Herc Holdings(HRI) - 2025 Q2 - Quarterly Results

Report Highlights and CEO Commentary Herc Holdings reported Q2 2025 results, highlighting the H&E acquisition, revenue growth, net loss from acquisition costs, and CEO commentary on integration Second Quarter 2025 Highlights Herc Holdings Inc. reported its Q2 2025 financial results, highlighted by the completion of the H&E acquisition, significant revenue growth, but also a net loss primarily due to acquisition-related costs and asset write-downs. Adjusted EBITDA showed growth, but margins slightly declined * H&E acquisition closed on June 2, 2025[7] * Completed financing of $4.4 billion of new debt at a weighted average interest rate of 6.8%[7] Second Quarter 2025 Revenue Highlights | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenues | $1,002 | $848 | 18% | | Equipment Rental Revenue | $870 | $765 | 14% | * Net loss of $35 million or $1.17 per share, primarily driven by H&E acquisition transaction costs and loss on Cinelease assets held for sale[7] * Adjusted EBITDA increased 13% to $406 million, with an adjusted EBITDA margin of 41%[7] CEO Commentary on Acquisition and Integration CEO Larry Silber emphasized the strategic importance of the H&E acquisition, the largest in the industry, for accelerating market growth, geographic diversification, and expanding fleet. He noted positive initial integration efforts but acknowledged dis-synergies from the acquisition process and moderation in the commercial sector, which are factored into the updated 2025 outlook * The H&E acquisition, completed on June 2nd, is the largest in the industry and will accelerate the company's strategy for market-leading growth and superior value creation[4] * The acquisition provides geographic and customer diversification, a substantially expanded footprint in key regions, and a larger fleet[4] * Current focus is on integration, optimization, and ensuring delivery of revenue and cost synergy targets[5] * H&E's performance was impacted by disruptions during the acquisition bidding process, resulting in dis-synergies[5] * The new 2025 outlook incorporates these dis-synergies and continued moderation in the interest-rate sensitive commercial sector, offset by strength in mega project activity and growth in specialty solutions[5] Financial Results Overview Q2 and H1 2025 results show revenue growth from H&E acquisition, net losses from transaction costs and asset write-downs, and increased Adjusted EBITDA with margin compression Second Quarter 2025 Financial Results Herc Holdings experienced significant revenue growth in Q2 2025, largely due to the H&E acquisition. However, the quarter saw a net loss due to substantial transaction expenses and a loss on assets held for sale. Adjusted EBITDA showed growth, but margins slightly declined Q2 2025 Revenue Performance (YoY) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenues | $1,002 | $848 | 18% | | Equipment Rental Revenue | $870 | $765 | 14% | | Sales of Rental Equipment | $106 | $65 | 63% | * Dollar utilization decreased to 38.3% in Q2 2025 from 41.0% in Q2 2024, primarily reflecting the impact from the H&E acquisition and year-over-year decline of the Cinelease business[8] Q2 2025 Profitability Metrics (YoY) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change | | :-------------------- | :----------------- | :----------------- | :------- | | Net Income (Loss) | $(35) | $70 | $(105)M | | Adjusted Net Income | $56 | $74 | (24%) | | Adjusted EPS (Diluted) | $1.87 | $2.60 | (28%) | | Adjusted EBITDA | $406 | $360 | 13% | | Adjusted EBITDA Margin | 40.5% | 42.5% | (2.0) pts | Key Expense Items (Q2 2025) Q2 2025 expenses increased due to higher operating costs, depreciation from fleet expansion, significant H&E acquisition transaction fees, and higher interest expense * Direct operating expenses were $379 million (43.6% of equipment rental revenue), up from $326 million (42.6%) in the prior-year period, related to lower fixed cost absorption[8] * Depreciation of rental equipment increased 18% to $195 million due to higher year-over-year average fleet size, primarily from the H&E acquisition[10] * Transaction expenses increased significantly to $73 million from $3 million in the prior-year period, primarily due to advisory fees ($27 million) and commitment fees related to the bridge facility ($21 million) for the H&E acquisition[10] * Interest expense increased to $86 million from $63 million in the prior-year period due to new debt facilities issued in June 2025 to fund the H&E acquisition[10] * Loss on assets held for sale was $49 million to adjust the carrying value of Cinelease net assets to its fair value less estimated costs to sell[10] * Selling, general and administrative expenses improved to 14.6% of equipment rental revenue (from 15.3% YoY) due to initial cost synergies from H&E corporate overhead reduction and overall cost control measures[10] First Half 2025 Financial Results For the first half of 2025, Herc Holdings reported a substantial increase in total revenues, driven by equipment rental growth and acquisitions. However, the company recorded a net loss, primarily due to significant transaction expenses related to the H&E acquisition and a loss on assets held for sale. Adjusted EBITDA increased, but margins compressed H1 2025 Revenue Performance (YoY) | Metric | H1 2025 (Millions) | H1 2024 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenues | $1,863 | $1,652 | 13% | | Equipment Rental Revenue | $1,609 | $1,484 | 8% | | Sales of Rental Equipment | $211 | $134 | 57% | * Dollar utilization decreased to 38.0% in H1 2025 from 40.4% in H1 2024, primarily reflecting the impact from the H&E acquisition and year-over-year decline of the Cinelease business[10] H1 2025 Profitability Metrics (YoY) | Metric | H1 2025 (Millions) | H1 2024 (Millions) | Change | | :-------------------- | :----------------- | :----------------- | :------- | | Net Income (Loss) | $(53) | $135 | $(188)M | | Adjusted Net Income | $93 | $141 | (34%) | | Adjusted EPS (Diluted) | $3.17 | $4.96 | (36%) | | Adjusted EBITDA | $745 | $699 | 7% | | Adjusted EBITDA Margin | 40.0% | 42.3% | (2.3) pts | Key Expense Items (H1 2025) H1 2025 expenses rose from increased operating costs, depreciation, amortization of intangibles, substantial H&E acquisition transaction fees, and higher interest expense * Direct operating expenses were $706 million (43.9% of equipment rental revenue), up from $633 million (42.7%) in the prior-year period, related to lower fixed cost absorption[10] * Depreciation of rental equipment increased 13% to $367 million due to higher year-over-year average fleet size, primarily from the H&E acquisition[10] * Non-rental depreciation and amortization increased 32% to $78 million, primarily due to amortization of intangible assets related to the H&E and Otay acquisitions and an increase in non-rental asset depreciation[10] * Transaction expenses increased to $147 million from $6 million in the prior-year period, including a $64 million termination fee paid on behalf of H&E, advisory fees ($27 million), and bridge facility commitment fees ($21 million)[14] * Interest expense increased to $148 million from $124 million in the prior-year period due to new debt facilities issued in June 2025 to fund the H&E acquisition[14] * Loss on assets held for sale was $49 million to adjust the carrying value of Cinelease net assets to its fair value less estimated costs to sell[14] * Selling, general and administrative expenses improved to 15.2% of equipment rental revenue (from 15.4% YoY) due to initial cost synergies from H&E corporate overhead reduction and overall cost control measures[14] Operational and Fleet Performance Operational performance reflects significant fleet expansion from the H&E acquisition, stable fleet age, increased net debt and leverage, but maintained substantial liquidity Rental Fleet Metrics Herc Holdings' rental fleet significantly expanded in the first half of 2025, primarily due to the H&E acquisition, while maintaining a stable average age. The company also continued its expansion with new greenfield locations * Total fleet was approximately $9.9 billion at Original Equipment Cost (OEC) as of June 30, 2025[15] * Average fleet at OEC in the second quarter increased 21% compared to the prior-year period[15] * Average fleet age was 46 months at June 30, 2025, compared to 47 months at June 30, 2024[15] * The Company opened 11 new greenfield locations during the six months ended June 30, 2025[15] Net Rental Equipment Capital Expenditures (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Rental equipment expenditures | $421 | $468 | | Proceeds from disposal of rental equipment | $(183) | $(125) | | Net rental equipment capital expenditures | $238 | $343 | Capital Management and Liquidity The H&E acquisition significantly impacted Herc Holdings' debt and leverage, increasing net debt to $8.3 billion and net leverage to 3.8x. Despite this, the company maintained substantial liquidity * Net debt was $8.3 billion as of June 30, 2025[15] * Net leverage increased to 3.8x as of June 30, 2025, compared to 2.6x in the same prior-year period, calculated using pro forma trailing twelve-month adjusted EBITDA including H&E[13][15] * Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to approximately $1.6 billion of liquidity as of June 30, 2025[15] * The Company declared its quarterly dividend of $0.70, paid on June 13, 2025[15] 2025 Full Year Guidance Herc Holdings updated its full-year 2025 guidance, excluding the Cinelease business, reflecting the impact of the H&E acquisition and ongoing market conditions. The company aims to gain market share through fleet investment, optimization, acquisitions, and cross-selling Updated Full Year 2025 Guidance (Excluding Cinelease) | Metric | Range | | :------------------------------ | :-------------------- | | Equipment rental revenue | $3.7 billion to $3.9 billion | | Adjusted EBITDA | $1.8 billion to $1.9 billion | | Net rental equipment capital expenditures | $400 million to $600 million | | Gross capex | $900 million to $1.1 billion | * The Company expects to continue to gain market share by capturing an outsized position of the forecasted higher construction spending in 2025[17] * Strategy includes investing in its fleet, optimizing its existing fleet, capitalizing on recent acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio[17] Company Profile Herc Holdings Inc., operating through its Herc Rentals Inc. subsidiary, is a leading full-line rental supplier in North America. With the recent acquisition of H&E Equipment Services, it now boasts 622 locations and approximately $5.1 billion in pro forma total revenues for 2024, offering a wide range of equipment and specialized solutions * Founded in 1965, Herc Holdings Inc. operates through its Herc Rentals Inc. subsidiary[20] * With the H&E Equipment Services acquisition, the company has 622 locations across North America[20] * 2024 pro forma total revenues were approximately $5.1 billion[20] * Offers a classic fleet including aerial, earthmoving, material handling, trucks, and other equipment, along with ProSolutions® offering industry-specific, solutions-based services[20] * Employs approximately 10,200 employees[20] Supplemental Financial Schedules Financial schedules detail Q2 and H1 2025 net losses, balance sheet changes post-H&E acquisition, cash flow shifts, and comprehensive non-GAAP reconciliations for performance evaluation Consolidated Statements of Operations The consolidated statements of operations show a shift from net income in Q2 and H1 2024 to a net loss in Q2 and H1 2025, primarily driven by increased expenses related to the H&E acquisition and a loss on assets held for sale, despite significant revenue growth Consolidated Statements of Operations (Selected Data, in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Total Revenues | $1,002 | $848 | $1,863 | $1,652 | | Total Expenses | $1,048 | $755 | $1,917 | $1,478 | | Income (Loss) before income taxes | $(46) | $93 | $(54) | $174 | | Net Income (Loss) | $(35) | $70 | $(53) | $135 | | Diluted EPS | $(1.17) | $2.46 | $(1.82) | $4.75 | Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2025, reflects a significant increase in total assets, liabilities, and equity compared to December 31, 2024, largely due to the H&E acquisition, which notably increased rental equipment, property and equipment, intangible assets, goodwill, and long-term debt Condensed Consolidated Balance Sheets (Selected Data, in millions) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total Assets | $14,018 | $7,877 | | Rental equipment, net | $6,015 | $4,225 | | Intangible assets, net | $1,622 | $572 | | Goodwill | $2,901 | $670 | | Total Liabilities | $12,107 | $6,481 | | Long-term debt, net | $8,251 | $4,069 | | Total Equity | $1,911 | $1,396 | Condensed Consolidated Statements of Cash Flows For the first half of 2025, cash flows from operating activities decreased, while investing activities saw a substantial net outflow primarily due to the H&E acquisition. Financing activities generated a significant net inflow from new debt issuances and revolving lines of credit to fund the acquisition Condensed Consolidated Statements of Cash Flows (Selected Data, in millions) | Metric | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | | Net cash provided by operating activities | $412 | $558 | | Net cash used in investing activities | $(4,560) | $(700) | | Net cash provided by financing activities | $4,118 | $141 | | Net change in cash and cash equivalents | $(30) | $(1) | * Acquisitions, net of cash acquired, resulted in a $4,251 million outflow in H1 2025, significantly higher than $290 million in H1 2024[30] * Proceeds from issuance of long-term debt were $3,467 million in H1 2025, up from $800 million in H1 2024[30] Non-GAAP Reconciliations This section provides reconciliations and definitions for various non-GAAP financial measures, including EBITDA, Adjusted EBITDA, REBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow, which management uses to evaluate core operating performance and provide a more comparable view of results * Non-GAAP measures are used by management to evaluate operating performance and period-over-period performance of the core business without regard to potential distortions[23] * These measures are frequently used by security analysts, institutional investors, and other interested parties in the evaluation of companies in the industry[23] * Non-GAAP measures should not be considered in isolation or as a substitute for reported results prepared in accordance with GAAP[23] EBITDA and Adjusted EBITDA This section defines and reconciles EBITDA and Adjusted EBITDA, key non-GAAP measures used to assess core operating performance by excluding non-recurring and non-cash items * 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[32] * Adjusted EBITDA further includes transaction-related costs, restructuring charges, non-cash stock-based compensation, loss on extinguishment of debt, impairment charges, and loss on assets held for sale[32] Adjusted EBITDA and Margin (in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Adjusted EBITDA | $406 | $360 | $745 | $699 | | Adjusted EBITDA Margin | 40.5% | 42.5% | 40.0% | 42.3% | EBITDA, Adjusted EBITDA, and REBITDA Excluding Studio Entertainment These non-GAAP metrics are presented excluding the studio entertainment business (Cinelease) to provide a clearer view of the core rental business's operating performance * These metrics are adjusted to exclude the studio entertainment business (Cinelease) due to the intent to sell that business, providing the operating performance of the remaining core business[37][40] Adjusted EBITDA and REBITDA (Ex-Studio, Q2 2025 vs Q2 2024, in millions) | Metric | Q2 2025 (Ex-Studio) | Q2 2024 (Ex-Studio) | | :-------------------- | :------------------ | :------------------ | | Equipment rental revenue | $854 | $739 | | Total revenues | $984 | $819 | | Adjusted EBITDA | $405 | $352 | | Adjusted EBITDA margin | 41.2% | 43.0% | | Rental Adjusted EBITDA (REBITDA) | $378 | $330 | | Adjusted REBITDA margin | 43.9% | 44.2% | Adjusted EBITDA and REBITDA (Ex-Studio, H1 2025 vs H1 2024, in millions) | Metric | H1 2025 (Ex-Studio) | H1 2024 (Ex-Studio) | | :-------------------- | :------------------ | :------------------ | | Equipment rental revenue | $1,578 | $1,429 | | Total revenues | $1,828 | $1,593 | | Adjusted EBITDA | $743 | $681 | | Adjusted EBITDA margin | 40.6% | 42.7% | | Rental Adjusted EBITDA (REBITDA) | $685 | $634 | | Adjusted REBITDA margin | 43.1% | 43.9% | Adjusted Net Income and Adjusted Earnings Per Diluted Share These non-GAAP measures adjust net income and EPS to exclude non-core items like transaction costs and asset sale losses, offering a more comparable view of operating results * Adjusted Net Income and Adjusted Earnings Per Diluted Share are presented to evaluate results of operations on a more comparable basis, excluding items not indicative of core operating results such as transaction-related costs and loss on assets held for sale[42] Adjusted Net Income and Adjusted EPS (in millions, except per share) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------ | :------ | :------ | :------ | :------ | | Net Income (Loss) | $(35) | $70 | $(53) | $135 | | Transaction related costs | $73 | $3 | $147 | $6 | | Loss on assets held for sale | $49 | — | $49 | — | | Adjusted Net Income | $56 | $74 | $93 | $141 | | Adjusted Earnings per diluted share | $1.87 | $2.60 | $3.17 | $4.96 | Free Cash Flow Free cash flow, a non-GAAP measure, is reconciled to operating cash flow, indicating the company's ability to service debt, fund acquisitions, and forecast future periods * 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 and property and equipment[46] * This measure is used by management in analyzing the Company's ability to service and repay its debt, fund potential acquisitions, and forecast future periods[46] Free Cash Flow (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Net cash provided by operating activities | $412 | $558 | | Net rental equipment expenditures | $(238) | $(343) | | Non-rental capital expenditures | $(80) | $(71) | | Free cash flow | $103 | $148 | Additional Information This section includes cautionary forward-looking statements, definitions of key operating measures, and investor relations contact and webcast details Forward-Looking Statements This section contains cautionary statements regarding forward-looking information, highlighting that such statements are based on current expectations and assumptions, and actual results may differ materially due to various risks and uncertainties, many of which are beyond the company's control * Forward-looking statements are generally identified by words such as 'estimates,' 'expects,' 'anticipates,' 'projects,' 'plans,' 'intends,' 'believes,' 'forecasts,' 'looks,' and future or conditional verbs[21] * All forward-looking statements are based upon current expectations and various assumptions, and there can be no assurance that current expectations will be achieved[21] * Actual results could differ materially due to future events, risks, and uncertainties, including the cyclical nature of the industry, competitiveness, dependence on key suppliers, reliance on IT systems, ability to attract talent, residual value risk, climate change, ability to execute strategic transactions, significant indebtedness, and ability to integrate the H&E acquisition[21] Operating Measures Definitions This section defines key operating measures used in the report, specifically 'Dollar utilization' and 'OEC' (Original Equipment Cost), based on the guidelines of the American Rental Association (ARA) * Dollar utilization is 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 ARA guidelines[22] * OEC (Original Equipment Cost) is 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, based on ARA guidelines[22] Investor Relations This section provides details for the earnings call and webcast, including dial-in information and website access for live and archived presentations, along with contact information for investor relations * Herc Holdings' second quarter 2025 earnings webcast was held on July 29, 2025, at 8:30 a.m. U.S. Eastern Time[18] * Interested parties can listen to the live conference call and view accompanying presentation slides by visiting the Events and Presentations tab of the Investor Relations section of the Company's website at IR.HercRentals.com[19] * A replay of the conference call will be available via webcast on the Company website, archived for 12 months[19] * Contact for investor relations is Leslie Hunziker, Senior Vice President, Investor Relations, Communications & Sustainability[24]