Herc - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue beat consensus while EPS missed: Total revenues were $1.304B vs S&P Global consensus $1.291B*, and adjusted EPS was $2.22 vs $2.315*; adjusted EBITDA was $551M vs $542M*, reflecting strong national account and specialty activity but integration-related cost drag.
• Year-over-year growth with margin compression: Equipment rental revenue +30% YoY to $1.122B, adjusted EBITDA +24% YoY to $551M, while adjusted EBITDA margin fell 390 bps to 42.3% on lower fixed cost absorption and higher auction disposition mix.
• Integration milestone and guidance reaffirmed: Full IT systems integration completed in ~90 days; 2025 guidance reaffirmed (equipment rental revenue $3.7–$3.9B; adjusted EBITDA $1.8–$1.9B; gross capex $900–$1,100M; net rental capex $400–$600M).
• Operating narrative: National accounts and mega projects drove resiliency amid muted local markets; fleet right-sizing and specialty mix expansion continue into Q4 with auction channel use expected to pressure used sale margins near term.

What Went Well and What Went Wrong

What Went Well

• Completed full systems integration, unifying ERP, pricing, CRM, logistics, BI, HCM, and ProControl for acquired branches in a “best-in-class” timeline, enabling data-driven optimization from Q4 onward (“operates from a single, unified dashboard”).
• Strong national account and specialty performance supported revenue growth; equipment rental revenue rose 30% YoY, and adjusted EBITDA rose 24% YoY (“another strong quarter” in national/specialty).
• Safety execution: Onboarded ~2,500 new team members; branches achieved ≥97% “Perfect Days”; TTM recordable incident rate of 0.93 vs industry 1.0 (“Proven safety record”).

What Went Wrong

• Margin compression: Adjusted EBITDA margin down to 42.3% (−390 bps YoY) and REBITDA margin down to 45.9% (−300 bps YoY), driven by auction channel mix and acquisition-related redundancies ahead of synergy realization.
• Utilization softness: Dollar utilization declined to 39.9% (42.2% prior year), reflecting lower utilization of acquired fleet before optimization.
• Higher interest and transaction costs: Interest expense surged to $134M vs $69M YoY; transaction expenses were $38M vs $3M YoY, contributing to net income decline to $30M from $122M YoY.

Transcript

Operator (participant)

Hello and thank you for standing by. My name is Mark and I will be your conference operator today. At this time, I would like to welcome everyone to Herc Holdings Inc. Third Quarter 2025 earnings call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. We kindly ask you to please limit to one question and one follow-up. Now, I would like to turn the call over to Leslie Hunziker, Senior Vice President, Investor Relations. Please go ahead.

Leslie Hunziker (SVP of Investor Relations)

Thank you, Operator, and good morning everyone. Today we're reviewing our third quarter 2025 results, with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10-Q, and in our most recent annual report Form 10-K, as well as other filings with the SEC. Today we're reporting our financial results on a GAAP basis, which include H&E Equipment Services Inc. results for June through September in the nine-month period for 2025.

In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our management meetings at the Baird Industrial Conference in Chicago on November 11, Redburn Atlantic's Virtual CEO Conference on December 2, and the Melius Research Conference in New York on December 10. This morning, I'm joined by Larry Silber, President and Chief Executive Officer; Aaron Birnbaum, Senior Vice President and Chief Operating Officer; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Larry Silber (President and CEO)

Thank you, Leslie, and good morning everyone. I want to start by thanking all of Team Herc for their incredible energy, focus, and commitment throughout the third quarter. Integrating the largest acquisition in our industry is no small feat, but our team has truly risen to the challenge, driving alignment, accelerating progress, supporting one another, and accomplishing a large systems migration, all while remaining focused on scaling operations in a mixed demand environment. We continue to see robust activity across mega projects and specialty solutions, underscoring the strength of our strategic positioning. In the local markets, growth is limited as new projects in the commercial sector remain on hold due to the high interest rate environment. In this bifurcated landscape, our scale, advanced technology platform, and diversification across geographies and markets and product lines continue to be competitive advantages, enabling us to operate with agility and resilience.

At the same time, we're executing against our integration roadmap with discipline, speed, and a clear focus on unlocking both cost and revenue synergies within our three-year timeframe. Let's now turn to slide number five for an update on our progress. Since closing the transaction, we expanded our field operating structure from nine to ten U.S. regions, reorganized districts, and added key leadership roles to ensure operational continuity and scalability. Our Regional Vice Presidents and field support staff continue to relentlessly manage change and support our teams for growth. Early on, we completed a comprehensive sales territory optimization exercise to restructure coverage and deepen customer relationships given our much larger scale. We equipped our new sales team members with a broader product offering and expert product support. They are now undergoing training on enhanced market and customer analytics and customer engagement tools.

Together, these initiatives will further improve retention and strengthen the capabilities and execution of our sales force. Equally important in the quarter, we completed the full systems integration. We got this done in just 90 days compared to the typical timeline of six to 18 months for companies of a similar size and complexity. This accelerated execution reflects the strength of our internal capabilities, disciplined planning, and deep experience with enterprise technology deployments. This integration included an enterprise platform consolidation where we transitioned the H&E branch operations from SAP to our customized RentalMan front-end system and Oracle ERP framework. Our proprietary pricing engine also is now fully integrated with centralized controls in place to ensure consistency, protect margins, and align pricing decisions with our broader business goals.

Our logistics system is also now operational across the expanded network to improve delivery accuracy and optimize route planning at the lowest possible cost. As we deployed our business intelligence suite across the acquired locations, giving us real-time visibility beginning this month into combined performance metrics, customer behavior, and operational KPIs. Finally, our industry-leading customer-facing technology, ProControl by Herc Rentals, is now available to our entire customer portfolio, enabling equipment renting, tracking, and asset management and control from any device, anywhere. We view these systems integrations not just as a technical milestone, but as strategic enablers. They're going to allow us to scale faster, operate smarter, and deliver more value to our customers and shareholders. The systems alignment marks a turning point.

For the first time, beginning in the fourth quarter, we have full visibility into our combined business and are now positioned to analyze the operations at a more granular district and branch level. Specifically, this quarter, we're drilling down into three key areas. First, productivity. We're using the data to benchmark performance, flagging underperforming locations for deeper review, and identifying top-tier branches where we can replicate best practices to drive operational improvement across the organization. Second, expense management. We want to pinpoint additional variable cost-saving opportunities, discontinue activities that do not align with our strategic priorities, and eliminate inefficiencies at the local level. Third, fleet management. After having conducted a full audit of our combined equipment assets in the third quarter, we made good progress disposing underutilized, off-brand, and aged acquisition fleet. Aaron will share some of those details.

Our focus on fleet management is ongoing as we rebalance our portfolio to match demand patterns, optimize mix, and support scalable growth. Another way we're scaling the business for 2026 and beyond is by optimizing our network footprint. We've undertaken a market-by-market analysis of our combined branch locations with a goal of reducing redundancies and enabling better product allocation to further strengthen our market presence. Over the next six months, we expect to consolidate some general rental branches for cost and operational efficiencies. We'll repurpose certain of those branches into standalone specialty equipment locations. In other instances, we'll further expand access to our specialty solutions by co-locating specialty equipment within existing general rental facilities. These initiatives are expected to result in about 50 additional specialty locations, increasing our specialty network by 25% next year and supporting accelerated growth in these high-margin product categories.

Overall, we're making excellent progress on the integration. Our teams are getting acclimated, our systems are unified, our customers are already seeing early benefits. We remain confident in our ability to deliver the full value of the acquisition, both in terms of cost efficiencies and accelerated growth, while continuing to deliver on our long-term growth strategies, which are outlined on slide number six. As was said, integrating this acquisition is our primary focus, and therefore we have paused other M&A initiatives for the time being and are completing the remaining in-flight greenfields. Year to date, we added 17 greenfield facilities, of which six were opened in the third quarter, and we have roughly 10 more new location openings planned for the fourth quarter.

Capitalizing on the secular shift from ownership to rental, particularly in a specialty market, and yielding greater value from mega projects through specialty solutions is a key focus for us. Further cross-selling specialty gear is an important component of the revenue synergies with H&E Equipment Services Inc. In line with this strategy, we've continued to over-index our gross CapEx plans towards specialty with a goal of increasing this category as a percent of our overall fleet composition long term. Of course, repurposing general rental branches into pro solutions facilities, as I just mentioned, will support specialty equipment capacity for the 160 plus acquired locations. Finally, we continue to elevate our industry-leading ProControl by Herc Rentals technology offering with new efficiency features and controls, seamless navigation, and tailored experiences, all in a single app, addressing our customers' more complex and expanding needs.

While we work through the integration of H&E Equipment Services Inc., we'll continue to follow our playbook, leveraging branch network scale, our broad fleet mix, technology leadership, and capital and operating discipline to position us to manage across the cycle and generate substantial growth over the long term. We are committed to our goal of becoming the supplier, employer, and investment of choice for the equipment rental industry. Now I'll turn the call over to Aaron Birnbaum, who will talk a little bit more about operating trends, and then Mark Humphrey will take you through the third quarter financial performance and outlook. Aaron.

Aaron Birnbaum (SVP and COO)

Thanks, Larry, and good morning everyone. As we continue executing on this important integration, I also want to personally thank our teams for their incredible commitment and perseverance. Whether navigating change, supporting integration efforts, or pushing forward on growth initiatives, their resilience and focus have been exceptional. They have continued to show up for our customers, for each other, and for the future we're building together. That dedication is what drives our momentum, and it's what sets Team HERC apart. Equally important to our success is our unwavering commitment to safety. Safety is at the core of everything we do, and as an immediate integration priority, we onboarded 2,500 new HERC team members into our health and safety program in the third quarter. As you can see on slide eight, our major internal safety program focuses on perfect days. We strive for 100% perfect days throughout the organization.

In the third quarter, on our branch-by-branch measurement, all of our operations achieved at least 97% days as perfect. Also notable, our total recordable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Turning to slide nine, we are operating in a disproportionate demand environment where the local market remains affected by interest rate-sensitive commercial construction, while mega project activity continues to be robust. In the third quarter, local accounts represented 52% of rental revenue compared with 53% a year ago on a pro forma basis. On the national account side, private funding for new large-scale projects is still quite robust.

We kicked off several new mega projects in the third quarter as the push for reshoring manufacturing, along with increases in LNG export capacity and the expansion of artificial intelligence, are continuing to drive new construction demand. We are winning our targeted 10% to 15% share of these project opportunities with even more new mega projects on deck and current projects still ramping up. As a combined company, we'll continue to target a 60% local and 40% national revenue split long term, knowing that this diversification provides for growth and resiliency. Sticking with the topic of resiliency, let's turn to slide 10, where you can see that despite the uncertain sentiment in the general market around interest rates and tariffs, industrial spending and non-residential construction starts still show plenty of opportunity for growth, built on a foundation of mega project development and infrastructure investments.

Taking a look at the updated industrial spending forecast at the top left, Industrial Info Resources is projecting strong capital and maintenance spending through the end of the decade. Dodge's forecast for non-residential construction starts in 2025 is estimated at $467 billion, a 4% increase year over year, with 3% to 6% growth continuing in each successive year. Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in U.S. construction project starts over the last two years and a growth projection that exceeds $650 billion for 2025. We estimate we are only in the early to middle innings of this multi-year opportunity. We don't take the chart out beyond this year because visibility is less clear for actual start dates of those projects still in the planning phases.

There are trillions of dollars in the mega project pipeline that aren't accounted for here. Finally, there's another $346 billion in infrastructure projects estimated for 2025. That's a roughly 6% increase over 2024, and infrastructure construction activity is expected to further strengthen in the out years. Of course, there are some overlaps in projects among these four data sets, but no matter how you look at it, for companies with the safety record, product breadth, technology, and the capabilities to service customers at the national account level, the opportunities for growth remain significant. Moving to slide 11, let me take a minute to walk you through how we're managing fleet levels and equipment mix in response to this dynamic and evolving landscape. First, we are right-sizing our acquired fleet and aligning brand consistency to drive operational efficiency and long-term value.

At the same time, we're making targeted investments in specialty equipment to unlock revenue synergies, ensuring we're not just leaner but also more capable and better aligned with high-value opportunities. Our fleet strategy is also calibrated to support the divergent operating environment, scaling and repositioning fleet to meet national demand while maintaining flexibility in local markets. In the third quarter, we executed against this strategy, increasing gross CapEx seasonally and expanding our specialty equipment offering in line with our much larger branch network and our revenue synergy goals. We're still expecting gross fleet CapEx of $900 million to $1.1 billion for 2025. Also in the latest quarter, we nearly doubled disposals on an OEC basis versus last year as we worked to optimize our larger general rental fleet post-acquisition. Realized proceeds were 41% of OEC on those equipment dispositions.

Given the significant amount of fleet we were selling and the variance in brand quality, more sales went through the auction channel this quarter than in the recent past. Once we have the fleet in a more optimal position, we'll resume our channel shift strategy to the higher return wholesale and retail outlets. For the full year, we're still expecting disposals at OEC of $1.1 to $1.2 billion. We're tracking at about 75% of that target, with the remainder coming in the fourth quarter. I know there's strong interest in our 2026 CapEx plan, but it's still early in the process, so we're not yet in a position to share specifics. From a high level, I could tell you that we have an especially young fleet today as a result of the H&E Equipment Services Inc. acquisition.

We'd like to get it back to Herc Holdings Inc.'s historical average fleet age. That's something that will be considered in our fleet plan. We fully expect continued growth in national accounts and specialty solutions next year, and we're planning our fleet by mix and geography to support that momentum. At the same time, demand visibility for local projects remains highly compressed, which reinforces the need for agility in both how we manage our existing fleet and the pace of planning for 2026. The scale we've gained bolsters our ability to respond to near-term trends in local markets while also leveraging efficiencies to prepare for the start of a cyclical recovery. It's important to remember that a pickup in local demand typically lags interest rate reductions. Developers still need time to secure financing, and contractors have to obtain permits and mobilize labor for planned projects.

We're being thoughtful and disciplined in our planning, balancing short-term responsiveness with long-term readiness. Turning to slide 12, I'll continue to state the obvious. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc has diversified into new end markets, geographies, and products and services over the last nine years, we have reduced our reliance on a single industry or customer. We've become more resilient to downturns and more adaptable to emerging opportunities like the mega project developments, technology advancements that support customer productivity, and the secular shift from ownership to rental, especially in the specialty category classes. We believe we are well positioned to manage dynamic markets, and the acquired scale further bolsters our capacity and therefore our opportunities. With that, I'll pass the call on to Mark.

Mark Humphrey (SVP and CFO)

Thanks, Aaron, and good morning everyone. I'm starting on slide 14 with a summary of our key metrics for the third quarter, which includes Senolise results for July. As you may have seen, we completed the sale of Senolise on July 31 with proceeds used to pay down our ABL. For the third quarter, on a GAAP basis, equipment rental revenue was up approximately 30% year over year, driven by the acquisition of H&E Equipment Services Inc. and strong contributions from mega projects and specialty solutions. Adjusted EBITDA increased 24% compared with last year's third quarter, benefiting from the higher equipment rental revenue as well as used equipment sales. Adjusted EBITDA margin was primarily impacted by a higher proportion of our used equipment sold through the lower margin auction channel equipment disposals as we worked to align the acquired fleet.

Also affecting margin was lower fixed cost absorption as a result of the ongoing moderation in certain local markets where H&E Equipment Services Inc. was overweighted, as well as acquisition-related redundant costs preceding the full impact of cost synergies. EBITDA, which excludes used equipment sales, was up 22% during the third quarter. EBITDA margin was 46%, impacted by the lower margin acquired business. Margin improvement will come from equipment rental revenue growth and a shift over time to a higher margin product mix, as well as delivery of the full cost synergies and improved variable cost management from the increased scale. Our net income in the third quarter included $38 million of transaction costs, primarily related to the H&E Equipment Services Inc. acquisition. On an adjusted basis, net income was $74 million.

Shifting to capital management on slide 15, you can see that we generated $342 million of free cash flow, net of transaction costs in the nine months ended September 30, 2025, which was in line with our expectations. Our current leverage ratio is 3.8 times. Our goal is to return to the top of our target range of two to three times by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through. Less capital will be required to achieve the revenue synergies due to scale benefits on the utilization of existing fleet. The combined entity will be capitalized to maintain financial strength and flexibility. On slide 16, we're reiterating our 2025 guidance. When we set the guide a month into the integration, we modeled the back half of the year using the second quarter trends we were seeing for each of the legacy companies.

Of course, in any large-scale acquisition, integrating the acquired operations and acclimating new team members is a phased and ongoing effort. We're starting to get a better read on the pacing of training, upskilling, and re-engaging the acquired team. We're making good progress on backfilling for the H&E salesforce attrition that occurred, with strong patterns in place for recruiting candidates and onboarding and training new hires. Despite a lot of moving pieces with the integration overall, the guidance still feels about right based on current visibility. Two points I'd like to call out for the fourth quarter. First, unless something big happens in the next two weeks, we'll likely have a tougher comp from a U.S. weather standpoint, with last year benefiting from about 2% to 3% of hurricane-related pro forma revenue upside for the combined company.

Second, when it comes to fourth quarter adjusted EBITDA, you should expect that we'll continue to utilize the auction channel more than Herc typically would, as we're still right-sizing the acquired fleet with a focus on dispositions of off-brand and aged general rental equipment. This shift in channel mix will continue to pressure proceeds and therefore the used sales margin. With the completed systems integration now providing a uniform, granular view of the entire company, we're putting action plans in place to address any underperforming areas or foundational inefficiencies. All of that will better position us as we plan for 2026. Longer term, based on all of the opportunity we see, we remain confident in the strategic value of this combination and our ability to achieve both the full revenue and cost synergies over the next three years. With that, Operator, we'll take our first question.

Operator (participant)

We will now begin the question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Mick Dobre with Baird. Please go ahead.

Mircea Dobre (Managing Director)

Thanks for taking the question. Good morning everyone. I guess my first question goes to this comment on the right-sizing of the fleet. I'm kind of curious where you are in this process. Do you expect to be largely done with this in the fourth quarter, or is this stretching into 2026? Is there any way to maybe get us to better understand the magnitude of the work that needs to be done here, either in terms of the amount of OEC that needs to be disposed or any other way that you want to frame it?

Aaron Birnbaum (SVP and COO)

Yeah, Meg, this is Aaron. I'll take that question. A lot of the heavy lifting was done in Q3. We still have more work to do as we go through Q4. As long as the 2026 kind of landscape, the economic demand landscape is good, we'll be essentially kind of closing that part of it out. The Q3 higher disposals in Q3 were really related to just some rebalancing of the fleet. On the H&E side, they didn't do their normal cadence of disposals that they historically would have done in Q1 and Q2. We had to catch up on that. Just some of the brand mix, you know, the operations are more efficient when you've got a standardized kind of manufacturer-type fleet. That's what some of the shaping was done. You know, we felt good about what we got done.

As we mentioned, you know, a little more auction activity than we typically would do. As we get into 2026, we'll get back to our normal cadence of getting the higher retail wholesale channel.

Mark Humphrey (SVP and CFO)

Meg, this is Mark. Maybe just a couple of other points there. I think when you think about what Aaron said, going back to Q2 and the comments we made then, we thought that there was probably, call it $253 million of activity that needed to happen in the back half of the year to sort of right-size or better right-size that fleet for the territories it was going in. I would say as we sit here through Q3, probably half of that was completed, maybe a little bit more than that in the third quarter. The expectation would be better right-sizing the fleet as we get through fourth quarter, such that next year we can lean on aging the fleet and disposing of less gear.

Mircea Dobre (Managing Director)

All right, that's helpful. Thank you. Maybe a question on your overall mix. The national accounts account for, if I'm not mistaken, pretty much a record as far back as my model goes. A lot more business done with national accounts. I guess that would be consistent with your comment on mega projects being an area of growth. As you sort of think about 2026, I do wonder if this business, mega projects, national accounts, is to some extent diluted to margins. If this is something that we need to think about as we think about the margin framework for next year. I'm not asking for guidance. I'm just asking for some color as to how this portion of the business is really impacting you.

Larry Silber (President and CEO)

Yeah, Meg, Larry, I'll take that. Look, we're expecting, obviously, for the same type of activity to continue into 2026, because as you know, until interest rates have a substantial reduction, which maybe we'll see tomorrow, another 25 bps, who knows? It usually takes six to nine to as long as 12 months for that to trickle down into the local market to make that a more attractive business opportunity and certainly spur the activity for us in the local market, which remains somewhat muted. Overall, though, we don't find that there's any significant margin dilution, because remember, when we put equipment out at a national account or a mega project, you have minimal movement of that project. You're not having excessive delivery there.

We also have a larger volume of equipment out there, and we tend to also get a lot more specialty product out on those projects that are opportunistic for us as we go along. We don't see much dilution at all relative to continuing in this trend.

Operator (participant)

Your next question comes from the line of Tammy Zakaria with JP Morgan. Tammy, please go ahead.

Tami Zakaria (Executive Director)

Hi, good morning. Thank you so much. My first question is on the comment you made about combining some of the general rental locations. I think you said you're going to have 50 additional specialty. Is it the right way to think about it that about 100 of the general rental locations would close and those would sort of merge and become 50 specialty? Or how should I think about the interchange between the two?

Aaron Birnbaum (SVP and COO)

No, not at all, actually. Our branch count increased dramatically as a result of the acquisition. The way we want you to think about it is there were, I'll put it in two buckets. One, we have a strategy where we typically do a branch in branch, right? That's how we kind of scale the business. We'll open a specialty business inside of a general rental branch and let it mature. Once it gets enough scale, then we'll pop it off and have its own standalone location. That's really what's the fuel with the 50 new locations as we go through next year's period. There were just a handful of locations that H&E Equipment Services Inc. were there like one mile away from our branch and we could consolidate those.

In those cases, we're turning those into another specialty branch right away, sooner than we typically would. We're not closing branches from H&E Equipment Services Inc. That would be dilutive to what our strategy is. We like the scale and it gives us a bigger footprint, which allows us to solve the market needs better.

Tami Zakaria (Executive Director)

Understood. That's super helpful. My second question is, now that the two businesses are on the same platform, it gives you more visibility into the combined business. Would you consider revisiting some of the cost synergies and any revenue synergy targets you had at the start of the journey?

Mark Humphrey (SVP and CFO)

Yeah, I mean, I think, Tammy, that's an ongoing process, right? I think that from a cost synergy perspective, we originally laid out $125 million into buckets. Do those buckets look the same today as they did yesterday? No. Will they continue to change and evolve? Yes. I think that, and probably good news here, as I mentioned in my prepared remarks, there's also efficiency reviews taking place now that we're on the same platform. Whether you want to call that synergy or efficiency, I don't care. Ultimately, it's an incremental margin and efficiency that we're going to gain. That's how we're looking at it, and I think it will continue to evolve as we move forward.

Operator (participant)

Your next question comes from the line of Kyle Mengas with CD Group. Kyle, please go ahead.

Thank you. Maybe following up on that, I guess, is there anything noteworthy or unexpected, you know, incremental coming from these efficiency reviews that are taking place now that you're on the same platform?

Mark Humphrey (SVP and CFO)

Again, I mean, it's early innings, right? I mean, this just sort of completed at the end of Q3. I guess the way I would respond to that, Kyle, is that, you know, Herc has, you know, a fair number of operational KPIs. As we sort of rolled ourselves out of Q3 and had clear visibility really for the first time, right? Now it's about aligning our KPIs and our expectations to these newly formed or, you know, redevised territories on the consolidated platform. I don't think there's anything of a surprise nature in that. I think it's just us running our playbook and our game plan and looking for efficiency along the way. That's exactly what we'll do.

Larry Silber (President and CEO)

Yeah. Keep in mind that we still, while we have the IT integration completed, we still have a fair amount of training and education and development of people and aligning resources that need to happen here in Q4 to prepare the organization as it goes into Q1. We have a fair amount of work ahead of us still, in addition to the movement of these branches that Aaron Birnbaum talked about a moment ago. A lot of work ahead, and we'll continue to look for opportunities for improvement.

Makes sense. It would be helpful just to hear an update on dissynergies and synergies. I guess just what's giving you guys confidence that dissynergies are behind you. Are you continuing to see that stabilization in the salesforce? Any success bringing people back? It would be helpful to hear an update on some of the early revenue synergies that you're seeing as well.

Yeah, I'll take the first part of that and say, yeah, look, we've been able to stabilize the sales organization. Now, you know, attrition is happening at or below normalized Herc levels that we've seen in the past. A lot of that is behind us. There have been a couple of folks that we've brought back into the organization. We've filled the vast majority of those holes with our team, with our black and gold team that have been in training and preparation for sales territories. We're looking to continue to keep with the training, with the education, with the introduction to our technology platform. That's an enabler for the salespeople to earn more money, and it's also a retention device. We're excited about that being behind us for the most part. Aaron, you want to?

Aaron Birnbaum (SVP and COO)

Yeah, we're seeing on the revenue synergy side, we're seeing it's early innings. We're just getting started with it. We're introducing some of the specialty products to the customers that were on the H&E Equipment Services Inc. side, regional type customers, and we're getting some good traction, right? Some of the products we offer weren't offered at H&E Equipment Services Inc., and the customers were able to kind of move their share of wallet our direction. We're happy with the progress, but we got a lot more work to do.

Operator (participant)

Your next question comes from the line of Kenneth Newman with CIBC Capital Markets. Kenneth, please go ahead.

Kenneth Newman (VP and Equity Research Analyst)

Hey, good morning, guys.

Aaron Birnbaum (SVP and COO)

Morning.

Mark Humphrey (SVP and CFO)

Morning.

Kenneth Newman (VP and Equity Research Analyst)

Morning. Maybe for my first question, Mark, it seems like gross margins in the quarter came in a bit lower than I would have expected, but you did leverage SG&A a little bit stronger than my model. Is there any way you could help us just dimensionalize how to think about gross margins sequentially, third quarter to fourth quarter, just given all the moving pieces? Maybe also a little bit of help on how we think about SG&A dollars going forward.

Mark Humphrey (SVP and CFO)

Yeah, I guess, you know, look, there was a little bit of noise, quite honestly, in the original view, at least the way that I was looking at this. We couldn't know the answers until we finished all of the mapping of their expenses into our general ledger structure. I think what and the way that I would sort of guide you here is that, you know, in totality, you probably had somewhere in the order of magnitude of 55% between, excuse me, between DOE and SG&A in the quarter. I think that that's a reasonable proximity into the fourth quarter, recognizing that, you know, there's probably a little less coming through the funnel in the fourth quarter, shoulder period.

I don't think that there'll be a ton of movement, but I think generally speaking, you're probably a little less efficient in the fourth quarter just from, you know, an overall revenue sort of downtick as you get into the November and December timeframe.

Kenneth Newman (VP and Equity Research Analyst)

Okay. No, that's very helpful. Sorry if I missed it, but did you disclose how much H&E Equipment Services Inc. has contributed to rental revenue and adjusted EBITDA in the quarter? I'm just trying to get a sense of what core dollar yield was like in the quarter.

Mark Humphrey (SVP and CFO)

Yeah, you didn't hear that because I can't give it. You know, we wouldn't be doing our job, Ken, if I could still sort of pull apart and tell you the performance of H&E Equipment Services Inc. and Herc Holdings Inc. I can't, and therefore I won't. I would tell you that overall, the business on whole performed about the way that we thought it would inside of Q3.

Operator (participant)

Your next question comes from the line of Rob Wertheimer with Melius Research. Rob, please go ahead.

Rob Wertheimer (Founding Partner and Machinery Analyst)

Yeah, hi, thanks. Good morning. A couple of questions. Larry, you touched on, if I didn't mishear, you touched on employee retention and you're kind of going in the positive direction now with hiring, rehiring, and then attrition has stopped. Customer attrition, can you talk about that on H&E Equipment Services Inc. kind of former accounts? Have we come through all the dissynergies as you kind of thought in recent quarters? I'll just bolt on my second one. When you've had a chance to look at the business more closely now, how does rental rate stack up and what do you need to do if it's below? What do you need to do in what timeframe to kind of improve service levels or broaden out service levels and improve that? Thank you.

Larry Silber (President and CEO)

Yeah, look, what I said and what I hope came through is that we've stabilized the attrition that had happened prior to close. We feel that that is now at a normalized level with no further significant attrition that we're expecting that would be any different from what we would experience with Herc on a normalized basis. I think we're okay there. Remember, we have backfilled a lot of those positions with folks that have been in our black and gold, what we call our PSA Program, Professional Sales Associate Program. They're going into new territories. They're on a learning curve, picking up new responsibilities. We'll have some training and education to do over the course of the balance of the year and into early next year. It'll have to ramp up, probably into Q2 when we see them become fully effective.

As you know, that usually takes over a two to three-year period for a salesperson to sort of really understand their territories and really perform at the levels we'd like them to perform at. I'll pass the other side over to Aaron relative to your comments on pricing and where it was and what we're doing to get back to the overall Herc average.

Aaron Birnbaum (SVP and COO)

Yeah, Rob. I'd say to Larry's point, the attrition and all that stabilized. As Q3 went through, we focused a lot on integration. We got the reorganization all done, and now we're back to kind of like performance management and, you know, developing our sales team with the go-to-market strategies we already have. When H&E Equipment Services Inc. came into the business, their pricing was lower than Herc. We're working on moving that through the needle upward with our tools and systems that we have. We've talked about some of our pricing tools that are proprietary to Herc. They're learning the tools. Our sales management is working with them. That's not going to happen overnight, right? That's a bridge that's going to happen over time to get them back to the Herc historical kind of rental rate performance. We've done a good job with the customers.

We've negotiated all the contracts H&E Equipment Services Inc. had into the Herc system. The regional type H&E Equipment Services Inc. customers, as I mentioned earlier, have really embraced some of the extra fleet breadth that we have. The local customers where the market's not as strong and there were some disruptions with some, you know, leading up to the closing of the acquisition, maybe that was because they weren't as busy or maybe because their sales rep, you know, moved on. We've got all the data. We're moving forward with our CRM and our sales efforts to engage with those customers. Some of those engagements take, you know, three or four different, five different cycles of connection. We know that we've got a great rental operation and we're confident those customers will come back over time. We're happy where we are in the process right now.

Rob Wertheimer (Founding Partner and Machinery Analyst)

Okay, thank you.

Operator (participant)

That concludes our question and answer session. I will now turn the call back over to Leslie Hunziker for closing remarks. Leslie?

Leslie Hunziker (SVP of Investor Relations)

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

Operator (participant)

That concludes our question and answer session. This concludes today's call. You may now disconnect.