hri-20210331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33139

HERC HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Delaware						20-3530539
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

27500 Riverview Center Blvd.

Bonita Springs, Florida 34134

(239) 301-1000

(Address, including Zip Code, and telephone number,

including area code, of registrant's principal executive offices)

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, par value $0.01 per share

HRI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Smaller reporting company

☐

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 16, 2021, there were 29,608,321 shares of the registrant's common stock, $0.01 par value, outstanding.

Table of Contents

HERC HOLDINGS INC. AND SUBSIDIARIES

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 20 20	2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020	4
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31 , 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26
ITEM 4.	Controls and Procedures	26
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	27
ITEM 1A.	Risk Factors	27
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
ITEM 5.	Other Information	27
ITEM 6.	Exhibits	28
SIGNATURE		29

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HERC HOLDINGS INC. AND SUBSIDIARIES

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the period ended March 31, 2021 (this "Report") includes "forward-looking statements," as that term is defined by the federal securities laws. Forward-looking statements include statements concerning our business plans and strategy, projected profitability, performance or cash flows, future capital expenditures, our growth strategy, anticipated financing needs, business trends, the impact of and our response to COVID-19 and other information that is not historical information. Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions. All forward-looking statements are based upon our current expectations and various assumptions and apply only as of the date of this Report. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will be achieved.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 under Item 1A "Risk Factors," in Part II, Item 1A of this Report, and in our other filings with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such cautionary statements. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

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PART I—FINANCIAL INFORMATION

ITEM l. FINANCIAL STATEMENTS

HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)


	March 31, 2021		December 31, 2020
ASSETS	(Unaudited)
Cash and cash equivalents	$	32.9	$	33.0
Receivables, net of allowances of $16.9 and $15.5, respectively	299.6		301.2
Other current assets	31.5		32.9
Total current assets	364.0		367.1
Rental equipment, net	2,240.3		2,260.4
Property and equipment, net	283.6		290.4
Right-of-use lease assets	274.3		255.9
Intangible assets, net	294.6		295.9
Goodwill	100.6		100.5
Other long-term assets	18.6		18.2
Total assets	$	3,576.0	$	3,588.4
LIABILITIES AND EQUITY
Current maturities of long-term debt and financing obligations	$	15.3	$	15.8
Current maturities of operating lease liabilities	34.0		32.1
Accounts payable	146.0		125.8
Accrued liabilities	127.5		154.3
Total current liabilities	322.8		328.0
Long-term debt, net	1,585.2		1,651.5
Financing obligations, net	113.5		114.5
Operating lease liabilities	251.2		234.1
Deferred tax liabilities	480.6		474.0
Other long-term liabilities	44.7		44.3
Total liabilities	2,798.0		2,846.4
Commitments and contingencies (Note 11)
Equity:
Preferred stock, $0.01 par value, 13.3 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 133.3 shares authorized, 32.3 and 32.1 shares issued and 29.6 and 29.4 shares outstanding	0.3		0.3
Additional paid-in capital	1,818.5		1,818.2
Accumulated deficit	(244.6)		(277.5)
Accumulated other comprehensive loss	(104.2)		(107.0)
Treasury stock, at cost, 2.7 shares and 2.7 shares	(692.0)		(692.0)
Total equity	778.0		742.0
Total liabilities and equity	$	3,576.0	$	3,588.4

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In millions, except per share data)


	Three Months Ended March 31,
	2021		2020
Revenues:
Equipment rental	$	400.4	$	386.5
Sales of rental equipment	44.2		40.0
Sales of new equipment, parts and supplies	6.1		7.0
Service and other revenue	3.1		2.7
Total revenues	453.8		436.2
Expenses:
Direct operating	183.0		189.2
Depreciation of rental equipment	100.4		100.4
Cost of sales of rental equipment	38.4		42.4
Cost of sales of new equipment, parts and supplies	4.2		5.1
Selling, general and administrative	65.5		69.8
Impairment	—		6.3
Interest expense, net	21.4		24.4
Other expense (income), net	(0.2)		1.2
Total expenses	412.7		438.8
Income (loss) before income taxes	41.1		(2.6)
Income tax provision	(8.2)		(1.1)
Net income (loss)	$	32.9	$	(3.7)
Weighted average shares outstanding:
Basic	29.5		28.9
Diluted	30.2		28.9
Earnings (loss) per share:
Basic	$	1.12	$	(0.13)
Diluted	$	1.09	$	(0.13)

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

(In millions)


	Three Months Ended March 31,
	2021		2020
Net income (loss)	$	32.9	$	(3.7)
Other comprehensive income (loss):
Foreign currency translation adjustments	2.4		(21.1)
Unrealized gains and losses on hedging instruments:
Reclassification into net income (loss)	—		(1.5)
Income tax provision related to hedging instruments	—		0.3
Pension and postretirement benefit liability adjustments:
Amortization of net losses included in net periodic pension cost	0.5		0.4
Income tax provision related to defined benefit pension plans	(0.1)		(0.1)
Total other comprehensive income (loss)	2.8		(22.0)
Total comprehensive income (loss)	$	35.7	$	(25.7)

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Unaudited

(In millions)


	Three Months Ended March 31, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
	Shares	Amount
Balance at December 31, 2020	29.4	$	0.3	$	1,818.2	$	(277.5)	$	(107.0)	$	(692.0)	$	742.0
Net income	—	—		—		32.9		—		—		32.9
Other comprehensive income	—	—		—		—		2.8		—		2.8
Net settlement on vesting of equity awards	0.2	—		(7.1)		—		—		—		(7.1)
Stock-based compensation charges	—	—		5.3		—		—		—		5.3
Employee stock purchase plan	—	—		0.6		—		—		—		0.6
Exercise of stock options	—	—		1.5		—		—		—		1.5
Balance at March 31, 2021	29.6	$	0.3	$	1,818.5	$	(244.6)	$	(104.2)	$	(692.0)	$	778.0


	Three Months Ended March 31, 2020
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
	Shares	Amount
Balance at December 31, 2019	28.8	$	0.3	$	1,796.9	$	(351.2)	$	(109.7)	$	(692.0)	$	644.3
Net loss	—	—		—		(3.7)		—		—		(3.7)
Other comprehensive loss	—	—		—		—		(22.0)		—		(22.0)
Net settlement on vesting of equity awards	0.3	—		(2.5)		—		—		—		(2.5)
Stock-based compensation charges	—	—		3.2		—		—		—		3.2
Employee stock purchase plan	—	—		0.6		—		—		—		0.6
Balance at March 31, 2020	29.1	$	0.3	$	1,798.2	$	(354.9)	$	(131.7)	$	(692.0)	$	619.9

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In millions)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	32.9	$	(3.7)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of rental equipment	100.4		100.4
Depreciation of property and equipment	13.4		14.0
Amortization of intangible assets	2.4		1.8
Amortization of deferred debt and financing obligations costs	0.8		0.9
Stock-based compensation charges	5.3		3.2
Impairment	—		6.3
Provision for receivables allowances	7.9		12.3
Deferred taxes	6.2		0.8
(Gain) loss on sale of rental equipment	(5.8)		2.4
Other	—		3.1
Changes in assets and liabilities:
Receivables	(6.5)		6.0
Other assets	(0.6)		(3.4)
Accounts payable	3.1		(11.4)
Accrued liabilities and other long-term liabilities	(24.8)		(31.2)
Net cash provided by operating activities	134.7		101.5
Cash flows from investing activities:
Rental equipment expenditures	(90.9)		(83.0)
Proceeds from disposal of rental equipment	40.3		34.6
Non-rental capital expenditures	(13.4)		(15.5)
Proceeds from disposal of property and equipment	1.8		1.6
Net cash used in investing activities	(62.2)		(62.3)

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Unaudited

(In millions)


	Three Months Ended March 31,
	2021		2020
Cash flows from financing activities:
Proceeds from revolving lines of credit and securitization	70.0		261.0
Repayments on revolving lines of credit and securitization	(135.0)		(271.7)
Principal payments under capital lease and financing obligations	(2.8)		(3.2)
Proceeds from exercise of stock options	1.5		—
Proceeds from employee stock purchase plan	0.6		0.6
Net settlement on vesting of equity awards	(7.1)		(2.5)
Net cash used in financing activities	(72.8)		(15.8)
Effect of foreign exchange rate changes on cash and cash equivalents	0.2		(0.6)
Net increase (decrease) in cash and cash equivalents during the period	(0.1)		22.8
Cash and cash equivalents cash at beginning of period	33.0		33.0
Cash and cash equivalents at end of period	$	32.9	$	55.8

Supplemental disclosure of cash flow information:
Cash paid for interest	$	36.9	$	41.5
Cash paid for income taxes, net	$	7.6	$	0.7
Supplemental disclosure of non-cash investing activity:
Purchases of rental equipment in accounts payable	$	24.5	$	24.6
Disposal of rental equipment in accounts receivable	$	0.4	$	1.9

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Background

Herc Holdings Inc. ("we," "us," "our," "Herc Holdings," or "the Company") is one of the leading equipment rental suppliers with 280 locations in North America at March 31, 2021. The Company conducts substantially all of its operations through subsidiaries, including Herc Rentals Inc. ("Herc"). With over 55 years of experience, the Company is a full-line equipment rental supplier offering a broad portfolio of equipment for rent. In addition to its principal business of equipment rental, the Company sells used equipment and contractor supplies such as construction consumables, tools, small equipment and safety supplies; provides repair, maintenance, equipment management services and safety training to certain of its customers; offers equipment re-rental services and provides on-site support to its customers; and provides ancillary services such as equipment transport, rental protection, cleaning, refueling and labor.

The Company's classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. The Company's equipment rental business is supported by ProSolutions®, its industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, and studio and production equipment, and its ProContractor professional grade tools.

On June 30, 2016, the Company, in its previous form as the holding company of both the existing equipment rental operations as well as the former vehicle rental operations (in its form prior to the Spin-Off, "Hertz Holdings"), completed a spin-off (the "Spin-Off") of its global vehicle rental business through a dividend to stockholders of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. ("New Hertz") in connection with the Spin-Off. New Hertz is an independent public company and continues to operate its global vehicle rental business through its operating subsidiaries including The Hertz Corporation ("THC"). The Company began operating as an independent company and changed its name to Herc Holdings Inc. on June 30, 2016.

Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, however, these condensed consolidated financial statements do not include all of the disclosures required for complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with Securities and Exchange Commission ("SEC") rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, the condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 18, 2021.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the condensed consolidated financial statements include receivables allowances, depreciation of rental equipment, the recoverability of long-lived assets, useful lives and impairment of long-lived tangible and intangible assets including goodwill and trade name, pension and postretirement benefits, valuation of stock-based compensation, reserves for litigation and other contingencies and accounting for income taxes, among others.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Herc Holdings and its wholly owned subsidiaries. In the event that the Company is a primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity are included in the Company's condensed consolidated financial statements. The Company accounts for investments in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

COVID-19 Update

Since March 2020, federal, state, provincial and local governments have implemented various measures in an effort to contain the COVID-19 virus, including physical distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes and closure of non-essential businesses. The Company's business was deemed essential and was allowed to remain open, however, many industries in which its customers operate were required to temporarily close their facilities or delay or cancel projects and events.

The Company has seen economic recovery within the industry and business since the second quarter of 2020 and is in a position for growth in 2021 by opening greenfield locations and returning to more normalized rental equipment expenditures by adding select fleet in high growth regions. Despite the recovery the Company is seeing, the impact of the COVID-19 pandemic continues to evolve and the recovery could be slowed or reversed by a number of factors, including a widespread resurgence in COVID-19 infections, whether due to the spread of variants of the virus or otherwise, the availability and rate of vaccinations, and the rate in which state and local governments are re-opening businesses or, in certain jurisdictions, reversing re-opening decisions. Therefore, we cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted.

Recently Issued Accounting Pronouncements

Adopted

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the Financial Accounting Standards Board ("FASB") issued guidance that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The Company adopted this guidance during the first quarter of 2021 and it did not have a material impact on its financial position, results of operations or cash flows.

Note 3—Revenue Recognition

The Company is principally engaged in the business of renting equipment. Ancillary to the Company’s principal equipment rental business, the Company also sells used rental equipment, new equipment and parts and supplies and offers certain services to support its customers. The Company operates in North America with revenue from the United States representing approximately 92.2% of total revenue for the three months ended March 31, 2021 compared to 90.0% for the same period in 2020.

The Company’s rental transactions are accounted for under Accounting Standards Codification ("ASC") Topic 842, Leases ("Topic 842"). The Company’s sale of rental and new equipment, parts and supplies along with certain services provided to customers are accounted for under ASC Topic 606, Revenue from Contracts with Customers ("Topic 606"). The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for such products or services.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The following tables summarizes the applicable accounting guidance for the Company’s revenues for the three months ended March 31, 2021 and 2020 (in millions):


	Three Months Ended March 31,
	2021						2020
	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total
Revenues:
Equipment rental	$	364.8	$	—	$	364.8	$	353.5	$	—	$	353.5
Other rental revenue:
Delivery and pick-up	—		20.9		20.9		—		20.9		20.9
Other	14.7		—		14.7		12.1		—		12.1
Total other rental revenues	14.7		20.9		35.6		12.1		20.9		33.0
Total equipment rental	379.5		20.9		400.4		365.6		20.9		386.5
Sales of rental equipment	—		44.2		44.2		—		40.0		40.0
Sales of new equipment, parts and supplies	—		6.1		6.1		—		7.0		7.0
Service and other revenues	—		3.1		3.1		—		2.7		2.7
Total revenues	$	379.5	$	74.3	$	453.8	$	365.6	$	70.6	$	436.2

Topic 842 revenues

Equipment Rental Revenue

The Company offers a broad portfolio of equipment for rent on a daily, weekly or monthly basis, with substantially all rental agreements cancelable upon the return of the equipment. Virtually all customer contracts can be canceled by the customer with no penalty by returning the equipment within one day; therefore, the Company does not allocate the transaction price between the different contract elements.

Equipment rental revenue includes revenue generated from renting equipment to customers and is recognized on a straight-line basis over the length of the rental contract. As part of this straight-line methodology, when the equipment is returned, the Company recognizes as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, the Company will have customers return equipment and be contractually required to pay more than the cumulative amount of revenue recognized to date under the straight-line methodology. Also included in equipment rental revenue is re-rent revenue in which the Company will rent specific pieces of equipment from vendors and then re-rent that equipment to its customers. Provisions for discounts, rebates to customers and other adjustments are provided for in the period the related revenue is recorded.

Other

Other equipment rental revenue is primarily comprised of fees for the Company’s rental protection program and environmental charges. Fees paid for the rental protection program allow customers to limit the risk of financial loss in the event the Company’s equipment is damaged or lost. Fees for the rental protection program and environmental recovery fees are recognized on a straight-line basis over the length of the rental contract.

Topic 606 revenues

Delivery and pick-up

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Sales of Rental Equipment, New Equipment, Parts and Supplies

The Company sells its used rental equipment, new equipment, parts and supplies. Revenues recorded for each category are as follows (in millions):


	Three Months Ended March 31,
	2021		2020
Sales of rental equipment	$	44.2	$	40.0
Sales of new equipment	1.9		3.0
Sales of parts and supplies	4.2		4.0
Total	$	50.3	$	47.0

The Company recognizes revenue from the sale of rental equipment, new equipment, parts and supplies when control of the asset transfers to the customer, which is typically when the asset is picked up by or delivered to the customer and when significant risks and rewards of ownership have passed to the customer. Sales and other tax amounts collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue.

The Company routinely sells its used rental equipment in order to manage repair and maintenance costs, as well as the composition, age and size of its fleet. The Company disposes of used equipment through a variety of channels including retail sales to customers and other third parties, sales to wholesalers, brokered sales and auctions.

The Company also sells new equipment, parts and supplies. The types of new equipment that the Company sells vary by location and include a variety of ProContractor tools and supplies, small equipment (such as work lighting, generators, pumps, compaction equipment and power trowels), safety supplies and expendables.

Under Topic 606, the accounts receivable balance, prior to allowances for doubtful accounts, for the sale of rental equipment, new equipment, parts and supplies, was approximately $14.2 million and $13.8 million as of March 31, 2021 and December 31, 2020, respectively.

Service and other revenues

Service and other revenues primarily include revenue earned from equipment management and similar services for rental customers which includes providing customer support functions such as dedicated in-plant operations, plant management services, equipment and safety training, and repair and maintenance services particularly to industrial customers who request such services.

The Company recognizes revenue for service and other revenues as the services are provided. Service and other revenues are typically invoiced together with a customer’s rental amounts and, therefore, it is not practical for the Company to separate the accounts receivable amount related to services and other revenues that are accounted for under Topic 606; however, such amount is not considered material.

Receivables and contract assets and liabilities

Most of the Company's equipment rental revenue is accounted for under Topic 842. The customers that are responsible for the remaining equipment rental revenue that is accounted for under Topic 606 are generally the same customers that rent the Company's equipment. Concentration of credit risk with respect to the Company's accounts receivable is limited because a large number of geographically diverse customers makes up its customer base. The Company manages credit risk associated with its accounts receivable at the customer level through credit approvals, credit limits and other monitoring procedures. The Company maintains allowances for doubtful accounts that reflect the Company's estimate of the amount of receivables that the Company will be unable to collect based on its historical write-off experience.

The Company does not have material contract assets or contract liabilities associated with customer contracts. The Company's contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. The Company did not recognize material revenue during the three months ended March 31, 2021 and 2020 that was included in the contract liability balance as of the beginning of each such period.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Performance obligations

Most of the Company's revenue recognized under Topic 606 is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, the Company does 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 three months ended March 31, 2021 and 2020 was not material. We also do not expect to recognize material revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021.

Contract estimates and judgments

The Company's revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the following reasons:

•The transaction price is generally fixed and stated on the Company's contracts;

•As noted above, the Company's contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;

•The Company's revenues do not include material amounts of variable consideration; and

•Most of the Company's revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, the revenue recognized under Topic 606 is generally recognized at the time of delivery to, or pick-up by, the customer.

The Company monitors and reviews its estimated standalone selling prices on a regular basis.

Note 4—Rental Equipment

Rental equipment consists of the following (in millions):


	March 31, 2021		December 31, 2020
Rental equipment	$	3,621.9	$	3,613.5
Less: Accumulated depreciation	(1,381.6)		(1,353.1)
Rental equipment, net	$	2,240.3	$	2,260.4

Note 5 —Impairment

During March 2020, the Company recorded an impairment charge of $6.3 million on a long-term receivable related to a previous joint venture sale, the remaining balances of $2.5 million and $10.2 million are included in "Other current assets" and "Other long-term assets," respectively, in the condensed consolidated balance sheets.

Note 6—Leases

The Company leases real estate, office equipment and service vehicles. The Company's leases have remaining lease terms of up to 18 years, some of which include options to extend the leases for up to 20 years. The Company has included the initial lease term and, in the case where there are options to extend, will include the option to extend if it has determined that it is reasonably certain that the Company would exercise those options.

The Company also leases certain equipment that it rents to its customers where the payments vary based upon the amount of time the equipment is on rent. There are no fixed payments on these leases and, therefore, no lease liability or ROU assets have been recorded. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

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Unaudited

The components of lease expense consist of the following (in millions):


		Three Months Ended March 31,
	Classification	2021		2020
Operating lease cost(a)	Direct operating	$	23.8	$	24.3
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization(b)	2.3		3.1
Interest on lease liabilities	Interest expense, net	0.3		0.4
Sublease income	Equipment rental revenue	(13.4)		(15.1)
Net lease cost		$	13.0	$	12.7

(a) Includes short-term leases of $8.8 million and $12.0 million for the three months ended March 31, 2021 and 2020, respectively, and variable lease costs of $1.7 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively.

(b) Depreciation and amortization is included with selling, general and administrative expense.

Note 7—Debt

The Company's debt consists of the following (in millions):


	Weighted Average Effective Interest Rate at March 31, 2021	Weighted Average Stated Interest Rate at March 31, 2021	Fixed or Floating Interest Rate	Maturity	March 31, 2021		December 31, 2020
Senior Notes
2027 Notes	5.61%	5.50%	Fixed	2027	$	1,200.0	$	1,200.0
Other Debt
ABL Credit Facility	N/A	1.34%	Floating	2024	190.0		255.0
AR Facility	N/A	0.98%	Floating	2021	175.0		175.0
Finance lease liabilities	3.18%	N/A	Fixed	2021-2027	38.7		40.8
Unamortized Debt Issuance Costs(a)					(6.8)		(7.1)
Total debt					1,596.9		1,663.7
Less: Current maturities of long-term debt					(11.7)		(12.2)
Long-term debt, net					$	1,585.2	$	1,651.5

(a) Unamortized debt issuance costs totaling $6.6 million and $7.1 million related to the ABL Credit Facility and AR Facility (as each is defined below) as of March 31, 2021 and December 31, 2020, respectively, and are included in "Other long-term assets" in the condensed consolidated balance sheets.

The effective interest rate for the fixed rate 2027 Notes (as defined below) includes the stated interest on the notes and the amortization of any debt issuance costs.

Senior Notes

On July 9, 2019, the Company issued $1.2 billion aggregate principal amount of its 5.50% Senior Notes due 2027 (the "2027 Notes"). Interest on the 2027 Notes accrues at the rate of 5.50% per annum and is payable semi-annually in arrears on January 15 and July 15. The 2027 Notes will mature on July 15, 2027. Additional information about the 2027 Notes is included in Note 11, "Debt" to the Company's financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

ABL Credit Facility

On July 31, 2019, Herc Holdings, Herc and certain other subsidiaries of Herc Holdings entered into a credit agreement with respect to a senior secured asset-based revolving credit facility (the "ABL Credit Facility"). The ABL Credit Facility provides (subject to availability under a borrowing base) for aggregate maximum borrowings of up to $1,750 million under a revolving

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Unaudited

loan facility. Up to $250 million of the revolving loan facility is available for the issuance of letters of credit, subject to certain conditions including issuing lender participation. Subject to the satisfaction of certain conditions and limitations, the ABL Credit Facility allows for the addition of incremental revolving commitments and/or incremental term loans. The ABL Credit Facility matures on July 31, 2024. Additional information about the ABL Credit Facility is included in Note 11, "Debt" to the Company's financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

Accounts Receivable Securitization Facility

In September 2018, the Company entered into an accounts receivable securitization facility (the "AR Facility") with aggregate commitments of $175 million. The AR Facility was amended in September 2020 to extend the maturity date to August 31, 2021. In connection with the AR Facility, Herc and one of its wholly-owned subsidiaries sell their accounts receivables on an ongoing basis to Herc Receivables U.S. LLC, a wholly-owned special-purpose entity (the "SPE"). The SPE's sole business consists of the purchase by the SPE of accounts receivable from Herc and the Herc subsidiary seller and borrowing by the SPE against the eligible accounts receivable from the lenders under the facility. The borrowings are secured by liens on the accounts receivable and other assets of the SPE. Collections on the accounts receivable are used to service the borrowings. The SPE is a separate legal entity that is consolidated in the Company's financial statements. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Herc is the servicer of the accounts receivable under the AR Facility. All of the obligations of the Herc subsidiary seller and the servicer and certain indemnification obligations of the SPE under the agreements governing the AR Facility are guaranteed by Herc pursuant to a performance guarantee. The AR Facility is excluded from current maturities of long-term debt as the Company has the intent and ability to consummate refinancing and extend the term of the agreement.

SEC Form 10-Q filed by Herc Holdings Inc.