HEES H&e Equipment Services, Inc. - 10-K

Item 1A. Risk Factors

Investing in our securities involves a high degree of risk. You should consider carefully the following risk factors and the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making any investment decisions regarding our securities. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our securities could decline and you may lose part or all of your investment. Except as otherwise noted, the following risk factors do not take into account the proposed Merger and assume that we remain a stand-alone company.

SUMMARY RISK FACTORS

The following is a summary of the principal risks that could adversely affect our business, operations and financial results .

Operational and Competitive Risks

Our business could be adversely affected by declines in construction and industrial activities, or a downturn in general economic or geopolitical condition, which could lead to decreased demand and equipment rental rates and lower sales prices.

We face risks related to heightened inflation, which could adversely affect our business and financial condition.

We face risks related to financial and credit market disruptions, recession and other economic conditions.

Significant changes or developments in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the reaction of other countries thereto, may have a material adverse effect on our business and financial statements.

The inability to forecast trends accurately may have an adverse impact on our business and financial condition.

Our revenue and operating results may fluctuate, which could result in a decline in our profitability and make it more difficult for us to grow our business.

The impacts of a global pandemic and similar health concerns, could have a significant impact on worldwide economic conditions and could have a material adverse effect on our operations and financial results.

We are subject to competition, which may have a material adverse effect on our business by reducing our ability to increase or maintain revenues or profitability.

We purchase a significant amount of our equipment from a limited number of manufacturers. Termination of one or more of our relationships with any of those manufacturers could have a material adverse effect on our business.

Disruptions in our supply chain could result in adverse effects on our results of operations and financial performance.

The cost of new equipment that we purchase for use in our rental fleet may increase and therefore we may spend more for such equipment. In some cases, we may not be able to procure equipment on a timely basis due to supplier constraints.

Our rental fleet is subject to residual value risk upon disposition.

If our rental fleet ages, our operating costs may increase, we may be unable to pass along such costs, and our earnings may decrease. The costs of new equipment we use in our fleet may increase, requiring us to spend more for replacement equipment or preventing us from procuring equipment on a timely basis.

We incur maintenance and repair costs associated with our rental fleet equipment that could have a material adverse effect on our business in the event these costs are greater than anticipated.

Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.

Increases or fluctuations in fuel costs or reduced supplies of fuel could harm our business.

Climate change, climate change regulations and greenhouse effects may materially adversely impact our operations and markets.

Strategic Risks

We may not be able to facilitate our growth strategy by identifying or completing transactions with attractive acquisition candidates, which could limit our revenues and profitability. Future acquisitions may result in significant transaction expenses and may involve significant costs. We may experience integration and consolidation risks associated with future acquisitions.

We may not be able to facilitate our growth strategy by identifying and opening attractive start-up locations, which could limit our revenues and profitability.

Liquidity and Capital Resource Risks

Unfavorable conditions or disruptions in the capital and credit markets may adversely impact business conditions and the availability of credit.

Our substantial indebtedness could adversely affect our financial condition.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Despite current indebtedness levels, we may still be able to incur more indebtedness, which could further exacerbate the risks described above.

The agreements governing the Credit Facility and our senior unsecured notes restrict our business and our ability to engage in certain corporate and financial transactions.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Our business could be hurt if we are unable to obtain additional capital as required, resulting in a decrease in our revenues and profitability. In addition, our inability to refinance our indebtedness on favorable terms, or at all, could materially and adversely affect our liquidity and our ongoing results of operations.

The continued payment of our quarterly dividend is subject to, among other things, the availability of funds and the discretion of our board of directors.

Government Regulation Risks

We have operations throughout the United States, which exposes us to multiple federal, state and local regulations. Changes in applicable law, regulations or requirements, or our material failure to comply with any of them, can increase our costs and have other negative impacts on our business.

We could be adversely affected by environmental and safety requirements and regulations, including those regarding climate change, which could subject us to increased operational costs that could materially and adversely impact our liquidity and operating results.

Our business may be materially affected by changes to fiscal and tax policies.

Our business may be materially affected by changes to policies governing our products, technology and technological development.

Risk Factors Relating to the Pending Transaction with Herc Holdings Inc.

The completion of the Offer and Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material adverse effects on the Company.

The Offer and Merger will involve substantial costs and will require substantial management resources. We may be required to pay a significant fee if the Merger Agreement is terminated.

The Offer consideration payable to holders of our common stock will not be adjusted for changes in our business, assets liabilities, prospects, outlook, financial condition or results of operations, or in the event of any change in the price of our common stock.

The Company’s shareholders cannot be sure of the value of the stock consideration they will receive in the Herc Merger, if completed, because the exchange ratio is fixed and the market price of Herc common stock has fluctuated and may continue to fluctuate.

The Merger Agreement contains provisions that could discourage a potential competing acquirer.

Review under the HSR Act could prevent or delay the consummation of the Offer and Merger.

Stockholder litigation could prevent or delay the consummation of the Offer and Merger or otherwise negatively impact our business, operating results and financial condition.

Our executive officers and directors may have interests in the Offer and the Merger that are different from, or in addition to, those of our stockholders generally.

While the Offer and Merger is pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business, and the Offer and Merger may impair our ability to attract and retain qualified employees or retain and maintain relationships with our suppliers and other business partners.

If the Merger is not consummated, we may need to raise additional capital to continue our operations.

General Business Risks

Fluctuations in the stock market, as well as general economic and market conditions, may impact the market price of our common stock.

Security breaches and other disruptions in our information technology systems could limit our capacity to effectively monitor and control our operations, compromise our or our customers’ and suppliers’ confidential information or otherwise adversely affect our operating results or business reputation.

We are dependent on key personnel. A loss of key personnel could have a material adverse effect on our business.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud.

We are exposed to various risks related to legal proceedings or claims that could adversely affect our operating results. The nature of our business exposes us to various liability claims, which may exceed the level of our insurance coverage resulting in us not being fully protected.

Operational and Competitive Risks

Our business could be adversely affected by declines in construction and industrial activities, or a downturn in the economy or geopolitical conditions in general, which could lead to decreased demand for equipment, depressed equipment rental rates and lower sales prices, resulting in a decline in our revenues, gross margins and operating results.

Our equipment is principally used in connection with construction and industrial activities. Consequently, a downturn in construction or industrial activities, or the economy in general, may lead to a decrease in the demand for equipment or depress rental rates and the sales prices for our equipment. Our business may also be negatively impacted, either temporarily or long-term, by:

a reduction in spending levels by customers;

unfavorable credit markets affecting end-user access to capital, as well as our access to capital when or if needed;

adverse changes in federal, state and local government infrastructure spending or the related regulatory regime;

an increase in costs, including the cost of construction materials, as a result of inflation or other factors;

significant changes or developments in U.S. laws or policies, including changes in U.S. trade policies and tariffs and our ability to pass on such increased costs, if any, to our customers;

excess fleet in the equipment rental industry;

adverse weather conditions or natural disasters which may affect a particular region;

a decrease in the level of exploration, development, production activity and capital spending by oil and natural gas companies;

a prolonged shutdown of the U.S. government;

an increase in interest rates;

supply chain disruptions;

geopolitical conditions and the proliferation of global and regional conflicts and political instability, including the war in Ukraine, continued tensions between China and the United States and sustained conflicts in the Middle East;

public health crises and epidemics and similar health concerns; or

terrorism or hostilities involving the United States.

These factors have in the past, and could in the future, among other things, cause weakness in our end-markets and impact customer demand for equipment rentals, reduce the availability and productivity of our employees, increase our costs, result in delayed payments from our customers and uncollectible accounts, impact previously announced strategic plans or impact our ability to access funds from financial institutions and capital markets on terms favorable to us, or at all. Weakness or deterioration in the non-residential construction and industrial sectors caused by these or other factors could have a material adverse effect on our financial position, results of operations and cash flows in the future and may also have a material adverse effect on residual values realized on the disposition of our rental fleet.

We face risks related to heightened inflation, which could adversely affect our business, financial condition and results of operations.

Our financial results, operations and forecasts depend significantly on worldwide economic factors such as inflation, which may increase our operating costs and have a negative impact on our business. Beginning in 2022, the U.S. experienced heightened inflationary pressures and core inflation, the latter of which proved persistent during 2023 and 2024. While the global inflation rate stabilized in 2023 and 2024 and, in some cases, declined and inflationary pressures eased in 2024, we cannot be sure that this trend will continue. Many factors could jeopardize the efforts to stem inflationary pressures in the U.S., and such factors could ultimately lead to further inflationary pressure on foreign goods. We have experienced and may continue to experience inflationary pressures, including, but not limited to, cost increases related to equipment, fuel, labor and hauling expenses. We may not be able to fully mitigate the impact of inflation through price increases, productivity initiatives and cost savings, which could have an adverse effect on our results of operations. Furthermore, central banks across the globe significantly increased interest rates to stem inflation in recent years, and such increases in interest rates could affect our customers’ liquidity due to higher debt service obligations on instruments subject to variable rate indebtedness which, in turn, could harm their ability to make payments to us. In addition, if the U.S. economy enters a recession, we may experience sales declines which could have an adverse effect on our business, operating results and financial condition.

We face risks related to financial and credit market disruptions, recession and other economic conditions.

Our financial results, operations and forecasts also depend on other worldwide economic and geopolitical conditions, the demand for our products and the financial condition of our customers and suppliers. Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in reduced demand for products resulting in decreased sales, margins and earnings. Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. For instance, in the event of a recession or threat of a recession, our customers and suppliers may suffer their own financial and economic challenges and as a result they may demand pricing accommodations, delay payment, or become insolvent, which could harm our ability to meet our customer demands or collect revenue or otherwise could harm our business. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. A disruption in the financial markets could impair our banking or other business partners, on whom we rely for access to capital. In addition, changes in tax or interest rates in the U.S. or other nations, whether due to recession, economic disruptions or other reasons, could have an adverse effect on our operating results.

Economic weakness and geopolitical uncertainty may also lead us to take restructuring actions, adjust our operating strategy, impair assets or reduce expenses in response to decreased sales or margins. We may not be able to adequately adjust our cost structure in a timely fashion, which could have an adverse effect on our operating results and financial condition. Uncertainty about economic conditions may increase foreign currency volatility in markets in which we transact business, which could have an adverse effect on our operating results.

Significant changes or developments in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the reaction of other countries thereto, may have a material adverse effect on our business and financial statements.

Significant changes or developments in U.S. laws and policies, such as laws and policies surrounding international trade, foreign affairs, manufacturing and development and investment in the territories and countries where we, our customers or suppliers operate, can materially adversely affect our business and financial statements. Previously, the imposition of significant tariffs and increased trade tension between the United States and China greatly impacted domestic industries’ access to foreign markets. It is anticipated that the United States intends to impose tariffs which could result in a trade war. The adoption or expansion of these tariffs in the future, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies may have a material adverse effect on our supply chain and access to equipment, our costs and profit margins. This could cause our business and financial results to suffer.

The inability to forecast trends accurately may have an adverse impact on our business and financial condition.

An economic downturn or economic uncertainty makes it difficult for us to forecast trends, our future operating performance, cash flows and financial position, which could have an adverse impact on our business and financial condition. Additionally, uncertainty regarding future oil and natural gas prices have negatively impacted the exploration, production and construction activity of our customers in those markets. Uncertainty regarding future equipment product demand could cause us to maintain excess equipment fleet and increase our equipment inventory carrying costs. Failure to accurately forecast these trends could cause us to change or re-evaluate certain of our strategies, including as it relates to acquisitions or opening of new branch locations. Alternatively, this forecasting difficulty in addition to labor shortages and supply chain disruptions could cause a shortage of equipment for sale or rental that could result in an inability to satisfy demand for our products and a loss of market shares.

Our revenue and operating results may fluctuate, which could result in a decline in our profitability and make it more difficult for us to grow our business.

Our revenue and operating results have historically varied from quarter to quarter. Periods of decline could result in an overall decline in profitability and make it more difficult for us to make payments on our indebtedness and grow our business. We expect our quarterly results to continue to fluctuate in the future due to a number of factors, including:

general economic conditions in the markets where we operate;

the cyclical nature of our customers’ business, particularly our construction customers and customers in the oil and gas industry;

sales and rental patterns of our construction customers, with sales and rental activity tending to be lower in the winter months;

changes in the size of our rental fleet and/or in the rate at which we sell used equipment from our fleet;

changes in customer, fleet, geographic and segment mix;

an overcapacity of fleet in the equipment rental industry;

changes to technological requirements in our equipment or in our rental platforms;

severe weather and seismic conditions temporarily affecting the regions where we operate;

supply chain or other disruptions that impact our ability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms or at all;

cost increases as a result of inflation;

changes in corporate spending for plants and facilities or changes in government spending for infrastructure projects;

changes in interest rates and related changes in our interest expense and our debt service obligations;

the possible need, from time to time, to record goodwill impairment charges or other write-offs or charges due to a variety of occurrences, such as the impairment of assets, rental location divestitures, dislocation in the equity and/or credit markets, consolidations or closings, restructurings, or the refinancing of existing indebtedness;

uncertainty about the regulatory environment and the potential for consistent changes to that environment as a result of recent U.S. Supreme Court decisions;

the effectiveness of integrating acquired businesses, or acquired assets, and new start-up locations; and

timing of acquisitions and new location openings and related costs.

In addition, we incur various costs when integrating newly acquired businesses or opening new start-up locations, and the profitability of a new location is generally expected to be lower in the initial months of operation.

The impacts of a global pandemic and similar health concerns, could have a significant impact on worldwide economic conditions and could have a material adverse effect on our operations and financial results.

A significant outbreak of epidemic, pandemic, or contagious diseases, could cause a widespread health crisis that could result in an economic downturn, affecting the supply and/or demand for our equipment. Any quarantines, labor shortages or other disruptions to us, our suppliers, or our customers would likely adversely impact our sales and operating results. The extent of any additional impact from a pandemic on the Company’s operational and financial performance and liquidity will depend on various developments, including the duration and spread of the outbreak, governmental limitations on business operations generally, and its and their impact on potential customers, employees, and suppliers, vendors and distribution partners. As we cannot predict the potential future impact of the duration or scope of a global pandemic or similar health concerns, any resulting future financial impact cannot be reasonably estimated. In addition, to the extent that a global pandemic or similar health concerns adversely affect our results of operations or financial position, it may also heighten the other risks described in this Item 1A-Risk Factors.

We are subject to competition, which may have a material adverse effect on our business by reducing our ability to increase or maintain revenues or profitability.

The equipment rental industry is highly competitive and highly fragmented. Many of the markets in which we operate are served by numerous competitors, ranging from global, national and multi-regional equipment rental companies to small, independent businesses with a limited number of locations. We generally compete on the basis of availability, quality, reliability, delivery, price, technology and environmental friendliness. Some of our competitors have significantly greater financial, marketing and other resources than we do, and may be able to reduce rental rates. We may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, competition may begin to emerge on the basis of information technology infrastructure. We expect our competitors to continue to improve their information technology systems, including the use of artificial intelligence (“AI”) and machine learning solutions, to further enhance operations and their rental platforms. Our ability to innovate our own technology infrastructure and appropriately address user experience will affect our ability to compete.

We purchase a significant amount of our equipment from a limited number of manufacturers. Termination of one or more of our relationships with any of those manufacturers could have a material adverse effect on our business, as we may be unable to obtain equipment in an adequate or timely manner.

We purchase most of our equipment from leading, nationally-known original equipment manufacturers (“OEMs”). For the year ended December 31, 2024, we purchased approximately 48.5% of our equipment from five manufacturers (Haulotte, Skyjack, JCB, Polaris, and JLG). Although we believe that we have alternative sources of supply for the equipment we purchase in each of our core product categories, termination of one or more of our relationships with any of these major suppliers could have a material adverse effect on our business, financial condition or results of operations if we were unable to obtain equipment in an adequate or timely manner. Additionally, if one of these manufacturers shuts down or if two or more of them consolidate operations, this could have a significant effect on supply and pricing of equipment and thus could have a material adverse effect on our business, financial condition or results of operations.

Disruptions in our supply chain could result in adverse effects on our results of operations and financial performance.

Supply chain disruptions could impact our ability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms or at all. To date, our historical supply chain disruptions related to the timing of receiving equipment orders, which were moderate and did not extend beyond a significant period of time. We may experience additional or more severe supply chain disruptions in the future or one or more supplier’s inability to manufacture or deliver equipment or parts, whether as a result of raw material shortages, freight/shipping shortages or policy changes. Any suspension or delay in any of our suppliers’ ability to provide us adequate equipment or supplies, or in our ability to procure equipment or supplies from other sources in a timely manner or at all, could impair our ability to meet customer demand and therefore could have a material adverse effect on our business, financial condition or results of operations.

The cost of new equipment that we purchase for use in our rental fleet may increase and therefore we may spend more for such equipment. In some cases, we may not be able to procure equipment on a timely basis due to supplier constraints.

The cost of new equipment from manufacturers that we purchase for use in our rental fleet may increase as a result of increased raw material costs, including increases in the cost of steel, which is a primary material used in most of the equipment we use, labor shortages, inflation, supply chain disruptions or due to increased regulatory requirements, such as those related to emissions and

climate change. In addition, in an effort to combat climate change, our customers may require our rental equipment to meet certain standards, which could increase equipment costs. If we are unable to meet such standards, then the expectations of our customers, business and results of operations could be materially adversely affected. These increases could materially impact our financial condition or results of operations in future periods if we are not able to pass such cost increases through to our customers.

Our rental fleet is subject to residual value risk upon disposition.

The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:

the market price for new equipment of a like kind;

wear and tear on the equipment relative to its age;

the time of year that it is sold (prices are generally higher during the construction season);

worldwide and domestic demands for used equipment;

advances in equipment technology and emission controls that may not be available for older equipment;

the supply of used equipment on the market; and

general economic conditions.

We include in operating income the difference between the sales price and the depreciated value of an item of equipment sold. Although for the year ended December 31, 2024, we sold used equipment from our rental fleet at an average selling price of approximately 260.7% of net book value, we cannot assure you that used equipment selling prices will not decline. Any significant decline in the selling prices for used equipment could have a material adverse effect on our business, financial condition, results of operations or cash flows.

If our rental fleet ages, our operating costs may increase, we may be unable to pass along such costs, and our earnings may decrease. The costs of new equipment we use in our fleet may increase, requiring us to spend more for replacement equipment or preventing us from procuring equipment on a timely basis.

If our rental equipment ages, the costs of maintaining such equipment, if not replaced within a certain period of time, will likely increase. The costs of maintenance may materially increase in the future and could lead to material adverse effects on our results of operations. In addition, older equipment may not be as attractive to our customers.

The cost of new equipment for use in our rental fleet could also increase due to increased material costs for our suppliers, including tariffs on raw materials or other factors beyond our control. Such increases could materially adversely impact our financial condition and results of operations in future periods. Furthermore, changes in customer demand could cause certain of our existing equipment to become obsolete and require us to purchase new equipment at increased costs.

We incur maintenance and repair costs associated with our rental fleet equipment that could have a material adverse effect on our business in the event these costs are greater than anticipated.

As our fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, generally increases. Determining the optimal age for our rental fleet equipment is subjective and requires considerable estimates by management. We have made estimates regarding the relationship between the age of our rental fleet equipment, maintenance and repair costs, and the market value of used equipment. Our future operating results could be adversely affected because our maintenance and repair costs may be higher than estimated and market values of used equipment may fluctuate.

Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.

As of December 31, 2024, we have approximately 70 employees in Utah, a territory in our Intermountain region, who are covered by a collective bargaining agreement and approximately 2,806 employees who are not represented by unions or covered by collective bargaining agreements. Various unions periodically seek to organize certain of our nonunion employees. Union organizing efforts or collective bargaining negotiations could potentially lead to work stoppages, slowdowns or strikes by certain of our employees, which could adversely affect our ability to serve our customers. Further, settlement of actual or threatened labor disputes or an increase in the number of our employees covered by collective bargaining agreements can have unknown effects on our labor costs, productivity and flexibility.

Increases or fluctuations in fuel costs or reduced supplies of fuel could harm our business.

We in the past have been, and in the future could be, adversely affected by limitations on fuel supplies or significant increases in fuel prices that result in higher costs to us for transporting equipment from one branch to another branch or one region to another region. In addition, the cost of fuel could cause our clients to change capital allocation decisions and may even cause them to delay or cancel projects. A significant or protracted price fluctuation or disruption of fuel supplies could have an adverse effect on our financial condition and results of operations. Additionally, potential climate change regulation, including a potential carbon tax, could increase the overall cost of fuel to us and have a material adverse effect on us; see additional discussion of climate risks below.

Climate change, climate change regulations and greenhouse effects may materially adversely impact our operations and markets.

Climate change and its association with greenhouse gas (“GHG”) emissions is receiving increased attention from the scientific and political communities.

The United States was recently a member of the Paris Agreement, a climate accord reached at the 21st Conference of the Parties in Paris, that set new goals, and many related policies are still in development. The Paris Agreement mandates GHG emission reduction goals every five years beginning in 2020. The United States withdrew from the Paris Agreement in November 2020, rejoined in February 2021 and withdrew again in January 2025. The U.S.’s frequent withdrawal and rejoining of the Paris Agreement in recent years has created uncertainty around the evolution of the United States’ regulatory requirements with regards to GHGs and climate change, making it increasingly difficult to plan for future developments.

Nonetheless, future regulation could impose stringent standards to substantially reduce GHG emissions. The U.S. federal government, certain U.S. states and certain other countries and regions have adopted or are considering legislation or regulation imposing overall caps or taxes on GHG emissions from certain sectors or facility categories. See “We could be adversely affected by environmental and safety requirements and regulations, including those regarding climate change, which could subject us to increased operational costs that could materially and adversely impact our liquidity and operating results” for a discussion of the Environmental Protection Agency’s (the “EPA”) newly issued final rule to reduce gas emissions.

Such new laws or regulations, or stricter enforcement of existing laws and regulations, could increase the costs of operating our businesses, reduce the demand for our products and services and impact the prices we charge our customers, any or all of which could adversely affect our results of operations. Failure to comply with any legislation or regulation could potentially result in substantial fines, criminal sanctions or operational changes. While it is expected that the United States federal government may continue to pare back environmental regulations, state and local environmental regulators may impose more stringent regulations in response. Due to uncertainty in the regulatory and legislative processes, as well as the scope of such requirements and initiatives, we cannot currently determine the effect such legislation and regulation may have on our operations, but it could be costly and difficult to implement.

Moreover, even without such legislation or regulation, the perspectives of our customers, stockholders, employees and other stakeholders regarding climate change are continuing to evolve, and increased awareness of, or any adverse publicity regarding, the effects of greenhouse gases could harm our reputation or reduce customer demand for our products and services.

Additionally, the SEC and several states are implementing new climate change disclosure rules and other federal or state agencies may do the same. However, while the SEC adopted their new climate disclosure rules on March 6, 2024, following multiple petitions for review, they voluntarily stayed the rules on April 4, 2024, pending judicial review. While it remains uncertain in what form the climate disclosure rules will ultimately take effect, any new reporting rules or regulations may be difficult to comply with, increase costs of operation (through implementation or through noncompliance penalties), adversely impact our reputation and influence customer behavior.

Further, as severe weather events become increasingly common, our or our customers’ operations may be disrupted, which could result in increased operational costs or reduced demand for our products and services and extended periods of disruptions could have an adverse effect on our results of operations. In addition, climate change may also reduce the availability or increase the cost of insurance for weather-related events as well as may impact the global economy, including as a result of disruptions to supply chains. We anticipate that climate change-related risks will increase over time.

Strategic Risks

We may not be able to facilitate our growth strategy by identifying or completing transactions with attractive acquisition candidates, which could limit our revenues and profitability. Future acquisitions may result in significant transaction expenses and may involve significant costs. We may experience integration and consolidation risks associated with future acquisitions.

An element of our growth strategy is to selectively pursue, on an opportunistic basis, acquisitions of additional businesses or assets of businesses, rental companies that complement our existing business and footprint. The success of this element of our growth strategy depends on selecting strategic acquisition candidates at attractive prices and effectively integrating their businesses into our own, including with respect to financial reporting and regulatory matters. We cannot assure you that we will be able to identify

attractive acquisition candidates or complete the acquisition of any identified candidates at favorable prices and upon advantageous terms and conditions, including financing alternatives. We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and lead to higher acquisition costs. We may not have the financial resources necessary to consummate any acquisitions or the ability to obtain the necessary funds on satisfactory terms. Any future acquisitions may result in significant transaction expenses and risks associated with entering new markets. We may also be subject to claims by third parties related to the operations of these businesses prior to our acquisition and by sellers under the terms of our acquisition agreements. We also regularly review other potential strategic transactions, including dispositions, which are also subject to claims by third parties and by the buyers under the terms of our disposition agreements.

We may not have sufficient management, financial and other resources to integrate or disintegrate any future acquisitions or dispositions. Any significant diversion of management’s and other personnel’s attention, time and resources or any major difficulties encountered in the evaluation, negotiation and integration of the businesses we acquire or sell could have a material adverse effect on our business, financial condition or results of operations, which could decrease our profitability and make it more difficult for us to grow our business. Among other things, these risks could include:

the loss of key employees;

the disruption of operations and business;

the retention of the existing clients and the retention or transition of customers and vendors;

systems integration, as well as, the integration of corporate cultures and maintenance of employee morale;

inability to maintain and increase competitive presence;

customer loss and revenue loss;

possible inconsistencies in standards, control procedures and policies;

unexpected problems with costs, operations, personnel, technology and credit;

problems with the assimilation of new operations, sites or personnel, which could divert resources from our regular operations;

unrecorded liabilities of acquired companies and unidentified issues that we fail to discover during our due diligence investigations or that are not subject to indemnification or reimbursement by the seller;

inherent risk associated with entering a geographic area or line of business in which we have no or limited experience;

impairment of goodwill or other acquisition-related intangible assets;

failure to achieve anticipated synergies or receiving an inadequate return of capital;

integration of financial reporting and regulatory reporting functions, including with the SEC and pursuant to the Sarbanes-Oxley Act of 2002, as amended (“SOX”); and/or

potential unknown liabilities.

Furthermore, general economic conditions, economic or geopolitical uncertainty, or unfavorable global capital and credit markets could affect the timing and extent to which we successfully acquire and integrate new businesses or dispose of existing businesses, which could limit our revenues and profitability.

Our failure to address these risks or other problems encountered in connection with any past or future acquisition could cause us to fail to realize the anticipated benefits of the acquisitions, cause us to incur unanticipated liabilities and harm our business generally. In addition, if we are unable to successfully integrate our acquisitions with our existing business, we may not obtain the advantages that the acquisitions were intended to create, which may materially and adversely affect our business, results of operations, financial condition, cash flows, our ability to introduce new services and products and the market price of our stock.

We would expect to pay for any future acquisitions using cash or available borrowings, but to the extent that our existing sources of cash or borrowings are not sufficient, we would expect to need additional debt or equity financing, which involves its own risks, such as the dilutive effect on shares held by our stockholders if we financed acquisitions by issuing convertible debt or equity securities, or the risks associated with debt incurrence, such as increase debt service obligations and covenant compliance requirements.

We have also spent resources and efforts, apart from acquisitions, in attempting to grow and enhance our rental business over the past several years. These efforts place strains on our management and other personnel time and resources, and require timely and

continued investment in facilities, personnel and financial and management systems and controls. We may not be successful in implementing all of the processes that are necessary to support any of our growth initiatives, which could result in our expenses increasing disproportionately to our incremental revenues, causing our operating margins and profitability to be adversely affected.

We may not be able to facilitate our growth strategy by identifying and opening attractive start-up locations, which could limit our revenues and profitability.

An element of our growth strategy is to selectively identify, source and implement start-up locations in order to add new customers. The success of this element of our growth strategy depends, in part, on identifying strategic start-up locations.

We also cannot assure you that we will be able to identify attractive start-up locations. Opening start-up locations may involve significant costs and limit our ability to expand our operations. Start-up locations may involve risks associated with entering new markets and we may face significant competition.

We may not have sufficient labor, real estate, management, financial and other resources to successfully open and operate new locations. Any significant diversion of management’s attention or any major difficulties encountered in the locations that we open in the future could have a material adverse effect on our business, financial condition or results of operations, which could decrease our profitability and make it more difficult for us to grow our business. Furthermore, general economic conditions or unfavorable global capital and credit markets could affect the timing and extent to which we open new start-up locations, which could limit our revenues and profitability.

Liquidity and Capital Resource Risks

Unfavorable conditions or disruptions in the capital and credit markets may adversely impact business conditions and the availability of credit.

Disruptions in the global capital and credit markets as a result of an economic downturn, economic or geopolitical uncertainty as result of escalating and potential global conflicts, changing or significant regulatory uncertainty, increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our customers’ ability to access capital and could adversely affect our access to liquidity needed for business in the future. Additionally, unfavorable market conditions may depress demand for our products and services or make it difficult for our customers to obtain financing and credit on reasonable terms. Unfavorable market conditions also may cause more of our customers to be unable to meet their payment obligations to us, increasing delinquencies and credit losses. If we are unable to manage credit risk adequately, or if a large number of customers should have financial difficulties at the same time, our credit losses could increase above historical levels and our operating results would be adversely affected. Delinquencies and credit losses generally can be expected to increase during economic slowdowns or recessions. Moreover, our suppliers may be adversely impacted by unfavorable capital and credit markets, causing disruption or delay of product availability. These events could negatively impact our business, financial position, results of operations and cash flows.

Our substantial indebtedness could adversely affect our financial condition.

We have a significant amount of indebtedness outstanding. As of December 31, 2024, we had total outstanding indebtedness of approximately $1.5 billion, consisting of the amount outstanding under our senior unsecured notes, our senior secured credit facility (“Credit Facility”) and our finance lease liabilities.

Our substantial indebtedness could have important consequences. For example, it could:

increase our vulnerability to general adverse economic, industry and competitive conditions;

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

place us at a competitive disadvantage compared to our competitors that have less debt; and

limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes.

We expect to use cash flow from operations and borrowings under our Credit Facility to meet our current and future financial obligations, including funding our operations, debt service and capital expenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to repay

indebtedness, or to fund other liquidity needs. If we do not have enough capital, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, including the senior unsecured notes and our Credit Facility, on or before maturity. We cannot make any assurances that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future indebtedness, including the agreements governing the senior unsecured notes and the Credit Facility, may limit our ability to pursue any of these alternatives. As of February 13, 2025, we had borrowings of $149.4 million outstanding under our $750.0 million Credit Facility leaving us with borrowing availability of $585.7 million, as a result of $14.8 million of letters of credit outstanding under the facility.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot make assurances that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The Credit Facility and the indenture governing the senior unsecured notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from such dispositions. Any proceeds we do receive from a disposition may not be adequate to meet any debt service obligations then due.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including the Credit Facility or the indenture governing the senior unsecured notes.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

our debt holders could declare all outstanding principal and interest to be due and payable;

the lenders under our credit facilities, including the Credit Facility, could terminate their commitments to lend us money and foreclose against the assets securing our outstanding borrowings under their facility; and

we could be forced into bankruptcy or liquidation.

Despite current indebtedness levels, we may still be able to incur more indebtedness, which could further exacerbate the risks described above.

Under the terms of the agreements governing the Credit Facility and the senior unsecured notes, we and our subsidiaries may be able to incur substantial indebtedness in the future.

Additionally, our Credit Facility provides revolving commitments of up to $750.0 million in the aggregate. As of February 13, 2025, we had $585.7 million of availability under the Credit Facility, as a result of $14.8 million of letters of credit outstanding under the facility. If new debt is added to our current debt levels, the risks that we now face relating to our substantial indebtedness could intensify.

The agreements governing the Credit Facility and our senior unsecured notes restrict our business and our ability to engage in certain corporate and financial transactions.

The agreements governing the Credit Facility and the senior unsecured notes contain certain covenants that, among other things, restrict or limit our and our restricted subsidiaries’ ability to:

incur more debt;

pay dividends and make distributions;

issue preferred stock of subsidiaries;

make investments;

repurchase stock;

create liens;

enter into transactions with affiliates;

enter into sale and lease-back transactions;

execute dispositions;

merge or consolidate; and

transfer and sell assets.

Our ability to borrow under the Credit Facility depends upon compliance with the restrictions contained in the Credit Facility. Events beyond our control could affect our ability to meet these covenants. In addition, the Credit Facility requires us to meet certain financial conditions tests and availability thereunder is subject to borrowing base availability.

Events beyond our control can affect our ability to meet these financial conditions tests and to comply with other provisions governing the Credit Facility and the senior unsecured notes. Our failure to comply with obligations under the agreements governing the Credit Facility and the senior unsecured notes may result in an event of default under the agreements governing the Credit Facility and the senior unsecured notes, respectively. A default, if not cured or waived, may permit acceleration of this indebtedness and our other indebtedness. We may not be able to remedy these defaults. If our indebtedness is accelerated, we may not have sufficient funds available to pay the accelerated indebtedness and may not have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the Credit Facility are at variable rates of interest, based on the U.S. prime rate and the Secured Overnight Financing Rate (“SOFR”), and expose us to interest rate risk. As such, our financial results are sensitive to movements in interest rates.

There are many economic factors outside our control that have in the past impacted, and may in the future impact, rates of interest, including publicly announced indices that underlie our interest obligations related to borrowings under the Credit Facility based on SOFR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Factors that also impact interest rates include, among others, governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our results of operations would be adversely impacted. Such increases in interest rates could have a material adverse effect on our financial conditions and results of operations. Notably, after years of a low interest rate environment, central banks across the globe significantly increased interest rates to stem inflation and as a result, global inflation began to stabilize. In particular, while the Federal Reserve raised interest rates with total increases of 450 basis points since March 2022, they did decrease rates in the second half of 2024. However, there is no certainty as to whether interest rates will stabilize, continue to increase or decrease.

Our business could be hurt if we are unable to obtain additional capital as required, resulting in a decrease in our revenues and profitability. In addition, our inability to refinance our indebtedness on favorable terms, or at all, could materially and adversely affect our liquidity and our ongoing results of operations.

The cash that we generate from our business, together with cash that we may borrow under our Credit Facility, if available, may not be sufficient to fund our capital requirements. We may require additional financing to obtain capital for, among other purposes, purchasing equipment, completing acquisitions, establishing new locations and refinancing existing indebtedness. Any additional indebtedness that we incur will make us more vulnerable to economic downturns and limit our ability to withstand competitive pressures. Furthermore, any refinancing of our debt could be at higher interest rates and may require make-whole payments and compliance with more onerous covenants, which could further restrict our business operations. Moreover, we may not be able to obtain additional capital on acceptable terms, if at all. If we are unable to obtain sufficient additional financing in the future, our business could be adversely affected by reducing our ability to increase revenues and profitability.

In addition, our ability to refinance indebtedness will depend in part on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond our control. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest expense. A refinancing of our indebtedness could also require us to comply with more onerous covenants and further restrict our business operations. Our inability to refinance our indebtedness or to do so upon attractive terms could materially and adversely affect our business, prospects, results of operations, financial condition and cash flows, and make us vulnerable to adverse industry and general economic conditions. If we are unable to refinance our indebtedness or obtain additional capital sufficient to fund our capital requirements, we may be forced, among other things, to do one or more of the following: (i) sell certain of our assets, which could affect revenue generation and profitability;

(ii) reduce the size of our rental fleet, which could have a similar impact; (iii) reduce or delay capital expenditures; (iv) reduce or eliminate our dividend; (v) issue additional equity, which could have a dilutive effect on current shareholders; or (vi) forgo business opportunities, including acquisitions and joint ventures.

The continued payment of our quarterly dividend is subject to, among other things, the availability of funds and the discretion of our board of directors.

The payment of future dividends and the amount thereof is uncertain, at the sole discretion of our board of directors and considered by the board of directors each quarter. The payment of dividends is dependent upon, among other things, operating cash flow generated by our business, financial requirements for our operations, the execution of our growth strategy, the restrictions and covenants pursuant to our Credit Facility and senior unsecured notes, and the satisfaction of solvency tests imposed by the Delaware General Corporation Law and other applicable law for the declaration and payment of dividends.

Governmental Regulation Risks

We have operations throughout the United States, which exposes us to multiple federal, state and local regulations. Changes in applicable law, regulations or requirements, or our material failure to comply with any of them, can increase our costs and have other negative impacts on our business.

Our 156 branch locations, as of December 31, 2024, in the United States are located in 31 different states, which exposes us to a host of different federal, state and local regulations. These laws and requirements address multiple aspects of our operations, such as worker safety, consumer rights, privacy, employee benefits, gas emissions and more, and can often have different requirements in different jurisdictions. Changes in these requirements, or any material failure by our branches to comply with them, could increase our costs, affect our reputation, limit our business, drain management’s time and attention or otherwise, generally impact our operations in adverse ways.

In June 2024, the U.S. Supreme Court reversed its longstanding approach under the Chevron doctrine, which provided for judicial deference to regulatory agencies. As a result of this decision, we cannot be sure whether there will be increased challenges to existing agency regulations or how lower courts will apply the decision in the context of other regulatory schemes without more specific guidance from the U.S. Supreme Court. For example, the U.S. Supreme Court’s decision could significantly impact environmental regulation, consumer protection, advertising, privacy, artificial intelligence, and other regulatory regimes with which we are required to comply.

New approaches to policymaking and legislation may also produce unintended harms for our business, which may impact our ability to operate our business in the manner in which we are accustomed. Any of these regulations could negatively affect how we market our offerings and increase our regulatory compliance costs. It will become increasingly difficult to predict which new laws will apply to our business and when, especially with the potential for an increase in legal challenges to new laws. This uncertainty could, in turn, have a material adverse effect on our business, financial condition and results of operations.

We could be adversely affected by environmental and safety requirements and regulations, including those regarding climate change, which could subject us to increased operational costs that could materially and adversely impact our liquidity and operating results.

Our operations, like those of other companies engaged in similar businesses, require the handling, use, storage and disposal of certain regulated materials. As a result, we are subject to the requirements of federal, state and local environmental protection and occupational health and safety laws and regulations. These laws regulate issues such as wastewater, stormwater, solid and hazardous waste and materials, and air quality. While our operations generally do not raise significant environmental risks, we use petroleum products, solvents and other hazardous substances for fueling and maintaining our equipment and vehicles. Environmental laws also impose obligations and liability for the cleanup of properties affected by hazardous substance spills or releases. These liabilities can be imposed on the parties generating or disposing of such substances or the operator of the affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances. Accordingly, we may become liable, either contractually or by operation of law, for remediation costs even if a contaminated property is not currently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. As such, there can be no assurance that prior site assessments or investigations have identified all potential instances of soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to additional remediation liabilities, which may be material.

We are subject to potentially significant civil or criminal fines or penalties if we fail to comply with any of these requirements. We have made and will continue to make capital and other expenditures in order to comply with these laws and regulations. These include climate change regulation, which could materially affect our operating results through increased compliance costs. The requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future. It is

possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on our business, financial condition and results of operations.

In addition, the U.S. Congress and other state and federal legislative and regulatory authorities in the United States have considered, and likely will continue to consider, numerous measures related to climate change, GHG emissions and other laws and regulations affecting some of our end markets, such as oil, gas and other natural resource extraction. Should such laws and regulations become effective, demand for our services could be affected, our fleet or other costs could increase and our business could be materially adversely affected. For example, the Environmental Protection Agency (the “EPA”) recently issued a final rule that will sharply reduce emissions of methane and other harmful air pollution from oil and natural gas operations, including from existing sources nationwide. The final rule includes New Source Performance Standards, to reduce methane and smog-forming volatile organic compounds from new, modified and reconstructed sources, and Emissions Guidelines, which set procedures for states to follow as they develop plans to limit methane from existing sources, including oil and natural gas operations. While we cannot be certain of this rule’s impact as we wait for states to submit their plans to the EPA for approval, we anticipate that this could adversely impact the operations of our customers, specifically those in the oil and gas industry, which could reduce demand for our services and have an adverse impact on our business.

In addition to the evolving nature of the EPA rule’s impact, there is also increased unpredictability in the regulatory and legislative processes, as well as the scope of such requirements and initiatives, due to the change in administration and the overturning of the Chevron doctrine. The SEC’s new climate disclosure rules are another example of this regulatory uncertainty, which, while adopted by the SEC, have been voluntarily stayed pending judicial review. The uncertainty around the evolution of the United States’ regulatory environment with regards to regulating GHGs and climate change issues renders it increasingly difficult to plan for future developments. Ultimately, these future regulatory developments could increase costs of operations for us or our customers, reduce demand and adversely impact our operations.

Further, investors are placing a greater emphasis on non-financial factors, including climate risk and other ESG issues, when evaluating investment opportunities. If we are unable to provide sufficient disclosure about ESG practices or if we fail to achieve ESG goals, investors may not view us as an attractive investment, which could have a negative effect on our stock price and business. Additionally, customers are becoming increasingly focused on ESG and climate related matters and have started considering and incorporating these factors when choosing suppliers, along with existing factors such as price and affordability. If we are unable to meet those additional requirements, we could be adversely impacted.

However, anti-ESG initiatives might serve as a counteracting concern in the future. In recent years anti-ESG sentiment has gained momentum in the United States, with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions. Such related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in additional compliance obligations or becoming the subject of investigations or enforcement actions.

Our business may be materially affected by changes to fiscal and tax policies. Negative or unexpected tax consequences could adversely affect our results of operations.

Adverse changes in the underlying profitability and financial outlook of our operations or future changes in tax law could lead to changes in the value of tax assets or liabilities that we currently or in the future may hold, which could materially affect our results of operations.

Our business may be materially affected by changes to other policies governing our products, technology and technological development.

As we grow through acquisitions and advance our technology platforms, we could be required to comply with additional regulations which, if we fail to comply with, could affect the technological developments, in particular, and our company, as a whole. For instance, it is expected that laws and regulations around the use of AI and machine learning tools will increase over the next few years but it is unknown at this time what these laws and regulations will address and how and whether they will be adopted globally. If we introduce AI or machine learning into our information technology systems (as well as those of our customers through our technology platform), we could become subject to these new regulations, which may be difficult to comply with. Some of our competitors may not be required to comply, which would put us at a competitive disadvantage. In addition, we may find we do not have the right employee expertise for the advancement of AI and machine learning initiatives or that we that we haven’t provided the appropriate training to our team. Further, if we fail to adopt these new technologies we may face price pressure from competitors using lower-cost AI systems.

Risk Factors Relating to the Pending Transaction with Herc Holdings Inc. and the Company

The completion of the Offer and Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material adverse effects on the Company.

On February 19, 2025, we entered into the Merger Agreement with Herc and HR Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Herc (“Merger Sub”), pursuant to which Merger Sub agreed to commence an Offer to purchase all of the issued and outstanding shares of our common stock, following which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Herc.

Consummation of the Offer is subject to various customary conditions set forth in the Merger Agreement beyond our control, including, among other conditions, (1) at least one share more than 50% of shares of our common stock then outstanding being tendered in the Offer; (2) the accuracy of our representations and warranties contained in the Merger Agreement (subject to customary materiality qualifiers); (3) our performance in all material respects of our obligations under the Merger Agreement; (4) the absence of a Company Material Adverse Effect (as defined in the Merger Agreement) that occurred after the date of the Merger Agreement that is continuing; (5) the absence of any legal or regulatory restraint that prevents the consummation of the Offer or the Merger and the expiration or termination of any waiting periods applicable to the Offer and the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (6) the effectiveness of the registration statement on Form S-4 to register under the Act the offer and sale of Herc common stock pursuant to the Offer and Merger (the “Form S-4”); (7) approval for listing on NYSE of the shares of Herc Common Stock to be issued in the Offer and Merger; (8) the absence of a termination of the Merger Agreement in accordance with its terms; and (9) the commencement and completion of the Marketing Period (as defined in the Merger Agreement). There can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied or waived, that the Offer will be successful or that the Merger will be consummated as contemplated by the Merger Agreement.

We cannot predict whether and when the conditions to the Offer will be satisfied. If one or more of these conditions are not satisfied, and as a result, we do not complete the Offer and Merger, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Offer and the Merger. Certain costs associated with the Offer and Merger have already been incurred or may be payable even if the Offer and Merger are not consummated. We may also be subject to the risk of potential litigation related to any failure to complete the Merger. Finally, any disruptions to our business resulting from the announcement and pendency of the Offer and Merger, including any adverse changes in our relationships with our partners, vendors, suppliers, management and employees, could continue or accelerate in the event that we fail to consummate the Offer and Merger.

The price of our common stock may also fluctuate significantly based on announcements by Herc, other third parties, or us regarding the Offer and Merger or based on market perceptions and other conditions to the consummation of the Offer and Merger. Such announcements may lead to perceptions in the market that the Offer and Merger may not be completed, which could cause our share price to fluctuate or decline.

If we do not consummate the Offer and Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the Offer and Merger will be consummated. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our common stock.

The Offer and Merger will involve substantial costs and will require substantial management resources. We may be required to pay a significant fee if the Merger Agreement is terminated.

In connection with the consummation of the Offer and the Merger, management and financial resources have been diverted and will continue to be diverted towards the completion of the Offer and the Merger. We expect to incur substantial costs and expenses relating to, as well as the direction of management resources towards, the Offer and the Merger. Such costs, fees and expenses include fees and expenses payable to financial advisors, other professional fees and expenses, fees and costs relating to regulatory filings and filings with the SEC and notices and other transaction-related costs, fees and expenses. Further, if the Merger Agreement is terminated by us under specified circumstances, we will be required to pay Herc a termination fee of approximately $145 million (in addition to refunding Herc for the termination fee pursuant to the United Merger Agreement of $63,523,892). If the Offer and Merger are not completed, we will have incurred substantial expenses and expended substantial management resources for which we will have received little or no benefit if the closing of the Merger does not occur and may have to pay significant additional sums to Herc.

The Offer consideration payable to holders of our common stock will not be adjusted for changes in our business, assets liabilities, prospects, outlook, financial condition or results of operations, or in the event of any change in the price of our common stock.

The Offer consideration payable to holders of our common stock will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or changes in the market price of, analyst estimates of, or projections relating to, our common stock. For example, if we experienced an improvement in our business, assets, liabilities,

prospects, outlook, financial condition or results of operations prior to the consummation of the Offer and Merger, there would be no adjustment to the amount of the proposed Offer consideration.

The Company’s shareholders cannot be sure of the value of the Stock Offer Price they will receive in the Merger, if completed, because the exchange ratio is fixed and the market price of Herc common stock has fluctuated and may continue to fluctuate.

If the Merger is completed, each eligible share of our common stock issued and outstanding immediately prior to the Merger will automatically be converted into the right to receive the cash consideration and 0.1287 shares of Herc common stock). Because the exchange ratio is fixed, the value of the stock consideration received in the Merger will depend on the market price of Herc common stock at the time the Merger is completed. Prior to completion of the Merger, the market price of Herc common stock is also expected to impact the market price of the Company's common stock. The value of Herc common stock has fluctuated since the date of the announcement of the Merger Agreement and may continue to fluctuate. Accordingly, the Company's shareholders will not know or be able to determine the market value of the Merger consideration they would receive upon completion of the Merger. Share price changes may result from a variety of factors, including, among others, general market and economic conditions, commodity prices, changes in Herc's and the Company's respective businesses, operations and prospects, market assessments of the likelihood that the Merger will be completed and the timing of the Merger and regulatory considerations. Many of these factors are beyond Herc's and the Company's control.

The Merger Agreement contains provisions that could discourage a potential competing acquirer.

The Merger Agreement provides that, upon the terms and subject to the conditions thereof, we and our representatives cannot solicit or initiate discussions with third parties regarding other proposals to acquire the Company after the execution of the Merger Agreement and we are subject to restrictions on our ability to respond to any unsolicited proposals, except as permitted under the terms of the Merger Agreement. In the event that we receive an acquisition proposal from a third party, we must notify Herc of such proposal and negotiate in good faith with Herc prior to terminating the Merger Agreement or effecting a change in the recommendation of the Board to our stockholders with respect to the Offer and Merger. The Merger Agreement also contains certain termination rights for Herc and us and further provides that, upon termination of the Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Herc a termination fee of approximately $145 million (in addition to refunding Herc for the termination fee pursuant to the United Merger Agreement of $63,523,892). These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the transaction with Herc. These provisions also might result in a potential third-party acquirer proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay due to the added expense of the termination fee that may become payable in certain circumstances. If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Offer and Merger.

Review under the HSR Act could prevent or delay the consummation of the Offer and Merger.

Under the HSR Act and the related rules and regulations that have been issued by the Federal Trade Commission (“FTC”), certain transactions having a value above specified thresholds may not be consummated until specified information and documentary material (“Notification and Report Forms”) have been furnished to the FTC and the Antitrust Division of the Department of Justice (the “Antitrust Division”) and certain waiting period requirements have been satisfied.

It is a condition to Herc’s obligation to accept for payment and pay for shares of our common stock exchanged pursuant to the Offer that the waiting period (and any extension of the waiting period) applicable to the Offer under the HSR Act shall have expired or been terminated. Under the HSR Act, the purchase of shares of our common stock in the Offer may not be undertaken until the expiration of a 30-calendar day waiting period following the filing by Herc of a Notification and Report Form concerning the Offer with the FTC and the Antitrust Division, unless the waiting period is earlier terminated by the FTC and the Antitrust Division. The 30-calendar day waiting period may be restarted if the acquiring person voluntarily withdraws and re-files its Notification and Report Form (a “pull and refile.”). If within the 30-calendar day waiting period either the FTC or the Antitrust Division were to issue a request for additional information and documentary material (a “Second Request”), the waiting period with respect to the Transactions would be extended until 30-calendar days following the date of substantial compliance by Herc with that request, unless the FTC and the Antitrust Division terminated the additional waiting period before its expiration. The 30-calendar day waiting period following substantial compliance with the Second Request can be extended with the consent of Herc and the Company or by court order. The FTC and the Antitrust Division may terminate the additional 30-day waiting period before its expiration. In practice, complying with a Second Request can take a significant period of time.

The FTC and the Antitrust Division may scrutinize the legality under U.S. federal antitrust laws of transactions such as Buyer Parties’ proposed acquisition of the Company. At any time before or after Buyer Parties’ acceptance for payment of shares of our

common stock pursuant to the Offer, notwithstanding the termination or expiration of the applicable waiting period under the HSR Act, if the Antitrust Division or the FTC believes that the Offer would violate U.S. federal antitrust laws by substantially lessening competition in any line of commerce affecting U.S. consumers, the FTC and the Antitrust Division could take such action as they deem necessary under the applicable statutes, including seeking to enjoin the completion of the Transactions, seeking divestiture of substantial assets of the parties, or requiring the parties to license, or hold separate, assets, to terminate existing relationships and contractual rights, or to take other actions or agree to other restrictions limiting the freedom of action of the parties. At any time before or after consummation of the Transactions, notwithstanding the termination or expiration of the applicable waiting period under the HSR Act, U.S. state attorneys general and private persons may also bring legal action under the antitrust laws seeking similar relief or seeking conditions to the completion of the Offer. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. If any such action is threatened or commenced by the FTC, the Antitrust Division or any state or any other person, Herc may not be obligated to consummate the Offer or the Merger.

Herc and the Company expect to file their Premerger Notification and Report Forms with the FTC and Antitrust Division promptly, which will begin an initial review period of 30 days. This period may change if the FTC or the Antitrust Division, as applicable, grants early termination of the waiting period or issues a request for additional information or documentary material, or if the parties voluntarily pull and refile.

Stockholder litigation could prevent or delay the consummation of the Offer and Merger or otherwise negatively impact our business, operating results and financial condition.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger, or other business combination agreements. Even if such a lawsuit is without merit, defending against or settlement of these claims can result in substantial additional costs and diversion of management time and resources. Any such future lawsuit or litigation may adversely affect our ability to complete the Offer and Merger. We could incur significant costs in connection with any such litigation, including costs associated with an adverse judgement resulting in monetary damages and the indemnification of our directors and officers, which could have a negative impact on our liquidity and financial position.

Furthermore, one of the conditions to the consummation of the Offer and Merger is the absence of any governmental order or law preventing the consummation of the Offer and Merger or making the consummation of the Offer and Merger illegal. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the consummation of the Offer and Merger, then such injunctive or other relief may prevent the Offer and Merger from becoming effective within the expected time frame or at all.

Our executive officers and directors may have interests in the Offer and the Merger that are different from, or in addition to, those of our stockholders generally.

Our executive officers and directors may have interests in the Offer and the Merger that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock and equity awards, the acceleration of equity awards upon consummation of the transactions and other interests. Such interests of our directors and executive officers are set forth in further detail in the Form 8-K filed with the SEC on February 19, 2025.

While the Offer and Merger is pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business, and the Offer and Merger may impair our ability to attract and retain qualified employees or retain and maintain relationships with our suppliers and other business partners.

Whether or not the Offer and Merger are consummated, the Offer and Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The pendency of the Offer and Merger may also divert management’s attention and our resources from ongoing business and operations and our employees and other key personnel may have uncertainties about the effect of the Offer and Merger, and the uncertainties may impact our ability to retain, recruit and hire key personnel while the Offer and Merger are pending or if it fails to close. Furthermore, if key personnel depart because of such uncertainties, or because they do not wish to remain with the combined company after the consummation of the Offer and Merger, our business and results of operations may be adversely affected. In addition, we cannot predict how our suppliers and other business partners will view or react to the Offer and Merger upon consummation. If we are unable to reassure our suppliers and other business partners to continue their business with us, our financial condition and results of operations may be adversely affected.

In addition, the Merger Agreement generally requires us to operate in the ordinary course of business in all material respects consistent with past practice, pending consummation of the Offer and Merger, and restricts us from taking certain actions with respect to our business and financial affairs without Herc’s consent. Such restrictions will be in place until either the Offer and Merger are consummated or the Merger Agreement is terminated. These restrictions could restrict our ability to pursue, or prevent us from pursuing, attractive business opportunities (if any) that arise prior to the consummation of the Offer and Merger.

In addition, since the consideration for the Merger will be in the form of both cash and common stock of Herc, our stock price will be impacted by changes in Herc’s stock price. Changes to Herc’s stock price may result from a variety of factors, such as changes in its business operations and outlook, changes in general market and economic conditions and regulatory considerations. These factors are beyond our control. For these and other reasons, the pendency of the Offer and Merger could adversely affect our business, operating results and financial condition.

If the Merger is not consummated, we may need to raise additional capital to continue our operations and execute our operating plans.

If the Merger is not consummated, we may need to raise additional capital or we may need to delay, scale back or eliminate some planned operations or reduce expenses, any of which would have a significant negative impact on our financial condition, as well as the trading price of our common stock. There can be no assurance that we can raise capital when needed or on terms favorable to us and our stockholders. Macroeconomic conditions and heightened global uncertainties may adversely affect general commercial activity and the U.S. and global economies and financial markets, which increases uncertainty around our ability to access the capital markets when needed and on acceptable terms.

General Business Risks

Fluctuations in the stock market, as well as general economic and market conditions, may impact the market price of our common stock.

The market price of our common stock has been and may continue to be subject to significant fluctuations in response to general economic changes and other factors including, but not limited to:

variations in our quarterly operating results or results that vary from investor expectations;

changes in the strategy and actions taken by our competitors, including pricing changes;

securities analysts’ elections to discontinue coverage of our common stock, changes in financial estimates by analysts or a downgrade of our common stock or of our sector by analysts;

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

changes in the price of oil and other commodities;

investor perceptions of us and the equipment rental and distribution industry; and

national or regional catastrophes or circumstances and natural disasters, hostilities and acts of terrorism.

Broad market and industry factors may materially reduce the market price of our common stock, regardless of or in a manner that is disproportionate to any related impact on our operating performance. The stock market historically has experienced price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, including those listed above and others, may harm the market price of our common stock.

Security breaches and other disruptions in our information technology systems could limit our capacity to effectively monitor and control our operations, compromise our or our customers’ and suppliers’ confidential information or otherwise adversely affect our operating results or business reputation.

Our information technology systems, some of which are managed by third parties, facilitate our ability to monitor and control our operations and adjust to changing market conditions, including processing, transmitting, storing, managing and supporting a variety of business processes, activities and information. Further, we are expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Any disruption in any of these systems, including our customer relationship management system, or the failure of any of these systems to operate as expected, could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market conditions.

Additionally, we collect and store sensitive data, including proprietary business information and the proprietary business information of our customers and suppliers, in data centers and on information technology networks, including cloud-based networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to our business operations and strategy. Furthermore, violation of privacy laws in the U.S. (especially in California), even if inadvertent, can lead to significant financial consequences, including significant fines and sanctions. However, the techniques and sophistication

used to conduct cyberattacks and compromise information technology systems, as well as the sources and targets of these attacks, change and are often not recognized until such attacks are launched or have been in place for some time. In addition, there has been an increase in state sponsored cyberattacks which are often conducted by capable, well-funded groups. The rapid evolution and increased adoption of artificial intelligence technologies amplifies these concerns.

Despite security measures and business continuity plans, our information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts or natural disasters or other catastrophic events. Further, the growing use and rapid evolution of technology, including mobile devices, has heightened the risk of unintentional data breaches or leaks. The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, as security threats continue to evolve, we may need to invest additional resources to protect the security of our systems or to comply with privacy, data security, cybersecurity and data protection laws applicable to our business.

Any failure to effectively prevent, detect and/or recover from any such access, disclosure or other loss of information, or to comply with any such current or future law related thereto, could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation, which could adversely affect our business.

We are dependent on key personnel. A loss of key personnel could have a material adverse effect on our business, which could result in a decline in our revenues and profitability.

Our senior and regional managers have an average of approximately 27 years of industry experience. Our branch managers have extensive knowledge and industry experience as well. Our success is dependent, in part, on the experience and skills of our management team. Competition for top management talent within our industry is generally significant. If we are unable to fill and keep filled all of our senior management positions, or if we lose the services of any key member of our senior management team and are unable to find a suitable replacement in a timely manner, we may be challenged to effectively manage our business and execute our strategy.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud.

Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. We must annually evaluate our internal procedures to satisfy the requirements of Section 404 of SOX, which requires management and auditors to assess the effectiveness of our internal controls. If we fail to remedy or maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or stockholder litigation.

In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect our financial condition or results of operations. There can be no assurance that we will be able to maintain a system of internal controls that fully complies with the requirements of SOX or that our management and independent registered public accounting firm will continue to conclude that our internal controls are effective.

We are exposed to various risks related to legal proceedings or claims that could adversely affect our operating results. The nature of our business exposes us to various liability claims, which may exceed the level of our insurance coverage resulting in us not being fully protected.

We are a party to lawsuits in the normal course of our business. Litigation in general can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to lawsuits brought against us, or legal actions that we may initiate, can often be expensive and time-consuming. Unfavorable outcomes from these claims and/or lawsuits could adversely affect our business, results of operations, or financial condition, and we could incur substantial monetary liability and/or be required to change our business practices.

Our business exposes us to claims for personal injury, death or property damage resulting from the use of the equipment we rent or sell and from injuries caused in motor vehicle accidents in which our delivery and service personnel are involved and other employee related matters. Additionally, we could be subject to potential litigation associated with compliance with various laws and governmental regulations at the federal, state or local levels, such as those relating to the protection of persons with disabilities, employment, health, safety, security and other regulations under which we operate.

We carry comprehensive insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims made during the respective policy periods. However, we may be exposed to multiple claims, and, as a result, we could incur significant out-of-pocket costs before reaching the deductible amount which could adversely affect our financial condition and results of operations. In addition, the cost of such insurance policies may increase significantly upon renewal of those policies as a result of general rate increases for the type of insurance we carry as well as our historical experience and experience in our industry. Although we have not experienced any material losses that were not covered by insurance, our existing or future claims may exceed the coverage level of our insurance, and such insurance may not continue to be available on economically reasonable terms, or at all. If we are required to pay significantly higher premiums for insurance, are not able to maintain insurance coverage at affordable rates or if we must pay amounts in excess of claims covered by our insurance, we could experience higher costs that could adversely affect our financial condition and results of operations.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion summarizes the financial position of H&E Equipment Services, Inc. and its subsidiaries as of December 31, 2024, and its results of operations for the year ended December 31, 2024, and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form 10-K.

Background

Founded in 1961 through our predecessor companies, we have been in the equipment services business for approximately 63 years and are one of the largest rental equipment companies in the nation. H&E Equipment Services L.L.C. (“ H&E L.L.C.”) was formed in June 2002 through the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide Industries, L.L.C., and ICM Equipment Company L.L.C. In connection with our initial public offering in February 2006, we converted H&E L.L.C. into H&E Equipment Services, Inc., a Delaware corporation (d/b/a “H&E Rentals”).

H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and Mid-Atlantic regions. As of December 31, 2024, we operated 156 branch locations across 31 states throughout the United States.

While focusing primarily on equipment rentals, we additionally engage in sales of rental equipment, sales of new equipment, parts sales and repair and maintenance services. The Company’s construction rental fleet is among the industry’s youngest with an equipment mix comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. We are confident our operating experience and extensive infrastructure developed throughout our history as an integrated equipment services company qualified us to successfully transition to a pure-play rental company. This experience and infrastructure continues to provide us with a competitive advantage enabling us to broaden our industry expansion. Our workforce includes an outside and inside sales force for our rental operations and equipment sales, highly skilled service technicians, transportation drivers and regional and district managers. Our management, from the corporate level down to the branch store level, has extensive industry experience. We believe this allows us to provide specialized equipment knowledge, improve the effectiveness of our sales force and strengthen our customer relationships. In addition, we operate our day-to-day business on a branch basis, which allows us to more closely service our customers, fosters management accountability at local levels and strengthens our local and regional relationships.

Effective October 1, 2021, the Company sold its crane business to a wholly-owned subsidiary of The Manitowoc Company, Inc. (“the Crane Sale”). The Crane Sale met the criteria for discontinued operations presentation.

Effective October 1, 2022, the Company completed the acquisition of One Source Equipment Rentals, Inc. (“OSR”), a privately-held equipment rentals company with 10 branch locations primarily in the Midwest.

Effective December 15, 2022, the Company sold its Komatsu distributorship in Louisiana. The sale included a branch location in Kenner, LA, a branch in Shreveport, LA and accompanying new equipment inventory, parts and supplies.

Effective November 1, 2023, the Company completed the acquisition of Giffin Equipment (“Giffin”), a privately-held equipment rentals company with three branch locations in California.

Effective January 1, 2024, the Company completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado.

Effective May 1, 2024, the Company completed the acquisition of Lewistown Rentals (“Lewistown”), a privately-held equipment rentals company with four branch locations in Montana.

Recent Developments

In January 2025, we entered into an Agreement and Plan of Merger (the “United Merger Agreement”) with United Rentals, Inc., a Delaware Corporation (“United Rentals” or “United”) and UR Merger Sub VII Corporation, a Delaware corporation and wholly owned subsidiary of United (“United Merger Sub”), pursuant to which a cash tender offer (the “United Offer”) was commenced on behalf of United to purchase all of the issued and outstanding shares of our common stock at $92.00 a share, following which United Merger Sub would merge with and into the Company, with the Company surviving as a wholly owned subsidiary of United (the “United Merger and, together with the United Offer, the “United Transactions”).

In February 2025, during the pendency of the United Offer, we received a proposal from Herc Holdings Inc., a Delaware corporation (“Herc”, and such proposal, the “Herc Proposal”) to acquire all of the issued and outstanding shares of our common stock

for a combination of cash and Herc common stock, consisting of (i) $78.75 in cash, and (ii) 0.1287 shares of Herc common stock for each share of our common stock. The combination of the cash and Herc common stock was equal to a total value of approximately $104.89 per share based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025. On February 16, 2025, our Board of Directors unanimously concluded that the Herc Proposal constituted a Superior Proposal (as defined in the United Merger Agreement) and resolved to terminate the United Merger Agreement absent any revision to the terms and conditions of the United Merger Agreement. On February 17, 2025, United delivered a written notice to the Company stating that United did not intend to submit a revised proposal and waiving URI’s four-business day match period under the United Merger Agreement. On February 18, 2025, our Board of Directors unanimously determined to authorize and approve the termination of the United Merger Agreement. The Board of Directors also unanimously determined that it was advisable, fair to and in the best interests of the Company’s stockholders that the Company enter into an Agreement and Plan of Merger (the “Herc Merger Agreement”) with Herc and HR Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Herc (“Merger Sub”) and resolved to adopt and approve the Herc Merger Agreement and recommend that the Company’s stockholders tender their shares to Herc.

On February 19, 2025, we terminated the United Merger Agreement and Herc paid United the $63,523,892 termination fee pursuant to the United Merger Agreement on our behalf. That same day, immediately following the termination of the United Merger Agreement, we entered into the Herc Merger Agreement, pursuant to which Merger Sub agreed to commence an exchange offer (the “Offer”), to acquire all of the issued and outstanding shares of our common stock for the Offer Price (as defined below) of (i) $78.75 in cash, and (ii) 0.1287 shares of Herc common stock for each share of our common stock (the “Offer Price”), following which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Herc (the “Merger”) (and collectively, the “Transactions”). The Transactions are expected to close mid-year 2025.

The Transactions are subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Form S-4 to be filed by Herc in connection with the issuance of shares of Herc common stock in the Merger having become effective and not subject to any legal proceedings suspending such effectiveness and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger.

If the Herc Merger is consummated, our common stock will be delisted from The NASDAQ Global market and deregistered under Securities Exchange Act of 1934, as amended, as promptly as practicable following the effective time of the Merger.

The Herc Merger Agreement also contains certain termination rights for Herc and us and further provides that, upon termination of the Herc Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Herc a termination fee of approximately $145 million in addition to refunding Herc for the termination fee pursuant to the United Merger Agreement if the Company enters into a superior proposal based on terms included in the Merger Agreement.

See Item 1A—Risk Factors—Risk Factors Relating to the Pending Transaction with Herc Holdings Inc. and the Company for further discussion of the risks, conditions and potential expenses and fees associated with the pending Offer and Merger.

Business Segments

We have four reportable segments because we derive our revenues from four business activities: (1) equipment rentals; (2) sales of rental equipment; (3) sales of new equipment; (4) parts, service and other revenues. Our primary segment is equipment rentals. These segments are based upon how we allocate resources and assess performance. We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting provided to our Chief Operating Decision Maker. For additional information about our business segments, see Note 16 to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Equipment Rentals. Our rental operation is our principal focus and we primarily rent our core types of construction and industrial equipment (aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines). We have a well-maintained rental fleet and a dedicated sales team. We actively manage the size, quality, age and composition of our rental fleet based on our analysis of key measures such as time utilization (a reflection of equipment usage based on customer demand and calculated as our fleet’s original equipment cost on-rent divided by our fleet’s original equipment cost, averaged over the time period), rental rate trends and targets, rental equipment dollar utilization, and maintenance and repair costs, which we closely monitor. Given the use of these measures by management, we believe that investors’ understanding of our performance is enhanced by the disclosure of the measures as it allows investors to view performance from management’s perspective. Additionally, we maintain fleet quality through quality control inspections and our parts and services operations.

Sales of Rental Equipment. Our rental equipment sales are generated primarily from sales from our rental fleet. Sales of our rental fleet equipment allow us to manage the size, quality, composition and age of our rental fleet, and provide us with a profitable distribution channel for the disposal of rental equipment.

Sales of New Equipment. We sell equipment through a professional sales force. Sales of new equipment may be impacted by the availability of equipment from the manufacturer.

Parts, Service and Other Revenues. Our parts business provides parts to our own rental fleet and sells parts for the equipment we sell. In order to provide timely parts and services support to our rental fleet as well as our customers, we maintain a parts inventory. Our services operation provides maintenance and repair services to our own rental fleet and for our customers’ equipment at our facilities as well as at our customers’ locations. Our other revenues relate to costs primarily related to ancillary charges associated with equipment maintenance and repair services.

Revenue Sources

We generate our total revenues from our four business activities and our other equipment support activities. Equipment rentals accounts for the majority of our total revenues.

The pie charts below illustrate a breakdown of our revenues and gross profit for the year ended December 31, 2024 by source:

The equipment that we rent, sell and service is principally used in the construction industry, as well as by companies for commercial and industrial uses such as plant maintenance and turnarounds, and in the petrochemical and energy sectors. As a result, our total revenues are affected by several factors including, but not limited to, the demand for and availability of rental equipment, rental rates and other competitive factors, the demand for used and new equipment, the level of construction and industrial activities, spending levels by our customers, adverse weather conditions, supply chain disruptions, labor shortages and costs, inflation, the price of oil and other commodities and general economic conditions.

Equipment Rentals. Our rental operation primarily represents revenues from renting owned equipment of our core types of construction and industrial equipment (aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines). We primarily account for these rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. We have a well-maintained rental fleet and we actively manage the size, quality, age and composition of our rental fleet.

Sales of Rental Equipment. We generate the majority of our rental equipment sales revenues by selling equipment from our rental fleet.

Sales of New Equipment . Our sales of new equipment operation sells equipment across all of our core categories of equipment.

Parts, Service and Other. We primarily generate revenues from the sale of parts for equipment that we rent or sell. We primarily derive our services revenues from maintenance and repair services for equipment that we rent or sell and from customers' owned equipment. Our other revenues relate primarily to ancillary charges associated with equipment maintenance and repair services.

Principal Costs and Expenses

Our largest expenses are rental expenses, rental depreciation, rental other expenses, the costs associated with the used equipment we sell, the costs to purchase new equipment and costs associated with parts sales and services, all of which are included in cost of revenues. For the year ended December 31, 2024, our total cost of revenues was approximately $841.4 million. Our operating expenses consist principally of selling, general and administrative expenses (“SG&A”). For year ended December 31, 2024, our SG&A expenses were $455.6 million. In addition, we have interest expense primarily related to our debt instruments. Operating

expenses and all other income and expense items below the gross profit line of our Consolidated Statements of Income are not generally allocated to our reportable segments.

We are also subject to federal and state income taxes. Future income tax examinations by state and federal agencies could result in additional income tax expense based on potential outcomes of such matters.

Cost of Revenues:

Rental Depreciation. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment. Estimated useful lives vary based upon type of equipment. Generally, we depreciate aerial work platforms over a ten year estimated useful life, earthmoving equipment over a five year estimated useful life with a 25% salvage value, and material handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment.

Rental Expense. Rental expense represents the costs associated with rental equipment, including, among other things, the cost of repairing and maintaining our rental equipment, property taxes on our fleet and other miscellaneous costs of owning rental equipment.

Rental Other. Rental other expenses consist primarily of equipment support activities that we provide our customers in connection with renting equipment, such as hauling services, damage waiver policies, environmental fees and other recovery fees.

Sales of Rental Equipment. Cost of rental equipment sold primarily consists of the net book value of rental equipment sold from our rental fleet.

Sales of New Equipment. Cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold.

Parts, Service and Other. Cost of parts sales represents costs attributable to the sale of parts used in the maintenance and repair of equipment on-rent by customers and directly to customers for their owned equipment. Cost of services revenues represents costs attributable to service provided for the maintenance and repair of equipment on-rent by customers and of customer-owned equipment. Our other expenses include costs associated with ancillary charges associated with equipment maintenance and repair services .

Selling, General and Administrative Expenses:

Our SG&A expenses include sales and marketing expenses, payroll and related benefit costs, including stock compensation expense, insurance expenses, professional fees, rent and other occupancy costs, property and other taxes, administrative overhead, acquisition costs, depreciation associated with property and equipment (other than rental equipment) and amortization expense associated with intangible assets. These expenses are not generally allocated to our reportable segments.

Interest Expense:

Interest expense for the periods presented represents the interest on our outstanding debt instruments, including aggregate amounts outstanding under our revolving $750.0 million senior secured credit facility (the “Credit Facility”), our $1.25 billion, 3.875% senior unsecured notes due 2028 (the “Senior Unsecured Notes”) and finance lease obligations. Non-cash interest expense related to the amortization cost of deferred financing costs and the accretion/amortization of note discount/premium are also included in interest expense.

Principal Cash Flows

We generate cash primarily from our operating activities and, historically, we have used cash flows from operating activities and available borrowings under the Credit Facility as the primary sources of funds to purchase new equipment and to fund working capital and capital expenditures, growth and expansion opportunities (see also “Liquidity and Capital Resources” below). The management of our working capital is closely tied to operating cash flows, as working capital can be impacted by, among other things, our accounts receivable activities, the level of equipment inventory, which may increase or decrease in response to current and expected demand, and the size and timing of our trade accounts payable payment cycles.

Rental Fleet

A substantial portion of our total assets is our rental fleet equipment. The net book value of our rental equipment at December 31, 2024 was $1.8 billion, or approximately 65.9% of our total assets. Our rental fleet as of December 31, 2024 consisted of 63,630 units having an original acquisition cost (which we define as the cost originally paid to manufacturers) of approximately $2.9 billion. As of December 31, 2024, our rental fleet composition was as follows (dollars in millions):

Units

Total

Units

Original

Acquisition

Cost

% of Original

Acquisition

Cost

Average

Age in

Months

Aerial Work Platforms

Earthmoving

Material Handling Equipment

Other

Total

Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgments by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand as part of our fleet management strategy. The mix and age of our rental fleet, as well as our cash flows, are impacted by sales of rental equipment, which are influenced by used equipment pricing at the retail and secondary auction market levels, the demand for our rental fleet, the availability of new equipment and the capital expenditures to acquire fleet. In making equipment acquisition decisions, we evaluate current economic and market conditions, competition, manufacturers’ availability, pricing and return on investment over the estimated useful life of the specific equipment, among other things. As a result of our in-house service capabilities and extensive maintenance program, our rental fleet is well-maintained.

The original acquisition cost of our gross rental fleet increased by approximately $153.3 million, or 5.5%, for the year ended December 31, 2024. The average age of our rental fleet equipment increased by approximately 2.0 months for the year ended December 31, 2024. Our average rental rates for the year ended December 31, 2024 were approximately 0.8% higher than the year ended December 31, 2023 (see further discussion on rental rates in “Results of Operations” below).

The rental equipment mix among our core product lines for the year ended December 31, 2024 was largely consistent with that of the prior year as a percentage of total units available for rent and as a percentage of original acquisition cost.

Principal External Factors that Affect our Businesses

We are subject to a number of external factors that may adversely affect our businesses. These factors, and other factors, are discussed below and under the heading “Forward-Looking Statements,” and in Item 1A—Risk Factors in this Annual Report on Form 10-K.

Economic downturns. The demand for our products is dependent on the general economy, which is in turn affected by geopolitical conditions, the stability of the global credit markets, inflationary pressures, increasing interest rates, the conditions of the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and industrial markets, as well as adverse credit market conditions, can cause demand for our products to materially decrease. Our operations are also impacted by global economic conditions, including inflation, increased interest rates and supply chain constraints. We have experienced and may continue to experience inflationary pressures, including but not limited to cost increases related to equipment, fuel, labor costs and hauling expenses that we attempt to mitigate through pricing and productivity initiatives.

Spending levels by customers. Rentals and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our total revenues. As a result, we depend upon customers in these businesses and their ability and willingness to rent or buy equipment. Accordingly, our business is impacted by fluctuations in customers’ spending levels and seasonality, as discussed in Item 1.

Adverse weather. Adverse weather in a geographic region in which we operate may depress demand for equipment in that region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather conditions may prohibit our customers from continuing their work projects. Adverse weather also has a seasonal impact in parts of our Intermountain region, particularly in the winter months.

Regional and Industry-Specific Activity and Trends. Expenditures by our customers may be impacted by the overall level of construction activity in the markets and regions in which they operate, the price of oil and other commodities, the price of materials, supply chain disruptions, labor shortages, interest rates and other general economic trends impacting the industries in which our customers and end users operate. As our customers adjust their activity and spending levels in response to these external factors, our rentals and sales of equipment to those customers will be impacted.

Climate Change and ESG Regulations. As discussed in Item 1—Environmental and Safety Regulations and Item 1A—Risk Factors—"We could be adversely affected by environmental and safety requirements and regulations, including

those regarding climate change, which could subject us to increased operational costs that could materially and adversely impact our liquidity and operating results”, our facilities and operations are subject to comprehensive and frequently changing federal, state and local environmental and occupational health and safety laws. We have made, and will continue to make, capital and other expenditures to comply with environmental requirements. While we do not currently anticipate any material adverse effect on our business, financial condition or competitive position as a result of our efforts to comply with such requirements, new or more stringent laws or regulations regarding in environmental and worker health and safety laws could affect our operations and increase our operational and compliance expenditures. It is also possible that liabilities from newly-discovered non-compliance or contamination could have a material adverse effect on our business, financial condition and results of operations. Finally, it is also possible that the increased regulatory uncertainty could increase the cost of compliance due to tension with conflicting federal, state and local regulations, and could thus have a material adverse effect on our business, financial condition and results of operations.

Regulatory Uncertainty at the Federal Level . Significant changes or developments in U.S. laws and policies, such as laws and policies surrounding international trade, foreign affairs, environmental impact, and diversity and inclusion, among others, could materially adversely affect our business and financial condition.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The application of many accounting principles requires us to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and they and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts first become known. We believe the following critical accounting estimates could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. See also Note 2 to our Consolidated Financial Statements for a summary of our significant accounting policies.

Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives (generally three to ten years), after giving effect to an estimated salvage value ranging from 0% to 25% of cost. The useful life of rental equipment is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We periodically review the assumptions utilized in computing rates of depreciation. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.

The amount of depreciation expense we record is dependent upon the estimated useful lives and the salvage values assigned to each category of rental equipment. Generally, we assign estimated useful lives to our rental fleet ranging from a three-year life, five-year life with a 25% salvage value, seven-year life and a ten-year life. None of the useful lives assumptions have changed during the prior or current period. Depreciation expense on our rental fleet as of December 31, 2024 was approximately $375.3 million. As of December 31, 2024, the estimated depreciation assuming a change in estimated useful lives for each category of equipment by two years was as follows:

Impact of 2-year change in useful life on results of operations as of December 31, 2024

Aerial Work

Platforms

Earth-

moving

Material Handling

Equipment

Other

Total

($ in millions)

Depreciation expense for the year ended December 31, 2024

Increase of 2 years in useful life

Decrease of 2 years in useful life

For purposes of the sensitivity analysis above, we elected not to decrease the useful lives of other equipment, which are primarily three-year estimated useful life assets; rather, we have held the depreciation expense constant at the actual amount of depreciation expense. We believe that decreasing the life of the other equipment by two years is an unreasonable estimate and would potentially lead to the decision to expense, rather than capitalize, that portion of the subject asset class. In general terms, a one-year increase in the estimated life across all classes of our rental equipment will give rise to an approximate decrease in our annual depreciation expense of approximately $68.8 million. Additionally, a one-year decrease in the estimated life across all classes of our rental equipment (with the exception of other equipment as discussed above) will give rise to an approximate increase in our annual depreciation expense of approximately $46.8 million.

Another assumption used in our calculation of depreciation expense is the estimated salvage value assigned to our earthmoving equipment. Based on our historical data and recent experience, we have used a 25% factor of the equipment’s original cost to estimate its salvage value. This factor is subjective and subject to change in the future based upon actual results at the time we dispose of the equipment. A change of 5%, either increase or decrease, in the estimated salvage value would result in a change in our annual depreciation expense of approximately $7.4 million.

Acquisition Accounting . We have made a number of acquisitions in the past and we may continue to make additional acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest component of our acquisitions. Historically, virtually all of the rental equipment that we have acquired through business combinations have been classified as “To be Used,” rather than as “To be Sold.” Rental equipment that we acquire and classify as “To be Used” is recorded at fair value and is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of cost or market data. Goodwill is calculated as the excess of the fair value of consideration transferred over the net of the fair value of the assets acquired and the liabilities assumed. Such fair market value assessments require judgments and estimates that can be affected by various factors over time, which may cause final amounts to differ materially from original estimates. The identification of assets acquired, inputs utilized for determining the fair value of assets acquired and liabilities assumed and applicable fair value methodologies, discussed more below, all include significant judgment. We have not changed our assumption methodologies during the current or prior period.

In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these assets and liabilities generally approximate the carrying values reflected on the acquired entities balance sheets. However, when appropriate, we adjust these carrying values for factors such as collectability and existence. The intangible assets that we have acquired generally consist primarily of the goodwill recognized. Depending upon the applicable purchase agreement and the particular facts and circumstances of the business acquired, we may identify other intangible assets, such as trade names or trademarks, noncompetition agreements and customer-related intangibles (specifically, customer relationships). A trademark has a fair value equal to the present value of the royalty income attributable to it. The royalty income attributable to a trademark represents the hypothetical cost savings that are derived from owning the trademark instead of paying royalties to license the trademark from another owner. When specifically negotiated by the parties in the applicable purchase agreements, we base the value of noncompetition agreements on the amounts assigned to them in the purchase agreements as these amounts represent the amounts negotiated in an arm’s length transaction. When not negotiated by the parties in the applicable purchase agreements, the fair value of noncompetition agreements is estimated based on an income approach since their values are representative of the current and future revenue and profit erosion protection they provide. Customer relationships are generally valued based on an excess earnings or income approach with consideration to projected cash flows.

Evaluation of Goodwill Impairment. We evaluate goodwill for impairment annually or more frequently if triggering events occur or other impairment indicators arise that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A triggering event analysis and identification may include judgments.

Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; determination of the fair value of each reporting unit; fair value methodologies and assumptions, and an assumption as to the form of the transaction in which the reporting unit would be acquired by a market participant (either a taxable or nontaxable transaction). Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment (i.e., a component). We have determined that each of our operating segments (Equipment Rentals, Sales of Rental Equipment, Sales of New Equipment, and Parts, Service and Other) represents a reporting unit, resulting in four total reporting units.

As of December 31, 2024, our goodwill was comprised of the following carrying values (amounts in thousands):

Reporting Unit

Carrying Value at December 31, 2024

Equipment Rentals

Sales of Rental Equipment

Sales of New Equipment

Parts, Service and Other

Total Goodwill

During 2024, we performed, as of October 1, our annual impairment testing date, a Step 0 qualitative assessment and determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative Step 1 goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial

performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.

During 2023, based on our evaluation of our Parts Sales reporting unit and operating segment during the third quarter, we identified a triggering event requiring an interim impairment test. This triggering event related to a sustained parts segment decline in volume and actual revenue and earnings compared with our planned revenue and earnings utilized in our most recent quantitative goodwill impairment analysis following our business’s dispositions and strategic shift to be rental focused. No triggering event was identified related to our Equipment Rental and Sales of Rental Equipment reporting units. We estimated the fair value of our Parts Sales reporting unit by weighting results from the income approach and the market approach and concluded that our Parts Sales reporting unit had a fair value less than its carrying value, resulting in a $5.7 million impairment charge. The impairment was largely due to a current year decrease in parts revenues as a result of our business’s strategic shift and recent dispositions. This revenue decline, combined with our forecasted parts revenues growth rate and operating results assumptions for the forecast period under the income approach, resulted in a fair value determination, that when combined with the weighted fair value of the reporting unit determined under the market approach, was less than the reporting unit’s carrying value.

We performed a qualitative assessment of goodwill impairment as of our annual testing date, October 1, 2023. We determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent interim quantitative assessment.

During 2022, we performed, as of October 1, our annual impairment testing date, a Step 0 qualitative assessment and determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative Step 1 goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.

For purposes of performing the quantitative impairment tests described above, we estimate the fair value of our reporting units by utilizing fair value techniques consistent with the income approach and market approach. When performing the income approach for each reporting unit, we use a discounted cash flow analysis based on our internal projected results of operations, weighted average cost of capital (“WACC”) and terminal value assumptions. Our cash flow projections are based on ten-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth. The WACC is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise and represents the expected cost of new capital likely to be used by market participants. The WACC is used to discount our combined future cash flows. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of a reporting unit’s fair value, and therefore could affect the likelihood and amount of potential impairment. Under the market approach, we compare the reporting units to selected reasonably similar (or “guideline”) publicly-traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of our reporting unit relative to the selected guideline companies; and (iii) applied to the operating data of our reporting unit to arrive at an indication of value. The application of the market approach results in an estimate of the price reasonably expected to be realized from the sale of the reporting unit.

Income Taxes. The Company files a consolidated federal income tax return with its wholly-owned subsidiaries. The Company is a C-Corporation under the provisions of the Internal Revenue Code. We utilize the asset and liability approach to measure deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date of that tax rate.

The Company recognizes the effect of an income tax position only if it is more likely than not (a likelihood of greater than 50%) that such position will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50%

likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes both interest and penalties related to uncertain tax positions in net other income (expense).

Our deferred tax calculation requires management to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. These estimates involve judgment. There has been no change to the assumption methodology during the current or prior period.

Our U.S. federal tax returns for 2021 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2020 and subsequent years.

Results of Operations

The tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for the years ended December 31, 2024 and 2023. The period-to-period comparisons of our financial results are not necessarily indicative of future results. All financial results and metrics discussed below are on a continuing operations basis.

Our prior year discussion for the years ended December 31, 2023 and 2022 can be found here , in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated by reference herein.

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Revenues.

For the Year Ended

December 31,

Total Dollar

Total Percentage

Increase (Decrease)

Increase (Decrease)

(in thousands, except percentages)

Revenues:

Equipment rentals

Rentals

Rentals other

Total equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Total Revenues. Our total revenues were $1.5 billion for the year ended December 31, 2024 compared to $1.5 billion for the year ended December 31, 2023, an increase of $47.4 million, or 3.2%. Revenues of our business activities are further discussed below.

Equipment Rental Revenues. Our total revenues from equipment rentals for the year ended December 31, 2024 increased $67.2 million, or 5.7%, to $1.3 billion from $1.2 billion in 2023. The increase in equipment rental revenues was primarily due to our larger fleet compared to the prior year. See Rentals and Rentals Other below for additional information.

Rentals: Rental revenues increased $56.6 million, or 5.4%, to $1.1 billion for the year ended December 31, 2024. Rental revenues from other equipment increased $30.7 million, aerial work platform equipment increased $18.9 million and material handling equipment increased $4.9 million as compared to the prior period. Our average rental rates, based on the American Rental Association’s calculation methodology, for the year ended December 31, 2024 increased 0.8% compared to the year ended December 31, 2023. Our average rental rates do not include the impact of acquisitions completed within the last twelve months. Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the year ended December 31, 2024 decreased 2.0% to 38.3% from 40.3% in 2023. The decrease in comparative rental equipment dollar utilization was the net result of a decrease in rental equipment time utilization and an increase in equipment rental rates. Rental equipment time utilization as a percentage of original equipment cost was approximately 66.0% for the year ended December 31, 2024 compared to 68.8% in the year ended December 31, 2023, a decrease of 2.8%.

Rentals Other: Our rentals other revenues consist primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues for the year ended December 31, 2024 were $145.1 million compared to $134.5 million for the year ended December 31, 2023, an increase of $10.5 million, or 7.8%, primarily due to the increase in equipment rental revenues as described above.

Sales of Rental Equipment Revenues. Our sales of rental equipment for the year ended December 31, 2024 decreased $25.9 million, or 15.7%, to $139.2 million from $165.1 million in 2023. This decrease is reflective of our fleet management strategy. Sales of earthmoving rental equipment decreased $34.8 million. Offsetting this decrease, sales of aerial work platform rental equipment and material handling rental equipment increased $6.8 million and $1.9 million, respectively.

Sales of New Equipment Revenues. Our sales of new equipment increased $16.5 million, or 42.2%, to $55.6 million for the year ended December 31, 2024, from $39.1 million for the same period in 2023. Sales of new material handling equipment increased $17.5 million as we capitalized on improved product line availability. Sales of aerial work platform equipment increased $8.1 million and offsetting these increases, sales of new other equipment decreased $7.3 million.

Parts, Service and Other Revenues. Our parts, service and other revenues decreased $10.4 million, or 13.2%, to $68.5 million for the year ended December 31, 2024 from $78.9 million for the same period in 2023. The decreases are primarily related to a decrease in service revenue.

Gross Profit.

For the Year Ended

December 31,

Total Dollar

Total Percentage

Increase (Decrease)

Increase (Decrease)

(in thousands, except percentages)

Gross Profit:

Equipment rentals

Rentals

Rentals other

Total equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total gross profit

Total Gross Profit. Our total gross profit was $675.2 million for the year ended December 31, 2024 compared to $684.5 million for the year ended December 31, 2023, a decrease of $9.3 million, or 1.4%. Total gross profit margin for the year ended December 31, 2024 was approximately 44.5%, a decrease of 2.1% from the 46.6% gross profit margin for the same period in 2023. Gross profits and gross margins of our business activities are further described below.

Equipment Rentals Gross Profit. Our total gross profit from equipment rentals for the year ended December 31, 2024 increased $8.1 million, or 1.5%, to approximately $561.6 million from $553.4 million in 2023. Total gross profit margin from equipment rentals for the year ended December 31, 2024 was approximately 44.8% compared to 46.7% for the year ended December 31, 2023, a decrease of 1.9%. See Rentals and Rentals Other below for additional information.

Rentals: Rental revenue gross profit increased $11.2 million to $558.9 million for the year ended December 31, 2024 compared to $547.8 million for the year ended December 31, 2023. The increase in rentals gross profit was the result of a $56.6 million increase in rental revenues for the year ended December 31, 2024 compared to last year, which was partially offset by a $28.3 million increase in rental depreciation expense and a $17.2 million increase in rental expenses. The increase in both depreciation expense and rental expense is primarily due to a larger fleet size in 2024 compared to 2023. Gross profit margin on rentals for the year ended December 31, 2024 was approximately 50.4% compared to 52.1% in 2023, a decrease of 1.7%. As a percentage of rental revenues, rental expenses were 15.7% and 14.9% for the years ended December 31, 2024 and 2023, respectively, an increase of 0.8%. Depreciation expense was 33.9% of rental revenues for the year ended December 31, 2024 compared to 33.0% for the same period in 2023, an increase of 0.9%.

Rentals Other: Our rentals other revenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross profit for the year ended December 31, 2024 was $2.6 million compared to $5.6 million for the year ended December 31, 2023, a decrease of $3.0 million. Gross profit margin was 1.8% for the year ended December 31, 2024 compared to 4.2% for the same period last year, a decrease of 2.4%.

Sales of Rental Equipment Gross Profit. Our sales of rental equipment gross profit for the year ended December 31, 2024 decreased $14.4 million, or 14.4%, to $85.5 million compared to $99.9 million in 2023 on decreased sales of rental equipment of $25.9 million. Gross profit margin on sales of rental equipment for the year ended December 31, 2024 was approximately 61.4%, up 0.9% from 60.5% in 2023. Our sales from rental fleet comprised approximately 99.6% and 99.3% of our sales of rental equipment for

the years ended December 31, 2024 and 2023, respectively, and were approximately 260.7% and 255.0% of net book value for the years ended December 31, 2024 and 2023, respectively.

Sales of New Equipment Gross Profit. Our sales of new equipment gross profit for the year ended December 31, 2024 increased approximately $4.5 million, or 80.9%, to $10.0 million from $5.5 million in 2023, on increased sales of new equipment of $16.5 million. Gross profit margin on sales of new equipment for the year ended December 31, 2024 was 18.0% compared to 14.1% for the year ended December 31, 2023, an increase of 3.9%.

Parts, Service and Other Gross Profit. For the year ended December 31, 2024, our parts, service and other revenues gross profit decreased $7.5 million, or 29.3%, to $18.1 million from $25.6 million for the same period in 2023, on $10.4 million decreased parts, service and other revenues. Gross profit margin on parts, service and other revenues for the year ended December 31, 2024 was 26.4%, a decrease of approximately 6.1% from 32.5% in the same period in 2023.

Selling, General and Administrative Expenses. SG&A expenses increased approximately $50.1 million, or 12.4%, to $455.6 million for the year ended December 31, 2024 compared to $405.4 million for the year ended December 31, 2023. The net increase in SG&A expenses was attributable to several factors. Employee salaries, wages, incentive compensation, payroll taxes and related employee benefits increased $17.1 million, primarily as a result of increased wages, commissions and health insurance. Depreciation and amortization, facility expenses, professional fees and liability insurance costs increased $10.0 million, $9.8 million, $7.0 million and $4.5 million, respectively. Approximately $44.5 million of incremental SG&A expenses in 2024 were attributable to branches opened or acquired since January 1, 2023 with less than a full year of comparable operations in either or both of the years ended December 31, 2024 and 2023. As a percentage of total revenues, SG&A expenses were 30.0% and 27.6% for the years ended December 31, 2024 and 2023, respectively.

Gain on Sales of Property and Equipment, Net. During the year ended December 31, 2024, gain on sales of property and equipment, net amounted to $9.7 million for the period, compared to $3.4 million for the year ended December 31, 2023, an increase of approximately $6.3 million. This increase is due to fluctuations in the normal course of business.

Impairment of Goodwill. There was no impairment of goodwill in the year ended December 31, 2024. The prior year $5.7 million impairment related to the Parts Sales reporting unit for the year ended December 31, 2023. See Note 2 to the Consolidated Financial Statements for additional information.

Other Income (Expense). For the year ended December 31, 2024, our net other expenses increased approximately $13.3 million to $66.8 million compared to $53.5 million for the same period in 2023. Interest expense increased approximately $12.1 million to $73.0 million for the year ended December 31, 2024 compared to $60.9 million for the year ended December 31, 2023. The increase in interest expense is largely due to higher borrowings on our Credit Facility.

Income Taxes. We recorded an income tax expense of $39.6 million for the year ended December 31, 2024 compared to an income tax expense of approximately $53.9 million for the year ended December 31, 2023. Our effective income tax rate for the year ended December 31, 2024 was 24.3% compared to 24.2% for the same period last year, an increase of 0.1%.

Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at December 31, 2024 are fully realizable through future reversals of existing taxable temporary differences and future taxable income. For the year ended December 31, 2024, we have a $0.6 million valuation allowance for certain state tax credits that may not be realized.

Liquidity and Capital Resources

Cash Flow from Operating Activities. For the year ended December 31, 2024, the cash provided by our operating activities was $495.6 million. Our reported net income of $123.0 million, when adjusted for non-cash income and expense items, such as depreciation and amortization (including net amortization (accretion) of note discount (premium)), deferred income taxes, non-cash operating lease expense, amortization of finance lease right-of-use assets, provision for losses on accounts receivable, provision for inventory obsolescence, stock-based compensation expense, impairment of goodwill and net gains on the sale of long-lived assets, provided positive cash flows of $532.5 million. These cash flows from operating activities were positively impacted by a $11.9 million decrease in inventories and a $0.2 million increase in accrued expenses and other liabilities. Partially offsetting these positive cash flows were a $42.3 million decrease in accounts payable, a $2.7 million decrease in manufacturing flooring plans payable, a $2.5 million increase in prepaid expenses and other assets and a $1.5 million increase in receivables.

For the year ended December 31, 2023, the cash provided by our operating activities was $405.5 million. Our reported net income of $169.3 million, when adjusted for non-cash income and expense items, such as depreciation and amortization (including net amortization (accretion) of note discount (premium)), deferred income taxes, non-cash operating lease expense, amortization of finance lease right-of-use assets, provision for losses on accounts receivable, provision for inventory obsolescence, stock-based

compensation expense, impairment of goodwill and net gains on the sale of long-lived assets, provided positive cash flows of $544.3 million. These cash flows from operating activities were positively impacted by a $12.7 million decrease in prepaid expenses and other assets and a $2.3 million increase in manufacturing flooring plans payable. Partially offsetting these positive cash flows were a $76.9 million increase in inventories, a $44.0 million decrease in accounts payable, a $26.9 million increase in receivables and a $6.0 million decrease in accrued expenses and other liabilities.

Cash Flow from Investing Activities. For the year ended December 31, 2024, net cash used in our investing activities was approximately $459.0 million. The aggregate cumulative cash consideration paid for the acquisitions of Lewistown and Precision was approximately $157.8 million; see additional information on the acquisition in Note 3 to our Consolidated Financial Statements. The purchases of rental and non-rental equipment totaled approximately $451.3 million and proceeds from the sale of rental and non-rental equipment were approximately $150.0 million.

For the year ended December 31, 2023, net cash used in our investing activities was approximately $608.8 million. The acquisition of Giffin totaled approximately $31.3 million; see additional information on the acquisition in Note 3 to our Consolidated Financial Statements. The purchases of rental and non-rental equipment totaled approximately $745.8 million and proceeds from the sale of rental and non-rental equipment were approximately $168.3 million.

Cash Flow from Financing Activities. For the year ended December 31, 2024, our cash provided by our financing activities was exceeded by our cash used in financing activities, resulting in net cash used in our financing activities of $28.6 million. Borrowings on our Credit Facility amounted to $1.8 billion while payments on the facility also amounted to $1.8 billion for the year ended December 31, 2024. Dividends paid were $40.2 million, or $1.10 per common share, treasury stock purchases were approximately $5.8 million and payments on finance lease obligations were $0.3 million for the year ended December 31, 2024.

For the year ended December 31, 2023, our net cash provided by our financing activities was $130.4 million. Borrowings on our Credit Facility amounted to $1.8 billion while payments on the facility amounted to $1.6 billion for the year ended December 31, 2023. Dividends paid were $40.0 million, or $1.10 per common share, treasury stock purchases were approximately $6.1 million and payments on finance lease obligations were $0.2 million for the year ended December 31, 2023. Payments on deferred financing costs related to the amended and restated Credit Facility totaled $4.9 million.

Senior Unsecured Notes

On December 14, 2020, we completed the offering of our Senior Unsecured Notes of $1.25 billion. No principal payments on the Senior Unsecured Notes are due until their scheduled maturity date of December 15, 2028.

The Senior Unsecured Notes were issued by H&E Equipment Services, Inc. (the parent company) and are guaranteed by GNE Investments, Inc. and its wholly-owned subsidiaries Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc., H&E Equipment Services (Midwest), Inc., H&E Equipment Services (Mid-Atlantic), Inc. and H&E Finance Corp (collectively, the guarantor subsidiaries). The guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan. There are no registration rights associated with the notes or the subsidiary guarantees.

For additional information regarding our senior unsecured notes, see Note 9 to our Consolidated Financial Statements.

Senior Secured Credit Facility

We and our subsidiaries are parties to a $750.0 million senior secured credit facility (our “Credit Facility”) with Wells Fargo Bank, National Association as administrative agent, and the lenders named therein. At December 31, 2024, we had $199.3 million borrowed under the Credit Facility and we could borrow up to $535.9 million, which with cash on hand amounted to a liquidity position of $552.3 million. As of February 13, 2025, we had borrowings of $149.4 million outstanding under our Credit Facility leaving us with borrowing availability of $585.7 million, as a result of $14.8 million of letters of credit outstanding under the facility.

For additional information regarding our senior secured credit facility, see Note 10 to our Consolidated Financial Statements.

Cash Requirements Related to Operations

Our principal sources of liquidity have been from cash provided by operating activities and the revenue from our rental operations and sales of rental fleet and new equipment, proceeds from the issuance of debt, and borrowings available under the Credit Facility. As of December 31, 2024, the Company held balances of cash totaling $16.4 million compared to December 31, 2023, when the Company held balances of cash totaling $8.5 million. Our principal uses of cash historically have been to fund operating activities and

working capital (including equipment inventory), purchases of rental fleet and property and equipment, opening new branch locations, fund payments due under facility operating leases and manufacturer flooring plans payable, and to meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new branch locations.

The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. The consolidated statements of cash flows include the payments for purchases of rental fleet, but does not reflect gross rental fleet capital expenditures which include items such as non-cash components. Our gross rental fleet capital expenditures for the years ended December 31, 2024 and 2023 were approximately $385.5 million and $736.6 million, respectively. This decrease in rental fleet capital expenditures reflects the normalization of fleet purchasing in the current year as compared to the prior year. Our gross property and equipment capital expenditures for the years ended December 31, 2024 and 2023 were $106.6 million and $83.9 million, respectively. The increase in gross property and equipment capital expenditures in the current year as compared to the prior year is attributable to branch expansion.

To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness (including the Credit Facility, the Senior Unsecured Notes and our other indebtedness), will depend upon our future operating performance and the availability of borrowings under the Credit Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the Credit Facility will be adequate to meet our future liquidity needs for the foreseeable future, both in the short-term (over the next 12 months) and beyond. At December 31, 2024, we have cash on hand of approximately $16.4 million. At December 31, 2024, we had available borrowings of $535.9 million, net of $14.8 million of outstanding letters of credit and at December 31, 2023, we had available borrowings of $556.0 million, net of $12.3 million of outstanding letters of credit. At February 13, 2025, we had $585.7 million of available borrowings under the Credit Facility, net of a $14.8 million of outstanding letters of credit.

Our contractual obligations and commercial commitments principally include obligations associated with our outstanding indebtedness and interest payments. We have no off-balance sheet arrangements. In tabular format below, we have disclosed our analysis of material cash requirements from known contractual and other obligations as of December 31, 2024.

Payments Due by Year

Total

Thereafter

(Amounts in thousands)

Senior unsecured notes (1)

Interest payments on senior unsecured notes (2)

Senior secured credit facility (3)

Interest payments on senior secured credit facility (4)

Operating lease liabilities (5)

Other lease commitments (6)

Finance lease liabilities (7)

Total contractual cash obligations

See Note 9 to our Consolidated Financial Statements for additional information regarding our Senior Notes.

Future interest payments are calculated based on the assumption that all of the senior unsecured notes remain outstanding until maturity.

See Note 10 to our Consolidated Financial Statements for additional information regarding our Credit Facility.

This represents future interest payments calculated based on the assumption that all borrowings remain outstanding until maturity, assumes the interest rate in effect at December 31, 2024 and includes unused commitment fees.

This includes total minimum operating lease rental payments having initial or remaining non-cancelable lease terms longer than one year, including interest.

Represents total minimum operating lease rental payments for leases executed but not commenced as of December 31, 2024.

This includes total minimum finance lease rental payments having initial or remaining non-cancelable lease terms longer than one year, including interest.

As of December 31, 2024, we had standby letters of credit issued under our Credit Facility totaling $14.8 million that expire in May 2025.

Quarterly Dividend

On each of February 9, 2024, May 16, 2024, August 12, 2024 and November 15, 2024, the Company declared a quarterly dividend of $0.275 per share to stockholders of record, which were paid on March 15, 2024, June 14, 2024, September 13, 2024 and December 13, 2024, respectively, totaling approximately $40.2 million. On February 7, 2025, the Company declared a quarterly dividend of $0.275 per share to stockholders of record as of the close of business on February 18, 2025, which is to be paid on February 24, 2025.

The Company intends to continue to pay regular quarterly cash dividends; however, the declaration of any subsequent dividends is discretionary and will be subject to a final determination by the Board of Directors each quarter after its review of, among other things, business and market conditions.

Acquisitions and Start-up Facilities

We periodically engage in evaluations of potential acquisitions and start-up facilities. We intend to continue to evaluate and pursue, on an opportunistic basis, acquisitions that meet our selection criteria, and we are focused on identifying and acquiring rental companies to complement our existing business, broaden our geographic footprint, and increase our density in existing markets.

Effective January 1, 2018, we completed the acquisition of CEC, a privately-held company focused on non-residential construction equipment rentals serving the greater Denver, Colorado area out of three branch locations. Effective April 1, 2018, we completed the acquisition of Rental Inc., an equipment rental and distribution company with five branch locations in Alabama and Florida. Effective February 1, 2019, we completed the acquisition of WRI, an equipment rental company with six branch locations in Central Texas. Effective October 1, 2022, we completed the acquisition of OSR, an equipment rental company with ten branch locations in the Midwest. Effective November 1, 2023, we completed the acquisition of Giffin, an equipment rental company with three branches in California. Effective January 1, 2024, the Company completed the acquisition of Precision Rentals (“Precision”), a privately-held equipment rentals company with a branch location in each of Arizona and Colorado. Effective May 1, 2024, the Company completed the acquisition of Lewistown Rentals (“Lewistown”), a privately-held equipment rentals company with four branch locations in Montana. See Note 3 to our Consolidated Financial Statements for additional information on these acquisitions.

The success of our growth strategy depends, in part, on selecting strategic acquisition candidates at attractive prices and identifying strategic start-up locations. We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and lead to higher acquisition costs. We may not have the financial resources necessary to consummate any acquisitions or to successfully open any new facilities in the future or the ability to obtain the necessary funds on satisfactory terms. For further information regarding our risks related to acquisitions, see Item 1A – Risk Factors of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk

Our earnings may be affected by changes in interest rates since interest expense on the Credit Facility is currently calculated based upon (a) the Base Rate plus an applicable margin of 0.25% to 0.75%, depending on the Average Availability (as defined in the Credit Facility), in the case of index rate revolving loans and (b) SOFR plus a credit spread adjustment and an applicable margin of 1.25% to 1.75%, depending on the Average Availability (as defined in the Credit Facility), in the case of SOFR revolving loans.

At December 31, 2024, we had $199.3 million in borrowings outstanding under the Credit Facility. At February 13, 2025, we had $149.4 million in borrowings outstanding under the Credit Facility with $585.7 million of available borrowings, net of a $14.8 million of outstanding letters of credit. We did not have significant exposure to changing interest rates as of December 31, 2024 on the fixed-rate senior unsecured notes. Historically, we have not engaged in derivatives or other financial instruments for trading, speculative or hedging purposes, though we may do so from time to time if such instruments are available to us on acceptable terms and prevailing market conditions are accommodating.

Item 8. Financial Statemen ts and Supplementary Data

Index to consolidated financial statements of H&E Equipment Services, Inc. and Subsidiaries

Page

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

H&E Equipment Services, Inc.

Baton Rouge, Louisiana

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of H&E Equipment Services, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and the schedule appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 21, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition for equipment rental, sales of rental equipment, and sales of new equipment

As described in Note 2 to the consolidated financial statements, the Company’s revenue is generated from renting equipment, as well as the sale of goods or services, to customers. Revenue from equipment rental transactions is generally accounted for under Topic 842 in the period earned based on contractual terms of the rental contract with the customer. A rental contract includes rates for daily, weekly or monthly use, and equipment rental revenues are earned on a daily basis as rental contracts remain outstanding. Revenue from the sale of rental and new equipment is accounted for under Topic 606 and is recognized when control of the promised good is transferred to the customer based on contractual terms with the customer. The Company’s consolidated net revenue from equipment rentals, sale of rental equipment and sale of new equipment was $1.4 billion for the fiscal year ended December 31, 2024.

We identified revenue recognition for equipment rental, sales of rental equipment, and sales of new equipment as a critical audit matter. The principal consideration for our determination was the significant audit effort in performing procedures relating to revenue recognition for equipment rental, sales of rental equipment, and sales of new equipment.

The primary procedures we performed to address this critical audit matter included:

Obtaining an understanding of the nature of the revenue recognition process for equipment rental, sales of rental equipment and sales of new equipment, through walkthrough of individual transactions, and review of contracts with the customers.

Testing the design, implementation, and operating effectiveness of relevant controls relating to the revenue recognition process for equipment rental, sales of rental equipment and sales of new equipment, including IT general controls for the systems used in the revenue recognition process, as well as manual and automated business process controls.

Testing a selection of equipment rental transactions by agreeing the amounts recognized to source documents, such as rental contracts, invoices, and subsequent cash receipts.

Testing a selection of sales of rental equipment and sales of new equipment transactions by agreeing the amounts recognized to source documents, such as sales contracts, auction documents, invoices, delivery documents, and subsequent cash receipts.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2004.

Dallas, Texas

February 21, 2025

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED B ALANCE SHEETS

AS OF DECEMBER 31,

(Amounts in thousands, except

share and per share amounts)

Assets

Cash

Receivables, net of allowance for doubtful accounts of $ 9,435  and $ 7,126 , respectively

Inventories, net of reserves for obsolescence of $ 180  and $ 207 , respectively

Prepaid expenses and other assets

Rental equipment, net of accumulated depreciation of $ 1,112,196  and $ 990,971 , respectively

Property and equipment, net of accumulated depreciation and amortization of $ 211,682  and $ 193,723 , respectively

Operating lease right-of-use assets, net of accumulated amortization of $ 94,892  and $ 71,021 , respectively

Finance lease right-of-use assets, net of accumulated amortization of $ 790  and $ 345 , respectively

Deferred financing costs, net of accumulated amortization of $ 18,735  and $ 17,606 , respectively

Intangible assets, net of accumulated amortization of $ 36,089  and $ 25,824 , respectively

Goodwill

Total assets

Liabilities and Stockholders’ Equity

Liabilities:

Senior secured credit facility

Accounts payable

Manufacturer flooring plans payable

Accrued expenses payable and other liabilities

Dividends payable

Senior unsecured notes, net of unaccreted discount of $ 4,635  and $ 5,807  and deferred financing costs of $ 1,070  and $ 1,341 , respectively

Operating lease liabilities

Finance lease liabilities

Deferred income taxes

Total liabilities

Commitments and Contingencies (Note 13)

Stockholders’ equity:

Preferred stock, $ 0.01  par value, 25,000,000  shares authorized; no  shares issued

Common stock, $ 0.01  par value, 175,000,000  shares authorized; 41,086,358  and 40,823,375  shares issued at December 31, 2024 and December 31, 2023, respectively, and 36,604,864  and 36,449,188  shares outstanding at December 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

Treasury stock at cost, 4,481,494  and 4,374,187  shares of common stock held at December 31, 2024 and December 31, 2023, respectively

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STAT EMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31,

(Amounts in thousands, except per share amounts)

(Amounts in thousands, except per share amounts)

Revenues:

Equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Cost of revenues:

Rental depreciation

Rental expense

Rental other

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total cost of revenues

Gross profit

Selling, general and administrative expenses

Impairment of goodwill

Gain from sales of property and equipment, net

Income from operations

Other income (expense):

Interest expense

Other, net

Total other expense, net

Income from operations before provision for income taxes

Provision for income taxes

Net income from continuing operations

Discontinued Operations:

Loss from discontinued operations before benefit for income taxes

Benefit for income taxes

Net loss from discontinued operations

Net income

Net income from continuing operations per common share:

Basic

Diluted

Net loss from discontinued operations per common share:

Basic

Diluted

Net income per common share:

Basic

Diluted

Weighted average common shares outstanding:

Basic

Diluted

The accompanying notes are an integral part of these consolidated financial statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022

(Amounts in thousands, except share and per share amounts)

Common Stock

Shares

Issued

Amount

Additional

Paid-in

Capital

Treasury

Stock

Retained

Earnings

Total

Stockholders’

Equity

Balances at December 31, 2021

Stock-based compensation

Cash dividends declared on common stock ($ 1.10  per share)

Issuances of non-vested restricted common stock, net of restricted stock forfeitures

Repurchases of 46,923  shares of restricted common stock

Net income

Balances at December 31, 2022

Stock-based compensation

Cash dividends declared on common stock ($ 1.10  per share)

Issuances of non-vested restricted common stock, net of restricted stock forfeitures

Repurchases of 115,632  shares of restricted common stock

Net income

Balances at December 31, 2023

Stock-based compensation

Cash dividends declared on common stock ($ 1.10  per share)

Issuances of non-vested restricted common stock, net of restricted stock forfeitures

Repurchases of 107,307  shares of restricted common stock

Net income

Balances at December 31, 2024

The accompanying notes are an integral part of these consolidated financial statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEM ENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

(Amounts in thousands)

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization of property and equipment

Depreciation of rental equipment

Amortization of intangible assets

Amortization of deferred financing costs

Accretion of note discount, net of premium amortization

Non-cash operating lease expense

Amortization of finance lease right-of-use assets

Provision for losses on accounts receivable

Provision for inventory obsolescence

Change in deferred income taxes

Stock-based compensation expense

Impairment of goodwill

Loss on sale of discontinued operations

Gain from sales of property and equipment, net

Gain from sales of rental equipment, net

Changes in operating assets and liabilities:

Receivables

Inventories

Prepaid expenses and other assets

Accounts payable

Manufacturer flooring plans payable

Accrued expenses payable and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of businesses

Closing adjustment on sale of discontinued operations

Purchases of property and equipment

Purchases of rental equipment

Proceeds from sales of property and equipment

Proceeds from sales of rental equipment

Net cash used in investing activities

Cash flows from financing activities:

Purchases of treasury stock

Borrowings on senior secured credit facility

Payments on senior secured credit facility

Payments of deferred financing costs

Dividends paid

Payments of finance lease obligations

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

Cash, beginning of year

Cash, end of year

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31,

(Amounts in thousands)

Supplemental schedule of non-cash investing and financing activities:

Accrued acquisition purchase price consideration

Non-cash asset purchases:

Rental fleet in accounts payable and accrued expenses payable and other liabilities

Assets transferred from inventory to rental fleet

Purchases of property and equipment included in accrued expenses payable and other liabilities

Operating lease assets obtained in exchange for new operating lease liabilities

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest

Income taxes paid, net of refunds received

The accompanying notes are an integral part of these consolidated financial statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Nature of Operations

Founded in 1961, H&E Equipment Services, Inc. (or “the Company”, “we”, “us”, or “our”) is one of the largest rental equipment companies in the nation, serving customers across 31 states. The Company’s fleet is comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. H&E serves a diverse set of end markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and Mid-Atlantic regions.

Recent Developments

On February 19, 2025, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Herc Holdings Inc., a Delaware corporation (“Herc”) and HR Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Herc (“Merger Sub”), pursuant to which Merger Sub agreed to commence an exchange offer (the “Offer”), to purchase all of the issued and outstanding shares of our common stock, following which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Herc (the “Merger”) (and collectively, the “Transactions”).

The price per share of common stock in the Offer is a combination of cash and Herc common stock, consisting of (i) $ 78.75 in cash, without interest, less any applicable withholding of taxes (the “Cash Offer Price”), and (ii) a fixed exchange ratio of 0.1287 shares of Herc common stock, without interest, per share (the “Stock Offer Price”). The combination of the Cash Offer Price and the Stock Offer Price is equal to a total value of approximately $ 104.89 per share (the “Offer Price”) based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025 .

The transaction is expected to close in the first half of 2025. The transaction is subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger. See Note 17, Subsequent Events, for additional information.

Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC, H&E Equipment Services (Midwest), Inc. and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we”, “us”, “our” or the “Company” and doing business as “H&E Rentals”.

On October 1, 2021, the Company sold its crane business (the “Crane Sale”) and during June 2022, closing adjustments were finalized. The results of operations of the Crane Sale are reported in discontinued operations in the Consolidated Statements of Income for the year ended December 31, 2022. All results and information in the consolidated financial statements are presented as continuing operations and exclude the Crane Sale unless otherwise noted specifically as discontinued operations. The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3 “Acquisitions and Dispositions”. For additional information, refer to Note 3.

All significant intercompany accounts and transactions have been eliminated in these consolidated financial statements. Business combinations are included in the consolidated financial statements from their respective dates of acquisition.

The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, the accompanying consolidated balance sheets are presented on an unclassified basis.

Use of Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Revenue Recognition

We recognize revenue in accordance with two different Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) standards: 1) Topic 606 and 2) Topic 842.

Under Topic 606, Revenue from Contracts with Customers, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

Under Topic 842, Leases, we account for equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.

The tables below summarize our revenues as presented in our Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022 by revenue type and by the applicable accounting standard (amounts in thousands).

Year Ended December 31, 2024

Topic 842

Topic 606

Total

Revenues:

Rental Revenues:

Owned equipment rentals

Re-rent revenue

Ancillary and other rental revenues:

Delivery and pick-up

Other

Total ancillary rental revenues

Total equipment rental revenues

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Year Ended December 31, 2023

Topic 842

Topic 606

Total

Revenues:

Rental Revenues:

Owned equipment rentals

Re-rent revenue

Ancillary and other rental revenues:

Delivery and pick-up

Other

Total ancillary rental revenues

Total equipment rental revenues

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Year Ended December 31, 2022

Topic 842

Topic 606

Total

Revenues:

Rental Revenues:

Owned equipment rentals

Re-rent revenue

Ancillary and other rental revenues:

Delivery and pick-up

Other

Total ancillary rental revenues

Total equipment rental revenues

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Revenues by reporting segment are presented in Note 16. We believe that the disaggregation of our revenues from contracts to customers as reflected above, coupled with further discussion below and the reporting segment in Note 16, depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.

Nature of goods and services

Lease revenues

Topic 842

Owned equipment rentals : Owned equipment rentals represent revenues from renting equipment. We account for these rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Our equipment is generally rented for short periods of time (less than a year). Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Lessees do not provide residual value guarantees on rented equipment.

Re-rent revenue : Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.

Other equipment rental revenue : Other equipment rental revenue is primarily comprised of (i) revenue from customers who purchase insurance to protect against potential damages or loss to the equipment they rent, (ii) environmental charges associated with the rental of equipment, and (iii) fuel recovery fees charged to customers. Fuel consumption charges are recognized upon return of the rental equipment when fuel consumption by the customer, if any, can be measured. Income from environmental fees and damage waiver insurance policies are recognized when earned over the period the equipment is rented.

Revenues from contracts with customers (Topic 606)

Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.

Owned equipment rentals: An insignificant portion of our total equipment rental revenues are recognized pursuant to Topic 606 rather than pursuant to Topic 842. These revenues represent services performed by us in connection with the rental of equipment and are comprised of customer training fees on rented equipment and setup and configuration services on rental equipment. Revenues for these services are recognized upon completion of such services. See discussion above regarding rental revenues recognized pursuant to Topic 842.

Delivery and pick-up : Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.

Sales of rental equipment: Revenues from the sales of rental equipment are recognized at the time of delivery to, or pick-up by, the customer, or when the bill-and-hold criteria are satisfied, which is when the customer obtains control of the promised good.

Sales of new equipment: Revenues from the sales of new equipment are recognized at the time of delivery to, or pick-up by, the customer, which is when the customer obtains control of the promised good.

Parts, service, and other: Revenues from the sales of equipment parts are recognized at the time of pick-up by the customer for parts counter sales transactions. For parts that are shipped to a customer, we made an accounting policy election permitted by Topic 606 to treat such shipping activities as fulfillment costs, which results in the fees for shipping activities being included in the parts sales transaction price. Service revenues is derived primarily from maintenance and repair services to customers for equipment that we rent or sell and from customers owned equipment. We recognize services revenues at the time such services are completed, which is when the customer obtains control of the promised service. Other revenues relate to equipment support activities that we provide to customers in connection with sales of rental and new equipment and parts and services revenues.

Receivables and contract assets and liabilities

We manage credit risk associated with our accounts receivables at the customer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowances for doubtful accounts address our total revenues from Topic 606 and Topic 842.

We believe concentration of credit risk with respect to our receivables is limited because our customer base is comprised of a large number of geographically diverse customers. No single customer accounted for more than 10% of our total revenues for any of the three years ended December 31, 2024. We manage credit risk through credit approvals, credit limits and other monitoring procedures.

We maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. Our largest exposure to doubtful accounts is our rental operations, which as discussed above is accounted for under Topic 842. For the year ended December 31, 2024, revenue under ASC 842 represents 77 % of our total revenues and an approximate corresponding percentage of our receivables, net and associated allowance for doubtful accounts. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts. Bad debt expense as a percentage of total revenues for the years ended December 31, 2024, 2023 and 2022 was approximately 0.4 %, 0.3 % and 0.3 %, respectively.

We do not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenues during the years ended December 31, 2024, 2023 or 2022 that was included in the contract liability balance as of the beginning of such periods.

Performance obligations

Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amount of such revenue recognized during the years ended December 31, 2024, 2023 and 2022 was not material.

Payment terms

Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms are typically net 30 days, but can vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.

Sales tax amounts collected from customers are recorded on a net basis.

Contract costs

We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Substantially all of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.

Contract estimates and judgments

Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments as the transaction price is generally fixed and stated on our contracts. Our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation. Also, our revenues do not include material amounts of variable consideration. Substantially all of our revenues are recognized at a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, our Topic 606 revenues are generally recognized at the time of delivery to, or pick-up by, the customer.

Discontinued Operations

In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as discontinued operations, the Company analyzes whether the group of assets being disposed of represents a component of the entity. A component typically has historic operations and cash flows that are clearly distinguishable for both operations and financial reporting purposes. In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. This strategic shift could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity.

The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of its carrying amount or fair value less cost to sell. When a portion of a reporting unit that constitutes a business is to be disposed of, the goodwill associated with that business is included in the carrying amount of the business based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. See Note 3 for additional information.

Inventories

We measure inventory at the lower of cost or net realizable value; where net realizable value is considered to be estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. For used and new equipment inventories, cost is determined by specific-identification. For inventories of parts and supplies, cost is determined by using average cost.

Rental Equipment

The rental equipment we purchase is recorded in rental equipment on the Consolidated Balance Sheets and is stated at cost. Due to the Company’s shift to operate as a pure-play rental company, as of the quarter ended June 30, 2024 purchases of equipment are now disaggregated between inventory and rental equipment according to classification at the time of purchase as opposed to considering all generally available for sale. Purchases of equipment designated for fleet are now recorded as rental equipment while equipment designated for sale is recorded as inventory. Rental equipment is depreciated over the estimated useful life of the equipment upon placed in service using the straight-line method and is included in rental depreciation within our Consolidated Statements of Income. Estimated useful lives vary based upon type of equipment. Generally, we depreciate aerial work platforms over a ten year estimated useful life, earthmoving equipment over a five year estimated useful life with a 25 % salvage value, and material handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated generally over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives and any salvage value assigned to rental equipment. Depreciation expense on rental equipment is reflected in rental depreciation in cost of revenues on the Consolidated Statements of Income.

Ordinary repair and maintenance costs and property taxes are reflected in rental expenses in cost of revenues on the Consolidated Statements of Income. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. When rental equipment is sold or disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gains or losses are included in gross profit in the Consolidated Statements of Income. We receive individual offers for fleet on a continual basis, at which time we perform an analysis on whether or not to accept the offer. The rental equipment is not transferred to inventory under the held for sale model as the equipment is used to generate revenues until the equipment is sold.

Property and Equipment

Property and equipment are recorded at cost and are depreciated over the assets’ estimated useful lives using the straight-line method. Ordinary repair and maintenance costs are included in selling, general and administrative (“SG&A”) expenses on our Consolidated Statements of Income. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in the Consolidated Statements of Income in gains

from sales of property and equipment, net. We additionally capitalize certain costs associated with internally developed software and cloud computing arrangements.

We periodically evaluate the appropriateness of remaining depreciable lives assigned to property and equipment. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is shorter. Depreciation expense on property and equipment is included in SG&A expenses on our Consolidated Statements of Income . Generally, we assign the following estimated useful lives to these categories:

Category

Estimated

Useful Life

Transportation equipment

5 years

Buildings

39 years

Office equipment

5 years

Computer equipment

3 years

Machinery and equipment

7 years

When events or changes in circumstances indicate that the carrying amount of our rental fleet and property and equipment might not be recoverable, the expected future undiscounted cash flows from the assets are estimated and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying amounts. Fair value is determined based on discounted cash flows or appraised values, as appropriate. In support of our review for indicators of impairment, we perform a review of our long-lived assets at the branch level relative to branch performance and conclude whether indicators of impairment exist. We did no t record any impairment losses related to our rental equipment or property and equipment during the years ended December 31, 2024, 2023 or 2022 .

Acquisition Accounting

We have made a number of acquisitions in the past and we may continue to make additional acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest component of our acquisitions. Historically, virtually all of the rental equipment that we have acquired through business combinations have been classified as “To be Used,” rather than as “To be Sold.” Rental equipment that we acquire and classify as “To be Used” is recorded at fair value and is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of cost or market data. Goodwill is calculated as the excess of the fair value of consideration transferred over the net of the fair value of the assets acquired and the liabilities assumed. Such fair market value assessments require judgments and estimates that can be affected by various factors over time, which may cause final amounts to differ materially from original estimates. The identification of assets acquired, inputs utilized for determining the fair value of assets acquired and liabilities assumed and applicable fair value methodologies all include significant judgment.

In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these assets and liabilities generally approximate the carrying values reflected on the acquired entities balance sheets. However, when appropriate, we adjust these carrying values for factors such as collectability and existence. The intangible assets that we have acquired consist primarily of the goodwill recognized. Depending upon the applicable purchase agreement and the particular facts and circumstances of the business acquired, we may identify other intangible assets, such as trade names or trademarks, noncompetition agreements and customer-related intangibles (specifically, customer relationships). A trademark has a fair value equal to the present value of the royalty income attributable to it. The royalty income attributable to a trademark represents the hypothetical cost savings that are derived from owning the trademark instead of paying royalties to license the trademark from another owner. The fair value of noncompetition agreements is estimated based on an income approach since their values are representative of the current and future revenue and profit erosion protection they provide. Customer relationships are generally valued based on an excess earnings or income approach with consideration to projected cash flows.

Goodwill

Goodwill is recorded as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.

We evaluate goodwill for impairment at least annually, as of October 1, or more frequently if triggering events occur or other impairment indicators arise that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment of goodwill is evaluated at the reporting unit level. We have identified that our four operating segments (Equipment Rentals, Sales of Rental Equipment, Sales of New Equipment and Parts, Service and Other Revenues) each represent a reporting unit.

Topic 350 consists of a one-step assessment to determine whether goodwill is impaired requiring an entity to compare each reporting unit’s carrying value, including goodwill, with its fair value. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit. An entity also has an option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. Considerable judgment is required by management in performing the qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

We performed a qualitative assessment of goodwill impairment as of our annual testing date, October 1, for years ended December 31, 2024, 2023, and 2022. We determined that it was more likely than not that the fair value of each of our reporting units containing goodwill was not less than its carrying value and, therefore, did not perform the prescribed quantitative goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.

During the third quarter of 2023, based on our evaluation of our Parts Sales reporting unit and operating segment, we identified a triggering event requiring an interim impairment test. This triggering event related to a sustained parts segment decline in volume and actual revenue and earnings compared with our planned revenue and earnings utilized in our most recent quantitative goodwill impairment analysis following our dispositions and strategic shift to be rental focused. Additional information on our dispositions is included in Footnote 3. No triggering event was identified related to our Equipment Rental and Sales of Rental Equipment reporting units. We estimated the fair value of our Parts Sales reporting unit by weighting results from the income approach and the market approach and concluded that our Parts Sales reporting unit had a fair value less than its carrying value, resulting in a $ 5.7 million impairment charge. The impairment was largely due to a current year decrease in parts revenues as a result of our strategic shift and recent dispositions. This revenue decline, combined with our forecasted parts revenues growth rate and operating results assumptions for the forecast period under the income approach, resulted in a fair value determination, that when combined with the weighted fair value of the reporting unit determined under the market approach, was less than the reporting unit’s carrying value.

Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. The inputs and variables used in determining the fair value of a reporting unit require management to make certain assumptions regarding the impact of operating and macroeconomic changes, as well as estimates of future cash flows. Our estimates regarding future cash flows are based on historical experience and projections of future operating performance, including revenues, margins and operating expenses. We also make certain forecasts about future economic conditions, such as the timing and duration of economic expansion or contraction cycles in our business, interest rates, and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. An adverse change in any of the assumptions used in our impairment testing (e.g., projected revenue and profit, discount rates, industry price multiples, etc.) could affect our fair value measurements and result in future impairments. If we are unable to achieve the financial forecasts used in our impairment analysis, we may also be required to record an impairment charge to our goodwill.

The impairment charge described above is a non-cash item and does not affect our cash flows, liquidity or borrowing capacity under the Credit Facility, and the impairment charge is excluded from our financial results in evaluating our financial covenants under the Credit Facility.

The carrying amount of goodwill for our reporting units for th e years ended December 31, 2024 and 2023 is as follows (amounts in thousands):

Equipment

Rentals

Sales of

Rental Eq.

Parts

Sales

Total

Balance at December 31, 2022 (1)

Increase (2)

Decrease (3)

Decrease (4)

Increase (5)

Balance at December 31, 2023 (1)

Increase (6)

Decrease (7)

Increase (8)

Increase (9)

Increase (10)

Balance at December 31, 2024 (1)

The total carrying amount of goodwill as of December 31, 2022 in the table above is reflected net of $ 92.7 million of accumulated impairment charges. The total carrying amount of goodwill as of December 31, 2024 and 2023 in the table above is reflected net of $ 98.4 million of accumulated impairment charges.

Increase is related to the closing adjustments of the OSR Acquisition during the first quarter of 2023.

Decrease is related to the Parts Sales goodwill impairment calculated during the third quarter of 2023.

Decrease is related to the final closing adjustment of the OSR Acquisition during the third quarter of 2023.

Increase due to the Giffin Equipment (“Giffin”) Acquisition during the fourth quarter of 2023.

Increase due to the Precision Rentals (“Precision”) Acquisition during the first quarter of 2024.

Decrease is related to the final purchase accounting adjustment of the Giffin Acquisition during the first quarter of 2024.

Increase due to Lewistown Rentals (“Lewistown”) Acquisition during the second quarter of 2024.

Increase is related to the final closing adjustment of the Precision Acquisition during the second quarter of 2024.

Increase is related to the final closing adjustment of the Lewistown Acquisition during the third quarter of 2024.

Intangible assets

Our intangible assets include customer relationships, tradenames and leasehold interests that we acquired in recent acquisitions (see Note 3 for further acquisition information). The customer relationships, leasehold interests and noncompetition agreements are amortized on a straight-line basis over estimated useful lives of ten years , ten years and the length of agreement (typically one to five years ), respectively, from the date of acquisition, which approximates the period of economic benefit.

The gross carrying values, accumulated amortization and net carrying amounts of our major classes of intangible assets as of December 31, 2024 and 2023 are as follows (dollar amounts in thousands):

December 31, 2024

December 31, 2023

Gross

Accumulated Amortization

Net

Gross

Accumulated Amortization

Net

Customer relationships

Noncompetition agreements

Leasehold interests

Total

The weighted-average remaining amortization period as of December 31, 2024 was 7 years for customer relationships, 4 years for noncompetition agreements and 3 years for leasehold interests. The weighted-average remaining amortization period as of December 31, 2023 was 8 years for customer relationships, 5 years for noncompetition agreements and 4 years for leasehold interests.

Intangible assets are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The impairment loss to be recorded would be the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis or other valuation technique.

Total amortization expense for the years ended December 31, 2024, 2023 and 2022 totaled $ 10.3 million, $ 6.5 million and $ 4.7 million, respectively, and is included within SG&A expenses on the Consolidated Statements of Income. The following table presents the expected amortization expense for each of the next five years ending December 31 and thereafter for those intangible assets with remaining carrying value as of December 31, 2024 (dollar amounts in thousands):

Amortization Expense

Thereafter

Manufacturer Flooring Plans Payable

Manufacturer flooring plans payable are financing arrangements for inventory and rental equipment. The interest cost incurred on the manufacturer flooring plans ranged from 0 % to the prime rate ( 7.50 % at December 31, 2024) plus an applicable margin. Certain manufacturer flooring plans provide for a one to twelve-month reduced interest rate term or a deferred payment period. We recognize interest expense based on the effective interest method. We make payments in accordance with the original terms of the financing agreements. However, we may sell equipment that is financed under manufacturer flooring plans prior to the original maturity date of the financing agreement. The related manufacturer flooring plan payable is then paid at the time the equipment being financed is sold. The manufacturer flooring plans payable are secured by the equipment being financed.

As of December 31, 2024 , there was no remaining balance on manufacturer flooring plans payable.

Leases

The Company as Lessee

We determine whether an arrangement is a lease at the inception of the arrangement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset for a period of time in exchange for consideration. Lease arrangements can take several forms. Some arrangements are clearly within the scope of lease accounting, such as a real estate contract that provides an explicit contractual right to use a building for a specified period of time in exchange for consideration. However, the right to use an asset can also be conveyed through arrangements that are not leases in form, such as leases embedded within service and supply contracts. We analyze all arrangements with potential embedded leases to determine if an identified asset is present, if substantive substitution rights are present, and if the arrangement provides the customer control of the asset.

Our lease portfolio is substantially comprised of operating leases related to leases of real estate and improvements at our branch locations. From time to time, we may also lease various types of small equipment and vehicles.

Operating lease right-of-use (“ROU”) assets represent our right to use an individual asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide the lessor’s implicit rate, we use our incremental borrowing rate (“IBR”) at the commencement date in determining the present value of lease payments by assuming the rate for a fully collateralized and amortizing loan with the same term as the lease.

Lease terms include options to extend the lease when it is reasonably certain those options will be exercised. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when such renewal options and/or termination options are reasonably certain of exercise. We do not separate lease and non-lease components of contracts. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred.

A ROU asset is subject to the same impairment guidance as assets categorized as plant, property, and equipment. As such, any impairment loss on ROU assets is presented in the same manner as an impairment loss recognized on other long-lived assets.

A lease modification is a change to the terms and conditions of a contract that change the scope or consideration of a lease. For example, a change to the terms and conditions to the contract that adds or terminates the right to use one or more underlying assets, or extends or shortens the contractual lease term, is a modification. Depending on facts and circumstances, a lease modification may be accounted as either: (1) the original lease plus the lease of a separate asset(s) or (2) a modified lease. A lease will be remeasured if there are changes to the lease contract that do not give rise to a separate lease.

See Note 11 related to the required lease disclosures.

The Company as Lessor

Our equipment rental business involves rental contracts with customers whereby we are the lessor in the transaction and therefore, such transactions are subject to Topic 842. We account for such rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. Because the rental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.

Deferred Financing Costs and Initial Purchasers’ Discounts

Deferred financing costs include legal, accounting and other direct costs incurred in connection with the issuance and amendments thereto, of the Company’s debt. These costs are amortized over the terms of the related debt using the straight-line method which approximates amortization using the effective interest method.

Initial purchasers’ discount and bond premium is the differential between the price paid to an issuer for the new issue and the prices (below and above, respectively) at which the securities are initially offered to the investing public. The amortization expense of deferred financing costs and bond premium and accretion of initial purchasers’ discounts are included in interest expense as an overall cost of the related financings. Such costs are presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount.

Reserves for Claims

We are exposed to various claims relating to our business, including those for which we provide self-insurance. Claims for which we self-insure include: (1) workers compensation claims; (2) general liability claims by third parties for injury or property damage caused by our equipment or personnel; (3) automobile liability claims; and (4) employee health insurance claims. Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies. These types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim, including claims incurred but not reported as of a period-end reporting date, may not be known for an extended period of time. Our methodology for developing self-insurance reserves is based on management estimates. Our estimation process considers, among other matters, the cost of known claims over time, cost inflation and incurred but not reported claims. These estimates may change based on, among other things, changes in our claim history or receipt of additional information relevant to assessing the claims. Further, these estimates may prove to be inaccurate due to factors such as adverse judicial determinations or other claim settlements at higher than estimated amounts. Accordingly, we may be required to increase or decrease our reserve levels. At December 31, 2024 , our claims reserves related to workers compensation, general liability and automobile liability, which are included in “Accrued expenses payable and other liabilities” in our consolidated balance sheets, totaled $ 10.2 million and our health insurance reserves totaled $ 2.6 million. At December 31, 2023 , our claims reserves related to workers compensation, general liability and automobile liability totaled $ 9.9 million and our health insurance reserves totaled $ 2.3 million.

Advertising

Advertising costs are expensed as incurred and totaled $ 0.8 million, $ 1.1 million and $ 1.0 million for the years ended December 31, 2024, 2023 and 2022 , respectively.

Income Taxes

The Company files a consolidated federal income tax return with its wholly-owned subsidiaries. The Company is a C-Corporation under the provisions of the Internal Revenue Code. We utilize the asset and liability approach to measure deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date of that rate.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax provisions are measured at the largest amount that is greater than 50 % likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes both interest and penalties related to uncertain tax positions in net other income (expense).

Our deferred tax calculation requires management to make certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair Value of Financial Instruments

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

The carrying value of financial instruments reported in the accompanying consolidated balance sheets for cash, accounts receivable, Senior Secured Credit Facility (the “Credit Facility”), accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature, maturity or market interest rate of these financial instruments. The Company’s outstanding obligations on its Credit Facility are deemed to be at fair value as the interest rates are variable and consistent with prevailing rates, which are considered Level 2 inputs. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures as of December 31, 2024 and 2023 are presented in the table below (amounts in thousands).

December 31, 2024

Carrying

Amount

Fair

Value

Senior unsecured notes due 2028  with interest computed at 3.875 % (Level 2)

December 31, 2023

Carrying

Amount

Fair

Value

Manufacturer flooring plans payable with interest computed at 8.75 % (Level 3)

Senior unsecured notes due 2028  with interest computed at 3.875 % (Level 2)

At December 31, 2024 and 2023 , the fair value of our senior unsecured notes due 2028 (the “Senior Unsecured Notes”), respectively, were based on quoted bond trading market prices for those notes. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturer flooring plans payable based on the U.S. prime rate plus the applicable margin on our Credit Facility. The discount rate is disclosed in the above table. The assets collateralized against the manufacturer flooring plans payable approximate its carrying value.

During the years ended December 31, 2024 and 2023 , there were no transfers of financial assets or liabilities in or out of Level 3 of the fair value hierarchy.

Fair Value Measurements on a Nonrecurring Basis

Our non-financial assets, such as goodwill, intangible assets, rental equipment and property and equipment, are adjusted to fair value only when an impairment charge is recognized or the underlying investment is sold. Such fair value measurements are based predominately on Level 3 inputs. The result of our third quarter 2023 goodwill impairment quantitative test indicated that the fair value of the Parts Sales reporting unit was less than the carrying value of the reporting unit, resulting in a goodwill impairment of $ 5.7 million.

Concentrations of Credit and Supplier Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits and trade accounts receivable. Credit risk can be negatively impacted by adverse changes in the economy or by disruptions in the credit markets.

The Company maintains its cash deposits with established commercial banks. At times, balances may exceed federally insured limits. We have not experienced any losses in such accounts and do not believe that we are exposed to any significant credit risk associated with our cash deposits.

We believe that credit risk with respect to trade accounts receivable is somewhat mitigated by our large number of geographically diverse customers and our credit evaluation procedures. Although generally no collateral is required, when feasible, mechanics’ liens are filed and personal guarantees are signed to protect the Company’s interests. We maintain reserves for potential losses.

We record trade accounts receivables at sales value and establish specific reserves for certain customer accounts identified as known collection problems due to insolvency, disputes or other collection issues. The amounts of the specific reserves estimated by management are determined by a loss rate model based on delinquency, as further described above in receivables and contract assets and liabilities.

We purchase a significant amount of equipment from leading, nationally-known original equipment manufacturers. During the year ended December 31, 2024 , we purchased approximately 48.5 % of our equipment from five manufacturers (Haulotte, Skyjack, JCB, Polaris, and JLG). We believe that while there are alternative sources of supply for the equipment we purchase in each of the principal product categories, termination of one or more of our relationships with any of our major suppliers of equipment could have

a material adverse effect on our business, financial condition or results of operation if we were unable to obtain adequate or timely rental equipment.

Income (loss) per Share

Income (loss) per common share for the years ended December 31, 2024, 2023 and 2022 is based on the weighted average number of common shares outstanding during the period. The effects of potentially dilutive securities that are anti-dilutive are not included in the computation of diluted income (loss) per share. We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.

Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. The number of restricted common shares outstanding during the years ended December 31, 2024, 2023 and 2022 were less than 1 % of total outstanding shares for each of the years ended December 31, 2024, 2023 and 2022 and consequently, were immaterial to the basic and diluted EPS calculations. Therefore, use of the two-class method had no impact on our basic and diluted EPS calculations as presented for the years ended December 31, 2024, 2023 and 2022.

The following table sets forth the computation of basic and diluted net income (loss) per common share for the years ended December 31, (amounts in thousands, except per share amounts):

Net income from continuing operations

Net loss from discontinued operations

Net income

Weighted average number of common shares outstanding:

Basic

Effect of dilutive non-vested restricted stock

Diluted

Income (loss) per share: (1)

Basic:

Continuing operations

Discontinued operations

Net income per share

Diluted:

Continuing operations

Discontinued operations

Net income per share

Common shares excluded from the denominator as anti-dilutive:

Non-vested restricted stock

Dividends declared per common share outstanding

Because of the method used in calculating per share data, the summations may not necessarily total to the per share data computed for the total company due to rounding.

Segment Reporting

We have four reportable segments because we derive our revenues from four business activities: (1) equipment rentals; (2) sales of rental equipment; (3) sales of new equipment; (4) parts, service and other revenues. Our primary segment is equipment rentals. These segments are based upon how we allocate resources and assess performance. We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting

provided to our Chief Operating Decision Maker. See Note 16 to the consolidated financial statements regarding our segment information.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

Income Taxes

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which should improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU requires that public entities on an annual basis disclose specific categories in the rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and the following information about income taxes paid: the amount of income taxes paid disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions. Lastly, the amendments in this ASU require that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. ASU 2023-09 becomes effective January 1, 2025 and is not expected to have an impact on our financial statements, but will result in expanded tax disclosures.

Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which is intended to improve expense disclosures, primarily by requiring disclosure of disaggregated information about certain income statement expense line items on an annual and interim basis. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 becomes effective January 1, 2027 and is not expected to have an impact on our financial statements, but will result in expanded expense disclosures.

Recently Adopted Accounting Pronouncements

Segment Reporting

On January 1, 2024 we adopted ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improved the disclosures about a public entity’s reportable segments and addresses requests for additional, more detailed information about a reportable segment’s expenses. The amendments in this ASU required disclosure of incremental segment information on an annual and interim basis for all public entities. The impact of this ASU did not have an impact on our financial statements, but resulted in expanded reportable segment disclosures.

Acquisitions and Dispositions

2024 Acquisitions

Lewistown Rentals

Effective May 1, 2024 , we completed the acquisition of Lewistown Rentals (“Lewistown”), a Lewistown, Montana-based equipment rental business and three of its affiliated rental operations in Havre, Glasgow and Great Falls, Montana. The acquisition expands our presence in the Montana market.

The aggregate cash consideration paid was approximately $ 33.8 million. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the third quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

$’s in thousands

Accounts receivable

Prepaid expenses and other assets

Rental equipment

Property and equipment

Customer relationships intangible asset (1)

Total identifiable assets acquired

Accounts payable

Accrued expenses payable and other liabilities

Total liabilities assumed

Net identifiable assets acquired

Goodwill (2)

Net assets acquired

The following table reflects the fair values and useful lives of the acquired intangible assets:

Fair Value

(amounts in

thousands)

Life (years)

Customer relationships

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the Lewistown acquisition is primarily reflective of Lewistown’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.

Acquisition costs for the year ended December 31, 2024 were $ 0.5 million included within SG&A expenses on the Consolidated Statement of Income. Since our acquisition of Lewistown on May 1, 2024, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Lewistown revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of May 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.

Precision Rentals

Effective January 1, 2024 , we completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado. The acquisition expands our presence in both geographic markets.

The aggregate cumulative cash consideration paid was approximately $ 124.0 million, which includes $ 3.5 million of fair value allocated to a noncompete agreement which is accounted for as a separate transaction from the net assets acquired in the business combination. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the second quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

$’s in thousands

Accounts receivable

Prepaid expenses and other assets

Rental equipment

Property and equipment

Operating lease right-of-use assets

Customer relationships intangible asset (1)

Total identifiable assets acquired

Accounts payable

Accrued expenses payable and other liabilities

Operating lease liabilities

Total liabilities assumed

Net identifiable assets acquired

Goodwill (2)

Net assets acquired

Noncompetition agreement intangible asset (1)(3)

Total cumulative consideration

The following table reflects the fair values and useful lives of the acquired intangible assets:

Fair Value

(amounts in

thousands)

Weighted-Average Life (years)

Customer relationships

Noncompetition agreements

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The fair value of the noncompetition agreements is considered to be a separate transaction under ASC 805 and as such, has been excluded from the purchase price.

The level of goodwill that resulted from the Precision acquisition is primarily reflective of Precision’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.

Acquisition costs for the year ended December 31, 2024 were $ 0.4 million included within SG&A expenses on the Consolidated Statement of Income. Since our acquisition of Precision on January 1, 2024, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Precision revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of January 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.

2023 Acquisition

Giffin Equipment

Effective November 1, 2023 , we completed the acquisition of Mel Giffin, Inc. (d/b/a Giffin Equipment) (“Giffin”), an equipment rental company with three branches located in California. The acquisition expands our presence in the California market.

The aggregate cash consideration paid was approximately $ 31.3 million. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the third quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

$’s in thousands

Accounts receivable

Prepaid expenses and other assets

Rental equipment

Property and equipment

Operating lease right-of-use assets

Intangible assets (1)

Total identifiable assets acquired

Accrued expenses payable and other liabilities

Operating lease liabilities

Total liabilities assumed

Net identifiable assets acquired

Goodwill (2)

Net assets acquired

The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

Fair Value

(amounts in

thousands)

Weighted-Average Life (years)

Customer relationships

Noncompetition agreements

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the Giffin acquisition is primarily reflective of Giffin’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100 % deductible for income tax purposes.

Acquisition costs were $ 0.1 million and $ 0.3 million, respectively, and included within SG&A expenses on the Consolidated Statements of Income during the year ended December 31, 2024 and 2023. Since our acquisition of Giffin on November 1, 2023, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Giffin revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of November 1, 2023 and the results of operations are included in the Company's consolidated results as of that date.

2022 Acquisition

One Source Equipment Rentals, Inc.

Effective October 1, 2022 , we acquired 100 % of the equity of One Source Equipment Rentals, Inc. (“OSR”), an equipment rental company with ten branches located in the Midwest. The acquisition expands our presence in the surrounding market, including initial locations in Illinois, Indiana, and Kentucky.

The aggregate cash consideration paid was approximately $ 136.7 million. The acquisition and related fees and expenses were funded from available cash. Customary closing adjustments were finalized during the first quarter of 2023 and the update of a tax estimate upon filing the final tax returns concluded during the third quarter of 2023. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

$’s in thousands

Cash

Accounts receivable

Inventory

Prepaid expenses and other assets

Rental equipment

Property and equipment

Operating lease right-of-use assets

Intangible assets (1)

Total identifiable assets acquired

Accounts payable

Tax payable

Operating lease liabilities

Deferred income taxes

Total liabilities assumed

Net identifiable assets acquired

Goodwill (2)

Net assets acquired

The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

Fair Value

(amounts in

thousands)

Weighted-Average Life (years)

Customer relationships

Noncompetition agreements

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the OSR acquisition is primarily reflective of OSR’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. Goodwill was not deductible for income tax purposes.

Acquisition costs were $ 0.8 million and included within SG&A expenses on the Consolidated Statement of Income during the year ended December 31, 2022. Since our acquisition of OSR on October 1, 2022, significant amounts of rental equipment have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of OSR revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of October 1, 2022 and the results of operations are included in the Company's consolidated results as of that date.

Pro forma financial information (unaudited)

We completed the Giffin acquisition effective November 1, 2023. Therefore, our reported Consolidated Statement of Income for the year ended December 31, 2023 does not include Giffin for the period from January 1, 2023 through October 31, 2023. Additionally, we completed the Precision and Lewistown acquisitions effective January 1, 2024 and May 1, 2024, respectively. Therefore, our reported Consolidated Statement of Income for the year ended December 31, 2024 does not include Lewistown for the period from January 1, 2024 through April 30, 2024.

The unaudited pro forma information in the table below (amounts in thousands) is for informational purposes only and gives effect to the Giffin, Precision and Lewistown acquisitions had all been completed on January 1, 2023 (the “pro forma acquisition date”). The unaudited pro forma information is not necessarily indicative of our results of operations had the acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of our future results. The unaudited pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, nor does it reflect additional revenue opportunities following the acquisition. The unaudited pro forma financial information includes adjustments primarily related to the incremental depreciation and amortization expense of the rental equipment and intangible assets acquired, the elimination of interest expense related to historical debt as well as other expenses that are not part of the combined entity and transaction expenses.

Year Ended December 31,

Total revenues

Net income

2022 Disposition

Komatsu Earthmoving Distributorship

On December 15, 2022, we sold our Komatsu earthmoving distribution business to Houston, Texas based Waukesha-Pearce Industries, LLC (“WPI”) for $ 29.2 million, subject to customary closing adjustments. The WPI sale included the rights to the distribution of Komatsu earthmoving equipment in the state of Louisiana and counties located in southwestern Arkansas, a branch location and its associated property, plant and equipment in Kenner, LA, Komatsu new equipment inventory, assets at a leased facility in Bossier City, LA and certain other equipment, parts and supplies with a net book value of approximately $ 14.7 million. We recorded a gain of $ 12.9 million within gain from sales of property and equipment, net and a gain of $ 2.5 million within other income on the Consolidated Statement of Income for the year ended December 31, 2022. The WPI sale did not qualify for discontinued operations as the divestiture does not meet the definition of a component.

2021 Disposition

Crane Sale

On July 19, 2021, the Company entered into a definitive agreement to sell its crane business to a wholly-owned subsidiary of The Manitowoc Company, Inc. for $ 130.0 million in cash, which was subject to adjustment based on actual amounts of net working capital and crane rental fleet net book value delivered at transaction closing. The Company executed the transaction closing on October 1, 2021 , subject to customary closing conditions, including regulatory approval under the Hart-Scott-Rodino Act, resulting in proceeds of $ 135.9 million, which was subject to finalization of adjustments. Closing adjustments of $ 1.9 million were recorded as a loss from discontinued operations on the Consolidated Statement of Income during the second quarter of 2022.

This disposition represents the Company’s strategic shift to a pure-play rental business. In accordance with ASC 205-20, the Company determined that discontinued operations presentation was met during the third quarter of fiscal year 2021. There is no continuing involvement with the crane business. The crane business’s results are reported separately as discontinued operations in our Consolidated Statements of Income for the year ended December 31, 2022. As permitted, the Company elected not to adjust the Consolidated Statements of Cash Flows to exclude cash flows attributable to discontinued operations. Accordingly, we disclosed the items related to the Crane Sale below.

The following tables (amounts in thousands) present the Crane Sale results as reported in income from discontinued operations within our Consolidated Statements of Income.

Year Ended December 31,

Total revenues

Total cost of revenues

Gross profit

Selling, general and administrative expenses

Loss on sales of property and equipment, net

Loss on sale of discontinued operations

Loss from discontinued operations

Other, net

Loss before benefit for income taxes

Benefit for income taxes

Net loss from discontinued operations

Cash flows from discontinued operations was as follows (amounts in thousands):

Year Ended December 31,

Operating activities of discontinued operations:

Loss on sale of discontinued operations

Receivables

Receivables consisted of the following at December 31, (amounts in thousands):

Trade receivables

Unbilled rental revenue

Income tax receivables

Other

Less allowance for doubtful accounts

Total receivables, net

Inventories

Inventories consisted of the following at December 31, (amounts in thousands):

Used equipment

New equipment

Parts, service and other

Total inventories, net

The above amounts are presented net of reserves for inventory obsolescence at December 31, 2024 and 2023 totaling approximately $ 0.2 million.

Property and Equipment

Net property and equipment consisted of the following at December 31, (amounts in thousands):

Land

Transportation equipment

Building and leasehold improvements

Office and computer equipment

Machinery and equipment

Construction in progress

Less accumulated depreciation and amortization

Total net property and equipment

Total depreciation and amortization on property and equipment was $ 48.0 million, $ 34.7 million and $ 28.8 million for the years ended December 31, 2024, 2023 and 2022 , respectively.

Stock-Based Compensation

The Company issues time-based and performance-based restricted stock units (“RSU”) to certain officers and executives under our stock-based compensation plan. The RSUs automatically convert to shares of common stock on a one -for-one basis as the awards vest. The time-based RSUs typically vest over a three year vesting period beginning 12 months from the grant date and thereafter annually on the anniversary of the grant date. The performance-based RSUs vest based on the achievement of the performance conditions specific to certain financial metrics during the three year performance period. Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, net of an estimated forfeiture rate, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The estimated forfeiture rate is based on historical experience and revised, if necessary, in subsequent periods for actual forfeitures. For performance-based RSUs, compensation expense is recognized to the extent that the satisfaction of the performance condition is considered probable.

Our Amended and Restated 2016 Stock-Based Incentive Compensation Plan (the “2016 Plan”) is administered by the Compensation Committee of our Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions, performance measures, if any, and other provisions of the award. Under the 2016 Plan, we may offer deferred shares or restricted shares of our common stock and grant options, including both incentive stock options and nonqualified stock options, to purchase shares of our common stock. Shares available for future stock-based payment awards under our 2016 Plan were 2,228,894 shares of common stock as of December 31, 2024.

Non-vested RSUs

The following table summarizes our non-vested RSU activity for the years ended December 31, 2024, 2023 and 2022:

Number of

Shares

Weighted

Average Grant

Date Fair Value

Non-vested RSUs at January 1, 2022

Granted

Vested

Forfeited

Non-vested RSUs at December 31, 2022

Granted

Vested

Forfeited

Non-vested RSUs at December 31, 2023

Granted

Vested

Forfeited

Non-vested RSUs at December 31, 2024

As of December 31, 2024 , we had unrecognized compensation expense of approximately $ 12.6 million related to non-vested RSU award payments that we expect to be recognized over a weighted average period of 2.0 years. Stock compensation expense, which is included in SG&A expenses in the accompanying Consolidated Statements of Income, for the years ended December 31, 2024, 2023 and 2022 was $ 11.2 million, $ 10.0 million and $ 7.3 million, respectively. The total recognized tax benefit amounted to $ 0.9 million, $ 0.7 million and $ 0.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. The total fair value of vested stock during the years ended December 31, 2024, 2023 and 2022 was $ 10.2 million, $ 7.1 million and $ 4.4 million, respectively.

Purchases of Company Common Stock

Purchases of our common stock are accounted for as treasury stock in the accompanying consolidated balance sheets using the cost method. Repurchased stock is included in authorized shares, but is not included in shares outstanding.

Accrued Expenses Payable and Other Liabilities

Accrued expenses payable and other liabilities consisted of the following at December 31, (amounts in thousands):

Payroll and related liabilities

Sales, use, property and income taxes

Accrued interest

Accrued insurance

Deferred revenue

Other

Total accrued expenses payable and other liabilities

Senior Unsecured Notes

On December 14, 2020, we completed an offering of $ 1,250 million aggregate principal amount of 3.875 % senior notes due 2028 (the “Senior Notes”). The Senior Notes were sold in a private placement pursuant to a purchase agreement, dated November 30, 2020, by and among the Company, certain subsidiary guarantors and BofA Securities, Inc. There are no registration rights associated with the Senior Notes or the subsidiary guarantees.

The Senior Notes were issued at par and require semiannual interest payments on June 15 th and December 15 th of each year, commencing on June 15, 2021. No principal payments are due until maturity ( December 15, 2028 ).

The Senior Notes were issued under an indenture, dated as of December 14, 2020, by and among the Company, the subsidiary guarantors named therein, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”). Subsequent to December 15, 2023, the Senior Notes may be redeemed pursuant to a declining schedule of redemption prices set forth in the Indenture.

The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment to all of the Company’s existing and future senior indebtedness and rank senior to any of the Company’s subordinated indebtedness. The Senior Notes are unconditionally guaranteed on a senior unsecured basis by all of the Company’s current and future significant domestic subsidiaries (the “Guarantors”). In addition, the Senior Notes are effectively subordinated to all of the Company’s and the guarantors’ existing and future secured indebtedness, including the Company’s existing senior secured credit facility, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the liabilities and preferred stock of any of the Company’s subsidiaries that do not guarantee the Senior Notes. There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.

If we experience a change of control, we will be required to offer to purchase the Senior Notes at a repurchase price equal to 101 % of the principal amount, plus accrued and unpaid interest to the date of repurchase.

The indenture governing the Senior Notes contains certain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional debt; (ii) pay dividends or make distributions; (iii) make investments; (iv) repurchase stock; (v) create liens; (vi) enter into transactions with affiliates; (vii) merge or consolidate; and (viii) transfer and sell assets. Each of the covenants is subject to exceptions and qualifications. As of December 31, 2024, we were in compliance with these covenants.

The following table reconciles our Senior Unsecured Notes to our Consolidated Balance Sheets (amounts in thousands):

Balance at December 31, 2022

Accretion of discount through December 31, 2023

Amortization of deferred financing costs through December 31, 2023

Balance at December 31, 2023

Accretion of discount through December 31, 2024

Amortization of deferred financing costs through December 31, 2024

Balance at December 31, 2024

Senior Secured Credit Facility

We and our subsidiaries are parties to a $ 750.0 million asset based revolving Credit Facility with Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named therein (the “Credit Facility”).

On February 2, 2023, we amended, extended and restated the $ 750.0 million Credit Facility by entering into the Sixth Amended and Restated Credit Agreement by and among the Company, Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E Equipment Services (Mid-Atlantic), LLC, H&E Equipment Services (Midwest), LLC, the other credit parties named therein, the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, the other credit parties named therein, the lenders named therein, and the joint lead arrangers, joint book runners, co-syndication agents and documentation agent named therein.

The Sixth Amended and Restated Credit Agreement, among other things, (i) extended the maturity date of the credit facility to February 2, 2028 and (ii) amended the interest rate to SOFR plus a credit spread adjustment plus an applicable margin of 1.25 % to 1.75 %, depending on the Average Availability (as defined in the Amended and Restated Credit Agreement).

As amended, the Amended and Restated Credit Agreement continues to provide for, among other things, a $ 30.0 million letter of credit sub-facility, and a guaranty by certain of the Company’s subsidiaries of the obligations under the Credit Facility. In addition, the Credit Facility remains secured by substantially all of the assets of the Company and certain of its subsidiaries.

At December 31, 2024, we had $ 199.3 million outstanding under the Credit Facility and could borrow up to approximately $ 535.9 million , net of a $ 14.8 million outstanding letter of credit. As of December 31, 2024 , the weighted average interest rate under the Credit Facility was approximately 6.6 %. As of December 31, 2024, we were in compliance with our financial covenant under the Amended and Restated Credit Agreement.

The aggregate amounts outstanding as of December 31, 2024 under both the Credit Facility and our Senior Secured Notes (Note 9) of $ 1,449.3 million mature during 2028.

Leases

We use the rate implicit in the lease to discount lease payments to present value, when available, however, most of our leases do not provide a readily determinable implicit rate. Therefore, we estimate our IBR to discount the lease payments based on information available at lease commencement. Our IBR represents the rate we would expect to pay under a fully collateralized rate and amortizing loan with the same term as the lease.

At December 31, 2024 , the weighted average remaining lease term for operating leases was approximately 7.6 years and for finance leases was approximately 7.8 years. The weighted average discount rate for operating and finance leases was approximately 6.3 % and 6.0 %, respectively, at December 31, 2024. At December 31, 2023 , the weighted average remaining lease term for operating leases was approximately 7.5 years and for finance leases was approximately 8.6 years. The weighted average discount rate for operating and finance leases was approximately 6.4 % and 5.9 %, respectively, at December 31, 2023.

The table below presents certain information related to lease costs, under Topic 842, for our operating and finance leases for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):

Year Ended December 31,

Classification

Operating lease cost

SG&A expenses

Finance lease costs

Amortization of leased assets

SG&A expenses

Interest on lease liabilities

Interest expense

Variable lease cost

SG&A expenses

Sublease income

Other, net

Total lease cost

The table below presents supplemental cash flow information related to leases for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):

Year Ended December 31,

Cash paid for amounts included in the measurements of lease liabilities:

Operating cash flows for operating leases

Operating cash flows for finance leases

Finance cash flows for finance leases

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating and finance lease liabilities recorded on our consolidated balance sheet as of December 31, 2024 (amounts in thousands):

Operating Leases

Finance Leases

Thereafter

Total minimum lease payments

Less: amount of lease payments representing interest

Present value of future minimum lease payments

The future minimum lease payments of operating leases executed but not commenced as of December 31, 2024 are estimated to be $ 2.7 million, $ 4.7 million, $ 4.8 million, $ 5.0 million and $ 5.1 million for the years ending December 31, 2025 , 2026, 2027, 2028 and 2029, respectively, and $ 30.5 million thereafter. It is expected that these leases will primarily commence during 2025 .

Income Taxes

Our income tax provision (benefit) for the years ended December 31, 2024, 2023 and 2022, consists of the following (amounts in thousands):

Current

Deferred

Total

Year Ended December 31, 2024

U.S. Federal

State

Year Ended December 31, 2023

U.S. Federal

State

Year ended December 31, 2022

U.S. Federal

State

Significant components of our deferred income tax assets and liabilities as of December 31 are as follows (amounts in thousands):

Deferred tax assets:

Accounts receivable

Inventories

Net operating losses

Tax credits

Sec 263A costs

Accrued liabilities

Operating lease liabilities

Deferred compensation

Interest expense

Stock-based compensation

Goodwill and intangible assets

Other assets

Total deferred tax assets

Valuation allowance

Total deferred tax assets, net of valuation allowance

Deferred tax liabilities:

Property and equipment

Operating lease right-of-use assets

Investments

Goodwill and intangible assets

Total deferred tax liabilities

Net deferred tax liabilities

The reconciliation between income taxes computed using the statutory federal income tax rate of 21 % to the actual income tax expense (benefit) is below for the years ended December 31 (amounts in thousands):

Computed tax at statutory rates

Permanent items – other

Nondeductible executive compensation

Permanent items – impairment of goodwill

State income tax, net of federal tax effect

Change in valuation allowance

Change in uncertain tax positions

Change in state tax rates

At December 31, 2024 , we had available federal net operating loss carry forwards of approximately $ 119.1 million that do not expire and state net operating loss carry forwards of approximately $ 36.8 million, of which $ 23.8 million expire in varying amounts from 2025 to 2043 and $ 13.0 million do not expire. We also had state income tax credits of $ 11.0 million that expire in varying amounts from 2025 to 2039 .

Management has concluded that it is more likely than not that the federal deferred tax assets are fully realizable through future reversals of existing taxable temporary differences and future taxable income. Therefore, a valuation allowance is not required to reduce those deferred tax assets as of December 31, 2024. However, as of December 31, 2024 , we have a valuation allowance of $ 0.6 million for certain state tax credits that are expected to expire prior to utilization. For the year ended December 31, 2024, we recorded a net valuation allowance release of $ 2.4 million based on reassessment of scheduled reversals of deferred tax liabilities, projected future taxable income, and legislative changes that indicate that it is more likely than not that these deferred tax assets will be realized.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):

Gross unrecognized tax benefits at January 1

Increases in tax positions taken in prior years

Decreases in tax positions taken in prior years

Increases in tax positions taken in current years

Decreases in tax positions taken in current years

Settlements with taxing authorities

Lapse in statute of limitations

Gross unrecognized tax benefits at December 31

The gross amount of unrecognized tax benefits as of December 31, 2024, if recognized, would affect the effective income tax rate. To the extent we incur interest income, interest expense, or penalties related to unrecognized income tax benefits, it will be recorded within net other income (expense) on the Consolidated Statements of Income. The amount of interest and penalties recorded related to unrecognized income tax benefits for the years ended December 31, 2024, 2023 and 2022 is $ 0.2 million, $ 0.1 million and $ 0.1 million, respectively. We do not expect our unrecognized tax benefits to change materially in the next twelve months.

Our U.S. federal tax returns for 2021 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2020 and subsequent years.

Commitments and Contingencies

Legal Matters

From time to time, we are involved in various claims and legal actions arising in the ordinary course of our business, including claims for which we retain portions of the losses through the application of deductibles and self-insured retentions, or self-insurance, and claims arising from the upcoming merger agreement.

Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies. On November 26, 2024, our excess insurance carrier agreed in principle to settle a contingent liability for $ 8.0 million related to a Company automobile liability claim. Pursuant to ASC 450, Contingencies, and other relevant guidance, when the contingency become both probable and estimable, our consolidated balance sheets will reflect a liability for the total amount of estimated claim and an asset

for the portion of the claim recoverable through insurance. Our loss exposure related to this claim is limited to our insurance policy deductible per claim, which is immaterial to our consolidated statement of operations.

Letters of Credit

The Company had outstanding standby letters of credit issued under its Credit Facility totaling $ 14.8 million and $ 12.3 million as of December 31, 2024 and 2023 , respectively. The $ 30.0 million letters of credit sub-facility expires in May 2025 and can be renewed for a similar one-year term.

Employee Retirement Benefit Plans

We offer substantially all of our non-union employees’ participation in a qualified 401(k)/profit-sharing plan in which we match employee contributions up to predetermined limits for qualified employees as defined by the plan. For the years ended December 31, 2024, 2023 and 2022 , we contributed to the plan, net of employee forfeitures, $ 5.8 million, $ 5.4 million and $ 4.6 million, respectively.

We contribute to the Pension Trust Fund Operating Engineers Annuity Plan (EIN: 94-6090764, Plan No. 002), a multi-employer pension plan (“the Plan”), under the terms of a Collective Bargaining Agreement (“CBA”) that expires on October 31, 2025 , and covers our union-represented employees and requires contribution amounts as set forth within the CBA. The Company contributed approximately $ 0.4 million in each of the years ended December 31, 2024, 2023 and 2022 , and the Company has paid no surcharges in any period presented. These contributions represent less than five percent of the Plan’s total contributions in 2023. As of the date that our 2024 consolidated financial statements were issued, the Plan’s Form 5500 was not available for the Plan year ended December 31, 2024.

The risks of participating in a multi-employer pension plan is different from the risks associated with single-employer plans in the following respects.

Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

If a participating employer stops contributing to the Plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If we choose to stop participating in the Plan, we may be required to pay the Plan an amount based on the unfunded status of the plan, referred to as withdrawal liability.

The Plan has a green zone status as of December 31, 2023 , the most recent date for which a status determination has been made. The Pension Protection Act of 2006 ranks the funded status of multi-employer pension plans depending upon a plan’s current and projected funding. A plan is in the Red Zone (Critical) if it has a current funded percentage less than 65 percent. A plan is in the Yellow Zone (Endangered) if it has a current funded percentage of less than 80 percent or projects a credit balance deficit within seven years. A plan is in the Green Zone (Healthy) if it has a current funded percentage greater than 80 percent and does not have a projected credit balance deficit within seven years. The zone status is based on the Plan’s year-end and is based on information that we received from the Plan and is certified by the Plan’s actuary. The Company currently has no intention of withdrawing from the Plan.

Related Party Transactions

Mr. John M. Engquist, who has served as the Company’s Executive Chairman of the Board for the years ended December 31, 2024, 2023 and 2022 , has a 35.0 % ownership interest in Perkins-McKenzie Insurance Agency, Inc. (“Perkins-McKenzie”), an insurance brokerage firm. Mr. Engquist had a 48 % ownership interest in Perkins-McKenzie for the years ended December 31, 2023 and 2022. Perkins-McKenzie brokers a substantial portion of our commercial liability insurance. As the broker, Perkins-McKenzie receives from our insurance provider as a commission a portion of the premiums we pay to the insurance provider. Commissions paid to Perkins-McKenzie on our behalf as insurance broker totaled approximately $ 1.4 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

We purchase products and services from, and sell products and services to, B-C Equipment Sales, Inc., in which Mr. Engquist has a 50 % ownership interest. In each of the years ended December 31, 2024, 2023 and 2022 , our purchases totaled less than $ 25 thousand, less than $ 20 thousand and less than $ 10 thousand, respectively, and our sales to B-C Equipment Sales, Inc. totaled approximately less than $ 1 thousand, less than $ 10 thousand and $ 0.1 million, respectively.

Segment Information

We have identified four reportable segments: equipment rentals, sales of rental equipment, sales of new equipment, and parts, service and other revenues. These segments are based upon revenue streams and how management of the Company allocates resources and assesses performance.

We revised our reportable segments by aggregating parts sales and service revenues into one segment during the quarter ended June 30, 2024 due to revised internal reporting provided to our Chief Operating Decision Maker (“CODM”). The prior year information has been recast as we previously reported five segments as noted in our Consolidated Financial Statements included as Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The reportable segments have varying revenue generating products and services. Equipment rentals derives revenues from renting owned equipment to customers. Sales of rental equipment derives revenues by selling equipment from our rental fleet to customers. Sales of new equipment derives revenues by selling new equipment from manufacturers to customers. Parts, service and other derives revenues by selling parts to customers, performing maintenance and repair services on rented and owned equipment, and other ancillary charges.

Our Chief Operating Officer is the Company’s CODM in accordance with ASC 280.

Gross profit is the measure of profit or loss utilized to assess segment performance and allocate resources that is provided to and reviewed by the Company’s CODM. Cost of Revenues is the significant expense category for our reportable segments. The CODM uses gross profit to allocate resources (employees, equipment, or capital resources) in operational reviews, forecasting and budgeting processes. SG&A expenses, interest expense, income tax expense, as well as all other income and expense items below gross profit are not allocated to our reportable segments and are not provided to or reviewed by our CODM. Segment gross profit is utilized to assess segment performance while consolidated income from operations and income from operations before provision for income taxes is utilized to assess company-wide performance.

Assets are identified on a segment basis for inventory, fleet and goodwill. No additional asset information is available on a segment basis. The Company and its CODM do not utilize or review full financials on a segment basis as that is not how the Company assesses performance or allocates resources.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies and there are no differences in accounting policy, basis of accounting or method of measurement between the individual segments and the consolidated company. There were no sales or transactions between segments for any of the periods presented.

We do not compile discrete financial information by our segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):

Years Ended December 31,

Segment Revenues:

Equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total revenues

Segment Cost of Revenues:

Rental depreciation

Rental expense

Rental other

Equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total cost of revenues

Segment Gross Profit:

Equipment rentals

Sales of rental equipment

Sales of new equipment

Parts, service and other

Total gross profit

Impairment of goodwill

Parts, service and other

Unallocated reconciling items:

Selling, general and administrative expenses

Gain from sales of property and equipment, net

Interest expense

Other, net

Income from operations before provision for income taxes

December 31,

Segment identified assets:

Inventories, net of reserves for obsolescence

Sales of rental equipment

Sales of new equipment

Parts, service and other

Rental equipment, net of accumulated depreciation

Equipment rentals

Goodwill

Equipment rentals

Sales of rental equipment

Total segment identified assets

Unallocated reconciling assets

Total assets

Years Ended December 31,

Cash flows from investing activities:

Equipment rentals

Purchase of rental equipment

Sales of rental equipment

Proceeds from sales of rental equipment

The Company operates primarily in the United States. Our sales to international customers for each of the three years ended December 31, 2024 was less than 0.3 % of total revenues. No one customer accounted for more than 10% of our total revenues for any of the periods presented.

Subsequent Events

On January 13, 2025, the Company entered into an Agreement and Plan of Merger (the “United Merger Agreement”) with United Rentals, Inc., a Delaware Corporation (“United Rentals” or “United”) and UR Merger Sub VII Corporation, a Delaware corporation and wholly owned subsidiary of United, pursuant to which a cash tender offer was commenced on behalf of United to purchase all of the issued and outstanding shares of our common stock at $ 92.00 a share. Upon receiving a superior proposal from Herc Holdings Inc., described in detail below, the United Merger Agreement was terminated on February 18, 2025 .

On February 19, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Herc Holdings Inc., a Delaware corporation (“Herc”). The Merger Agreement provides for the acquisition of the Company by Herc in a two-step transaction, consisting of an exchange offer, followed by a subsequent back-end merger. Pursuant to the Merger Agreement, Herc will commence an exchange offer on or before March 19, 2025 to acquire any and all of the issued and outstanding shares of the Company’s common stock, par value $ 0.01 per share, for a combination of cash and Herc common stock, consisting of (i) $ 78.75 in cash, without interest, less any applicable withholding of taxes, and (ii) a fixed exchange ratio of 0.1287 shares of Herc common stock, without interest, per share. The combination of cash and stock is equal to a total value of approximately $ 104.89 per share (the “Offer Price”) based on Herc’s 10-day volume-weighted average price as of market close February 14, 2025 . Following completion of the exchange offer, Herc intends to acquire all remaining shares not exchanged in the offer at the same price (combination of cash and stock) as in the exchange offer. The transaction is expected to close in the first half of 2025. The transaction is subject to customary closing conditions, including a minimum tender of at least one share more than 50 percent of then-outstanding common shares, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval for listing on the New York Stock Exchange (“NYSE”) of Herc’s common stock to be issued in the Offer and Merger. The Company and Herc expect to file their Premerger Notification and Report Forms with the FTC and Antitrust Division promptly, which will begin an initial review period of 30 days.

In February 2025, severance agreements were entered into between the Company and each of the Company’s named executive officers (each, an “NEO”) (collectively, the “Executive Severance Agreements”). The Executive Severance Agreements provide for severance payments and benefits in the event that an NEO’s employment is terminated by the Company (or its successor) without “Cause” or an NEO resigns for “Good Reason”, as defined in the agreement, in either case, within two years following a “change in control”.

If the Merger is consummated, our Common Stock will be delisted from The NASDAQ Global market and deregistered under Securities Exchange Act of 1934, as amended, as promptly as practicable following the effective time of the Merger. The Merger Agreement also contains certain termination rights for Herc and us and further provides that, upon termination of the Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Herc a termination fee of approximately $ 145 million, in addition to refunding Herc for the termination fee of $ 63.5 million paid to United Rentals pursuant to the United Merger Agreement, if the Company enters into a superior proposal based on terms included in the Merger Agreement.

On February 7, 2025 , the Company declared a quarterly dividend of $ 0.275 per share to stockholders of record as of the close of business on February 18, 2025 , which is to be paid on February 24, 2025 .