United Rentals Stock

Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded.

Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release.

For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

You should also note that the company's press release and today's call include references to non-GAAP terms, such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.

Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we were very pleased to report our third quarter results, which are a testament to our strategy, the team's dedication to the customer and the unmatched breadth and scale of our premier offering. We came into 2026, expecting another year of growth. As evidenced by our results, the business continues to perform better than we expected. Large projects across a variety of end markets are driving our growth. And we expect this momentum will carry for the remainder of this year and into next year.

We remain well positioned to outperform the industry with our broad footprint, our unmatched one-stop shop offering, accompanied by exceptional levels of service and leading technology and of course, our unwavering commitment to safety. These capabilities, combined with our customers' confidence and backlogs support our revised guidance. We came into the year dedicated to being the partner of choice for our customers, accompanied by a laser focus on finding cost efficiencies.

I'm very pleased with the team's efforts and how the year is playing out. Team United continues to raise the bar, providing an unmatched offering for our customers while also generating strong returns.

So let's get into the details of our third quarter results and our updated full year guidance and then Ted will get into more details around the numbers before we open up the call to Q&A. Starting with the quarter's results. Total revenue grew by 16% year-over-year to $4.9 billion. Within this, rental revenue grew by 18% to $4.3 billion, both quarterly records. Fleet productivity of 6.5% contributed to OER growth of 12.9%. I'll note that time and mix all contributed to the court productivity along with rate. Adjusted EBITDA was a record of $2.3 billion, resulting in a margin of 47.6%, an improvement of 160 basis points year-over-year. And finally, adjusted EPS came in at $15.55, up 33% year-over-year and another quarterly record.

Now let's discuss customer activity. The third quarter again saw growth across both our gen rent and specialty business. Specialty was a standout with total revenue growth of 35% year-over-year, including 12 cold starts which brings us to 40 cold starts year-to-date. Notably, each specialty line of business reported strong double-digit growth in the quarter. By vertical, the trends in the first half of the year carried into the third quarter. Construction continues to grow across nonresidential and infrastructure. And on the industrial side, Power once again posted double-digit growth as did metals and minerals.

As I mentioned earlier, a variety of end markets drive our growth. This diversified exposure is an important and very intentional part of our strategy. With this in mind, we saw projects kick off in the third quarter across numerous end markets, including energy, manufacturing, infrastructure and data centers.

Now turning to the used market. We sold $677 million of OEC at a 51% recovery rate. The demand for used equipment remains strong, and we still expect to sell approximately $2.8 billion of fleet this year. Given the demand from our customers and our replacement of sold equipment, we spent $1.8 billion on gross rental CapEx in the quarter, and this takes us to $4.7 billion year-to-date. The combination of a strong demand environment and fleet productivity underpins this additional spend as we ensure we support our customers while driving profitable growth. Subsequently, we generated year-to-date free cash flow of $1.4 billion.

Even with higher CapEx needs, we're able to generate meaningful free cash flow due to a combination of our industry-leading profitability, capital efficiency and the flexibility of our business model. This strong free cash flow is redeployed in ways that allow us to augment shareholder value and is a critical part of our strategy. Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet is very healthy, allowing us to support both organic and inorganic growth and to also return nearly $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.8x remains well within our targeted range of 1.5 to 2.5x, leaving plenty of dry powder to support growth and to return excess capital to our shareholders.

We've long talked about the importance of financial strength to support our strategy and to drive long-term value creation. To this point, we were very pleased to see S&P acknowledge our efforts with their upgrade of our credit rating to investment grade earlier this month. As we enter the last few months of 2026, our focus is unchanged. The demand environment for large projects remains robust, supporting our revised guidance, which reflects over 12% total revenue growth with EBITDA margins over 46%, all at the midpoint. We increased our CapEx guidance to over $5.3 billion at the midpoint as we see the opportunity to put even more equipment on rent while generating strong free cash flow and returns.

So in conclusion, the United Rentals team's diligent focus on our strategy day in and day out is delivering results we're all very proud of. Over the last nearly 30 years, we built and continue to expand the value proposition, which differentiates us in the industry. Our business model is truly unique and goes beyond purely equipment rental. By layering on technology innovation and unmatched service across both our specialty and generic businesses, we support our customers' productivity and drive a better partnership. And for our shareholders, this translates to profitable growth, strong free cash flow and compelling returns.

And with that, I'll hand it over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted.

Thanks, Matt. Good morning, everyone. As Matt just shared, the team delivered strong results that exceeded even our raised expectations from last quarter, quarterly records for total revenue, rental revenue, EBITDA and EPS. Beyond that, we raised our full year guidance for revenue and EBITDA to reflect our expectations that this performance will continue through year-end in support of big record 2026. But before we get into the details of the updated guidance, let's review the third quarter's results.

As you saw in our press release, rental revenue increased 17.8% to over $4.3 billion supported once again by the team's strong execution across large projects and key verticals. Within this, OER increased by 12.9%, driven by a 7.9% increase in our average fleet size and fleet productivity of 6.5%, partially offset by assumed fleet inflation of 1.5%. And finally, within rental revenue, ancillary and re-rent grew over 37%, again outpacing OER growth by a healthy margin. Pivoting to use, we sold $677 million of OEC in the quarter, generating $348 million of proceeds at an adjusted margin of 46.3% and a 51.4% recovery rate.

As Matt mentioned, consistent with our initial guidance, we're on track to sell approximately $2.8 billion of OEC this year at a recovery rate in the low 50s in what remains a healthy used equipment market.

Next, let's turn to adjusted EBITDA, which increased $385 million to a record of over $2.3 billion. This was driven primarily by a $417 million increase in rental gross profit and an $8 million increase in used gross profits. SG&A increased by $54 million, translating to a 20 basis point improvement as a percentage of revenue, while gross profits from other lines of businesses added $14 million.

Looking at profitability. Our third quarter adjusted EBITDA margin increased 160 basis points to 47.6%, reflecting another quarter of strong cost discipline. Well, there were always -- while there will always be some quarter-to-quarter variability, we are very pleased with our team's ability to efficiently leverage our third quarter growth to offset the impacts of both lower-margin ancillary and re-rent revenues and other inflationary pressures.

Shifting to CapEx. We've responded to robust customer demand by investing over $4.7 billion in gross rental CapEx year-to-date, which is an increase of almost $1 billion year-over-year.

Moving to returns and free cash flow. Our return on invested capital increased 30 basis points year-over-year to 12.3%, which remains comfortably above our weighted average cost of capital while our free cash flow year-to-date has exceeded $1.4 billion.

Turning to our balance sheet. Net leverage remains very comfortable at 1.8x at the end of September with total liquidity of over $2.6 billion. As Matt mentioned, we are very pleased to see S&P's recognition of our commitment to maintaining a strong balance sheet by upgrading our credit rating to investment grade earlier this month. We view this as a testament to our disciplined financial policies around leverage, liquidity and maturity management as well as the strength and durability of our free cash flow.

Turning to capital allocation. Through the third quarter, we returned roughly $1.5 billion to shareholders, including $1.125 billion through repurchases and $371 million via dividends.

Now let's move to the guidance we shared last night, which reflects our confidence in delivering another record year. Total revenue is now expected in the range of $18 billion to $18.2 billion, an increase of $450 million at midpoint versus our prior guidance, while used sales are still expected at around $1.45 billion. At midpoint, this now implies full year total revenue growth ex use of better than 13% and versus our initial 2026 guidance of closer to 6%. In turn, we've also raised our adjusted EBITDA guidance by $300 million to a range of $8.3 billion to $8.4 billion, reflecting our continued expectation to bring the revenue growth to the bottom line and finish the year strong.

Notably, at midpoint, excluding the benefit of the H&E termination fee last year and the gain on sale of our scaffolding business this year, this implies a roughly 70 basis point improvement in our full year EBITDA margin compared to the goal we initially shared in January of a flat full year margin. On the fleet side, driven by strong customer demand, we've increased our gross CapEx guidance by $300 million to a range of $5.2 billion to $5.5 billion. This now implies net CapEx of $3.75 billion to $4.05 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 billion to $2.45 billion which reflects an increase in our cash flow from operations, offset by higher CapEx.

I think it's important to call out that we've invested significantly in our fleet this year to drive strong organic growth positioning the business for attractive returns over the coming years while also generating substantial free cash flow. And finally, on the capital allocation front, we still intend to repurchase $1.5 billion of shares in 2026. Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of over 3% based on our current share price.

So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Certainly. Thank you, Mr. Grace. [Operator Instructions] We'll go first this morning to David Raso with Evercore ISI.

The margins were impressive and the sustainability of that improvement is sort of the spirit of the question. The pricing opportunity you see coming up as some larger projects roll off to new ones. Maybe some flexibility in pricing in current multi projects. Just give us a sense of how you're thinking about the chance to maybe improve the pricing on those? Any change there? And the same idea of structurally, there are probably some ceiling how high time utilization could go. And I mean, at least versus history, it feels like we're maybe getting a bit close to that ceiling. If that's the case, should we think of how we address that high ceiling as expect strong CapEx next year, but also maybe an increased focus on rental rate?

Thanks, David. I mean what you're touching on, right? You see we're doing all 3 components very strongly here in the quarter with the productivity of 6.5% that you saw. With all that being said, rate has been climbing and been a good guy for us for quite some time. And that's necessary because of the inflation that we're all experiencing in the industry. So we expect that to continue next year. Certainly, the demand environment and the high time utilization, to your point, assist that. So we feel really good about that opportunity. And as far as the CapEx, we'll get to that when we get to January guidance.

But it's a fair point that may be running at this level of time utilization isn't the most prudent thing to do. We're doing it at a necessity right now, right? But we could temper that a little bit next year. which will require a little more CapEx, but not a lot. I think we'll get to that in January once we get through our planning process here throughout the fourth quarter and let you guys know in January.

Any thoughts you maybe could provide on the rate opportunity, thinking about larger projects still as a base case driving the business next year. And obviously, any other color between rate growth for gen rent versus specialty?

Yes, we're seeing positive fleet productivity throughout all business units and throughout all project types and all customer sets. So this isn't just unique to projects or local market or industrial. This is across the board, concerted effort for all of us to make sure we recapture the cost that we're absorbing.

We go next now to Rob Wertheimer with Melius Research.

One of the concerns people had heading into the year, if we go back a few quarters, is just the fleet movement costs in a market that was bifurcated, soft on one side, strong in another. And it seems like you've alleviated that. I'm sure some of that is internal management. I wonder how much of that is the overall market has tightened up. And I'm wondering if you could just sort of comment on that dynamic and if it remains a risk or focus.

Sure, Rob. It's really been a lot of internal management and process change more than anything. The reality is a tighter market could require more movement. So I think the team has done a great job. We obviously put more process changes and eyeballs into it. And wasn't that the team was doing anything wrong last year, we just need to see how we could do it better. We have a team that's very responsive to customer demand. And if we could bundle some of those responses together, and put a little more elbow grease into making sure cost was a big variable in these decisions. That's the result that you saw.

Perfect. And then just kind of more generally, and I guess maybe David just touched on this, but as you roll through the mega project era, you guys had a ton of value with fleet diversity, technology, service, uptime, all these different things you guys do well. are conversations around the value you deliver to mega projects more constructive now than they were in the past. Do people kind of realize how much you can save through all those -- delivering all those factors?

Yes, I certainly think that surety of supply and the one-stop shop value proposition have definitely taken more prominence really in the last year plus. When you run a big site, not having a bunch of vendors running around is very helpful for the folks that have to control the security and the safety of that site. And I think probably all the large companies are playing favorable there, but we certainly think our unique value advantages us there. Thank you.

We'll go next now to Jerry Revich with Wells Fargo.

Yes, one I just wanted to ask on the cost performance, what really stood out is really strong labor and R&M productivity across both general and specialty rentals. And earlier this year, you folks have implemented a number of rationalization plans. Can you just update on where we stand on that? And is there more runway for further efficiency gains from here? Are we at the run rate from those efforts?

Sure. Thanks for the question, Jerry. Yes, to your point, this is something we've been talking about publicly since January, something we challenged the team to do early in the year, and they've delivered incredibly well. Certainly, we've gotten very good labor absorption and that you can see that in both sides of the businesses. And you mentioned R&M. But almost back to Rob's question, I think the team has also done an extraordinary job on the delivery side. And so we said that all 3 of those would be critical to producing kind of better margins year-on-year. In terms of the restructuring, that's really played out in line with expectations.

So the benefits have been consistent, and they really are not a big part of what's driven the year-on-year improvement. So they've been helpful for sure, and we were prepared to take those actions. But at the end of the day, it's really been the team's focused on leveraging growth efficiently. So you think about growth, I mean, growth itself has been very strong, stronger than we expected. The composition of growth has been very strong. You can see that in the fleet productivity. And then to your point, the team has just done a really good job driving efficiency across those big 3 buckets. And that's something we've long talked about. It's a challenge we've got to meet every year.

We feel like the team has done a great job prior to '26, to be honest, and we talked about that publicly. And going forward, I'll just coming back to something David asked about the sustainability, this is just how we run the business. And so there's always going to be an ebb and flow to all these dynamics. But certainly, our expectation is we'll continue to deliver -- our goal is to deliver margin expansion always, and we feel like we've got a good recipe to continue driving strong results.

And Matt, can I ask just to expand in your prepared remarks, you spoke about delivering to manufacturing as well as power? So what we're seeing in the fab plans is for plans to double CapEx '27 versus '26? Is that the magnitude of start-up deliveries that you folks are alluding to when you mentioned in the prepared remarks on manufacturing? And can you expand on just the magnitude of growth in power because in addition to utility CapEx growth, obviously, behind the meter is set to more than double as well? Are you seeing that level of growth in those verticals?

So we don't get too specific in verticals, but certainly, we feel like we're very well positioned to be that partner of choice for the kinds of contractors that build the kind of facilities you're alluding to, very high-spec demanding customers. So we feel very good there. I'm not sure we'd kind of quantify what that translates to too specifically, but we're doing very well there. And on the power side, we saw double-digit growth.

It's been a trend we've been talking about publicly for a while. And so certainly, that's actually not going to be behind the meter piece as much as it is, working with investor-owned utilities across generation, transmission, distribution, all of which have been key elements to our power vertical strategy since -- really for over a decade since we introduced in '26, Matt.

Yes. Yes. And I think the broader point is our end markets are very diverse. We cover a broad range of end markets, both in construction and in industrial as well as infrastructure and all with the same fungible assets. And I think that's really the story there. For example, even in power. We're not doing a bunch of specialty power assets, right, or large scale to power some of these projects. We're really staying in our lane and I think it's playing out really well for us. It gives us a lot of flexibility.

We'll go next now to Angel Castillo with Morgan Stanley.

Could you just talk about price cost a little bit. As you start to do your 2027 planning, I know we're still a little bit early, but can you just talk about what kind of levels of inflation you're seeing across the major buckets of cost of goods sold. Again, you've done a great job so far here in 2026 covering that. So it would be helpful to understand how you're seeing that progression or the implications of cost inflation next year. And as it relates to the questions earlier on rental rate, how much of that has maybe already been kind of secured through recent renewals or projects or just kind of increases versus -- and we'll just kind of roll through into next year versus how much do you still need to kind of go out there and get as you do renewals of contracts?

Yes. So touching on the first piece, Angel. Look, inflation is very real. It's certainly not benign. It's certainly not deflationary. I think it depends on the bucket. On the one hand, you look at that labor absorption we talked about. I mean frankly, that's why we're absorbing above-trend merit increase. And we think that's important. We want to take care of our people. I think we pride ourselves on being the employer of choice, and that certainly means taking care of our people in a lot of ways. And so I can tell you we proudly think about the way that we reward our team for the great job they deliver.

But honestly, the underlying increase is above trend, and yet you're still seeing the team offset that through productivity gains. Within R&M, you can imagine that's another area where our suppliers are focused on their pricing on parts and yet we've been able to manage that very effectively. And within delivery, what is incredible, I think people see what's happened with diesel. They can see what's happening with freight rates. And yet here, again, we've been able to offset that. So it's not at all to suggest that we're in some kind of deflationary beneficial cost environment. Going forward, our -- we'll see how next year shapes up.

A lot of dynamics to consider as we get into planning internally and then what that translates to from a forecasting perspective. But I come back to our goal is to be as efficient as possible and consistently deliver strong margin performance across the business.

And the second part of your business?

As far as the rate component to the second part of your question about fleet productivity, first of all, we manage rate and time rigorously. It's the mix of the 2 that matters, which is why we talk about fleet productivity. But to be clear, we manage rate throughout the year. There is no magic date a point where we're doing renewals. We work with our customers throughout the year, making sure there's a balance to get paid for our value and making sure they could do what they need to do on the job, both physically and economically. And we think we've found a really good balance, and we don't expect that to stop anytime soon.

That's very helpful. And then maybe could you touch on capital allocation. You now have investment grade with one credit agency and when I look at your balance sheet, you still have quite a bit of kind of firepower. So maybe a couple of things. Maybe you touch on what the implications to your -- perhaps your borrowing cost or cost of capital is from the shift to IG. And then as we think about your current leverage or net leverage versus your target of kind of 2.5% at the high end. Is there anything preventing I guess, you from being able to deploy more of that, whether it's the buybacks or for M&A? I know you did, I think, a little over $100 million this quarter. So just talk about the puts and takes there for capital deployment and perhaps timing?

Sure. So -- and I think we talked a little bit about this last quarter, but when you think about our capital allocation philosophy, it always starts with the balance sheet and where we position. Certainly, over the years, you've seen us evolve that strategy, get to the point where we've got a very strong balance sheet that will allow us to do pretty much anything we think makes the most sense for the company and the shareholders.

As a result of that, we changed our internal financial policy such that we felt comfortable moving investment grade. And the concern we previously had was the potential constraints that could put on inorganic growth. But as the company has grown and the scale has gotten bigger and bigger and what that's done for our financial capacity, we realized that, frankly, we had the ability to do anything we wanted with the existing constraints. And as a result, we've changed that internal financial policy and communicated that externally, and that's really what's precipitated at least one of the upgrades.

So it doesn't change much. It really doesn't change anything internally. So there's no "cost". The benefit is obviously there's tighter spreads that we'll get with the issuer, IG issuer versus high yield. I wouldn't want to speak for the market, but certainly people can look at kind of BBB credits to get a sense for kind of what their yields would look like relative to ours. And we think it will be a very appreciable benefit that will, over time, as we refinance debt or issue debt for whatever reason, accrued benefit to the shareholders. But it doesn't change that strategy of starting with a strong balance sheet, investing in organic growth, funding smart M&A and then returning the excess capital to our shareholders.

It's really going to be that kind of framework for the -- I think, certainly for 2027 would be a reasonable assumption that, that's the framework we use to figure out that capital allocation strategy. Does that answer all the questions? Or was there one at the end that you also want us to address?

Just more, I guess, in terms of the potential for timing of either buybacks or M&A, should kind of be leaning one way or another kind of think about that?

Well, if there was any impact on our ability to do M&A, frankly, we wouldn't be doing this. So we don't see any impact there. And as far as the buybacks stay tuned. I think we've been pretty consistent there.

We've got to go through that planning process to see what that growth opportunity is, what the investment looks like organically, can sense for what that part of the use of cash would be. And then obviously, we'll assess kind of the M&A opportunity. And then what's left over, consistent with history, I think you can expect us to return that excess capital to our shareholders. So I wouldn't anticipate any change there to Matt's point.

We go next now to Seth Weber with BNP Paribas.

Appreciate all the comments about the strength in the mega projects and stuff. I just wanted to get your sense a little bit on the local markets. Are they -- would you characterize them as still being kind of stable? And just how much of a lag do you think we should expect? How long will it take for those markets to accelerate once interest rates start to come down in your experience?

Sure, Seth. So we would continue to call it stable now to be a little more information there for you. It probably gave us a couple of points of growth here in this quarter, but the big driver here is still the mega projects, large projects and our large customers driving this growth. So we like the fact that there was a little bit of growth there. As far as is that a pivot point? We don't know.

And for the second part of your question, we'll stay in our lane, as I said earlier, we have no idea how to forecast what that lag would be. What we do have is the ability to get -- especially as we go through our budget process, to have boots on the ground feedback, and that's what we'll learn. And we'll count more on that than any kind of thoughts about what a lag would be. But we have heard for a while now sentiment has been more positive. We have seen a little bit of growth in a lot of these local markets. So we are feeling good about the direction of it.

Okay. And I guess just on the specialty business, I think you're talking 40 -- north of 40 cold starts this year. Is that -- do you think that would accelerate next year? And have you started to see any change in the competitive landscape in the specialty categories?

Yes. So we're slightly ahead of target this year. This is kind of a continuum of markets that our teams in each business unit have on their docket where they want to grow into -- we haven't done that work yet. That's part of the budget process. So I don't want to try to predict what we're going to come out with but we still have white space geographically in some of these markets and really the ability to grow some density in markets where we already exist in some product lines as we've been outgrowing the existing facilities. So I think there'll be more opportunity, and we'll update you guys in January.

As far as the competitive set, there's always competitors that want to get into what we're doing, right? Somebody always covets that neighbor's revenue, so to speak. What I will say is the barrier to entry and the value prop that we've built is really strong. So I think we've got a pretty good competitive moat there as far as what we offer to the customer.

We'll go next now to Kyle Menges with Citi.

Maybe following up on Seth's first question on the local market. I'd just love to hear a little bit more of what you think is driving some of the positive sentiment in those local markets in spite of still a choppy macro backdrop and elevated interest rate environment?

I don't really have any additional color in aggregate. We're giving you a number in aggregate. What the puts and takes in all these different markets, right, the 1,800 branches that we're in almost in the U.S. and Canada, it would be really hard to homogenize that for you as far as what's driving it, but we are seeing local markets that do have some growth, and we'll update you guys on what we think that's going to turn into in 2027, but I don't really have any additional color for you.

Got it. And then ancillary again, outgrew OER pretty significantly this quarter. How should we think about that gap between the ancillary and OER growth potentially narrowing over time and maybe into 2027? And how much of it is just a matter of mega projects maturing into maybe a year 2, year 3, year 4 versus a lot more of them in year 1 and getting ramped up and maybe there's more ancillary revenue as those projects ramp up?

Yes. We view ancillary as responsive to customers' needs and their request, not really something we'll predict. I'm certain that specialty growth is one driver of it. I'm certain that projects do tend to need more of it. But as we continue to add more offerings and customers are aware of what we have to offer them, it will be interesting to see if that -- how that spreads. I think more importantly is we're just being a better provider to our customers. So for us, we don't have a target for it to grow it or to not grow it, is to make sure that we're in a position to respond when the customer asks us to do something for them. That's related to our products and our services. So really no ability to predict there because it is a responsive non-CapEx driven type of volume.

We go next now to Chad Dillard with Bernstein.

My question for you is on the CapEx raise in the quarter and what drove it? Is it the demand that you're seeing right now? Or are you preparing for what you're seeing ahead? And if you could, just like what end markets are getting better to drive that? And then maybe just secondly, what was the breakdown between what drove it gen rent or specialty?

Sure, Chad. I'd say yes to both. So it is the work that we see right in front of us right now. We had talked about how we're driving historically high time utilization. So this isn't a pull forward of stuff we're going to need next year. But certainly, the fact that we think 2027 is going to be a growth year gives us the confidence to support these growth needs that we have late in the year here in Q4. So it's really a little bit of both. And as far as -- I forgot the second part of your question?

Yes, just gen rent versus specialty like what...

Yes. Thank you. So you see the growth of specialty. So really for quite a few years now, specialty gets an overweighted amount of the growth CapEx to support the cold starts and the growth that they're having. Outside of that, and once you get beyond specialty, within our gen rent portfolio, we're really utilizing our full portfolio on these major projects as you think about it's pretty evenly spent throughout those categories that we carry in our generate stores.

Got you. And maybe just double click on specialty. You saw some pretty sizable growth, plus 30% in the quarter. Can you break down how much is from cross-sell or scope increase versus just like a dedicated specialty sales. If you can't do it quantitatively, give some quality of color.

Yes. It's hard to break down too specifically. But certainly, when you think about the value proposition of being a one-stop shop, I mean, that is a good example of cross-selling. And so certainly, as we've been providing more and more products and services on these large projects that lend themselves very well to it. It certainly benefits, I guess, what you would call cross-sell. To us, it's solving problems for customers and making their lives as easy as possible and that all kind of comes back to the strategy we've been talking about being that partner of choice. It's hard to peel it apart, Chad.

We go next now to Mig Dobre with Baird.

If we can go back to the discussion around ancillary and maybe double click specifically on the re-rent revenue. I mean we'll see how Q4 shakes out, but it looks to me like this line item is going to be up quite significantly, maybe 40% to 50% on a year-over-year this year. And I'm curious what the right way to interpret this or think about this is, is this a function of you guys just renting equipment in categories that maybe you're not participating? Or is this more of a kind of like a CapEx signal in terms of where demand is materializing and part of the reason why you're raising CapEx, simply not having enough equipment and having to source it from third parties.

Yes. I would say it's the latter, Mig. I mean this goes hand-in-hand with the demand environment and the time utilization that we're driving and part of the reason why you see a CapEx raise here. So it is the latter. And sometimes, it's -- I would say most of it I won't say all because there's always something that we're getting to support a customer's need that we don't necessarily have in that market. Sometimes it's the more efficient play, especially for a short-term need or for something that we don't have access to handle at that moment of need. But overall, it is indicative of the combination of demand and high time utilization that we're running.

Okay. That's helpful. And as you're raising CapEx, and I'm sure you'll give us an update on '27, it sounds like you're probably going to spend a little bit more -- is it fair to expect this line item re-rent to maybe like flip to more towards OER. And does that kind of have a bit of a margin benefit that we need to contemplate if that's the case?

It's a good question. I would say, ultimately, certainly, as we pivot some of the stuff through into CapEx and we internalize as cash flows, it's going to benefit your OER line. But one of the things, again, is solving problems for customers. And so I think you've long seen kind of re-rent as part of our business for a lot of different reasons, whether it's sourcing additional capacity or providing those things as a one-stop shop service provider that for one reason or another, we don't own or don't want to own. So I'm hesitant to get too specific, but I think your logic makes sense. As we do convert some of that into a CapEx that's going to benefit our core results.

Overall, not that big a number in the overall scheme of things and not something that we plan for. So it's hard even for us to model what that would be. So I don't know how to guide you how you would, frankly.

We'll go next now to Jamie Cook with Truist Securities.

Congrats on a nice quarter. I guess just 2 questions. My first question, just with regards to conversations that you're having with OEs as you think about CapEx for 2027, any concerns on capacity constraints in the market? Or are we having conversations earlier just because of concerns on OEM availability? And just sort of the pricing setup for 2027? And then I guess my second question, just the competitive dynamics, which I'm sure there's always new ones each cycle. But obviously, you have a large OE who's trying to get more aggressive and compact and trying to focus more on Mega. We have new players in the market trying to double their OE. I guess just, Ted, given what you're seeing in the market, do you think the improvement that we've seen in rental rates, do you think that could continue into 2027?

And I guess, to what degree are you concerned that some of these peers are -- could be potentially putting too much fleet into the market and that becomes an issue, I mean potentially at some point next year? Or do you just see this as sort of normal new entrants trying to do things and ultimately not making big waves in the market? [Technical Difficulty]

And ladies and gentlemen, it appears we are having a technical issue. Please stay on the line, and we will have it resolved as soon as possible. Ladies and gentlemen, please continue to stay on the line. We are resolving the technical issue as we speak. I'll let you know just as soon as Matt and Ted have rejoined us. Ted and Matt, I believe we do have you back, if you can hear us again.

Can you hear us?

We can. We can, Ted, Matt, please go ahead.

Right. Sorry about that folks. We had -- I don't know what happened, a little blacked out here. But with all that being said, we're -- so I believe what we heard at the tail end, was that Jamie asking a question, if you'd like to repeat it?

I guess the first question was just on talking to OEMs about '27 concerns basically on any constraints in terms of you being able to get equipment and pricing. And then my second question, it was just the competitive dynamics of this cycle with a major OE trying to get more into compact and Mega. Obviously, other public players trying to double OEC. To what degree are you concerned potentially we could be flooding the market and this becomes -- equipment could be flooding the market and this becomes an issue. Or do you think the appropriate level of equipment that's going into the market sort of like meets demand like the -- so I guess that was the spirit of the question and whether competitive dynamics are any different or more concerning versus what you've seen in other cycles.

Yes, sure. So to the flooding supply, I mean the industry has shown really good discipline on supply and demand and including the OEM. So we feel good about that backdrop. More importantly, we feel really good about the demand going forward. So we're not overly concerned about that. And as far as our ability to access, you see this year with the raised CapEx throughout the year, we've got real good relationships and flexibility with our partners, where we do feel we're able to react quickly and respond quickly to opportunities, but there's a lot of planning in that and a lot of forward-looking information that we're sharing with our partners to make sure we can do that effectively. So we do feel good about the supply demand and our ability to participate appropriately in it.

We'll go next to now to Steven Fisher with UBS.

Great. My call dropped a little earlier, so I apologize if these have been addressed, but -- last year, in the fourth quarter, you had a couple of things that were specifically weighing on the margins in that quarter. And so the comps, I think, should be easier and I guess I'm just curious how you approached the expectations or setting the expectations for Q4 incremental margins or implied incremental margins in light of sort of easier comps on that from last year versus this year. I would think they should be better than what you saw in Q3, but it seems like there might be something else you're factoring in?

Yes. I mean, certainly, I won't react the dynamics we talked about a year ago, but I'd say the biggest thing we did call out was that repositioning a year ago, and the team has done a good job to some of my earlier points. Steve, I'm getting the gist to your question is if you're trying to see what's implied at the midpoint of guidance on the fourth quarter. And we've only caution people against anchoring at the midpoint of our guidance. I mean on the one hand, it's inevitable and anchor these conversations because it's an easy point to, but it's not without risk. So we've got a range.

We feel very good about the momentum we're carrying throughout the year into the fourth quarter, the fundamental performance we would not expect to deviate. And I'd just remind people the sensitivity of that calculation, right? I mean if you think about a 1% variance to EBITDA or you hold everything else constant, that equates to about a 50 basis point swing in the implied margin year-on-year. And so without obviously decomposing all the factors that influence a quarter because it varies quarter-to-quarter. I'll say we feel really good about the year-to-date execution, we feel we're good about our expectations for the fourth quarter, where we end up time will tell. But if you're inferring that something's changed or anything along those lines, there's nothing has.

Okay. That's helpful. And then in terms of cold starts, I think if not all of your cold starts have been in specialty and certainly, it seems like the vast majority of them. I'm just curious, as we think about an increasing mix of large projects, going forward. Just curious, geographically, where those large projects are setting up, is there an opportunity for you to do more gene brands? Or are they in places where you've got adequate coverage already within your existing footprint?

Typically, we have adequate coverage where they are. But if there happens to be a large project in a really remote area, more times than not, we're able to get an on-site to service it that way. If we think it's a market that's going to continue to grow outside of the major project, then we certainly have no hesitation to put the cold start in there. But our coverage is pretty good, especially here in the U.S. and in Canada. So we feel we rarely need to add a store in rent just for a major project.

We'll go next now to Sabahat Khan with RBC Capital Markets.

I think last quarter, you shared some comments on sort of underlying margins in some of the moving pieces. And I guess, with higher ancillary and re-rent mix, maybe if you could just share some thoughts on how underlying margins trended this quarter as well.

Yes. Thanks for the question. The dynamics we had to manage through in the third quarter were not dissimilar to what we managed to in the second quarter, whether it's that impact from the outgrowth of ancillary and re-rent, I would say, the headwind, which obviously you saw us offset was similar and even within fuel, right? We talked about the headwind we absorbed in fuel last quarter. It was pretty similar third quarter over second quarter. So not a lot of change there, shouldn't surprise people. But obviously, what you saw was our ability to again leverage that growth, the composition of growth and just very good cost execution across the company.

Great. And then just think about '27, some of the cost or operational cost reductions you've been making, those likely help into next year. I guess when you outlined some of the technology initiatives earlier this year, whether it's on the AI front and some of the other programs. Do those become a material contributor to margins as we head into next year? Or are some of these technology programs that you're undertaking more longer-term contributors and maybe a bit less material? Should we start to think about them getting more material as you had in '27?

So as we get through the budget process, we'll probably get a little deeper into that. I think most of them are longer term and -- but there's certainly some productivity improvements in there. Some of them are less easily to put into a margin conversation, but just productivity of some of our human capital I certainly think longer term, we should get productivity in the shops from some of the technology we're using and certainly free up some time for our managers to use more of their time to drive the business. So I think there's a range of opportunities probably more towards the long term, but we'll update appropriately as we learn.

And this isn't all the takeaway from the opportunity. But just as a reminder, I mean, we've long embraced continual improvement. And so our a lot of the AI tools have a lot of potential and we're really excited. We view it as a continuation of what we've been driving internally to drive productivity for several decades.

We'll go next now to Scott Schneeberger with Oppenheimer.

It's Daniel on for Scott. Could you please address the sustainability of the used sales margin expansion you've seen recently?

Which margin expansion?

Used sales?

Yes. Look, we've been very pleased. I'd say overall, that market has performed as expected. We -- you rewind a year ago when we talked about with like 2025 was kind of the bottom innings of that normalization process. And we saw that progressively, if you think about the first half of '25 played out versus second half. And obviously, we progressed through '26 pretty well. So it feels like the market is normalized.

Certainly, it's a very deep market, plenty of demand. You can see that in our results. In terms of the margins, I think we're back to kind of what we would say are normalized margins. And so I would not encourage people to think there's going to be a huge amount of variability there. The likelihood is we're kind of again back in this normalized market, but the good news is things have played out as we kind of expected them to.

Got it. And just to round off on EBITDA flow-through. I mean you've done a great job with the efficiency this year. How do you think about EBITDA flow through longer term? Any color there would be helpful.

Yes. So we've really tried to pivot this discussion away from flow-through because I think it could almost simplifies things. And really, our goal is to drive margin expansion across the cycle and we feel like that's what we've done. Certainly, as we've talked about, in some periods of time, it's easier to do and easier to show and other times, it's more difficult or it gets clouded by dynamics, whether that's used to kind of your earlier point, Daniel, or whether it's -- obviously, this outgrowth of ancillary and re-rent.

I would just say going forward, our focus is on driving profitable growth and then being as efficient as possible. And that obviously implies driving core margin expansion. And similar to what we talked about in '23 and '24 and '25, we're going to help people see what the underlying results look like as best as possible. But as we go forward, certainly, our goal again is going to be to drive strong margins and ultimately margin expansion is the goal.

We'll go next now to Neil Tyler with Rothschild & Company.

Just one more for me, please. Coming back to the topic of inflation more broadly. I guess you've talked about the various aspects in which that appears across your industry? Are there specific areas or verticals that you might want to call out where you're seeing customers come to you to solve their inflation problems since in ways that your model might be better able to absorb it? And if you could just talk a little bit about that as a theme.

Sure. We usually think about capital cost avoidance when we're thinking about rental versus owning. But to your point, those come at a cost. So I think the most important part is how can we help our customers drive efficiency. We believe fleet right? Technology and part of that and fleet is a great way for them to do that. So we make sure we provide that. And we do think rentals the better way. You could own fleet and get some productivity out of the usage, but we feel strongly that Reynolds proven to be the better way for them to do that. So I think it's a big part of our value proposition to continue to help customers drive efficiency to improve their margins and competitiveness in their markets.

And then the second question would be, obviously, you've talked confidently about your -- you feel good about demand and into '27 as well. Obviously, there are discussions ongoing as to sort of longevity of some of the cycles in end markets that you serve. Can you sort of talk a little bit more sort of longer term? It feels like the market is broadening out the demand environment is broadening out but how you would characterize your visibility compared to, say, 6, 12 months ago across the sort of indicators that you look at?

Yes. I would say we feel better than we did 6 to 12 months ago, certainly. You see that not only in the raised guidance, but in the activity that's going around in the industry. And the end markets we serve are very, very broad, even within nonres, and I know there's been a lot of talk at underlying in that commentary, people [indiscernible] how long data center is going to continue. Well, that sits in our nonres business. And even if you take data centers out, we've got strong double-digit growth within nonres. And then we think about infrastructure power LNG, even upstream oil and gas is doing well right now, but growing.

So those opportunities remain. And that's where a couple of end markets not being strong, like industrial manufacturing, we think, is a potential future opportunity for us. residential, which then will drive more non-reservoir right, is still down and downstream oil and gas. Petrochem overall on the downstream side, which is an area where we have a lot of run and maintain work, a lot of turnaround work that's just not getting done right now because those folks are busy as tech right now, as you can imagine. So we feel really good about the long-term view here and certainly more bullish than we did 6 to 12 months ago.

And the one thing I might add, Neil, is I think people know, we survey our customers regularly and they continue to feel very good about their own prospects. So this is something that Matt, Elizabeth and I have gotten a lot of questions on in the last, let's just say, 6-plus months given what's happened with energy pricing and inflation and what the market is discounting on rates and understandable concerns around whether it's the short end of the curve, the long end of the curve. Throughout all that volatility that markets have wrestled with, I would tell you, our customers have felt consistently positive, and that's certainly as of the most recent readings. So that also helps underpin our confidence in kind of what that outlook looks like.

And ladies and gentlemen, that is all the time we have for questions this morning. Mr. Flannery, I'd like to turn things back to you, sir, for any closing comments.

Great. Thanks, operator. And once again, folks, we apologize for the tech disruption. But to everyone on the call, we appreciate your time. I'm glad you could join us and our Q3 investor deck has the latest update. And as always, Elizabeth is available to answer your questions. So until we speak to you again in January, have a safe and happy holiday season, and have a great end of your year. Operator, you can now end the call.

Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this does conclude United Rentals Third Quarter Earnings Conference Call. We'd like to thank you so much for joining us today and wish you all a great afternoon. Goodbye.

Perfect. Thanks, everyone, for joining us, and good afternoon. So Angel Castillo, Head of U.S. Machinery and Construction here at Morgan Stanley. And it's my pleasure today to have Matt Flannery, CEO of United Rentals; and Ted Grace, CFO of United Rentals.

So before we get started, I just want to read a quick disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

And with that, gentlemen, thank you for hosting us here today.

Thanks for having us.

So lots of topics to discuss. Obviously, everything around construction in the U.S. is very topical today. So maybe figured it would be a good place to start, just a little bit bigger picture, macro and a little bit broader kind of demand backdrop, if you could kind of lay -- set the stage for it. So maybe give us the state of the union, what you're seeing in terms of across construction end markets in the U.S. particularly curious how, if at all, all the geopolitics, interest rate moves, energy prices, how all of that, if at all, has impacted what you're seeing in terms of construction demand in the last few months is that...?

Well, I'll let Ted handle the geopolitics. But the demand environment feels great. It's really been strong. We had pretty solid expectations when we came out with guidance in January, and the year has just progressed better than we had thought. The construct of demand has been pretty similar to what our expectations were, where large projects were going to drive most of the growth. And then we expected the local markets to be stable. And that's pretty much the way it's played out.

But with the exception of the large project pipeline has just accelerated. It's moved farther and faster than we had expected through the year and the execution of the team has allowed us to raise guidance to the most recent level that we did in July. So we're really pleased with the demand environment. And the industry overall is really on a strong trajectory.

Ted, do you take?

Yes. I mean the macro dynamics have been pretty interesting this year. We came into the year not thinking you have diesel north of $5. But if you look at our year-to-date results, the team has done a great job managing that unexpected cost headwind. It's hard to A/B test to say what would have happened had things not played out the way it has. But to Matt's point, demand ultimately has been stronger than we expected despite whatever these headwinds real or perceived may be. So certainly, the U.S. economy has proven to be very dynamic. I think we've seen that consistently.

More recently, there's been discussion about rates and people wondering what the Fed is going to do, what's happened at the longer end of the curve. And certainly, we don't sit around pretending to be armchair economists. But we just remind people that if you were to look at the 10-year yields going back more than 3 years, it did bounce between 4% and 5%. And there is no discernible impact you've seen on the slowdown when it's even approached the upper end. So I guess the question the market asks is where do we go from here? But the economy and our markets specifically have proven to be very resilient, right?

And that's in spite of kind of what's happened at the longer end of the curve. And even as you've seen what's happened on the speculation around the shorter end of the curve, we've gone from 5.25, 5.5 to 3.5, 3.75. We ask ourselves if we do get into a tightening cycle, if it's 0.5 point, 0.75 point, you're still well within a range that our industry and the economy has weathered pretty well. So I guess, ultimately, we'll see -- if we look at our customer confidence through last week, it is not showing any indications that our customers are thinking about their own prospects differently given all the debate going on at every level.

So anything else you'd add there, Matt?

Agree. Agree.

Maybe -- listen, I think it's totally point taken, the economy, like you said, on the construction side has held up far better than expected. And I think as we look at the data, I think what I want to make sure to touch on is you still have done much better than even what the underlying has been showing, right? You look at construction starts in terms of square footage, you look at construction spending and yet you're guiding to 10% growth, right?

So you talked about the megaprojects a little bit, but it feels like there's a little bit something here, either the data that is a little bit -- maybe gets restated, ends up being that it was better than we thought or there's something that URI is doing that's ultimately delivering better results ahead of what even the industry or the macro would suggest.

So hoping you could kind of unpack that for a little bit like for us, like what are you doing in terms of differently that go-to-market, winning more than your fair share? Like what is a little bit different about your results that you're driving?

So it goes back to the strategy we deployed as far back as 2010, coming out of the recession, right? We decided we have to be aligned with the largest contractors, the largest projects that existed in our space because we learned if we wanted to have resiliency we needed to be with people that were going to get to work through downturns, upturns and just really counter the cyclicality story that we were burdened with. It's actually playing out really well. We spent a couple of decades building out this network and this connectivity to the largest customers and contractors in the world, and it's really playing out well during these megaprojects.

So this isn't anything new for us. We've been focusing on major customers and major projects for so long that this is just a manifestation of that strategy. And the other big part of that strategy is our one-stop shop strategy, where we started talking about specialty once again, 20 years ago and 15 years to the Street in more consistency. And that strategy has developed now into 7 different business units that solve different problems for our customers. And as you can imagine, these megaprojects have more complex needs. You can assume the larger the project, the broader the needs are going to be.

So the competitive moat that, that's created is really why I think you see us outperforming the industry overall and all the data points that you point to that show maybe we shouldn't be able to have double-digit growth right now. It's a lot of hard work. It's sticking to the strategy and -- but it's building a long-term relationship and that customers can count on.

The one thing I might add that tacks on to that is the vertical strategies we've introduced. So as an example, in 2016, we publicly introduced what we call the power vertical strategy. And it's not that we foresaw the electrification of the economy or AI or anything along that. We just recognize that these were very demanding customers that spend a lot of money consistently and that we could have a -- our differentiated value proposition could actually be truly valued by them. And so we probably got a 10-year head start on everybody else in terms of developing those relationships, not just with the E&C companies that focus on power verticals, but the utilities themselves.

And we did that for a couple of reasons. Not only is it a huge market, but it's obviously a pretty stable market. More recently, it's had these secular growth trends, and we've been very fortunate to be well positioned. We did the exact same thing in infrastructure. You go back to the acquisition of Neff, that was really predicated on our belief that we could have a differentiated value proposition in an end market that clearly, there have been dramatic underinvestment domestically in infrastructure going back probably to the '60s, '70s or '80s, depending on how you want to look at it.

That was really part of the strategic justification for the Neff acquisition. We did not foresee Congress finally passing IIJA. We figured at some point, the bills come due and it's going to have to be paid. So we've been very -- I'd say we've been fortunate in looking around the corner in building vertical strategies to complement everything else Matt talked about.

Yes. No, I mean it's definitely paid off again, a very good performance. So -- and I want to remind the audience, if you have any questions, raise your hand at any point. I want to make sure you get a chance to ask your questions. Otherwise, I could go forever here.

But maybe just to that point as well on the rental penetration, that's been a good story as well, maybe more for the broader industry, right? And I think part of that, one, I guess, I want to understand, I guess, where are we today in terms of that rental penetration? Where do you think that can continue to get to? Does it stabilize at a certain point? And what impact do megaprojects versus kind of local commercial have on that penetration? Does it skew it one way or another?

So ARA will report as they measure it, rental penetration is in the high 50s. I think it might be 59% right now. That's up 5 or 6 points from 5 years ago. Where it can go, you let some people point to low 80% in more mature European markets. I don't really know if we know where that's going to go. But we think the total addressable market is even larger than the $80 billion that ARA speaks to.

So we really think there is a secular play here. I believe that penetration in our industry is a one-way staircase. For the 30-something years I've been doing this, I haven't seen customers rely on rental and then decide to go backwards because the industry is so much better at what we do. We're so much more reliable. And I think the sophistication of the industry and the reliability of the industry allows people to take the math that works, it pencils to rent. The shared economy actually works. So we think secular penetration is a big part of the play as well.

That's super helpful. And I guess maybe to that point, you've seen just continued growth and part of that has driven more perhaps more aggressive growth from other -- not necessarily entrants, but smaller players or other OEMs to try to leverage the rental side of their business a little bit more. So as you look at that, what is it doing from a competitive standpoint? What are you seeing in terms of discipline around supply? Any concerns around that? Or -- yes, how are you thinking about that growth that you're seeing from others?

I'll start and Ted, you can add on. But we feel really, really good about the discipline of the industry, first of all. We think supply-demand dynamics are strong. We think the demand overall is strong, which is the first part of that, that you need. But even the behavior and the information that's available to the national companies has really created a disciplined industry that maybe didn't exist pre-'09. So that's first and foremost. The second thing is the opportunity for the industry to continue to show discipline as a leadership group.

So when you think about the top few in the industry, I think we have a leadership responsibility that we don't use our pricing power to take the air out of the room or to do anything that's not healthy for the industry, but to create more value for the customer and more services. And that's what we're spending our time and energy on doing. And I think it's paying off.

This is a competitive industry. There's always new competitors in the industry. But the competitive moat that we've built and a couple of -- to be fair, a couple of the other national players have built is hard to replicate. That distribution network, 1,750 branches with all the different products that we offer is quite an advantage that we continue to trade on.

I think you touched on all of that.

And maybe just another way to kind of unpack that a little bit further. I guess, when you say discipline, is it -- are you referring to [indiscernible] supplies or also on the rental rate side? Are you seeing discipline across both? How are you -- any way to kind of contextualize both differently?

For me, I would say just smart activity. So not forcing fleet into a market. One of our largest competitors pulled back on fleet a year or so ago, and they were public about it because they had absorption opportunity. I don't know that, that would have happened 20 years ago. So I just think not forcing fleet into the market, making sure you're meeting the demand responsibly while running a profitable business is what I think about when I think about discipline in the industry.

Yes, I agree. I mean we've talked about this discipline for a while. And I think if you go back and you think about the last few years, some of our competitors' actions, public competitors, '23 and '24 really cut back their CapEx even as they were growing their business and growing at healthy levels. They talked about rebalancing kind of their own capacity. And while the public saw that, privately, we saw it much broader across the industry through kind of aggregated data we have access to. And so that is a critical sign of discipline. When you rightsize supply-demand, that obviously puts the industry in a much better position to achieve positive rate, right?

Now through that, even though you had negative time ut industry-wide, the industry actually had positive rate. And I think that is the first time in the history of the industry that's ever been achieved. Ultimately, supply-demand is the ultimate arbiter of rate. There are other factors, but that is probably the critical one.

And coming out of that episode in '25, you saw that discipline continue where time ut industry-wide was positive year-on-year every month, and that's continued year-to-date through '26. So I guess the summary there, the takeaway is this discipline is very real, and it's helping support companies achieve positive economics on the assets they employ, and that's critical.

No, that's very helpful. And I think maybe last one on kind of the supply dynamics. I think you've talked about being at kind of the highest rates of time utilization that you've been in, in the past. And just what does that tell you about the backdrop that we're in today, the implications to rental rates kind of from here? We started to see CapEx pick up. It seems like in a very kind of disciplined way to your point. But just, yes, what does that kind of tightness in the industry tell you?

Without talking about rates specifically, I would just say the base is there to drive productivity, right? And if we can drive that productivity through efficiency, through pricing, through making sure that we're managing our costs, that's really the goal here. And we can be a better partner to our customers, right, by driving some of that efficiency as well. So I think that's what we're focused on. That's what we laid out when we set the goals for the year, and that's really what we're talking about.

Okay. No, that's very helpful. Again, if anybody has any questions, feel free to raise your hand.

Maybe just, I guess, continuing along those lines of investing in the business, I guess part of what I want to understand, so we talked about a little bit on the CapEx front. The M&A side, surprisingly, it was an area of always -- that you could always drive growth in. But increasingly, I've been kind of hearing about it as a potential risk. Like have you gotten big enough where it's harder to increasingly move the needle with deals or acquisitions. First, how would you kind of respond to that? And how would you kind of describe, I guess, your pipeline of opportunity on the inorganic side to it?

The pipeline is pretty robust, and we've been talking about that each quarter for quite a few years now. We have an internal team that works really hard at generating deals as well. And we're just very disciplined about what's going to get over the transom. We've talked about our 3-legged stool of it needing to be strategic, cultural, and then finally, that financial hurdle that needs to cross. And that's the one that we can't get all the deals over. But we're going to be very disciplined. We've shown that in the past, more recently in a pretty big way last year.

So we'll continue to work this pipeline, but there's not any shortage of opportunities. And more importantly, it's a capability we've built. It's a muscle that we shouldn't waste. So we're pretty good integrators. We're pretty good cross-sellers. So any time we get an opportunity to add another -- whether it's new product or new team to our portfolio to help serve our customers, we're not going to hesitate to do so.

I think the only thing I would add to that is if you go back and you look at our history, people have this perception that we're always doing deals, and we certainly are always looking. But the reality is the math will show you, it can be lumpy, and there can be years where we don't have much to show for all the effort and there are years where there's a lot more to show for it. So in itself, if people see a period of time where we didn't do anything deemed to be material or considerable, that's not unusual at all.

There's certainly, we think, a lot of opportunity on the gen rent side, a lot of opportunity on the specialty side. And then there are a lot of unconventional deals, corporate lift-outs and things along those lines that really are in nobody's radar screens. There are also opportunities for us as we talk about expanding our product suite and going after that much bigger TAM than sometimes people perceive.

Yes. And I know you don't necessarily want to give us an exact kind of this is what we're after. But just curious as you think about the opportunities of the products, the 7 specialty products you have or gen rent versus potentially adding another leg to the stool, I guess, where are you seeing more perhaps opportunity in terms of what's out there?

You're right. We won't foreshadow what we're going to do. But we would just say that we see anything that's temporary on a job site or in a plant as our right of play as an opportunity for us to add value and help support the customer. So you can imagine that anything that falls into that purview, we're looking at.

Maybe last one on this. Which of the 3 pieces that -- the 3 hurdles that people need to get through or the potential acquisition needs to get through, which of these is harder to ultimately find? Is it the discipline on the financial side, getting it right value? Is it the culture side? Like which one of these is a little bit tougher to get across?

I'd say the first 2 are gating mechanisms. And I think rental people overall and most of the deals we've looked at and most of the deals that we brought on board would be good fits culturally. So it would be the financial, and that's because the bar is high for us. We set high expectations, and we're not going to wane from that responsibility.

And maybe to your point, it can be lumpy ultimately, when deals get through. In the absence of that, should we just assume that there's going to be a little bit more buyback? How are you kind of thinking about ultimately the deployment of that capital?

Yes. I mean the philosophy and the framework we've used for returning capital or capital allocation more generally has served us well. So it always starts with organic investment and what capital can we prudently meter into the business. You complement that with the acquisitions that you're going to fund out of free cash flow. And after that, whatever we deem to be discretionary excess free cash flow, we return. The dividend is a relatively small portion and the balance is returned via buyback.

And certainly, we love when we have good deals that are going to help our customers and help our shareholders. But when we don't have the ability to deploy capital there, we're very, very comfortable buying our own stock.

I think last time -- or last one, I guess, on capital allocation. Last time we talked, I think there was a discussion around the potential upgrade down the road to investment grade. I think I just would love to get your thoughts as to, one, what are the implications of that to your capital allocation strategy? Is there any desire to then perhaps be a little bit more cautious near term because of that? Or is there just -- there's so much firepower that you can kind of do both? But yes, just more broadly, what would be the kind of implications of a potential investment-grade upgrade?

Do you want me to start?

I would just say there's not going to be any trade-off of firepower. We're already living there. So I would -- if we thought there was going to be any kind of inhibitor for being IG to execute our strategy, then we wouldn't be. So...

Yes. I mean I think this is a reflection of the ongoing evolution and maturation of our business. What had held us back, frankly, was internal corporate policy. So we had told the agencies we wanted to maintain the flexibility to use the balance sheet to drive inorganic growth. As we've grown and grown and grown, frankly, our dry powder sitting on the balance sheet is probably conservatively debt-funded capacity is $15 billion. Realistically, that's plenty, right?

So then we asked ourselves, we've been -- if we don't need it, what's the point of maintaining this policy if you look at us and you grid us out against our largest competitor who is IG, we actually have a better credit profile. So intuitively, you'd say, all right, well, then if you can do that and you get the benefit of the spread, why wouldn't you? Because there's clearly a benefit and there's not much cost, if any, because it doesn't inhibit us from large-scale acquisitions.

So that was really the internal discussion Matt and I had with our team, just the time was right. And so we've now gotten -- we're on positive outlook at both of the major rating agencies, which is -- which puts them in a position to conceivably upgrade us within 12 months based on their own language.

That's very helpful. And I think we have a question upfront here if we could get a mic, a microphone that we could get, if not.

Danny, do you want to?

I can now. I would repeat it. Yes.

Several questions, but a more general picture this morning many of your other companies have the same next sort of pipeline of even better than previous [indiscernible] cycles. Yes. And the outlook for United Rentals looks also very promising, is it even better? So Matt, you said outlook even or the pipeline more delayed, so longer visibility. How long can you look?

And also I learned in the previous years talking with your company that normally you're a bit late in the project, right, because when everything is already designed and prepared and then at late, your equipment becomes on the site. So maybe even some of your visibility is even not within your own books yet, is it? So -- because if we think about a 10-year cycle for grid investments in U.S., the gas pipelines for all these data centers, the power gensets, compressors, all of that. So...

Yes. We agree. We think the pipeline and the growth runway ahead is robust. And you get asked in a different way, how long is this cycle? Well, I think the demand that we're seeing right now and how strong it is despite outside of major projects, power is also a growing sector right now. There's a ton of other sectors that we serve that aren't hot right now. LNG is starting to come up. Petrochem, not very strong right now. Residential, which although we don't play strongly in residential, is certainly a feeder, right, into other business that we serve.

So we have plenty of runway ahead of us. We agree. We feel really good about it. And Ted laid out this construct back in 2022 at our Investor Day about all the tailwinds. And the point was that there were 7 different tailwinds and we only needed a few to hit to have the growth runway that we need. And I think that's manifested and with the addition of data centers has even accelerated.

Sorry, on the verticals, you said it's a special sort of target, which helps to fuel the growth over the last years. I didn't see like, for instance, utilities as a separate, but that's probably on the infrastructure.

So that's the power vertical strategy.

Power. Yes.

It's specific to.

And on the data center power generation opportunity, is that a segment where you play in, like providing power gen for data centers, maybe you have already some data you can share in terms of megawatts you can already have in your portfolio, for instance, in gensets?

Yes. So definitely, we support during the construction phase. We would not be kind of like baseload power for hyperscale data center that's running hundreds of megawatts or more. We certainly have projects where we could have 100 megawatts of generating capacity. I think our total fleet size is north of 2 gigawatts of capacity, but it does tend to be more temporary. And when you're talking about that kind of baseload that it's generally not going to be diesel. It's going to be natural gas and it's either going to -- it's going to be high-pressure natural gas running off recips or turbines if you're kind of running behind the meter.

Matt, would you agree, anything there?

No. Said well.

Maybe just sticking with the specialty side. I think that's an area that's a little bit tougher to model because you do have 7 different product lines, different -- slightly different end markets. So I think in the past, you've said that you expect us to continue to grow double digits, right? And as you just mentioned, Matt, not every single kind of line or vertical or end market is growing at the levels that we're talking about in terms of double digits.

So can you help us understand what gives you confidence in that double-digit growth? Maybe is it organic? Is it inorganic? Is it the growth that you see across some of these specific verticals? Just help us underscore that bridge or underwrite that bridge.

Yes. First and foremost, it's the penetration opportunity within them. So we're not as deeply penetrated in just about every one of our specialty businesses. But even when we think about our more mature ones like Trench and Power, which were our 2 first specialty businesses, they've been growing double digits for years and continue to grow strong double digits. Power is our largest specialty segment right now, and it's our fastest growing. And that's without getting into turbines or getting into any specialized what we would call more niche power items.

So just our experience when you add on some of the new products that we've added on like Matting, which our national footprint still has white space, Mobile Storage and Modular, we still have white space there. So the combination of all this, we feel very comfortable talking about double-digit growth for the foreseeable future.

And just to clarify, that's on an organic basis. So inorganic versus organic.

Yes.

Okay. No, that's very helpful. And maybe to that point, I guess, because specialty also brings in some of this ancillary aspect of things, right, that you might be delivering value to your customers in other ways that perhaps margin-wise may be a little bit of a drag. We saw that a little bit last year. So can you just kind of help us understand, again, where we are in terms of that ancillary, what some of those products might be and why it makes sense to play in that?

Yes. So ancillary revenues that really help support our rental customers. There are 3 big ones that we've talked about. Pickup and delivery would be the biggest of those activities. So in the vast majority of our transactions, customers asking you to deliver the asset and pick it up, right? It's convenience for them. They don't have to have the assets or the people or go through the process.

Then we'd have, call it, installation services could be set up, breakdown, other kind of services we'll provide that the customer needs. Historically, they may have gone to third parties. What we've done is say, listen, we'll do that on your behalf, so you can focus on building whatever you're building and not be distracted by having to hire electricians or plumbers or whatever it is, we'll do that. We do it through third-party labor and things like fueling services.

You can imagine the equipment we have on their site, a generator needs constant fueling to provide power. So those are things that we are actively working with customers to provide. It makes their lives easier. It's things they need done. It's things that aren't necessarily easy to do. So it's -- many of our competitors look at it and think, I don't want to do that.

But in that, that creates an opportunity, and it's a competitive advantage because we're willing to do these things. Importantly, these are profitable businesses. They are not as profitable as our core OER business, but they would come with contribution margins in the low 20s. And effectively, there's no capital deployed. I mean we've got some working capital as we're paying people and waiting to get our money. But -- so you're talking about competitive advantage, attractive margins, strong returns and that augment our value proposition. So that's really the reason we're pushing into this. It does have a dilutive effect, but that does not at all mean it's a bad business. It really complements what we do.

We remind people, if you look at our growth versus our peers, we are considerably outpacing them. It's hard to say exactly all the factors that drive that, but one of them is this whole strategy of being that partner of choice in doing big things and small things that really help add value. And so we think our shareholders getting the benefit of the growth and what we think are attractive economics.

And maybe just to that point, I guess, 2 sides of that. One, I think part of what you've been delivering has been pulling levers internally, whether it's doing things internally versus third party, just making sure you manage your cost in a way that has delivered very strong results over the last couple of quarters despite some of those factors being a little bit of a headwind.

So one, can you just remind us of what some of those levers you might be pulling are? And then on the flip side, you mentioned this is no incremental capital, but is there an opportunity there to invest in more transportation or more kind of assets or capital that can give you more, I would say, capabilities to give even more kind of value to your customer?

I'll just answer the latter part. There's not an either/or there, right?

Okay.

And we don't have a lack of funding capability. We don't have a lack of opportunity for growth. So one is not a trade-off for the other. And I'll let Ted take the other part about some of the some of the variables and actions that we're taking.

Yes. So we came into this year, we talked about the importance of labor absorption. So if you look at kind of our disclosure and now all companies are providing greater segment disclosure in the income statement. The team has delivered against that. The biggest thing that's benefited us from a margin perspective has been that labor productivity. You can see in a lot of metrics. We disclosed labor as a percent of total revenue, rental revenue. You can see it in rental revenue per FTE, but the team has done a great job driving really strong productivity.

We've also achieved strong results in R&M. So you think about some of our biggest variable costs, but repair and maintenance is one of them. The team has been able to find ways to be more efficient than they generally are, which has been helpful. And even delivery, when we came into the year, we said we thought our delivery expenses will grow at a faster rate than rental revenue. And that was part of the reason we undertook this restructuring program was to help enable that or support that.

We're at the midpoint of the year, and the team has actually been rightsized up on delivery costs. So if you look, our rental revenue in the second quarter was up 12.7% and delivery expense is up 11.7%. So it's increased with volume, but the team has done a great job finding those efficiencies that we ask for them. So I'd say those are the big 3 that we talk about, labor, R&M and then delivery that have offset.

I'd say the biggest surprise on the year has obviously been fuel costs. A year ago, we averaged $3.66 a gallon in diesel. Year-to-date, we're running at $5.34. That's not something anybody anticipated when they gave their initial '26 guidance. In the second quarter, one of the things we called out 70 basis points of margin expansion, you back out the onetime gain and you adjust for the outsized growth in ancillary re-rent, margin is still up 40 basis points in the core while we are absorbing the better part of 30 basis points of headwind from gas and diesel prices in isolation. So that tells you the team has done a fabulous job delivering against the surprise there.

So I don't know what else would you mention?

No. Well said. I mean execution has been great. And we didn't want to count on growth coming into the year to hold margins flat. We made that commitment and we gave the team a task, and that's why the restructuring happened, but I'm really pleased with the execution. And now that we have the growth on top of it, I think that's why you're seeing the results you're seeing.

And maybe just with the last few minutes that we have left, it's a topic that probably warrants a lot more than that a few minutes.

Just to your point on the changes that the business has made over the last decade or 20 years, I think technology is an area that maybe doesn't get talked about enough that you have been investing in telematics, just broader technology. And I think for all this discussion around AI, I think maybe it doesn't get talked about how you've recently announced, I guess, the AI-powered equipment agent be accessible in ChatGPT and then just how much technology and AI may be benefiting your business.

So could we maybe just touch on that over the last few minutes for investors that don't necessarily run their job site, ultimately, what do these tools mean? How does it change customer behavior and impact your business financially, just again, that customer relationship?

Yes. And that AI agent just makes it easier for people to spec what they may need for a job, and it's a fairly simple tool, technology that already exists, but that our job isn't to invest in technology, it's to deploy it in a way that's digestible to the customer. But we've been a technology-enabled customer for quite some time. And you go back to all the way into when we started to invest in telematics, which was quite an investment when it wasn't in the early days, about 12, 15 years ago, we decided to do this. Most companies weren't spending that money.

When you put that combination of all the data that, that almost 400,000 telematics devices on our equipment gives us with all the capabilities of AI, all these already embedded technologies that we have in our processes can get improved really quickly. And I think that's the part -- somebody asked us earlier today in a meeting, how do you feel about your spend in technology, you spending enough? I think we're going to all be spending significantly less because I think AI is going to be able to enhance many of these tools faster, cheaper. And frankly, we'll probably be doing a lot of these improvements internally with the help of AI.

So I actually think that the capabilities that we've already had in utilizing technology to be a better partner and the change management that's necessary, we're through all that. So now it's just a matter of taking the most modern technology and AI specifically to enhance everything from your price optimization engine to your logistics to helping the techs troubleshoot a repair for a machine. These are all things that we're working on, and we did an Investor Day for the sell side that maybe at some point, we'll get some more material out there. But this is something that each group within our business is very, very focused on.

Yes. No, I had the pleasure of attending that. And definitely, like you said, you realize it touches every aspect of the organization. That's incredible.

So as I said, I unfortunately unpack the can of worms that now we don't get to dive deeper into, but feel free to reach out to them if you have any questions. But otherwise, again, thank you, gentlemen, for joining. Very helpful.

Thanks.

Thank you.

Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded.

Before we begin, please note that the company's press release, comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release.

For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.

Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for joining our call. As evidenced in our second quarter results, 2026 is on track to be a great year for Team United as we continue to execute our strategy and prove ourselves as a partner of choice for our customers. Our growth accelerated in the quarter. Customers remain optimistic, particularly around large projects, and we continue to exhibit strong cost discipline. Our one-stop shop value proposition, coupled with our technology, service levels, and an unwavering focus on safety and customer productivity continue to differentiate us in the industry. Coming into the year, we set the bar high for the team, and our results are a testament to both their collective efforts and the strategy we've been laser-focused on for the better part of 20 years. As we enter the second half of the year, I'm pleased to raise guidance as we provide our customers a best-in-class partnership while generating strong shareholder returns.

So let's get into the details of our second quarter results and our updated full year guidance, and then Ted will get into more details around the numbers before we open up the call to Q&A.

Starting with the quarter's results. Total revenue grew by 12% year-over-year to $4.4 billion. Within this, rental revenue grew by almost 13% to $3.8 billion, both quarterly records. Fleet productivity of 3.4% contributed to OER growth of 9%. Adjusted EBITDA was just over $2 billion, resulting in a margin of 46.6%. And finally, adjusted EPS came in at $12.76, up 22% year-over-year and another quarterly record.

Now let's discuss customer activity. We continue to see growth across both our gen rent and specialty businesses. Specialty saw exceptional rental revenue growth of 25% year-over-year, including 11 cold starts and with growth across all lines of business. By vertical, the trends of the first quarter carried into the second, namely construction posted strong growth led by nonresidential and infrastructure. And on the industrial side, power continues to post double-digit growth, while metals and minerals also grew at a healthy rate. As you know, critical to our strategy is diversified exposure across end markets. In the quarter, we saw projects kick off in a variety of end markets, including hospitals, airports, and LNG terminals to name a few, while data centers continue to be a source of growth.

Now turning to the used market. We sold $624 million of OEC at a 53% recovery rate. We're on track to sell approximately $2.8 billion of fleet this year, supported by strong demand for used equipment. As we replace this fleet and grow to meet customer demand, we spent nearly $2.1 billion on gross rental CapEx in the quarter. Year-to-date, we spent $2.9 billion, which exceeded our expectations coming into the year. The demand environment continues to outpace our original expectations, and we're well positioned to support our customers' needs while continuing to focus on capital efficiency.

After funding our year-to-date growth, free cash flow remained strong at nearly $1.2 billion. And as you've heard me say before, this is a critical feature of our company. The combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow through the cycle, which can then be redeployed in ways that allow us to augment shareholder value.

Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet is in a great spot, allowing us to support both organic and inorganic growth and to also return nearly $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.8x remains well within our targeted range of 1.5 to 2.5x, leaving plenty of dry powder to support growth and to return excess capital to our shareholders.

Now let's discuss our raised 2026 guidance, which reflects total revenue growth of almost 10% at the midpoint. When we spoke in April, we said the year was playing out better than we had initially expected. As we started to progress through our busy season, demand outpaced even our revised expectations. The large projects drove this demand in the first half of the year, and we expect that will continue through the second half. Our increased EBITDA guidance embeds the cost actions we outlined coming into the year as we proactively look to improve our efficiency and support profitability. And last but not least, we increased our CapEx guidance as we are running at historically high time utilizations and need additional fleet to support the stronger demand.

So in conclusion, we're executing on our long-held strategy, and it's delivering the results we want. Our differentiated business model is truly unique in our industry and is enhanced by the implementation of cutting-edge technology across the business. We remain focused on leveraging innovation to support our customers' productivity and to drive internal efficiency gains. We are winning in the marketplace as our customers know they can depend on us not just to deliver the fleet they need when they need it, but to also provide an unmatched level of service.

As we look forward over the longer term, we believe our relentless focus on what we do best, being the preeminent rental company, will continue to translate to profitable growth as enabled by our prudent capital allocation and balance sheet strength, strong free cash flow, and compelling returns to our investors.

And with that, I'll hand it over to Ted to review our financial results, and then we'll take your questions. Ted, over to you.

Thanks, Matt, and good morning, everyone. As Matt just shared, the year has continued to progress better than expected as we set all-time second quarter records for total revenue, rental revenue, EBITDA, and EPS. More importantly, the increases to our 2026 guidance reflect our confidence that both the strength of demand and our team's discipline will continue in the back half of the year. But before we get into the details of the outlook, let's dive into the second quarter's results.

As you saw in our press release, rental revenue increased $434 million year-over-year or 12.7% to a record of over $3.8 billion, supported again by strong execution across large projects and key verticals. Within this, OER increased by $246 million or 9%, driven by 7.1% growth in our average fleet size and fleet productivity of 3.4%, partially offset by assumed fleet inflation of 1.5%. Also within rental revenue, ancillary and re-rent grew nearly 28% or roughly 3x the rate of OER, adding a combined $188 million. Pivoting to used, we sold $624 million of OEC in the quarter, generating $330 million of proceeds at an adjusted margin of 47.3% and a 52.9% recovery rate. So another solid quarter there.

Next, let's turn to EBITDA. Excluding the $49 million net benefit we realized this quarter from the sale of our scaffolding business, EBITDA increased $197 million to a second quarter record of just over $2 billion. This was primarily driven by a $231 million increase in rental gross profit and a $3 million increase in used gross profits. SG&A increased $39 million year-on-year, which was flat as a percent of revenue, while gross profits from other lines of businesses increased $2 million.

Looking at profitability. On an as-reported basis, our second quarter adjusted EBITDA margin increased 70 basis points year-over-year. Excluding both the gain on the sale of our scaffolding business and the outsized growth in ancillary and re-rent revenues, which I think gives a better insight into our core cost performance, our second quarter margins increased 40 basis points year-over-year. Within ancillary, I'll note that we've been successful in passing through both higher fuel and delivery cost increases, which have driven revenue growth but brought limited incremental margin dollars. More broadly, our team continues to execute well on cost, which is helping us offset some of the ancillary impact I just mentioned as well as overall cost inflation.

Shifting to CapEx. We've responded to robust customer demand by investing over $2.9 billion in gross rental CapEx year-to-date, which is an increase of more than $650 million year-over-year. Moving to returns and free cash flow. Our return on invested capital of 11.8% remained comfortably above our weighted average cost of capital, while free cash flow has totaled roughly $1.15 billion year-to-date.

Turning to our balance sheet. Net leverage remained very comfortable at 1.8x at the end of June with total liquidity of almost $3 billion. As most of you know, a key element of our capital allocation strategy has been ensuring that we have a strong balance sheet supported by conservative financial policies, think leverage, liquidity and maturity management, and consistent operating performance, particularly excess free cash flow. Along these lines, we were very pleased to see S&P recently acknowledged our progress on this front by raising our credit outlook to positive from stable with the potential to upgrade our credit rating from high yield to investment grade within the next 12 months.

Turning to capital allocation. We have returned $998 million to shareholders year-to-date, including $750 million through repurchases and $248 million via dividend.

Now let's shift to the guidance we shared last night, which reflects our confidence in delivering a record year. Total revenue is now expected in the range of $17.5 billion to $17.8 billion, an increase of $500 million versus our prior guidance, while used sales are still expected at around $1.45 billion. At midpoint, this now implies full year growth ex used of over 10% versus our original guidance of closer to 6%. In turn, we've also raised our adjusted EBITDA guidance by $300 million to a range of $7.975 billion to $8.125 billion, reflecting our continued expectation to bring the revenue growth to the bottom line by maintaining flat margins year-over-year.

On the fleet side, we've increased our gross CapEx guidance by $450 million to a range of $4.85 billion to $5.25 billion in response to the stronger demand we see. This now implies net CapEx of $3.4 billion to $3.8 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 billion to $2.45 billion, with the increase in rental CapEx offset by higher cash flow from operations. On the capital allocation front, we still intend to repurchase $1.5 billion of shares in 2026. Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of approximately 3% based on our current share price.

So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

[Operator Instructions] We'll go first this morning to David Raso with Evercore ISI.

A question on margins and a question on end demand. First, on the margins, the second quarter margins ex the gain were down about 40 bps year-over-year. The implied second half margins are up year-over-year 10, 20 bps. What are the swing factors when you think about labor absorption, delivery repositioning costs, some of the restructuring savings to think about that swing from the down margins to up a bit in the second half of the year?

And then for the end demand, I was intrigued by the comment historically high time utilization, right? We're starting to see the industry add capacity again, and you always wonder about supply-demand balances when we get a recovery in the CapEx numbers. That historically high time U comment, given the nature of large projects, right, more long-dated, is some of the CapEx increase being provided confidence to do it given the visibility on '27? Are you starting to get a better look at '27 on the demand at this high time U can stay at a pretty high level even as you're adding CapEx?

Yes, David, this is Matt. I'll take the demand part first and then let Ted walk you through the margin. So we certainly feel good about the demand. And to your point, we wouldn't be bringing in this more fleet just to chase the last dollars of revenue here in the back half of '26. We feel good about the pipeline of the large projects. We're not going to go as far as give '27 guidance, but we certainly think these tailwinds that we've been talking about for a while will carry into next year. And that gives us the confidence to bring in more fleet as well as the combination of really strong fleet productivity at record time utilization. So there would be no reason for us not to feed that type of performance unless to your point, we thought demand was coming to an end, and that's not in our sight at all.

Ted, do you want to touch on the margins?

Yes. On the margin side, David, I'd say a couple of things. I mean, certainly, if we look at how we started the first half of the year, we're up about 10 basis points on an underlying basis. So the team is doing a great job of managing that. Certainly, we would expect that kind of performance to continue in the back half. There's always going to be normal quarter-to-quarter variability if you think about just the second quarter in the context of your question. But certainly, we feel confident that the team is doing everything we've asked of them and has us in a good position to achieve our goal for the year, which is flat margins, excluding the impact of H&E last year.

Would you mind just a little more color? Do you see the spread that it widened in the second quarter, ancillary outgrowth versus OER growth? Do you see that spread narrowing to take a little pressure off that mix? Is there delivery repositioning costs? Maybe some quantification of how to think about that. Again, just trying to think of a few building blocks on that. I know the volume improvement there.

Yes, absolutely. It won't surprise anybody to know that it has been difficult to kind of forecast ancillary. We did see kind of another outsized growth in the second quarter. In terms of the third quarter, we'll see what happens there. Certainly, fuel is part of that. Our expectation is that fuel prices probably remain constant 2Q versus 3Q. And certainly, that will have some impact on where we fall within the range. But otherwise, we expect to have another strong quarter of growth, solid fleet productivity, and good cost execution that we think puts us in a good position to hit our goals.

We'll go next now to Rob Wertheimer with Melius Research.

Question is a little bit on -- and I know you don't want to disaggregate fleet productivity. I get it. But the decision to add CapEx seems like there's a lot of demand. Is rate where you kind of want it to be? Or is it getting there fast? Your margins actually are quite good, not quite at peak. So I don't know if you have an ambition of growing off where peak was. Just that balance between, I guess, rate and CapEx is my first question.

Yes. And that's the right question to ask, Rob, because we need to get rate to further fund the business, and the team did a great job executing on that. So the way we view it is they earned this extra CapEx by driving great fleet productivity. And even though we don't talk about rate numerically, we certainly focus on rate a lot as a team, and we need to because we have to offset the inflation that's obviously impacting everybody in the business. So the team has done a great job continuing to drive price for the value that we offer as well as utilizing the fleet. So it certainly is part of our decision, and the team did a great job of earning the right to get more fleet.

Perfect. And just the other one is just on margin. It's obviously, from our side of the table, hard to forecast some of the transportation costs, et cetera, that come as the industry has evolved to serve a little bit more bigger projects. With the rise in demand, does that risk fall further back because for one, you're kind of comping some of those issues? And for two, you can kind of ship more fleet to new projects? Or should I think about that as being an ongoing minor unpredictability? I'll stop there.

Certainly, I'd say our ability to predict it is challenged just given the nature of these projects, right, some of the timing dynamics we've talked about. That being said, we've talked about the initiatives and the effort we've really kind of leaned into this year. And I think if you were to look at the delivery costs, the team has done a great job. If you look across our big 3 costs within core, so labor, delivery, and R&M, and this is all in the segment disclosure, you can see we're actually ahead of the curve on all 3. We were in the second quarter, and we are year-to-date.

So from that perspective, it takes a lot of effort. The team is finding ways to be more efficient in the face of ongoing repositioning costs. We expect to continue to see good results there, Rob. But in fairness, that was kind of the one -- the biggest -- probably the biggest point of variability we've thought about at the beginning of the year, and we talked about the need to offset it through some of the cost actions we're taking.

We'll go next now to Michael Feniger with Bank of America.

Matt and Ted, I know we talked about the margins. Just you obviously saw headwinds last year on ancillary and delivery costs. You made some adjustments this year. You have cost savings. Is there anything you're observing this year that you guys are highlighting that there's more levers to pull to think about that for 2027? Ted, maybe you can kind of outline the headwind you're absorbing this year or in the quarter just on fuel alone. It doesn't seem like that would be there next year. Just trying to see if this absorption on labor and R&M can keep improving as we look forward into next year.

Yes. So in the quarter itself, if you just think about the incremental fuel cost that we absorbed running the business, so this would be fuel used in service trucks, sales vehicles, managed vehicles, et cetera. That was probably, in isolation, 20 or 30 basis points of additional headwind year-on-year versus what you would have seen even in the first quarter where there was very little fuel effect. We'll see, obviously, how geopolitics play out and what happens with oil markets and diesel and gasoline prices. But certainly, that would be one thing.

And the other thing we've talked about, at some point, local markets come back and then we're better able to leverage the network. And that should help us on the delivery cost side, specifically that repositioning cost that certainly was something we talked about a lot in 2025, and it's something we're still managing through in '26. So Matt, I don't know if you'd add anything.

I would just say, in addition to the work that we've put in here in the first half of this year, where you see delivery is positive absorption here for us as opposed to rent revenue. And you could assume with the cost of fuel that our outside hauling cost per mile has got to be up. And to be able to have that kind of positive relationship between the cost of delivery and the revenue growth, we will continue to grow upon that baseline and execute.

And Matt, just a follow-up. Just the verticals like utilities and, let's say, power, what type of growth are you seeing there today? How big is this for you? Is there any way for us to size that? Are you one of the biggest basically power rental fleets out there? And when you think of M&A with your leverage, is this an area that you're looking at to get bigger in? Just kind of curious what you're seeing there on these verticals and adjacencies and how we could think about sizing that up?

Yes. So 2 different things, Michael. As far as the power vertical end market, we've talked about that, and that's growing well and is in excess of 10% of our business, really pleased with that. If you're talking about power as a product, this business organically has been growing double digits for us for the past 10 years. So it's -- we don't necessarily talk about how big it is, but this is a real important part of our business. It's one of our largest asset categories, and we're very pleased with not only the previous growth, but the headroom that we have ahead. And the footprint is built out. So now we're just feeding the organic growth in that business, and they're doing quite well.

We'll go next now to Steve Fisher with UBS.

Just a bigger picture question about repositioning costs relative to CapEx. I think part of the margin headwind you've had to deal with over the last 18 months or so is incurring cost to reposition compared to what you're actually shipping from the OEM factories to projects. And you can correct me if I'm wrong on that. But now that you're ramping up CapEx again, I guess, I'm curious to what extent does that help the relative impact of repositioning on margins? Maybe it depends on whether we're talking about gross margins or EBITDA margins here, but just wondering if you can get some margin help from ramping up CapEx versus repositioning. And then when do you think we could get to a point where we really don't need to call out the repositioning impact anymore? It's sort of more normalized.

Yes. I'll start and let Ted give you some numbers to it. But we're actually not calling out the repositioning cost too much right now other than the cost of fuel. We're having positive absorption in that. So I think we are already righted the ship, so to speak. As Ted mentioned earlier, as the work demand gets more broad, we'll be able to leverage the broader network. So just by definition, that will give some relief to that area. But we found a way to work through the repositioning after being challenged with it last year.

I wouldn't say that this CapEx -- philosophically, I get your point about the CapEx giving relief there. That would be more true if we weren't running at higher time utilization. So it's really about the availability of the fleet where you need it that would help that. So I wouldn't call that as the reason why we're having positive delivery absorption. This is really more about feeding more demand because we're running so hot from a time utilization perspective.

Yes. To Matt's point, I think it's hard to quantify kind of that repositioning cost this year. Last year was easier because that relationship between delivery growth and rental revenue growth was obviously unusual in the fact that we had 20% growth in delivery costs versus 6% or 7% growth in rental revenue, and that implied something like $115 million of excess cost that we absorbed. When you do that math now, you'd see that in the second quarter, for example, rental revenue up 12.7%, delivery up 11.7%. So we do have -- that repositioning cost continues to be something we're working through. We have found ways elsewhere to absorb it, right?

And we talked a lot about kind of like behavioral changes across the team to make sure that we are emphasized on balancing customer service with efficiency, and they've done a great job year-to-date. We've got to keep it up, right? This is something we've got to maintain in the back half of the year to hit our goals.

But Steve, otherwise, it's hard to quantify. And I think as Matt kind of alluded to, certainly, CapEx is one way you can address it, but you've got to do it in a capital-efficient manner. And when you decompose fleet productivity, you can see that time was a positive good guy again. So we continue to do that quite effectively as well.

Really helpful. And just curious, how hard is it for suppliers to react to more of the demand you're asking this year? Is it -- is the challenge that they're getting more broad demand across the rental industry? Or is it just sort of larger projects that they're able to serve it because it's really just larger projects they need to serve? Or is it broadly across the industry?

Yes. I would say that it's certainly certain categories are pretty tight. Fortunately, we do a pretty large APO, so advanced purchase orders. So we plan 80% of our spend is done well in advance. And we're pleased that they were able to react enough to give this increase. If we wanted another -- throw a number out there, $1 billion worth of fleet, we wouldn't be able to get it. So it really is just working with the team, trying to plan in advance, pull orders up where we can, and that's allowed us to support this extra demand.

We'll go next now to Jerry Revich with Wells Fargo.

Nice to see the specialty asset grow by about $1 billion plus and really nice growth in the branch count. I'm wondering, can you just unpack that for us what part of the specialty portfolio have grown the fastest over the past 6 to 12 months? And then the CapEx outlook in the back half of the year, how much more can we grow the asset base within specialty specifically with the CapEx raise?

Yes, I'll do my best to help with some of that, and Matt can jump in. Certainly, we've talked about all 7 parts of the specialty business growing well this year. I'll tell you, they're all in the double digits. It's hard to compare and contrast them on an apples-to-apples basis because some are younger and we're building out scale. So would you think about mobile modular and mobile storage? Would you think about ROS in that context? Yes, absolutely. Those are, I'd say, statistically putting up probably the strongest growth, but they're also the smallest in the context of the business.

To Matt's prior point, if you think about the power and HVAC business, that is also putting up very strong growth. Team is doing a great job executing strong end market demand and everything in between. So certainly, Fluid Solutions is doing a great job. Trench and safety is doing a great job and tools. So really -- and matting, I should absolutely include matting. So I would just say we've been really pleased with the growth we're seeing across the board. It is not 1 segment, it is all 7 that are really pulling in the right direction and obviously contributing to that really nice 25% growth you saw year-on-year.

And when you think about our go-to-market strategy, we should expect that, right? Because large projects are more complex, our customers need more service. And we feel like we're outpacing our growth expectations because of that one-stop shop capability we have. So we need all of those specialty business units to support those needs and that value proposition. So it makes all the sense in the world to us that they're all growing significantly.

Super. And can I just ask from an end market standpoint, you mentioned large projects really strong. Semis and electronics have been one end market that's been in decline since '24 now inflecting positively. Are you starting to deliver more equipment onto the next round of semi fab sites? Is that an uptick in the business this year? Is that still in front of us? And a similar question in power, the big behind-the-meter data center actually construction plans are set to accelerate next year. I'm wondering, have you already started delivering equipment on sites there? Has that accelerated in your mix?

Both of those have accelerated here in the second quarter. So you're dead on it, Jerry. The semis in that sector has grown and power continues to be a strong end market for us.

We'll go next now to Kyle Menges with Citigroup.

You're now growing revenue 10% this year with pretty much no help from local markets. So I'm curious in your mind, just with the pipeline of mega projects out there and that visibility you have, how you think you can grow maybe in the next couple of years if -- sorry, if local markets do come back and would be helpful to hear an update on what you're seeing in local markets this year as well.

Sure, Kyle. So local markets, we've been talking about since January has stabilized and they have. And I'd say net-net, our local customers, and what you would use as a proxy for the aggregate of local markets have grown low single digits. So we are seeing stabilization with some very modest growth. That's good news because we're able to drive this kind of growth on the major projects.

To your point, you want to know what's in the future. But it's not just needing to rely on local market growth whenever the large project pipeline slows down a few years from now. There's also other major sectors that are not growing right now, whether that be petrochem, right? That's a good opportunity for us. Industrial manufacturing is not really hot right now. So -- and we're not even talking about residential and then the knock-on effect as residential picks up of all the infrastructure around it to support that residential growth. So we feel good about the growth prospects. The last part I talked about, about residential and the knock-on would probably be the more local related growth opportunities for us.

Got you. And then would also just be helpful to hear your latest thoughts on the M&A pipeline, how strong it is and assuming you're still targeting specialty deals. Curious if there's any of size in the existing pipeline.

Yes, the pipeline continues to be robust. We continue to work it. Obviously, this growth here is primarily like 90% plus organic. But we do have the dry powder. We have the capability, and we have the expertise to integrate well. So we are definitely working the pipeline. There are opportunities of all shapes and sizes. To your point, any time we get to add a new product or enhance one of our specialty offerings, that's first and foremost, top of mind. But we're really looking at deals of all shapes and sizes, and we'll continue to do so. And stay tuned.

We'll go next now to Ken Newman with KeyBanc Capital Markets.

Congrats on the nice quarter. Yes. Maybe first, just a clarification on the rate question from earlier in the call. I know you guys don't quantify all the components of fleet productivity. But just given where we've seen used prices in the secondary market, is it fair to assume that you'd expect some improvement in sequential rental rates into the back half? Or just how do you think about the opportunity for rental rate improvement to go forward?

Yes. We feel that the supply-demand dynamics are positive to drive fleet productivity. We've talked a little bit how time was up and a little bit of a surprise for us. But rate is a good guy, and we expect it to continue. And in this kind of demand environment, that should be the case, especially when you're offsetting inflation. So we do feel good about the opportunity to drive all components of fleet productivity positive.

Very helpful. Okay. And then for my follow-up here, if I remember from your Analyst Day a few years ago, you had mentioned maybe some new product opportunities in specialty. I think you had multiple pilot programs for new specialty applications. Any comments or commentary just about how those pilots are progressing or if you're seeing any traction in something where you feel like you can maybe lever up and do an acquisition to gain some more scale there?

Yes. We don't talk about -- we don't foreshadow it publicly. We certainly don't want the targets to get more expensive. We continue to look at anything that you would consider temporary on a project or a plant, right? If it's temporary, we see that as a right of way of us having an opportunity to support it. You can assume that we're looking at everything that we don't already have and some of what we already have just accentuate, whether it's gaps in the portfolio from a geography perspective or in a product perspective. So we're certainly focused on that, Ken, and looking at targets constantly.

We'll go next now to Seth Weber with BNP Paribas.

I wanted to go back to your rate comment. I know we're not giving specifics around rate, but can you just highlight -- I know you've talked about implementing some AI into your pricing and rate calculus. Can you talk about where we're at with that and whether that's contributing at this point to the rate progression or if that's really more still on the come?

Yes. I guess, what I'd say is that the team has a lot of tools to try to maximize the rates we're realizing on any given transaction. Certainly, there are some things that we're working that are really in pilot mode. But I think when we really take a step back and we think about kind of the environment today, we've long talked about a very constructive environment where you're seeing good discipline across the industry on the supply-demand front. And that is probably the biggest factor currently driving success in rates across the industry, in my opinion. It's not to say the tools aren't important. They are. And we think incrementally, they'll be more and more valuable to us. But right now, what you've seen is kind of that discipline that is critical. So Matt, I don't know if you'd add anything there.

No, I would just say to your point, as we -- Seth, as we continue to enhance tools with AI and continue to update the opportunities, you could certainly think that would only be helpful down the road.

Got it. Okay. And then just going back to -- I think David asked the question just on the cost savings. I think it was -- you kind of ring-fenced around $10 million in the first quarter. Is that a similar number here for the second quarter? And should we just think about that as kind of ratable through the year, $10 million, $15 million a quarter in savings? Or does it accelerate? Or...

Yes. That's a reasonable way to think about it. I would say we'd estimate internally the second quarter benefit was on the order of about $12 million, which is effectively that annualized run rate. We talked about achieving $45 million to $50 million of realized savings in 2026. And so we're basically at that run rate. You saw in the quarter, we took another $6 million of charges. So we're now running at $51 million year-to-date. And for the full year, we thought those charges would be $55 million to $65 million, still our expectation. So everything really is going to plan on all those restructuring activities. Matt, anything you'd add there?

No. No, I think you covered it.

We'll go next now to Mig Dobre with Baird.

Going back to your comment about record time utilization, I mean, congrats on that. I'm sort of curious, based on everything that you know competitively about the industry, the benchmarking that you do, is this record time utilization condition just specific to your business, certain things that you guys are doing that are just sort of idiosyncratic? Or would you say that the industry as a whole is in a position where equipment supply versus demand is just kind of reaching this balance where you're getting good broad utilization?

Well, I think it's both. I think we have some -- our scale gives us some inherent advantages, the tools we utilize and the major project work helps drive our time utilization, we believe, at a premium to the industry. But I do think the industry overall is driving higher time utilization on a year-over-year basis right now. And as the other public companies and we use that as a proxy report, I would expect to hear that. I'd be surprised if you didn't hear that. So we think it's a little bit of both. We continue to want our premium, but we think the supply-demand dynamics in the industry overall are really good right now.

That's helpful. And maybe to ask Kyle's question a little bit different, if this is the case, and we're seeing just utilization more broadly in the industry get better, if at a point in time, we do have, say, for instance, a little bit of help from lower rates, some recovery in local markets, how do you think about the capacity of the industry and your suppliers to be able to kind of scale up to meet that incremental demand?

Yes, it's something that we'll think about. If I had to guess, I would say some of the more localized smaller players in the space will probably have some time utilization to fill some of that gap, but we certainly feel good about our opportunity to source future demand. We think that our distributed footprint and all those data points that are out there in the field for us would give us a little bit of a leg up on planning ahead. But it is something if everything -- if we had strong local market right now with this type of major project work, it would be challenging today. So it's not even a bad thing that we don't have that. But I -- all I could say is I think that with all the data and all the information and touch points that we have throughout our network, we should be able to get ahead of that curve.

We'll go next now to Jamie Cook with Truist.

Nice quarter. I guess, 2 questions. Ted, clearly, now with markets in recovery, trying to think about if you could update us on your thoughts on setup for incremental margins this cycle. Obviously, we have ancillary, which is a headwind. We don't have noise from acquisitions. It sounds like the bear case on rental really shouldn't be there anymore. Your -- I don't know if investing on tech goes up or if that's a positive relative to the aspirational targets you laid out in -- at your Analyst Day of the 50% to 60%.

And then my second question, with markets in recovery, and it sounds like suppliers can ramp, but only to a certain degree, to what degree do you think that the industry would look to use acquisitions or consolidate, you know what I mean, just in order to get fleet?

I'll take the first part, Jamie, and Matt can take the second. On the margins, we've long said our goal is to drive margin expansion. And I think if you look at our year-to-date results and certainly the second quarter results included within that, we're doing that on an underlying basis. And that to us is the most important way to measure our business internally. So just to kind of like go through a bridge, you'd see the as-reported margins being up 70 basis points year-on-year. When you back out the gain, they're down 40. I think David made that point. That includes that outsized growth from ancillary and re-rent. If we adjust for that, just that outsized growth, the margins were up 40 basis points year-on-year, even while we included or absorbed, excuse me, 20 to 30 basis points from the higher fuel price. Again, that's the internal consumption piece.

So that to us is indicative for the underlying cost performance of the business and gets to kind of that goal we've talked about. And when you look at those big 3 metrics across cost of rental, here again, labor, delivery, R&M, all showing positive absorption year-to-date and in the second quarter. So as we roll that forward, again, we think the core should continue to drive margin expansion, things that are, to some degree, outside our control, like how we serve customers with ancillary will be impactful. That said, these are things customers are asking us to do. And frankly, they're part of what's driving the, I would say, that strong growth, right?

If you look at ancillary being up -- or sorry, specialty being up 25%, the underlying market is not up 25%. We are certainly outpacing the market. And we think to some degree, that's driven by the fact that we are being selected as a partner of choice, a key part of our strategy for doing these small things. So we're not going to shy away from them. We're going to support customers. We're going to take advantage of that strategic focus and then explain to people what that ultimate impact may be on margins. So we can dig into any of that, but hopefully, that gives you at least a sense for how we're thinking about the business going forward.

And as far as the acquisitions and consolidation, I think that will continue in the industry. I've said it for a while. The bigs will continue to get bigger. I think consolidation is part of that. Even those that had very aggressive cold start models have turned to realize it's just faster, more complete, a better way to fill some of your gaps if the math makes sense. So I think that will continue to be a part of the industry's growth.

And sorry, one quick one. Of the CapEx increase, what was gen rent versus specialty implied in the increase in forecast?

We haven't broken that out, but you could assume you see the growth of each of those. You could assume that there's a lot of specialty growth within that CapEx number.

We'll go next now to Angel Castillo with Morgan Stanley.

A little bit of a bigger picture. I guess, just wanted to go back to the comment that you could potentially get upgraded to investment grade over the next 12 months. Can you just talk about, I guess, how important that is to your capital allocation strategy? Just the reason I ask is your leverage at this point is kind of near historical lows and continue to decline with this very strong kind of fundamental performance. So just I'm curious how you perhaps kind of weigh that investment-grade opportunity versus -- or opportunity to get upgraded versus opportunities of M&A or more buybacks?

Honestly, it's a great question. Thanks for asking, Angel. I don't think it really affects our capital allocation strategy at all. I mean, we're clearly comfortable with the idea of moving to IG at this point of our evolution. If you look at our credit metrics, we've screened IG for many years, and it's really been our internal financial policy that kept us in the high-yield realm. And the idea there was to ensure we have the balance sheet capacity to support that inorganic growth if and as we saw opportunities. But as we've grown, we've organically essentially sourced all that M&A capacity we would need with, frankly, just looking at the EBITDA we have in absolute dollars and what that would allow us to do on a purely debt-funded basis.

So as we took a step back and really assessed kind of like what our existing capabilities are, where we think reasonably we might deploy capital and then compare that against cost-benefit of staying high yield, we just feel like we're at the point where we're very comfortable with the idea of migrating into IG and taking advantage of a lower spread for the simple reason, doing so does not constrain us in any way, shape or form from M&A strategy. So Matt, I don't know if you'd...

I think you just hit it. It has no other side of the coin cost to us. So why not take the opportunity?

Amazing. Super helpful. And then I wanted to ask just on the CapEx front. You mentioned if you wanted another $1 billion worth of fleet, you probably would be a little bit challenged in getting that. So just curious, one, can you talk about maybe where, in particular, in your fleet or the type of products that you might be sourcing, there is a little bit more tightness? I think, over the last couple -- over the last year or so, you've generally talked about more availability of fleet from the supplier.

And then a little bit of a preliminary into '27. Just curious, as you see this demand backdrop, the backlog, I believe you've talked in the past about mega projects giving you more like a 12- to 18-month kind of visibility. So as you see all of that and this tightening in the supply base, how are you thinking about your CapEx needs, at least at a high level for next year versus perhaps some of this increased CapEx this year being able to kind of set you up for that growth next year?

Yes. So the carryover of the growth this year certainly helps. It will help for the growth next year. And it's way too early for us, Angel, to get into forecasting CapEx next year other than to say you could expect we'll sell a little bit more used based on the bigger base of rotating our fleet and the correlating replacement CapEx from there. And then when we get into our planning process, which is ground up, very robust, we'll have a better idea of what the growth needs are over and above the carryover. So nothing to really say there other than we do expect next year to certainly be another year of growth. And what level of growth it is, well, we got to do all the work before we get ahead of our skis there.

And then just in the $1 billion of the fleet, like where there's maybe tightness?

The areas that you can imagine, it's pretty broad because the major projects are using everything. So it's specialty products and think about the aerial, the reach forks. The stuff that usually run at high time utilization continue to run at high time utilization.

We go next now to Sabahat Khan with RBC Capital Markets.

So just, I guess, on the H2 guidance, obviously, the numbers are moving higher versus your initial expectations. Was this maybe a little bit of you waiting to see how the demand backdrop evolved? Or did something really inflect? And I know you talked a little bit about some of the nondata center markets, but it does look like fleet productivity comps are getting easier in the back half. Was it you just waiting for some confidence in the market before sort of kicking that up? And then maybe if you can just share some thoughts around just kind of the expected cadence for the numbers, if you can, based on the comp last year.

Yes. So we had confidence in April. We usually wouldn't do a raise in April because we -- to your point, we want to see how the year is shaping out. But we had a lot of confidence that it was going to shape out strongly. we just exceeded our expectations. The pipeline of projects moved faster and got deeper. So I would just say a combination of more demand, strong execution from the team gave us -- gives us even more confidence for what we'll see in the back half than our original expectations even on our increased guide in April. So -- and the ability to pull some more CapEx in. So it's that.

And so the second part of your question was cadence. I assume if that's CapEx cadence, you would just think about we'll bring in against the new guide, somewhere around 30% to 35% in Q3 -- balance in Q4, not dissimilar to how we usually bring in capital.

Great. And then there was a bit of discussion earlier in the call around just how some of the incremental costs around repositioning are being absorbed. If we bring it all together, is that just a function of, look, at this point, given it's been going on for a while, you've been able to adjust your business, reduce costs and get customers to sort of take some of those increases? Or is it just the demand backdrop is so strong, you're able to maybe price for it better? Just trying to think through how we should expect that sort of the transportation kind of cost evolution for the next few quarters? Or is that built in now, the rates are in a good place and you're comfortable with sort of the margin outlook?

Yes. I would say it's the former. It's a lot of hard work, right? So it's really deep diving on our processes. I mean, let's face it, when something gets away from you, so to speak, you got to look at it differently. So I would say it's just a lot of change in how we address it, a lot of coordination and frankly, more eyeballs and elbow grease on it. So the team has done a really good job offsetting it. And as I said earlier, you'd have to assume -- I don't have the math directly behind it, but with fuel increases alone, our cost per mile has to be up. So to get that kind of positive absorption is really more process change and execution from the field.

We'll go next now to Tami Zakaria with JPMorgan.

I have a follow-up question on your rental revenue. Its growth accelerated to 13%. And year-to-date, it's up almost 11%. So is there a reason to expect rental revenue growth to slow down from the year-to-date double-digit rate? Or asked another way, what is your expectation of rental revenue growth for the next 2 quarters?

So thanks for the question, Tami. And you can kind of see the range of growth that's implied across our range. So on the one hand, we always encourage people not to anchor at the midpoint. On the other hand, we -- inevitably, these conversations start there, but we would point people towards the range, which points to, we think, any reasonable set of outcomes. Certainly, if you think about kind of like the back half and probably the parts that could most reasonably drive the greatest part of volatility, it's probably things around ancillary and re-rent, where you saw that accelerate, obviously, in the second quarter. That has proven very difficult to predict as we talked about earlier in the call.

So we did see a nice acceleration in OER, and that's important. And certainly, we see strong demand backdrop in the back half. So we're optimistic about that. But in terms of kind of where we fall out in the range, I hate to say we'll have an update for you in October, but we will.

Got it. Another question on your local market demand or the industry local market demand. In your view, what's holding it back from materially strengthening after staying stable for several quarters? Is it housing that needs to come back? Is it interest rates? Is it inflation that needs to come down? So what can park up this end market?

So admittedly, it's all theoretical, but you could imagine interest rates has been topical and one of the drivers in that coming down. Residential growth, right, would then feed other necessities, whether it be municipal works, retail, supermarkets, schools, all the stuff that goes on as you see residential growth in an end market would all be things that would certainly assist. But then small businesses, right? We're still in an inflationary environment. Small businesses starting to invest back into their business, whether it be local manufacturing, local retail, all that is just kind of bouncing along right now. Those are the things that we think would really spur some growth in the local markets.

We go next now to Chad Dillard with Bernstein.

So Matt, in your prepared remarks, you talked about demand outpacing original expectations. And I was hoping you could talk about the pockets of surprise on 2 axes. So first of all, maybe by business segment. And then second, by end market.

So I would really just say it's the project pipelines, right? So if you wanted to say a little bit, maybe the local market growth of low single digits helped a little. But the big driver here is the major project pipeline. And it's across the board. And as I had said in my opening remarks, there's a lot of noise about data centers, but we're seeing LNG terminals. We're seeing infrastructure, airports. We're seeing stadiums. I mean, pharmaceuticals. So it's really quite broad in the major project work, Chad, but I would say it's major projects certainly tied to power, certainly tied to -- semis are picking up. And this is without seeing, as I said earlier, petrochem picking up. And even the downstream side where those folks are so busy, you can imagine they're putting off any kind of turnarounds or other things that we usually participate in. So generally, major projects across the board are just stronger and deeper.

Great. That's helpful. And then just a second question on your return on invested capital. Can you talk about the path to improving it? And let's just leave aside just the market, but talk about what United can do itself. Maybe you can break down your efforts by gen rent versus specialty.

Yes. So I guess I'll address it overall just because we don't get into specific segments. But one of the things we've talked about, obviously, on this call has been driving underlying margin expansion in the business. Now when you think about the way ROIC is calculated, it's NOPAT over invested capital. So the NOPAT obviously includes whatever the effect is of ancillary and re-rent. But fundamentally, our goal is obviously to drive margin expansion that when you think about the impact that has on ROIC, it's positive.

And then the second thing you've heard us talk a lot about today and over the last many years is driving positive fleet productivity. So when you think about that as a proxy for capital velocity and driving better capital turns, that should contribute. So that is the goal. You've heard us talk about being as efficient with fleet as possible. You can see what we've done in fleet productivity this quarter and some of the comments we've had on time U. We will continue doing those things and expect that, that should continue to drive improving returns on the business.

And then obviously, making sure that M&A we do is value additive. Admittedly, that can have a short-term dilutive impact on ROIC given acquisition accounting. And that's why we frame the deals really as cash-on-cash returns, so people can see that discipline across our capital allocation strategies.

And ladies and gentlemen, that's all the time we do have for questions this morning. At this time, Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Thank you, operator, and thanks to everyone on the call. We appreciate your time, and I'm glad you could join us today. Our Q2 investor deck has the latest updates. And as always, Elizabeth is available to answer your questions. So until we speak again in October, stay safe. Operator, you can now end the call.

Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this will conclude today's United Rentals conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.

Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded.

Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release.

For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

You should also note that the company's press release and today's call include references to non-GAAP terms, such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.

Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we reported a strong start to 2026, including first quarter records across revenue, EBITDA and EPS. I was very pleased by the growth, margins and fleet productivity we reported, as the team continues to execute against our North Star of putting the customer first. The momentum we're carrying into our busy season, along with our customers' feedback for their business, supports our expectations that this will be another record year, as further evidenced by our updated guidance.

This is all attributed to our 28,000 team members who are laser-focused every day on serving the customer and delivering against our goal to be their partner of choice.

What exactly does this mean? Well, it means we have a broad unmatched offering of both gen rent and specialty products. We invest in industry-leading technology to make both the customer and our own operations more productive and efficient. And most importantly, we have a track record of providing superior service our customers can depend on.

This didn't happen by accident. We've developed sustainable competitive advantages through our differentiated value proposition and operational excellence, allowing us to deliver consistent performance and shareholder value.

Now having said all this, today, I'll give a quick recap of our first quarter results, followed by what's driving our optimism for the year. And then Ted will go into more details around the numbers, before we open up the call for Q&A. So let's start with the quarter's results.

Our total revenue grew by 7% year-over-year to nearly $4 billion. And within this, rental revenue grew by almost 9% to $3.4 billion, both first quarter records. Fleet productivity of 2.3% contributed to OER growth of 6.5%.

Adjusted EBITDA came in at $1.8 billion, resulting in a margin of 44.1%, a 60 basis point improvement year-over-year when you exclude the H&E benefit. And finally, adjusted EPS came in at $9.71, up 10% year-over-year and another first quarter record.

Now let's turn to customer activity. We continue to see healthy growth across both our gen rent and specialty businesses. Within specialty, which grew 14% year-over-year, we saw growth across all lines of business and opened 17 cold starts. By vertical, our construction end markets saw strong growth led by nonresidential construction and infrastructure. And on the industrial side, power and mining and minerals were notable standouts, with power continuing to post double-digit growth.

We saw a wide variety of new projects kick off in the quarter, spanning health care, infrastructure, power, industrial manufacturing and, of course, data centers. And for you soccer fans out there, we expect to be a key partner for the World Cup starting here in the second quarter.

Now turning to the used market. We sold $680 million of OEC at a 51% recovery rate. We're on track to sell approximately $2.8 billion of fleet this year supported by strong demand for used equipment. In conjunction with these sales, we spent $874 million on rental CapEx. This was spread across replacement and growth CapEx, with a focus on specialty and bringing in additional gen rent equipment where we see strong demand.

Subsequently, we generated free cash flow of $1.1 billion. We're set up for another strong year of cash generation, which is a critical feature of the company. As a reminder, the combination of our industry-leading profitability, capital efficiency and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle, which can be redeployed in ways that allow us to create long-term shareholder value.

Finally, we allocated capital in the quarter consistent with our framework, which starts with a healthy balance sheet. After supporting both organic and inorganic growth, we returned $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.9x remains well within our targeted range, leaving plenty of dry powder to support growth and return excess capital to shareholders.

Now let's turn to the rest of 2026. As evidenced by our updated guidance, the year is playing out better than we expected just a few months ago. Feedback from the field continues to be optimistic, particularly for large projects. We're carrying a strong momentum into our busy season and we feel confident we're positioned to win in the marketplace.

So to sum it all up, our unwavering focus on our strategy, which includes our differentiated value proposition, positions us well to compete effectively in the marketplace. Our customers know they can depend on us. And our team is executing with strong capabilities. We see multiyear tailwinds for large projects and believe we're well positioned for these opportunities. And we'll continue to monitor and manage our cost structure and operate with capital discipline.

I'm confident the combination of our resilient business model, prudent capital allocation and balance sheet strength will allow us to continue to drive profitable growth, generate strong free cash flow and deliver compelling returns to our investors.

And with that, I'll hand the call over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted.

Thanks, Matt, and good morning, everyone. As Matt just shared, we're off to a strong start to the year with first quarter records across total revenue, rental revenue, EBITDA and EPS. More importantly, we're pleased to be raising our full year guidance based on the momentum we're carrying into our busy season and strong customer sentiment. Before we get into the details of the outlook, let's dive into the first quarter numbers.

As you saw in our press release, rent revenue increased $274 million year-over-year, or 8.7%, to a first quarter record of over $3.4 billion, supported primarily by growth from large projects and key verticals. Within this, OER increased by $163 million or 6.5%, driven by 5.7% growth in our average fleet size and fleet productivity of 2.3%, partially offset by assumed fleet inflation of 1.5%. Also within rental revenue, ancillary and re-rent grew by nearly 18%, adding a combined $111 million as ancillary growth continues to outpace OER.

Pivoting to used, we sold $680 million of OEC in the quarter, generating $350 million of proceeds at an adjusted margin of 47.4% and a 51.5% recovery rate. So solid used results overall.

Next, let's turn to EBITDA. Excluding the $52 million net benefit we realized with the termination of the H&E acquisition in the year-ago period, EBITDA increased $140 million to a first quarter record of almost $1.76 billion. This was primarily driven by a $160 million increase in rental gross profit, partially offset by a $12 million decline in used gross profits. Excluding the impact of H&E, SG&A increased $16 million year-over-year, but declined as a percent of revenue, while gross profit from other lines of businesses increased $8 million.

Looking at profitability, our first quarter adjusted EBITDA margin was 44.1%, reflecting a 60 basis point improvement year-over-year excluding the impact of H&E. As expected, we continue to see geographically dispersed large projects driving much of our growth while customer demand for ancillary services also remains strong. Nonetheless, as you saw this quarter, with the benefit of strong cost management, we expanded our underlying margins year-over-year. And while we'll always have normal quarter-to-quarter variability in costs, it remains our goal to achieve flat margins for the full year.

To give you a little more color on the cost controls, I'll note that we recorded $45 million of restructuring charges in the first quarter, which were primarily related to the consolidation of overlapping facilities and head count reductions. Additionally, we took steps across the organization to control variable costs with a significant focus on labor and outside hauling. And while it's still early in the year, we're pleased with the results of these initiatives.

Shifting to CapEx, gross rental CapEx was $874 million, translating to around 19% of our full year spend at midpoint and in line with historical first quarter levels.

Moving to returns and free cash flow, our return on invested capital of 11.8% remained comfortably above our weighted average cost of capital, while free cash flow for the quarter exceeded $1.05 billion.

Turning to our balance sheet. Net leverage remained very comfortable at 1.9x at the end of March, with total liquidity of almost $3.4 billion.

On the capital allocation front, we returned $500 million to shareholders in the quarter, including $125 million via dividends and $375 million through repurchases.

Now let's shift to the guidance we shared last night, which reflects our confidence in delivering another year of strong results. Total revenue is now expected in the range of $16.9 billion to $17.4 billion, an increase of $100 million versus our initial guidance, while used sales are still expected at around $1.45 billion. At midpoint, this implies full year growth ex used of roughly 7%.

In turn, we've also raised our adjusted EBITDA guidance by $50 million to a range of $7.625 billion to $7.875 billion. On the fleet side, we've increased our gross CapEx guidance by $100 million to a range of $4.4 billion to $4.8 billion, reflecting the stronger demand we see. This now implies net CapEx of $2.95 billion to $3.35 billion.

And finally, we're guiding to another year of strong free cash flow in the range of $2.15 billion to $2.45 billion, with the increase in CapEx offset by higher cash flow from operations.

Shifting to capital allocation, it remains our plan to repurchase $1.5 billion of shares in 2026. Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of about 4% based on our current share price.

So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Certainly. Thank you, Mr. Grace. [Operator Instructions] We'll go first this morning to David Raso with Evercore ISI.

I want to focus on margins and the cost saving initiatives versus maybe some fuel cost concerns. As you mentioned, right, the margins were up 60 bps year-over-year, incrementals were [ 53 ]. The amount of savings in the first quarter, be it labor, some of the real estate you spoke of, I'm coming up with something like $10 million. So even without that, margins were up 40 bps, incrementals were [ 49 ]. And the reason I go through those numbers is the rest of the year, and I'm just using midpoints, I appreciate that, but the rest of the year, you're now implying margins down 20 bps year-over-year, incrementals only [ 42.5 ]. And I just want to make sure how much we should be looking at the first quarter, is a little bit of an anomaly on savings and the margin? And why would we then, if it's not an anomaly, the margins would be down the rest of the year, year-over-year?

Yes. I'll start there and then we can go from there. So thanks for the question, David. I'd say, as always, we caution people against anchoring to the midpoint. It goes without saying we're very pleased with the start to the year we've had. And certainly, the underlying improvement, excluding whatever the benefit was from restructuring, and you're probably in a reasonable ZIP code assuming around $10 million of benefit in the first quarter, there's still a lot of game to be played. We feel very good about the trajectory we're on, excellent execution in the first quarter, but we've got to sustain that through the busy season, which is to say the second and third quarter.

So if you look at the results, it was really kind of all 3 big areas of costs that provided leverage: labor, delivery and R&M. So we feel like there's a broad-based kind of contribution to the improvement. But again, we've got to sustain that through the busy season. And the area that is probably going to be the most important to focus on will be delivery through the busy season. And so we feel really good about the start to the year. The team is incredibly focused, after taking care of customers, focusing on cost is job #2.

So Matt, I don't know if you'd add anything?

No, I think you covered it, but I want to anchor on the midpoint and, more importantly, the efforts we put in place that we talked about to help mitigate some of the cost challenges that came with the repositioning and some of the other challenges, the team is doing a good job, and we'll continue to run that play.

And a follow-up on that, then I'll hop off, can you give us any sense of how you're thinking about fleet productivity after the 2.3% in the first quarter? Cadence full year, whatever you want to provide us would be great.

Sure, David. Yes, we feel like the supply-demand dynamics in the market are conducive to driving positive fleet productivity. As you know, our goal is always to overcome that 1.5% inflation bogey that we put out there, and I'm glad to see the team did that in Q1. And frankly, that's our expectation in our guidance when we start every year. So on track, feel good about it.

And when I think about it qualitatively, we continue to get positive rate. We feel good. Rates is still a good guy. The time utilization, which we've been talking about running at a high level for a few years now and maybe even thought that would be a headwind this year, I'm pleased to say the team are continuing to achieve high levels of time utilization.

And then the biggest change when we think about Q4, which got a lot of explaining and a lot of focus, was really an anomaly, and that's why we talked so much about some of the challenges and mix, and we didn't face those mix headwinds like we did in Q4. So we don't expect to have those headwinds again. But once again, we'll continue to update you guys as we go along.

We'll go next now to Rob Wertheimer at Melius Research.

I'm most curious about some of your customer commentary. And I'm curious about whether what the time line is, especially on some of those larger projects, when you go from having conversations about how they feel to preorders or planning for specific projects as some of that start to happen, is that [indiscernible]?

And then I'll just ask my follow-up at the same time. Dirt movement -- dirt equipment started moving upwards a quarter or 2 ago. There's a lot of mixed signals in the industry, but some saw that as a leading indicator. I don't know if you think that's a tangible sign that we start at the bottom and working our way up and that's some of the strengthening demand you're seeing.

Yes, Rob. So as far as the planning aspects, as you could imagine, the larger the project, the more time in advance the customers need to communicate with their suppliers, and certainly, equipment suppliers, about what they're going to need. So we'll continue to do that. It's a continuous pipeline of projects, as you can imagine, a continuous pipeline of those conversations. So we have more visibility on those large projects and we feel good about not only our positioning, but the overall demand in the large project area. So we feel really good about that.

As far as dirt, certainly, it makes logical sense about dirt being a leading indicator, we're seeing strength across our portfolio, quite frankly. You saw a 6% gen rent number, and that wouldn't -- couldn't happen if it was just driven by dirt. Whether that's a leading indicator for even more acceleration, we really -- I would agree that the pipeline is strong. I wouldn't really extrapolate those numbers to us because we're not seeing a separation. But maybe the dealership network is impacting that number as well, which is good. But overall, we feel good about the demand cycle and we feel good about where we are with major projects.

We'll go next now to Mike Feniger with Bank of America.

I was just hoping, Ted, if you could just talk about ancillary costs, repositioning costs. Just if we think about the bridge, I know this gets a lot of attention, is that pressure intensifying in 2026 versus 2025? How we mark to market with what we're seeing potentially on the fuel side? And clearly, we're seeing the cost savings come through and that should build. Does that kind of offset maybe any increases that you're seeing there if we look at kind of a bridge on the margins for '26 versus '25.

Yes. There's a lot to unpack there, Mike, but thanks for the question. So ancillary growth, the relative growth to OER kind of held constant with what we saw last year. And so obviously, a big part of what we focus on strategically is taking care of our customers, and the team is doing a great job there.

I would say from the standpoint of thinking about the contribution margin from ancillary, probably very much in line with that 20% we've talked about. No appreciable change in the first quarter. And I don't think we'd be looking for any appreciable change at this point for the year.

On the repositioning side, the team did a great job managing across those big 3 cost areas I talked about, and that does very much include delivery. If you look at our rental results, the rental gross margin was up 50 basis points year-on-year. And again, all 3 of those contributed. But delivery, which is the area where we see kind of the most focus on execution, improved about 10 or 15 basis points as a percent of revenue year-on-year. So a great job given the fact that we did see almost 9% rental revenue growth.

When you dig into the details, the biggest portion of repositioning will be and has been in specialty, and you saw that in numbers. They were still probably about 30 basis points behind the curve, but that's a huge improvement versus what we saw last year. If you think about the drag on margins last year within specialty, it averaged about 150 or 200 basis points year-on-year per quarter. And now we're talking about a number that's probably in the order of 30 basis points. So they're doing an incredible job managing that, because there is a healthy amount of repositioning this year, we've talked about kind of the demand drivers, and we've talked about the focus on capital efficiency, fleet efficiency, and that will continue to be the case.

On fuel, something we're obviously monitoring and managing very closely. The majority of our exposure, as you know, Mike, is a pass-through. So that gets managed a couple of different ways, but the delivery calculator is the most obvious one, and that's something that we update regularly to help pass through kind of the higher costs we could incur based on higher diesel prices.

And then on the internally consumed diesel, we manage that through an active hedging program. So a lot of focus there. The team is doing a great job, and we feel like we're able to -- we should be able to manage through any reasonable situation there. Matt, anything you'd add?

No, I think you covered it well.

Great. And Matt, just for my follow-up, I know we talked about rate, I mean there's been a discussion around competitive dynamics, particularly on the gen rent side and competition there. You mentioned the fleet productivity and rate being a good guy. Are you seeing anything on the ground on maybe intensifying competition on gen rent? Or is this the one-stop shop model that you guys have been building kind of separates you a little bit from maybe some of that competitive intensity? Just curious if you can kind of comment on that.

Yes. I mean I've been doing this for 35 years and there's always somebody that wants what you have, right? So what you need to do is differentiate yourself. And to the end of your point there, we spent a lot of time building a competitive moat around our offering and making sure that we're targeting our customers' needs, but also targeting the customers that value that.

And we feel really good about where we're positioned. We think the major project pipeline plays into our opportunity to solve, give more solutions to our customers. So we feel good about our positioning and where we are.

And the supply-demand dynamics, as I said earlier, to David's question, we feel good about the supply-demand dynamics in the industry, and that should continue to drive positive fleet productivity.

We'll go next now to Steven Fisher of UBS.

Congratulations on the quarter. Just a follow-up on the rest of the year. You mentioned, Ted, that delivery is really going to be one of the key focus areas. Can you just talk about what are the keys to making sure that that works out favorably in the way you want it to?

And then in terms of just any other additional inflation for the rest of the year, to what extent do you have an expectation that will be addressed by rate? Or will that remaining $15 million or so of planned cost reductions cover that extra inflation?

Yes, Steve, I'll take the first part of the delivery because I think it's important just to understand, we're not going to eliminate the challenges of repositioning and delivery. The point is to mitigate it. So the good news is we put some new processes in place, and those have worked in Q1. And I think Ted was referring to the challenge in Q2 or Q3, is to continue to do that when the system gets even busier. And we have a lot of focus there.

But there still will be repositioning costs. The other cost actions we've taken are really to also help mitigate that because we still want to drive capital efficiency. We still want to move fleet versus just buy more fleet when you land new deals.

So that will continue to be a focus for us. So it will be two-pronged. It will be the execution of doing -- moving fleet more efficiently as well as making sure any other cost opportunities there to help mitigate supporting that demand are there. So we can continue to run the business to support our customers in an efficient manner. And then, Ted, you could talk to other inflationary items.

Yes, Steve. So I'd say outside of fuel, really the year has played out as expected from an inflation standpoint. The areas that we've talked the most about, obviously, you've got the labor piece, and we've been able to manage that really effectively. You can see that in our first quarter results. If you look at the numbers across the business, we got the better part of about 50 basis points of labor absorption.

We talked in January about the importance of that. We're off to a good start. So very pleased there, that even in the face of ongoing inflation on the labor front, we're getting that kind of pull through.

The other areas that continue to be inflationary, we've talked about real estate, we've talked about insurance being 2 of the other big ones. Those again were built into the plan that are playing out as expected. So I don't think there's anything to point to there.

In terms of the $15 million of cost reductions you mentioned, I'm guessing you're talking about the incremental restructuring expense that we would have called out. So I just want to clarify that, and if that is the case -- okay, perfect. So obviously, you would have seen the $45 million of charges we took in the first quarter. For the full year, we're expecting $55 to $65 million. So at the midpoint, you'd say $60 million. So there's another $15 million to go.

When you look at the first $45 million, about 2/3 of that would have been real estate related. That's the closure of overlapping facilities that we did in the first quarter. And the balance, the other 1/3, was head count related. So probably those are the 2 big buckets that we'd be looking at across the rest of the year, although it's more likely to be real estate, probably in headcount, we're in a good position, but we'll have updates there periodically.

And all that was built into our expectations. So for the year, just to -- I think David had a pretty good estimate of what the first quarter benefit was, around $10 million, for the full year, we've estimated that the full year benefit would be on the order of $45 million to $50 million. So that is -- that was built into the initial expectations. We're on track, and you'll see that kind of come in, in a linear fashion across the balance of the year.

That's perfect. And then just maybe a bigger-picture question about these facility closures. I'm curious about the trade-offs here. I assume these are branches closing. Clearly, you get lower cost. But I guess to what extent have you found ways to mitigate the lost revenues or other benefits from having less branch density? And if you have found ways to mitigate that, is that sort of -- is there a broader applicability to your whole footprint or even the whole industry? Or is this a situation where the trade-off, we just needed to lower costs?

Yes. There wasn't really -- the good news is there wasn't too much of a trade-off here, other than maybe some shop space because we didn't exit any markets. So no attrition that we're worried about here. 95% plus of our equipment is delivered. So that consolidation didn't have a revenue impact.

And we really were specific and surgical in doing it in markets where, through acquisitions, we may have held on some extra real estate. And as we looked at it, we just didn't need it. We still have some headroom even after the consolidation for growth because we do expect to continue to grow. So we're talking about, in a business of 1,700-plus branches, or let's just keep it to North America, right, so a little less than that. we closed a couple of dozen branches.

So not a big deal, but it was -- it's a good question because that was one of our points. Let's not hurt the business. But if we have excess that we don't need to utilize, let's not hold on to it. And that's the way we looked at it.

We go next now to Jerry Revich of Wells Fargo Securities. .

Matt, Ted, I'm wondering if you could just unpack outstanding performance in dollar utilization in the quarter. Saw that accelerated by about 1 point versus normal seasonality, and first quarter tends to be a pretty tough quarter to get rate overall. Can you just unpack the cadence of demand over the course of the quarter? And it sounds like the quarter played out better than what you thought would be when we were together at the end of January for last quarter's call. Could you just unpack what were the positive demand or pricing variances that you saw over the course of the quarter across gen rent and specialty, if you don't mind?

Yes. So we won't get into that last part of the question numerically. But even though we don't give the components of fleet productivity, let's be clear, we still focus on it relentlessly at the branch level: capital efficiency to drive high time utilization, and as well as we have a very unique offering, let's make sure we get paid for it. So we still focus on rate and time at the branch level, we just don't call it out that way.

But as I said earlier, we -- this only continues to be a strong focus for us. But the demand that's out there is another part of this, with the supply-demand dynamics are good. And we're going to make sure that we utilize that opportunity. As far as the dollar utilization, it's really an output of that, ted, I don't know if there's anything you want to cover specifically on dollar utilization.

Yes. I guess you're doing the imputed version of this, Jerry, but obviously, it comes back to a lot of things Matt talked about. But we're pleased to build the fleet on rent in the quarter. You can see the rental revenue growth was strong at 8.7%, and we had strong fleet productivity. So it came together, obviously, to support what was a nice improvement in that dollar ut. And another way to express that is the fleet productivity.

Right.

And then in terms of just to circle back on the discussion on fleet productivity over the course of the year, and we can look at dollar, as you said, as a proxy for that. So the comps get pretty easy as we head into the back half of '26 for the industry. And so now that based on the range of industry data, supply-demand having improved, normal pricing on a monthly basis and an upturn does suggest there's potential for fleet productivity to accelerate significantly over the course of the year. I know it's early on and things have to fall in place, but I just want to circle back to the earlier comments about north of 1.5% fleet productivity targets. It feels like our exit rate in the first quarter really points to a sharp acceleration as we head through the year, again, if normal seasonality in an up cycle plays out.

Yes. Embedded in our guidance and, frankly, our goal, every year and as we plan with the team is to make sure we overcome that inflation. And in the simplest way, we want to grow rent revenue faster than we grow fleet, right? And it's not any more complicated than that.

We'll continue to manage that. But the other components of fleet productivity, then rate, there's a lot of focus on rate. We've been running time at a high level. I'm very pleased to say it's not a headwind for us. But if we get to a point like we did in '22 where it's a negative trade-off, then we'll manage that appropriately. We got to make sure we're responsive to our customers' needs. But we think we can do that. We've been doing it for years.

Mix is the wildcard, and that's why we don't try to predict this. We had no expectation of having 0.5 in Q4. That was all mix related. So outside of that, we feel good about the dynamics to drive positive fleet productivity. And as we get the results, we'll explain to you guys if it comes out different than we expected, positive or negatively, with the mix dynamic. That's really the part that's very hard for us to predict. But we do feel good as embedded in our updated guidance about the opportunity to outpace inflation.

We'll go next now to Ken Newman of KeyBanc Capital Markets.

So maybe going back to the inflation piece here. I know there's been some broader market worries around some of these new Section 232 methodologies, and I'm assuming you're already protected from any potential surcharges from suppliers just given that you locked in those prices at the end of last year. But when I think about the fact that you are seeing a little bit stronger growth to start the year out, can you maybe just talk a little bit about your ability to maybe accelerate fleet growth if needed? And if you can still be price/cost positive if inflation starts to ramp further from here?

Sure, Ken. Well, as you accurately mentioned, right, we do lock in our prices for the year. And embedded in that, we talk to our key suppliers, but most of our vendors, but about we want the ability to flex up, and we certainly have contractually the ability to flex down, although that certainly doesn't need -- seem to be in our immediate future. But that flexibility and our vendors' ability to respond to those flexes is a real important part of the relationship we have with our vendors.

So we do think if the end market plays out that way and demand continues to outpace our expectation, like it did here in Q1, we certainly have the opportunity to flex it.

And just to clarify on this last question, I mean, are you -- again, I mean, I know it's early in terms of people trying to look through this, but are any of your suppliers coming to you and -- or pushing for surcharges at this point? Or is it just still too early?

Well, we don't talk about our negotiations with our partners, but we are very, very disciplined about sticking to our original deal. So I would -- we're not really -- we're not worried about that.

Makes sense. Okay. And then for the follow-up here, it's -- maybe just talk a little bit about the M&A pipeline. The free cash flow profile still seems pretty strong here. How active is the pipeline versus when we last talked to you a quarter ago? And I'm curious if the macro environment today makes it harder or easier to do deals.

Yes. I wouldn't say the macro -- the pipeline hasn't changed really over the last couple of years, with the exception of COVID. The deal pipelines remain pretty consistent. The real challenge for us isn't how many deals to look at, it's expectations and how many get -- of us, of what we expect to do a deal and the returns we expect on a deal and to get that willing dance partner. But there's no lack of opportunities to look at. And we continue to work the pipeline. We've got a great M&A team and business development team.

And as you can imagine, we'd lean towards specialty, specifically adding in new products. But we'll do tuck-ins as well in the gen rent business if it fills a need and gives us capacity in a growing market. So stay tuned. To your point, we have plenty of dry powder and we'll continue to work the pipeline.

We'll go next now to Kyle Menges of Citigroup.

Great. Maybe first off, could you talk a little bit about just if you're seeing anything particularly in local markets? Any early impacts from the geopolitical uncertainty and a fading rate cut theme impacting those markets? And I think you had embedded roughly flat local market growth in your previous guidance. Any change there?

No. We think the local market continues to be stable. It's -- that's a positive thing, right? Whereas maybe earlier last year, the year before, you were seeing some markets that were still being impacted negatively. But overall, I'd say the local markets stabilized, and that was our expectation. And the project pipeline on the major projects as well as our specialty growth continue to drive some of the growth drivers that we've been not only executing on, but that we expected for this year. So we feel good about the end market.

Great. That's helpful. And then certainly a theme that's had a bit of a resurgence recently is just OEM dealers pushing more into rental or expanding their rental fleets. Just how do you see that impacting competitive dynamics in the industry? And I'm also curious roughly what you think your product overlap is with the typical OEM dealer rental fleet.

Yes, really not much overlap there. It's something that we're aware of, and there's a handful of them around the country that do a good job locally and regionally. But it's not something that, in our competitive dynamics or if we were doing a competitive analysis, really doesn't fall high on our radar, unless maybe in a specific local market's competitive analysis. So nothing there really to talk about from our perspective.

We'll go next now to Angel Castillo with Morgan Stanley.

Congrats on a strong quarter here. Just hoping to go back to the M&A question, but maybe a little bit backward-looking. Could you just talk a little bit about, I think, the $700 million -- roughly $700-ish million in acquisitions you've done over the last 2 quarters? Just any color on what those assets are? How much they may be contributing to sales? And just any details you can share on those? I guess, in particular, I'm trying to understand if you think about kind of gen rent and specialty organic versus inorganic split this quarter and kind of the expectation, for how much maybe was already baked into the guide versus maybe how much might be partly driving that revenue increase? Just trying to understand the bits and pieces there, and any impact to that or your business on dollar utilization would also be helpful.

Yes. Sure, Angel. So on the M&A piece, as you saw, we spent about $400 million in the first quarter, slightly less than that. Those were 4 small deals, the majority of which, 2 of them, the 2 larger ones, were done in the first week of January. So those were already embedded in our guidance. So you're talking about a small amount of impact on the rest of the year for those other 2.

And then when you think about deals over the course of all of last year and this year, we're talking about like 1% of revenue growth. So not a huge number, but still, strategically, things that we decided to do. So to answer the latter part of that question, not a -- a contributor in some way, but not the reason for our beat or for our updated guidance. And Ted, anything you have to add?

The last piece on the impact on dollar ut, I think, very de minimis. I mean to Matt's point, it was a handful of small acquisitions, none of which obviously are even collectively are going to move the needle in any appreciable manner.

Very helpful. And then I wanted to go back to the demand question. You talked about seeing I guess, in the mega projects area continuing to see, I guess, strength and things coming in maybe a little bit better than you had expected, as well as strengthening some of the end markets. Could you just give us a little bit more color on kind of the various key end markets, how you're seeing that play out? Any particular pockets where you saw a little bit more strength than you had anticipated than the seasonality? And whether that was projects moving faster, weather allowing it or just perhaps your execution, win rates coming in better than you had anticipated? Just trying to understand, I guess, the underlying demand side versus maybe some more idiosyncratic, again, URI execution, win rate type of things?

Well, I think the large project pipeline has been talked about pretty broadly. And everybody, certainly, data center has been a big part of that and everybody focuses on that. But as I said in my opening remarks, it's a lot broader than just data centers. And non-res construction overall, even ex data centers, is still really strong. So the growth in non-res is pretty broad.

And then when I think about the other end markets that have added to growth, I talked a little bit in my opening remarks about infrastructure, and power continues to grow at double digits. So power has been a really strong end market that we've been focused on for a while now. So those are really what the drivers are.

And then when you think about -- this is without petrochem really picking up yet. That's still a bit of a drag on a year-over-year basis. So we think the project pipeline and then the opportunity in petrochem to pick up will continue to give us growth for the foreseeable future.

We'll go next now to Tami Zakaria of JPMorgan.

Congrats on the great results. I'm curious about the World Cup that you mentioned, should we model a sizable maybe onetime tailwind from that in the second quarter? And related to that, do you expect the event to drive demand for both specialty and gen rent or one or the other?

Tami, in the scale of our company, I wouldn't model anything extra for the World Cup. It's already been embedded in our guidance. As you can imagine, for large events like that, we knew before the year started that -- what we were going to need to support those folks with. But in the scale of our business, there's not any 1 project or event that's going to make a meaningful difference. That's a great part of having such a broad portfolio. I hope that answers your question.

It does. And a quick one, the $100 million increased gross CapEx, is that driven by general rental or specialty?

Across the portfolio. Now specialty is growing at a faster clip, so -- and we did 17 cold starts. So it's always going to have a little bit more of our outweighted growth CapEx to support those cold starts and the growth. But we're also going to spend some money on some gen rent products that are tight, specifically for some major project support. And so it will be spread across the portfolio with a little more heavyweight specialty.

We'll go next to Tim Thein of Raymond James.

The first question, just a follow-up on the delivery cost recovery. I'm just curious, Matt, if you could maybe speak to how the company is positioned today versus, we look back at historical periods when diesel and flatbed trucking rates really spiked, just how the company has evolved in terms of -- it's been some years we've talked about some of the tools that you guys have had built out. So maybe just is there a way to kind of handicap just in terms of how you, again, position today versus how maybe it would have been different in years past when we look at those periods of higher cost inflation?

Yes. Tim, I can start there and then Matt can definitely fill in some more blanks. But obviously, we've long focused on costs and certainly making sure that we're managing delivery effectively. So I think if you were to look at analogous periods, 2022 would probably be the first one that comes to mind in terms of a year where you saw a meaningful increase in diesel prices, and you could say what happened in that episode.

So on-highway diesel prices increased over 50% in 2022 year-on-year. If you were to look at the impact that had on our fuel line, it would have been probably like a 15 basis point increase as a percent of revenue. And so you can see it's something that is -- was highly managed at that point. Delivery costs on the whole moved in a similar amount. And I think if you were to look at our margins in 22 ex used, they increased considerably. So not that you can draw parallels between every period, but certainly, I think it serves as a good example of our ability to manage through these kinds of environments pretty effectively. Matt, anything you'd add there?

No. No, I think you covered it well.

Okay. Then just on the specialty segment, so the revenue is up, I think, call it, 14% year-over-year. If I look at the ending asset base, which maybe wrongfully using as a proxy for OEC, but it was up like 16%. And so I'm just -- my assumption has been that specialty tends to generate higher levels of asset efficiency, which I'm sure you would endorse. So I'm just kind of struggling with why that -- I would have thought that relationship would have been a bit different. Is there something within that that maybe you would call out? I'm just trying to think through why you wouldn't see higher level of revenue relative to the investment in that business. Hopefully, that makes sense.

Yes. Well, I'd say intuitively, your assumption is correct that you do tend to get stronger dollar in those assets. and you can see that productivity historically. Truthfully, I'll need to come back to you on that. I'm guessing it's probably a function of timing, but I can't think of anything on an underlying basis that would have turned that relationship upside down. So if it's okay, Tim, I'll come back to you on that.

We'll go next now to Jamie Cook with Truist Securities.

Congrats on a nice quarter. I guess first question, Ted, it was the first quarter in a while I think we've seen the gen rent margins improve year-on-year. So any way -- I mean, should we -- how should we think about the gen rent margins as we progress throughout the year? Is there any reason why the first quarter was an anomaly?

And then I guess my second question, obviously, the first quarter came in better than expected. I know there was that pipeline job that had a softer start in the fourth quarter. I'm just wondering how that job is going, whether the first quarter outperformance is because that job restarted and potentially there's a catch-up in whatever we saw in the first quarter then for that reason isn't sustainable too, because it's like you raised your guidance, but you raised it by the beat or sort of less than the beat. So just trying to work through that.

Sure. So I'll start off, and Matt, please jump in. In terms of the rest of your gen rent margin, we don't provide kind of segment margins, as you know. We talked about the focus the team had starting in January on both sides of the business. But you asked about gen rent, and they really delivered, right? If you look at that gen rent gross -- rental gross margin being up 150 basis points, it was roughly equal contribution from labor, delivery and leveraging depreciation. And within that, still R&M was a positive. So the team really did a great job.

And that will continue to be the focus. As I think we talked about earlier, the key will be sustaining a lot of this through the second quarter and delivery being kind of the one that will take probably the most focus. So if you look at that in the first quarter in gen rent, that was about 50 basis points of leverage. The team did a great job. We've got to sustain that through the busy part of the season as we get deeper in the year.

But what I would say on the whole, as we've talked about, the goal is flat margins for the full year. excluding the H&E benefit from last year. That's on an EBITDA basis, so it's across the business. Certainly, our goal across both segments would be to perform very well. So that was the first part.

On the second part, the matting project that we talked about in January that affected the fourth quarter from a timing perspective, we've been delivering assets to that project. It has not entirely kicked off yet, but we've been mobilized. With that said, as we talked about in the fourth quarter, matting was down year-on-year in the fourth quarter. It was not -- it was up in the first quarter. And so that obviously was a big factor in the swing of fleet productivity that Matt talked about, that headwind we absorbed in the fourth quarter, just as a function of the timing of that start that we thought would have been in 4Q, ended up it will be 2Q.

And then as it relates to, I think, the follow-through of the quarter, hard for us to speak to anybody's external expectations. If you think about the $100 million revision to revenue and the $50 million to EBITDA, part of that was by the first quarter being a little stronger. You can see that we raised CapEx, so obviously, that's going to contribute after the first quarter. But we're off to a great start. We feel really good about where we're heading. And those are the 2 big components within that revision. Matt, anything I missed or you'd add?

No, you covered it well.

Jamie, did I miss anything in there?

No, I'm good.

We'll go next now to Steve Ramsey of Thompson Research Group.

On time utilization holding or being a positive, would you say that's mega project driven slowly? Or would you say that local market stabilizing kind of any breakout on time utilization drivers?

I mean it's everything, right? Because it's about having the right fleet in the right places for where demand is showing up. So it's good planning. It's good discipline, about only bringing in equipment when you need it, from the branch managers and the district managers out there. So I'd say it's across the whole portfolio. We couldn't drive this level of time utilization from just one or the other end market sector. So it's across the board, Steve.

We'll go next now to Scott Schneeberger of Oppenheimer.

A couple of questions. One on just following up on the branches and, Matt, some of the things you're saying earlier. Just to get a little more clear, was it more gen rent, more specialty? I inferred specialty from the commentary, but just a little bit more clarity.

And your -- I think you've said you're going to do fewer cold starts this year than last year. And following up on Steven Fisher's question of your answer there, what is kind of the strategy? Can you do more with less or will we see in kind of out-years a reacceleration of the cold starts?

Sure, Scott. So on the first part about the branch closures, it actually wasn't more specialty. And if you think about that, it's a lot of the -- it was split pretty much across the portfolio. But as you think about the acquisitions we did, we just held on to some of those Ahern facilities maybe longer than we needed to as we were going through that integration. And I would think about things like that, and then some of the smaller deals that maybe you guys don't get a visibility to.

So you want to work your way through it. We don't buy companies for cost-cutting measures. We buy them to help support growth. And sometimes we hold on to that real estate and find out in the long term we don't need it all. And so it's a couple of dozen branches and against a huge portfolio. So not to make too much about it, but it was very surgically viewed and no risk of revenue there. We wouldn't have closed one if there was risk of revenue.

And then as far as on the cold starts, we did 17 in the quarter. I think we had -- in January, said we were targeting around 40. There's a continual pipeline of that. If the team gets ahead of schedule and ahead of that pipeline, we'll raise the number as we go. But I wouldn't say that there's any change in how we're viewing the opportunities. It's just a matter of the execution, of finding the real estate, finding the people, but there's a pipeline for each one of the specialty businesses about where there are opportunities to grow and where the other markets they'd like to get into. And we just work through that in a very methodical manner.

Great. I appreciate that incremental clarification. My follow-up is just on the smaller projects, smaller customers, a lot of talk on this call about a lot of demand activity with the large. Curious what you're seeing and hearing from the smaller customers on their environment.

Yes. I think they feel good about the end markets. It's just, in general, I would say it's about where our expectations were, that, as an aggregate, the local market business has stabilized. We're not -- we don't see many markets where there's negative growth or we need to pull fleet out of because their local market is not going to be able to absorb it and they don't have a lot of projects. So we feel good about that across the board. I would continue to call that stable, which is consistent with what our expectations were for the year.

And gentlemen, it appears we have no further questions this morning. Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Thank you, operator, and thanks to everyone on the call. We appreciate your time today and I'm glad you could join us. Our Q1 investor deck has the latest updates. And as always, Elizabeth is available to answer your questions. So look forward to speaking to you all in July. And until then, please stay safe.

Operator, please end the call. Thanks.

Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised this call is being recorded. Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control.

And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC.

You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that the company's press release and today's call include references to non-GAAP terms, such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer.

I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thanks for joining our call. As you know, in 2025, we again committed to doubling down on being our customers' partner of choice. And this translates to working hand-in-hand with our customers to provide an unmatched experience across our one-stop shop of gen rent and specialty products, coupled with industry-leading technology and a world-class team.

Ultimately, this all culminates in our value proposition. which not only improves the customers' productivity and efficiency, but also positions us to outperform the market. I'm pleased that our team's steadfast dedication to this commitment in addition to an unwavering focus on safety and operational excellence resulted in another year of record revenue and EBITDA, as you saw in our results reported yesterday afternoon.

Today, I'll start with a recap of our fourth quarter and full year 2025 results, followed by our expectations for 2026, which we expect to be another year of profitable growth. I'll keep my remarks brief before Ted reviews the financials in detail, and then we'll open the lines for Q&A. So let's start with the quarter's results. Our total revenue grew by 2.8% year-over-year to $4.2 billion. Within this, rental revenue grew by 4.6% to $3.6 billion, both fourth quarter records.

Fleet productivity increased by 0.5%, contributing to OER growth of 3.5%. Adjusted EBITDA came in at $1.9 billion, resulting in a margin of 45.2%, and finally, adjusted EPS came in at $11.09. Now let's turn to customer activity. We again saw growth across both our gen rent and specialty businesses in the quarter. Specialty continues to exhibit healthy and broad-based growth. We remain focused on expanding our specialty footprint and capitalizing on the geographic white space available.

In 2025, we opened an additional 60 cold starts, including 13 in the fourth quarter. Importantly, we remain confident that the combination of geographic expansion, the power of cross-sell and the addition of new products to our portfolio will enable us to continue growing our specialty business at a double-digit rate for the foreseeable future, while also expanding our competitive moats and providing attractive returns. By vertical, our construction end markets saw growth across both infrastructure and nonresidential construction, while our industrial end markets saw particular strength within power, Similar to last quarter. Data centers and power were drivers of growth, but certainly not the only ones.

Our project pipeline is larger than ever. And we saw new projects kick off across healthcare, pharmaceuticals, and infrastructure to name a few. Now turning to the used market. We sold $769 million of OEC in the fourth quarter at a 50% recovery rate. For the full year, we sold slightly less than we set than we originally forecast as we held on to some high-time assets to meet demand. Importantly, the demand for used equipment remains healthy. For the full year, we spent nearly $4.2 billion on a combination of maintenance and growth rental CapEx, which resulted in a free cash flow generation of $2.2 billion for a free cash flow margin of 14%.

I'll say it again as I do every quarter. The combination of our industry-leading profitability, capital efficiency and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle and in turn, allocate that capital in ways that allow us to create long-term shareholder value. In 2025 specifically, we allocated capital as we always do, first by funding organic growth and then complementing this with inorganic growth.

We then return our remaining cash to shareholders. In 2025, we returned nearly $2.4 billion of excess cash flow to shareholders through a combination of our share buybacks and our dividend. Looking forward, I'm pleased to share that we plan to repurchase $1.5 billion of shares in 2026 and to increase our quarterly dividend by 10%, reflecting our third consecutive annual increase since introducing our dividend in 2023. Now let's turn to our 2026 guidance, which implies total revenue growth ex use of over 6%. This is supported by customer sentiment indicators, solid backlogs and most importantly, feedback from our field teams. In many ways, we expect the construct of demand in '26 to be similar to last year. with large projects and dispersed geographic demand, driving most of our growth.

We will remain focused on capital efficiency, but repositioning costs will likely remain elevated. Having said this, we're very aware of the importance of profitability and margins. Our guidance, which implies flat margins at the midpoint ex the benefit of the H&E termination fee last year. embeds cost actions were proactively taken to improve our efficiency and support profitability.

We all know yesterday's touchdowns don't win tomorrow's Games. Our culture have always wanted to do more and never being satisfied with the status quo is in our DNA. This was on full display a few weeks ago when we held our annual management meeting in St. Louis. We brought together almost 3,000 team members to both celebrate our wins and to find new ways to be an even better partner to our customers as we look to outperform the end market, while having an even greater focus on efficiency and profitability.

We have an incredible team at United Rentals with a culture that is unmatched in our industry. This is a real differentiator and gives me confidence we can take our momentum and continue to build the best-in-class company. I'm proud to say that the team walked away from the meeting is energized and ready to deliver on the expectations our guidance reflects. In closing, I'm excited for what lies ahead for United Rentals.

Our team puts customers at the center of everything we do, which positions us well in both the short and long term to capitalize on the opportunities ahead of us and to continue to outpace the industry. Our strategy, business model, competitive advantages and capital discipline allow us to generate compelling shareholder returns for the long term. And with that, I'll hand the call over to Ted, and then we'll take your questions. Ted, over to you.

Thanks, Matt, and good morning, everyone. As Matt just shared, we were pleased with a number of our achievements in 2025, including full year records for total revenue, rental revenue and EBITDA, strong free cash flow and attractive returns. As we navigated through some of the unique dynamics woven into the current demand backdrop. Looking more closely at the fourth quarter, we were pleased with our core results, which were partially offset by a shortfall in used volumes and some choppiness in our matting business which I'm sure we'll talk more about this morning.

So with that said, let's dive into the numbers. Rental revenue increased $159 million year-over-year or 4.6% to a fourth quarter record of $3.58 billion, supported again by growth from large projects and key verticals. Within this, OER increased by $97 million or 3.5%, driven by 4.5% growth in our average fleet size and fleet productivity of 0.5%, partially offset by some fleet inflation of 1.5%. Also within rental revenue, ancillary and re-rent grew by over 9%, adding a combined $62 million as ancillary growth continued to outpace OER.

Moving to used, we generated $386 million of proceeds at an adjusted margin of 47.2% and a 50% recovery rate on $769 million of OEC sold. This brought our full year OEC sold to $2.73 billion, up slightly from 2024, but a bit below our guidance of $2.8 billion as we held on to high-time used fleet in certain categories.

Taking a step back, at this point, we think the used market is normalized coming off the extremes we saw in 2022 and 2023, And we do expect 2026 to see healthy demand. Importantly, though, we're at recovery rates that will continue to support strong unit economics across the life cycle of our fleet. Turning to EBITDA. Adjusted EBITDA came in at $1.901 billion with a $33 million increase in our rental gross profit dollars more than offset by a $39 million decline in used gross profits due primarily to the shortfall in volumes that I mentioned.

On a dollar basis, SG&A ex stock comp was flat year-on-year, translating to a 20 basis point improvement as a percentage of revenue, while other non-rental lines of businesses added $7 million. Looking at profitability. On an as-reported basis, our fourth quarter adjusted EBITDA margin was 45.2%, implying 120 basis points of compression or 110 basis points, excluding the impact of used. We continue to see the same market and margin dynamics play out in the fourth quarter that we experienced all year.

From a cost perspective, the biggest disease was again elevated delivery expense, driven largely by fleet repositioning costs, which we'd estimate provided roughly 70 basis points of headwind in the quarter. Beyond that, growth in ancillary is roughly another 20 basis points of headwind, while we also continue to manage through above-trend inflation in a few notable areas, including facilities and insurance.

As you heard from Matt, we expect the demand construct in 2026 to look similar to 2025. We expect that most of our growth will again be led by large projects at the same time that our strategy to provide products and services to our customers is likely to drive out growth in ancillary revenues. With that said, our entire team is working hard to mitigate the headwinds this presents to overall margins as strategically, we continue to believe that providing our customers with these additional services is an important competitive advantage and helps drive higher OER growth.

Shifting to CapEx. Fourth quarter gross rental CapEx was $429 million, bringing our full year total to $4.19 billion. Moving to returns. Our return on invested capital of 11.7% remained comfortably above our weighted average cost of capital. And turning to free cash flow. We generated $2.18 billion, translating to a healthy free cash flow margin of 13.5%. Our balance sheet remains very strong with net leverage of 1.9x at the end of December and total liquidity of over $3.3 billion.

This was after returning $2.4 billion to shareholders during the year, including $464 million via dividends and $1.9 billion through repurchases. Combined, this equated to a little better than $37 per share. Now let's shift to the updated guidance we shared last night, which reflects our confidence in delivering another year of solid results.

Total revenue is expected in the range of $16.8 billion to $17.3 billion, implying full year growth of 5.9% at midpoint. Within this, I'll note that we're guiding use sales to roughly $1.45 billion on OEC sold of around $2.8 billion, implying total revenue growth ex use of 6.2% at midpoint. Our adjusted EBITDA range is $7.575 billion to $7.825 billion. Excluding the H&E benefit in 2025, this implies adjusted EBITDA margins of flat at midpoint year-on-year.

Importantly, this guidance embeds actions we will be taking in 2026 to offset the cost dynamics I mentioned earlier and speaks to our focus on protecting margins as we work through some of the unique factors facing us until local markets rebound. And from a cost perspective, we're better able to leverage the efficiencies that our network density will provide. On the fleet side, our gross CapEx guidance is $4.3 billion to $4.7 billion, an increase from 2025 of approximately $300 million at midpoint. This reflects our confidence in the market in 2026 and beyond.

Net CapEx is expected in the range of $2.85 billion to $3.25 billion. Now within all of this, we tag our 2026 maintenance CapEx at around $3.4 billion implying growth CapEx of roughly $1.1 billion at midpoint. And finally, we're guiding to another year of strong free cash flow in the range of $2.15 billion to $2.45 billion. Shifting to capital allocation. As always, our priorities to fund profitable growth, whether it's organic or through M&A. Following this, we focus on deploying surplus cash flow in ways to maximize shareholder returns.

With that in mind, we are again increasing our quarterly dividend per share by 10% to $1.97, translating to an annualized dividend of $7.88. Additionally, we intend to repurchase $1.5 billion of common stock in 2026, supported in part through our new $5 billion share repurchase program that is intended to enable buybacks for the next several years. So in total, we intend to return roughly $2 billion to shareholders this year, equating to approximately $32 per share or a return of capital yield of about 3.5% based on our current share price.

So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

[Operator Instructions] We'll go first this morning to Steven Fisher of UBS.

I wanted to just ask you, Matt, maybe a bigger picture question on ancillary services. using the, I guess, the baseball innings analogy, where do you think you are on the evolution of this? Is this sort of like the second or third inning where you have a much wider breadth of services left to offer here? Or are we more like kind of 6 to seventh inning and it's a more targeted list. And I guess what's the message around the ROIC on these additional sources of EBITDA and points of customer service.

Sure, Steve. It would be hard for me to characterize because I don't know what other products or services will add in the future, right? It depends on -- because we need to do them at scale. So it depends on finding if we're going to add additional services to the portfolio. which usually come along with products, right, new products that we're offering, when or how fast that's going to happen.

But I will say that our goal overall is to continue to have as many solutions for the customer as possible. We're a big believer in a one-stop shop. We know that our partners want someone that could do as much for them as possible to consolidate their vendor base and to have strong services throughout the network of what they need, and that's going to be our driver. As far as the ROI on the -- just 1 thing to remember, although these may be margin dilutive, most of these services, if not all, are not capital intense.

So this net-net on a cash perspective, these are profitable. They just dilute margins. We're not doing work for free. But at the same time, it's very much connected to the fleet that we were in. So it's important that the more we separate ourselves by doing these extra services for the customer is a big important part of our strategy.

Very helpful. And then maybe just on M&A and the pipeline. It looked like you did some smaller deals in the fourth quarter after a quiet few quarters. Can you just talk about kind of what you added in the quarter? And then just curious how active the pipeline is, Did you continue any activity here in the first quarter? And what's sort of the range of size of deals you consider here? Are there any chunkier deals that you could still do?

Yes. So on the latter part of your question, The pipeline is pretty robust. And there are some chunky deals in there, right, specifically when we're looking at opportunities in specialty. But the deals that we did at the end of the year here in '25 were 3 small deals to your point. We did 1 trench deal. We did a portable sanitation deal, a very small 1 to help fill out the footprint. And we did fill out a -- we bought an aerial company in Australia to fill out that product offering, which will help those folks continue to serve more -- have more solutions for their customers there.

But no impact -- not a large impact numerically, but strategically, they all tie in. And as far as what we're going to do in '26, we worked a very robust pipeline this year. We didn't get -- we got 3 over the transfer at the end. It's really more about finding the right fit, finding the right partner. And at the end of the day, the math's got to work. So we're pretty pick there. but there's plenty of opportunity. It just -- it's got to fit for us strategically and financially.

We'll go next now to Jerry Revich of Wells Fargo.

Ted, I'm wondering if you wouldn't mind unpacking the comments you made within specialty. You mentioned there's some variance in portfolio on matting. Can you just talk about the growth trajectory for the businesses, which ones are tracking better? And any additional color you want to provide on matting would be helpful.

Yes. Yes, absolutely. Thanks for the question. So we saw broad-based strength in specialty again, matting was affected in the quarter by pushout really 1 particular project that we'd expect it would benefit the fourth quarter. It's a large pipeline project that simply has been pushed out. So we've got the matting contract, we're going to be on it and the pipeline itself is moving forward. But that was certainly something that we had not expected, and that's just the nature of some of the large projects they do.

I'd say, in their specific verticals that can move. Otherwise, every vertical is up in specialty, very pleased with the results. And going forward, just as you think about matting, on a pro forma basis, that business was up 30% for us in '25. It was up 55% as reported. When we bought that, we said our goal was to double the business within 5 years. And we're very happy to report that we're ahead of plan, and we've been very happy with the business.

It's going to be a little lumpier, right? And they can have just the effect of timing shifts. And that's really what you saw in the fourth quarter. But as I said, we've been super pleased with the acquisition and the growth, the returns that, that's providing and we're really optimistic with the outlook there. both within their kind of core products or end markets, pipelines and transmission lines, but also as we extend those products into other verticals. Matt, would you add anything?

No, well said. The team is doing a good job just a little lumpier than what you folks used to seeing from us. .

Okay. Super. And then can I ask in general rental, we're seeing really strong demand for earthmoving equipment, but aerials really lagging. Is that a function of the large projects and data centers being less aerial intensive? And curious if you're seeing based on your customer checks and inflection in starts and retail and office that could be interesting as we head through '26. Curious what you're seeing on those fronts.

Yes, we're actually not experiencing that, Jerry. We've been pretty strong in our aerial usage and growth and really the whole project product portfolio has been strong. So we're not seeing a delineation there separation between the dirt and the aerial may on the OEM side, there's some stuff going on that you're referring to, but we're not seeing it in our customers' demand needs. .

And then, Jerry, in terms of your question about kind of office and retail, I can't -- I mean there are projects that kind of come across the transom. I don't think we've seen any inflection. I would say, overall, the outlook for commercial is probably going to be relatively muted. And it's other areas of the nonres that are really going to drive -- continue to drive what we think will be strong growth. .

Lets now to Angel Castillo with Morgan Stanley. .

This is Oliver on for Angel today. I was just curious on fleet productivity. Can you guys talk about what drove the year-over-year improvement this quarter? And if it's possible at a high level, what your outlook implies directionally for those factors, rate and time for 2026?

Sure, Oliver. So when we look at the 0.5 fleet productivity in Q4, there's a couple of things that I know we need to handhold here because some things that aren't apparent to you guys. So qualitatively, when we think about the construct of that, our full year fleet productivity was 2.2%. We're very pleased with that. That shows that we're outpacing the inflation. And just in the most simple terms, we're growing our rent revenue faster than we're growing our fleet. That's really what we're measuring here. .

In Q4, we had some impact. So if I think about the 2.0 that we had in Q3, which was more like a full year number versus the 0.5% in Q4, When I look at the factors, rate was positive. As a matter of fact, almost on top of each other of the benefit that we had from rate in Q3 versus Q4 in this were exactly the same. Time was slightly less positive than we had in Q3. So that was a little bit of a drag. The big number here and why we're talking about it is mix.

So just the matting choppiness that Ted talked about, which is all bulk, that's why it shows up in mix. Those aren't serialized assets for those mats. That alone change from Q3 to Q4 was worth a point of fleet productivity. So that's the big mover there. We usually, frankly, wouldn't talk about an individual business segment. But we understand that this is unique and in such a needle mover that we wanted to talk about it. Once again, pleased with the Manabusiness, but that lumpiness and because it's all bulk had a big negative mix impact on our fleet productivity, Otherwise, we would look much more similar to our full year and our Q3 numbers.

Got it. Understood. That's really helpful. And then maybe just 1 more switching gears on competitive dynamics. I mean we were just curious, if you've seen or heard any changes on the ground in terms of having a competitor recently IPO, whether that's potentially a positive or negative impact for you guys now and also longer term? .

Yes. So a little bit of different, right? As you can imagine, between Wall Street and Main Street here. That change of where they get their funding doesn't really change anything on the street. We think the supply-demand dynamics are good. We think that's why you had asked earlier about what's implied. That's why we -- in our guidance. That's why we still expect to have positive fleet productivity. And next year, we understand the competitive nature of the industry, but we think the important part of it and probably be in public will help that even more. We think the most important part of it is that the industry needs to continue to be disciplined because we've all absorbed price increases on fleet for the past few years.

So the importance of the components of fleet productivity are still important, getting good utilization getting strong rate improvement. These are all things that are must for the rental industry and certainly something that we are focused on, and we believe the industry is as well.

We go next now to Jamie Cook with Truist.

This is actually Kevin Wilson on for Jamie. I wanted to ask about cold starts. I think you're expecting 40 specialty cold starts in 2026, which is healthy, but down a bit from the number you had 2025 and 2024, Wondering if you could speak the strategy there and just your strategy around the footprint over the medium term in the context of revenue growth coming from more geographically dispersed customer demand, maybe where you're finding the strongest opportunities for organic growth anything on the verticals within specialty you're targeting for those cold starts this year?

All right, Kevin. So I'll take them 1 piece at a time here, and you'll have to remind me later, if I forget. So the cold start specifically -- that's okay. The cold start specifically, we don't really look at these -- we tell you about them on a calendar year, but I wouldn't read anything into the 40 versus 60. I think we originally targeted 50 for 2025 and the team got ahead in the pipeline, but there continues to be a pipeline of markets they want to enter.

And where that number ends up has to do with where do they find the right real estate and talent to open it up. And most of this is continuing to expand our one-stop shop, right? So most of these cold starts are in specialty offerings, filling in the white space, specifically for 1 of the -- some of the new product lines. So we feel really good about that. As far as where is the organic growth coming from and we think about -- it's all the end markets we've talked about. We believe that the construct, as Ted had said earlier, of demand in 2026 is going to be similar to what it was in '25 where the large projects and specialty are going to drive most of the growth.

We think that plays into all of our product lines. That's the whole point about the one-stop shop offering, is that's going to create growth for gen rent and specialty. And outside of that in the verticals, it's the same stuff you guys would see ours still really strong. Nonres has been very resilient, strong even if you pull data centers out of nonres, it's still positive strong. So we feel really good about that. And the ones that are still dragging would be the residential, which is not a big part of our portfolio. And a little bit of petrochem, whereas I think you see the rig count in Q4, if I believe my memory is correct, was down 8%. So outside of that, there's nothing specific to call out.

That's helpful. And then just a follow-up on that with the growth coming from large projects. I guess like what can you -- what's embedded in the revenue guide in terms of local market demand? Can we still call that flattish, which is, I think, what you said last quarter? Or just what's your level of visibility.

Yes, you're on it, Kevin. We still think that's -- it will vary market by market. But overall, in generality, we'll call that flattish and with most of the growth, as I said in my opening remarks, coming from the big projects, that pipeline is as big as it's ever been in my 35 years. So it's going to be more of the projects and this is not contemplated a big rebound in the local markets. But to be fair, not the deterioration as well. We think steady as she goes in the local market.

We'll go next now to Kyle Menges with Citigroup.

This is Randy on for Kyle. You guys mentioned that you guys alluded to another strong year of growth in large projects. I mean, I'm just wondering, based on your recent conversations with customers and what you're seeing in the market. And your in mind what inning do you think we're in, in terms of this mega project spend? I mean it sounds like it's going to be strong this year is -- pretty strong this year. more of a longer-term outlook would be super helpful in terms of how spend could go over the next couple of years?

Yes, I'll start there, Randy. I'd say the outlook for the so-called mega projects is very healthy. It's certainly hard for us to judge what inning we're in, but we certainly don't think it's late earnings. And we base us on a lot of things. But frankly, we've got a pretty broad assortment of drivers within large projects.

So we've talked about infrastructure. We've talked about stuff within technology. We've talked about power, certainly data centers. But at this point, we're kind of following, call it, 6, 7 or 8 tailwinds that we've been talking about for years. And when you aggregate the dollars that are expected to be invested in those areas, we think there's a very healthy amount of runway ahead of us.

Got it. That's helpful. And then I guess just in reference to some of the cost actions that you mentioned in your prepared remarks offset some of the headwinds this year. Can you just give us some color on some of those actions you're taking and what you might expect us to contribute to margins this year?

Yes. So we probably won't call it the contribution, but it's all embedded within the guidance. But what we're -- 1 of the areas you could imagine we're really focused on as we've talked all year about these repositioning costs. Well, if large projects are going to keep driving the growth. We're still going to have those, but we've got a lot of actions in place, how can we mitigate those? How can we do it better? We can't eliminate them. It's part of driving great fleet efficiency and fleet productivity is moving those assets to places where the work is.

But we're going to -- we've got more eyeballs on it and we've put some more tools in place. And then just any other hard cost actions we could take to help the team. So we'll talk about that as we achieve them as we go along. But we feel good that we've got an action plan in place to protect our margins and to make sure regardless how demand shows up. we -- as we said earlier, we believe in profitable growth, not growth for growth's sake, and we're going to make sure the team is focused on protecting margin here in '26.

We'll go next now to Tim Thein with Raymond James.

Tim on for Tim here. So a question on the fleet productivity discussion earlier, I guess, kind of another reminder of the some of the challenges of interpreting that number from the outside. But just is it -- and maybe I missed it earlier, but in terms of the plan for '26, just in terms of how you see the year playing out, It still met the expectation that your ability -- or you have the ability to outgrow that assumed inflation. Is that within the targets for '26?

Yes. Yes, embedded in that guidance is that expectation that we'll at least reach that 1 hurdle. And where we end up in the guidance and where we end up on that, will that deconstruct revenue will be the answer. We might have some lumpiness not -- hopefully, not as severe in Q1 still with the mix. And that's why we don't really forecast this because the mix is a wildcard, right? That's the result of a lot of moving pieces there. So -- but the most important pieces of it, rate and time, we still feel good about.

We may not have a huge time improvement, but we're running at really high levels of time utilization. So we'll stay tuned there, but we certainly continue to focus on rate and mix will be what it will be. And we think at the end of the day and embedded in this guidance so that will be positive fleet productivity to make sure we can offset that inflation.

Got it. Okay. And then just in terms of the -- your plan on fleet loadings and just CapEx in '26 from a timing standpoint, just given pull forward a little bit more CapEx in the 4Q. Does that impact the timing in terms of how you expect to land that fleet in '26? Or is it more of a normal cadence...

Yes. I'd say more than normal cadence, Tim, I'd say the -- in that 15% to 20% range in Q1, in the middle quarters, it will vary depending on how fast we're getting deliveries and how good the team is doing, driving utilization, but we'll be in that 70%, 75% range and then the balance in Q4. So pretty similar to what we've been doing. .

We'll go next now to Ken Newman of KeyBanc Capital Markets.

Maybe just start off, Ted, I think you mentioned in your prepared remarks having to hold on to some high time equipment, which impacted us sales volumes this quarter. Could you give a little more color on that? And just what exactly were those categories kind of reflecting?

Yes, absolutely. So as you saw in our guidance, we initially expect or what we've consistently said is we expected to sell about $2.8 billion of OEC across the year, and we came in at about 2.73%. So you can see that shortfall really was in the fourth quarter specifically. And we had a number of regions that just ran busier with certain high-time assets. So you would think things that might reach high in the air. So it could be aerial products, telehandlers, things of that sort, would probably be the most notable categories. And so obviously, those things were on rent. We weren't going to pull them from customers to sell them. And so that really kind of explains the deviation in terms of the used mess.

Got it. Okay. And then maybe just for my follow-up, I just wanted to circle back to the margin guide. It sounds like you expect some of these cost actions that you're implementing to help offset the ancillary and delivery mix as we go through the year. Just any help on how to think about the margin progression? Is that something that you expect to take in place more materially in the back half? Or just -- is this going to be something that you expect day 1 here in the first quarter?

Yes. To your point, it's something that will progress. This isn't going to be a light switch. And specifically, when you think about some of the mitigation and repositioning costs, just by definition, more of that will happen when we have more activity. So in our peak quarters of volume is when the opportunity is. But then even some of the other costs that we're taking out, it will build up along with when the costs are usually achieved, so to speak or actually not achieved. So we'll still have some noise here in Q1. And then as we work through the year, we believe we'll start to see the benefits of some of these actions.

We'll go next now to Steven Ramsey of Thompson Research. .

Wanted to touch on the growth CapEx number of $1.1 billion, I believe you said for the year. Maybe to remind us how that compared to 2025 and if the nature of the growth CapEx this year is similar to '25?

Yes. So if you look at what we did in 2025, total CapEx was, call it, with rounding $4.2 billion. Within that, there was probably something like $3.4 billion of what we could call maintenance. So that would imply something on the order of $800 million, $900 million of growth CapEx in the year. So I think in my comments, I mentioned there's an additional $300 million of growth CapEx. That will really focus on 2 areas. One is continuing to drive the growth in specialty and then taking care of large projects where we're going to need more fleet. Matt, anything you'd add there?

No, I think that covers it.

Okay. That's helpful. And then 1 other thing. I wanted to get some insights on the ancillary piece and if you are intentionally trying to drive this revenue on the ground and incentivizing it with the sales force or how much of that is a function of specialty having higher ancillary revenue that carries with it .

Yes. No, this is much more of a response to what the customers' needs are. And for some of it, it's actually set up. So think about if we're doing setup for a job trailer or some kind of set up for a power or HVAC setup. So a lot of this stuff comes with products that we're supplying and it's just the need that the customer has where they'd like us to do it for them versus doing it themselves. So it's not really -- it's certainly not something that's driven by the sales team. This is driven by the needs of the customer, along with the products that we're serving them with..

We'll go next now to Neil Tyler with Rothschild & Co Redburn.

I wanted to come back to the margin drag from the transportation cost. And just so to think about that bigger picture, Ted, I think you said it was 70 basis points in the fourth quarter. and it's really started to feature more significantly in the second half. So there's 2 parts to the question. Firstly, is there any aspect of these additional costs that reflects the change in the fleet being more specialized and so perhaps less fungible. I think you're probably going to cover that 1 off quite quickly.

But the second part of the question is in the context of what you assume for flattish local small project growth, if that proves a little conservative in the back half of the year, particularly, would we -- should we expect the margin drag from transportation costs to disappear as a sort of natural effect of a pickup and a more broad-based acceleration in demand growth?

Sure, Neil. So I'll take the first part first. From a fungibility of fleet, this is not a fleet composition dynamic. There may be some exceptions to that, right? Some specific assets that you might need to move for an LNG plant that's unique. But for the most part, 95-plus percent of our fleet is extremely fungible. And that's a big tenet of our business model and how we believe in. We don't really get into unique one-off kind of serving 1 end market products because the lack of fungibility and then, therefore, productivity you can drive out of it.

And your point about the local market is a great one. But I wouldn't call it conservative. The way we see today, we do not expect there to be a big growth in the local market. If that changes we will react as always. But when it does, that will allow us to use the density of our network, right, our entire cost structure to help drive growth, and it will be more efficient as opposed to having to reposition fleet and some of the stuff that comes with mobilizing to these large projects. So your thesis, we agree with 100%. We don't expect that local market repair, it's not embedded in our guidance for 2026.

We'll go next now to Scott Schneeberger with Oppenheimer..

Just a quick follow-up first on on free productivity, you mentioned the matting was a whole point that impacted the fourth quarter on a delay. Is that something that's going to appear as like an outstanding or unique free productivity impact in first quarter? Or is it a push out a little bit farther? Just anything we should look at that would be abnormal in that first quarter.

It's abnormal. Could we get some of that in Q1? Yes, we could. It depends on when these projects actually mobilize right? It has -- some of these large projects do have a big impact. But -- so once -- as I said earlier, we don't forecast the quarters because that mix component is so volatile. I think more importantly, for the full year, which is what we buy the fleet for and what we measure fleet productivity on, we do expect to have positive fleet productivity. And I expect it to be positive in Q1 just may not meet to our expectations and time will tell we could get us priced, things mobilize quickly. So we're not as focused on the quarters there as much as we are making sure full year. The fleet that we're spending on the CapEx on is bringing us the returns, and we're utilizing it in an efficient, profitable way.

And then just on -- you guys speak often to technology investments often in the same breath as cold starts. Just curious, obviously, it's embedded in this guidance you provided for 2026 but what are some of the technology investment focuses that you've had in recent years? How is that going to look different in 2026? Is that budget going up or down within this implied guidance?

Yes. Definitely, technology spend will be up in '26 versus '25, I think, like a lot of companies. We're investing in a lot of different opportunities and initiatives. Some I would describe as more elective and some are critical. So we continue to try to leverage more and more technology to drive greater operating efficiency. So we've got a number of projects that would be designed to help with fleet efficiency, frankly, with repositioning costs and delivery costs. There's other things that are mandatory like cyber and protection. So there's a lot of stuff that we're investing on that all of which we're excited about the ROI on it? Or is critical like anything defensive like cyber. Matt, anything you'd add there?

No, no, I agree. .

And gentlemen, it appears we have no further questions today. Mr. Flannery, I'd like to turn the conference back to you, sir, for any closing comments.

Great. Thanks, operator, and thanks to everyone on the call. We appreciate your time. Glad you could join us today. Our Q4 investor deck has the latest update. And as always, Elizabeth is available to answer any of your questions. So until we talk again in April, please stay safe. Operator, you can now end the call.

Thank you, Mr. Flannery, and thank you, Mr. Grace. Again, ladies and gentlemen, this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, and welcome to the United Rentals Investor Conference Call. Please be advised this call is being recorded.

Before we begin, please note that the company's press release, comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected.

A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2024 as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.

Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer.

I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Thank you, operator, and good morning, everyone. Thanks for joining our call today. I apologize in advance for my voice. As I'm fighting through a little cold here, but I'm sure we'll get through it okay.

Yesterday afternoon, we were pleased to report our third quarter results. The hard work of our nearly 28,000 employees enabled record revenue and adjusted EBITDA. The year is playing out better than we originally expected our updated guidance reflects the demand environment we continue to successfully serve. In short, our unique value proposition, experience, and ability to support a broad range of our customers' needs distinguishes us from the competition.

Last quarter, I spent a lot of time on the road visiting branches, job sites and meeting with customers. And while this is nothing new. It did make the quarter's results and our subsequent guidance update, no surprise from my perspective. Our branches are very busy, and the team is working hard to serve customer demand. Our people are true differentiators in the rental industry and their professionalism and knowledge, their expertise and their commitment day in and day out shows.

We often talk about putting the customer at the center of everything we do as it feeds our flywheel of growth. Without the dedicated United Rentals team members safely executing our customer-centric model, we could not generate the success we continue to deliver. And from where I sit today, I expect this momentum to carry into 2026.

In the third quarter specifically, we again saw growth across both our General Rental and Specialty businesses with optimism from the field and our customer confidence index, reinforcing our expectations going forward. The demand for used equipment also remains healthy.

Now with that said, let me get into the review of our third quarter results and our updated 2025 guidance. And then Ted will review the financials in detail before we open the line for Q&A.

Let's start with the quarter's results. Our total revenue grew by 5.9% year-over-year to $4.2 billion. And within this, rental revenue grew by 5.8% to $3.7 billion, both third quarter records. Fleet productivity increased 2%, contributing to OER growth of 4.7%. Adjusted EBITDA increased to a third quarter record of over $1.9 billion, resulting in a margin of 46%. And finally, adjusted EPS came in at $11.70.

Now turning to customer activity. And as I mentioned, we saw growth across both our Gen Rent and Specialty businesses in the quarter. Specialty continues to post double-digit increases with rental revenue up 11% year-over-year driven by growth across all our product offerings and an additional 18 cold starts. Year-to-date, we've opened 47 cold starts as we continue to fill out our specialty footprint. We see this combined with the power of cross-sell and the addition of new products to our portfolio as critical points of competitive differentiation, which benefit our customers while also providing important drivers of long-term growth.

By vertical, our construction end markets saw strong growth across both infrastructure and nonresidential construction, while our industrial end markets saw particular strength within power. We continue to see new projects kicking off. And while data centers are certainly 1 area of growth, we also saw new projects across infrastructure, semis, hospitals, LNG facilities and airports to name just a few. Our end market exposure by vertical is intentionally diversified and our equipment is fungible to ensure we can serve demand no matter where it presents itself.

Now turning to the used market. We sold $619 million of OEC at a recovery rate of 54%. The demand for used equipment is healthy, and we're on track to sell approximately $2.8 billion of fleet this year. As I mentioned in my opening remarks, the year is playing out better than we initially expected. To meet this demand, we spent nearly $1.5 billion of CapEx in the quarter and now expect to spend over $4 billion on fleet this year. This positions us not only to capitalize on the current environment, but also for the anticipated growth in 2026. Our customers and the field remain optimistic, particularly around large projects and key verticals.

And thanks to our go-to-market approach and one-stop shop value proposition, we believe we're well positioned to be the partner of choice for these projects. Year-to-date, we've generated free cash flow of $1.2 billion, with the expectation to generate between $2.1 billion and $2.3 billion for the full year, including the impact of our higher CapEx spend. As a reminder, the combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle, and in turn, allocate that capital in ways that allow us to create long-term shareholder value.

Speaking of capital allocation, we always start with ensuring the balance sheet is in a good place, and it is. We then fund organic growth reflected through our CapEx and complement this with inorganic growth that makes financial and strategic sense. In the remainder, we returned to shareholders. This quarter specifically, we returned over $730 million to shareholders through a combination of share buybacks and our dividend. For the full year, we remain on track to return nearly $2.4 billion to shareholders.

Our leverage of less than 1.9x leaves plenty of dry powder to support disciplined M&A, where we continue to pursue opportunities to put capital to work and attractive returns. Our M&A pipeline remains robust within both Gen Rent and Specialty and across the spectrum of deal sizes. And while it's difficult to predict the timing of M&A, this is an important capability we've built over our company's history. And we'll continue to use it to enhance our business and drive shareholder value.

As we enter the final months of 2025, we're focused on execution, and delivering the results outlined in our updated guidance, including total revenue growth of 5% or 6% ex use, strong profitability, robust free cash flow and returns above our cost of capital. Although our growth is coming with some additional costs, which Ted will cover in his remarks, we're working through these challenges and are taking proactive measures, including bringing in additional fleet to help mitigate fleet movement costs.

I'm very pleased with 2025 and how it's playing out ahead of our initial expectations and see good momentum heading into next year. Based on what we see today, 2026 will be another year of healthy growth. We believe the tailwinds we've discussed throughout this year will carry over and our unrelenting focus on being the partner of choice for our customers, positions us very well to win this business and to outperform the industry.

For now, we won't get into the specifics about '26 as we're in the middle of our planning process, but we will share more details in January as we always do.

In closing, I'm pleased with the outstanding job the United Rentals team is doing to support our customers. And that's the starting point for everything we do. Not only do we have the scale, technology and value proposition to make us the preferred partner, but we have a history of execution our customers can rely on.

By working together with our customers to meet their goals to drive safety, productivity and efficiency, we ensure we build a relationship with trust that positions us to win in the marketplace. Subsequently, our strategy, business model, competitive advantages and capital discipline allow us to generate compelling shareholder returns for the long term.

So with that, I'm going to hand the call over to Ted, and then we'll take your questions. Ted, over to you.

Thanks, Matt, and good morning, everyone. As you just heard, the year continues to progress well with third quarter records across total revenue, rental revenue and EBITDA. More importantly, based both on what we're seeing and hearing from customers, we expect the strong demand to continue, which is supporting our increases in both rental revenue and CapEx guidance. More on that in a minute, but first, let's go through this quarter's numbers.

As you saw in our press release, rental revenue increased $202 million year-over-year or 5.8% to a third quarter record of $3.67 billion supported again by growth from large projects and key verticals. Within this, OER increased by $133 million or 4.7% and driven by 4.2% growth in our average fleet size and fleet productivity of 2%, partially offset by some fleet inflation of 1.5%. Also within rental, ancillary and re-rent grew over 10%, adding a combined $69 million of revenue. Consistent with our first half results, third quarter ancillary growth again outpaced OER as we continue to focus on supporting our customers.

Moving to used, we generated $333 million of proceeds at an adjusted margin of 45.9% and a 54% recovery rate, while OEC sold set a third quarter record at $619 million. Combined, these results speak to the continued strength and health of the used equipment market.

Turning to EBITDA. Adjusted EBITDA increased $42 million year-on-year to an all-time record of $1.95 billion. Within this, a $69 million increase in rental gross profits was partially offset by a $6 million decline in used gross profit dollars. SG&A increased $23 million, which is in line with revenue growth, while other non-rental lines of businesses added $2 million.

Looking at profitability. Our third quarter adjusted EBITDA margin was 46.0% implying 170 basis points of compression on an as-reported basis and 150 basis points ex used. At a high level, margin dynamics in the third quarter were similar to what we've discussed the last several quarters. This includes the impact of ancillary, the strategic investments we're making in the business and still relatively elevated inflation.

An area I might call out again this quarter was delivery, which was impacted both by higher fleet repositioning costs in support of large projects and our use of third-party outside haul to serve the stronger-than-expected demand seen during our seasonal peak.

To try to put this in perspective, our third quarter delivery costs increased 20% year-on-year versus a roughly 6% increase in rental revenue. Simply assuming that these costs increase proportional to revenue. This gap implies over $30 million of additional cost year-on-year and translates to an almost 80 basis points drag in our EBITDA margins. Now I'm sure we'll talk more about this during Q&A. But this provides a great example of the balance we are constantly managing between capital in the form of fleet and costs, both fixed and variable with the goal of serving customers as efficiently as possible.

Shifting to CapEx. Third quarter gross rental CapEx was $1.49 billion. I'll speak more to this in a moment, but this included the acceleration of some purchases to help us support the stronger-than-expected demand we are experiencing.

Moving to returns and free cash flow. Our return on invested capital of 12% remains comfortably above our weighted average cost of capital, while year-to-date free cash flow was $1.19 billion. Our balance sheet remains very strong with net leverage of 1.86x at the end of September and total liquidity of over $2.45 billion.

All note, this was after returning $1.63 billion to shareholders year-to-date including $350 million via dividends and $1.28 billion through repurchases. In total, between dividends and share repurchases, we still plan to return almost $2.4 billion in cash to our shareholders this year. This equates to a little better than $37 per share or a return of capital yield of almost 4%.

Now let's shift to the updated guidance we shared last night, which reflects our confidence in delivering another year of solid results. As you've heard us say a few times this morning, we are seeing stronger-than-expected demand. In response, we accelerated the landing of some fleet into Q3 while also raising our full year CapEx guidance by $300 million at midpoint to a range of $4 billion to $4.2 billion.

In turn, we are increasing our total revenue guidance by $150 million at midpoint, while narrowing the range to $16 billion to $16.2 billion, implying full year growth of roughly 5% at midpoint. Within this, our used sales guidance is unchanged at around $1.45 billion, which implies total revenue growth ex used of 6% at midpoint.

I'll note that the additional CapEx accounts for roughly half of the increase to our revenue guidance, given we'll only realize a partial year of OER benefit with the balance coming from ancillary. On the EBITDA side, we are narrowing our range to $7.325 billion to $7.425 billion while maintaining the midpoint of $7.375 billion.

Ahead of Q&A, I'll quickly mention that the lack of implied pull-through from this additional revenue reflects our expectation that, as I just mentioned, a portion of the increase will come from lower-margin ancillary while we also expect to manage through similar cost dynamics in Q4 and especially delivery.

Turning to cash flow. We reaffirm the midpoint of our guidance for cash flow from operations at $5.2 billion, while our revised free cash flow guidance of $2.1 billion to $2.3 billion simply reflects the additional investment in CapEx that we plan to make. Importantly, our updated free cash flow guidance does not impact our share repurchase program. I'll remind you that we intend to repurchase $1.9 billion of shares this year, which highlights our strategy of both investing in growth and returning access capital to our shareholders.

So to wrap up my prepared remarks, overall, we were pleased with how the quarter played out, especially on the demand side. And while our margins were burdened by the cost mentioned, we remain focused on supporting our customers' growth as efficiently as possible as we lean into their demand.

So with that said, let me turn the call over to the operator for Q&A. Operator, please open the line.

[Operator Instructions] We'll take our first question from David Raso with Evercore ISI.

Obviously, we have the demand positive and the cost negative here. So I just wanted to dive into the demand side first. The cadence of the CapEx, when I think about '26, and the comment you accelerated equipment for the third quarter. But just so we're clear, when you're thinking of the demand profile that you said was better than you expected, is any of this '25 CapEx increase pulling forward 2026. And if not, just thinking about the cadence of sort of the CapEx for '26, obviously, when you bring this much fleet on the third quarter, people wonder how do we go into '26 with a level of fleet just given the seasonal weakness? So that's a demand question. I'll follow up with a quick cost question.

Sure, David. I'll take that. This was not a pull forward from 2026. This accelerated CapEx in Q3 was to meet the demand that we were already seeing and to be responsive to specifically some large project wins throughout the year, but that put a little more need for fleet here in the back half. Then we let the Q4 CapEx flow through as normally would. Some of that's seasonal. And to your point about 6 all of this, although not a pull forward, is supported by being very comfortable that we expect 2026 to be a growth year, which is why we felt comfortable raising this full year CapEx.

As far as CapEx cadence for next year, we haven't finished our planning process, but you can expect there to be the standard, let's say, we're going to sell $2.8 billion, maybe a little bit more in CapEx next year. The replacement for that is going to be $3 billion, $4 billion plus depending on how much more we sell. And then there'll be growth on top of that. That's the part that we're going to work through in the planning process this year. But to be clear, we certainly expect to have some growth CapEx here in 2026. And then we'll let you know about the cadence of that as we see how the demand plays out.

Okay. And then on the cost side, I mean, it's easier for me to say, but ancillary revenues are up to close to 18% of total rental revenue. How do we think about pricing for those services? I know -- I appreciate the comment, providing those services is partly why you win more than your fair share, let's say, of the major projects. But it's it went from sort of an afterthought to, again, if you want to throw in a re-rent, it's 20% of rental revenue. So is there a way to rethink that pricing, some kind of annual contracts, something where it doesn't continue to be a drag.

And related to that, the fleet productivity number, I know you don't like going into the details, but can you give us some sense of the components of fleet productivity. Were both utilization rate up 1 up, 1 down. Just trying to get a sense of those components as we sort of push against the cost.

Yes, I'll take the latter part there, David, on fleet productivity, and then Ted can add some color on the ancillary. But on the ancillary, I do want to remind you that A big portion of this is delivery, which is basically a pass-through fuel, which is not a large markup. So there's just some things there that have historically been. And it's a fair point about the pricing. But as we think about that, and Ted can get into the detail of the math of how that impacts us, there's nothing new other than we're doing more of it as we continue to serve more products and services.

And the fleet productivity, as I stayed true to telling you qualitatively. We're very pleased with how rate and time have performed throughout the year and specifically in Q3. I would say the gap, the difference between what you saw in Q2 at 3.3% fleet productivity, and Q3 at 2% was mix. Mix was a good guide for us in Q2 and not in Q3. So we would see that as normal variability.

And it's important for us to remind you all that mix is just -- we're catching that. We're not driving that. That's a result of who you rent to, how you went to, what your rent, how long, what geography. So it's not anything that we have any capability to predict, quite frankly, because it's reactive and responsive to where the demand is. And then we just let you know that. But to be clear, rate and time are both up this year, and we feel good about it.

And on the margin side within ancillary, David, obviously, the thought there is you want to be responsive to the customers all kind of ties back to this concept of being the partner of choice. Frankly, it's hard for us to predict what that mix will look like between something like pickup and delivery or installation breakdown, setup, fueling, et cetera. The margins themselves don't fluctuate a tremendous amount, but they are what they are.

So delivery to Matt's point is probably the thinnest of that. That's really kind of just the convention of the industry. Others are certainly not going to have the kind of margins that we have in rental. But as we've said, they're definitely positive and they add GP dollars with very little capital coming along with that. So we think they benefit us both strategically and financially, but it's going to drive kind of variability depending on what that composition looks like.

We'll take our next question from Rob Wertheimer with Melius Research.

You've mentioned a few times across the call solid demand indicators kind of driving some of the CapEx move. Could you talk a little bit qualitatively about what that looks like in the field? Is this mega projects that we all knew about but are probably coming online? Is the share gain as people appreciate? Is this interest rate intensive construction having what's kind of going on?

Sure, Rob. As we've talked about really for the past year plus -- there's some feedback there from somebody. But as we talk about large projects are really carrying the ball here. So we feel really good about that. And when we asked, what surprised us, we had a higher win rate than maybe we had originally planned for, and that's what the additional CapEx was for.

As far as the local markets, the local markets, we would call flattish. It's very choppy in certain markets. There's a little bit more opportunity than others, but I'd call it net across the network probably flat on the local and really the growth coming from major projects, which are robust and we expect to do well, and I'm glad to see the teams executing on it.

And then the fleet repositioning that's been there this quarter and before, related to that shift in demand. Does that have an end date to it? Where you've kind of got stuff moved around where you want it? Or is that just a new world where projects are bigger and in different places? I'll stop there.

So part of that is think about the disbursement of revenue, right? Think about a couple of years ago when we talked about broad-based demand and our network was a real advantage for us because we could just serve more demand out of our same cost basis basically with some variable costs. Now as these major projects are throughout our network, but there are chunks of revenue that we have to move fleet to from certain places. And in many instances, has some additional cost with these mega projects of building an on-site and a support team there. So I'd say that's a dynamic and the part that surprised us the most, and we've been very upfront about this is the delivery of mobilizing that fleet to these sites. Whether they be remote or not, it's -- you're mobilizing it from multiple areas.

So that's a little bit different cost that we have to absorb that when we were spreading it throughout the network in the local markets just didn't have that additional cost burden. Outside of that, I wouldn't call out anything different. When you look at these decisions on their own, the math makes sense. They're good decisions. It's just some additional costs that you don't have to incur when you're not so weighted on the large projects.

We'll take our next question from Michael Feniger with Bank of America.

Matt, just on the local market, it seems like you're signaling 2026 as a growth year. Is that inclusive of the local market? Or is that more on the larger progress? And if we see rate cuts, is that alone get the local markets back. Historically, there's been a delay between rate cuts and construction picking up, but those rate cuts happen in deep recession. So I'm curious if you feel the feedback loop from rate cuts is a little shorter than normal in terms of when that pipeline might fill up. That's more of the second half next year type of event.

Yes. We don't pretend to know, right, how that -- and I think if you look at history, there's different outputs. So if you can't even look at history and hope it will repeat itself because it's been different during different cycles. But sentiment feels a little bit better with there being a rate cut and talk of more rate cuts, but you don't take sentiment to the bank.

Right now, we call local markets flat. We're going to go through our planning process for the balance of this quarter. That will inform our guidance. And we'll get a little bit closer to the local market as we talk to the branch managers and the district managers that are much closer to that and they'll give us their feedback on what do they think their growth potential is locally, outside of large projects.

And then we'll have a better idea, but I agree with the tone of the sentiment. We just got to see does our team think when that's going to manifest and how we're going to capitalize that growth. But we'll be excited for that to happen. We do think it's potential upside, whether that's to '26. The back half, '26, '27, we're not even sure yet. So it's something that we'll communicate when we give out guidance.

Perfect. And Matt, you mentioned accelerated the CapEx to meet the demand. Did large projects -- did you see anything that got green lit that maybe was on the fence? Or are you seeing your typical win rate starting to inch up versus prior years? And just a tag on that, Ted, if there's any way you could help quantify where you think that power vertical for you guys? How big you think that is today for you guys versus maybe where it was a few years ago?

Yes, I would just say it's -- we just had greater success and the customers that rely on us have had greater success in these large projects, and the pipeline is robust. So I would say that's what drove the extra demand. It's really just good execution from the team, and I'll let Ted talk to the power vert.

Yes, Mike, thanks for the question. So it's currently in low double digits, say, 11%, 12%. It's probably a reasonable area. And if you go back to when we introduced what we called our power vertical strategy. And just to be clear, this is really a focus on investor-owned utilities, whether it's generation, transmission, distribution. At the time in 2016, it was probably 4%. So we're probably coming up on nearly tripling that relative exposure to what we think is, at the time, we thought it would be a very large stable business it's very large. It's obviously seen a lot of investment, and we expect that to certainly continue for the long foreseeable future. So I feel like we're really well positioned there. and we've spent the better part of a decade building what we think is a lot of competitive advantages to serve those customers in that market uniquely.

We'll take our next question from Steven Fisher with UBS.

I just wanted to ask about the -- come back to the margin dynamics here. Just looking at the Q2 versus Q3 year-over-year specialty going from 220 basis points to 490 basis points headwind. It sounded like qualitatively, the drivers weren't really that different categorically, but just curious what accounts for that difference in year-over-year? Was there sort of faster growth in Yak that was driving more of that delivery impact? Or what just accounts for the 220 versus 490.

Yes, absolutely, Steve. Thanks for the question. So overall, I would say the cost dynamics within specialty and frankly, the whole business has been pretty consistent across the year. When you look specifically at specialty 2Q versus 3Q, the big difference was the increase in depreciation we had in that, and that spoke to kind of the aggressive investment we're making in Yak more than anything in matting. I mean those assets get depreciated at a far faster pace than any other asset class we have in that business. So when you look at kind of the 490 basis point decline, 200 basis points of that was depreciation, so call it 40%. The other pieces were the same things we've talked about like delivery and really ancillary being the other big piece.

Okay. That's helpful. And I think you are on track or planning to do 50-ish cold starts this year. I think you're pretty close to that already. Do you think that momentum is likely to kind of continue into the fourth quarter? And any sense of having done 70-plus last year and maybe on track for 50 plus this year, directionally, where you see the cold starts heading for next year?

So we haven't finished the planning process yet, as I said earlier, and that's where we'll make those decisions. As far as with the balance of the year, we're in a small period here in Q4. Maybe there'll be another 10 to a dozen in Q4. It really depends on the timing of if the team finds the real estate and the bodies to be able to do it. So as far as '26, stay tuned. They've executed. The teams executed real well on cold starts here in '25, and they'll propose the plans for '26 in the next 6 weeks.

We'll take our next question from Jamie Cook with Trust Securities.

I guess just 2 questions. The setup for 2026. Obviously, ancillary is just becoming a larger part of the business, it just sounds like structurally, that will be a headwind on margins. But I guess, Matt or Ted, I'm just trying to think about, obviously, you're seeing demand or demand is starting to improve or maybe your share is just improving. But I'm just wondering, the setup in 2026 with a lot of the inflationary pressures in particular with tariffs and Section 232. And you have the ancillary business becoming larger. To what degree do you think we can start to push through higher rental rates. Is the market strong enough that they could absorb that just given some of the cost headwinds that we could see continuing into 2026?

Yes, good question, Jamie. We don't want to get too far ahead of ourselves. But certainly, if you just take a step back and you decompose what's happened in 2025 as a starting point. A lot of the margin dynamics have been being responsive to customers. You touched on ancillary, but obviously, that is dilutive. And you could ask yourself why are you doing that? And again, it's to really be this partner of choice and be responsive and frankly, use that as a tool to be a better partner and take share. We think that's absolutely worked out. And while it is dilutive to margins, as we've talked about, there are a lot of benefits to it.

So how does that play out next year? Time will tell. We don't think that's a bad business. But we'll have a sense for what that's going to look like over the next 6 weeks as we get through the business planning process. Then you think about things like cold starts and investments, and I don't think anybody would dispute the logic, strategic or financial of the cold starts we're doing in specialty.

To your question on inflation, broader inflation, it's still elevated, as I said in my prepared remarks, is it going to subside in '26? Time will tell, but certainly, we are very aggressively managing our costs in any environment, but certainly in this one.

So then you come to the delivery piece. And that's obviously been kind of the biggest discrete challenge we faced this year, and that's driven a lot by being responsive to customers. That's what just helped support the demand and the growth you've seen. We're trying to figure out that piece next year, what is the growth? What does it look like from a physical footprint standpoint? And then how do we most effectively serve it.

Matt talked about the idea of managing CapEx differently such that you could mitigate some of that incurred cost moving fleet. We're working through that, but that again is being responsive to where demand is and supporting our customers. So all that is to say that we're looking at those things, they will all affect 2026 margins and flow-through. But the focus, as always, is on profitable growth. And from that standpoint, we think the team is managing the business really well.

We'll take our next question from Ken Newman with KeyBanc Capital Markets.

So maybe to follow up on that answer, that response now, Ted. I think, Matt, you mentioned growing the fleet for both stronger demand, but also maybe to better address the fleet movements. I know you don't want to talk about '26 yet, but just higher level, how do you think about balancing those 2 dynamics, right, to keep time yet strong into next year? And just how long do you think it takes to tackle some of these cost inefficiencies. And maybe to that point, do you need to accelerate cold starts in order to tackle the movements or the fleet repositioning costs?

Yes, it's a great point, Ken. And one that we're talking about. First off, and getting together with our partners, our customers and fleet planning, right, a little more accurately. But to be fair to them, these big jobs are dynamic and all of a sudden, any 50 units that we weren't given a heads up on and they need to make up. So we have a choice to make in that -- to give you that example in that instance.

So first, it starts with me challenging our team in the field, hey, let's make sure we're communicating. The earlier we know, the more efficient we could be. And then there is a component of why there are some categories in our desire to drive high time -- high fleet productivity, we've been running hot for a while, for quite a few years. There's certainly some categories that we're going hand to mouth again.

And we just got to be careful about that. So we are going to look at that. There's a balance between operational efficiency and that capital efficiency. But both are important. So that's something we'll look at as we're going through the planning process. So these are all, like I said earlier, individually, when you look at the decisions to ship this stuff through third parties, it's the right decision, mathematically.

It's just how can we avoid that incremental cost? How can we minimize it as best we can. And that's something that we'll have some learnings from this year, and we'll work on it. But that will all be embedded in our guidance for 2026. Because I don't think the dynamic of big projects carry and evolve is going to change a lot in '26. We'll see if the local market gets some more growth. But big jobs, we already have that visibility. We know that's going to be a big part of the opportunity.

Right. No, that makes sense. And then just for my follow-up, I appreciate all the color around the drags on the fleet repositioning costs. When we think about core profitability, ex some of these higher ancillary and delivery mix, is there anything -- is there any reason to think that you can't drive flow-through kind of in line with your more normalized type of margins, right? Because you're kind of signaling a growth year for next year ex some of these more volatile mix impacts. Anything to suggest that you can't kind of get back to that 40% plus type of flow-through ex those items?

I guess what I'd say is the core profitability of the business, we think, is performing well, right? And we've talked about the impact of delivery this year, which is just a function of serving our customers as efficiently as we can. And to Matt's point, it's balancing operating efficiency with cost efficiency or call it capital efficiency with margin. So we think we're doing those things well, and we think the underlying business is actually performing as expected.

In terms of what it looks like going forward, again, we would expect the core to perform well. A lot of this, and I hate to repeat myself, but it is being responsive to what customers ask of us and how demand is evolving. And so when you think about it, that again explains a lot of what we're doing with ancillary, what we're doing with cold starts.

And so I come back to what I just said to Jamie, we feel really good about that core profitability, and our goal is always to be as efficient as possible serving demand. That doesn't change. But when you look at kind of what those margins look like when we talk about updated guidance or whatever, we would say that this is really being responsive to the market itself.

We'll take our next question from Tami Zakaria with JPMorgan.

I have just 1 question. It sounds like customer demand has accelerated on the large project side. So is it fair to assume your raised equipment purchase plans would be across Gen Rent and Specialty equipment? Or is there -- are there any specific categories where you're seeing better demand?

No. I think you raised a good point. It is -- historically, we've been putting a lot more growth into specialty. And you see that in the results. This -- think about these large projects are taking our full portfolio. So the incremental investments would be more broad than maybe our earlier growth expectations of mix. So we know where the high time categories are and we'll continue to make sure that we're running a good balance of capital efficiency and responsiveness in those. So I'd say it's more looks like our overall portfolio. It's what these investments look like.

And we'll take our next question from Sabahat Khan with RBC Capital Markets.

So your earlier commentary indicated that the larger project side of the business is continuing to trend well. Some of these really took on as the IIJA really got going. I guess when you look ahead 1, 2 years, 3 years, do you think the business or the industry needs some sort of a renewal to that IIJA program? Or is the industry just generally inflecting towards these larger mega projects, just some thoughts there.

Yes, absolutely. Certainly, infrastructure broadly has been a very strong market for us. And certainly, the IIJA has helped support that. Our best sense is there's still a healthy amount of that initial or that money left. So that should support it. The thing we've always talked about infrastructure, there's certainly not a lack of demand in the sense of the need to reinvest in infrastructure, we certainly expect that, that will continue, whether it's funded by state initiatives or local initiatives or federal dollars. So we'll see ultimately what that funding looks like. But there's no question that the country on the whole needs to continue investing aggressively in reinvigorating infrastructure.

And the other thing we've talked about, just maybe as a corollary to that question is, infrastructure has been a great market for us. It's an important part of our business, but we've got a lot of these tailwinds. And certainly, we're writing a lot more than just 1 wave of infrastructure. When you think about a lot of the onshoring, a lot of the remanufacturing in the U.S. and power and other things in technology, all those come together to give us a really optimistic outlook for the foreseeable future on demand.

Great. And then just as a follow-up, I think there's been commentary in the past that it may not necessarily be a larger project, lower margin type of a setup. But as you think about larger projects becoming a bigger part of your mix, and it sounds like you're ramping up that side, you're moving fleet around to meet these large projects. Is there sort of an inflection point that you see in your business at which, look, larger projects are going to be stable at this space and now we'll get operating leverage on the sort of the cost base that we install to perhaps meet that demand that the larger customers looking for? Just any view on how -- as that business grows, is there a view on sort of an inflection point on overall margins and operating leverage?

Yes, it's a good point. What we've talked about historically is when you think about large projects versus our base margins, we have always. And still believe, by the way, that although some of those large projects do get some discount as they leverage the bulk spend with us, that we get to serve it more efficiently on site versus spreading that overall. The 1 area that has changed as it's become a bigger part of the portfolio that, quite frankly, we didn't anticipate was the repositioning of the fleet.

So it's a little bit of where the jobs are, where you're positioned, and what I said earlier, how well you can plan with the customers to position the fleet, that's going to decide that. Just to put it in context, in the relative scheme of things, we're talking about small numbers, right? You're talking about 1% of your operating costs, but it does make noise within the metrics, which is why we explain it to you all.

So even with this extra burden transportation costs, it's still relatively close to the same. It's just the challenges where the fleet is versus where the need is and how you continue to improve that operating efficiency is what will make that decision. But I wouldn't see it as terribly different even in its current environment with these extra costs because in the scheme of a $15 billion company and the cost base we have, it's not a big number.

We'll take our next question from Tim Thein with Raymond James.

Maybe just the first question is maybe for you, Matt, just in terms of the customer dialogue and what you're hearing from -- in terms of some of the national account customers, it's been a couple of months since we've had the tax reform passed. And if you -- and some of the sentiment readings have kind of been all over the board, but it doesn't seem to be much change in terms of kind of forward-looking CapEx and other growth plans. But I'm just curious, have you detected or seen any change in terms of -- again, just kind of thoughts around big project spending and now that some time has elapsed since the OBBBA has passed?

Yes. Our customers remain optimistic. And when we look at our customer confidence index, we get that feedback when we talk to our national account teams which are dealing with the largest contractors in North America, we get positive feedback, and we're getting it from the field as they're asking for more support from a fleet perspective throughout the year. So we don't see any negative trend there at all or any kind of need for a reboot of any kind of spending. And the pipeline that we have visibility to it looks pretty good for '26. And the feedback from our customers and our field teams matches that sentiment.

Okay. And maybe looking a little bit further out, the 2028 goals that you outlined at the Investor Day back in '23, you obviously wouldn't have kept it in the slides if you didn't think it was still realistic. But the elements of it is, specifically around what the implied flow-through look to be a bit more challenging. Does that -- do those targets maybe rely a bit more on M&A from here? Or maybe just kind of an update as to how we're tracking towards those. Again aspirational -- go ahead.

Yes, absolutely. So starting with the growth. I mean we feel like we're tracking well, right? We talked about this aspirational goal of $20 billion by '28. And I think if you do the simple math, you need to keep compounding something like 7%. And so we feel like that is still very much in play, I feel good with that. The margins, frankly, will be more challenging to hit that kind of roughly implied margin and the corollary to flow-through. But when we look at kind of why, there are a few things that we point to.

You mentioned about acquisitions. Frankly, acquisitions tend to pull us in the opposite direction to getting there. We've long talked about this Tim, you and I have talked about this and probably Matt and I have talked to the entire investment community about this, but acquisitions tend to be dilutive to our margins. And that's why we take the time to explain what that margin profile looks like, but we really talk about the returns and most specifically, those cash-on-cash returns because that's how we think about allocating capital.

But if you look at the acquisitions we've done since '22, they've virtually all been dilutive. That doesn't mean they weren't good deals. We would say strategically, they were all 10s, and I'd say financially, they've all been 10s but they're going to have that dilutive effect.

So just to put some numbers around that, I've looked at the math. The acquisitions probably account for 70 or 80 basis points of margin dilution since 2022 in isolation. I think if Matt and I could go back in time, we would have done every one of those deals. And frankly, we probably would have done -- we would have loved to do twice as many deals if they had the same financial profile.

But the margins are also impacted by the ancillary. This is -- if you think about that evolution of being responsive to customers and how ancillary has grown from, let's say, 15% of our rental revenue mix to now approaching the very high teens. That's probably not something we would have anticipated back then. It's had this dilutive effect. We've talked about it today. We've talked about it for a while. But again, these are really beneficial things we're doing to take care of customers to frankly use its competitive advantages over incumbents, and they've helped support the growth you've seen us achieve.

So there, again, like we would not go back and do things any differently with ancillary. And certainly, I would just say the broader inflationary environment has been worse than probably anybody expected since '22. That being said, we feel like we've managed it really well on an underlying basis. And so again, the margins, it will be a stretch. I'll say that. I don't think that surprises anybody. That doesn't mean we're not going to keep pushing for it. And it doesn't mean we're not incredibly focused on driving better core profitability of the business. So Matt, I don't know if you'd add anything.

I think that's right. It was an aspirational plan, and I think it was the right one. There's been some dynamics that have changed in the construct of the business. And we'll keep informing everybody as it goes along. So -- but we do feel good about basically the core profitability of this.

We'll take our next question from Scott Schneeberger with Oppenheimer.

A couple from me. First one is just if you could speak to -- I know it's early and you're not giving guidance for next year. But your conversations right now, it's that time of year where you're speaking with the OEMs on pricing looking forward. Just with tariffs hovering, what are the conversations like is it's going to be anticipated as a normal pace of rate increases for the upcoming year? Or might there be something that could surprise us?

Yes, Scott. As I said before, we try not to share information with our partners and suppliers on open mic, but we feel like we're in a good position. The consistency of the scale of spend that we've shown just to support our partners with, I think it's valued as much today as it ever has been, specifically in this past year. And we think we'll be in pretty good shape for purchases in '26, both from a cost perspective and from being able to support perspective. And our partners have done a really good job when you go back a few years ago when supply chain disruption. Getting back to normalized expectations, and we're very pleased with how they've responded.

Thanks, Matt. And then on the theme of the day, just want to ask the question kind of in a different way. If you have a strong demand, the seasonal uptick next year, which it looks like you are expecting with the elevated level of re-rent, ancillary and large projects and need for probably still delivery, you're addressing it with some CapEx. But -- and it's -- you guys have mentioned on these earlier questions, hey, we're going to look and see what we can do to improve. But are there some ideas with regard to relationships with transportation providers on the outside, maybe where you can get some bulk pricing? Are there operational execution initiatives that you're looking at, is one part of this question.

And then the second part of the question is, you haven't done -- obviously, H&E stepped away, but haven't done an acquisition in a while. What is the appetite there? I just heard Ted's response to Tim's question, but curious on where that may be applicable on this issue or just general appetite for M&A overall?

Sure. So on the outsourcing, we obviously already do a lot of outsourcing. And we do have some partnerships within that spend. It is something we look about -- look at, whether it's in-sourcing or outsourcing more for that flexibility. I think we lean more towards -- we seem to do things more efficiently when we can in-source, but that's a little bit harder when you're talking about some of these longer hauls. So that is something that we're wrestling with, and it's a great point, something that we're talking to people about in the space.

As far as M&A, listen, we've built a great capability throughout our history as good purchasers and good integrators. And we do feel one of our mantras is can we make this business better, when we make that decision. So we continue to work a pretty robust pipeline. We just haven't found the right deals yet. I think we did $20 million of M&A this year. We did 1 small deal.

We don't predict forecast or even planned M&A because I think that's how people end up doing bad deals. So we talk about our organic growth and we look at M&A as opportunistic. But to be clear, if we are always work in the pipeline, both in Specialty and Gen Rent, and if we find something that fills out our footprint better or a new product that our customers can rely on us for, like we've done in the last couple of big deals, matting and mobile storage, we're going to lean in. It's just a matter of finding that right deal where the -- where it meets all 3 legs of that stool we talk about of cultural, strategic and most importantly, financial.

And there are no further questions on the line. I'll turn the program back to Matt Flannery for any additional or closing remarks.

Thank you, operator. And to everyone on the call, I appreciate your time. I'm glad you could join us today. Our Q3 investor deck has the latest updates. And as always, Elizabeth is available to answer your questions. So until we speak again in January. I hope you all have a safe and happy holiday season and a happy new year, and we'll talk soon. Take care. Operator, you can now end the call.

Thank you. This does conclude today's program. We appreciate your patience. We appreciate your attendance. You may now disconnect.