Neil Tyler

Neil Tyler asked about the 70 basis points margin drag from transportation costs in Q4 2025, inquiring if it reflects a change in fleet composition towards more specialized or less fungible assets. He also asked if this margin drag would naturally disappear with a pickup in local market demand.

Answer

Ted Grace, Chief Financial Officer, stated that the transportation cost dynamic is not due to fleet composition, as 95%+ of the fleet remains highly fungible. He agreed with the thesis that a pickup in local market demand would allow for more efficient use of the network's density, thereby mitigating repositioning costs, but emphasized that such a local market repair is not embedded in the 2026 guidance.

Neil Tyler inquired about the 70 basis point margin drag from transportation costs in Q4 2025, asking if it reflects changes in fleet composition (more specialized) and if this drag would naturally disappear with a pickup in broad-based local market demand, especially if the 'flattish' local growth assumption proves conservative.

Answer

CEO Matthew Flannery clarified that the transportation cost drag is not due to fleet composition, as 95%+ of their fleet is highly fungible. He agreed with the thesis that a rebound in local market demand would allow for more efficient use of their network density, reducing repositioning costs, but reiterated that such a local market repair is not embedded in their 2026 guidance.

Neil Tyler from Redburn Atlantic asked for recent anecdotes on customers shifting from equipment ownership to rental, particularly since the tariff announcements. He also inquired about the breadth of rate and CapEx discipline across the equipment rental market.

Answer

President & CEO Matthew Flannery stated that the shift from ownership is a steady, long-term trend driven by the rental industry's increased reliability and wider offerings, not a recent, event-driven change. He declined to comment on competitor rates but noted that market behavior and the need to offset fleet inflation imply broad discipline. EVP & CFO William Grace added that past instances of tax changes like full expensing did not slow the secular trend toward renting.

Neil Tyler inquired about the strategy behind the pace of new branch openings ('cold starts'), particularly for Specialty, and asked about the market trends driving strong penetration in the Power business.

Answer

Executive Matthew Flannery explained that cold start planning is an annual process driven by 'white space' opportunities, especially for newer product lines from recent acquisitions. He stated there is significant headroom for Specialty growth. He attributed the success in the Power business to both strong end-market demand and the team's innovation in deepening product offerings, particularly in HVAC.

Neil Tyler asked about the rationale behind restructuring measures in the international business, given its healthy growth, and the operational metrics that prompted these actions.

Answer

CFO Jim Tarangelo explained that the restructuring in the international segment, despite its strong growth, was aimed at streamlining SG&A, optimizing mining operations in South America, consolidating real estate, and integrating bolt-on acquisitions more efficiently. Tyler also inquired about the factors leading to delayed startup of operations, seeking anecdotal descriptions. CEO John Zillmer clarified that these deferrals are primarily client-driven, citing examples like Penn Medicine's need to work through internal decision processes, union relationships, and employee notifications, as well as state-level decisions for correctional opportunities and client-specific timing in the Workplace Experience Group. Tyler then sought clarification on whether the Q4 growth shortfall was mainly due to contract timing or other factors like MLB playoffs. Zillmer confirmed that the opening deferral mechanism and timing were the most significant factors, with MLB impact and Grand Canyon closure being secondary.

Neil Tyler asked about the rationale behind restructuring measures in the international business, despite its healthy growth, and sought context on factors leading to delayed startup of operations in contracts, providing anecdotal descriptions.

Answer

CEO John Zillmer explained that contract deferrals are primarily client-driven, citing examples like Penn Medicine needing to work through internal processes and union relationships, and state decisions delaying correctional opportunities. He emphasized that Aramark responds to client timing. CFO Jim Tarangelo clarified that international restructuring aims to streamline SG&A, optimize operations in areas like mining in South America, and consolidate real estate and bolt-on deals for efficiency, despite the segment's strong growth track record.

Neil Tyler of Rothschild & Co Redburn asked if the current net new business momentum is a reliable indicator for FY2026's contribution and whether the timing of new contracts is the primary reason for maintaining a wide Q4 guidance range.

Answer

CEO John Zillmer confirmed the wide guidance range reflects the variable timing and impact of significant new account startups in the pipeline. CFO Jim Tarangelo added that the strong H2 performance positions the company to exit the year at the high end of its multi-year growth targets, setting a strong foundation for FY2026.

Neil Tyler asked about the 98% client retention rate, questioning its seasonality and whether the current environment is a normal rebid year. He also inquired if economic uncertainty is creating more first-time outsourcing opportunities.

Answer

CEO John Zillmer confirmed that market uncertainty often acts as a positive tailwind for first-time outsourcing decisions. He explained that the 98% retention rate is unusually high for this point in the fiscal year, driven by proactive contract extensions and strong rebid results. CFO Jim Tarangelo added that with more bids occurring in the first half, the company is well-positioned for the full year on retention.

Neil Tyler asked about the mix of margin contributors and questioned why the International segment's margin progress was less than the U.S. He specifically asked if faster organic growth was holding back international margin expansion.

Answer

CFO James Tarangelo stated that margin drivers remain consistent: supply chain efficiencies, new business maturity, and cost management. He clarified the International segment's margin was negatively impacted by 20 basis points due to flooding in Spain. Adjusted for that, its margin improvement would have been in the 40-50 basis point range, noting that strong organic growth actually helps advance margins through scale.

Neil Tyler inquired about the recently exited facilities contracts, asking if more unprofitable accounts exist and the impact on FY25 revenue growth. He also questioned the FY25 margin guidance, which implies a slower expansion rate than FY24's underlying performance.

Answer

CEO John Zillmer confirmed the exited facilities contracts were unique circumstances and no other large, unprofitable accounts are pending exit. CFO Jim Tarangelo quantified the impact as approximately 2% on the retention rate. Regarding margins, Tarangelo stated that while the FY25 guidance midpoint implies about 40 basis points of improvement, the company's underlying run rate is closer to 50 basis points, driven by supply chain efficiencies and operating leverage.

Neil Tyler of Rothschild & Co. questioned the timing for realizing revenue synergies from cross-selling specialty equipment, and asked for clarification on the legacy Herc guidance, particularly regarding the impact of pausing new branch openings.

Answer

SVP & COO Aaron Birnbaum reported that early synergy wins are already occurring and that the H&E sales team will be fully trained by early 2026 to leverage Herc's specialty experts. SVP & CFO Mark Humphrey clarified that the legacy Herc guidance was based on its H1 run rate, layered with anticipated growth from H&E and initial synergies.

Neil Tyler asked about current valuation multiples for M&A targets, the free cash flow outlook for 2025, and whether the revenue guidance implies a significant improvement in fleet efficiency.

Answer

CEO Lawrence Silber noted that general rental M&A multiples have not expanded much, though specialty multiples are higher. CFO W. Humphrey clarified that 2025 free cash flow will be impacted by the company becoming a federal cash taxpayer for the first time. He also stated that while improving fleet efficiency is a goal, a 200-300 basis point improvement would be a 'gargantuan ask.'

Neil Tyler requested a breakdown of rate trends between short-term and long-term contracts and the impact of the mega project mix. He also asked where the company stands on its fleet efficiency outlook relative to the medium-term targets set at its investor day.

Answer

CEO Lawrence Silber noted that both contract and spot market rates were performing as expected but declined to provide a specific breakout. Regarding long-term targets, he explained that it is too early to align current performance with the three-year plan from the 2023 investor day, given significant market changes like higher interest rates, but affirmed that achieving fleet efficiency remains a core goal.