Q2 2025 United Rentals Inc Earnings Call
Operator: and ask that you please continue to stand by.
Operator: Your program will begin in approximately two minutes. [music] © The University of Georgia College of Agricultural and Environmental Sciences © The Ultimate Parody Site! © The Ultimate Parody Site!
2 all sites on hold. We appreciate your patience and ask that you please continue to stand by your program will begin in approximately 2 minutes.
Operator: Please stand by, your program is about to begin.
Please stand by your program is about to begin.
Matthew Flannery: Good morning and welcome to the United Rentals. be advised.
Operator: Again, please.
Matthew Flannery: Thank you for your comments made on today's call and responses to your questions.
Matthew Flannery: Business and Operations. many of which are beyond its control, and tons. Actual results may differ materially from those projected. A summary of these uncertainties is included in the Safe Harbor Statement, contained and other positive.
Speaker Change: 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.
Speaker Change: 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.
Matthew Flannery: All rights reserved. on Form 10-K for the year ended December 31, 2024, as well as to subsequent filing.
Matthew Flannery: You can access these filings on the company's website.
Speaker Change: For a more complete description of these and other possible risks. Please refer to the company's annual report on form 10K for the year. Ended December, 31st 2024 as well as to subsequent filings with the SEC.
Matthew Flannery: UnitedRentals.org Please note that United Rentals has no obligations and makes no commitment to update or change U.S. Department of State You should also note that the company's press release and today's call include...
You can access these filings on the company's website at www.unitedrentals.com.
Speaker Change: 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.
Matthew Flannery: It's a non-GAAP term. Cash Flow, Adjusted EPS.
Speaker Change: 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 ibida and adjusted evaa.
Matthew Flannery: This is a recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable Today, for United Rentals, is Matt Flannery, President and Chief.
Speaker Change: 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
Matthew Flannery: Ted Grace, Chief Financial I will now turn the call over to Mr. Flannery. You may begin. Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we were pleased to report solid second quarter which reflected a continuation of the momentum we reported last year. More importantly, our updated guidance speaks to the confidence both we and our customers have in the remaining. Critical to the success is our team of over 27,000 individuals who focus on being the partner and live our One UR culture. This includes putting safety at the forefront of everything we do to enable us to deliver a superior value proposition and ultimately The results are shareholders of.
Speaker Change: Speaking to today for United Rentals, is Matt Flannery president and chief executive officer and Ted, Grace Chief Financial Officer. I'll now turn the call over to Mr. Flannery Mr. Flannery, you may begin.
Speaker Change: Thank you, operator, and good morning, everyone. Thanks for joining our call.
Speaker Change: Which reflected a continuation of the momentum. We reported last quarter.
Speaker Change: More importantly.
Speaker Change: Our updated guidance speaks to the confidence. Both we and our customers have in the remainder of the year.
Speaker Change: Critical to the success, is our team of over 27,000 individuals who focus on being the partner of choice for our customers and live our 1, you are culture every day.
Speaker Change: This includes putting safety at the Forefront of everything we do.
Speaker Change: To enable us to deliver a superior value proposition. And ultimately, the results are shareholders have come to expect
Matthew Flannery: In the second quarter specifically, we again saw growth across both our industrial and construction end-users. Healthy Demand for Used Equipment. and ongoing optimism from the field, which is reinforced by our customer.
Speaker Change: in the second quarter. Specifically we again saw growth across both our industrial and construction and markets.
Speaker Change: Healthy demand for use equipment.
Speaker Change: And ongoing optimism from the field, which is reinforced by our customer confidence index.
Matthew Flannery: So having said all this, today I'll review our second quarter results and touch on our updated 2025 guide. Then I'll discuss a recent win, which illustrates our strategy in the utility version. followed by a look into how our best in class telematics is helping our customers improve their own.
Speaker Change: So having said all this today, I'll review our second quarter results and touch on our updated 2025 guidance.
Then I'll discuss a recent win which illustrates our strategy in the utility vertical.
Matthew Flannery: Afterwards, Ted will review the financials in detail before we open up the call to So with that, let's start with the second quarter. Our total rental revenue grew by 4.5% year-over-year to $3.9 billion. And within this, rental revenue grew by 6.2% to $3.4 billion, both second quarter rentals. Fleet productivity increased by 3.3%, supported by disciplined adjusted EBITDA increased to a second quarter record of $1.8 billion. Translating to a margin of nearly 40%. And finally, Adjusted EPS came in at $10.45.
Speaker Change: Followed by a look into how our best-in-class telematics is helping. Our customers, improve their own productivity.
Speaker Change: Afterwards, cattle review, the financials in detail before we open up the call to Q&A.
Speaker Change: So with that, let's start with the second quarter results.
Speaker Change: Our total rental Revenue, grew by 4 and a half percent year-over-year to 3.9 billion.
Speaker Change: And within this rental Revenue, grew by 6.2% to 3.4 billion both second quarter records.
Speaker Change: Complete productivity increased by 3.3%, supported by disciplined execution.
Speaker Change: Adjusted Eva increased to a second quarter record of 1.8 billion, dollars translating to a margin of nearly 46%.
And finally adjusted EPS came in at $10.47.
Matthew Flannery: Now, let's turn to Customer Act. We continue to see growth in both our gen rent and specialty. Specialty Rental Revenue grew 14% year-over-year while opening 21 cold start. We remain on track to open at least 50. By vertical, our construction and market saw impressive growth across both infrastructure and non-residential construction. While our industrial end markets saw particular strength within power, metals and minerals, and chemical processes. We continue to see new projects kicking off, with a few recent examples including data centers, hospitals, and airports. Now, turning to the used market, we sold $600 million of OEC in line with our The demand for used equipment remains healthy, and we're on track to sell approximately $2.8 billion.
Speaker Change: Now, let's turn to customer activity.
Speaker Change: We continue to see growth in both our genre and Specialty businesses.
Speaker Change: Specialty, rental Revenue grew 14% year-over-year while opening 21 cold starts in the second quarter.
Speaker Change: We remain on track to open at least 50 this year.
By vertical our construction and markets saw, impressive growth, across both infrastructure and non-residential construction.
Speaker Change: While our industrial and markets saw particular, strength, within power metals, and minerals and chemical processes.
Speaker Change: We continue to see new projects kicking off with a few recent examples, including data centers, hospitals and airports.
Speaker Change: Now, turning to the used Market, we sold 600 million of oec in line with our expectations.
Speaker Change: The demand for used equipment remains healthy and we're on track to sell approximately 2.8 billion dollars of Fleet this year.
Matthew Flannery: In response to the continued customer demand I discussed earlier, we spent nearly $1.6 billion on rental capex in the quarter, also in line with our Specialty and large projects continue to fuel growth. And we feel that we're well positioned to serve these based on our go-to-market approach and our one-stop shop value. Subsequently, year-to-date, we've generated free cash flow of $1.2 billion, with the expectation to now generate between $2.4 and $2.6 billion for the full year, which includes the benefit from the recent changes in federal taxes. Our ability to generate free cash flow remains a distinguishing feature.
Speaker Change: In response to the continued customer demand. I discussed earlier we spent nearly 1.6 billion dollars on rental capex in the quarter. Also in line with our expectations
Speaker Change: specialty in large projects, continue to fuel growth.
Speaker Change: And we feel that we're well positioned to serve these based on our go to market approach and our 1-stop, shop value proposition.
Speaker Change: Subsequently year to date, we've generated free cash flow of 1.2 billion dollars with the expectation. To now generate between 2.4 and 2.6 billion dollars for the full year, which includes the benefit from the recent changes in federal tax policy.
Matthew Flannery: As you've heard me say repeatedly... a combination of our industry leading profitability, capital efficiency. and the flexibility of our business model. enables us to generate meaningful free cash flow throughout turn, allocate that capital in ways that allow us to create long term share in regards to capital. Our balance sheet is an X. This quarter, after funding organic. we return $534 million to shareholders through a combination of share buybacks and our dividends.
Speaker Change: Our ability to generate free cash flow remains a distinguishing feature of the company.
Speaker Change: As you've heard me say, repeatedly the combination of our industry-leading, profitability Capital efficiency and the flexibility of our business model.
Speaker Change: Enables us to generate meaningful free cash flow throughout the cycle.
Speaker Change: And in turn allocate that capital in ways that allow us to create long-term shareholder value.
Speaker Change: In regards to Capital, allocation, our balance sheet is an excellent shape.
Speaker Change: This quarter after funding organic growth.
Matthew Flannery: And for the full year, we now expect to return nearly $2.4 billion to shareholders, and Ted will get into more details in a bit.
Speaker Change: We returned 534 million to shareholders through a combination of share BuyBacks and our dividend.
Speaker Change: And for the full year, we now expect to return nearly 2.4 billion dollars to shareholders and Ted will get into more details in a bit.
Matthew Flannery: Our leverage of 1.8 remains towards the lower end of our targeted range, leaving plenty of dry powder to support growth and return excess capital to our And M&A remains a core element of our strategy, with the team focused on finding opportunities to put capital to work at attractive Now, let's turn to the rest of 2020. As evidenced by our updated Our expectations for the year at the midpoint are total revenue growth of $4.5 million. or 5% XUs with EBITDA margins north of $46,000. CapEx expectations are unchanged, while we do expect higher free cash flow as I Looking beyond 2025, we continue to focus on driving profit.
Ted Grace: Our leverage of 1.8 times remains towards the lower end of our targeted range leaving plenty of dry powder to support growth and return excess Capital to our shareholders.
Ted Grace: And m&a remains a core element of our strategy with the team focused on finding opportunities to put Capital to work at attractive returns.
Ted Grace: Now, let's turn to the rest of 2025.
Ted Grace: As evidenced by our updated guidance, our expectations for the year at the midpoint are total revenue growth of 4% or 5% xus with even a margins north of 46%.
Ted Grace: Our capex expectations are unchanged while we do expect Higher free cash flow as I discussed earlier.
Matthew Flannery: Key to this is partnering with our customers. So we're able to meet their demands and improve their own. through our one-stop shop off. The rental business is very much based on trust. And we're diligent in our approach to building this, by delivering on our Our value proposition to the customer goes beyond just equipment. We have a large and reliable enabled with technology to further customer productivity. all of which is supported by the best team in the industry. One of the vertical strategies we focus on since 2016 is utility. The acquisition of YACC last year was the perfect opportunity to marry this strategy with an addition.
Ted Grace: Looking Beyond 2025, we continue to focus on driving profitable growth.
Ted Grace: Key to this is partnering with our customers. So we're able to meet their demands and improve their own productivity.
Ted Grace: There are 1 Stop Shop offering supported by an unmatched technological capabilities. We're able to serve our customers and drive repeat business.
The rental business is very much based on trust.
Ted Grace: And we're diligent in our approach to building this by delivering on our commitments.
Ted Grace: Our value proposition to the customer goes beyond just equipment.
Ted Grace: We have a large and reliable Fleet.
Ted Grace: Enabled with technology to further customer productivity.
Ted Grace: All of which is supported by the best team in the industry.
Ted Grace: 1 of the vertical strategies, we focus on since 2016 is utilities.
Matthew Flannery: Jason Pointe. The utility verticals now north of 10% of our revenue versus 4% fewer than 10 years.
Ted Grace: The acquisition of lack of yak last year, was the perfect opportunity to marry this strategy with an additional product.
Ted Grace: Case in point.
Matthew Flannery: Just recently, a large utility customer awarded us a five-year agreement because we took the time to work with operators across functioning like we were part of their We offer a wide range of solutions the customer needed and through the power of CrossSell, now rent them products across every specialty business. Furthermore, they're now asking, how else can we partner together, which is exactly where you want to be as a value-added On the technology front, this year we continue to enhance our advanced telematic which helps customers operate even more. By utilizing the unique functionality of our telematics and total control software.
Ted Grace: The utility vertical is now north of 10% of our Revenue verse 4%, fewer than 10 years ago.
Ted Grace: Just recently a large utility customer. Awarded us. A 5 year agreement because we took the time to work with operators of their business. Functioning like we were part of their company.
We offered a wide range of solutions, the customer needed and through the power of cross sell now, rent them products across every specialty business. We have
Ted Grace: Furthermore, they're now asking how else can we partner together? Which is exactly where you want to be as a value. Added service provider.
Ted Grace: On the technology front this year, we continue to enhance our Advanced telematics offering which helps customers operate even more efficiently.
Matthew Flannery: customers can realize meaningful savings across all their complete visibility of their rentals. and aggregated information across multiple projects. optimizing consumption and productivity becomes a reality. Our capabilities also help customers reduce unauthorized equipment. and Subsequent Fuel Consumption and Overspending. Instances such as these, where we help boost productivity and budget. make us a better partner to our customers. and Enable.
Ted Grace: By utilizing the unique functionality of our telematics and Total Control software customers can realize meaningful savings across all their Fleet needs.
Ted Grace: With complete visibility of their rental Fleet, an aggregated information across multiple projects.
Ted Grace: Optimizing consumption and productivity, becomes a reality.
Ted Grace: Our capabilities also help, customers reduce unauthorized equipment, use and subsequent fuel consumption and overage fees.
Matthew Flannery: And while these are just a few examples of the things we're doing to be the partners of choice for our customers. I think they provide concrete examples of how our strategy is allowing In closing, the year continues to play out as expected, with our team doing an outstanding job supporting customers to drive profitable. business model, strategy. competitive advantages and capital will allow us to generate compelling returns for shareholders in the long term.
Ted Grace: Instances. Such as these, where we help boost productivity and budget. Efficiency, make us a better partner to our customers and enable repeat business.
Ted Grace: And while these are just a few examples of the things we're doing to be the partners of choice for our customers.
Ted Grace: I think they provide concrete examples of how our strategy is allowing us to win.
Ted Grace: In closing, the year continues to play out as expected with our team, doing an outstanding job, supporting customers to drive profitable growth.
Matthew Flannery: And with that, I'll hand the call over to Ted, and then we'll take your questions.
Ted Grace: Our business model strategy competitive advantages and capital discipline will allow us to generate compelling and returns for shareholders in the long term.
Ted Grace: Ted, over to you.
Ted Grace: Thanks, Matt, and good morning, everyone. As Matt just shared, 2025 continues to progress as expected, with second quarter records across total revenue, rental revenue, and EBITDA. Looking ahead, our updated guidance reflects a demand we see across our end markets supported by our differentiated strategy and strong execution.
Ted Grace: And with that, I'll hand the call over to Ted and then we'll take your questions, okay? Over to you.
Thanks B and good morning, everyone. As much as shared 2025 continues to progress as expected with second quarter records, across total revenue, rental revenue, and EBA
Ted Grace: So with that said, let's jump into the numbers. Rental revenue increased $200 billion year over year, or 6.2% to a second quarter record of over $3.4 billion, supported again by growth from large projects and key vertical. Within this, OER increased by $141 million, or 5.4%, driven by 3.6% growth in our average fleet size and fleet productivity of 3.3%, partially offset by assumed fleet inflation of 1.5%. Also within rental, ancillary and re-rent grew by roughly 10% year-on-year, adding a combined $59 million of revenue. Similar to Q1, ancillary growth continues to outpace OER by a healthy margin, driven largely by specialty, where value-added services are a key element of our strategy to be the partner of choice for our customers.
Ted Grace: Looking ahead, our updated guidance. Reflects a demand. We see across our end markets supported by our differentiated strategy and strong execution,
Ted Grace: So with that said, let's jump into the numbers rental Revenue, increase 200 billion year-over-year or 6.2% to a second quarter record of over 3.4 billion supported Again by growth from large projects and key verticals.
Ted Grace: Within this.
Ted Grace: Oar increase by 141 million or 5.4%. Driven by 3.6% growth in our average Fleet size and sleep. Productivity of 3.3% partially upset by soon. Fleet inflation of 1.5%.
Ted Grace: Also, within rental ancillary and rerun grew by roughly 10% year-on-year. Adding a combined, 59 million of Revenue.
Ted Grace: Similar to q1 ancillary growth continues to outpace oer by a healthy, margin driven, largely by specialty, where value added services are a key element of our strategy to be the partner of choice for our customers.
Ted Grace: According to our used results, we generated $317 million of proceeds at an adjusted margin of 48.3% and a 53% recovery rate, both of which reflect sequential improvement. Underpinning these results, we sold $600 million of OEC in the quarter, which is essentially flat year on year. Moving to EBITDA, as I mentioned, adjusted EBITDA was a second quarter record at $1.81 billion, translating to an increase of $41 million. Within this, rental gross profit contributed $86 million. This was partially offset by used, where the normalization of the used market drove the majority of the $36 million decline in used gross profit dollars.
According to our used results, we generated 317 million of proceeds at an adjusted margin of 48.3% and a 53% recovery rate, both of which reflect sequential improvements.
Ted Grace: we sold 600 million of oec in the quarter, which is essentially flat year on year,
Ted Grace: moving to Eva as I mentioned adjusted. Diva dot was a second quarter record at 1.81 billion translating to an increase of 41 million.
Ted Grace: Within this rental, gross profit contributed 86 million.
Ted Grace: This is partially offset by used where the normalization of the used Market drove. The majority of the 36 million decline in used gross profit dollars.
Ted Grace: SG&A increased $18 million year-over-year, but was flat as a percent of sales at 10.7%. And finally, the EBITDA contribution from other non-rental lines of businesses increased $9 million. Looking at profitability, our second quarter, just see if it that margin was 45.9%, implying 100 basis points of compression, including the impact of normalizing these margins. Excluding the impact of used, our second quarter margin compression was a bit better. It's 70 basis. With the usual caveat that year-over-year quarterly comparisons are always going to be subject to normal variability in general, we continue to see the same margin dynamics that we discussed.
Ted Grace: Sgate 18 million year-over-year but was flat as a percent of the sales at 10.7%.
Ted Grace: And finally, the eviebot contribution from other non- rental lines of businesses, increased 9 million.
Ted Grace: Looking at profitability our second quarter Jesse but that margin was 45.9% implying 100 basis points of compression, including the impact of normalizing used margins.
Ted Grace: Excluding the impact of views. Our second quarter margin compression, was a bit better, it's 70 basis points.
Ted Grace: The biggest of these includes the relative outgrowth of lower margin ancillary revenue versus core rental growth, which obviously has a dilutive impact on our rental margins as we've discussed the last several quarters. Our second quarter profitability was also impacted by higher delivery costs, driven largely by strong growth in our matting business and the ongoing fleet repositioning tied to the increased dispersion of growth across our footprint. Finally, and more generally, it remains a relatively inflationary environment while we continue to make important investments in areas like specialty cold starts and technology. And while these decisions do drag on margins, we view them as smart choices that both support future growth and provide attractive returns.
Ted Grace: With the usual caveat that year-over-year quarterly comparisons are always going to be subject to normal variability. In general. We continue to see the same margin dynamics that we discussed in April.
Ted Grace: The biggest of these includes the relative outgrowth of lower margin ancillary Revenue versus core rental growth, which obviously has a dilutive impact on a rental margins. As we've discussed the last several quarters
Ted Grace: Our second quarter profitability was also impacted by higher delivery costs driven largely by strong growth and our matting business in the ongoing. Fleet repositioning tied to the increased dispersion of growth across our footprint.
Ted Grace: The last thing I'll mention on the P&L side of things is our adjusted earnings per share of $10.47.
Ted Grace: Finally and more generally. It remains a relatively inflationary environment while we continue to make important investments in areas, like specialty, cold starts and technology. And while these decisions do drag on margins, we view them as smart choices to both support future growth and provide attractive returns.
Ted Grace: Shifting to CapEx, second quarter gross rental CapEx was $1.57 billion, consistent with normal seasonality. Moving to returns of free cash flow, our return on invested capital 12.4% remained well above our weighted average cost of capital, while year-to-date free cash flow of $1.2 billion keeps us on track to hit our full year target. Our balance sheet remains very strong with net leverage of 1.8 times at the end of June and total liquidity of $3 billion. All note, this was after returning $902 million to shareholders year to date, including $235 million via dividends and $667 million through share repurchase.
Ted Grace: The last thing I'll mention on the p&l side of things is our adjusted earnings per share of $10.47.
Ted Grace: Shifting to capex second quarter gross, rental capex was 1.57 billion consistent with normal seasonality.
Ted Grace: Moving to returns of free cash flow, our return on investment Capital, 12.4 remained. Well above our weighted average cost of capital while year-to-date free cash flow of 1.2 billion Keeps Us on track to hit our full year Target.
Ted Grace: Our Bounty remains very strong with net. Leverage of 1.8 times at the end of June and total liquidity of 3 billion.
Ted Grace: As you saw in our press release, supported by the strength of our underlying business and the benefits from recent tax reform, we have increased our planned share repurchases for the year by $400 million to $1.9 billion. This represents roughly 3.8% of our current market capitalization. In total, between dividends and share repurchases, we now intend to return almost $2.4 billion in cash to shareholders in 2025, according to close to $37 per share, or a return of capital yield of about 4.7%.
Ted Grace: All note, this was after returning, 902 million to shareholders, year to date, including 235 million via dividends and 667 million through share repurchases.
Ted Grace: As you saw in our press release supported by the strength of our underlying business and the benefits from recent tax reform. We have increased our plan share repurchases for the Year by 400 million to 1.9 billion. This represents roughly 3.8% of our current market capitalization.
Ted Grace: In total between dividends and share repurchases. We now intend to return, almost 2.4 billion dollars in cash to shareholders in 2025, according to close to $37 per share for a return of capital yield of about 4.7%.
Ted Grace: Now, let's shift to the updated guidance we shared last night, which reflects our confidence in delivering another year of solid results. As previously mentioned, we are raising the midpoints of guidance for total revenue, adjusted EBITDA, and free cash flow, while narrowing the ranges for both revenue and EBITDA, as we normally do at this point of the year.
Ted Grace: Now, let's shift to the updated guidance. We shared last night, which reflects our confidence in delivering another year of solid results,
Ted Grace: In terms of specific... For total revenue, we're increasing the midpoint by $100 million while narrowing the range to $15.8 to $16.1 billion, implying full-year growth of roughly 4% at midpoint. Within this, I'll note that our used sales guidance is unchanged at $1.45 billion on approximately $2.8 billion of OEC sold, implying total revenue growth ex-used of about 5%. Importantly, the increase to total revenue guidance is primarily due to stronger growth from lower margin ancillary with our underlying expectations largely unchanged as years continue to play out as expected. On Adjusted EVA.DOT, we increased the midpoint by $50 million while narrowing the range to $7.3 to $7.45 billion.
Ted Grace: As previously mentioned, we are raising the midpoints of guidance for total revenue, adjusted de and free cash flow while narrowing, the ranges for both revenue and ibaa, as we normally do at this point of the year.
Ted Grace: In terms of specifics.
Ted Grace: for total revenue, we're increasing the midpoint by 100 million while narrowing the range to 15.8 to 16.1 billion dollars in buying full year growth of roughly 4% at midpoint
Ted Grace: Within this, I'll note that our used sales guidance is unchanged at 1.45 billion on approximately 2.8 billion. If oec sold implying total revenue growth X used of about 5%
Ted Grace: Importantly the increase total revenue guidance is primarily due to Stronger growth from lower margin ancillary with our underlying expectations, largely unchanged as the years continue to play out as expected.
Ted Grace: Notably, this primarily reflects the net impact of the H&E termination benefit. As was the case with revenue, our underlying expectation for EBITDA is largely unchanged as, again, the year has continued to play out as expected. On the CapEx side, no changes with the year still expected in the range of $3.65 to $3.95 billion. And finally, we are raising our free cash flow guidance by $400 million to $2.4 to $2.6 billion, translating to a free cash flow margin of 15.7% at the midpoint of updated guidance. The increase in free cash flow primarily reflects the benefits of recently enacted tax reform, which reinstated full expensing of CapEx and thus will reduce our cash tax.
Ted Grace: On adjust Eva dot, we increase the midpoint by 50s, while narrowing the range to 7.3 to 7.45 billion dollars, notably this primarily reflects the net impact of the H&E. Termination benefits.
Ted Grace: As was the case with Revenue our underlying expectation for Eva is largely unchanged as again. The year has continued to play out as expected.
Ted Grace: On the capex side, no changes with the year still expected in the range of 3.65 to 3.95 billion.
Ted Grace: flow guidance by hundred million dollars to 2.4 to 2.6 billion dollars translating to a free cash flow margin of 15.7% at the midpoint of updated guidance
Ted Grace: As was the case with both Revenue and EBITDA, our core expectations for free cash flow are largely unchanged.
Ted Grace: The increase in free cash flow. Primarily reflects the benefits of recently enacted tax reform, which reinstated full expensing of capex and thus will reduce our cash taxes.
Ted Grace: So to wrap up my prepared remarks, overall, another solid quarter with, and I promise this is the last time I'll say it before Q&A, the year playing out in line with our expectations.
As was the case with both revenue and EA or core expectations, for free, cash flow or largely unchanged.
Operator: So with that, let me turn the call over to the operator for Q and A.
So, to wrap up my prepared, remarks overall, another solid quarter with. And I promise, this is the last time, I'll say it before a Q&A, the you're playing out in line with our expectations.
Operator: Operator, please open the line. Absolutely.
Ted Grace: So with that, let me turn the call over to the operator. For Q&A operator, please open the line.
Operator: Next time, if you would like to ask a question, please press the star and one keys on your With that in mind, you can remove yourself from the question queue at any time by pressing start. And again, it is star and one to ask a question.
David Raso: First question from David Raso with Evercore ISI. Hi, thank you for the time. I mean, it appears that the time utilization year-to-date is probably a little better than you'd say was feared six months. But the kind of capture price cost. as well as the answer. Maybe a little disappointing on the drop through on the margins.
Speaker Change: Absolutely. At this time. If you would like to ask a question, please press the star and 1 keys on your telephone keypad. Keep in mind, you can remove yourself from the question Queue at any time by pressing star and 2 again, it is star and 1 to ask a question.
Speaker Change: We'll take our first question from David Rosso with evercore. Isi, please go ahead. Your line is open.
David Raso: Can you help? about price costs for the second half of the year and the actual... a lot faster than the OER.
David Raso: And then I have a quick.
Matthew Flannery: Sure, David, this is Matt. I'll take the latter part of that question, right, and talk about the ancillary. So, when you think about everything that's in ancillary, whether that's fuel, whether that's setup and breakdown of engineered solutions, anything from power solutions to job trailers and mobile storage, right, those would all fall in the ancillary bucket. The one that we're pointing to as outsized, for lack of a better word, is a delivery, which is also an ancillary. And when you think about the first half of the year, one of the big movers there is the acquisition that we lacked in March.
David Rosso: Hi, thank you for the time. Um, I mean it appears that the time utilization year to date. It's probably a little better than you'd say, it was feared 6 months ago. Um but the kind of capturing of of inflation that price costs as well as the ancillary mix is, you know, been maybe a little disappointing on on the drop through on the margins, can you help us how you're thinking about price cost for the second half of the Year? Any actions you're taking on the cost side? You know, some of the moving equipment between branches how to maybe minimize those costs and how you think about ancillary growth versus a growth in owned equipment Fleet and the second half versus as you mentioned, right? The first half ancillary was grown a lot faster than the oer fleet, and then I have a, a quick longer term question. Uh, a after that. Thank you.
David Rosso: Sure, David. This is Matt uh, I I'll take the the latter part of that question, right? And talk about the ancillary. So when you think about everything that's in ancillaries, whether that's fuel, whether that's
Matthew Flannery: That business comes with a lot of ancillary, and specifically, a lot of delivery costs. And that's really a pass-through. So, when we think about that impact, not just on the top-line revenue, but also why you don't get a lot of margin for it, it's because it's not the way, it's not intended for that. So, it's something we're going to do for our customers and we continue to do. But you saw a deceleration of that from Q1 to Q2, as we lapped YACC.
Matt Flannery: A setup and breakdown of of um engineered Solutions, anything from Power Solutions to job trailers and mobile storage, right? Those those are all falling, the ancillary bucket. But 1 that we're pointing to, as outside, for lack, for better word is a delivery, which is also an ancillary. And when you think about the first half of the Year 1 of the big movers, there is um, the yak acquisition that we lacked in March uh, that business.
Ted Grace: And we expect as that becomes less... When you think about kind of how costs have played out, again, in line with expectations, there are a couple things that go into this. Matt touched on the ancillary, and certainly that's something we've talked about the last few quarters. That is dilutive to the margin that you see. That kind of is what it is from the standpoint of taking care of our customers, and it doesn't, quote-unquote, cost us dollars. It's a pass-through in many regards, but you do see that manifest in both margins and flow-through. Beyond that, the one cost that we have called out more discreetly, consistently, has been delivery.
Matt Flannery: Comes with a lot of ancillary and specifically a lot of delivery costs and that's really a pass through. So, when we think about that impact, not just on the top line revenue. But also why you don't get a lot of margin for it. It's because it's not the way it's not intended for that. So it's something we're going to do for our customers and we continue to do. But you saw a deceleration of that from q1 to Q2 as we lack yak and we expect as that becomes. Um, less.
Ted Grace: And I'd say within that, again, it gets to ancillary.
Speaker Change: Prevalent that that we won't have that same level of impact, and drag of ancillary in the back half of the year that's in our expectation. Uh, and and then we'll update you guys, uh, how that's come along in October as far as price costs. I, let's take that. Yeah, thanks, David. So I'd say overall, we've been pleased with how both price, which is French for rage is played out. Um, and costs in line with expectations, we continue to see very good discipline across the market, so that that's 1 of the things that's critical. Um, when you think about kind of how costs have played out again, in line with expectations, there are a couple things that go into this Matt touched on the ancillary. And certainly, that's something we've talked about the last few quarters that is dilutive, um, to the margin that you see, um, that kind of is what it is, from the standpoint of taking care of our customers. And it doesn't quote, unquote cost US dollars, right? It's it's a pass through in many regards but you do see that manifest in both margins and flow through beyond that, the 1 cost that you know we have called out more. Discreetly consistently has been delivery um, and I'd say within
Ted Grace: The other part has been that repositioning of fleet. In the quarter, we think that was probably another $15 million of moving fleet across our network to ensure high utilization and efficient capital utilization. That, to us, is smart spending, but it does obviously kind of provide something like $15 million of drag on EBITDA. Beyond that, really, we continue to be in a pretty inflationary environment. We've talked about that. We're managing through that really well. And we've talked about the investments we continue to make that we think are smart investments that we don't want to forego simply for the sake of chasing some arbitrary margin.
Ted Grace: And I'm not suggesting that you're saying we should do that, but that's why we've gone as far as calling these out and helping people understand what's going on. So, we do think we're managing price cost very effectively as we continue to manage both of those cost dynamics I talked about and the investments we continue to make.
David Raso: And we can dig into any of that if you want. Yeah, it sounds like the second half. more of that ancillary growth getting more in line.
Speaker Change: We do think we're managing price cost, very effectively as we continue to manage both through those cost Dynamics. I talked about and the Investments we continue to make and we can dig into any of that, if, if you want.
Speaker Change: Yeah, it sounds like the second half of the year. The reason the year-over-year incremental X used.
David Raso: not necessarily a better. less equipment being moved the second half. Whatever it may be, I was just curious on that price-cost dynamic. It sounds like it's more ancillary back. Yeah, that's fair. That's fair. That'll be the biggest, biggest mover. But I mean, we'll never stop going after the cost and the price cost balance. That's what we do every day. But that's, that's a fair characterization. I would agree. I mean, certainly, we've talked about that increased dispersion of growth. And that's really what's driving the repositioning of fleet. You know, we do expect that to continue. And frankly, that was a normal dynamic, you know, prior to, you know, that kind of really high growth period where it was so broad based that we didn't have to kind of move fleet.
Speaker Change: are going to improve is more that ancillary growth getting more in line with own Fleet not necessarily a better price cost is is that a fair
Matthew Flannery: But just to kind of help with the numbers, if you think about, you know, call it roughly $100 million of, you know, higher ancillary in the first half than OER might have otherwise suggested. If people just want to play with sensitivity, start applying a margin to that and back it out. And that'll give you sense for how that margin performed, ex-ancillary, right? And so we've talked about, you know, a 20% contribution margin. It does depend what that composition looks like. Delivery, frankly, is going to be at the lower end of that because that's really a path that was not, I think, mentioned.
Comments. I was fishing if there was any you, maybe less equipment, being moved the second, half versus the first half, whatever it may be. I was just curious on that price cost Dynamic. It sounds like it's more ancillary back in line is really what? Yeah, that's fair, that's fair. That'll be the biggest biggest mover. But I mean, we'll never stop going after the cost and and, and, and the price cost balance. That's what we do every day. But that's, that's a fair characterization. I would agree. I mean, certainly we've talked about that increased dispersion of growth and that's really what's driving the repositioning of Fleet. You know, we, we do expect that to continue and frankly, that was a normal Dynamic, you know, prior to, you know, that kind of really high growth period where it was so broad-based that we didn't have to kind of move Fleet. Um,
Speaker Change: But just to kind of help with, with the numbers. If you think about, you know, call it roughly hundred million dollars of, you know, higher ancillary in the first half, uh, than than oer might have otherwise suggested.
David Raso: So at least that'll allow people to start playing with sensitivities to understand how two half versus one half, you know, we expect to play out.
David Raso: Yeah, I just... At 7...
Speaker Change: If, if people just want to play with sensitivity, start applying a margin to that and back it out. And that'll give you sense for how that margin performed X ancillary, right? And so, we've talked about, you know, ancillary being maybe on the order of 20% contribution margin it does depend. What? That composition looks like delivery frankly is going to be at the lower end of that because that's really a pass through is that I think mentioned so at least that'll allow people to start playing with sensitivities to understand how to have versus 1 half. Uh you know we expect to play out.
David Raso: Santa Rental Revenue, Ansler's Large I'm not sure if maybe there's a way to start pricing. Service. I I was just wondering if you saw that. And now, core enough to the business, do we try to get paid for it a little bit more? That's sort of what I was... I appreciate the growth rates getting closer.
David Raso: And then last, real quick, the comment about 26 profitable... Given your mix today, it's a little more toward larger projects than say in the past. How would you describe your visibility on 20... say this time last.
Matthew Flannery: I'm not looking for a big Mac. It's just kind of broadly, truly what do you have in conversations or customers. things are already booked for spring delivery of 20. Sure, David. I would just say outside of large projects, right, the bigger the project, the more planning takes place. Outside of those large projects, we don't have any comments on Visibility to 26. But that being said, we do expect the tailwinds that we've been talking about, whether that's the mega projects, whether that's power, whether that's infrastructure get to continue to be tailwinds. And then, you know, we'll update as we get through our planning process in the fourth quarter and update you guys on that.
Speaker Change: Yeah, I I just at 1718 percent or rental Revenue ancillaries large enough. I just wasn't sure if maybe there's a way to start pricing for that better, right? It's it's a service. I know its stickiness for the customer thought I was just wondering if you saw it as you know now core enough to the business. Do we try to get paid for it a little bit more? I mean, that's sort of what I was fishing for on the on, on the price cost. But no, I I I appreciate the growth rates getting close to each other is going to be a help on the year-over-year drag and the last real quick. The comment about 26, profitable growth given your mix today, is a little more toward larger projects than say in the past years. How would you describe your visibility on 26 versus say this time last year? Looking at 25 and I'm not looking for a big macro view on interest rates or tariffs, just kind of broadly.
Speaker Change: Truly, what do you have in conversations with customers?
Speaker Change: You know, maybe even things are already booked for, for Spring delivery of 26, versus the visibility. You had this time last year. Thank you. That's it for me.
David Raso: Thanks.
Speaker Change: Sure. David. I would just say outside a large projects, right? The bigger the project, the more planning takes place outside of those large projects, we don't have any comments on visibility of 26, but that being said, we do expect the Tailwinds that we've been talking about whether that's the mega projects, whether that's power, whether that's infrastructure, get to continue to be tailwind. And then, you know, we'll update as we get through our planning process in the fourth quarter, and and update you guys on that. Thanks.
Michael Feniger: We'll take our next question from Michael Feniger with Bank of America.
Michael Feniger: Please go ahead.
Michael Feniger: Your line is now closed. Yes, good morning. Thanks for taking my questions. You know, Ted, you raised the free cash flow outlook. I understand it's the big beautiful bill act. You're targeting now to deliver a record free cash flow level of $2.5 billion. Two to three years ago, we were kind of discussing that $2 billion was the baseline free cash flow for the business. Is $2.5 billion now your new baseline free cash flow going forward? And what are you think the moving pieces that we should think about for free cash flow growth in 2026? We're thinking of fleet age on cutback disposal of use, maybe even shifts within that cutback to specialty continues to grow.
Speaker Change: We'll take our next question from Michael. Fenger, with Bank of America, please go ahead. Your line is open.
Michael Feniger: What are some of the moving pieces there if this is our new baseline free cash flow going forward? Yeah, so you're right, Mike. We did talk about $2 billion as kind of a normalized free cash flow number. And this is additive, at least in the foreseeable future, based on what we've got from this new tax bill. So I do think it's fair, all else equal, that you can kind of tack it on and assume that that number's gone up on the order of $400 million. The benefit, obviously, is immediately accrues the cash flow from operations.
Speaker Change: Yes. Uh, it's the morning that's for taking my questions. Uh, you know, Ted you, you raised the free cash flow Outlook. I, I understand it's the big beautiful, uh, bill act. You're you're targeting now to deliver a record, free cash flow level of 2.5 billion. Uh, you know, 2 to 3 years ago we were kind of discussing that 2 billion was the Baseline. Free task for the business is, is 2.5 now. Your new Baseline for free cash flow going forward. And what are you thinking? The moving pieces that we should think about for free Castle growth in, in, in 2026 when we're thinking, of Fleet age on capex, disposal of used, maybe even shifts within that topic of specialty continuity.
Speaker Change: So um just some, what are some of the moving pieces there? If this is our new Baseline, free cash flow going forward.
Michael Feniger: And the reason I bring that up is that net free cash flow was obviously dependent on a lot of factors. So it is inherently assumptive. So if and as you see ebbs and flows in CapEx, based on different growth rates, we assume that would be something you'd have to think about. But I'd say as it relates to kind of a normalized expectation, calling it 2.4, something like that, is not unreasonable. Yeah, and I think I captured it right, that that would be with similar levels of growth capex. The more organic growth you're going to, you're going to achieve, obviously, you spend more on capex that allows some impact on on the cash flow, but it certainly would be a good Fair enough.
Yeah so you're right. Mike, we did talk about 2 billion dollars is kind of a normalized free cash flow number and this is additive at least in the foreseeable future based on you know what we've got from this new tax bill. So I do think it's fair all else equal that you can kind of tack it on and assume that that number's gone up on the order of 400 million. Um, the benefit obviously is immediately Cruise the cash flow from operations. And the reason I bring that up, is that net free cash flow was obviously a dependent on a lot of factors. So it is inherently assumptive. So if and as you know, you see es and flows and capex
Speaker Change: Have to think about but I'd say is it relates to kind of a normalized expectation you know calling it 2.4 something like that is is not unreasonable.
Speaker Change: Yeah. And I think that captured it, right? That that that would be with similar levels of growth capex, the more organic growth, you're going to, you're going to uh achieve obviously you're going to spend more on capex, adolescent impact on on uh, the cash flow, but it certainly would be a good business decision.
Matthew Flannery: And Matt, just with these data centers that we keep seeing in the headlines and CapEx. on the AI side that should be breaking ground in the next few years. I believe 40% of your rental budget there is specialty. Just as we see this theme continue to evolve this year, next year, just how does this drive your mix going forward? How does this drive your mix when you think of your business in terms of, you know, and your CapEx spend, how those budgets work? And when you talk about the power vertical specifically, is that, are you seeing a tighter market there?
Matthew Flannery: Is that better condition for rate? And is that where incremental dollars have to go? So, as we've talked to you guys about for a while, we continue to invest in specialty at a faster pace of growth capex in the overall business for a couple of reasons. They have white space, and then specifically in these major project, and cold starts as well, and in these major projects, the more complex the project, the more opportunity we have to cross sell. So there certainly is a bigger opportunity than in the general market on these major projects and with these major customers.
Speaker Change: Fair enough and Matt just with these data centers that we keep seeing in the headlines and and capex on the AI side that should be breaking ground. In next few years, I believe 40% of your rental budget. There is specialty. Just as we see this theme continued to evolve this year next year. Just how does this drive your mix going forward? How does this drive your mix? We think as a business, uh, in terms of, you know, and, and your capex, spend, how those budgets work. Um, and, and when you talk about the power, vertical, specifically is that, are you seeing a tighter Market? There is a better condition for rate, um, and is that where incremental dollars have to go? Thank you.
Speaker Change: So uh as we've talked to you guys about for a while we continue to invest in specialty at a faster pace and growth capex in the overall business for a couple of reasons they have white space and then specifically in these major projects and cold starts as well and and these major projects. Um the more complex the project the more opportunities
Matthew Flannery: That's why it's a big part of our go-to-market strategy. Outside of that, I wouldn't call out any uniqueness to the data centers versus other projects. It is a big chunk of work right now, and one that we feel really good about, both currently and forward-looking, but I wouldn't say there's gonna be any change. And as far as for the capex and any change of the spend, because we do believe we have white space and strong growth opportunity for specialty, both existing and maybe getting to find new products as well, we expect to continue to outpace capex.
Matthew Flannery: Outside of that, I wouldn't call it anything specific for data.
Speaker Change: We have to cross sell. So it certainly is, uh, a bigger opportunity than in the General market on these major projects and with these major customers. That's why it's a big part of our go to market strategy. Outside of that, I wouldn't call out any uniqueness to the data centers versus other projects. It is a big chunk of work right now and 1 that we we feel really good about both currently and forward-looking, uh, but I, but I wouldn't say there's going to be any change and, and as far as for the capex and any change of the spend, because we do believe we have white space and and and and and strong growth opportunity for specialty both existing and and maybe getting to find new products as well. We will continue, we expect to continue to outpace our capex outside of that. Um, I I wouldn't call it anything specific for data centers.
Angel Castillo: Our next question from Angel Castillo with Morgan Stanley.
Angel Castillo: Go ahead. Your line is open. Hi, good morning. Thanks for taking my question.
Speaker Change: It will take our next question from Angel, Castillo with Morgan Stanley. Please go ahead. Your line is open.
Angel Castillo: I just wanted to ask just on the conversation of the One Big Beautiful Bill, you know, curious, understand what the implications are for your cash flow. But are you hearing, you know, as you have your kind of customer confidence index and conversations, are you seeing any step change or, you know, difference in behavior of kind of projects, how quickly they might be moving forward, or kind of the appetite to move forward with things on kind of CapEx projects, given the OPPB reform Yeah, I'll take that one. I guess what I'd say is, we always caution people from confusing correlation and causation.
Angel Castillo: Hi, good morning. Thanks for taking my question. Um, just wanted to ask just on the on the conversation of the 1. Big, beautiful bill, you know, curious. Uh understand what the implications are for your cash flow but are you hearing you know as you have your kind of customer confidence index and conversations? Are you seeing any step change or um you know difference in behavior of kind of projects how quickly they might be moving forward or kind of the appetite to move forward with things um on on kind of capex projects given the O bbbb um reform.
Matthew Flannery: But certainly, we've seen our customer confidence feedback, stay at high levels and probably get fractionally better, you know, versus where we would have been in April. And that certainly, you know, that trend has continued since early July. So we feel really good about it. Our customers obviously feel very good about their own prospects.
Matthew Flannery: And in terms of what that translates to, time will tell. But I'll equally would say that, you know, some of these tax policies obviously should be advantageous to project economics.
Angel Castillo: Yeah, I'll take that 1. I guess what I'd say is, we always caution people, uh, from confusing correlation and causation. But certainly we've seen our customer confidence feedback, uh, State high levels and probably get fractionally better, you know, versus where we would have been in April. Um, and that certainly, you know, that trend has continued since early July. So we feel really good about it. Uh, our customers obviously feel very good about their own prospects and terms of what that translates to time will tell. Um, but all sequel, you would say that, you know, some of these tax policies obviously should be advantageous to to project economics.
Ted Grace: And then maybe a little bit of a bigger or longer time frame type of question. In your slides, you have the rent versus buy, you know, kind of benefits to your customers and you show how kind of rental market has kind of steadily exceeded the non-resi market, you know, essentially kind of gaining share here of the customer's wallet. But some of the data, I guess, on the slides only goes through 2022, so just given a lot of the kind of big changes we've seen due to inflation or, you know, the varying challenges around macro geopolitics and that project space today, as well as, you know, the benefits we just talked about with OBB or even your telematics kind of benefits that you now provide the customer, can you talk about what you're seeing, you know, on the ground today in terms of rental equipment penetration of the market in equipment and just kind of any anecdotal or data evidence as to, you know, how is that trending, is it accelerating in terms of the customer's appetite to buy versus rent, particularly thinking about, you know, the specialty and the heavier kind of construction equipment outside of areas, is there anything you can share to that?
Speaker Change: Understood and then maybe a little bit of a bigger um, or or or longer time frame type of a question in your slides. You have the rent versus buy, you know, kind of benefits to your customers. And, and you show how kind of rental market is is kind of steadily, exceeded the non-res market, um, you know, essentially kind of gaining share here of, of of the customer's wallet, but some of the data I guess on the slides only go through 2022. So just giving a lot of the kind of big changes we've seen in due to inflation or, you know, the varying challenges around macro geopolitics and and that project space today, uh, as well as the, you know, the benefits we just talked about with obv or or even your data's kind of
Ted Grace: Yeah, I'll start and then Matt can kind of jump in after. But so just speak to speak specifically to that chart. There were the American Rental Association restated the market.
Speaker Change: Benefits that you now provide to customer? Can you talk about what you're seeing, you know, on the ground today in terms of rental equipment, penetration of the market in equipment and just kind of any anecdotal or or data evidence? As to, you know, how is that trending? Is it accelerating in terms of the customer's appetite, uh, to buy versus rent? Um, particularly thinking about, you know, specialty, and and the heavier kind of construction equipment outside of areas, just anything you can share their
Ted Grace: And so the reason we cut that off in 2022 is you could no longer have an apples to apples comparison. And I hope that's footnoted. It was previously to the core of your question. However, we do absolutely think penetration continues to improve and we think there's a lot of runway there. That to us is very clear. I think for a lot of reasons, you know, which we've talked about, we can get into specifics. It's just so much more appealing at so many levels for the vast majority of customers to rent over own. And as we just do more and more for them and consolidate kind of that one-stop shopping value proposition and deliver for them every day, we're just going to, you know, continue to be a better partner.
Speaker Change: That off of 2022 is you could no longer have an Apples to Apples comparison. And I hope that's footnoted it was previously to the core of your question. However, we do absolutely think penetration continues to improve and we think there's a lot of Runway there that to us is very clear. I think for a lot of reasons you know which we've talked about and we can get into specifics.
Ted Grace: And I think that's going to continue to drive that secular penetration and the outgrowth.
Matthew Flannery: And Angel, I would just add that, you know, at the end of the day, the industry has matured and become a much more reliable partner, which was one of the reasons people would have owned in the past. But we're also here to drive safety and productivity. So even penetration from self or non-compliant, self-performance or non-compliance, like we do in our trend safety business, is another opportunity. So I think awareness, increased and improved product offerings will continue to drive penetration to Ted's point. Very helpful. Thank you. Thanks.
Speaker Change: It's just so much more appealing at so many levels for the vast majority of customers to rent over own. And as we just do more and more for them and consolidate, kind of that 1. Stop shopping value proposition and deliver the for them every day. We're just going to, you know, continue to to be a better partner. And I think that's going to continue to drive that secular penetration and the outgrowth and and angle. I would just add that you know, at at the end of the day, the industry is matured and become a much more reliable partner, which is 1 of the reasons, people would have owned in the past, but we're also here to drive safety and productivity. So even penetration from um self or non-compliance self-performance are non-compliance like we do in our Trend. Safety business is another opportunity. So I think uh awareness uh increased um and improved product offerings, will continue to drive, penetration to 10 point.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thanks.
Jerry Revich: The next question from Jerry Revich with Goldman Sachs, please go ahead your line.
Speaker Change: We'll take our next question from Jerry ravaged. With Goldman Sachs, please go ahead. Your line is open.
Clay Williams: Hi, this is Clay on for Jerry. Quick one for me. Your fleet productivity growth accelerated year over year, and we estimate sequentially as well.
Clay Williams: Can you expand on the drivers of the acceleration? And also, how do you view the disconnect with some of the slowing non-res construction indicators over Sure, Clay, so we feel really good about the fleet productivity, to your point. We had committed to the beginning of the year that we expected to drive positive fleet productivity this year, which in its basic form means we're going to have rent revenue growth greater than fleet growth, and that's happening. I would say, qualitatively, the industry continues to get positive rate. That's necessary because we still have to overcome the inflation that we've absorbed and the cost of fleet over the last couple of years, and the supply-demand dynamics are allowing that to happen.
Speaker Change: Hi. This is Clay on for Jerry, uh, quick 1 for me. Um, your Fleet productivity growth, accelerated year-over-year and we estimate sequentially as well. Can you expand on the drivers of the acceleration? And also, how do you view the disconnect with with some of the slowing non-res construction indicators over the quarter?
Matthew Flannery: We specifically have been continuing to drive very high levels of time utilization for a couple of years now, so we're really pleased with that, and that's taken a lot of focus, and admittedly, some costs, as Ted pointed to, on the delivery, on the outside hauling costs, but that's a smart capital decision. We continue to do that, and then the rest of it was mixed, fell in our favor this quarter. That's a variable that, frankly, is a result of a lot of different decisions customers make, where they rent, what they rent, how long they rent, to name a few, and to absorb any extra inflation over and above the one-and-a-half peg that we put out there.
Speaker Change: Sure. Clay. So we feel really good about the fleet productivity to your point. Um, we had committed to the beginning of year that we expected to drive positive Fleet productivity this year, which in its basic form means we're going to have rent Revenue growth greater than uh Fleet growth and and and that's happening, I would say qualitatively um the industry continues to get positive rate that's necessary because we still have to overcome the inflation that we've absorbed. And the cost of Fleet over the last couple of years and the supply demand Dynamics are allowing that to happen. We specifically have been continuing to drive, very high levels of, uh, time utilization, um, for a couple of years now. So we're really pleased with that. And that's that's taking a lot of focus and admittedly some costs instead pointed to uh on on the delivery uh on the on the outside hauling costs. But that's a smart Capital decision and we continue to do that and then the rest of it was mixed fell in our favor uh this quarter. That's a variable that frankly is a result of a lot of different
Matthew Flannery: We feel really good about that output, and we expect to drive positive productivity for the full year.
Matthew Flannery: Thank you. Maybe on the second part, just tying it to those non-res indicators, look, we pay attention to them. You know, there's an ebb and flow. Certainly, we see a lot of things that are quite positive. You can look at our results, probably first and foremost, you can look at our customer confidence. So those are the things that really are going to be to us more important and more indicative than, you know, kind of looking at a mosaic of data points. Got it.
Speaker Change: Decisions customers make where they rent, what they rent, how long they rent. So to name a few and to absorb any extra inflation over and above the 1 and a half Peg that we put out there. So we feel really good about that output and we expect to drive, um positive uh, productivity for the full year. So thank you.
Speaker Change: Maybe on the second part. Just tying it to those non-res indicators. Uh, like we pay attention to them.
Speaker Change: You know, there's an EV and flow. Certainly we see a lot of things that are quite positive, you can look at our results, probably first and foremost, you can look at our customer confidence. So those are the things that really are going to be to us more important and more indicative then, um, you know, kind of looking at the Mosaic of of data points.
Clay Williams: Thanks for that.
Clay Williams: And then quick follow-up for me on just how you guys are viewing the M&A pipeline currently and how that has evolved over the years. Sure, Clay. Yeah, we continue to work a pretty robust pipeline. As we proved with this in the first quarter, we're still very disciplined. So it has to get to that last hurdle of financial after we find the strategic partners and the ones that we think will fit in the organization well. So this is not a lack of opportunity. It's just making sure that we cross all three of those hurdles on our three-legged stool and find the right dance partner.
Speaker Change: Got it. Thanks. Thanks for that. And then quick follow up for me on the um just how how you guys are viewing the uh the m&a pipeline currently and how that evolved over the year. Thanks.
Matthew Flannery: So we continue to work the pipeline. This is a capability we've built and one that we expect to utilize. It's just we're not going to force it. We're going to make sure we've got We get a lot of credit for being smart integrators. I think it starts on the front end where we're smart buyers. So we'll continue to work the pipeline.
Speaker Change: Sure. Yeah, we continue to work a pretty robust pipeline, um, as we proved with uh, this this in the first quarter. We're still very disciplined. So it has to get to that last hurdle of financial. After we find the Strategic partners and and, and, and the ones that we think will fit in the organization. Well, so this is not a lack of opportunity, it's just making sure that, you know, we cross all 3 of those hurdles on our 3-legged stool and and find the right dance Partners. So, we continue to work the pipeline. We've, this is a capability, we've built, um, and, and 1 that we expect to utilize. It's just we're, we're not going to
Speaker Change: Force it. We're going to make sure we've got
Speaker Change: We get a lot of credit for being smart integrators. I think it starts on the front end where we're smart buyers.
Speaker Change: So we'll we'll continue to work the pipeline.
Clay Williams: Thanks, I'll pass it on. Thanks.
Speaker Change: Thanks, I'll pass it on.
Speaker Change: Thanks Clay.
Jamie Cook: We'll take our next question from Jamie Cook.
Jamie Cook: Go ahead. Your line is open. Hi, good morning. I guess two questions for me.
Speaker Change: We'll take our next question. From Jamie cook with truist Securities. Please go ahead. Your line is open. Hi
Jamie Cook: Ted, sorry, getting back to the ancillary business, you know, just thinking about it from a long-term perspective, this and rerent, it's becoming a bigger part of your business. I'm just wondering, given the importance of the business and the value that it adds to customers, its lower margin, to what degree should we start to think about United Rentals as more of an EBITDA story and sort of take the 50% to 60% incremental margin target off the table, because it's not relevant anymore, and maybe you're not an incremental, you know, incremental profit story anymore. I'm just trying to think how you're thinking about that longer term.
Ted Grace: I guess, so why don't we start there, and then I'll ask my second question. Yeah, and it's something you and I have talked about a bunch, Jamie. I mean, I do think at the end of the day, you know, even that generation is critical to us. How you get there matters a ton. Obviously, we need to be efficient in every regard. But the mixed dynamic that you're getting at is something that, you know, we need to make sure people do understand. So our goal, you know, always has been and always will be driving margin expansion on an underlying basis.
Speaker Change: United Rentals is more of an evida story and sort of take the 50 to 60% incremental margin Target off the table. Um, uh, because it's, it's, it's not relevant anymore and maybe you're not an incremental, uh, you know, incremental profit story anymore. Um, just trying to think how you're thinking about that longer term, I guess. So, why don't we start there? And then I'll ask my second question.
Ted Grace: Sometimes that's a little easier. Sometimes it's more challenging for a number of reasons. In this case, and most recently, obviously, this ancillary dynamic has been kind of the biggest headwind. And I think I touched on this with one of David's questions. But, you know, at the end of the day, like we need to serve our customers, that is the most important thing. And we need to make sure we're doing it in a profitable fashion, and then explaining the results to the investment community and anybody else. So I would say going forward, our goals are always going to be driving margin expansion, what that flow through looks like will be dependent on a host of factors.
Speaker Change: Yeah, and it's something you and I have talked about a bunch Jamie. I mean I do think at the end of the day you know keep a DOT generation is critical to us how you get there matters a ton. Obviously we need to be efficient in every regard but the mixed Dynamic that you're getting. At is something that, you know, we need to make sure people do understand. So our goal, you know, always has been and always will be driving margin expansion on an underlying basis. Sometimes that's a little easier sometimes. It's more challenging for a number of reasons. In this case, in most recently, obviously, this ancillary Dynamic has been kind of the biggest headwind. And, and I think I touched on this with 1 of David's questions. But, um,
Ted Grace: But ultimately, you're driving underlying margin improvement. And we do think that the team's done a great job managing costs over the last several years in this kind of higher inflationary, slower growth environment. And once we kind of start moving forward, we do think we'll get more positive absorption of fixed costs, it'll support kind of driving margin expansion.
Speaker Change: You know, at the end of the day, like we need to serve our customers. That is the most important thing and we need to make sure we're doing it in a profitable fashion and then explaining the results to the investment community and and anybody else. So I would say, going forward, our our goals are always going to be driving margin expansion, what that flow through is. Looks like we'll be dependent on a host of factors, But ultimately, you know, you're driving, underlying margin Improvement. And we do think that the teams done a great job managing costs over the last several years in this kind of higher inflation areas.
Speaker Change: Growth environment. Um, and once we kind of start moving forward, we do think we'll get more positive absorption of fixed costs. That will support kind of driving margin expansion.
Jamie Cook: Thanks.
Jamie Cook: And then I guess my second question, understanding you, again, don't want to talk too much about 2026, but, you know, one of your peers put out a CapEx guide, understanding it's not calendar year, but implied, you know, CapEx for next year, you know, down, I think, in the high teens, just trying to think about how you're thinking about the setup. I mean, you tend to replace your equipment more regularly, you're growing in specialty, and we have some positive dynamics from the bill. Just wondering, as you think about things, would that be something more specific to a competitor?
Matthew Flannery: And do you still think the environment is robust enough that, you know, CapEx, as we look to 2026, you know, could, you know, could be, I guess, healthier than what your peers are talking about? Thank you. Yeah, I'm not going to get into forecasting 26, but I will say that we feel good about the environment that we're in right now. I talked about how we believe some of the tailwinds we've been pointing to for a couple of years are going to continue and, you know, the local market's maybe not growing, but we don't think it's retreating.
Speaker Change: Thanks. And then I guess my second question. Understanding you again, don't want to talk too much about 2026 but, you know, 1 of your peers, put out a capex Guide Understanding. It's not calendar year, but implied, you know, capex for for next year, you know, down I think in, in the High Teens, just trying to think about how you're thinking about the setup. I mean, you tend to replace your equipment more regularly, you're growing in specialty and we have some positive Dynamics from the bill just wondering is, as you think about things. Would that be something more specific to a competitor and, and do you still think the environment is robust enough that, um, you know, capex as we look to 2026, you know, could, you know, could could be, I guess healthier than than what your peers are talking about. Thank you.
Matthew Flannery: That narrative kind of tells you where we are with it. We don't have to make that decision today, but I would be surprised if we were to cut forward-looking because to your point, the biggest spend is replacing fleet and we're very, very diligent about that so we can keep the fleet refreshed and give a good value prop to our customers. And the end markets are good for you sales, as you see in our results. So there's nothing that tells me that we would lean that direction. We'll stay tuned, we'll tell you in January.
Speaker Change: Yeah, I I'm I I don't I'm not going to get into forecasting 26, but I will say that we feel good about the environment that we're in right now. I talked about how we believe some of the Tailwind. We've been pointing to, for a couple of years, are going to continue and, uh, you know, the local markets, maybe not growing, but we don't think it's retreating. So
Speaker Change: That narrative kind of tells you where we are with it. We don't have to make that decision today. Um, but but that would be, I would be surprised if we were to uh,
Speaker Change: to cut forward-looking because to your point we the biggest spend is replacing Fleet and we we're very, very diligent about that. So we can keep the fleet refreshed and and and give a good value prop to our customers and the end markets are good for for you sales as you see in our results. So, there's nothing that tells me that we would lean that direction. We'll stay tuned. We'll tell you in January.
Jamie Cook: Thank you. I appreciate the color. Thanks, Jamie.
Speaker Change: Thank you. I appreciate the caller.
Speaker Change: Thanks Jamie.
Kyle Menges: Our next question from Kyle Menges with Citigroup.
Kyle Menges: Please go ahead. Your line. Thank you.
Speaker Change: We'll take our next question from Kyle. Mangas with Citi group, please go ahead. Your line is open.
Matthew Flannery: I was hoping if you could talk about the used recovery a little bit, it actually improved sequentially in the quarter. So I guess does that signal that we're through this period of normalization for the used sales recovery and then just, you know, what's what's driving some of the tightness and supply versus demand sequential. Yeah, Kyle, I would say that, well, I think Jamie just pointed to as far as supply demand, some other folks had extra capacity coming into this year that they were going to utilize. And that's great. We think that shows the discipline of the industry.
Kyle Mangas: Thank you. Um, I was hoping if you could talk about the, the, um, used recovery a little bit, it actually improved sequentially in the quarter. So I, I guess. Does that signal that? We're through this period of normalization for the, the used sales, uh, recovery and then just um, you know, what's, what's driving? Some of the Maybe
Speaker Change: Tightness and and supply versus demand sequentially.
Matthew Flannery: You'd rather see people absorb the capacity they have versus add to that pile and therefore have unnatural actions to put it into the market. So that's great news. And that's that's part of the supply demand dynamic. The other part of the recovery is, you know, we've built an engine where we do a lot of retail. That's also a sign that the end markets are good because customers don't buy equipment to sit on it. And I would say that after the adjustments post-COVID, and if you want to take Q1 to Q2 sequential improvement in recovery, I think went from 51 to 53, we are seeing it stabilize.
Speaker Change: Yeah, Kyle. I I would say that um well I think Jamie just pointed to as far as a supply demand some other folks had extra capacity uh coming into this year that they were going to utilize. And that's great. We think that shows the discipline of the industry. You'd rather see people absorb the capacity. They have versus add to that pile and therefore have unnatural.
Kyle Menges: Where that ends up, I think our full year guide is somewhere in the middle of that. What we kind of inferred, where we'd be on that, I would say we feel it has stabilized and, you know, we'll continue. Mix will have some impact on that, how much you do in retail in a quarter. But for the full year, we think we've targeted the right area, the right ballpark. Got it. Thank you.
That I, I would say we feel that it has stabilized and, and, you know, will continue. Mix will have some impact on that and how much you do in retail and a quarter. But for the full year, we we think we've, we've targeted the right the right area in the right PA.
Ted Grace: And then just on the guide and taking the adjusted EBITDA up by that $50 million for that H&E termination fee. I'm just trying to understand that. I thought that you guys got that in Q1. So I guess just, you know, why was that not included in the guide in Q1 and not until this quarter? Just trying to understand that dynamic. Yeah, obviously, you saw us kind of reaffirm the guidance in April. And at that stage of the year, it's very unusual for us to kind of update guidance, right? So those ranges were maintained, versus what we introduced in January.
Speaker Change: Got it. Thank you. And and then just on on the the guide and and taking the adjusted IBA up by that 50 million for that, H&E, termination fee. I'm just trying to understand that. I thought that was um that you guys got that and and q1. So I guess just you know, why was that not included in the guide and q1 and not until this quarter just just trying to understand that Dynamic. Thanks.
Ted Grace: As we get to the second quarter in July, we start tightening those ranges. And so, you know, it was really, we felt more appropriate to call it out in the context of that updated range, which is just tighter. But I think, you know, that, that explains it. For more information, visit www.FEMA.gov Yeah, and if I remember correctly in the April call, we did tell everybody wasn't in there and that we would be updating it, so obviously we'll live up to the commitment that we made. Got it. Thank you. Thanks, Kyle. We'll take our next. Thanks.
Speaker Change: Yeah. Obviously you saw us kind of reaffirm the guidance in April and and at that stage of the year, it's very unusual for us to kind of update guidance, right? So those ranges were maintained versus what we introduced in. January, is we get to the second quarter in July, we start tightening those ranges and so, you know, it was really, we felt more appropriate to call it out in the context of that updated range. Um, which is just tighter, but it, I think, you know, that, that explains it
Speaker Change: Yeah. And and and I, if I remember correctly in the April call, we did tell everybody, it wasn't in there and that we would be updating it. So obviously, we want to live up to for the commitment that we made.
Speaker Change: Got it. Thank you.
Kyle Mangas: Thanks Kyle.
Speaker Change: We'll take our next question from Stephen Fischer with UBS. Please go ahead. Your line is open.
Operator: Good morning.
Matthew Flannery: Just thinking about the unchanged CAPEX guidance for the year, does that include any higher costs for whatever reason, be it tariffs or surcharges or whatever other price increases you may be asked to incur from any suppliers relative to what you had in your initial expectations at the beginning of the year? And I guess I'm sort of just asking, like, do you still have the same number of units planned for the year as you had earlier? The short answer is yes, we do have the same number of units. We don't expect any price increases. All of our partners know where we stand on our 2025 negotiations being a full-year negotiation, and that's where we're ending up.
Thanks thanks. Good morning, just thinking about the unchanged capex. Guidance for the year. Does that include any higher costs for whatever reason? Be it, tariffs or S charges or whatever other price increases. Uh you may uh be asked to incur from any suppliers relative to what you have in your, uh, initial expectations at the beginning of the year. I guess I'm I'm sort of just asking like, do you still have the same number of of units planned, uh, for the year as you had earlier?
Matthew Flannery: So we feel good about that, and we'll move forward with 26 once things settle down. But we feel we're in a really good position. Our partners have done a great job replacing their supply chain, and we feel like we're in as good a place as we are with our partners as we've been since pre-COVID, where they're able to respond, and we've been able to be a nice constant for them in spend and in reliability. Okay, that's helpful.
Speaker Change: The short answer is. Uh, yes. Uh we we, we do have the same number of units. We don't expect any price increases. We've all our of our partners know where we stand on on our 2025 negotiations, being a full year negotiation, and and that and that's where we're ending up. So, we feel good about that. Um, and, you know, we'll we'll move forward, uh, with 26, once things, settled down, but we we feel we're in a really good position. Our partners have done a great job replying their uh um replacing their supply chain and we feel. We feel like we're in as good a place as we are uh with our partners as we've been since preco where they're able to respond. And uh and we've been able to to be uh, a nice constant for them in in spend and reliability.
Matthew Flannery: And then I guess, bigger picture here, you guys have talked about being in a bit of a slower phase of growth here. I know you don't have a crystal ball, but maybe just based on some of the visibility that you have at the moment, what do you think is the most likely driver of acceleration from here? Is it more of the large projects coming to market? You need to see the more interest rate sensitive commercial and developer markets come back around. Does it have to be M&A driven? Obviously, there's a lot of theoretical paths, but based on the visibility that you have, what do you see as the most likely path to re-acceleration?
Speaker Change: Okay, and that's helpful and then I guess bigger picture here. You guys have talked about being in a bit of a slower phase of of growth here. Uh, I know you don't have a crystal ball but maybe just based on some of the the visibility that you have at the moment. Uh, what do you think is the most likely driver of acceleration from here is, is it more of the large projects coming to Market? Does it have to be? You know, from the more you need to see you know the more interest rate sensitive kind of commercial and developer markets come back around? Uh does it have to be m&a? Driven. Obviously there's a lot of theoretical paths, but based on sort of the visibility that you have, uh, you know what, what do you see as the the most likely path to re acceleration?
Matthew Flannery: I think all the above are on the table, right? The only ones I'd point to is what we said earlier, is that we do feel the tailwinds we've discussed for the last couple of years will continue on. We spent a lot of time in infrastructure, power. I talked a little bit about utilities and areas that we understand the need is there, so that regardless of the macro, there's just going to be work in these areas. And that's why we focused on them strategically. So we also continue to look at M&A. We don't budget or plan for M&A because we don't want any unnatural decisions, but we do work pipeline.
Matthew Flannery: So I find it unlikely that over the next year, we won't do any deals. And it's just a matter of finding the right partner. But I think there's multiple paths to growth. And once we do our planning process, which will be mostly organic driven, we'll update everybody in January.
Speaker Change: Uh, I think all the above around the table, right? The only ones I point to is what we said earlier is that we do feel the Tailwind, we've discussed for the last couple of years, we'll continue on, um, we spent a lot of time in infrastructure, power. Um, I talked a little bit about Utilities in areas that we understand the need is there so that, uh, regardless of the macro, there's just going to be work in these areas and that's why we focused on them strategically. So we also continue to look at m&a. Whether we end up, we don't budget or plan for m&a because we don't want any unnatural decisions but we do work to pipeline. So,
Matthew Flannery: Steve, the thing I might add to that, I think, you know, we've talked about those tailwinds, but you know, obviously, we've come through an election this year, I think you've found kind of stability kind of post-election in the world. People have a better sense for what, you know, the ground rules are. I think, obviously, the passage of tax reform in July is a positive for the business community in the U.S. And obviously, the prospect that the Fed may be becoming more accommodative, and certainly that's what the market continues to discount. I mean, all these come back supporting good sentiment that I think drives a willingness to kind of reinvest in America, and frankly, in North America.
Speaker Change: I find it unlikely that over the next year we won't do any deals, um, and it's just a matter of finding the right right partner. But we, I think there's multiple paths to growth and we'll once we do our planning process, um, which will be mostly organic driven. We'll update everybody in January.
Matthew Flannery: So those are kind of also, I think, really important considerations that, you know, at least from a top-down perspective, we think should continue to benefit our end markets and our opportunity. Thank you very much. Thank you.
Speaker Change: Used a discount. I mean, all these come back to supporting good sentiment that I think drives the willingness to kind of reinvest in America and frankly in North America. So those are kind of also I think really important considerations that, you know at least from a top down perspective, we think should continue to benefit our end markets and our opportunity.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Ken Newman: We'll take our next question from Ken Newman with KeyBank Capital.
Ken Newman: Your line is open. Thank you guys. Hey.
Speaker Change: We'll take our next question from Ken Neumann with keybanc capital markets. Please go ahead. Your line is open
Speaker Change: Hey, good morning, guys.
Speaker Change: Hey, Ken.
Ken Newman: So for my first question, you know, I know it's a smaller piece of your customer mix, but I'm curious if you just talk about the smaller local accounts, what those have done sequentially from the first quarter to second quarter. You know, was that stable sequentially? Are you seeing any initial signs of modest improvement there? And then also, if you have an updated thought on when those local accounts start to reaccelerate. Well, certainly it's improved just because of seasonality sequentially from Q1 to Q2. But probably, you're probably more interested in how does it look like on a year-over-year basis.
Speaker Change: Hey um so for my first question, you know I know it's a smaller piece of your customer mix but I'm curious if you just talk about the smaller local accounts what those have done sequentially from the first quarter to second quarter. You know, was that stable sequentially? Uh are you seeing any initial signs of modest Improvement there? And then also, if you have an updated thought on, when those local accounts start to re accelerate,
Matthew Flannery: And I would just say it's stabilized. We're not seeing growth in those areas in aggregate. Some markets they are and some markets they aren't. But I think in aggregate, it's kind of stabilized as far as what's going to spur further growth in that. We talk a lot about interest rates. We talk about that. But at the end of the day, I do think sentiment matters. And I do think people's believing in the consistency of the opportunity so they can make smart business decisions. So I would argue, and I'm not sure how long it would take, but even absent cuts, at some point, people have to decide how they're going to play in the new normal.
Speaker Change: Well, certainly, it's improved just because of seasonality from q1 sequentially from q1 to Q2, but, but probably, you're probably more interested in is how does it look like in a year-over-year basis? And I would just say it's stabilized. We're not seeing growth in those areas in aggregate so markets, they are and some markets, they aren't. But I think in aggregate. It's kind of stabilized as far as what's going to Spur further growth in that we talk a lot about interest rates, we talk about that but at the end of the day, um I do think sentiment matters and I do think people's
Speaker Change: Believing in the consistency of the opportunity so they can make smart business decisions. So
Speaker Change: I argue and I'm, I'm not sure how long it would take, but even absent cuts at some
Matthew Flannery: So interest rates certainly would help, and it would help the sentiment. But I think more about stability of the macro would help people invest more locally. And we think that's a future opportunity. When and where that shows up, we'll continue to talk to our customers and talk to our people on the ground. But I would say as an aggregate around the U.S. and Canada, that local market's stable. Yep, that's that's very helpful.
Point people have to have to decide how they're going to play in, in The New Normal. So, uh, interest rates certainly would help and it would help the sentiment. But I think I think more about stability of the macro help people invest more locally. Um, and, you know, we think that's a future opportunity when and where that shows up. You know, we'll continue to talk to our customers and talk to our people on the ground. But I would say as in aggregate around around the US and Canada that local markets stabilized.
Matthew Flannery: Maybe for my follow up here, I do want to go back to the tax bill. I think you mentioned some fractional improvements in the Customer Confidence Index. There's a thought out there that the accelerated phase-outs for renewable tax credits could drive some pull forward on the construction timelines for the power projects. I know it's around 10% of your rental revenue. Do you have any specific color on power project timelines as it relates to those conversations you're having with your customers? So I guess what I'd say is power on the whole is, we'll call it a little more than 10% of our mix.
Speaker Change: Yep. That's that's very helpful. Uh, maybe for my follow-up here. I do want to go back to the tax bill implications. Um you know I Ted I think you mentioned some fractional improvements in the customer confidence index. You know there's a thought out there that um The Accelerated phase outs for renewable tax credits could drive some pull forward uh on the construction timelines for the power projects. Uh I know it's around 10% of your rental Revenue. All right. Do you have any specific color on power project timelines? As it relates to that uh those conversations you're having with your customers?
Matthew Flannery: Within that, renewables is a relatively small fraction. The core of that opportunity is in the conventional generation transmission distribution. So truthfully, I don't personally have any great insight into if there may be a pull forward demand. I think we feel really good about the opportunity on the whole, but in terms of what specifically may happen within solar in particular, I don't have any great insight. Matt, I don't know if you've seen anything. No, I mean, where we have had solar farms and projects, we've done very well. But as far as future, I mean, we'll be responsive to the customer's requests.
Matthew Flannery: We're not reliant upon that either happening or not happening, and I wouldn't think it'd change our forward-looking plans much. Yeah, and I think that's a really important point, because I mean, there has been this ongoing debate about this administration versus the prior administration, and the focus on clean energy, and renewables, and all these sorts of things. At the end of the day, the bet we've made is that demand for power in the United States will continue to go up as a function of electrification, onshoring, investment, et cetera. And we're going to serve that customer however they generate that electricity.
Speaker Change: So um, I guess what I'd say, is power on the whole is you know, call it a little more than 10% of our mix within that Renewables is a relatively small fraction. Right? The core of that opportunity is in the conventional generation transmission distribution. So um you know truthfully. I don't personally have any great insight into you know if there may be a pull forward demand. I think we we feel really good about the opportunity on the whole, but in terms of what specifically may happen within solar in particular, um, I I don't have any great insight and I don't know if you've seen any, no. I mean what, where we have had solar, uh, forms and projects. We've done very well. So but as far as future, I mean, we'll, we'll be responsive to the customers requests. And we're not Reliant upon that either happening or not happening. And I wouldn't think a change to our forward-looking plans much. Yeah. And I think that's really important point, because I mean, there is, you know, there has been this ongoing debate about
Speaker Change: This Administration versus the prior Administration and the focus on clean energy and Renewables and all these sorts of things. At the end of the day, the BET we've made is that, you know, demand for power in the United States.
Matthew Flannery: So whether it is solar, or wind, or nuclear, or hydro, or gas, or coal, whatever that ends up being, our business really is indifferent to what that generation source is. It's making sure we are there to be the best partner to that customer. I think Matt's story about that utility customer is a great illustration of the value we offer customers in this vertical and many others. very helpful. Thanks, guys. Thanks, Ken.
Speaker Change: Will continue to go up as a function of electrification on Shoring investment, Etc. And we're going to serve that customer, however they, you know, generate that electricity. So whether it is solar or wind or nuclear or Hydro or gas or coal whatever that ends up being our business really is, you know, indifferent to what that generation source is. It's making sure we are there to be the best.
Speaker Change: Best partner, you know, to that customer. And I think that's, you know, a story about that utility customer is a great illustration of the value. We offer customers in this you know, this vertical and and many others.
Speaker Change: Uh, very helpful. Thanks guys.
Speaker Change: Thanks again.
Steven Ramsey: We'll take our next question from Steven Ramsey with Thompson Research Group.
Steven Ramsey: Please go ahead, your line is open.
Speaker Change: We'll take our next question from Stephen Ramsey. With Thompson research group. Please go ahead. Your line is open.
Steven Ramsey: Hey, good morning. GenRent had a better year-over-year comp than the prior four quarters. Can you talk about what's happening there? And is it a correct assumption that ancillary is less of a benefit to the GenRent line than it is special? Well, if you just take the to your ancillary question, if you just take the conversation we had about YAC and the matting business so heavily, delivery burdens, you'd you'd say yes, right, just from that factor alone. But it's still part of our, our gen rent delivery system, I would say that we insource almost all if not all of our gen rent, which makes that a little more consistent.
Speaker Change: Rent line than it is specialty.
Matthew Flannery: But we'd also have to move around gen rent equipment. So there's costs that may not be delivery related, but repositioning related. But But overall, I think the construct of your question is accurate, just from the YAC mat acquisition alone.
Matthew Flannery: Yeah, I agree with everything that's said. Steven, just to be clear, were you asking kind of about that acceleration in growth to, you know, call it 3% from, call it 1-ish? What drove that as well? Correct. Yes, that's what I'm asking. Okay, I think it's broad based demand. We've talked about, you know, the market really holding in well and customers feeling good. And so, you know, the gen rent business, obviously, saw that acceleration, consistent with what we would have expected. And I think it, again, comes back to kind of what gives us confidence about the full year and kind of where we sit in the macro.
Speaker Change: Well, if if you just take the to to your ancillary question, if you just take the conversation we had about yak and the matting business so heavily um uh delivery burdens you'd you'd you'd say yes right? Just from that factor alone but it's still part of our, our gen rent, uh, delivery system, I would say that we in-source, almost all, if not all of our genre, which makes that a little more consistent but we also have to move around General and equipment. So there's costs that may not be delivery related but repositioning related but but overall I think the construct of your questions accurate just from the yakmat uh acquisition alone.
Speaker Change: Yeah, I agree with everything about said um.
Stephen just to be clear were you asking kind of about that acceleration and growth to you know call it 3% from call it, 1 ish.
Speaker Change: And what drove that as well, correct.
Speaker Change: Yes, that's what I'm asking. Yeah.
Speaker Change: Yeah. Okay. I think it's broad-based demand. You know, it's we've talked about, you know, the, the market really holding in well and customers feeling good. And so, um, you know, that the Gen rent business obviously, uh, saw that acceleration consistent with what we would have expected. And, and I think it again, comes back to kind of what gives us confidence about this whole year. And, and kind of where we sit in this in the, in the macro,
Matthew Flannery: Okay, that's helpful.
Matthew Flannery: And then to add on to the utility topic, being a long term grower, can you talk about how YAC is helping you make fundamental progress there? Is it adding customers? Is it going deeper with customers? If you think about the next couple of years, maybe which way it leans between wallet share and customer addition? Yeah, it's cross, it's both. But obviously, the cross selling to our existing customers has really been the initial takeoff here. They were already the leader in that space. And, and they didn't have access to the network that we had. So broadening their capabilities to our network, it's really driven a lot of growth.
Speaker Change: Okay, that's helpful. And then to to add on to the utility topic being a long-term grower. Can you talk about how Yak is helping you make fundamental progress there is it adding customers, is it going deeper with customers? If you think about the next couple of years, maybe which way it leans between wallet share and customer Edition,
Matthew Flannery: But but there's opportunity the other way, where they've had great relationships, and we've been able to cross sell, I would say the first is probably more of it, because of the size and scale of our network.
Matthew Flannery: And that's one of the reasons we felt comfortable making the acquisition is we have been testing this ourselves by having doing some adding on our own. And then once we saw that we had a right of way to supply the customer with that gave us confidence to add, add a real quality team to the to the fold.
Speaker Change: Yeah, it's cross. It's both but obviously the cross selling to our existing customers is really been the initial takeoff here. Uh, they were already the leader in that space and and they didn't have access to the network that we had. So broadening their capabilities to our Network. It's really driven a lot of growth, but but there's opportunity the other way where they've had great relationships and we've been able to cross sell, I would say. The first is, is probably more of it um, because of the size and scale of our Network. And that's 1 of the reasons, we felt comfortable. Making the acquisition is, we had been testing this ourselves by having doing some matting on our own. And then, once we saw that, we had a right of way to supply the customer with that. Um, gave us a confidence to add, add a real quality uh, Team to the, to the fold here.
Matthew Flannery: Okay, thank you.
Matthew Flannery: Thanks.
Speaker Change: Okay, thank you.
Speaker Change: Thanks.
Neil Tyler: Our next question, from Neil Tyler with Rothschild.
Speaker Change: We'll take our next question from Neil. Tyler with Mark Rothschild, Redbarn, please go ahead. Your line is open.
Neil Tyler: Good morning. Thank you. A couple of follow ups, really, please, guys. Firstly, on the comments that you made about the shift away from ownership, I guess we've had a little bit more water under the bridge since the tariff announcements. Do you have any sort of anecdotes or specific thoughts in the last three or four months with examples with customers having broken away from perhaps historic trends to own or proportions of their fleet that they might own? I wonder if you could just expand a little bit on that. And equally, on the expansion of your previous comments, you mentioned rate discipline and CapEx discipline across the market.
Tyler: Hey, good morning, thank you. Um, a couple of follow-ups, really please. Uh guys, firstly on the um the comments that you made about um the shift away from ownership. Um, I guess we've had a little bit more water under the bridge since, um, you know, since the Tariff um announcements. Um, have you, do you have any sort of anecdotes or or or or specific thoughts in the last 3 or 4 months, um, with um, or examples with customers having having, um, broken away from, perhaps historic Trends to, you know, to own or or proportions of their Fleet that they might own? Um, I wonder if you could just expand a little bit on that and equally, and on the expansion of your previous comments. Um, you mentioned
Matthew Flannery: Could you talk a little bit about whether that's broad based and whether there are exceptions to that in any verticals or regions? Yeah, I'll take the latter part first because that's real easy. We don't talk about our rate, so I'm certainly not going to talk about our competitors' rate, but I think the proof is in the pudding, right? When you look at the supply-demand dynamics and you look at how people are managing their business and you look at the inflation that we've all had, that the industry's had to absorb on the fleet, you know, it's – I think that gives you the answer there, so to speak.
Tyler: Rate discipline, um, and capex discipline across across the market. Um, could you talk a little bit more about? You know, whether that's, you know, broad-based. Um, whether there are exceptions to, you know, to that in any, in any, any verticals or um, or regions, thank you.
Speaker Change: It's real easy.
Matthew Flannery: And I wouldn't talk about any gaps in any specific industries or sectors and markets. And then, so the first part of your question, the shift from ownership, it doesn't move in that manner. There's no recent examples, but I think this is a steady drumbeat to what the industry's been doing for secular penetration for years. And it starts with, as I said earlier, number one. being more reliable, the industry, not just us. I mean, I think we've kind of led from the front, but I think the industry has become more reliable to customers, which gives them that confidence.
Speaker Change: We don't talk about our rate. So I I'm certainly not going to talk about our competitors rate, but I think the proof is in the pudding, right? When you look at the the um, Supply demand Dynamics, and you look at how people are managing their business and you look at the inflation that we've all had, that the industry has had to absorb, uh, on on the fleet. Um, you know, it's I think that that gives you the answer there, so to speak. And I wouldn't talk about any, any gaps in any
Any specific Industries or or sectors or, or or, and markets, and then, so, the first part of your question, the shift from ownership, it doesn't move in that manner. There's no recent examples, but I think this is a steady drum beat to what the industry has been doing for secular penetration for years. And it starts with, as I said earlier, number 1,
Matthew Flannery: And then the widening of our offerings, right, and the depth of our offerings, alone, you know, we're offering that we just talked about matting for a minute, that's, that's product that we didn't offer a lot of our customers before that helps penetration. But even the information and technology that now with telematics is embedded in the fleet can help drive more productivity for the customer. And I talked about that in my opening comments. And that's, that's a big part of, of the, of the poll for us to be a better option than for people to self perform and to deal with all the soft costs and the hard costs of owning their own equipment, you know, we could take that burden for them.
Matthew Flannery: And once they trust the supply chain, from rental, the math is always going to work that rental is a better, better decision for them. Yeah, maybe I'll just tack on there. And I don't know if this is woven into your question, deal. But if you rewind to 2017, there was kind of this question with full expensing, would that change the relative economics and make the case for ownership more appealing? And I would say, well, it's hard to AB test, if you went back to that period of time, secular penetration continued to improve, it certainly did not go backwards.
Matthew Flannery: And so, you know, when we think about, you know, basically, the reintroduction of full expensing, you know, we certainly wouldn't expect to see anything different. I mean, I think the secular forces that have driven that are very clear and been very steady to Matt's point. And we expect that to continue. So yeah, we would not expect to see any shift there, frankly.
And I talked about that in my opening comments and that's, that's a big part of, of the, um, of the poll for us to be a a better option than for people to self-perform and to deal with all the, the soft costs and the hard costs of owning their own equipment. You know, we can take that burden for them and once they trust the supply chain from rental, the the math is always going to work. That rentals are better better decision for them. Yeah maybe I'll just tack on there and and I don't know if this is woven into your question uh deal. But if you were to 2017, there was kind of this question with full expensing. Would that change the relative economics and make the case for ownership more appealing? And I would say, well, it's hard to AB test if you went back to that period of time, secular penetration continued to improve it. Certainly did not go backwards. And so the only thing about, you know,
Speaker Change: Basically the reintroduction of full expensing, you know, we certainly wouldn't expect uh to see anything different. I mean I think the secular forces that have driven that are very clear and been very steady to Matt's point and we expect that to continue. So um
Speaker Change: You know, we we would not expect to to see any shift there, frankly.
Matthew Flannery: Great, that's super clear. Thank you.
Speaker Change: Right, that's super clear. Thank you.
Scott Schneeberger: We'll take our last question today from Scott Schneeberger with Oppenheimer. Please go ahead. Thanks. Good morning, guys. I think largely over a series of questions, you've answered this, but I'm going to ask it a little bit more directly. Ted, you mentioned we kind of had a step function higher now with this new federal tax bill, maybe $400 million more of cash available. So directly to the M&A. It just sounds, just where you are in your leverage. Obviously, Matt, you've mentioned, hey, we're looking for the right deal. We have an active pipeline. And you guys addressed this excess as, hey, let's use it for repurchases.
Speaker Change: And we'll take our last question today from Scott schneberger with Oppenheimer. Please go ahead. Your line is open.
Scott Schneberger: Thanks. Good morning guys. Um, I think uh, largely over a series of questions, you've answered this, but I'm gonna ask it a little bit more directly. Um, Ted you you mentioned we kind of had a, you know, step function higher. Now with this, this new federal tax bill, maybe 400, um, million more uh, of of of of, of cash available so directly to the m&a. Um,
Ted Grace: How married are you to the repurchases? Is this very beneficial for your propensity to... So let me just touch on the M&A piece. I mean, it's, you know, we are going to. Evaluate every deal on its own merits and do them when they make sense. I'd almost, you know, take a step back and remind everybody of what our capital allocation framework is, because it dictates how we think about deploying excess-free cash flow. So, you know, we always start with the balance sheet, right? Are we confident we've got the balance sheet where we want it? And if you look at it where it is today, current leverage, obviously, you know, kind of certainly in the lower half of the range we've talked about, we feel really good about that.
Speaker Change: It just sounds just where you are in your leverage. Obviously, Matt you've mentioned, hey, we're looking for the right deal. We have an active pipeline, um, and you guys addressed it this, this excess says, hey, let's use it for a repurchase is how married are you to the repurchases? Uh just just is is this very beneficial for your propensity to uh enact m&a?
Speaker Change: So let me just touch on that the m&a piece. I mean, it's it's you know, we are going to
Speaker Change: Evaluate every deal on its own merits and do them when they make sense. Um, I don't, you know, take a step back and remind everybody of what our Capital allocation framework is because it dictates how we think about deploying excess, free cash flow.
Ted Grace: We look at where's the liquidity. We look at maturities and all those sorts of things and make sure we feel like we've got a rock-solid underpinning to the whole business. So we're there. After that, it's allocating capital to fund growth, profitable growth being the key thing there. And so organic, you know, again, check that box this year. M&A, you know, that when it comes along and it kind of checks all three, you know, boxes, then, yeah, we feel really good about moving forward. Once you get beyond that, you're then talking about what we internally call discretionary excess-free cash flow.
So, you know, we always start with the balance sheet, right? Are we confident? We've got the balance sheet where we want it. And if you look at it, whereas today, current leverage, obviously, you know, kind of certainly in the lower half of of the range. We've talked about, you feel really good about that. We look at where's liquidity, we look at maturities all this sorts of things, and make sure we feel like we've got a rock solid underpinning to the whole business.
Ted Grace: And that is what we want to return to our shareholders. The first part is obviously going to be committed to the dividend. So it's that residual piece that comes through buyback. So when you think about, you know, the benefits of tax, that's really kind of that cascading approach that dictates how do we manage that windfall, if you will. So certainly, you know, you can see what we're doing with the buyback, and that'll be kind of how we think about allocating. excess free cash flow going forward. It is that residual piece. But if and as we can find opportunities to invest capital attractive returns, and benefit our customers by adding capabilities or augmenting capabilities, we're of course going to want to do that as long as they make that strategic sense, make financial sense, and we're comfortable with the cultural considerations.
Speaker Change: So we're there after that, it's allocating Capital to fund growth profitable growth being the the key uh, thing there and so organic, you know, again check that box this year m&a, you know that when it when it comes along and it kind of checks, all 3, you know boxes, then then yeah we feel really good about moving forward. Once you get beyond that, you're then talking about what we internally call, discretionary excess free, cash flow, and that is what we want to return to our shareholders. The first part is obviously going to be committed to the dividend, so it's that residual piece that comes through buyback. So, when you think about, you know, the benefits of tax, that's really kind of that cascading approach. That, that dictates, how do we manage that? That windfall, if you will. So certainly the, you know, the, the you can see what we're doing with the buyback and that'll be kind of how we think about allocating,
Ted Grace: So Matt, I don't know if you'd add anything there, but I think that was a great summation of how we think about capital allocation. Perfect. Appreciate that, Ted.
Matt Flannery: Excess free cash flow going forward. It is that residual piece but if and as we can find Opportunities to to invest Capital attractive returns and benefit our customers by adding capabilities or augmenting capabilities. We're of course, going to want to do that. As long as they make that strategic sense, make Financial sense and we're comfortable with the cultural considerations. So Matt, I don't know if you'd add anything there but I think that was a great summation of how we think about Capital allocation perfect.
Ted Grace: And just as a follow-up, I think, Ted, you specifically at the start of your part spoke about value-added services, the important role, and you all press-released the introduction of Workplace Ready solutions at the end of the quarter. Maybe you just want to elaborate on where you see the opportunity there and kind of where you are in that process. So, without getting too much into what we would call proprietary detail, right, I would just say that we continue to talk to our customers and learn more and more, and I said this in my opening remarks example, about how can we be a better partner.
Matt Flannery: Thanks appreciate that. And just as a follow-up, I think uh Ted you specifically at the start of your part, um, spoke about value added Services, the important role and you all press released, uh, the introduction of workplace, ready Solutions at the end of the
Speaker Change: Quarter. Maybe you just want to elaborate on uh where you see the opportunity there and uh and and kind of where you are in that uh in that process thanks.
Matt Flannery: so,
Without getting too much into what we would call proprietary detail. Right? We I I would just say that we continue.
Ted Grace: And it doesn't all have to, as we talked about the ancillaries, it doesn't all have to be, you know, high margin business. And it all doesn't have to be capital intense, which is a great part of that ancillary as well. But if it's going to add more value to the customer, we're going to be a more consistent partner with them. And that's really how I would think about any of these value added, including anything we can do in technology investments to help them drive more safety and productivity in their business. For more information, visit www.FEMA.gov If we're helping them achieve that, we're not going to have to live in a world of three bibs and a pie.
Matt Flannery: Talk to our customers and learn more and more. And I said this in my opening, remarks example, about how can we be a better partner for that?
Matt Flannery: In intense, which is a great part of that ancillaries as well. But if it's going to add more value to the customer, we're going to be a more consistent partner with it. And that's really how I would think about any of these value added including anything, we can do in technology Investments to help them drive more safety and productivity in their business.
Ted Grace: And that's not the world we want to live in. We want to live in, we're a partner with our company. and a value-added partner where we can make them more productive. And I would just say, overall, we continue to look for opportunities to drive more value for them in that. Thanks, Scott.
Matt Flannery: If we're helping them achieve that we're we're not going to have to live in a world of 3 bids in a buy.
Matt Flannery: That's not the world. We want to live in. We want to live in, we're a partner with our customers and evaluate it partner, where we can make them more productive and and and I would just say overall, we could continue to look for opportunities to, uh, drive more value for them in that matter.
Matt Flannery: Great. Thanks. Appreciate that.
Thanks Scott.
Matthew Flannery: After the Q&A session, I'll turn the program back to Matt Flannery for any additional or closed questions. Thank you, operator. And thanks to everyone on a call. We appreciate your time, and I'm glad you could join us today. As always, our Q2 Investor Deck has the latest updates, and Elizabeth is available to answer any of your questions. So until we talk again in October, stay safe, and have a great rest of your summer. Take care.
Speaker Change: And this does conclude the Q&A session, I'll turn the program back to Matt flan for any additional or closing remarks.
Operator: Operator, you can now end the call. Absolutely, this does conclude the United Rentals second quarter 2025 earnings report. Thank you for your participation, and you may now. © The Ultimate Parody Site!
Thank you, operator. And thanks to everyone on the call. We we appreciate your time and I'm glad you could join us today as always our Q2 investor deck has the latest updates and Elizabeth is available to answer any of your questions. So until we talk again, in October stay safe and have a great rest of your summer, take care, operator. You can now end the call.
Speaker Change: Absolutely. This does conclude the United Rental second, quarter 2025 earnings call. Thank you for your participation and you may. Now disconnect