Operator: Good morning everyone, and welcome to the United Rentals investor conference call. Please be advised that this call is being recorded. Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. 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.
Operator: For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended 31 December 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations. You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.
Operator: Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.
Matt Flannery: Thank you, operator, and good morning everyone. Thanks for joining our call. Yesterday afternoon, we were very pleased to report our Q3 results, which are a testament to our strategy, the team's dedication to the customer, and the unmatched breadth and scale of our premier offering. We came into 2026 expecting another year of growth. As evidenced by our results, the business continues to perform better than we expected. Large projects across a variety of end markets are driving our growth, and we expect this momentum will carry for the remainder of this year and into next year. We remain well-positioned to outperform the industry with our broad footprint, our unmatched one-stop shop offering, accompanied by exceptional levels of service and leading technology. And of course, our unwavering commitment to safety. These capabilities, combined with our customers' confidence and backlogs, support our revised guidance.
Matt Flannery: We came into the year dedicated to being the partner of choice for our customers, accompanied by a laser focus on finding cost efficiencies. I am very pleased with the team's efforts and how the year is playing out. Team United continues to raise the bar, providing an unmatched offering for our customers while also generating strong returns. So let us get into the details of our Q3 results and our updated full year guidance, and then Ted will get into more details around the numbers before we open up the call to Q&A. Starting with the quarter's results, total revenue grew by 16% year over year to $4.9 billion. Within this, rental revenue grew by 18% to $4.3 billion, both quarterly records. Fleet productivity of 6.5% contributed to OER growth of 12.9%. I will note that time and mix all contributed to the quarter's productivity along with rate.
Matt Flannery: Adjusted EBITDA was a record of $2.3 billion, resulting in a margin of 47.6%, an improvement of 160 basis points year over year. And finally, adjusted EPS came in at $15.55, up 33% year over year and another quarterly record. Now let us discuss customer activity. The Q3 again saw growth across both our Gen Rent and Specialty business. Specialty was a standout with rental revenue growth of 35% year over year, including 12 cold starts, which brings us to 40 cold starts year to date. Notably, each Specialty line of business reported strong double-digit growth in the quarter. By vertical, the trends of the H1 carried into the Q3. Construction continues to grow across non-residential and infrastructure. And on the industrial side, power once again posted double-digit growth as did metals and minerals.
Matt Flannery: Now as I mentioned earlier, a variety of end markets drive our growth. This diversified exposure is an important and very intentional part of our strategy. With this in mind, we saw projects kick off in Q3 across numerous end markets, including energy, manufacturing, infrastructure, and data centers. Turning to the used market, we sold $677 million of OEC at a 51% recovery rate. The demand for used equipment remains strong, and we still expect to sell approximately $2.8 billion of fleet this year. Given the demand from our customers and our replacement of sold equipment, we spent $1.8 billion on gross rental CapEx in the quarter. This takes us to $4.7 billion year to date. The combination of a strong demand environment and fleet productivity underpins this additional spend as we ensure we support our customers while driving profitable growth.
Matt Flannery: Subsequently, we generated year-to-date free cash flow of $1.4 billion. Even with higher CapEx needs, we are able to generate meaningful free cash flow due to a combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model. This strong free cash flow is redeployed in ways that allow us to augment shareholder value and is a critical part of our strategy. Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet is very healthy, allowing us to support both organic and inorganic growth, and to also return nearly $500 million to shareholders during the quarter through a combination of share buybacks and our dividend.
Matt Flannery: Our leverage of 1.8 times remains well within our targeted range of 1.5 to 2.5 times, leaving plenty of dry powder to support growth and to return excess capital to our shareholders. We have long talked about the importance of financial strength to support our strategy and to drive long-term value creation. To this point, we were very pleased to see S&P acknowledge our efforts with their upgrade of our credit rating to investment grade earlier this month. As we enter the last few months of 2026, our focus is unchanged. The demand environment for large projects remains robust, supporting our revised guidance, which reflects over 12% total revenue growth with EBITDA margins over 46%, all at the midpoint.
Matt Flannery: We increased our CapEx guidance to over $5.3 billion at the midpoint as we see the opportunity to put even more equipment on rent while generating strong free cash flow and returns. In conclusion, the United Rentals team's diligent focus on our strategy day in and day out is delivering results we are all very proud of. Over the last nearly 30 years, we built and continue to expand a value proposition which differentiates us in the industry. Our business model is truly unique and goes beyond purely equipment rental. By layering on technology, innovation, and unmatched service across both our specialty and Gen Rent businesses, we support our customers' productivity and drive a better partnership. For our shareholders, this translates to profitable growth, strong free cash flow, and compelling returns.
Matt Flannery: And with that, I will hand it over to Ted to review our financial results, and then we will take your questions. Over to you, Ted.
Ted Grace: Thanks, Matt. Good morning, everyone. As Matt just shared, the team delivered strong results that exceeded even our raised expectations from last quarter. It hit quarterly records for total revenue, rental revenue, EBITDA, and EPS. Beyond that, we raised our full year guidance for revenue and EBITDA to reflect our expectations that this performance will continue through year-end in support of a record 2026. But before we get into the details of the updated guidance, let's review the Q3 results. As you saw in our press release, rental revenue increased 17.8% to over $4.3 billion, supported once again by the team's strong execution across large projects and key verticals. Within this, OER increased by 12.9%, driven by a 7.9% increase on our average fleet size and fleet productivity of 6.5%, partially offset by assumed fleet inflation of 1.5%.
Ted Grace: Finally, within rental revenue, ancillary and re-rent grew over 37%, again outpacing OER growth by a healthy margin. Pivoting to used, we sold $677 million of OEC in the quarter, generating $348 million of proceeds at an adjusted margin of 46.3% and a 51.4% recovery rate. As Matt mentioned, consistent with our initial guidance, we are on track to sell approximately $2.8 billion of OEC this year at a recovery rate in the low 50s in what remains a healthy used equipment market. Next, let's turn to adjusted EBITDA, which increased $385 million to a record of over $2.3 billion. This was driven primarily by a $417 million increase in rental gross profit and an $8 billion increase in used gross profits. SG&A increased by $54 million, translating to a 20 basis point improvement as a percentage of revenue, while gross profits from other lines of businesses added $14 million.
Ted Grace: Looking at profitability, our Q3 adjusted EBITDA margin increased 160 basis points to 47.6%, reflecting another quarter of strong cost discipline. While there will always be some quarter-to-quarter variability, we are very pleased with our team's ability to efficiently leverage our Q3 growth to offset the impacts of both lower margin ancillary and re-rent revenues and other inflationary pressures. Shifting to CapEx, we have responded to robust customer demand by investing over $4.7 billion in gross rental CapEx year to date, which is an increase of almost $1 billion year over year. Moving to returns and free cash flow, our return on invested capital increased 30 basis points year over year to 12.3%, which remains comfortably above our weighted average cost of capital, while our free cash flow year to date has exceeded $1.4 billion.
Ted Grace: Turning to our balance sheet, net leverage remains very comfortable at 1.8 times at the end of September, with total liquidity of over $2.6 billion. As Matt Flannery mentioned, we were very pleased to see S&P's recognition of our commitment to maintaining a strong balance sheet by upgrading our credit rating to investment grade earlier this month. We view this as a testament to our disciplined financial policies around leverage, liquidity, and maturity management, as well as the strength and durability of our free cash flow. Turning to capital allocation, through Q3, we returned roughly $1.5 billion to shareholders, including $1.125 billion through repurchases and $371 million via dividends. Now let's move to the guidance we shared last night, which reflects our confidence in delivering another record year.
Ted Grace: Total revenue is now expected in the range of $18 billion to $18.2 billion, an increase of $450 million at midpoint versus our prior guidance. While used sales are still expected at around $1.45 billion. At midpoint, this now implies full year total revenue growth ex used of better than 13% versus our initial 2026 guidance of closer to 6%. In turn, we have also raised our adjusted EBITDA guidance by $300 million to a range of $8.3 billion to $8.4 billion, reflecting our continued expectation to bring the revenue growth to the bottom line and finish the year strong. Notably, at midpoint, excluding the benefit of the H&E termination fee last year and the gain on sale of our scaffolding business this year, this implies a roughly 70 basis point improvement in our full year EBITDA margin compared to the goal we initially shared in January of a flat full year margin.
Ted Grace: On the fleet side, driven by strong customer demand, we have increased our gross CapEx guidance by $300 million to a range of $5.2 billion to $5.5 billion. This now implies net CapEx of $3.75 billion to $4.05 billion. Finally, we are reaffirming another year of strong free cash flow in the range of $2.15 billion to $2.45 billion, which reflects an increase in our cash flow from operations offset by higher CapEx. I think it is important to call out that we have invested significantly in our fleet this year to drive strong organic growth, positioning the business for attractive returns over the coming years while also generating substantial free cash flow. Finally, on the capital allocation front, we still intend to repurchase $1.5 billion of shares in 2026.
Ted Grace: Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share, or a return of capital yield of over 3% based on our current share price. With that, let me turn the call over to the operator for Q&A. Operator, please open the line.
Operator: Certainly. Thank you, Mr. Grace. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1. If you do find your question has been addressed, you may remove yourself from the queue by pressing star 2. Additionally, we ask that you please limit yourself to 1 question and 1 follow-up. We will go first this morning to David Raso with Evercore ISI.
David Raso: Hi. Thank you for the time. The margins were impressive, and the sustainability of that improvement is the spirit of the question. The pricing opportunity you see coming up as some larger projects roll off to new ones, maybe some flexibility in pricing in current multi-year projects, just give us a sense of how you are thinking about the chance to maybe improve the pricing on those, any change there. The same idea of structurally, there are probably some ceiling to how high time utilization could go, and at least versus history, it feels like we are maybe getting a bit close to that ceiling. If that is the case, should we think of how we address that high ceiling as expect strong CapEx next year, but also maybe an increased focus on rental rate? Thank you.
Matt Flannery: Thanks, David. What you are touching on, right? You see we are doing all 3 components very strongly here in the quarter with the productivity of 6.5 that you saw. With all that being said, rate has been climbing and been a good guy for us for quite some time. That is necessary because of the inflation that we are all experiencing in the industry. So we expect that to continue next year. Certainly, the demand environment and the high time utilization, to your point, assist that. So we feel really good about that opportunity. As far as the CapEx, we will get to that when we get to January guidance. But it is a fair point that maybe running at this level of time utilization is not the most prudent thing to do. We are doing it out of necessity right now, right?
Matt Flannery: But we could temper that a little bit next year, which would require a little more CapEx, but not a lot. I think we will get to that in January once we get through our planning process here throughout the Q4 and let you guys know in January.
David Raso: Any thoughts you maybe could provide on the rate opportunity, thinking about larger projects still as a base case driving the business next year? Any other color between rate growth for Gen Rent versus Specialty? Thank you.
Matt Flannery: Yeah. We are seeing positive fleet productivity throughout all business units and throughout all project types and all customer sets. This is not just unique to projects, or local market or industrial. This is across the board concerted effort for all of us to make sure we recapture the cost that we are absorbing.
David Raso: All right. Thank you for the time. Appreciate it.
Operator: Thank you. We go next now to Rob Wertheimer with Melius Research.
Rob Wertheimer: Thank you. One of the concerns people had heading into the year, if we go back a few quarters, is just the fleet movement costs in a market that was bifurcated, soft on one side, strong on another. It seems like you have alleviated that. I am sure some of that is internal management. I wonder how much of that is the overall market has tightened up. I wonder if you could just sort of comment on that dynamic and if it remains a risk or a focus.
Matt Flannery: Sure, Rob. It has really been a lot of internal management and process change more than anything. The reality is a tighter market could require more movement. I think the team has done a great job. We obviously put more process changes and eyeballs into it. It was not that the team was doing anything wrong last year. We just needed to see how we could do it better. We have a team that is very responsive to customer demand, and if we could bundle some of those responses together and put a little more elbow grease into making sure cost was a big variable in these decisions, that is the result that you saw.
Rob Wertheimer: Perfect. Thank you. Then just kind of more generally, and I guess maybe David just touched on this, but as you roll through the mega project era, you guys add a ton of value with fleet diversity, technology, service, uptime, all these different things you guys do well. Are conversations around the value you deliver to mega projects more constructive now than they were in the past? Do people kind of realize how much you can save through delivering all those factors?
Matt Flannery: Yes, I certainly think that surety of supply and the one-stop shop value proposition have definitely taken more prominence really in the last year plus. When you run a big site, not having a bunch of vendors running around is very helpful for the folks that have to control the security and the safety of that site. I think probably all the large companies are playing favorable there, but we certainly think our unique value prop advantages us there.
Rob Wertheimer: Thank you.
Matt Flannery: Thanks.
Operator: Thank you. We go next now to Jerry Revich with Wells Fargo.
Jerry Revich: Yes. Hi, good morning, everyone. I just wanted to ask on the cost performance, what really stood out is really strong labor and R&M productivity across both General and Specialty Rentals. Earlier this year, you folks have implemented a number of rationalization plans. Can you just update on where we stand on that? Is there more runway for further efficiency gains from here? Are we at the run rate from those efforts?
Matt Flannery: Sure. Thanks for the question, Jerry. Yeah, to your point, this is something we've been talking about publicly since January. Something we challenged the team to do early in the year, and they've delivered incredibly well. Certainly, we've gotten very good labor absorption, and you can see that in both sides of the businesses. You mentioned R&M, but almost back to Rob's question, I think the team's also done an extraordinary job on the delivery side. We said that all three of those would be critical to producing better margins year-on-year. In terms of the restructuring, that's really played out in line with expectations. The benefits have been consistent, and they really are not a big part of what's driven the year-on-year improvement.
Matt Flannery: They've been helpful for sure, and we were prepared to take those actions, but at the end of the day, it's really been the team's focus on leveraging growth efficiently. You think about growth, I mean, growth itself has been very strong, stronger than we expected. The composition of growth has been very strong. You can see that in the fleet productivity. Then to your point, the team has just done a really good job driving efficiency across those big three buckets. That's something we've long talked about. It's a challenge we've got to meet every year. We feel like the team's done a great job prior to 2026, to be honest, and we talked about that publicly. Going forward, almost coming back to something David asked about, the sustainability. This is just how we run the business.
Ted Grace: There's always going to be an ebb and flow to
Ted Grace: all these dynamics. But certainly our expectation is our goal is to deliver margin expansion always. We feel like we've got a good recipe to continue driving strong results.
Jerry Revich: Yeah. Thanks, Ted Grace. Matt, can I ask just to expand, in your prepared remarks, you spoke about delivering to manufacturing as well as power. What we're seeing in the semi fab plants is for plants to double CapEx 2027 versus 2026. Is that the magnitude of the startup deliveries that you folks are alluding to when you mentioned the prepared remarks in manufacturing? Can you expand on just the magnitude of growth in power? Because in addition to utility CapEx growth, obviously behind the meter is set to more than double as well. Are you seeing that level of growth in those verticals?
Ted Grace: We do not get too specific in verticals, but certainly we feel like we are very well-positioned to be that partner of choice for the kinds of contractors that build the kind of facilities you are alluding to, the very high spec, demanding customers. We feel very good there. Not sure we would quantify what that translates to, too specifically, but we are doing very well there. On the power side, we saw double-digit growth. It has been a trend we have been talking about publicly for a while, and certainly, that is actually not going to be the behind the meter piece as much as it is working with investor-owned utilities across generation, transmission, distribution, all of which have been key elements to our power vertical strategy really for over a decade, since we introduced in 2016, Matt?
Matt Flannery: Yeah. I think the broader point is our end markets are very diverse. We cover a broad range of end markets, both in construction and in industrial, as well as infrastructure, and all with the same fungible assets. I think that is really the story there. For example, even in power, we are not doing a bunch of specialty power assets or large scale to power some of these projects. We are really staying in our lane, and I think it is playing out really well for us. It gives us a lot of flexibility.
Jerry Revich: Thank you.
Operator: Thank you. We will go next now to Angel Castillo with Morgan Stanley.
Angel Castillo: Thanks, and good morning, everyone. Could we just talk about price cost a little bit? As you start to do your 2027 planning, I know we are still a little bit early, but can you just talk about what kind of levels of inflation you are seeing across the major buckets of cost of goods sold? You have done a great job so far here in 2026, covering that, so it would be helpful to understand how you are seeing that progression or the implications of cost inflation next year. As it relates to the questions earlier on rental rate, how much of that has maybe already been secured through recent renewals or projects or just increases, and will just roll through into next year, versus how much do you still need to go out there and get as you do renewals of contracts?
Ted Grace: Yeah. So touching on the first piece, Angel. Look, inflation is very real. It is certainly not benign. It is certainly not deflationary. I think it depends on the bucket. On the one hand, you look at that labor absorption we talked about. Frankly, that is why we are absorbing above-trend merit increase. We think that is important. We want to take care of our people. I think we pride ourselves on being the employer of choice, and that certainly means taking care of your people in a lot of ways. I can tell you, we proudly think about the way that we reward our team for the great job they deliver. But honestly, the underlying increase is above trend, and yet you are still seeing the team offset that through productivity gains.
Ted Grace: Within R&M, you can imagine, that is another area where our suppliers are focused on their pricing on parts, and yet we have been able to manage that very effectively. Within delivery, what is incredible, I think people see what has happened with diesel. They can see what is happening with freight rates. Yet here again, we have been able to offset that. So it is not at all to suggest that we are in some kind of deflationary beneficial cost environment. Going forward, we will see how next year shapes up. There is a lot of dynamics to consider as we get into planning internally, and then what that translates to from a forecasting perspective. But I come back to our goal is to be as efficient as possible and consistently deliver strong margin performance across the business.
Matt Flannery: Yeah. As far as the rate component to the second part of your question about fleet productivity, first of all, we manage rate and time rigorously. It is the mix of the two that matters, which is why we talk about fleet productivity. But to be clear, we manage rate throughout the year. There is no magic date or point where we are doing renewals. We work with our customers throughout the year, making sure there is a balance. We are getting paid for our value and making sure they can do what they need to do on the job, both physically and economically. We think we have found a really good balance, and we do not expect that to stop anytime soon.
Angel Castillo: That is very helpful. Thank you. Then maybe could we touch on capital allocation? You now have investment grade with one credit agency, and when I look at your balance sheet, you still have quite a bit of firepower. Maybe a couple of things. Maybe touch on what the implications to perhaps your borrowing cost or cost of capital is from the shift to IG. As we think about your current leverage or net leverage versus your target of 2.5x at the high end, is there anything preventing you from being able to deploy more of that, whether it is to buybacks or for M&A? I know you did, I think, a little over $100 million this quarter. Just talk about the puts and takes there for capital deployment and perhaps timing.
Ted Grace: Sure. I think we talked a little bit about this last quarter, but when you think about our capital allocation philosophy, it always starts with the balance sheet and where we position. Certainly, over the years, you have seen us evolve that strategy, get to the point where we have got a very strong balance sheet that will allow us to do pretty much anything we think makes the most sense for the company and the shareholders. As a result of that, we changed our internal financial policy such that we felt comfortable moving to investment grade. The concern we previously had was the potential constraints that could put on inorganic growth.
Ted Grace: But as the company has grown and the scale has gotten bigger and bigger and what that has done for our financial capacity, we realized that frankly, we had the ability to do anything we wanted, with the existing constraints. As a result, we have changed that internal financial policy, and communicated that externally, and that is really what has precipitated at least one of the upgrades. It does not change much. It really does not change anything internally. So there is no "cost." The benefit is obviously those tighter spreads that we will get, as a new IG issuer versus high yield. I would not want to speak for the market, but certainly people can look at BBB minus credits to get a sense for what their yields would look like relative to ours.
Ted Grace: We think it will be a very appreciable benefit that will, over time, as we refinance debt or issue debt for whatever reason, accrue benefit to the shareholders. But it does not change that strategy of starting with a strong balance sheet, investing in organic growth, funding smart M&A, and then returning the excess capital to our shareholders. It is really going to be that kind of framework, I think certainly for 2027 to be a reasonable assumption that is the framework we use to figure out that capital allocation strategy. Does that answer all the questions, or was there one at the end that you also wanted us to address?
Angel Castillo: Yeah, just more, I guess, in terms of the potential for timing of either buybacks or M&A, if it should kind of be leaning one way or another, how to think about that.
Ted Grace: Well, if there was any impact on our ability to do M&A, frankly, we wouldn't be doing this. We don't see any impact there. As far as the buybacks, stay tuned. I think we've been pretty consistent there.
Angel Castillo: Yeah. Thank you.
Ted Grace: We've got to go through that planning process to see what that growth opportunity is, what the investment looks like organically, get a sense for what that part of the use of cash would be. Then obviously we'll assess the M&A opportunity. Then what's left over, consistent with history, I think you can expect us to return that excess capital to our shareholders. I wouldn't anticipate any change there, to Matt's point.
Angel Castillo: Very helpful. Thank you.
Operator: Thank you. We go next now to Seth Weber with BNP Paribas.
Seth Weber: Hey, you guys. Good morning. Thanks for taking the question. Appreciate all the comments about the strength in the mega projects and stuff. I just wanted to get your sense a little bit on the local markets. Would you characterize them as still being kind of stable. Just how much of a lag do you think we should expect. How long will it take for those markets to accelerate once interest rates start to come down in your experience. Thanks.
Matt Flannery: Sure, Seth. We would continue to call it stable. Now, to be a little more information there for you, it probably gave us a couple of points of growth here in this quarter, but the big driver here is still the mega projects, the large projects and our large customers driving this growth. We like the fact that there was a little bit of growth there. As far as, is that a pivot point. We do not know. For the second part of your question, we will stick in our lane. As I said earlier, we have no idea how to forecast what that lag would be.
Matt Flannery: What we do have is the ability to get, especially as we go through our budget process, to have boots-on-the-ground feedback, and that is what we will learn, and we will count more on that than any kind of thoughts about what a lag would be. We have heard for a while now, sentiment has been more positive. We have seen a little bit of growth in a lot of these local markets, so we are feeling good about the direction of it.
Seth Weber: Okay. Thanks. Thanks, Matt. I guess just on the specialty business, I think you are talking north of 40 cold starts this year. Do you think that would accelerate next year? Have you started to see any change in the competitive landscape in the specialty categories? Thanks.
Matt Flannery: Yeah. So we are slightly ahead of target this year. This is kind of a continuum of markets that our teams in each business unit have on their docket of where they want to grow into. We have not done that work yet. That is part of the budget process. So I do not want to try to predict what we are going to come out with, but we still have white space geographically in some of these markets. Really, the ability to grow some density in markets where we already exist in some product lines as we have been outgrowing the existing facilities. So I think there will be more opportunity, and we will update you guys in January. As far as the competitive set, there is always competitors that want to get into what we are doing, right? Somebody always covets thy neighbor's revenue, so to speak.
Matt Flannery: What I will say is, the barrier to entry and the value prop that we have built is really strong. So I think we have got a pretty good competitive moat there as far as what we offer to the customer.
Seth Weber: Got it. Okay. Thanks, guys. Talk to you soon.
Matt Flannery: Thanks.
Operator: We will go next now to Kyle Menges with Citi.
Kyle Menges: Thank you, guys. Maybe following up on Seth's first question on the local markets. I would just love to hear a little bit more of what you think is driving some of the positive sentiment in those local markets in spite of still a choppy macro backdrop and elevated interest rate environment.
Matt Flannery: I do not really have any additional color. In aggregate, we are giving you a number in aggregate, but the puts and takes in all these different markets, right? The 1,800 branches that we are in almost in the US and Canada, it would be really hard to homogenize that for you as far as what is driving it. But we are seeing local markets that do have some growth, and we will update you guys of what we think that is going to turn into in 2027. But I do not really have any additional color for you.
Kyle Menges: Got it. Then ancillary again outgrew OER pretty significantly this quarter. How should we think about that gap between the ancillary and OER growth potentially narrowing over time and maybe into 2027? How much of it is just a matter of mega projects maturing into maybe year 2, year 3, year 4 versus a lot more of them in year 1 and getting ramped up, and maybe there is more ancillary revenue as those projects ramp up?
Matt Flannery: Yeah. We view ancillary as responsive to customers' needs and their requests, not really something we will predict. I am certain that specialty growth is one driver of it. I am certain that projects do tend to need more of it. But as we continue to add more offerings and customers are aware of what we have to offer them, it will be interesting to see how that spreads. I think more importantly is we are just being a better provider to our customers. For us, we do not have a target for it to grow it or to not grow it. It is to make sure we are in position to respond when the customer asks us to do something for them that is related to our products and our services. So really no ability to predict there because it is a responsive, non-CapEx driven type of volume.
Kyle Menges: Understandable. Thank you, guys.
Matt Flannery: Thanks, Kyle Menges.
Operator: Thank you. We go next now to Chad Dillard with Bernstein.
Chad Dillard: Hey, good morning, guys. My question for you is on the CapEx raise in the quarter, and what drove it. Is it the demand that you are seeing right now, or are you preparing for what you are seeing ahead? If you could, just like what end markets are getting better to drive that? Then maybe just secondly, what was the breakdown between what drove it, Gen Rent or Specialty?
Matt Flannery: Sure, Chad. I would say yes to both. So it is the work that we see right in front of us right now. We had talked about how we are driving historically high time utilization. So this is not a pull forward of stuff we are going to need next year. But certainly, the fact that we think 2027 is going to be a growth year gives us the confidence to support these growth needs that we have late in the year here in Q4. So it is really a little bit of both. As far as I forgot the second part of your question.
Chad Dillard: Oh, yeah, just Gen Rent versus Specialty. Like what?
Matt Flannery: Oh, yeah. Thank you. You see the growth in Specialty. Really for quite a few years now, Specialty gets an overweighted amount of the growth CapEx to support the cold starts and the growth that they are having. Outside of that, then once you get beyond Specialty, within our Gen Rent portfolio, we are really utilizing our full portfolio on these major projects because you think about it is pretty evenly spent throughout those categories that we carry in our Gen Rent source.
Chad Dillard: Got you. And maybe just double-clicking on Specialty. Saw some pretty sizable growth, +30% in the quarter. Can you break down how much is from cross-sell or scope increase versus just like a dedicated Specialty sale? If you cannot do it quantitatively, maybe just give some qualitative color.
Matt Flannery: Yeah. It is hard to break down too specifically, but certainly, when you think about the value proposition of being a one-stop shop, that is a good example of cross-selling. And certainly as we have been providing more and more products and services on these large projects that lend themselves very well to it certainly benefits I guess what you would call cross-sell. To us, it is solving problems for customers and making their lives as easy as possible. And that all kind of comes back to the strategy we have been talking about of being that partner of choice. But it is hard to peel it apart, Chad.
Chad Dillard: Okay. Thank you.
Matt Flannery: Thanks.
Operator: We will go next now to Mig Dobre with Baird.
Mig Dobre: Yeah. Thanks for taking the question. If we can go back to the discussion around ancillary and maybe double-click specifically on the re-rent revenue. We will see how Q4 shakes out, but it looks to me like this line item is going to be up quite significantly, maybe 40% to 50% on a year-over-year this year. I am curious what the right way to interpret this or think about this is. Is this a function of you guys just re-renting equipment in categories that maybe you are not participating? Or is this more of a kind of like a CapEx signal in terms of where demand is materializing and part of the reason why you are raising CapEx, simply not having enough equipment and having to source it from third parties?
Matt Flannery: Yeah. I would say it is the latter, Mig. This goes hand in hand with the demand environment and the time utilization that we are driving, and part of the reason why you see a CapEx raise here. So it is the latter. Sometimes it is. I would say most of it. I will not say all because there is always something that we are getting to support a customer’s need that we do not necessarily have in that market. Sometimes it is the more efficient play, especially for a short-term need or for something that we do not have access to handily at that moment of need. But overall, it is indicative of the combination of demand and high time utilization that we are running.
Mig Dobre: Okay, that is helpful. As you are raising CapEx, and I am sure you will give us an update on 2027, it sounds like you are probably going to spend a little bit more. Is it fair to expect this line item re-rent to maybe flip more towards OER, and does that have a bit of a margin benefit that we need to contemplate, if that is the case? Thank you.
Ted Grace: It's a good question. I would say ultimately, certainly as we pivot some of the stuff into CapEx and we internalize those cash flows, it's going to benefit your OER line. But one of the things, again, is solving problems for customers. I think you've long seen re-rent as part of our business for a lot of different reasons, whether it's sourcing additional capacity or providing those things as a one-stop-shop service provider that for one reason or another, we don't own or don't want to own. I'm hesitant to get too specific, but I think your logic makes sense. As we do convert some of that re-rent into OER via CapEx, that's going to benefit our core results.
Mig Dobre: Great. Thank you.
Ted Grace: It's not that big a number in the overall scheme of things and not something that we plan for. So it's hard even for us to model what that would be. So I don't know how to guide you how you would, frankly.
Operator: Thank you. We'll go next now to Jamie Cook with Truist Securities.
Jamie Cook: Hi, good morning and congrats on a nice quarter. I guess just two questions. My first question, just with regards to conversations that you are having with OEMs as you think about CapEx for 2027, any concerns on capacity constraints in the market, or are we having conversations earlier just because of concerns on OEM availability, and just sort of the pricing set up for 2027? Then I guess my second question, just the competitive dynamics, which I am sure there is always new ones each cycle, but obviously you have a large OEC who is trying to get more aggressive in compact and trying to focus more on mega. We have new players in the market trying to double their OEC. I guess just Ted, given what you are seeing in the market, do you think the improvement that we have seen in rental rates, do you think that could continue into 2027?
Jamie Cook: I guess to what degree are you concerned that some of these peers could be potentially putting too much fleet into the market and that becomes an issue potentially at some point next year? Or do you just see this as sort of normal new entrants trying to do things and ultimately not making big waves in the market? Thank you.
Operator: Ladies and gentlemen, it appears we are having a technical issue. Please stay on the line and we will have it resolved as soon as possible. Again, ladies and gentlemen, please continue to stay on the line. We are resolving the technical issue as we speak. I will let you know just as soon as Matt and Ted have rejoined us.
Ted Grace: Ted Grace and Matt Flannery.
Operator: And again, ladies and gentlemen, please continue to hold. We are still resolving the technical issue as we speak. We will resume momentarily. Ted and Matt, I believe we do have you back if you can hear us again.
Ted Grace: Can you hear us?
Operator: We can, Ted, Matt, please go ahead.
Ted Grace: Great. Sorry about that, folks. I do not know what happened. We had a little blackout here, but with all that being said, we are
Matt Flannery: We're on.
Ted Grace: Another line here. I believe what we heard at the tail end was Jamie asking a question, if you'd like to repeat it.
Jamie Cook: Sorry.
Operator: It was Jamie, please go ahead.
Jamie Cook: You want me to repeat both questions? I guess the first question was just on talking to OEMs about 2027 concerns, basically on any constraints in terms of you being able to get equipment and pricing. My second question, it was just the competitive dynamics this cycle with a major OEC trying to get more into compact and mega. Obviously, other public players trying to double OEC. To what degree are you concerned potentially we could be flooding the market and this becomes an issue? Or do you think the appropriate level of equipment that's going into the market sort of meets demand? I guess that was the spirit of the question and whether competitive dynamics are any different or more concerning versus what you've seen in other cycles. Thanks.
Ted Grace: Yes, sure. So to the flooding supply, the industry has shown really good discipline on supply and demand, including the OEM. So we feel good about that backdrop. More importantly, we feel really good about the demand going forward. So we are not overly concerned about that. As far as our ability to access, you see this year with the raised CapEx throughout the year, we have got real good relationships and flexibility with our partners, where we do feel we are able to react quickly and respond quickly to opportunities. But there is a lot of planning in that and a lot of forward-looking information that we are sharing with our partners to make sure we can do that effectively. So we do feel good about supply-demand and our ability to participate appropriately in it.
Jamie Cook: Thank you.
Ted Grace: Thanks, Jenny.
Operator: Thank you. We will go next now to Steven Fisher with UBS.
Steven Fisher: Great, thanks. Good morning. My call dropped a little earlier, so I apologize if these have been addressed. Last year in Q4, you had a couple of things that were specifically weighing on the margins in that quarter. The comps, I think, should be easier. I am just curious how you approached setting the expectations for Q4 incremental margins or implied incremental margins in light of easier comps from last year versus this year. I would think they should be better than what you saw in Q3, but it seems like there might be something else you are factoring in.
Ted Grace: Yeah. Certainly, I will not rehash the dynamics we talked about a year ago. I would say that the biggest thing we did call out was that repositioning a year ago, and the team has done a good job. To some of my earlier points, Steve, I am getting the gist of your question is if you are trying to see what is implied at the midpoint of guidance on Q4. We have long cautioned people against anchoring at the midpoint of our guidance. On the one hand, it is inevitable and it anchors these conversations because it is an easy point to point to, but it is not without risk. So we have got a range. We feel very good about the momentum we are carrying throughout the year into Q4. Fundamental performance, we would not expect to deviate. I would just remind people the sensitivity of that calculation, right?
Ted Grace: If you think about a 1% variance in EBITDA where you hold everything else constant, that equates to about a 50 basis point swing in the implied margin year-on-year. Without obviously decomposing all the factors that influence a quarter because it varies quarter to quarter, I will just say we feel really good about the year-to-date execution. We feel really good about our expectations for Q4. Where we end up, time will tell. But if you are inferring that something has changed or anything along those lines, nothing has.
Steven Fisher: Okay, that is helpful. Then in terms of cold starts, I think if not all of your cold starts have been in specialty, certainly it seems like the vast majority of them. I am just curious, as we think about an increasing mix of large projects going forward, just curious geographically where those large projects are setting up. Is there an opportunity for you to do more Gen Rent branches, or are they in places where you have got adequate coverage already within your existing footprint?
Ted Grace: Typically, we have adequate coverage where they are. If there happens to be a large project in a really remote area, more times than not, we are able to get an on-site to service it that way. If we think it is a market that is going to continue to grow outside of the major project, then we certainly have no hesitation putting a cold start in there. Our coverage is pretty good, especially here in the US and in Canada. So we feel we rarely need to add a store in Gen Rent just for a major project.
Steven Fisher: Okay, fair enough. Thanks a lot.
Ted Grace: Thanks, Steve.
Operator: Thank you. We will go next now to Sabahat Khan with RBC Capital Markets.
Sabahat Khan: Great. Thanks, and good morning. I think last quarter you shared some comments on underlying margins, some of the moving pieces. With higher ancillary and re-rent mix, maybe if you could just share some thoughts on how underlying margins trended this quarter as well.
Ted Grace: Yeah, thanks for the question. The dynamics we had to manage through in Q3 were not dissimilar to what we managed through in Q2, whether it is that impact from the outgrowth of ancillary and re-rent. I would say the headwind, which obviously saw its offset, was similar. Even within fuel, right? We talked about the headwind we absorbed in fuel last quarter. It was pretty similar Q3 over Q2. So not a lot of change there. It shouldn't surprise people. Obviously what you saw was our ability to, again, leverage that growth, the composition of growth, and just very good cost execution across the company.
Sabahat Khan: Great. As you think about 2027, some of the costs or operational cost reductions you have been making, those likely help into next year. I guess when you outlined some of the technology initiatives earlier this year, whether it is on the AI front and some of the other programs, do those become a material contributor to margins as we head into next year? Are some of these technology programs that you are undertaking more longer-term contributors and maybe a bit less material? Should we start to think about them getting more material as we head into 2027? Thanks.
Ted Grace: As we get through the budget process, we will probably get a little deeper into that. I think most of them are longer term, but there is certainly some productivity improvements in there. Some of them are less
Ted Grace: easily to input into a margin conversation, but just productivity of some of our human capital. I certainly think longer term, we should get productivity in the shops from some of the technology we are using, and certainly free up some time for our managers to use more of their time to drive the business. I think there is a range of opportunities, probably more towards the long term, but we will update appropriately as we learn.
Ted Grace: This is not at all to take away from the opportunity, but just as a reminder, we have long embraced continual improvement. While a lot of the AI tools have a lot of potential, and we are really excited, we view it as a continuation of what we have been driving internally to drive productivity for several decades.
Sabahat Khan: Okay, thanks very much.
Ted Grace: Thank you.
Operator: We'll go next now to Scott Schneeberger with Oppenheimer.
Daniel Hultberg: Good morning, guys. Hey, it's Daniel on for Scott. Could you please address the sustainability of the used sales margin expansion you've seen recently? Thank you.
Ted Grace: Sorry, which margin expansion?
Daniel Hultberg: Used sales.
Ted Grace: Oh, used.
Daniel Hultberg: Yes.
Ted Grace: Yeah. Look, we have been very pleased. I would say overall, that market has performed as expected. You rewind a year ago, and we talked about we felt like 2025 was kind of the bottom innings of that normalization process. We saw that progressively, if you think about how the H1 of 2025 played out versus the H2. Obviously, we have progressed through 2026 pretty well. So feels like the market is normalized. Certainly, it is a very deep market. Plenty of demand. You can see that in our results. In terms of the margins, I think we are back to kind of what we would say are normalized margins. So I would not encourage people to think there is going to be a huge amount of variability there. The likelihood is we are kind of, again, back in this normalized market.
Ted Grace: But the good news is things have played out as we had kind of expected them to.
Daniel Hultberg: Got it. Thank you. Just to round off on EBITDA flow-through, you have done a great job with the efficiency this year. How do you think about EBITDA flow-through longer term? Any color there would be helpful. Thank you.
Ted Grace: Yeah. We've really tried to pivot this discussion away from flow-through, because I think it almost simplifies things. Our goal is to drive margin expansion across the cycle. We feel like that's what we've done. Certainly, as we've talked about, in some periods of time, it's easier to do and easier to show, and other times it's more difficult or it gets clouded by dynamics. Whether that's used, to kind of your earlier point, Daniel, or whether it's obviously this outgrowth of ancillary and re-rent. I would just say going forward, our focus is on driving profitable growth and then being as efficient as possible. That obviously implies driving core margin expansion. Similar to what we talked about in 2023 and 2024 and 2025, we're going to help people see what the underlying results look like as best as is possible.
Ted Grace: But as we go forward, certainly our goal, again, is going to be to drive strong margins and ultimately margin expansion is the goal.
Daniel Hultberg: Got it. Thanks, guys.
Operator: Thank you. We'll go next now to Neil Tyler with Rothschild & Co.
Neil Tyler: Okay, good morning. Thank you. Just one more from me, please. Coming back to the topic of inflation more broadly. Matt, I guess you have talked about the various aspects in which that appears across your industry. Are there specific areas or verticals that you might want to call out where you are seeing customers come to you to solve their inflation problems in ways that your model might be better able to absorb it? If you could just talk a little bit about that as a theme.
Matt Flannery: Sure. We usually think about capital cost avoidance when we are thinking about rental versus owning. But to your point, those come at a cost. So I think the most important part is how can we help our customers drive efficiency? We believe fleet, right, technology and part of that, and fleet is a great way for them to do that. So we make sure we provide that, and we do think rental is the better way. You could own fleet and get some productivity out of the usage, but we feel strongly that rental has proven to be the better way for them to do that. So I think it is a big part of our value proposition, to continue to help customers drive efficiency to improve their margins and competitiveness in their markets.
Neil Tyler: Great. Thank you. And then the second question would be, obviously you have talked confidently about how you feel good about demand into 2027 as well. Obviously there are discussions ongoing as to sort of longevity of some of the end cycles and end markets that you serve. Can you sort of talk a little bit more sort of longer term? It feels like the market is broadening out, the demand environment is broadening out, but how you would characterize your visibility compared to, say, 6, 12 months ago across the sort of indicators that you look at?
Matt Flannery: Yeah. I would say we feel better than we did 6 to 12 months ago, certainly. You see that not only in the raised guidance, but in the activity that is going around in the industry. And the end markets we serve are very broad. Even within non-res, and I know there has been a lot of talk underlying in that commentary, people are wondering how long data center is going to continue. Well, that sits in our non-res business, and even if you take data centers out, we have got strong double-digit growth within non-res. And then we think about infrastructure, power, LNG, even upstream oil and gas is doing well right now. But growing. So those opportunities remain, and that is with a couple of end markets not being strong, like industrial manufacturing, we think is a potential future opportunity for us.
Matt Flannery: Residential, which then will drive more non-res work, is still down, and downstream oil and gas. Petrochem overall, on the downstream side, which is an area where we have a lot of run and maintain work, a lot of turnaround work, that is just not getting done right now because those folks are busy as heck right now as you can imagine. We feel really good about the long-term view here, and certainly more bullish than we did 6 to 12 months ago.
Ted Grace: The one thing I might add, Neil, is I think people know we survey our customers regularly, and they continue to feel very good about their own prospects. So, this is something that Matt and Elizabeth and I have gotten a lot of questions on in the last, let us just say 6-plus months, given what has happened with energy pricing and inflation and what the market is discounting on rates and understandable concerns around whether it is the short end of the curve, the long end of the curve. Throughout all that volatility that markets have wrestled with, I would tell you our customers have felt consistently positive. That is certainly as of the most recent reading. So that also helps underpin our confidence in kind of what that outlook looks like.
Neil Tyler: Great. That is super helpful. Thank you.
Operator: Thank you. Ladies and gentlemen, that is all the time we have for questions this morning. Mr. Flannery, I would like to turn things back to you, sir, for any closing comments.
Matt Flannery: Great. Thanks, operator. Once again, folks, we apologize for the tech disruption. To everyone on the call, we appreciate your time. I am glad you could join us, and our Q3 investor deck has the latest updates. As always, Elizabeth is available to answer your questions. Until we speak to you again in January, have a safe and happy holiday season, and have a great end of your year. Operator, you can now end the call.
Operator: Thank you, Mr. Flannery, and thank you, Mr. Grace. Again, ladies and gentlemen, this does conclude United Rentals' Q3 earnings conference call. We would like to thank you all so much for joining us today and wish you all a great afternoon. Goodbye.
