Herc (HRI) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, April 28, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Lawrence Silber
• Chief Operating Officer — Aaron Birnbaum
• Chief Financial Officer — W. Humphrey
• Senior Vice President, Investor Relations and Communications — Leslie Hunziker

TAKEAWAYS

• Branch Network Expansion -- The company completed the integration of H&E Equipment Services, increasing its branch network by 30% and bringing in approximately 2,500 new employees.
• Specialty Location Growth -- The branch optimization program added 25% more specialty locations, with these sites entering the revenue ramp-up phase.
• Equipment Rental Revenue -- Reported equipment rental revenue increased approximately 33%, driven by the H&E acquisition.
• Pro Forma Rental Revenue -- On a pro forma basis, rental revenue declined 3%, representing sequential improvement from the previous quarter.
• Adjusted EBITDA -- Adjusted EBITDA rose 33%, while on a pro forma basis it decreased by approximately 5% due to higher used equipment sales and static local market demand.
• Used Equipment Sales -- Used equipment sales increased by 31%, with realizations at 49% of original equipment cost versus 45% in the prior year period.
• EBITDA (Excluding Used Equipment Sales) -- EBITDA, excluding used equipment sales, increased by 30%.
• EBITDA Margin -- EBITDA margin was 40%, pressured by the lower-margin acquired business.
• Free Cash Flow -- Generated $94 million in free cash flow for the quarter.
• Leverage Ratio -- Reported pro forma leverage ratio of 3.96x, consistent with integration plans and expected to remain steady until meaningful improvement at year-end.
• Fleet Investment -- Invested $183 million during the quarter in fleet, with expenditures up 78%, aligning with a return to typical seasonal buying patterns.
• Fleet Disposals -- Disposed of $281 million in fleet at original equipment cost, up 20%, with nearly 70% directed to higher-return retail and wholesale channels.
• Fleet Size -- Entered the year with fleet down nearly 2% on a pro forma basis, with average OEC down approximately 1%, in line with utilization improvement objectives.
• Safety Performance -- Achieved over 96% of branch operating days as perfect, maintaining total reportable incident rate below the industry benchmark of 1.0.
• E-Commerce Revenue -- E-commerce revenue reached an all-time record high, indicating increased customer adoption of digital platforms.
• Cost and Revenue Synergy Targets -- Management reaffirmed pursuit of $125 million in total cost synergies (incremental $90 million in 2026) and $100 million to $120 million incremental revenue synergies for 2026, with cost synergy capture running ahead of schedule and revenue synergy achievement described as back-half weighted.
• Local vs. National Revenue Mix -- Local accounts represented 47% of rental revenue; national accounts, including mega projects, comprised 53%, with management reiterating a long-term target of 60% local and 40% national.
• Specialty Revenue Growth -- Specialty segment achieved double-digit revenue growth, attributed to targeted investments, increased specialty locations, and robust mega-project activity.
• Capital Expenditure Timing -- Stated expectation for gross CapEx deployment skewed to late Q2 and Q3, with an over-index on specialty fleet in support of ongoing mix shift.

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RISKS

• Management explicitly pointed to "static demand in the local market" as a margin headwind, particularly impacting Q1 adjusted EBITDA margin.
• Pro forma rental revenue decreased 3%, reflecting ongoing revenue headwinds in acquired operations prior to integration actions.
• Net loss included $5 million of transaction costs related to the acquisition, affecting reported profitability for the period.
• Management referenced that the full margin and revenue benefits from synergies and network alignment will not materialize until the second half of the year, underlining near-term execution risk.

SUMMARY

Herc Holdings (NYSE:HRI) closed the integration of H&E Equipment Services, sharply expanding its network and specialty capabilities. Management underscored sequential improvement in fleet utilization and mix, with operational, sales, and digital initiatives positioned for greater contribution starting in the second half. The firm maintained full-year 2026 guidance, observing that revenue and margin acceleration are dependent on successful ramp-up of new specialty locations, planned capital expenditures, and anticipated mega-project activity. Pro forma rental revenue contraction, margin pressure from static local demand, and acquisition costs weighed on initial results, but leadership positioned these as foundational to second-half performance gains.

• Leadership stated, "We are exactly where we expected to be" against the 2026 plan, emphasizing alignment of execution with prior forecasts despite pro forma revenue decline.
• Operational highlights included a safety record outperforming industry benchmarks, recognition as a certified Great Place to Work, and all-time high e-commerce revenues.
• Synergy realization accelerated, with management noting, "cost synergies are running ahead of expectations" in Q1 and back-half weighted revenue synergies remaining on track.
• Management disclosed ongoing fleet investments are chiefly supporting growth in specialty verticals as part of a longer-term mix shift and margin enhancement strategy.
• Leadership commented that the organization's exposure to oil and gas remains under 10% of total business, consistent pre- and post-acquisition, supporting a diversified end-market profile.

INDUSTRY GLOSSARY

• OEC (Original Equipment Cost): The purchase price paid for rental fleet assets, used for performance and disposal benchmarking.
• Perfect Day: An internal safety metric denoting a day with zero safety incidents at a branch or operational site.

Full Conference Call Transcript

Lawrence Silber: Thank you, Leslie, and good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E Equipment Services the largest acquisition in our industry is now complete. Integration was an enormous undertaking, and I could not be prouder of this team and the strength of our culture is what dismay confidence and what comes next. For the third consecutive year, Herc Rentals has earned a Great Place to Work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context. Large acquisitions are disruptive by nature.

We brought approximately 2,500 new employees into the Herc family, people facing new systems, new processes and a new way of doing things. Based on the survey feedback, our new colleagues recognized our strong culture through change management support, per mentoring and the extensive training and tools they received throughout the integration. And now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution. We have a larger platform, a stronger team and a broader set of capabilities than at any point in our history.

The work ahead is about unlocking the full potential of our platform, winning more business, serving customers better and delivering stronger returns for our shareholders. Now turning to Slide #5. With a 30% larger branch network, we are optimizing fleet mix by market, driving network density and capturing the operating efficiency that come with scale, lead efficiency, employee productivity and margin improvement are the goals. Second, we are enhancing our fleet mix and Specialty Solutions as a standout area of focus. Double-digit specialty revenue growth in the quarter reflects targeted fleet investments, 25% more specialty locations and strong demand for mega projects cross-selling and the continued structural shift from equipment ownership to rental.

Third, we are advancing our industry-leading digital capability through control by Herc Rentals. Advanced technology features from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operations gives customers the tools to run safer, more efficient job sites. And our e-commerce platform continues to gain traction, delivering a seamless omnichannel experience with 24/7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in the first quarter a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them.

As always, we lead through continuous improvement with our E3 operating systems built on a foundation of standardized processes, superior customer experiences and a relentless focus on execution across our expanded network. And finally, as prudent stewards of capital, we invest responsibly. We took on incremental debt to acquire H&E a deliberate decision to accelerate our scale and long-term earnings power. We expect to return to the top of our targeted 2 to 3x leverage ratio by year-end 2027. Our path to deleveraging is clear. As we capture the full run rate of our synergy targets, EBITDA growth, free cash flow build and leverage comes down. Now let me turn it over to Aaron to talk about our operational performance.

Aaron?

Aaron Birnbaum: Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is the moment our team has been working toward. Investments we've made in people, fleet systems and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work. We are executing with the larger network, a stronger bench and a sharp percent of where the opportunities are. The work ahead is straightforward, win business, serve customers exceptionally well and drive the performance this platform is built to deliver.

In everything we do, every efficiency we drive every customer we serve every dollar of performance we deliver starts with one nonnegotiable. The safety of our people and our customers. From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day. So let me start there. On Slide 7, our major internal safety program focuses on perfect days, and we strive to 100% perfect days throughout the organization. In the first quarter, on a branch-by-branch measurement, all of our operations achieved over 96% of days as perfect.

Also notable, our total reportable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Our safety foundation is what makes everything else possible. On Slide 8, you can see that what we're building on that foundation starts with one of our most important assets, our fleet. At $9.4 billion in original equipment costs, fleet is both our largest investment and our primary revenue growth engine. We entered 2026 with pro forma fleet down nearly 2% by design. The integration priority was alignment, the right equipment in the right markets with the right mix, and we achieved that.

By the end of the first quarter, average OEC was down approximately 1% on a pro forma basis versus last year, consistent with our focus on utilization improvement. While fleet expenditures were up 78% on a pro forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025, when we're preparing to bring in the acquired H&E fleet in the second quarter. Our Q1 '26 investments of $183 million are directed toward growth opportunities and supporting our new specialty locations as they ramp up and be again contributing to revenue synergies. Fleet disposals at OEC were 20% higher year-over-year, reflecting life cycle rotation and ongoing mix adjustments.

For the $281 million of disposals in the first quarter realized proceeds were 49% of OEC, up from 45% in Q1 2025, reflecting a healthy [indiscernible] across almost every category as well as our focused selling into the higher return wholesale and retail channels. As you know, the first quarter is our seasonally slowest demand period. Having strong fleet alignment right now before the seasonal ramp is critical. Disciplined fleet management and our sales team is executing with increasing effectiveness across the combined network, drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter.

As utilization tightens into the peak season, we expect that discipline to translate directly into revenue growth and further improvement in fleet efficiency in the second half of the year. Turning to Slide 9. We will gain better visibility into seasonal trends over the next month or so, but today, the bifurcated markets remain relatively consistent with what we have seen over the past year. In the local market conditions remained stable overall. Government, infrastructure, MRO and institutional construction demand are offsetting the still moderate commercial sector, consistent with what we expected coming into the year. On the national account side, large-scale project funding remains strong.

Mega project activity is centered around manufacturing, LNG, renewables and the continued surge in data center development. We are winning our targeted 10% to 15% share of these opportunities with new projects coming online and current projects still in ramp-up phase. Mega project activity was notably strong in the first quarter with project ramp-ups accelerating earlier than is typical for our seasonally slowest period, activity that was built into the full year guidance we provided just 2 months ago. In the first quarter, local accounts represented 47% of rental revenue compared with 53% of national accounts. As we have said, our long-term target is 60% local and 40% national on [indiscernible] for both growth and resiliency.

The national weighing we are seeing today reflects the strength of our national accounts and mega project activity, and we expect the local mix to improve as the seasonal ramp build and eventually as local demand recovers. Turning to Slide 10. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc diversified into new end markets, geographies and products and services over the last decade, we have reduced our reliance on any single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities from mega project development and the continued surgeon data centers to technology advancements that support customer productivity and the secular shift from equipment ownership to rental.

With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow. And the opportunity across end markets isn't just broad, it's deep. Turning to Slide 11. Let's look at what the data tells us about the forward pipeline driving demand across our customer base. Here, you can see that despite the uncertainty of broader markets, whether around interest rates, freight policy or general economic sentiment, the fundamental drivers of our business remain intact. Industrial spending and nonresidential construction starts continue to show meaningful opportunity for growth built on a foundation of project development and infrastructure investment.

Of course, there are some overlap across these 4 data sets but no matter how you look at it, for companies with the safety record, scale, product breadth, technologies and capabilities to serve customers of the local, regional and national level. the opportunity for growth remains significant, and we believe Herc is well positioned to capture it. Turning to Slide 12. This is where we are in our near-term journey, and I want to be clear against our 2026 plan. We are exactly where we expected to be. The integration work is behind us, but we have now a 30% larger business, more fleet, more locations, more specialty capabilities and a larger maturing sales force. That's the foundation.

In the first half of 2026 is about converting that foundation into performance, tightening utilization as we move into the seasonal peak and sharpening sales effectiveness across the combined network, and we have seen that start to play out. First, fleet efficiency. After working through the integration and fleet optimization process, we saw sequential improvement in Herc supply and demand alignment through the quarter, something we have been building towards since last summer's acquisition. That's not a small thing.

And while mega project demand provided a tailwind, even in our seasonally slowest first quarter, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan. It tells us that we move into the seasonally stronger second quarter, we have the right fleet and the right markets ready to work. In consuming all that improvement plan in Q2 is what gives us confidence in the utilization trajectory in the back half. Second, our specialty locations. The branch optimization program added 25% more specialty locations opening Q4 2025 and Q1 2026. These locations are now staffed, fleeted and gaining momentum.

New locations take time to mature and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth. If we get the first half right in the second half follows, revenue growth accelerates our fixed cost base works in our favor and margin improvement becomes increasingly visible. That's the progression we have mapped out. First half builds the foundation, second half delivers the growth. It's also the flywheel into 2027. Higher revenue, expanding margins and increasingly apparent deleveraging as synergy capture compounds. That's the path and we're on it. Now Mark will go through the details. Mark?

W. Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on Slide 14 with a summary of our key financial metrics. For the first quarter, on a GAAP basis, equipment rental revenue was up approximately 33% year-over-year. driven by the acquisition of H&E. On a pro forma basis, rental revenue declined 3%, representing a meaningful sequential improvement from the fourth quarter. To put that into context, the acquired business was experiencing revenue pressure prior to close, a trend we've been actively working to reverse through fleet optimization, sales force training and network alignment.

And while mega project tailwinds and specialty execution benefited us in Q1, the inflection of the combined platform into revenue growth is a second half event consistent with our plan. Adjusted EBITDA increased 33% compared with last year's first quarter, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales. Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was the static demand in the local market and the impact from the lower-margin acquired business. EBITDA, which excludes used equipment sales, was up 30% during the first quarter.

EBITDA margin was 40%, impacted year-over-year by the lower-margin acquired business. The path to margin improvement is clear. Rental revenue synergy contributions in the second half a shift toward a higher margin product mix, full realization of cost synergies and improved variable cost management at scale. We expect margins to continue to improve from here, especially as those drivers take hold in Q3 and Q4. Our net loss in the first quarter included $5 million of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $7 million. On Slide 15, you can see we generated $94 million of free cash flow for the first quarter.

Our current pro forma leverage ratio is 3.96x which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing 12-month calculation. The ratio will remain relatively consistent through the year before improving meaningfully at year-end when revenue synergies drive EBITDA growth in Q3 and Q4 and capital expenditures, which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations began to provide greater EBITDA contribution. Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect to return to the top of our target range of 2 to 3x by year-end 2027 as revenue and cost synergies and drive higher EBITDA flow-through. Turning to Slide 16.

We are affirming our full year 2026 guidance across all metrics. Q1 came in as expected, rental revenue growth of 33% and on an actual basis reflects the contribution of the combined platform. Adjusted EBITDA margin held at 39.3%, consistent with last year despite the integration work that was still underway. The operational proof points Aaron walked you through, sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, sales force momentum are the leading indicators that give us confidence in the back half acceleration embedded in our guide.

On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year-end. Revenue synergies are back-half weighted and the $100 million to $120 million incremental target for 2026 is intact. The guide assumes the business performs, as Aaron described. First half sets the foundation. Second half delivers the growth. Q1 is consistent with that plan. Now let's open it up for questions. Operator?

Operator: [Operator Instructions] Your first question comes from the line of Rob Wertheimer with Melius Research.

Robert Wertheimer: Your Slide 11 puts together a bunch of the different kind of ways to look at the end market, and you mentioned and there's others that are conflicting, let's say,-- but if you look at the top right, that mega project chart is a lot of money kind of flowing down the pike. And what I'd like to ask is whether that step-up in '25, whether you saw that in customer conversations, et cetera, whether you see it today because actually $300 billion in starts or whatever and a $900 billion market a lot. I want to ground truth the data that are sometimes ambiguous.

Aaron Birnbaum: Yes, Rob, it's Aaron. I'll take that one. So it's really both. When you build relationships with large general contractors, our national accounts, they guide you to what's coming down the pipeline. And often, you bid on a project and they let you know that you've been awarded it, and it's going to start or they've negotiated a contract and they want to bring you in as their trusted supplier. So that's one mechanism. But there's a lot of data around it. [indiscernible] provides a lot of preview into what's coming. Now the pipeline of planned projects is pretty deep. I think we mentioned it's in the trillions of dollars.

But it's really one that starts when they change from planning to start is when that data starts hitting a slide that we showed you there. And if you just look at 2026, April, May, June, July, August, September, you can see a lot more starts happening all across the board. So infrastructure, wastewater or bridges, rose, but also these big mega projects that you see coming out, a lot of renewables, you see obviously, a lot of data center activity and other projects. So you have to -- you get it from both ways. So you can use both data sets to kind of guide your fleet planning and where your year is going to go.

Robert Wertheimer: And to you, that feels like better times ahead in the back half as these things ramp, I mean the time line feels great?

Aaron Birnbaum: As you can see, there's more starts happening. Now these -- they don't all start when they say they're going to start, right? Sometimes you've heard us talk that sometimes they start 6 months away. But it is building. And once these projects do start to last for 2 or 3 years, as you know. So they're already in our plan for the -- as we go through Q1 into Q2 and then the balance of the year. So we like where it is right now, but it's exactly the way we kind of planned out our year.

Operator: Your next question comes from the line of Mig Dobre with Baird.

Mircea Dobre: I guess where I would like to start is with maybe a bit of a spotlight on your dollar utilization. At least to me, it's looking like this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint. So I'm wondering if you can comment on that. Is it an indication of sort of activity itself and better fleet utilization or just the fact that maybe in Q4, we had a relatively easy comparison. And related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here and out?

Unknown Executive: Yes, great question. And I think, quite honestly, Mig, I would take the revenue conversation, the dollar conversation and the margin conversation all in the same direction. As Aaron mentioned, right, we saw fleet efficiency gains in the first quarter, which then sort of built through the dollar utilization, it improved sequentially as we walked our way through the quarter. We spent the last 10 months, optimizing our fleet and optimizing branches, putting new specialty locations in. And so I would tell you that first quarter sort of plays the way that we thought it was going to play. But as you roll that forward, there's an inflection point inside of Q2.

And once we hit that inflection point inside of Q2, then I think you'll see dollar revenue and margin expansion as we work our way through the back half of the year.

Mircea Dobre: And maybe my follow-up on this. And I appreciate the sort of directional commentary. But if I'm thinking about normal seasonality here, right, is there reason to think, based on everything that you have that you're going on operationally that the improvement in dollar utilization can actually exceed that normal seasonality. And maybe you can put a finer point on how you think about the time utilization component of it, right, efficiency in your asset base relative to what's happening with maybe pricing or rates more broadly in the market.

Unknown Executive: Yes. I think that sort of normal isn't really this year. The reality is, is that we had a hole to climb out of entering this year, sort of down as we exited 4Q. And so there's a big efficiency play that we needed to see collectively as a business before investing growth CapEx into the business in the May, June, July time frame. And so I would tell you it's playing out the way that we thought it would. Now granted, it's early. May and June will be a much larger tell to sort of how the rest in the balance of the year plays out. But I think we're not necessarily looking at this as normal or abnormal.

We just know where we have to go to get the fleet back to a healthy and efficient level.

Operator: Your next question comes from the line of Jerry Revich with Wells Fargo Securities.

Jerry Revich: I'm wondering if we could just talk about overall pricing that you're seeing in the market? So an oversupply of aerials of particular pricing is pretty tough. Can we just talk about -- are we optimistic that pricing can outpace inflation this year? And as positively surprised by the realization and use values for you folks this quarter, it sounds like supply demand is improving. Can we just unpack that, please?

Unknown Executive: Yes. I mean I'll unpack it to the level that I can. We don't comment specifically on price. But I would say that we are encouraged by the fundamentals that we're seeing in the industry. The fleet in and fleet on dynamics are good, particularly as we sort of exit and I think that the market is being both rational and constructive. And so we look forward to taking advantage of such marketplace.

Jerry Revich: Super. I appreciate it. And then just to shift gears a little bit here. In terms of the performance of legacy H&E branches versus Herc, obviously, legacy her pricing and time you based on historical stats has been significantly higher. Has that gap closed at all, where are we in the process of driving the H&E branch performance towards legacy or performance today versus 12 months ago versus where we see it 12 to 18 months out?

Unknown Executive: Yes. I mean I think thankfully, Jerry, I can't really answer that question for you, and that was part of this integration was to integrate this business in such that there is no longer an H&E or Herc, right? And so I think if I could still answer that question, then I would say we probably haven't done our job. And so I think collectively, Q1 sort of played out the way that we planned Q1 to play out, and that's probably about as deep as I can go in terms of insights between H&E and Herc.

Jerry Revich: Super. And lastly, I know you said in your prepared remarks that the quarter dollar was in line with your expectations. It was better than I think a lot of us had modeled when we saw the industry data, it looked like pricing accelerated in March, and it looks like it inflected as well. I know you don't want to provide a ton of color, but can you just comment on demand cadence over the course of the quarter? And any other color you're willing to share on that point?

Unknown Executive: Yes. I think from our vantage point, right, I mean, we are anticipating, Jerry, in an inflection point sometime inside of Q2. And then I think from that point forward, you should see growth/improvement depending upon which line item you're looking at dollar utilization improvement, revenue growth and margin expansion as you sort of inflect out of Q2 and into the back half of the year.

Operator: Your next question comes from the line of Kyle Menges with Citigroup.

Kyle Menges: You had mentioned that pro forma fleet is down a little bit and by design, I would love to hear you unpack that a little bit and then just how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between gen rent and specialty? .

Unknown Executive: Yes. I mean, we walked into the year, as Aaron said, almost 2 points down. fleet on a pro forma basis. I think as you exit Q1, you're still down a point, give or take. And so that, again, was part of the plan. And so I think as you start then taking sort of the guided CapEx from a gross perspective and the guided sort of dispositions, you can sort of play that through. I would tell you that the expectation is we'll probably load that gross CapEx number into the business in between the back half of Q2 and Q3. So that should give you sort of the meaningful data points that you need to model.

Aaron Birnbaum: I would add to, Mark, that as CapEx goes through the year, we'll be over-indexed to our specialty fleet to feed our branch optimization, our shift to grow the specialty side get back closer to what it was pre-acquisition.

Kyle Menges: Helpful. And I know you've expanded the specialty locations quite a bit and working on cross-selling, which understandably the cross-sell is expected to be a bit back half weighted. So It'd just be helpful to hear about what the learning curve has been as you roll out specialty and more SKUs across the H&E network and just the visibility you feel like you have to actually hitting the revenue synergy targets as you get into the second half?

Aaron Birnbaum: Yes. I would say that our revenue synergy for 2026, we're on the plan where we need to be as we exited Q1 and as we look towards the rest of the year, where we expect it to be for all of our revenue synergies as it relates to cross-selling. It's cross-selling with the specialty business is really a 2-front exercise you got a bigger sales force. You got to make him comfortable with asking those types of questions of their customers. They don't have to be experts at the specialty products. We have experts on the sales side that support them, and that's where the cross-selling goes hand-in-hand.

But when you have a large customer base and we did a large acquisition and those customers weren't used to specialty products to the extent that Herc Rentals had. So that's where the cross-selling goes on those tens of thousands of customers introducing specialty solutions to them with the sales force that we onboarded from the H&E acquisition. So it's really 2 parts, but a lot of relationship building internally and we've been doing it for 9 months, and we like where we are right now, and we feel real comfortable about what we're going to get done in this arena, Q2, 3 and 4.

Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets.

Kenneth Newman: Mark, maybe -- sorry if I missed this, but just going back to the cost synergies. I think you said that it was running ahead of schedule. Can you just maybe help us quantify how much you were able to capture this quarter? And just help us think about the revenue synergy capture progress through the rest of the year?

W. Humphrey: Yes. The intent of that comment was that the $125 million or the incremental $90 million will lay into 2026, which was ahead of the originally scheduled sort of synergy lay that was supposed to come in over a couple of years. So that was the intent there, and I appreciate you asking that question. It's relatively ratable. I would say slightly, slightly back half loaded, but it's coming in reasonably ratably over the 4 quarters, Ken.

Kenneth Newman: Understood. Okay. That's helpful. And then for a follow-up, I think we've been hearing some rumblings on improving oil and gas markets here in the states. I know H&E used to play a much larger role in those end markets. Curious if you could just maybe help us understand what the exposure to oil and gas is today with the H&E fleet? And how you think about that opportunity and whether you're seeing that kind of pop up as potential starts opportunities in the next, call it, 12 to 24 months?

Aaron Birnbaum: Yes. A few points on that, Ken. First, our oil and gas mix of our business is less than 10%, all right, before the acquisition and after when you got $9 a barrel oil, you're going to have some surge in the upstream and some surge in the downstream. The downstream guys actually produce and make more margin. H&E had relationships with -- since they had a big footprint along the Gulf. They had a lot of relationships with contractors that were industrial contractors. They might have worked in all facets of the industrial complex, not just oil and gas, but it might have been the chemical complex.

They didn't really have downstream contracts, so there were long-term contracts that we picked up with the acquisition. So our part of our business is still below 10%. However, we made relationships with a lot of healthy H&E contractors to work in that space, as I mentioned. So with night oil, there's probably going to be a increased activity in the Permian Basin in Texas and down the ship channel. So we're well positioned for that. But our position in oil and gas didn't increase because of the acquisition. We like to think diversified. So we like where we're at.

Operator: Your next question comes from the line of Tami Zakaria with JPMorgan.

Tami Zakaria: Congrats on the wonderful results. First question on fuel costs, that has been rising nationwide. Could you just remind us how you manage that with in terms of your own costs and how you pass it on to customers and whether there's any lag? And also, was the hedging difference for legacy Herc versus H&E? So any color would be helpful.

Aaron Birnbaum: Yes. The price of oil rising nearly $100. That's something that the business has to really focus on. We take the input of the price of fuel of 3 different ways: one, into our internal vehicle service vehicles that we use to conduct our business. Second way is refueling of rental equipment. And the third way is the logistics of our delivery apparatus to deliver equipment and pick up equipment all day long. So the first wave just our own assigned vehicles, there's not a much bunched buy better, right? By the gasoline at a favorable price point.

The second piece is we do charge a fee to our customers if we have to refill the equipment when they rent it. So we give them the option, hey, bring it back full, no charge, bring him back less than full, there is a charge. So we have a fee for that. And then the logistics piece is the more complicated one because you have a lot of transactions happening every day across the entire network and we recover that by the delivery fee we charge from picking up and delivering.

And also there's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events macro geopolitically.

Tami Zakaria: Understood. That's very helpful. A similar question regarding freight rates, which have also been rising Again, could you remind us if that is a risk you hedge, if you have long-term contracts with third-party haulers or more real-time rates that you pay?

Aaron Birnbaum: Yes, we have a robust long haul process when we have to broker third-party freight. So we have a robust process there, and we built that over the last 3 years, and we know that we get a favorable price point compared to the market any day of the week. So whether the price of oil is at $60 or $100 per barrel, we're getting a favorable price point as the price for bill goes up, you just can't avoid those costs. You try to pass on as much as you possibly can and try to anticipate how long it will last for.

Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group.

Steven Ramsey: From a high level, I was wondering if you could parse the specialty performance a bit. Clearly, it was strong. But maybe if you could talk about specialty, excluding mega projects and if it's outpacing the local markets, and maybe specialty on a same-store basis when you exclude the new branches, just different ways of the strength of specialty in the quarter and as you look forward? .

Unknown Executive: Yes, Steven, we don't break it out in that kind of detail nor would we just -- because it's -- then you get into sort of segmentation, and we don't do that. But generally, the specialty business has been performing well. We saw double-digit growth in the quarter. We expect to continue to see that as it services all facets of our business. The mega project business, our national account and big industrial contracts as well as the local market activity where we're penetrating on a greater basis as a result of our increased location count into that. So specialty will continue to grow. We're excited on it, but we can't and won't break out individual areas.

Steven Ramsey: Okay. Understood. That's helpful. And then on disposals going through retail and wholesale, clearly, a good story there. Can you talk about maybe on an innings basis or however it makes sense where you expect to be in '26 versus the prior year and where you hit maturity on that this year? Or is that something beyond?

Unknown Executive: Maturity related to what, Steven? Just in terms of where the fleet sits as we exit the year?

Steven Ramsey: More the fleet disposals that go through the higher-margin channels.

Unknown Executive: I got you. I got you. Yes, I mean, we've -- this has been a couple of year journey, right? Like we've been trying to flex these retail wholesale muscles and Q1 was a really good example of that, and it was approaching sort of 70% into the retail wholesale channel. That's a sweet spot for us. That's where we'd like to be. And I think Q1, Q4 will be your heavy disposal quarters, Q2 and Q3 will be a little more moderated. So I would anticipate that's our control and we'll probably sort of remain in or around as we sort of walk through the year.

Operator: Your final question comes the line of Neil Tyler with Rothchild & Company Redburn.

Neil Tyler: Just wanted to ask you guys about the sort of different sort of flow-through dynamics in the second half associated with things like the ramp-up in mega projects, which might potentially, I guess, hold margins back a bit and the specialty growth because that seems -- those 2 in combination seem to be contributing a larger proportion of your anticipated sort of demand upside in the back half. So can you sort of maybe help me think about how you're thinking about those factors playing through on margin overall and flow-through and underlying that? What's happening?

Unknown Executive: Yes. Sure, Neil. I think as I said earlier, right, we are anticipating margin expansion inside of Q3 and Q4. And so if you sort of look back to where margin was last year, Q3 and Q4 within this 45%, 46% sort of range from a rental EBITDA perspective. And so therefore, if I'm anticipating margin expansion in that incremental margin will certainly be greater than last year's 45% or 46%. And so I can't get too terribly pointed there, but we are anticipating margin expansion as sort of all of these initiatives come together and fuel revenue growth in the back half.

Operator: I will now turn the call back over to Leslie Hunziker for closing remarks.

Leslie Hunziker: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any questions, please don't hesitate to reach out to us. Have a great day.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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