Herc Holdings Reports First Half 2024 Results and Reaffirms 2024 Full Year Guidance

Second Quarter 2024 Highlights

– Record equipment rental revenue of $765 million, an increase of 9%

– Record total revenues of $848 million, an increase of 6%

– Rental pricing increased 3.5% year-over-year

– M&A and greenfield openings offset impact from decelerating local-market revenue growth

– Net income decreased 8% to $70 million, or $2.46 per diluted share

– Adjusted EBITDA of $360 million increased 2%; adjusted EBITDA margin of 42.5%

– Free cash flow of $148 million for the six months ended June 30, 2024

Herc Holdings Inc. (NYSE: HRI) ("Herc Holdings" or the "Company") today reported financial results for the quarter ended June 30, 2024.

“In the second quarter, we benefited from positive rental pricing, increasing fleet efficiency, and expanding market share, as we continue to significantly outpace rental-industry growth. Overall, our record second quarter revenue results came in according to our expectations. However, while national mega projects are on plan, we saw a greater deceleration in the local market's growth trajectory versus our forecast, primarily driven by the persistently higher interest-rate environment. The local-revenue deficit was essentially offset by contributions from acquisitions that added 21 locations year to date, including 10 in the second quarter,” said Larry Silber, president and chief executive officer of Herc Rentals. "As is typical, these new acquisitions and greenfields initially generate lower incremental margins than our established local-account business, which reflected an unfavorable trade-off in profitability in the second quarter.

"Looking to the second half of the year, mega project activity is ramping up into the peak season as anticipated. Higher revenue growth for the rest of the year and incremental adjustments made in the second quarter to better align our local cost structure should support more normal margin and REBITDA flow through for the back half of 2024," said Silber. “Based on current line-of-sight to market trends, we expect to deliver record full year results and are reaffirming our annual performance targets. Despite temporarily slower growth in the more rate-sensitive local market this year, the outlook for rental demand long-term is robust as the pipeline for mega projects remains strong, data center construction is accelerating, federal infrastructure spending continues to roll out, and rental penetration increases.”

2024 Second Quarter Financial Results

• Total revenues increased 6% to $848 million compared to $802 million in the prior-year period. The year-over-year increase of $46 million primarily related to an increase in equipment rental revenue of $63 million, reflecting positive pricing of 3.5% and increased volume of 6.4%, partially offset by unfavorable mix driven primarily by inflation. Sales of rental equipment decreased by $18 million during the period.

• Dollar utilization increased to 41.0% in the second quarter compared to 40.3% in the prior-year period.

• Direct operating expenses were $326 million, or 42.6% of equipment rental revenue, compared to $282 million, or 40.2% in the prior-year period. The slower than planned revenue growth in the local market created inefficiencies related to headcount and facilities expenses and actions were taken within the quarter to reduce variable costs to align with the moderating local market demand. Additionally, delivery expenses were higher due to internal transfers of equipment to branches in higher growth regions to drive fleet efficiency. Finally, insurance expense nearly doubled, primarily related to increased self insurance reserves due to claims development attributable to unsettled cases.

• Depreciation of rental equipment increased 2% to $165 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 7% to $30 million primarily due to amortization of acquisition intangible assets.

• Selling, general and administrative expenses was $120 million, or 15.7% of equipment rental revenue, compared to $111 million, or 15.8% in the prior-year period due to continued focus on improving operating leverage while expanding revenues.

• Interest expense increased to $63 million compared with $54 million in the prior-year period due to increased borrowings on the ABL Credit Facility, primarily to fund acquisition growth and invest in rental equipment, and higher interest rates on floating-rate debt.

• Net income was $70 million compared to $76 million in the prior-year period. Adjusted net income decreased 4% to $74 million, or $2.60 per diluted share, compared to $77 million, or $2.69 per diluted share, in the prior-year period. The effective tax rate was 25% compared to 26% in the prior-year period.

• Adjusted EBITDA increased 2% to $360 million compared to $352 million in the prior-year period and adjusted EBITDA margin was 42.5% compared to 43.9% in the prior-year period. Moderating local-market demand coupled with increased operating expenses and a reduction in margin on sales of used equipment impacted EBITDA margin during the quarter.

2024 First Half Financial Results

• Total revenues increased 7% to $1,652 million compared to $1,542 million in the prior-year period. The year-over-year increase of $110 million primarily related to an increase in equipment rental revenue of $128 million, reflecting positive pricing of 4.3% and increased volume of 7.2%, partially offset by unfavorable mix driven primarily by inflation. Sales of rental equipment decreased by $20 million during the period.

• Dollar utilization increased to 40.4% compared to 40.0% in the prior-year period.

• Direct operating expenses were $633 million, or 42.7% of equipment rental revenue, compared to $563 million, or 41.5% in the prior-year period. The slower than planned revenue growth in the local market created inefficiencies related to headcount and facilities expenses and actions were taken within the quarter to reduce variable costs to align with the moderating local market demand. Additionally, delivery expenses were higher due to internal transfers of equipment to branches in higher growth regions to drive fleet efficiency. Finally, insurance expense increased, primarily related to increased self insurance reserves due to claims development attributable to unsettled cases.

• Depreciation of rental equipment increased 4% to $325 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 9% to $59 million primarily due to amortization of acquisition intangible assets.

• Selling, general and administrative expenses was $235 million, or 15.8% of equipment rental revenue, compared to $217 million, or 16.0% in the prior-year period due to continued focus on improving operating leverage while expanding revenues.

• Interest expense increased to $124 million compared with $102 million in the prior-year period due to increased borrowings on the ABL Credit Facility primarily to fund acquisition growth and invest in rental equipment and higher interest rates on floating-rate debt.

• Net income was $135 million compared to $143 million in the prior-year period. Adjusted net income decreased 3% to $141 million, or $4.96 per diluted share, compared to $146 million, or $5.03 per diluted share, in the prior-year period. The effective tax rate was 22% compared to 20% in the prior-year period.

• Adjusted EBITDA increased 6% to $699 million compared to $660 million in the prior-year period and adjusted EBITDA margin was 42.3% compared to 42.8% in the prior-year period.

Rental Fleet

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

• As of June 30, 2024, the Company's total fleet was approximately $6.7 billion at OEC.

• Average fleet at OEC in the second quarter increased 8% compared to the prior-year period.

• Average fleet age was 47 months as of June 30, 2024 compared to 46 months in the comparable prior-year period.

Disciplined Capital Management

• The Company completed 6 acquisitions with a total of 21 locations and opened 11 new greenfield locations during the first half of 2024.

• Net debt was $3.8 billion as of June 30, 2024, with net leverage of 2.6x compared to 2.5x in the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to approximately $2.1 billion of liquidity as of June 30, 2024.

• The Company declared its quarterly dividend of $0.665 paid to shareholders of record as of May 31, 2024 on June 14, 2024.

• On June 7, 2024, the Company issued $800 million aggregate principal amount of 2029 Notes. The funds were used to repay a portion of the indebtedness outstanding under the Company’s senior secured asset-based revolving credit agreement and to pay related fees and expenses.

Subsequent Event

In July 2024, the Company acquired the assets of Otay Mesa Sales ("Otay") for approximately $264 million. Otay was a full-service general equipment rental company comprising approximately 135 employees with four locations serving construction and industrial customers throughout the metropolitan areas of San Diego, California and Phoenix and Yuma, Arizona.

Outlook

The Company is reaffirming its full year 2024 equipment rental revenue growth, adjusted EBITDA, and gross and net rental capital expenditures guidance ranges presented below, excluding Cinelease studio entertainment and lighting and grip equipment rental business. The guidance range for the full year 2024 adjusted EBITDA reflects an increase of 6% to 9% compared to full year 2023 results, excluding Cinelease. The sale process for the Cinelease studio entertainment business is ongoing.

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 2024 by investing in its fleet, optimizing its existing fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.

Earnings Call and Webcast Information

Herc Holdings' second quarter 2024 earnings webcast will be held today at 8:30 a.m. U.S. Eastern Time. Interested U.S. parties may call +1-800-715-9871 and international participants should call the country specific dial in numbers listed at https://registrations.events/directory/international/itfs.html, using the access code: 9128891. 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.

Founded in 1965, Herc Holdings Inc., which operates through its Herc Rentals Inc. subsidiary, is a full-line rental supplier with 428 locations across North America, and 2023 total revenues were approximately $3.3 billion. We offer products and services aimed at helping customers work more efficiently, effectively, and safely. Our classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, and lighting equipment. Our ProSolutions® offering includes industry-specific, solutions-based services in tandem with power generation, climate control, remediation and restoration, pumps, and trench shorting equipment as well as our ProContractor professional grade tools. We employ approximately 7,600 employees, who equip our customers and communities to build a brighter future. Learn more at www.HercRentals.com and follow us on Instagram, Facebook and LinkedIn.

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, exploring strategic alternatives for Cinelease, including the timing of the review process, the outcome of the process and the costs and benefits of the process, 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, free cash flow and certain results excluding the Cinelease studio entertainment business. 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)

HERC HOLDINGS INC. AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULES

EBITDA AND ADJUSTED EBITDA RECONCILIATIONS

Unaudited

(In millions)

EBITDA and adjusted EBITDA - EBITDA represents the sum of net income (loss), provision (benefit) for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of transaction related costs, restructuring and restructuring related charges, spin-off costs, non-cash stock-based compensation charges, loss on extinguishment of debt (which is included in interest expense, net), impairment charges, gain (loss) on the disposal of a business and certain other items. EBITDA and adjusted EBITDA do not purport to be alternatives to net income as an indicator of operating performance. Additionally, neither measure purports to be an alternative to cash flows from operating activities as a measure of liquidity, as they do not consider certain cash requirements such as interest payments and tax payments.

Adjusted EBITDA Margin - Adjusted EBITDA Margin, calculated by dividing Adjusted EBITDA by Total Revenues, is a commonly used profitability ratio.

HERC HOLDINGS INC. AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULES

EBITDA, ADJUSTED EBITDA AND ADJUSTED REBITDA

EXCLUDING STUDIO ENTERTAINMENT RECONCILIATIONS

Unaudited

(in millions)

EBITDA, Adjusted EBITDA, REBITDA, Adjusted EBITDA Margin, REBITDA Margin and REBITDA Flow-Through Excluding Studio Entertainment - Each metric below has been adjusted to exclude the studio entertainment business due to the intent to sell that business and provides the operating performance of the remaining business.

HERC HOLDINGS INC. AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULES

EBITDA, ADJUSTED EBITDA AND ADJUSTED REBITDA

EXCLUDING STUDIO ENTERTAINMENT RECONCILIATIONS

Unaudited

(In millions)

EBITDA, Adjusted EBITDA, REBITDA, Adjusted EBITDA Margin, REBITDA Margin and REBITDA Flow-Through Excluding Studio Entertainment - Each metric below has been adjusted to exclude the studio entertainment business due to the intent to sell that business and provides the operating performance of the remaining business.

HERC HOLDINGS INC. AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULES

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER DILUTED SHARE

Unaudited

(In millions)

Adjusted Net Income and Adjusted Earnings Per Diluted Share - Adjusted Net Income represents the sum of net income (loss), restructuring and restructuring related charges, spin-off costs, loss on extinguishment of debt, impairment charges, transaction related costs, gain (loss) on the disposal of a business and certain other items. Adjusted Earnings per Diluted Share represents Adjusted Net Income divided by diluted shares outstanding. Adjusted Net Income and Adjusted Earnings Per Diluted Share are important measures to evaluate our results of operations between periods on a more comparable basis and to help investors analyze underlying trends in our business, evaluate the performance of our business both on an absolute basis and relative to our peers and the broader market, provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and operational strength of our business.

HERC HOLDINGS INC. AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULES

FREE CASH FLOW

Unaudited

(In millions)

Free cash flow represents net cash provided by (used in) operating activities less rental equipment expenditures and non-rental capital expenditures, plus proceeds from disposal of rental equipment, proceeds from disposal of property and equipment, and other investing activities. Free cash flow is used by management in analyzing the Company’s ability to service and repay its debt, fund potential acquisitions and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service debt or for other non-discretionary expenditures.

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