Herc Holdings Inc: Form 10-Q for the period ended Sep 30, 2026

Interest expense, net decreased $8 million, or 6%, during the third quarter of 2026 when compared with the third quarter of 2025 primarily due to lower average outstanding borrowings and lower interest rates on floating-rate debt.

Income tax provision was $16 million during the third quarter of 2026 compared to $8 million in the same period of 2025. The effective tax rate in the current period was primarily driven by the level of pre-tax income, certain non-deductible costs and foreign tax assessments, partially offset by tax credits return-to-provision adjustments.

Nine Months Ended September 30, 2026 Compared with Nine Months Ended September 30, 2025

Equipment rental revenue increased $576 million, or 21%, during the nine months ended September 30, 2026, primarily reflecting the additional contribution from the H&E acquisition completed on June 2, 2025 and growth in average fleet on rent particularly on mega projects. On a pro forma basis including the standalone, pre-acquisition results of H&E, equipment rental revenue increased 4% year-over-year, primarily reflecting higher rental volume and revenue synergies.

Sales of rental equipment decreased $29 million, or 8%, during the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025 as disposal volume was elevated in the prior year to optimize the equipment mix and utilization after the H&E acquisition. The margin on sales of rental equipment was 21% in 2026 compared to 18% in 2025. The increase in margin on sale of rental equipment in 2026 primarily reflected a favorable sales channel mix, as well as reduced volume of sales of H&E fleet and the associated impact from the fair value markup following acquisition.

Direct operating expenses in the nine months ended September 30, 2026 increased $303 million, or 26%, when compared to the nine months ended September 30, 2025. Direct operating expenses were 44.6% of equipment rental revenue in 2026, compared to 43% in the prior-year period. The increase as a percent of rental revenue is primarily related to the impact of the H&E acquisition and related greenfields that take more time to mature. In addition, certain operating expenses were elevated during the period, including fuel and delivery expenses of $48 million and $42 million, respectively, due to increased volume of rentals and higher fuel prices throughout the second and third quarters. Maintenance expense increased $43 million on our larger average fleet size, facilities expense increased $39 million as we have added more locations through acquisitions, including new specialty locations from branch optimization, and opening greenfield locations. Field incentive compensation driven by outperformance, especially in fleet efficiency, increased $17 million.

Depreciation of rental equipment increased $126 million, or 21%, during the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025 due to an increase in average fleet size primarily as a result of the H&E acquisition. Non-rental depreciation and amortization increased $74 million, or 50%, primarily due to amortization of intangible assets related to the H&E acquisition and non-rental asset depreciation resulting from the growth of the business.

Selling, general and administrative expenses increased $68 million, or 17%, in the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025. Selling, general and administrative expenses were 14.5% of equipment rental revenue in 2026, compared to 15.0% in the nine months ended September 30, 2025, the decrease is a result of continued focus on improving operating leverage, including achievement of acquisition cost synergies, while expanding revenues.

Interest expense, net increased $98 million, or 35%, during the nine months ended September 30, 2026 when compared with the nine months ended September 30, 2025 due to the new debt issued to fund the H&E acquisition in June 2025, partially offset by lower interest rates on floating-rate debt.

Income tax provision was $22 million during the nine months ended September 30, 2026 compared to $7 million in the same period of 2025. The income tax provision in the current period was primarily driven by the level of pre-tax income, certain non-deductible costs and foreign tax assessments, partially offset by tax credits and return-to-provision adjustments.

We are exposed to a variety of market risks, including the effects of changes in interest rates (including credit spreads), foreign currency exchange rates, and fluctuations in fuel prices. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments.

Management has evaluated its exposure to market risk as of September 30, 2026 and concluded that there have been no material changes in the information reported under Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in our Annual Report on Form 10-K for the year ended December 31, 2025.

Evaluation of Disclosure Controls and Procedures

Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined under Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2026, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our risk factors from those previously disclosed under Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025.