Clock. I got one right here in front of me. It started at 35 minutes. Okay. Oh, right here. Right there. Oh, I think we're live. Good afternoon, everyone. This is Tami Zakaria, Head of Machinery, Engineering, Construction, and Waste Equity Research at J.P. Morgan. We are delighted to have with us today the Herc Holdings team. We have with us Mark Humphrey, CFO, and Aaron Birnbaum, President. I'm gonna pass it on to Aaron. I think he has a prepared presentation for you. All right. Thank you, Tami, and we're happy to be here today. As always, the first slide here serves to remind you of our safe harbor statement and information regarding non-GAAP financial measures. This slide, for those of you new to our company, Herc Rentals is one of the leading full-line equipment rental suppliers in North America. Our vision, mission, and value statements support our purpose-driven company, where we pledge to equip our customers and communities to build a brighter future. Herc has been serving customers for more than 60 years. We have more than 9,500 team members, and we work out of 600 physical locations in North America in 46 states and five Canadian provinces. We serve an addressable equipment rental market of nearly $90 billion with attractive long-term industry growth dynamics. We operate from a set of core strengths that differentiates us in a highly fragmented industry and puts us in a much stronger position today than at any other time in our history. We are an industry leader that has been generating above-market growth through investments in fleet, new greenfield locations, and M&A. We are disciplined stewards of capital. We're investing to win in an industry where scale matters and secular trends, infrastructure funding, and industrial mega projects are setting up the largest players to continue to gain share and generate profitable growth. Our investments in technology are paying off as we leverage data and digital tools for better customer experiences and increased productivity. We're executing on a multifaceted diversification strategy to improve operating results and ensure resiliency in uncertain times. Finally, we are a market consolidator, having completed more than 50 strategic acquisitions since launching our M&A strategy in December 2020. In fact, last summer, we completed the industry's largest acquisition to date. H&E Equipment Services was the fourth U.S. largest player with 162 branches and desirable locations across the important Southeast, Gulf Coast, Midwest, and Mountain West regions. The combination increases our branch network, customer reach, and the efficiencies that come with scale. This transaction accelerates our growth plan by 4-5 years. I'm pleased, really pleased with the progress we're making on the integration, and we remain confident in our ability to deliver the full value of this acquisition, both in terms of cost efficiencies and accelerated growth, while continuing to deliver on our long-term growth strategies. Since closing, the transaction has made swift progress on our integration. We expanded our field operating structure, completed a comprehensive sales territory optimization exercise, finalized the full systems integration in record time, and finished the fleet optimization, which ensures we have the right fleet in the right markets. This quarter, we will complete our branch network optimization, which allows us to expand specialty solution capabilities across our combined network to support the cross-selling opportunities created by the acquisition. By the end of March, through general rental location consolidations and branch-in-branch openings, we will have increased our number of standalone or co-located specialty branches by approximately 25% without adding any brick and mortar. This work positions us to ramp into the peak season from a new, stronger foundation, allowing us to execute more effectively on our strategic plan and drive accelerated growth in the back half of this year. As a reminder, our strategic plan includes leveraging our branch network scale, our broad fleet mix, technology leadership, capital and operating discipline, and superior customer service to position us to maintain across the cycle and generate sustainable growth over the long term. We are committed to our goal of becoming the supplier, employer, and investment of choice for the industry in which we serve. With that, I'll turn it over to Tami for questions, and I'll have a seat. Perfect. Thank you, Aaron. That was super helpful. Before we start the Q&A, I wanted to remind those listening into the webcast, you can actually submit questions for Mark and Aaron, and I can read them out to get you an answer. We'll start taking questions from the room in the final 10 minutes of the session. With that, let me start off on U.S. mega projects, which have been a theme for quite a few the last few years. Where do you believe we are in that mega project investment cycle? Yeah, Tami, I'll take that one. I would call it the early to mid-innings. It's a really robust space. On our last earnings call, we mentioned there was roughly $600 billion of new projects starting that we serve in 2026. The pipeline is in the trillions of other projects that are being planned but haven't been given a start date yet. It's a great space, and manufacturing is an area that we've seen a lot of activity, such as in the pharma space, LNG plants along the coast. You see the, like, the next wave of chip plant investment going on. The data center space, as we all probably read a lot about, is very, very robust and expanding rapidly. Related to that, I think this acquisition of H&E came at a very opportune time. Post-acquisition, I think HRI is expected to control about mid- to high-single-digit percent of the rental market. In your view, how do you see this changing your competitive advantage or dynamics within the industry? Can HRI become a powerhouse over time in both general rent and specialty rent? Yes. You know, our share is roughly 5% market share in a really fragmented industry. There's a lot of opportunity. The H&E acquisition gave us a 30% bigger footprint with 160+ locations. In our customers' eyes, the ones that we had strong relationships or others that we were building relationships with because of our capability in things such as specialty, it put us on a new level of confidence that we can execute for them. We've seen that from the moment we closed that transaction in our conversations with our customers. Yes, we see ourselves strengthening and over time, you know, getting more scale. Staying on that theme, cross-sell is a big opportunity in general rental and specialty rental. Could you help us frame what kind of investments in the fleet, people, backend operations you need to make before you see a major inflection in specialty growth? Or do you think you already have the infrastructure in place to reap the benefits of specialty cross-selling? Yeah. It's a great question, and I think, you know, as I reference Aaron's opening comments. You know, with the branch optimization, you know, we'll be opening or have opened 50 new locations without really increasing fixed cost structure. Really, you know, that will all be completed by the end of Q1 2026. It's really about sort of in the middle to the back end of 2025, we invested about $100 million in synergy fleet, which we'll, you know, execute on and have that become more efficient as we work our way through 2026. Then we will feed that incremental network of specialty locations as we work our way through 2026, sort of creating a tailwind into 2027. I think, you know, just as a reminder, we have, you know, we recognize about $40 million in rev synergies in the back half of 2025 with the anticipation, expectation of an incremental $100 million-$120 million, as we work our way through 2026. Super helpful. Thank you. I wanted to touch on the leverage topic. Since the H&E acquisition, your leverage is in the high three turns now. You said your goal is to bring it to the high end of 2-3 turns by the end of next year. Help us understand how that will be achieved. Is it going to be through EBITDA growth or pay down or a combination of both? Yeah, it'll be, you know, we'll ride the coattails of the EBITDA growth over the next couple of years to round ourselves into the top end of this 2-3x. I think additionally, you know, free cash flow generation in both 2026 and 2027 will also play a role there as well. You know, we're looking to invest in growth CapEx. You know, we won't be doing M&A activity and really very minimal greenfield activity here over the next couple of years with a sole focus of getting back inside of that 2-3x range. Perfect. Let's turn to macro. Since September 2025, actually 2024, we've had six Fed rate cuts. Related to that, are you seeing any signs of improvement in demand at the local market level? What do your customers on the ground say about the current interest rate environment? Is there more room to come down, or this is enough to spur activity? No, I think it's a little bit of a nuanced conversation. I think while we've seen the Fed rate cuts, it really hasn't worked its way in and through the 10-year, which I think, you know, from our perspective, I think that when you're talking about this commercial construction, you know, that's probably the most important point there. I think, you know, from you know, stable, not necessarily a headwind, not necessarily a tailwind as we sort of walk our way through 2026, and that's you know, that's really the expectation. Understood. Turning back to H&E, this was, you know, bigger than any of your prior acquisitions. What were the initial challenges that you hadn't anticipated but you had to face? On the flip side, sitting here today, what are the most immediate opportunities that you see from that acquisition? Yeah, I'll take that one. We had done over 50 acquisitions since we started our current strategy in 2020. This was the first one that was a public entity that we bought in H&E, so it was a longer process, right? By the time we announced it was five months before closing and before we announced we were gonna be purchasing it, there was another suitor. So there was a fair amount of anxiety, I would say, in the H&E team, which had been a public company, but kinda run by a family entity, you know, had that kinda culture there. There was five or six months of this period before we could close, and through that, there was some exodus of the sales team. Once we did close and we began the integration process, which we planned really well for, we started to connect with the teams and that sales turnover had slowed down dramatically. By the time we got to the fourth quarter, we had not only slowed down the turnover to what was Herc's historical levels, but we had put the entire H&E's team and the business on our system. We integrated the H&E 160-plus locations in 90 days onto all of our CRM, our back office, front office functions, which gave both sides a lot of visibility. When you look forward, we're super excited because our scale got 30% bigger. The value creation that we see in the business is the synergy play and the expansion of the general rental fleet that Herc had roughly 6,000 different category classes, and H&E business had 600 category classes, so kind of a narrow product line-up. In this industry, the things that are important is scale and diversity of product, diversity of customers. It's I think the goodness of Herc we can bring to those rich H&E customer bases, and we I think we have several years of great kind of value creation ahead of us. I wanna touch on that synergy comment. Can you walk us through the thought process behind the $240 million of revenue synergy target you put out there from the H&E acquisition? Mm-hmm. How much of that is specialty versus general rental or any way to break down the buckets? Yeah, I'll take that one. You know, I think, $240 million, I think it's probably easier just given, you know, the dis-synergy that sorta hit us on the front side of this. I think it's probably better to think about it in terms of sort of the gross revenue synergy opportunity. You know, we see that over the three-year period as being, you know, somewhere in this $380-$390 million opportunity. I think, you know, what we accomplished in 2025 was about $40 million. We're looking to sort of have an incremental lift of $100-$120 million, you know, by the end of 2026. You know, I think, there's a fleet infusion, growth fleet CapEx infusion here, component here, that will play a big role here. I think overall though, you know, it's sort of a CapEx-lite synergy play because we're able to take advantage, as Aaron mentioned, we've got so many more categories of fleet to sell into this very robust H&E customer base. You know, when I think about sort of that split, if you will, you know, pricing obviously is included in that $390 million. You know, when you think about and wanna sort of split that apart, it's probably gen rent and other, about halvesies of that, and specialty the other half. How about the same question, but on the cost synergy side. What makes up the $125 million cost synergies? The big buckets there are really people. You know, sort of, you know, first order of business was sort of take out the duplicative headquarters and everything on that front. So that would run to the G&A side of the house. You know, you think about people, duplicative resources in the field as well operationally. You know, people was about, you know, 40-ish% of this bucket, and then you start bringing in other elements like, you know, contract consolidations, and the like. Then there are some self-help initiatives that are in there as well. Just think, you know, maintenance, logistics, and those types of things that Aaron talked about from a tools perspective that we bring. You know, that rounds out to this $125 million. Just as a follow-up, within that $125 million, is there any purchasing synergies embedded in terms of now you're a bigger customer of your equipment, right? I'm guessing what H&E used to buy, you would probably get a bigger discount now. Is something like that embedded in that 125? If so, how big? Yeah. I think, there's absolutely, a buying benefit that we bring to the table. I didn't necessarily reference there or it's not really included inside of the $125 million because the $125 million was really an EBITDA contribution. We certainly will buy better than H&E did, which will ultimately come through your dollar utilization and other metrics. Understood. We got a question online, and as a reminder, if anybody has a question, you can use the webcast to submit a question, and I will pose it to the team. The question we got is: Please describe your equipment financing strategy, and please elaborate on off-balance sheet arrangements, exposures, if any. Thank you. Yeah, I'll take that one. You know, we utilize our $4 billion ABL. You know, cost of capital is the primary focus for us. You know, today that's the most efficient method and manner for us to handle our equipment financing. You know, obviously we'll evaluate any and all potential opportunities. Today, that's the cheapest cost of capital for us to utilize. Looking back at H&E, we get that question a lot. When H&E was its own public company, they talked about negative rental rates for a few quarters, along with utilization rates down. What opportunity do you see to align H&E legacy contracts with HRI? How far are you in that integration/upgrade opportunity? Yeah, no, great question. I think from a pricing perspective, and again, I'll reference what Aaron said, right? We've put our Optimus tool, our pricing tool, into the hands of all of our sales folks. Really, you know, that was all of that technology lift was completed inside of the third quarter of 2025. The lift begins really now. It began then realistically. I think, you know, the way that I'm sort of thinking about that price lift, I mean, they were several hundred basis points behind us from a pricing perspective. You know, I think what we're going to do is show our value to customers, and we would anticipate seeing the benefits of that pricing lift, you know, over probably this three-year period. I also think too, right? When you think about you really have two different buckets of pricing. You've got contract pricing, and then you've got spot pricing. You know, we've already renegotiated, at least for the first year, the contracts that were underneath the H&E business, and we'll continue to sort of evaluate that and move that along over the three-year journey. I think the other side of the equation from a spot rate perspective, I think that the sort of tepid, muted local environment, I think you'll see price lift as sort of the tightening and the demand profile inside of the local market changes. This is more of a long-term question or medium to long-term question. How do you think about the mix of specialty versus gen rent? Yeah over time? The reason I ask that, I think anecdotally we know specialty penetration in the industry is a lot lower than general rent, so maybe there's more growth opportunity there in the initial years. What is the optimal mix for HRI, and what does that mean for HRI's margin profile when you reach that level? I think the secular trends in the industry are in our favor overall because more users of equipment are choosing rental over ownership. The general rental side is a little bit more penetrated than the specialty side. When you look at specialty, the penetration is very, very low, so call it, you know, 10%. It's not that customers had their own owned gear. It's that they're finding solutions to problems from the top rental companies that have that competency. When we purchased H&E, our specialty business was about 20% of our fleet. After the acquisition, it went down to 16% because H&E didn't have much of a specialty business. We know that our specialty business drives about 800 basis points higher dollar utilization than general rental. You know, financially, it's a premium business, our goal now is to get it back to 20%. We did that with some of the capital investments last year, back half of last year to get some of the low-hanging fruit. An outsized part of our capital spend for 2026 will be in specialty, and we'll keep that back up here till we get to 20%. Long term, we see it as 25%-30%. Again, it helps with the financial economics of what we're trying to do with dollar yield and margin. Understood. Let's stay with the CapEx theme. You mentioned it. I think your gross CapEx outlook for this year is down about double-digit% at the midpoint. Net CapEx is flattish to slightly down. Mm-hmm. Two-pronged question. First, when can we expect HRI to return to CapEx growth? Yeah. Related to that, of this year's CapEx, how much is replacement versus new or growth? How much is specialty versus gen rent? Yeah, no, great questions. You know, I think from a just an overall CapEx plan for 2026, you know, this was sort of a planned year in that the fleet that we acquired from H&E was significantly younger than ours. What that enabled us to do was sort of cut back on the gen rent CapEx spend, age that fleet out. We sat at about 45 months at the end of December. You know, normal for us is probably in that 47-month sort of age range. That's the expectation. There isn't a read-through there. In anything other than we're going to take advantage of the opportunity that we acquired. Your second part of your question is a little nuanced. I don't necessarily like talking about replacement versus, 'cause there's constantly in this industry, the replacement CapEx is mix shifting into different sorts of categories. You know, you're gonna replace an excavator with three lifts and lighting and on and on and on. I can tell you that from a sort of execution perspective, there will be an outsized growth CapEx attachment to the specialty business for 2026. Perfect. I think we should let the audience here to ask questions. If anybody has any question, raise your hand, and we'll get the mic to you. I think we have one there. Hi. Thanks. For the equipment categories that did overlap between HERC and H&E, was there a difference in rate, generally speaking? Rental rate? Yeah. Like that we would charge? Yes. Yeah, sure. Yes. Yeah. Yeah. Mark had mentioned there was, you know. Several We had a sophisticated algorithmic pricing tool that our sales team used, developed 10 years ago, and it really became our platform to drive, you know, the proper pricing in different situations. H&E didn't have that. They had more of a kinda decentralized approach. When we looked at contracts, when we looked at the spot market opportunities, we were performing 300 basis points higher on rate. Some of that will happen pretty quickly because over half of H&E's business was in the spot market. Then the rest of it'll be contract work that, as Mark said, will take three years to go get. Yeah. Any more questions? I'll keep going. Again, feel free to raise your hand if you have a question. Those listening to the webcast, you can submit your question, and I can pose it for you. Question, we get asked a lot, data centers. How big is data centers as a percentage of your end markets now? Do you service that end market mostly through power or there's other categories involved as well? Yeah, as I mentioned earlier, it's really important to have a diversified customer base, so none of our customers are more than, like, 2.5% of our revenue. We don't really disclose what data centers are of our business. As I said, it's a growing part of, like, the mega arena. If anybody flew in here yesterday, you flew over a lot of data centers. It's incredible. This is kinda like the epicenter of data center building. It started over a decade ago. It's growing rapidly. We deploy our fleet in many ways. Most of these projects are $3 billion, $4 billion, $5 billion. They used to be $300 million, $400 million, or $500 million, and some of them are $10 billion. They usually do buildings in sequence. They finish one, they do the next. If they have a long-range plan to build multiple buildings, they'll often request a premium rental company to come on-site often so that you have a kind of a captive environment to provide the gear. It really is all the equipment that we have in our suite of portfolio products. Could be a lot of power if they're not connected to the grid. It could be Cooling if they, again, don't have connection to the grid, they need cooling. Before you get to that point, you have to do the civil work. You have to put up the concrete panels. You need Material Handling. You just need a lot of different types of gear. They're balanced jobs, so usually you get a nice chunk, especially with general rental on the same project. What's great about data centers or other, you know, mega projects, as we call them, is that they're long-term projects. You get good utilization on your product. If you execute well, you can support all the subcontractors that are on the project and then as I mentioned, the specialty business kinda weaves in there. The returns are similar to what we get on our regular business. I wanted to ask you about greenfield locations. Two questions. The first one, how many do you plan to open over the next few years? We know you mentioned this year's target, but should we expect an acceleration in greenfield location openings after this year? We were doing about 20-25 a year through the last four or five years. With the H&E acquisition, there was a lot kind of in play on their side and our side, so we finished those off in 2020, most of those off in 2025. We only have about five or seven planned for this year, and we're really focused on kinda operational execution right now and getting the leverage down to the levels that Mark talked about before we kinda ramp up more greenfields and more M&A. Those are our focus areas. You know, I think from that perspective, right, when you think about a greenfield, you know, generally takes, again, sort of macro willing, you know, it's probably 24-36 months to maturation such that greenfield location begins to look like all of its other brothers and sisters. You know, to Aaron's point here, right, we're highly focused on sort of the execution on the H&E acquisition, the 26 that we just brought in last year. You know, for that reason and the ramp up, et cetera, we're gonna hold off. We'll get our leverage back down, and then we'll begin to execute, probably as we would, you know, think about the back half of 2027 and into 2028. A follow-up on that. Longer term, what is the white space you see? Because I've heard you say in the past that you focus on the 100 MSAs. How much room is there for new locations? Well- before you reach, like, an optimal network? Yeah, I think. What's the marker that you want to have, right? I mentioned our share is 5%. We focus on the top 100 markets, and within those top 100, there's multiple locations we can build out in that network for each market. You know, it takes the fleet to get absorbed, to get the revenue, to grow your position and your share. We're really focused on being a premium equipment rental company. Our positioning with our customers and this acquisition, we pulled forward, like, four or five years of growth by doing the H&E acquisition. Going forward, I feel like at 5% share in a highly fragmented market, there's a lot of room to grow. Understood. We have a few more minutes. Any more questions in the room? One question on utilization. Once H&E is fully integrated, do you expect your dollar utilization to revert to your prior low 40% level, or could it be even higher? What is the vision for dollar utilization? Yeah. I mean, I think that's fair. You know, as Aaron mentioned, right, we sort of ran at this low 20s sort of specialty mix into the overall fleet. I think it, you know, it sits at about 17%-18% today. You know, as you roll that forward and execute on the revenue synergies and invest that specialty fleet back into the business, you should anticipate being somewhere in that low 20s again. Which, you know, if all of that plays out in that manner, then I would expect to see the dollar utilization back to the levels in which Herc Rentals was historically. Perfect. We did not talk about used equipment. Tell us about that. Are you nearing a stabilization in used equipment recovery rates? How much of your sales are through auction versus retail now? Yeah. The used equipment markets are stable, just kinda like the rental market is. You know, every month we can see what's going on in the auction markets. When you sell wholesale or retail, that's always a premium to the auction markets. You kinda have to use all channels. We mentioned several years ago that we were pivoting to kind of a more retail wholesale channel mix that we're going after. When we did the H&E acquisition, we had to kind of rebalance our fleet, optimize our fleet pretty quickly to get things right in Q3. By Q4, we got back to our normal channel mix, and we'll continue that going forward. Call it, like, a 70/30 retail wholesale. Over time, probably be 80/20. That's what we're after. The used equipment markets are healthy. You can see the data. Things such as large earthmoving, compact earthmoving are improving off the trough. Aerial, things such as Reach forklifts, Material Handling are kinda bouncing off the trough. The trough is really back to 2019. There's a demand for rental, and there's demand for used equipment out there. Perfect. Final question: What is your vision for Herc Holdings in the next five years? Well, the first vision is to get all the value out of the H&E acquisition, right? That's our first order of business. We've got the scale, and now it's to drive the efficiencies through that scale. Really excited about our opportunities there. Specialty will continue to be something, as I mentioned, you know, long term, 25%-30% of our business coming from that. Continue to develop great relationships with the contractor base in our industry, an amazing industry that we participate in. We went through a big digital transformation back in 2020, and technology is becoming more and more of the story in our industry. We continue to invest in new enhancements in all of our technology every six months. We might not talk about it too often, but our customers know that we have terrific digital tools, and our sales force uses it to be more efficient in their jobs. Finally, just to be really good stewards of the capital that our investors bring to us and deploy it so that we can drive our margins and have great culture in our employee base. Awesome. Mm-hmm. Thank you. Thank you for joining, and we hope to host you next year as well. Thanks. Thanks, everyone. Thank you. Thank you.