Third Quarter 2026 Earnings Call and Webcast - HERC HOLDINGS INC

Explicit Guidance:

• Full-year 2026 Equipment Rental Revenue: Midpoint $4.513 billion (up ~2% from prior guidance).
• Full-year 2026 Adjusted EBITDA: Midpoint $2.13 billion (up ~2% from prior guidance).
• Full-year 2026 Free Cash Flow: Unchanged guidance of $250 million to $350 million.
• Full-year 2026 Net Fleet CapEx: Midpoint ~$1.05 billion, driven by ~$150 million in incremental net purchases primarily for specialty equipment to support Q4 2026 megaprojects.
• Second Half 2026 Equipment Rental Revenue Growth: Expected to be ~14% (midpoint).
• Second Half 2026 Average OEC Fleet Growth: Expected to be ~4% (midpoint).
• Full-year 2026 Pro Forma Rental Revenue Growth: Expected ~8% on ~2% average OEC growth.
• Leverage Target: Return to the top of the targeted leverage range by the end of 2027.

Business-Segment Outlook:

• Specialty Segment: Represents 20% of total OEC fleet (matching pre-acquisition mix); growth is double-digit YoY and is a higher margin/higher return category. Investments are targeted here to support megaprojects and new branch maturation.
• Mega Projects: Targeting a 20% share of the mega project rental opportunity over time (increased from 15%); expects to achieve this over a multi-year journey, viewing 2027 as robust and solid similar to 2026.
• Revenue Synergies: On track for $110–$120 million in incremental revenue synergies over a three-year period; expects to achieve full price harmonization (including 30% contract customer rate lift) by the end of the three-year cycle.
• Cost Synergies: On track for $90 million in incremental cost synergies; expects full reporting on synergy performance by February.
• Logistics Transformation: Multi-year initiative ongoing to improve routing, process rigor, and cost recovery to mitigate fuel and freight inflation.

Market and Competitive Outlook:

• Demand Trends: Bifurcated demand; national accounts (mega projects) driving expansion while local markets remain stable but interest-rate sensitive.
• Mega Project Pipeline: Dodge forecasts ~$723 billion in U.S. mega project starts for 2026 and ~$775 billion for 2027; trillions more in planning.
• Pricing: Operating in a "rational and constructive" environment; rate increases expected to accelerate as spot market recovery continues, though magnitude depends on spot dynamics.
• Utilization: Goal to return to pre-acquisition annual run rate of ~42% dollar utilization in 2027 and build annually thereafter; Q3 2026 showed ~46% (implied by context of "42% run rate" goal and Q3 performance) driven by 20% specialty mix and time utilization.

Macro / Industry Outlook:

• Interest Rates: Essential for local market acceleration; believes commercial construction requires an "appropriate interest rate environment" (referencing 10-year treasury) to move from stable to growth.
• Fuel and Freight: Costs remain elevated; inflationary pressure accounted for ~100 basis points of margin pressure in Q3 2026 (down from 170 bps in Q2). Headwinds from delivery and ancillary costs expected to total ~100 basis points for the full year, with a comp benefit expected in Q2 2027 as elevated fuel costs drop out of comparisons.
• Chip Fabrication: Monitoring a new wave of semiconductor facility activity (post-2021/22 wave) where the company feels well-positioned due to improved footprint and scale.

Strategic Initiatives:

• Leadership Transition: Larry Silber transitioning to Executive Chairman at start of 2027; Aaron Birnbaum assumes CEO role on January 1, 2027.
• Capital Allocation: Incremental $150 million net CapEx pulled forward from 2027 budget to 2026 to service identified, committed megaproject requirements; viewed as 2027 capital that will contribute to EBITDA immediately in Q4 2026 and fully in 2027.
• Fleet Strategy: Shift from "right-sizing" acquired fleets to "lifecycle management" and refining mix; low dispositions expected in H2 2026 as focus is on maintaining availability for large projects rather than maximizing utilization at the expense of service.
• Specialty Branches: 50 new specialty branches ramping; capital will continue to be added to new locations as they mature technically and commercially.
• M&A Integration: H&E integration completed; focus now on cross-selling, network expansion, and operational harmonization.

Risks and Headwinds to Outlook:

• Cost Inflation: Fuel, freight, and sales/service vehicle costs continue to pressure margins; requires ongoing rate increases and efficiency gains.
• Interest Rate Sensitivity: Local market growth is capped until interest rates decline to stimulate commercial construction.
• Execution Risks: Ability to convert megaproject pipeline into rental activity depends on "strategic project selection, coordinated fleet deployment, and reliable execution."
• Market Cyclical Shifts: Dependence on mega projects is high; management maintains a 60% local/40% national long-term target to ensure resilience when the mega project cycle potentially shifts.

Management Tone on the Future:

• Confidence Level: High confidence in operational execution and synergy capture ("Team Herc" bringing expertise and resilience).
• Outlook: Strong momentum; "demand continues to exceed expectations." Management views the current environment as an opportunity to capture share and build a higher EBITDA baseline for 2027.
• Hedges: Growth is tied to identified customer requirements rather than speculative fleet builds; 2027 CapEx details to be provided in February.

Miscellaneous:

• Calendar Events: Management to speak at BMO Global Group (Nov 3), Baird Global Industrials (Nov 10), RBC/Melus (Dec 1), and Melius Research (Dec 9).
• Dividend: $0.70 per share paid quarterly; capital allocation prioritizes dividends after reinvestment and leverage reduction.