A Storied History of Growth and Adaptation Herc Holdings traces its roots back to 1962, when it was founded as a small equipment rental business in Florida. Over the decades, the company has grown organically and through strategic acquisitions, expanding its footprint and diversifying its product and service offerings. In 2016, the company underwent a spin-off from its former parent, Hertz Global Holdings, becoming an independent public company and cementing its focus on the equipment rental industry.
Under the leadership of President and CEO Larry Silber, Herc Holdings has continued to evolve, leveraging its strong market position and technical expertise to capitalize on the growing demand for rental equipment across a wide range of industries. The company's focus on urban market expansion, specialty fleet growth, and operational excellence has been a key driver of its success in recent years.
In the early 2010s, Herc Holdings faced challenges navigating the aftermath of the financial crisis and the slow recovery in the construction industry, a key driver of equipment rental demand. Despite these obstacles, the company demonstrated resilience and a focus on strategic growth. Since becoming an independent entity, Herc Holdings has undertaken a series of acquisitions to expand its geographic footprint and product offerings, strengthening its position as a leading equipment rental provider in North America.
Key milestones for Herc Holdings include the expansion of its specialty equipment fleet, the implementation of technology and data-driven solutions to enhance customer experience and operational efficiency, and the steady growth of its national account and local customer base. The company's core business remains equipment rental, with ancillary operations including the sale of used rental equipment, new equipment and consumables, and the provision of certain services and support to customers.
Navigating Dynamic Market Conditions Herc Holdings has demonstrated its ability to navigate the industry's cyclical nature and adapt to changing market conditions. In 2024, the company faced a mix of tailwinds and headwinds, with strong demand from mega projects and national accounts offsetting softer activity in certain local markets. Despite these challenges, Herc Holdings continued to execute on its strategic initiatives, expanding its geographic footprint through greenfield openings and strategic acquisitions, while also optimizing its fleet mix and enhancing operational efficiency.
Financial Strength and Operational Discipline Herc Holdings' financial performance has been characterized by consistent revenue growth and profitability. In the latest reported quarter (Q3 2024), the company's rental revenue increased by 13.2% year-over-year, driven by a 2.3% increase in rental rates and a 10.7% increase in equipment on rent. Adjusted EBITDA grew by 8.8% to a record $446 million, demonstrating the company's ability to leverage its operational scale and cost discipline.
For the full year 2023, Herc Holdings reported total revenues of $3.28 billion and a net income of $347 million. Operating cash flow for 2023 was robust at $1.09 billion, although free cash flow was negative at -$390 million, reflecting significant investments in fleet expansion and optimization.
In the most recent quarter (Q3 2024), Herc Holdings reported revenue of $965 million, representing a 6.0% year-over-year growth. Net income for the quarter stood at $122 million. The company generated strong operating cash flow of $336 million, while free cash flow was slightly negative at -$5 million due to continued investments in fleet expansion.
The company's balance sheet remains strong, with a leverage ratio of 2.7x as of September 30, 2024, well within the target range of 2x to 3x. Herc Holdings' disciplined capital allocation strategy, including investments in fleet optimization and strategic acquisitions, has supported its growth while maintaining financial flexibility.
Liquidity Herc Holdings' liquidity position remains robust, providing the company with ample flexibility to pursue growth opportunities and navigate potential market uncertainties. As of December 31, 2023, the company had $71 million in cash and a debt-to-equity ratio of 2.83. The current ratio and quick ratio both stood at 1.44, indicating a solid short-term liquidity position.
The company maintains significant financial flexibility through its credit facilities. Herc Holdings has access to a $3.5 billion senior secured asset-based revolving credit facility (ABL Credit Facility) and a $400 million accounts receivable securitization facility (AR Facility). As of September 30, 2024, the remaining capacity under the ABL Credit Facility was $1.73 billion, while the AR Facility had $10 million in remaining capacity. This strong liquidity position, combined with the company's disciplined approach to capital allocation, ensures a solid financial foundation for future expansion and investment in strategic initiatives.
Diversified Revenue Streams and End-Market Exposure Herc Holdings' revenue is diversified across various industry verticals, with a balanced mix of local and national accounts. In the latest quarter, local accounts represented 56% of rental revenue, while national accounts, including participation in high-profile mega projects, contributed the remaining 44%. This diversification provides the company with greater resilience and the ability to capitalize on growth opportunities in different market segments.
The company's specialty fleet, which accounts for approximately 23% of its total fleet, has been a key driver of its performance, growing at double-digit rates and supporting higher margins. Herc Holdings' ability to cross-sell its specialty offerings, such as climate control, power generation, and trench shoring equipment, has strengthened its value proposition and customer relationships.
Herc Holdings operates primarily in the United States, with revenue from the U.S. market representing approximately 93% and 92.7% of total revenue for the three and nine months ended September 30, 2024, respectively. This represents a slight increase from 92.2% and 91.9% for the same periods in 2023, indicating a continued focus on the company's core market.
Product Segments and Performance Herc Holdings' primary business segment is equipment rental, which accounted for $2.35 billion in revenue for the first nine months of 2024, representing an 11% increase compared to the same period in 2023. This growth was driven by an 8.4% increase in the volume of equipment on rent and a 3.5% increase in pricing.
The company also generates revenue from the sale of rental equipment, new equipment, parts, and supplies. Sales of rental equipment were $215 million in the first nine months of 2024, a 23% decrease from the prior year period, as the company optimized its fleet by selling older equipment. The gross margin on sales of rental equipment was 27% in 2024, compared to 28% in 2023, reflecting a normalization of used equipment pricing from peak levels in prior years.
Service and other revenues, which include equipment management, plant management, equipment and safety training, and repair and maintenance services, contributed $24 million in the first nine months of 2024, up 9% year-over-year.
Forward Guidance and Industry Trends Looking ahead, Herc Holdings has provided guidance for the full year 2024, expecting rental revenue growth of 9.5% to 11% and adjusted EBITDA in the range of $1.55 billion to $1.6 billion. The company anticipates rental equipment capital expenditures to be near the high end of both its net and gross CapEx ranges for the year, reflecting ongoing investments in fleet expansion and optimization.
The broader equipment rental industry is projected to experience robust growth, with a compound annual growth rate (CAGR) of 6-8% expected over the next several years. This growth is driven by several key trends, including a shift towards rental over ownership, reshoring of manufacturing activities, increased infrastructure investment, and growth in data centers and clean energy projects.
Navigating Challenges and Unlocking Future Potential While Herc Holdings has faced some near-term challenges, such as the impact of higher interest rates on local project activity and a short-term imbalance in gaining full leverage on fixed direct operating costs due to expansion efforts, the company's long-term growth prospects remain strong. The company is leveraging its technical expertise, geographic reach, and diversified fleet to capitalize on the robust demand trends in its target markets, including infrastructure investment, renewable energy, and data center construction.
Herc Holdings' ongoing focus on operational excellence, strategic acquisitions, and fleet optimization positions the company well to navigate the dynamic industry landscape and deliver sustainable growth for its shareholders. As the company continues to execute on its strategic initiatives, it is poised to further solidify its position as a leading player in the North American equipment rental market.