenses as we increase our fleet size and expand our branch network.
• Depreciation of rental equipment increased 24% to $161 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 22% to $28 million primarily due to amortization of acquisition intangible assets.
• Selling, general and administrative expenses was $111 million, or 14% higher primarily due to increases in general payroll and benefits, credit and collection expense, and selling expenses, including commissions and other variable compensation increases.
• Interest expense increased to $54 million compared with $25 million in the prior-year period due to higher interest rates on floating rate debt and increased borrowings on the ABL Credit Facility primarily to fund acquisition growth.
• Net income was $76 million compared to $73 million in the prior-year period. Adjusted net income increased 3% to $77 million, or $2.69 per diluted share, compared to $75 million, or $2.47 per diluted share, in the prior-year period. The effective tax rate was 26% in both periods.
• Adjusted EBITDA increased 24% to $352 million compared to $284 million in the prior-year period and adjusted EBITDA margin was 43.9% compared to 44.4% in the prior-year period. A decline in the Company's studio entertainment revenue year over year, as well as sales of used equipment, which more than quadrupled over last year's second quarter sales, impacted the margin performance in the latest quarter.

2023 First Half Financial Results

• Total revenues increased 28% to $1,542 million compared to $1,208 million in the prior-year period. The year-over-year increase of $334 million was related to an increase in equipment rental revenue of $224 million, reflecting positive pricing of 7.4% and increased volume of 20.0%. Sales of rental equipment increased $107 million during the first half of 2023.
• Dollar utilization decreased to 40.0% compared to 42.0% in the prior-year period. The change is primarily due to a slowdown in the studio entertainment business as a result of labor disruptions in the film and television industry, as well as the continued supply chain challenges that have disrupted the normal cadence of deliveries.
• Direct operating expenses of $563 million increased 19% compared to the prior-year period. The increase was primarily related to strong rental activity and associated additional headcount, in addition to higher fuel, maintenance and facilities expenses as we increase our fleet size and expand our branch network.
• Depreciation of rental equipment increased 26% to $313 million, due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 23% to $54 million primarily due to amortization of acquisition intangible assets.
• Selling, general and administrative expenses was $217 million, or 17% higher primarily due to increases in selling expenses, including commissions and other variable compensation, credit and collections expense, and general payroll and benefits.
• Interest expense increased to $102 million compared with $48 million in the prior-year period due to higher interest rates on floating rate debt and increased borrowings on the ABL Credit Facility primarily to fund acquisition growth.
• Net income was $143 million compared to $131 million in the prior-year period. Adjusted net income increased 9% to $146 million, or $5.03 per diluted share, compared to $134 million, or $4.41 per diluted share, in the prior-year period. The effective tax rate was 20% in the first half of 2023 compared to 21% in the prior-year period.
• Adjusted EBITDA increased 27% to $660 million compared to $521 million in the prior-year period and adjusted EBITDA margin was 42.8% compared to 43.1% in the prior-year period. A decline in the Company's studio entertainment revenue year over year, as well as sales of used equipment, which more than tripled over last year's first half sales, impacted the margin performance.

Rental Fleet

Net rental equipment capital expenditures were as follows (in millions):

• As of June 30, 2023, the Company's total fleet was approximately $6.2 billion at OEC.
• Average fleet at OEC in the first half increased year-over-year by 27% compared to the prior-year period.
• Average fleet age was 46 months as of June 30, 2023, compared to 49 months in the comparable prior-year period.

Disciplined Capital Management

• The Company completed six acquisitions with a total of 10 locations and opened nine new greenfield locations during the first half of 2023.
• Net debt was $3.5 billion as of June 30, 2023, with net leverage of 2.5x compared to 2.4x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to $1.5 billion of liquidity as of June 30, 2023.
• The Company declared its quarterly dividend of $0.6325 payable to shareholders of record as of May 26, 2023, with a payment date of June 9, 2023.
• The Company acquired approximately 990,000 shares of its common stock for $107 million during the first half of 2023. As of June 30, 2023, approximately $174 million remains available under the share repurchase program.

Outlook

The Company is reaffirming its full year 2023 adjusted EBITDA guidance range and net rental capital expenditures guidance presented below. The guidance range for the full year 2023 adjusted EBITDA reflects an increase of 18% to 26% compared to full year 2022 results.

As a leader in an industry where scale matters, the Company expects to continue to gain share by capturing an outsized position of the forecasted higher construction spending in 2023 by investing in its fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.

Earnings Call and Webcast Information

Herc Holdings' second quarter 2023 earnings webcast will be held today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may call +1-888-660-6011 and international participants should call the country specific dial in numbers listed at https://events.q4irportal.com/custom/access/2324/, using the access code: 7812157. Please dial in at least 10 minutes before the call start time to ensure that you are connected to the call and to register your name and company.

Those who wish to listen to the live conference call and view the accompanying presentation slides should visit the Events and Presentations tab of the Investor Relations section of the Company's website at IR.HercRentals.com. The press release and presentation slides for the call will be posted to this section of the website prior to the call.

A replay of the conference call will be available via webcast on the Company website at IR.HercRentals.com, where it will be archived for 12 months after the call.

About Herc Holdings Inc.

Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is one of the leading equipment rental suppliers with 373 locations in North America. With over 57 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. Our fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, lighting, trench shoring, and studio and production equipment. Our equipment rental business is supported by ProSolutions®, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration and pumps, and our ProContractor professional grade tools. Our product offerings and services are aimed at helping customers work more efficiently, effectively and safely. The Company has approximately 6,900 employees who equip our customers and communities to build a brighter future. Herc Holdings’ 2022 total revenues were approximately $2.7 billion. All references to “Herc Holdings” or the “Company” in this press release refer to Herc Holdings Inc. and its subsidiaries, unless otherwise indicated. For more information on Herc Holdings and its products and services, visit: www.HercRentals.com.

Certain Additional Information

In this release we refer to the following operating measures:

• Dollar utilization: calculated by dividing rental revenue (excluding re-rent, delivery, pick-up and other ancillary revenue) by the average OEC of the equipment fleet for the relevant time period, based on the guidelines of the American Rental Association (ARA).
• OEC: original equipment cost based on the guidelines of the ARA, which is calculated as the cost of the asset at the time it was first purchased plus additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date).

Forward-Looking Statements

This press release includes forward-looking statements as that term is defined by the federal securities laws, including statements concerning our business plans and strategy, projected profitability, performance or cash flows, future capital expenditures, our growth strategy, including our ability to grow organically and through M&A, anticipated financing needs, business trends, our capital allocation strategy, liquidity and capital management, and other information that is not historical information. Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "looks," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions. All forward-looking statements are based upon our current expectations and various assumptions and there can be no assurance that our current expectations will be achieved. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from those in the forward-looking statements. Further information on the risks that may affect our business is included in filings we make with the Securities and Exchange Commission from time to time, including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and in our other SEC filings. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

Information Regarding Non-GAAP Financial Measures

In addition to results calculated according to accounting principles generally accepted in the United States (“GAAP”), the Company has provided certain information in this release that is not calculated according to GAAP (“non-GAAP”), such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per diluted common share and free cash flow. Management uses these non-GAAP measures to evaluate operating performance and period-over-period performance of our core business without regard to potential distortions, and believes that investors will likewise find these non-GAAP measures useful in evaluating the Company’s performance. These measures are frequently used by security analysts, institutional investors and other interested parties in the evaluation of companies in our industry. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to similarly titled measures of other companies. For the definitions of these terms, further information about management’s use of these measures as well as a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures, please see the supplemental schedules that accompany this release.

(See Accompanying Tables)

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